Olson v. Comm'r of Internal Revenue, Docket Nos. 1713-65— 1716-65
| Decision Date | 21 September 1967 |
| Docket Number | Docket Nos. 1713-65— 1716-65,3328-65. |
| Citation | 48 T.C. 855 |
| Parties | /0/ SIDNEY L. OLSON AND MIRIAM K. OLSON, ET AL.,1 PETITIONERS v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
James C. Herndon and Sam D. Bartlo, for the petitioners.
Buckley D. Sowards, for the respondent.
1. Sidney, Philip, and Irving Olson are brothers. During 1961 and prior years, they and Albert Schultz were engaged in various capacities in the conduct of the business and affairs of a number of separate corporations and other business enterprises involved in the handling and sale of electronics merchandise at retail stores which are referred to collectively as the Olson Group. Cleveland, which operated a retail store in Cleveland, Ohio owned all of the stock of Buffalo which operated a retail store in Buffalo, N.Y. In view of the labor difficulties with its employees, theretofore experienced by Cleveland and the impending difficulties threatened by a labor union, the officers and stockholders of Cleveland, in order to contain such difficulties within Cleveland and to avoid to the extent possible a spread of the organizing attempt of the union to Buffalo and other unorganized stores in the Olson Group, authorized and caused to be distributed the stock of Buffalo to the stockholders of Cleveland on Feb. 23, 1961. In causing the distribution of Buffalo stock, the officers and stockholders of Cleveland grounded their action on bona fide differences between Cleveland and a group of its stockholders and their union and not on nonexistent reasons and ‘afterthoughts.’ Held, that the distribution by Cleveland of its Buffalo stock was for a valid business purpose within contemplation of sec. 355, I.R.C. 1954.
2. Held, on the record presented that the transfers to trust by Sidney, Philip, and Irving Olson and Albert Schultz for the benefit of their respective wives of the shares of Buffalo distributed to them by Cleveland do not warrant the conclusion that such distribution by Cleveland was used principally as a device for the distribution of the earnings and profits of Cleveland or of Buffalo or of both within the purview of sec. 355.
3. Held, that the distribution by Cleveland of its Buffalo stock was a nontaxable transaction within the purview of sec. 355 and that since such distribution gave Sidal as a stockholder of Cleveland the right to receive 12 shares of Buffalo stock and Sidal thereupon became the equitable owner thereof, no portion of the value of such shares constituted taxable income to Sidal.
4. Held, that the fair market value of Buffalo stock on Feb. 23, 1961, was $8,500 per share.
5. Held, that the shares of Buffalo stock of which Sidal became the equitable owner but for which stock certificates were issued directly to Schultz and Sidney Olson constituted dividends to them to the extent the fair market value of such shares did not exceed a total of $90,648.15.
The Commissioner has determined deficiencies in the income tax of the petitioners for 1961 as follows:
+-------------------------------------------------------------+
¦Petitioner ¦Docket No.¦Deficiency ¦
+--------------------------------------+----------+-----------¦
¦Sidney L. Olson and Miriam K. Olson ¦1713-65 ¦$105,947.85¦
+--------------------------------------+----------+-----------¦
¦Philip I. Olson and Audrey B. Olson ¦1714-65 ¦66,291.31 ¦
+--------------------------------------+----------+-----------¦
¦Albert L. Schultz and Janet A. Schultz¦1715-65 ¦104,590.56 ¦
+--------------------------------------+----------+-----------¦
¦Irving J. Olson and Ruth B. Olson ¦1716-65 ¦74,566.69 ¦
+--------------------------------------+----------+-----------¦
¦Sidal Corp ¦3328-65 ¦26,633.06 ¦
+-------------------------------------------------------------+
Issues presented for determination are (1) whether the distribution by Olson Electronics of Cleveland, Inc., to its shareholders of all of the stock of its wholly owned subsidiary, Olson Electronics of Buffalo, Inc., qualified as a nontaxable transaction under the provisions of section 355 of the Internal Revenue Code of 1954 or whether it constituted a taxable dividend under sections 316 and 301 of the Code, (2) what was the fair market of Olson Electronics of Buffalo, Inc., stock on February 23, 1961, and (3) whether Sidal Corp. and the shareholders of Sidal Corp. received a dividend as the result of the distribution by Olson Electronics of Cleveland, Inc., to the shareholders of Sidal of the portion of the stock in Olson Electronics of Buffalo, Inc., which Sidal was entitled to receive.
Some of the facts have been stipulated and are found accordingly.
