Moline Properties, Inc. v. Commissioner of Internal Revenue

• Citation: 45 BTA 647
• Decision Date: 07 November 1941
• Docket Number: Docket No. 103862.
• Parties: MOLINE PROPERTIES, INC., A FLORIDA CORPORATION, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
• Court: U.S. Board of Tax Appeals

45 B.T.A. 647 (1941)

MOLINE PROPERTIES, INC., A FLORIDA CORPORATION, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Docket No. 103862.

Board of Tax Appeals.

Promulgated November 7, 1941.

Douglas D. Felix, Esq., for the petitioner.

F. L. Van Haaften, Esq., for the respondent.

This proceeding is brought for redetermination of the following deficiencies:

                ------------------------------------------------------------------------------
                                                                 |            | Excess profits
                                    Calendar year                | Income tax |      tax
                -------------------------------------------------|------------|---------------
                1935 ___________________________________________ |  $1,067.19 |        $388.06
                1936 ___________________________________________ |   3,926.63 |       3,956.89
                ------------------------------------------------------------------------------
                

The respondent has added a 10 percent delinquency penalty for the year 1936 in the amount of $788.35.

The issue here is whether the petitioner's sole stockholder is entitled to report the income of the petitioner from the sale of real property as his income, treating the petitioner as a corporation without substance.

FINDINGS OF FACT.

The petitioner is a corporation, organized under the laws of Florida in 1928. Its president and sole stockholder, with the exception of those holding qualifying shares, throughout the period from the time of its organization down through the taxable years, was Uly O. Thompson. Tax returns for the years in question were filed with the collector for the district of Florida.

On August 17, 1920, Thompson acquired four lots of unimproved realty situated in Dade County, Florida, which he mortgaged in 1923 to William F. Whitman for a $20,000 debt. On March 18, 1926, he gave a second mortgage to the Miami Beach Bank & Trust Co. to secure an additional indebtedness of $20,000.

Subsequently the mortgaged land did not prove profitable to Thompson and he allowed taxes due on the property to remain unpaid. In 1928 back taxes were owing in the sum of $6,500. At this time Thompson was told by the second mortgagee that the taxes must be paid to prevent loss of the property and the following agreement was reached whereby this was accomplished: The Bank of Bay Biscayne, an affiliate of the Miami Beach Bank & Trust Co., agreed to loan Thompson $6,750 for the payment of taxes provided he convey title to the property to a corporation organized by the bank to hold such title. Stock of the corporation was to be issued to Thompson but was to be pledged as collateral for the loan and be placed by him in a voting trust of which an officer of the bank should be trustee with power to vote the stock for all purposes. The trust was to cease either on the payment of the loan or on the sale of the stock pledged as collateral. Pursuant to this agreement Thompson, on June 5, 1928, conveyed the property to the petitioner corporation, which had been organized also pursuant to the agreement, and received in return all of the petitioner's stock, with the exception of qualifying shares. He thereupon executed a trust agreement conveying that stock to the voting trustee. The corporation assumed and agreed to pay the mortgages on the property.

The Bank of Bay Biscayne closed during the year 1930 and thereafter its powers under the voting trust were exercised by the liquidator of the bank. During this period a suit was instituted to remove certain restrictions imposed on the property by a prior deed. Expenses connected with this suit in the sum of $4,005.39 were paid by Thompson in 1933 and subsequent years. The petitioner was also required to defend certain condemnation proceedings during this period.

The petitioner on October 1, 1929, purchased from the Bank of Bay Biscayne a note of Uly O. Thompson, together with a mortgage securing it, in the amount of $43,000, on which interest of $9,703.14 was due, at its par value plus accrued interest. The petitioner gave its note for the purchase money, securing it with Thompson's mortgage which it received on the purchase of the note.

On July 29, 1933, the petitioner discharged and satisfied the two mortgages which were outstanding on the property owned by it, each in the amount of $20,000. Funds for these discharges were obtained by Thompson through a loan which he negotiated with the National Investment Holdings, Inc. This loan was secured by a mortgage on a portion of the property in question. The debt of $6,750 owed to the Bank of Bay Biscayne was settled by the petitioner during 1933. Control of the petitioner corporation was returned to Thompson in 1933.

The mortgage debt owed to the National Investment Holdings, Inc., was paid in 1936 through the sale of a portion of the mortgaged property.

The petitioner did not keep books of account or maintain a bank account during the period of its existence. It owned no assets other than the real estate described above. It leased a portion of its properties in 1934 for a parking lot, from which it received rental of $1,000. Thompson owned other extensive real property in Miami, title to all of which was in his name individually.

The real property held by the petitioner was sold in three separate parcels, one in each of the years 1934, 1935, and 1936. Proceeds of these sales were received by Thompson and deposited in his bank account. The sales made in 1934 and 1935 were reported in the returns of the petitioner, which were prepared by an auditor retained by Thompson. A loss of $698.11 was reported for 1934 and a gain of $5,851.94 for 1935. Subsequently, Thompson...