John D. Alkire Inv. Co. v. Nicholas

• Decision Date: 06 September 1940
• Docket Number: No. 2019.,2019.
• Citation: 114 F.2d 607
• Parties: JOHN D. ALKIRE INV. CO. v. NICHOLAS.
• Court: U.S. Court of Appeals — Tenth Circuit

114 F.2d 607 (1940)

JOHN D. ALKIRE INV. CO. v. NICHOLAS.

No. 2019.

Circuit Court of Appeals, Tenth Circuit.

July 18, 1940.

Rehearing Denied September 6, 1940.

Robert G. Bosworth, of Denver, Colo. (Winston S. Howard and Pershing, Nye, Bosworth & Dick, all of Denver, Colo., on the brief), for appellant.

L. W. Post, Sp. Asst. to Atty. Gen. (Samuel O. Clark, Jr., Asst. Atty. Gen., Sewall Key and Julian G. Gibbs, Sp. Assts. to Atty. Gen., and Thomas J. Morrissey, U. S. Atty., and Ivor O. Wingren, Asst. U. S. Atty., both of Denver, Colo., on the brief), for appellee.

Before PHILLIPS, BRATTON, and WILLIAMS, Circuit Judges.

BRATTON, Circuit Judge, delivered the opinion of the court.

Section 219(g) of the Revenue Act of 1926¹ provided that where the grantor of a trust had, at any time during the taxable year, either alone or in conjunction with any other person not a beneficiary of such trust, the power to revest in himself any part thereof, the income of such part should be included in computing his income; section 239, 26 U.S.C.A.Int.Rev. Acts, page 190, provided that every corporation subject to taxation should make a return, stating specifically the items of its gross income and the deductions or credits allowed, and that it should be verified by certain officers named therein; section 277, 26 U.S.C.A. Int.Rev.Acts, page 207, provided that, except as provided in the next succeeding section, the amount of the tax should be assessed within three years after the return was filed, and that no proceeding in court without assessment should be begun after the expiration of that period; and section 278, 26 U.S.C.A.Int.Rev.Acts, page 209, provided that in case of a false or fraudulent return with intent to evade tax or of a failure to file any return the tax might be assessed, or a proceeding begun in court for collection, at any time. Identical provisions were contained in the Revenue Acts of 1928² and 1932,³ except that the period for the assessment and institution of suit, as authorized in section 277, was reduced to two years.

John D. Alkire, Sr., owned certain lots in Denver, Colorado. In April, 1909, he executed and delivered a lease covering such lots for a period of ninety-nine years, commencing March 1, 1910, at an annual rental of $12,500. On September 7, 1909, he caused to be organized a corporation known as The John D. Alkire Investment Company, hereinafter called the taxpayer, with a total authorized capital stock of one thousand shares, of which seven shares were issued as directors' qualifying shares; he thereupon conveyed such lots, subject to the lease, to the taxpayer and received the full nine hundred and ninety-three shares of its capital stock; and on the same day he assigned and transferred such stock to his children John D. Alkire, Jr., Henry J. Alkire, Mary A. Bell, Caroline V. D. Alkire and Eva E. Summerton, in trust. The trust instrument provided, among other things, that the proceeds of the trust estate should be paid to John D. Alkire, Sr. during the remainder of his life, then one-half to his widow during her natural life and the other half in equal parts to his eight children, and after the death of his wife the entire income in equal parts to the children; and further, that he reserved the unqualified power to revoke and set aside the declaration of trust and the assignment at any time prior to his death. From that time until December 1, 1925, the lessee paid the rentals to the taxpayer, and after making certain deductions for taxes and expenses, the taxpayer distributed them to the trustees. On December 1, 1925, the taxpayer executed and delivered a deed conveying the property, subject to the lease, to the eight children of John D. Alkire, Sr., and The International Trust Company, of Denver, as trustees. The deed recited that the trustees were to hold the property in accordance with the declaration of trust executed by the parties thereto, of even date therewith. The taxpayer and the grantees in the deed executed a declaration of trust, dated December 1, 1925, which provided, among other things, that the trustees should collect and receive the rentals due under the lease previously referred to; that after payment of certain expenses and a nominal sum to The International Trust Company as compensation for its services, the remainder should be distributed in conformity with the declaration of trust made by John D. Alkire, Sr., on September 7, 1909; and that upon demand of the taxpayer, the trustees would, upon payment of their legitimate expenses, reconvey the property to the taxpayer by a good and sufficient instrument. The rentals were thereafter paid to the trustees in such declaration of trust, not to the taxpayer.

The taxpayer seasonably made income tax returns for the years 1926 to 1935, inclusive, on Form 1120 furnished by the collector. There were some variations in the printed forms, but it may be said in general that there was inserted in each either the cipher "0" or the word "none" after the lines calling for the costs of goods sold, gross income, amount of deductions and credits, and amount of net income; and the word "none" was written in the space provided to show the assets, if any,...