Maier Brewing Company v. Commissioner
| Citation | 54 TCM(CCH) 46,1987 TC Memo 385 |
| Decision Date | 05 August 1987 |
| Docket Number | 6937-82,7163-82.,Docket No. 8609-72 |
| Parties | Maier Brewing Company, a California Corporation, Now Known as S & P Company, et al., v. Commissioner. |
| Court | United States Tax Court |
William M. Bitting, Vincent C. Page and Jack R. White, for the petitioners. Thomas F. Kelly, for the respondent.
Memorandum Findings of Fact and Opinion
Respondent determined deficiencies in income tax for the following petitioners for the following years:
Petitioner Docket No. Year Ended Deficiency
Maier Brewing Company.................... 8609-72 6/30/63 $ 16,305.56
6/30/64 613,838.77
6/30/65 220,069.91
6/30/66 153,750.20
6/30/68 86,626.84
6/30/69 174,785.00
S&P Company2 ........................... 6937-82 6/30/74 856,568.00
6/30/75 997,820.00
6/30/76 1,602,117.00
Paul Kalmanovitz3 7163-82 12/31/75 5,300.00
and Lydia Kalmanovitz................... 12/31/76 30,543.00
After concessions, the issues for decision4 are:
(1) Whether petitioner is entitled to relief under section 1341;5
(2) Whether petitioner correctly computed the depreciation deductions for the May Company building;
(3) Whether petitioner is entitled to depreciation deductions for the plant and equipment at the Falstaff Brewery;
(4) Whether petitioner suffered obsolescence losses at the Maier Brewing plant in Los Angeles and at the Lucky Lager plant in San Francisco in the taxable year 1974;
(5) Whether petitioner is entitled to the deduction claimed for Walter Brewing Company depreciation by reason of extraordinary obsolescence;
(6) Whether petitioner's additions to its bad debt reserve were reasonable (7) Whether the cost of moving brewery tanks from Oakland, California, to Los Angeles, California, was a deductible business expense;
(8) Whether petitioner is entitled to deductions for accrued expenses for the Martinique East Apartments;
(9) Whether petitioner may deduct the cost of repairs or depreciation for the yacht "Lucky Lady;"
(10) Whether petitioner is entitled to a charitable contribution deduction for the Regal Pale land;
(11) Whether petitioner properly calculated the depreciation expense for the Studio Village Shopping Center;
(12) Whether petitioner used a proper method of depreciation for the Costa Mesa Apartment complex;
(13) Whether respondent correctly determined the basis of the Regal Pale machinery and equipment for purposes of recognition of gain upon the sale thereof;
(14) Whether petitioner properly claimed depreciation expense for the Regal Pale Brewery buildings for the taxable year 1968;
(15) Whether petitioner may claim a deduction for the Regal Pale organization expense in 1969 or 1974;
(16) Whether petitioner used the appropriate useful life for the Vernon Street building for depreciation purposes;
(17) Whether petitioner is entitled to abandonment losses for assets of the Lucky Lager brewery and the Vancouver plant for the taxable year 1974; and
(18) Whether petitioner is entitled to deductions for salaries and other expenses made in connection with the acquisition of Falstaff stock.
Some of the facts have been stipulated and are so found. The stipulation of facts and attached exhibits are incorporated herein by this reference.6
Petitioner S & P Company (formerly Maier Brewing Company) was a California corporation whose principal office was located in California at the time the petitions in these cases were filed. S & P changed its name several times from its date of incorporation until the time of trial. Hereinafter, S & P Company will be referred to as petitioner or Maier for the taxable years 1963 through 1969 and petitioner or S & P for the taxable years 1974 through 1976.
For each of its taxable years 1963 through 1969 and 1974 through 1976, petitioner was an accrual basis taxpayer. During the years in issue, Paul Kalmanovitz was president and owner of petitioner.
Paul Kalmanovitz was involved in the commercial and residential real estate business for approximately 50 years acting directly or indirectly as owner, lessor and lessee of numerous shopping centers, ranches, restaurants, residential apartment complexes and other real property in California and other states. Kalmanovitz was also involved in the beer industry in the United States and was the owner, president and chief operating officer of a number of American breweries.
During the years in issue, Kalmanovitz directly or indirectly controlled and personally directed the following companies (whose names have changed on several occasions as follows):
(B) Keller Street Development Company (hereinafter referred to as Keller):
Period Company Name
Prior to 10/17/58.......... Maier Brewing
Company
10/17/58 until trial........ Keller Street
Development
Company
For convenience, our remaining findings of fact and opinion will be combined by issue.
Maier Brewing Company, Keller Street Development Company and Paul Kalmanovitz are the same entities and person that were involved in Keller Street Development Co. v. Commissioner Dec. 35,383(M), T.C. Memo. 1978-350, affd. 82-2 USTC s 9601 688 F.2d 675 (9th Cir. 1982).7 The parties have stipulated the facts found by this Court in Keller Street. Accordingly, we incorporate those facts herein and will repeat them only to the extent necessary to explain the issues now before us.
Keller Street Development Company (hereinafter referred to as Keller) was a successor corporation to Maier. Maier was in the brewery business until it sold its assets to S & P on October 17, 1958. S & P then changed its name to Maier, and the former Maier became Keller.
Keller was experiencing serious financial difficulties when Kalmanovitz became its president. Kalmanovitz and his spouse owned or controlled, through a charitable foundation and a wholly-owned corporation, approximately 70 percent of Keller's outstanding stock. Keller's minority shareholders expressed a desire to sell the brewery, and the board of directors passed a resolution authorizing Kalmanovitz to negotiate the sale of Keller's assets with anyone "on the most favorable price and terms attainable."
On June 28, 1958, Maier, then known as S & P (a corporation wholly owned by Kalmanovitz and his spouse), submitted a written offer to purchase Keller's brewery business. The offered purchase price was $7,708,605.25,8 of which $6,000,000 was to be paid for the brewery assets, other than inventory and accounts receivable, and $1,708,605.25 was to be paid for the book value of the inventory and the face value of the accounts receivable (reduced by a five-percent reserve). This offer was approved by a majority of the shareholders on June 28, 1958.
The terms for payment under this sale provided that all cash payments were to be made to Keller, thereby precluding any portion of the sale price from going to the minority shareholders. The minority shareholders objected to the terms of the sale and brought an action for rescission in the California Superior Court for the County of Los Angeles. Named as defendants in the action were Kalmanovitz, Keller and Maier.
The Superior Court held for the defendants, and the minority shareholders appealed. The California Court of Appeals reversed and remanded the decision to the Superior Court.
After a second trial on remand, the Superior Court concluded that the terms of payment under the purchase and sale agreement were not just and reasonable and were unfair to Keller. The Superior Court also decreed that certain real and personal property acquired by Maier after the transaction with Keller were held by Maier as a constructive trustee for Keller.
The defendants appealed. The California Court of Appeals again reversed the decision of the Superior Court, holding that a constructive trust was improper unless the assets acquired by Maier after the transaction could be traced to the income generated by the assets purchased from Keller. The appellate court also held that if any of the assets impressed with a constructive trust by the Superior Court could not be traced to the income generated by the assets acquired from Keller, a money judgment would be the only remedy available to the plaintiffs. The appellate court again remanded the case to the Superior Court.
At the final trial in the Superior Court, the parties attempted to trace the profits earned by Maier to the brewery assets it acquired from Keller. After the tracing proved futile, the parties finally agreed to settle the case.
The terms of the settlement agreement provided that the defendants would purchase the minority shares at $55 per share in addition to the payment of $500,000 in attorney fees. On ...
To continue reading
Request your trial