Parker v. COMMISSIONER OF INTERNAL REVENUE, Docket No. 14186

• Decision Date: 11 January 1929
• Docket Number: 14953,Docket No. 14186,14954.
• Citation: 14 BTA 1185
• Parties: HELEN PITTS PARKER, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. GEORGE A. MOORE, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. DIVIE B. DUFFIELD AND HELEN PITTS PARKER, EXECUTORS OF THE LAST WILL AND TESTAMENT OF ARTHUR M. PARKER, PETITIONERS, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
• Court: U.S. Board of Tax Appeals

14 B.T.A. 1185 (1929)

HELEN PITTS PARKER, PETITIONER, v.COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

GEORGE A. MOORE, PETITIONER, v.COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

DIVIE B. DUFFIELD AND HELEN PITTS PARKER, EXECUTORS OF THE LAST WILL AND TESTAMENT OF ARTHUR M. PARKER, PETITIONERS, v.COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Docket Nos. 14186, 14953, 14954.

Board of Tax Appeals.

Promulgated January 11, 1929.

J. S. Y. Ivins, Esq., R. H. Berry, Esq., F. C. Goddard, Esq., and E. S Kochersperger, Esq., for the petitioners.

J. E. Marshall, Esq., for the respondent.

These are proceedings, duly consolidated for hearing and decision, for the redetermination of deficiencies in income taxes for the calendar year 1919, determined by the respondent as follows:

    Helen Pitts Parker ______________________________________ $57,316.95
                    George A. Moore _________________________________________   2,215.15
                    Est. of Arthur M. Parker ________________________________  17,758.30
                

It is alleged that the respondent's addition to income of $117,700, $16,500 and $72,810 of Helen Pitts Parker, George A. Moore and the estate of Arthur M. Parker, respectively, was erroneous.

In Docket No. 14186, it is alleged that the respondent erred in including in the gross income of the petitioner the amount of $5,547.84 as having been a part of the petitioner's distributable interest in the income of a trust.

FINDINGS OF FACT.

The Detroit Range Boiler Co., a Michigan corporation, prior to the World War manufactured range boilers, bilge tanks, and steel drums.In the summer of 1918, it entered into negotiations with the Toledo Steel Barrel Co. to acquire the plant of the latter which had not been operating for some time.At that time the United States Government was in need of a large number of steel drums in which to ship gasoline to France in the prosecution of the war, and those interested in the Detroit Range Boiler Co. were of the opinion that if they entered into the manufacture of steel drums, they would be rendering a patriotic service and the Government contracts would afford a benefit to all concerned.

The Toledo Steel Barrel Co. offered to sell its assets, including an inventory of materials on hand, to the Detroit Range Boiler Co. for $125,000 cash, but since this offer was not acceptable to the Detroit Range Boiler Co., and since the president of the Toledo Steel Barrel Co. expected that the plant of the Toledo Steel Barrel Co. might be commandeered by the Government, a new corporation was proposed which would issue its stock for the assets of both the Detroit Range Boiler Co. and the Toledo Steel Barrel Co.The Toledo Steel Barrel Co. wanted $100,000 par value of preferred stock and $100,000 par value of common stock in the new corporation for its assets, exclusive of the inventory of materials on hand.The stockholders of the Detroit Range Boiler Co., believing that the assets of the Toledo Steel Barrel Co. were valued at too high a figure, believed it necessary then to increase the value of its own assets for the purpose of the consolidation, by undivided profits and other gains.An appraisal of the assets of the Detroit Range Boiler Co. was made and machinery and equipment were assigned values proportionate to the values placed upon the assets of the Toledo Steel Barrel Co.A contract was executed on September 27, 1918, between the Detroit Range Boiler Co. and the Toledo Steel Barrel Co., which provided as follows:

1.It is agreed that the properties of said two corporations, except that part of the property of second party hereinafter reserved for sale for cash, shall be consolidated into a new corporation to be created under the laws of a State and under a corporate name hereinafter to be agreed upon between the parties hereto, having an authorized capital stock of One Million Dollars ($1,000,000,) of which $250,000 par shall be Seven Per Cent Cumulative Preferred and $750,000 shall be Common Stock.

