Lonsdale v. Commissioner of Internal Revenue

• Decision Date: 28 May 1929
• Docket Number: No. 8293.,8293.
• Citation: 32 F.2d 537
• Parties: LONSDALE v. COMMISSIONER OF INTERNAL REVENUE.
• Court: U.S. Court of Appeals — Eighth Circuit

32 F.2d 537 (1929)

LONSDALE v. COMMISSIONER OF INTERNAL REVENUE.

No. 8293.

Circuit Court of Appeals, Eighth Circuit.

April 18, 1929.

Rehearing Denied May 28, 1929.

Abraham Lowenhaupt, of St. Louis, Mo., for appellant.

John Vaughan Groner, Sp. Asst. Atty. Gen. (Mabel Walker Willebrandt, Asst. Atty. Gen., Sewall Key, Sp. Asst. Atty. Gen., and C. M. Charest, Gen. Counsel, Bureau of Internal Revenue, and V. J. Heffernan, Sp. Atty., Bureau of Internal Revenue, both of Washington, D. C., on the brief), for appellee.

Before VAN VALKENBURGH and COTTERAL, Circuit Judges, and SCOTT, District Judge.

VAN VALKENBURGH, Circuit Judge.

This is a petition to review a decision of the United States Board of Tax Appeals. The Commissioner of Internal Revenue, on August 19, 1926, found that there was a deficiency in the amount of petitioner's income tax for the year 1924 in the sum of $3,766.91. This deficiency was held to arise from the exclusion of a 10 per cent. dividend declared by the National Bank of Commerce of St. Louis, Mo., which said dividend was applied to the purchase of stock in the Federal Commerce Trust Company of that city.

The petition of appellant, for appeal from this ruling to the United States Board of Tax Appeals, states that the National Bank of Commerce of St. Louis was advised "that as a national bank it could not engage in various financial endeavors advantageous for banks to undertake and in which state banks and trust companies may freely engage. It felt that the National Banking Act (12 USCA §§ 21-200) so restrained its endeavors that it was handicapped in competing with state banks and trust companies. For this reason said National Bank of Commerce in the year 1923 concluded that it would be advantageous to its business to organize a Missouri corporation to engage in the business in which it was restricted or handicapped by the National Banking Act and the rules and regulations thereunder. Thereupon said bank, through its president, under date of June 18, 1923, addressed a circular letter to its stockholders, advising them of its purpose and setting forth its plan for the organization of a new company." This circular letter reads as follows:

"National Bank of Commerce

"St. Louis, June 18, 1923.

"To the Stockholders of the National Bank of Commerce in St. Louis:

"As you know, we have established a savings department which now has nearly 50,000 depositors, with total deposits of over $8,000,000. We have also put in a bond department, which is doing a very satisfactory business. By special permission of the Federal Reserve Board, the bank qualified to act in a fiduciary capacity, and our trust department is now handling a large volume of trust matters. We have also taken over and are now operating our safe deposit vaults.

"There are, however, some financial matters that cannot be transacted through a national bank, and yet are allied with commercial banking so closely that we have realized for some time the necessity of having a way to take care of this business. And so, at a recent meeting of the board of directors, the officers of the bank were directed to formulate a plan for creating a company, to be called commerce company, or some other suitable name, which will have the power of dealing in all kinds of securities, including first mortgage on real estate, real estate, and other matters of like character, it being the purpose that the charter of this company shall be broad enough to enable the company to supplement the service now performed by the bank.

"The new company is to be owned by the stockholders of the bank in proportion to their holdings of stock in the bank. We have examined a number of different plans that have been adopted by national banks throughout the country, and have concluded that the best is that known as the Chicago plan. Under this plan, the directors of this bank will declare a 10 per cent. cash dividend, amounting to $1,000,000, and the stockholders will be asked to subscribe for stock in the new company in an amount equal to this dividend and authorize the committee to apply the proceeds in payment of their stock in the new company. In this way, each subscribing shareholder in the bank will have one-tenth of a share of fully paid stock in the new company for each share of stock in the bank.

"Believing that the interests of the stockholders of this bank will best be served if their interests in the bank and the new company are kept identical, the plan of organization provides that the stock in the new company shall be held by the trustees named in the agreement for the benefit of the subscribers, except a few shares that may be necessary for the directors to qualify. While such trust continues, the beneficial interest in the stock of the new company deposited with the trustees will pass with the transfer of the stock in this bank.

"Each stockholder, therefore, is requested to sign the enclosed acceptance and power of attorney so that the new company may be promptly organized and put in operation. The gentlemen named in the power of attorney are directors and large stockholders in the bank.

"Yours very truly "Signed John G. Lonsdale, President."

A form for acceptance and power of attorney, which the stockholders were requested to sign, was inclosed with this letter.

Prior to January 2, 1924, stockholders of the National Bank of Commerce owning in excess of 80 per cent. of the stock of the bank had signed the acceptance and power of attorney; of these the petitioner Lonsdale was one. January 22, 1924, the dividend of 10 per cent. was declared; the resolution to that effect reciting that this was done in order "that each stockholder so minded may, with said dividend, cause the payment in full of his interest" in said new company. Under the terms of the letter to stockholders of June 18, 1923, the dividend thus declared was to be a cash dividend applying to all stockholders, and, while declared for the express purpose of being devoted, at the will of the stockholders, to payment of their subscription to the capital stock of the new company, it...