Murchison's Estate v. Commissioner of Internal Revenue, 7421.

• Decision Date: 29 March 1935
• Docket Number: No. 7421.,7421.
• Citation: 76 F.2d 641
• Parties: MURCHISON'S ESTATE v. COMMISSIONER OF INTERNAL REVENUE.
• Court: U.S. Court of Appeals — Fifth Circuit

76 F.2d 641 (1935)

MURCHISON'S ESTATE v. COMMISSIONER OF INTERNAL REVENUE.

No. 7421.

Circuit Court of Appeals, Fifth Circuit.

March 29, 1935.

W. Leo Austin, of Tulsa, Okl., for petitioner.

Frank J. Wideman, Asst. Atty. Gen., Norman D. Keller, Sewall Key, and Edward H. Hammond, Sp. Assts. to Atty. Gen., and Robert H. Jackson, Asst. Gen. Counsel, and Shelby S. Faulkner, Sp. Atty., Bureau of Internal Revenue, both of Washington, D. C., for respondent.

Before BRYAN, SIBLEY, and HUTCHESON, Circuit Judges.

SIBLEY, Circuit Judge.

The estate of Mrs. C. W. Murchison during the year 1927 owned one-half of the capital stock of a corporation, Murchison Oil Company, which during that year paid her $125,000 as a dividend on her stock, and the Commissioner and the Board of Tax Appeals have held it assessable as such for surtaxes. The petitioner says it was a return of capital. The facts are that on January 1, 1927, a joint-stock association called Murchison-Fain Oil Company had transferred all its assets, which included large profits earned since February 28, 1913, to this and another newly organized corporation in exchange for all their capital stocks, and the capital stocks were forthwith divided among the members of the joint-stock association in exchange for their interests in the latter. Murchison-Fain Oil Company had always been taxed as a corporation, and the transactions of January 1, 1927, were treated by all concerned as a reorganization under which no gain or loss was to be recognized. The proportion of accumulated profits thus passed to Murchison Oil Company exceeded $300,000. During 1927 that corporation made a net loss of $49,000 on its own operations, but that loss and the total dividends of $250,000 did not exhaust the transferred profits. In the bookkeeping of the new corporation these profits were not set up as a surplus but the value of all assets received was set up as capital. It does not appear what the par of its shares amounted to, nor whether a minimum capital was fixed by the charter.

The Board, following its decision in Crocker v. Commissioner, 29 B. T. A. 773, which rested on Commissioner v. Sansome (C. C. A.) 60 F.(2d) 931, and United States v. Kauffmann (C. C. A.) 62 F.(2d) 1045, held that since no such conversion of property or realization of profits occurred in the organization of the Murchison Oil Company as would be taxable, the profits remained profits for tax purposes in the hands of Murchison Oil Company. With this conclusion we agree. The Texas joint-stock association under Texas law has resemblances to a partnership but is a "corporation" as the term is defined and used in the federal revenue acts. Burk-Waggoner Oil Association v. Hopkins, Collector, 269 U. S. 110, 46 S. Ct. 48, 70 L. Ed. 183. Under Revenue Acts of 1924 and 1926, § 203 (b) (3), 26 USCA § 934 (b) (3),...