Koppers Coal Co. v. Comm'r of Internal Revenue

• Decision Date: 29 May 1946
• Docket Number: Docket No. 108492.
• Parties: THE KOPPERS COAL COMPANY, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
• Court: U.S. Tax Court

6 T.C. 1209

THE KOPPERS COAL COMPANY, PETITIONER,

v.COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Docket No. 108492.

Tax Court of the United States.

Promulgated May 29, 1946.

1. Petitioner's predecessor, for a cash consideration of $7,600,000, acquired all of the capital stock of 6 West Virginia coal mining corporations. Before transfer of the stock, each of the 6 corporations distributed in liquidation to its stockholders all the assets of such corporation other than its physical operating assets and leases, and the stockholders in each instance assumed all the existing debts and liabilities of the corporation. The predecessor thereupon caused the transfer of all of the assets of these 6 corporations to a subsidiary corporation organized by it to own and operate the properties. Its purpose at all times was to acquire only the properties of these 6 corporations and vest title thereto in a subsidiary operating company. Held, that the several transactions beginning with the purchase of the stock for a cash consideration of $7,600,000 and ending with the conveyance of the assets to an operating subsidiary were one transaction for tax purposes, i.e., the purchase of the assets for a cash consideration of $7,600,000, and that this amount, plus the cost of subsequent additions to such assets, constituted the basis for computing depletion and depreciation to the operating subsidiary and to petitioner in the taxable years, the properties having later come into its ownership through an admittedly nontaxable liquidation. Commissioner v. Ashland Oil & Refining Co., 99 Fed.(2d) 588;certiorari denied, 306 U.S. 661; Prairie Oil & Gas Co. v. Motter, 66 Fed.(2d) 309.

2. Held, that in computing its Federal income taxes for 1936 and 1937, petitioner is entitled to deduct interest paid by it in those years upon deficiencies in income tax determined against certain corporations from whose consolidation petitioner resulted. Adrian & James, Inc., 4 T.C. 708; held, further, that petitioner is entitled to the deduction of so much of the interest paid by it on deficiencies determined against transferors of the consolidating corporations as accured subsequent to the date the consolidating corporations received the properties of such transferors. Koppers Co., 3 T.C. 62;affd., 151 Fed.(2d) 267.

3. Held, that in computing its Federal income taxes for 1936 and 1937 petitioner is not entitled to deduct state income, transportation, sales, and franchise taxes for those years, or interest upon such taxes applicable to such years, when in each instance the liability for those taxes and interest was not admitted but was being contested in those years. Dixie Pine Products Co. v. Commissioner, 320 U.S. 516. John E. McClure, Esq., Edward Updike, Esq., and Donald P. Moyers, Esq., for the petitioner.

J. Harrison Miller, Esq., for the respondent.

LEECH, Judge:

Respondent has determined deficiencies in income tax for the calendar years 1936 and 1937 of $60,696.83 and $147,588.44, respectively, and a deficiency in unjust enrichment tax for the calendar year 1936 in the sum of $24,403.39. Seventeen issues are framed by the pleadings. Certain of these are disposed of by stipulation, effect to which will be given in the settlement under Rule 50. Each issue will be set out separately hereinafter together with the facts pertaining thereto and the opinion thereon. Certain of the facts were stipulated and these we include by reference in our findings of fact under the several issues. Such facts set out under the several issues as are not stipulated we find from the evidence introduced at the hearing.

Issue 1.

The question for decision is whether, for the purpose of computing petitioner's allowable deductions for depletion and depreciation for 1936 and 1937, its basis for six West Virginia coal mining properties is $7,600,000, plus the cost of additions, or is the aggregate basis of the properties to the six predecessor corporate owners in the sum of $3,525,634.13, plus cost of additions.

FINDINGS OF FACT.

Massachusetts Gas Companies, a predecessor in interest of the petitioner, was established in the State of Massachusetts September 24, 1902, by an agreement and declaration of trust, for the purpose of acquiring all of the stocks of the New England Gas & Coke Co., the Brookline Gas Light Co., the Dorchester Gas Light Co., the Jamaica Plain Gas Light Co., and the Massachusetts Pipe Line Co., the latter serving as the connecting link between the New England Gas & Coke Co. and the other controlled gas companies which it then owned, or might supply with gas in the future. At that time, New England Gas & Coke Co. owned a byproduct coke oven plant at Everett, Massachusetts, which had been constructed as a central source of gas for the foregoing companies. The plant was located on the Everett peninsula, easily accessible to both rail and ocean transportation.

