Poplar Bluff Printing Co. v. Commissioner of Int. Rev.

• Decision Date: 20 June 1945
• Docket Number: No. 13039.,13039.
• Parties: POPLAR BLUFF PRINTING CO. v. COMMISSIONER OF INTERNAL REVENUE.
• Court: U.S. Court of Appeals — Eighth Circuit

149 F.2d 1016 (1945)

POPLAR BLUFF PRINTING CO. v. COMMISSIONER OF INTERNAL REVENUE.

No. 13039.

Circuit Court of Appeals, Eighth Circuit.

June 20, 1945.

Allen L. Oliver, of Cape Girardeau, Mo. (O. A. Tedrick and L. E. Tedrick, both of Poplar Bluff, Mo., and R. B. Oliver, Jr., of Cape Girardeau, Mo., on the brief), for petitioner.

Carlton Fox, Sp. Asst. to the Atty. Gen. (Samuel O. Clark, Jr., Asst. Atty. Gen., and Sewall Key and Miriam Lashley, Sp. Assts. to the Atty. Gen., on the brief), for respondent.

Before GARDNER, JOHNSEN and RIDDICK, Circuit Judges.

GARDNER, Circuit Judge.

This is a petition to review a decision of the Tax Court of the United States affirming a determination of the Commissioner assessing income taxes against petitioner as an association for the years 1939, 1940 and 1941. The controversy revolves about the question as to whether petitioner is an "association" within the meaning of Section 3797(a) (3) of the Internal Revenue Code, 26 U.S.C.A. Int.Rev.Code § 3797(a) (3).

Petitioner was organized as a corporation in 1916 by J. H. Wolpers, who became its principal stockholder. During the taxable years involved it published a daily and two weekly newspapers and in connection therewith owned and operated a printing plant, with an office supply department. In 1923 the capital stock was increased from $5,000 to $30,000, divided into 300 shares with a par value of $100 per share, and 240 shares were issued and outstanding at the close of 1936. About December 30, 1936, the stockholders voted to dissolve the corporation and concurrently with that action entered into a written contract as follows:

"We, the undersigned owners and shareholders of the Poplar Bluff Printing Company, having dissolved the corporation known by that name, in accordance with the laws, and having decided to carry on said business as a partnership under the trade name of Poplar Bluff Printing Company, do hereby agree as follows, to-wit:

"1st. That J. H. Wolpers shall be the managing executive of said company.

"2nd. That all real estate formerly owned by the corporation shall be held in the name of the said J. H. Wolpers as Trustee for the said Poplar Bluff Printing Company, a copartnership.

"3. That the said J. H. Wolpers shall cause to be issued to each of the copartners, negotiable certificates, setting out the interest of each of the undersigned, and each of the undersigned hereby agrees to be bound thereby as to the extent of the ownership of each of the parties hereto.

"4th. It is further mutually agreed between all of the parties hereto that should any copartner other than the said J. H. Wolpers desire to dispose of his interest in said copartnership, such partner will first offer to the said J. H. Wolpers his interest in said partnership at such price as may be available to said partner from others and the said J. H. Wolpers agrees to at any time purchase the interest of any other partner at whatever price the inventory last available shows such interest to be worth, according to the books and records of said copartnership, and that the said J. H. Wolpers shall have the first option to buy the interest of any other partner who desires to sell at any other price, and these rights shall extend to the heirs of the said J. H. Wolpers in case of his death.

"That none of the partners shall be required to bear or pay any of the liabilities of this partnership so long as there exists any property of the partnership unliquidated.

"This agreement made and entered into on this 30th day of December, A. D. 1936."

Upon the execution of this agreement certificates were issued to the stockholders of the dissolved corporation in the following form:

"No.____ ______ Shares

"A Co-Partnership

"Poplar Bluff Printing Company "Poplar Bluff, Missouri

"This Certifies That ______ is a copartner in the Poplar Bluff Printing Company and is the owner of ______ interest in the

240

assets and profits in said Partnership.

"In Witness Whereof, the said Partnership has caused this Certificate to be signed by its Executive Officer and General Manager, this ____ day of ____ A.D. 19__."

The real estate theretofore owned by the corporation was transferred to J. H. Wolpers, trustee, but no formal bill of sale seems to have been executed conveying the personal property. Following dissolution of the corporation, petitioner continued operating the newspaper plant without any substantial changes. New books were opened and the total surplus and capital of the old organization became the new investment of the partnership. The business operated under the same name. No new capital was contributed to the business and the certificates evidencing ownership were issued to the former stockholders in exact proportion to their prior holdings. J. H. Wolpers continued as managing executive during the tax years involved. He was also editor of the newspapers. The business was organized into several departments, each of which was under the management of one of the former stockholders. Only the general manager was authorized to draw checks on the bank account in which the petitioner's funds were kept under the name of Poplar Bluff Printing Company. Employees were paid weekly salaries, and net earnings, except for a reserve fund, were distributed annually to certificate holders of record in proportion to their holdings. The Tax Court found that it was necessary at all times to maintain close co-ordination among departments, and frequent meetings of department managers and employees were held for that purpose. Management of the business was centralized in the general manager and heads of the several departments. The Tax Court also held that, "The continuity of the enterprise was not affected by the transfer of beneficial interests. The only restriction on such transfers was that any holder desiring to dispose of his interest must first offer it to J. H. Wolpers." Both during and after petitioner's incorporation the business was run for the most part by J. H. Wolpers.

Section 3797 of the Internal Revenue Code, 26 U.S.C.A. Int.Rev.Code, § 3797, under the title of "Definitions," contains the following:

"(a) When used in this title, where not otherwise distinctly expressed or manifestly incompatible with the intent thereof * * *

"(3) Corporation. The term `corporation' includes associations, joint-stock companies, and insurance companies."

Section 181, 26 U.S.C.A. Int.Rev.Code § 181, provides: "Partnership not taxable. Individuals carrying on business in partnership shall be liable for income tax only in their individual capacity."

It is the contention of petitioner that when the corporation was dissolved its stockholders formed a partnership for the purpose of editing and publishing the newspapers and maintaining a commercial printing department, and hence it was not taxable as an entity. Counsel stress the fact that in a...