The following individual petitioners are husband and wife, residents of the indicated cities, and filed their joint Federal income tax returns for 1961, prepared on the cash basis of accounting, with the district director in Cleveland, Ohio:
+--------------------------------------------------------+
¦Husband and wife ¦Residents of— ¦
+--------------------------------------+-----------------¦
¦Sidney L. Olson and Miriam K. Olson ¦Akron, Ohio ¦
+--------------------------------------+-----------------¦
¦Philip I. Olson and Audrey B. Olson ¦Cleveland, Ohio ¦
+--------------------------------------+-----------------¦
¦Albert L. Schultz and Janet A. Schultz¦Akron, Ohio ¦
+--------------------------------------+-----------------¦
¦Irving J. Olson and Ruth B. Olson ¦Akron, Ohio ¦
+--------------------------------------------------------+
Petitioner, Sidal Corp., sometimes hereinafter referred to as Sidal, was formed under the laws of Ohio during January 1956 and has its main office and place of business in Akron, Ohio. Sidal owned various parcels of commercial real estate for rental income. It filed its Federal corporation income tax return for 1961, prepared on the accrual basis of accounting, with the district director in Cleveland, Ohio.
Sidney, Philip, and Irving Olson are brothers.
In the early 1930's Irving founded the Olson Co. which began operations in Akron, Ohio. Soon thereafter Sidney and Philip acquired interest in the company. In 1944 or 1945 Philip withdrew from the Olson Co. and either his brothers, Irving and Sidney, or Olson Co. acquired his interest therein. In 1946 and for a number of years prior thereto Albert L. Schultz, a certified public accountant, performed accounting services for Olson Co. and in 1946 acquired an interest therein. Neither Schultz nor his wife is related, directly or indirectly, to the Olson family.
During November 1947, Olson Radio Warehouse of Cleveland, Inc., was formed under the laws of the State of Ohio and began business under that name. The name of the corporation was subsequently amended and changed during August 1959 to Olson Radio Corp. of Cleveland, Inc., which thereafter during January 1961 was changed to Olson Electronics of Cleveland, Inc., and sometimes hereinafter referred to as Cleveland. Cleveland had four original shareholders holding equal shares of the issued and outstanding stock of Cleveland, as follows:
+---------------------------+
¦ ¦Shares ¦
+------------------+--------¦
¦Sidney L. Olson ¦25 ¦
+------------------+--------¦
¦Albert L. Schultz ¦25 ¦
+------------------+--------¦
¦Irving J. Olson ¦25 ¦
+------------------+--------¦
¦Philip I. Olson ¦25 ¦
+------------------+--------¦
¦Total ¦100 ¦
+---------------------------+
Cleveland caused Olson Radio Warehouse of Buffalo, Inc., to be incorporated on July 29, 1955, under the laws of the State of New York, as a wholly owned subsidiary to engage in the operation of a retail electronics store at Buffalo, N.Y. During August 1959, the corporate name was changed to Olson Radio Corp. of Buffalo, Inc., and during January 1961 was changed to Olson Electronics of Buffalo, Inc., sometimes hereinafter referred to as Buffalo. Buffalo issued 40 shares of its no-par-value common capital stock, having a stated value of $1,000 per share, to Cleveland for a total paid-in capital of $40,000. At all times material herein, these shares constituted the total issued and outstanding capital stock of Buffalo, having an adjusted cost of $40,000.
From the respective dates of their formation to and including the present, and with respect to all times herein material, Cleveland and Buffalo operated separate retail electronics stores in Cleveland, Ohio, and Buffalo, N.Y., respectively.
Upon the formation of Sidal Corp. in January 1956 its stock was issued as follows: Albert L. Schultz, 10 shares, and Sidney L. Olson, 10 shares. During December 1956, Schultz and Sidney Olson each contributed to Sidal Corp. 15 shares of the capital stock owned by them in Cleveland in exchange for the issuance by Sidal to each of them of an additional 40 shares of its stock. Thereafter, the stockholdings in Sidal were as follows: Albert L. Schultz, 50 shares, and Sidney L. Olson, 50 shares.
The following is a statement of the operating Olson companies, sometimes hereinafter referred to as the Olson Group, in existence on February 23, 1961:
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¦Operating companies ¦Incorporated ¦
+---------------------------------------------+--------------¦
¦Olson Electronics, Inc. (Akron) 1 ¦July ¦5, 1946 ¦
+---------------------------------------------+-----+--------¦
¦Ohio Radio Mfg. Co ¦Jan. ¦2, 1959 ¦
+---------------------------------------------+-----+--------¦
¦Akrad Associated (partnership formed in 1947)¦ ¦ ¦
+---------------------------------------------+-----+--------¦
¦Olson Electronics of Cleveland, Inc. 1 ¦Nov. ¦1, 1947 ¦
+---------------------------------------------+-----+--------¦
¦Olson Electronics of Chicago,...To continue reading
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