Parrott v. Noel
| Decision Date | 16 June 1925 |
| Citation | 8 F.2d 368 |
| Parties | PARROTT v. NOEL, Internal Revenue Collector. |
| Court | U.S. District Court — Eastern District of Virginia |
P. J. McCumber, of Washington, D. C., for plaintiff.
Leroy L. Hight, Sp. Atty. Department of Justice, of Washington, D. C., for defendant.
This is an action brought by the plaintiff to recover from the defendant $22,915.25, with interest from October 28, 1924, being the sum assessed against plaintiff by the Commissioner of Internal Revenue as additional income taxes for the year 1920 and paid under duress. By appropriate proceedings the plaintiff appealed from the assessment so made to the Board of Tax Appeals, and, after hearing there, the assessment was sustained.
The board made the following findings of fact, which are admitted to be correct:
(1) On May 20, 1920, and for several years prior thereto, the taxpayer was the general superintendent and a member of the board of directors of the American Coal Company of Allegany County, N. J. For his services as general superintendent he received an annual salary of $7,000, to which was added a yearly bonus of $3,500, and he also received director's fees.
(2) The taxpayer was also employed as general manager of the Pawama Coal & Coke Company, another coal-mining company, from which he received a salary of $8,750 per annum. In both companies his duties were those of general superintendence of coal-mining operations.
(3) The American Coal Company had no regular system for payment of pensions or retiring allowances to officers or employees and the taxpayer had no promise or agreement that he should receive any compensation for his regular services, other than the the salary, bonus, and fees mentioned.
(4) On July 14, 1919, when the corporation had a large accumulated surplus, the executive committee of the company adopted a resolution as follows:
"Resolved, that a gratuitous appropriation equal in amount to $3 per share on the outstanding stock of the company be set aside out of the assets for distribution to certain officers and employees of the company and that the executive committee be authorized to make such distribution as they deem wise and proper."
At the same meeting the following resolution was adopted:
"The officers of the company are directed to endeavor to secure a bid for the company's physical properties or for the shares of stock, and are hereby authorized to sell the directors' shares at $57 per share at any time subsequent to the distribution of $25 per share."
These resolutions were immediately approved by the board of directors, and the executive committee thereupon proceeded to adopt a resolution providing:
(5) On April 24, 1920, a contract was made between William C. Atwater & Co., Inc., and certain stockholders of the American Coal Company. By the contract those stockholders agreed to sell their stock and to procure the sale to the Atwater Company of altogether at least 25,000 of the 48,598 outstanding shares of the American Coal Company at $75 per share, and the Atwater Company agreed to buy the entire outstanding stock at the same price if stockholders should deposit it with a trustee by a stated time. The contract provided that the agreed price of $75 per share might be reduced by $10 per share if a dividend to that amount were paid before a stated time, and continued:
"* * * It being understood and agreed that the said coal company may, in addition to the dividend hereinabove provided for, distribute a further sum in amount equal to $3 per share on the 48,598 shares of the outstanding stock, in such manner and for such purposes as the directors may by resolution decide in addition to the current expenses of the company."
On April 26, 1920, a letter was sent by the president of the American Coal Company to its stockholders, telling of the contract and and the opportunity to sell the stock at $75 per share, and concluding:
"If the purchase is completed, the present officers and directors will resign and be replaced by men selected by the purchasers, and, in that event, the retiring officers and employees will participate in an appropriation equal to $3 per share, unanimously voted to them by the directors, the same with the approval of the purchasers, to be paid from the assets of the company, and will not affect the purchase price of $75 offered for the stock."
(6) Practically all of the stockholders turned in their stock and accepted the price offered by the purchaser. On May 20, 1920, the officers of the company distributed the fund appropriated by the executive committee's resolution of July 14, 1919, in the amounts provided by the resolution adopted at their second meeting on that date. By such distribution the taxpayer received $35,000.
(7) Thereafter, still on May 20, 1920, the taxpayer and all the other officers and directors of the American Coal Company resigned and the purchaser of the stock took over its management.
(8) The American Coal Company, in its income tax return for the year 1920, treated and claimed the sum so distributed to the taxpayer, and similar sums distributed to others, as a salary deduction from its gross income.
(9) The taxpayer, in his income tax return for 1920, excluded from gross income this item of $35,000. On audit the Commissioner of Internal Revenue determined that the item of $35,000 should have been included in gross income, and on July 16, 1924, he notified the taxpayer by registered mail of his determination and of a deficiency in tax, resulting from this determination and other adjustments, of $101,238.62. On July 31, 1924, the taxpayer initiated this appeal by filing a petition with the board.
The question for decision is whether the item of $35,000 received by the plaintiff, under the circumstances shown in the findings of fact, is a "gift,"...
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