Neal v. United States

• Decision Date: 24 May 1928
• Docket Number: No. 3149.,3149.
• Citation: 26 F.2d 708
• Parties: NEAL et al. v. UNITED STATES.
• Court: U.S. District Court — District of Massachusetts

26 F.2d 708 (1928)

NEAL et al. v. UNITED STATES.

No. 3149.

District Court, D. Massachusetts.

May 24, 1928.

William Harold Hitchcock, of Boston, Mass., for plaintiffs.

J. M. Leinenkugel, Sp. Asst. U. S. Atty., of Boston, Mass.

BREWSTER, District Judge.

This is a petition under the Judicial Code as amended (28 USCA §§ 1-443) to recover capital stock tax paid under protest by the petitioner. The matter was heard on the defendant's general demurrer to the petition.

In the allegations of the petition the following pertinent facts are alleged:

The petitioners are trustees of the First People's Trust, under a written declaration of trust dated October 28, 1919. In 1925 they paid to the collector of internal revenue $22,786, of which amount $18,782 covered the capital stock tax assessed upon the trust for five tax periods, ending June 30 of each year from 1921 to 1925, inclusive. The balance of $4,004 was for the taxable period ending June 30, 1926. Claims for refund were duly filed, and were disallowed on October 14, 1927.

According to the terms of the declaration of trust the trust was organized for the purpose of undertaking and carrying on "anywhere any business, transaction, or operation which an individual could legally undertake and carry on conformable to the law of the land where the business, transaction, or operation is undertaken and carried on."

The capital of the trust is represented by shares divided into three classes, carrying different rights as to division of profits and in liquidation of assets.

The provisions of the trust agreement confer upon the shareholders no rights or powers other than to receive their proportionate share of the income and of the assets in the event of liquidation. They have no power, individually or collectively, to elect or remove trustees, or to terminate or modify the trust. In this trust the beneficiaries have not even the power to assent to amendments. All of the powers necessary for the accomplishment of the trust purposes can be exercised only by the trustees. The shareholders have never held any meetings, or attempted, jointly or individually, to exercise any control whatever over the action of the trustees or over the affairs of the trust.

The funds of the trust are employed by the trustees in making loans on real estate mortgages, including construction loans, and in making loans secured by collateral securities, and in purchasing accounts receivable, notes, and contracts of conditional sale, as well as stocks and bonds. The trustees own a large office building in Worcester, which they maintain and lease to numerous tenants.

The applicable provisions of the Revenue Acts of 1918, 1921, and 1924 are identical. Revenue Act 1918, tit. 1, § 1, and tit. 10, § 1000 (Comp. St. §§ 5980n, 6371¼a); Revenue Act 1921, tit. 1, § 2, and tit. 10, § 1000 (Comp. St. §§ 5980n, 6371 4/5a); Revenue Act 1924, tit. 1, § 2, and tit. 7, § 700 (Comp. St. §§ 5980n, 6371 5/6a).

Section 700, Act 1924, provides that "(1) every domestic corporation shall pay annually a special excise tax with respect to carrying on or doing business, equivalent to one dollar for each one thousand dollars of so much of the fair average value of its capital stock for the preceding year ending June 30 as is in excess of five thousand dollars. * * * (b) The taxes imposed by this section shall not apply in any year to any corporation which was not engaged in business * * * during the preceding year ending June 30. * * *"

And by section 2 of title 1 of the act the term "corporation" is defined to include associations, joint-stock companies, and insurance companies.

The Commissioner of Internal Revenue classified the trust as a corporation subject to the capital stock tax. The question now is whether the trust...