Peeler Realty Co. v. Comm'r of Internal Revenue, Docket No. 2328-71.

• Decision Date: 14 August 1973
• Docket Number: Docket No. 2328-71.
• Citation: 60 T.C. 705
• Parties: PEELER REALTY COMPANY, INC., PETITIONER v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT
• Court: U.S. Tax Court

60 T.C. 705

PEELER REALTY COMPANY, INC., PETITIONER
v.
COMMISSIONER OF INTERNAL REVENUE, RESPONDENT

Docket No. 2328-71.

United States Tax Court

Filed August 14, 1973.

[60 T.C. 706]

James P. Knight, Jr., for the petitioner.

Robert D. Hoffman, for the respondent.

On Mar. 30, 1966, petitioner conveyed approximately 25,000 acres of lands to its shareholders as a nonliquidating distribution. In two separate sales the shareholders sold a few acres of such lands in October of that year, and the balance in November. Petitioner did not include the gains from these sales in its corporate tax return. An appeal from the decision in this case lies solely to the Fifth Circuit, which held in Hines v. United States, 477 F.2d 1063 (C.A. 5, 1973), reversing344 F.Supp. 1259 (N.D. Miss. 1972), that the gains from these sales cannot be imputed to petitioner unless it is found that petitioner participated, in some significant manner, in the sales transactions. In Hines, one of petitioner's shareholders successfully avoided dividend treatment for the distribution involved in the instant case because, in the absence of an imputation to petitioner it did not have current or accumulated earnings and profits. Held, that the gains on the sales of the lands are not imputable to petitioner because it did not participate in the sales transactions in any significant manner. Jack E. Golsen, 54 T.C. 742 (1970), affd. 445 F.2d. 985 (C.A. 10, 1971), certiorari denied404 U.S. 940 (1971). Held, further, that the distribution to the shareholders was not an anticipatory assignment of income.

FORRESTER, Judge:

Respondent determined a deficiency of $601,872.53 in petitioner's income tax for the taxable year ended October 31, 1967. The sole issue presented for our decision is whether petitioner is liable for the corporate income tax on sales by its shareholders of appreciated land which had been conveyed to such shareholders by petitioner as a dividend-in-kind. The two theories under which petitioner might be held liable for such tax— the imputed income and the anticipatory assignment of income doctrines— will be considered separately.

FINDINGS OF FACT

Some of the facts are stipulated and are so found. Petitioner Peeler Realty Co. is a Mississippi corporation which had its principal place of business in Kosciusko, Miss., at the time it filed the petition herein. It filed its Federal income tax return for the taxable year ended October 31, 1967, with the director, Internal Revenue Service Center, Chamblee, Ga.

At the time of petitioner's incorporation in 1950, S. J. Peeler (S.J.), who had been in the lumber business since the 1930's, transferred about 27,000 acres of mostly cutover timberland (hereinafter referred to as the lands) and approximately 100 low-cost rental housing units to petitioner in exchange for all its 4,000 shares of capital stock. The greater part of such lands had been acquired by S.J. at tax sales in the late 1930's at costs of 50 and 75 cents an acre. At some time, believed to be in the early 1950's, S.J. transferred by gift all 4,000 shares of petitioner's stock to his wife, three of their children, and grandchildren born to these three. As of November 1, 1965, stockholdings were as follows:

+--------------------------------------------------------------------------+
                ¦ ¦ ¦Percent ¦
                +---------------------------------------------------+--------+-------------¦
                ¦ ¦ ¦of shares ¦
                +---------------------------------------------------+--------+-------------¦
                ¦ ¦Shares ¦outstanding ¦
                +---------------------------------------------------+--------+-------------¦
                ¦ ¦ ¦ ¦
                +---------------------------------------------------+--------+-------------¦
                ¦(1) Mrs. Ethel Peeler (director and vice president)¦1,000 ¦25.00 ¦
                +---------------------------------------------------+----------------------¦
                ¦ ¦ ¦
                +---------------------------------------------------+----------------------¦
                ¦(2) Mrs. Beatrice Peeler Hines Lacey ¦750 ¦18.75 ¦
                +---------------------------------------------------+--------+-------------¦
                ¦Harry H. Hines, Jr. (director and secretary- ¦ ¦ ¦
                +---------------------------------------------------+--------+-------------¦
                ¦treasurer) ¦250 ¦6.25 ¦
                +---------------------------------------------------+--------+-------------¦
                ¦ ¦1,000 ¦25.00 ¦
                +---------------------------------------------------+----------------------¦
                ¦ ¦ ¦
                +---------------------------------------------------+----------------------¦
                ¦(3) Mrs. Louise Peeler Seay (director) ¦320 ¦8.00 ¦
                +---------------------------------------------------+--------+-------------¦
                ¦Clant M. Seay, Jr ¦240 ¦6.00 ¦
                +---------------------------------------------------+--------+-------------¦
                ¦Samuel P. Seay 1 ¦240 ¦6.00 ¦
                +---------------------------------------------------+--------+-------------¦
                ¦Ethel Louise Seay 1 ¦200 ¦5.00 ¦
                +---------------------------------------------------+--------+-------------¦
                ¦ ¦1,000 ¦25.00 ¦
                +---------------------------------------------------+----------------------¦
                ¦ ¦ ¦
                +---------------------------------------------------+----------------------¦
                ¦(4) Mrs. H. Elmo (Josephine) Peeler, Sr. (director)¦70 ¦1.75 ¦
                +---------------------------------------------------+--------+-------------¦
                ¦H. Elmo Peeler, Jr. 2 ¦240 ¦6.00 ¦
                +---------------------------------------------------+--------+-------------¦
                ¦Lady Rachel Peeler Parker ¦240 ¦6.00 ¦
                +---------------------------------------------------+--------+-------------¦
                ¦Mrs. Zona Peeler Jones ¦240 ¦6.00 ¦
                +---------------------------------------------------+--------+-------------¦
                ¦Deposit Guaranty Bank & Trust, Trustee u/w ¦ ¦ ¦
                +---------------------------------------------------+--------+-------------¦
                ¦H. Elmo Peeler, Sr. (deceased) ¦210 ¦5.25 ¦
                +---------------------------------------------------+--------+-------------¦
                ¦ ¦1,000 ¦25.00 ¦
                +---------------------------------------------------+----------------------¦
                ¦ ¦ ¦
                +---------------------------------------------------+----------------------¦
                ¦Total issued and outstanding ¦4,000 ¦100.00 ¦
                +---------------------------------------------------+--------+-------------¦
                ¦ ¦ ¦ ¦
                +--------------------------------------------------------------------------+
                

[60 T.C. 707]

(1) Mrs. Ethel Peeler is the widow of Mr. S. J. Peeler, the individual who created the corporation.

(2) Mrs. Beatrice P. Lacey is the daughter of S. J. Peeler. Harry H. Hines, Jr., is Mrs. Lacey's son.

(3) Mrs. Louis P. Seay is the daughter of S. J. Peeler. Clant M. Seay, Jr., and Samuel P. Seay and Ethel Louise Seay are Mrs. Seay's sons and daughter.

(4) Mrs. H. Elmo Peeler, Sr., is the daughter-in-law of S. j. Peeler. H. Elmo Peeler, Sr., died and his wife inherited her present ownership of 70 shares.

The business operations of petitioner from the date of its formation consisted almost exclusively of holding the lands conveyed to it by S.J. and renting its approximately 100 houses. From its inception, its record of earnings— as found in its corporate income tax returns— has not been an auspicious one:

+-----------------+
                ¦1950¦($911.39) ¦
                +----+------------¦
                ¦1951¦None ¦
                +----+------------¦
                ¦1952¦14,582.53 ¦
                +----+------------¦
                ¦1953¦(260.70) ¦
                +----+------------¦
                ¦1954¦565.71 ¦
                +----+------------¦
                ¦1955¦(283.08) ¦
                +----+------------¦
                ¦1956¦284.68 ¦
                +----+------------¦
                ¦1957¦270.16 ¦
                +----+------------¦
                ¦1958¦($2,146.77) ¦
                +----+------------¦
                ¦1959¦(7,420.80) ¦
                +----+------------¦
                ¦1960¦(2,359.39) ¦
                +----+------------¦
                ¦1961¦(5,091.39) ¦
                +----+------------¦
                ¦1962¦1,062.56 ¦
                +----+------------¦
                ¦1963¦(3,476.89) ¦
                +----+------------¦
                ¦1964¦(555.73) ¦
                +-----------------+
                

[60 T.C. 708]

Except for the taxable year 1952, in which approximately 1,200 acres of the lands were sold to the Mississippi Products Co. for about $15,000, the above-mentioned rentals have been the major item of income reported by petitioner in its corporate income tax return. Other items of income have included gains from occasional...