2.First party hereto shall convey and transfer to said new corporation, by good and clear title, all of its property, real, personal and mixed, of all kinds whatsoever, and shall receive therefor, as full-paid and non-assessable, Eighty-three Thousand Seven Hundred Dollars ($83,700) par of said preferred stock, and an amount of common stock at par equal to the net actual book value of the stock of first party on October 1, 1918, as established by the inventory taken at that date, less $83,700, being the amount of said preferred stock.In arriving at said book value, it is agreed that the buildings of first party shall be put in at their present replacement value and also that the equipment and machinery of first party shall be put in on the same basis as that established by the Rau Appraisal Company, of Milwaukee, in their late appraisement thereof, said appraisement to be brought down to date, and that the patents and manufacturing rights controlled by and the good will of first party shall be treated and taken to be of the value of Seventy-five Thousand Dollars ($75,000), provided, however, that if the aggregate value for which first party is as above to receive common stock exceeds Four Hundred and Twenty-five thousand Dollars($425,000), then second party is to have the right to have the proper amount equitably determined and adjusted.It is understood and agreed that the new corporation is to assume the bills and accounts payable of the first party up to and not exceeding an aggregate of Two Hundred and Twenty-five Thousand Dollars,($225,000), and further, first party states and represents that it has outstanding no contracts or liabilities other than those made in the ordinary course of its manufacturing business, including one lease of land upon which it operates, which lease is to be assumed by the new corporation.

3.Second party shall transfer and convey, by good and clear title, to said new company, all of its property of all kinds, real, personal and mixed, except all its cash on hand at the date of settlement, all its bills and accounts receivable, its unexpired insurance, all its raw materials and parts of and goods on hand in process of manufacture or finished at the date of the conveyance by second party hereto to the new corporation.Said excepted materials, goods and parts in process of manufacture shall be inventoried at their market value and shall be separately taken and paid for in cash to the second party by the new company at the time of transfer.For that part of the property to be conveyed to the new company hereunder and not paid for in cash as aforesaid, the second party shall receive as full-paid and non-assessable, One Hundred Thousand Dollars ($100,000), par of said Seven Per Cent Preferred Stock and One Hundred Thousand Dollars ($100,000) par of the Common Stock of said new corporation.Part of the buildings of second party stand upon leased land and it is agreed that the new corporation shall assume and hold the second party harmless from the lease thereof.

4.It is agreed that said preferred stock of the new corporation shall be without any voting powers until default in payment of dividends for at least twelve months.

5.It is understood and agreed that the new company shall sell to Mr. George A. Moore, in consideration of his expected efforts in directing the management of the company, Fifty Thousand Dollars ($50,000) of the common stock of the new company, to be placed in his name upon the completion of the reorganization and to be paid for out of dividends received by him thereon or in any other way satisfactory to him, but without interest, at a price to be fixed by the Directors of the new company.

6.The remainder of the preferred and common stock of the new company shall be left unpaid in its treasury, to be sold under the orders of the Board of Directors as its future requirements may render expedient.

7.It is understood that the Board of Directors of the new company shall consist of not less than four members and that one member thereof shall be a person to be selected by the stock which goes to the second party, and further it is understood and agreed that the present officers of the first party shall be elected to the offices of the new company, with the exception of the Vice-President.The office of Vice-President shall be filled by a person to be selected by the holders of the stock which goes to the second party.

8.It is agreed that the right to make the consolidation and new stock issues hereby contemplated will be subject to the approval of the Government Capital Issues Commission and possibly to State Commissions and that if for any reason the permission of such Commissions to make the consolidation of properties and stock issues hereby contemplated cannot be obtained within sixty (60) days from the date hereof, then this contract shall be and taken to be null and void at the election of either party hereto.

9.All steps, methods and proceedings for and in relation to the organization of the proposed new corporation and for transfers of the properties of the respective existing corporations and for the issue and distribution and the forms for and provisions of the new stocks shall be such as to be satisfactory to counsel for both parties hereto.

10.It is understood and agreed that the new corporation will pay all of the expenses of the making of this contract and of said new incorporation, and all attorneys' fees for both parties in making and completing the consolidation of property and reorganization hereby contemplated, but if it becomes necessary before completion of the incorporation that any State or other organization fees be paid, the first party will temporarily advance the money therefor.

11.Owing to the present necessity that the manufacturing plant of second party be put into operation at once by first party in order that first party may be able to apply for and take forthwith Government contracts, it is expedient...