By 1925, Massachusetts Gas Companies owned directly all of the stock of the Boston Consolidated Gas Co., a Massachusetts corporation organized in 1903, whose business had been and was that of manufacturing, producing, and selling gas for light, heat, and power, supplying Boston, South Boston, Roxbury, Dorchester, East Boston, Chelsea, Jamaica Plain, Brookline, Newton, Watertown, Waltham, Weston, Wellesley, and Quincy.

By 1925, Massachusetts Gas Companies also owned directly all of the stock of the New England Fuel & Transportation Co., which in turn had acquired and owned the Everett By-Product Coke Plant, East Boston Marine Repair Plant, Charleston Coal Plant, Beverly Coal Plant, Providence Coal Plant, and two large coal mines located in West Virginia. At that time New England Fuel & Transportation Co. also owned all of the stock of the Mystic Steamship cO., which, in turn, owned certain colliers, general cargo steamers, lighters, tugs, and barges for the shipment of coal from Norfolk, Virginia, and elsewhere to the Everett plant in Boston and other points along the eastern seaboard. By 1925 New England Fuel & Transportation Co. also owned all the stock of the New England Coal & Coke Co., which, in turn, was a sales agent for bituminous coal and coke in the New England states. New England Fuel & Transportation Co. also owned all the stock of Casner, Curran & Bullitt, Inc., which, in turn, was a sales agent for bituminous coal in the Middle Atlantic and Midwestern States. It also owned all the stock of the Mystic Iron Works, a manufacturer and shipper of pig iron.

In 1925 the Net England Fuel & Transportation Co. owned and operated the Everett By-Product Coke Plant. That plant consisted of a number of byproduct ovens, and it made gas, which was sold to the Boston Consolidated Gas Co., coke, which was sold for foundry and domestic use, and byproducts, such as tar, ammonia, and benzol, and other commodities which plants of that kind make in their operation. New England Fuel & Transportation Co. also owned discharging towers and storage yards for coal, which were used in its operations, as well as the coal which was discharged for commercial resale through the New England Coal & Coke Co. It also owned a coal plant at Beverly, which consisted of towers, storage bins, and wharf for the rehandling or storing of bituminous coal, which was resold to various users, retail and industrial, in the Beverly area. It also owned coal mines which originally had been acquired from the Federal Coal Co. about 1909. Those mines produced gas coal, a part of which was used by the Everett byproducts plant in their coke plant operations and the balance was sold for other purposes to industrial customers. It also owned a small marine repair plant at East Boston and all of the stock of the Mystic Steamship Co., which owned and operated 12 or 13 collier type steamers for the transportation of coal from Baltimore, Hampton Roads, and Philadelphia to Boston, Beverly, and such users of coal who were customers of the New England Coal & Coke Co. It also owned a number of harbor lighters and tugs and a number of barges, of the seagoing type, for the transporting of bituminous coal from the Hampton Roads, Philadelphia, and Baltimore terminals to the customers of the New England Coal & Coke Co.

In 1925, New England Coal & Coke Co. attended to the securing of the coal used by the Everett byproducts plant, brining the coal to tidewater, and arranging for the dumping and transportation of such coal in the vessels of the Mystic Steamship Co. and delivering it as was required by the New England Fuel & Transportation Co. In addition, New England Coal & Coke Co. did a very large commercial business in various kinds of coal and in 1925 handled about 4,200,000 tons of bituminous coal, of which about 3,0-0,000 tons came from the so-called smokeless field in West Virginia. It bought coal from the producers in various fields, taking title to the coal at the point of shipment and delivering it to customers in the tidewater area in New England and the all-rail area in New England.

In 1925, the Boston Consolidated Gas Co. purchased its gas in part from the Everett byproducts plant and augmented its supply with water gas which it manufactured at the plant that it owned at Everett.

The Federal mines, hereinbefore referred to, were located at Fairmont, West Virginia. They are gas coal mines producing a high volatile coal. They were bought primarily to furnish that kind of coal for use at the Everett plant and, in 1925, supplied about 35 to 40 percent of the coal used at that plant. The balance of the coal used by Everett was low volatile, which was produced in West Virginia in the so-called Beckley area.

New England Coal & Coke Co.'s merchant coal business was handicapped because the larger buyers of coal preferred to lodge their contracts with concerns which were fortified by the ownership of the mines producing the coal. New England Coal & Coke Co. could make contracts only from year to year or for even lesser intervals. This handicapped...