Popular Library, Inc. v. Comm'r of Internal Revenue, Docket No. 82721.
| Decision Date | 29 March 1963 |
| Docket Number | Docket No. 82721. |
| Citation | 39 T.C. 1092 |
| Parties | POPULAR LIBRARY, INC., PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
Victor Whitehorn, Esq., for the petitioner.
William F. Chapman, Esq., for the respondent.
1. Held, that where corporation B merged into corporation L and the latter then merged into petitioner, this Court has jurisdiction of the petition which petitioner filed for redetermination of income tax deficiencies determined against B; for as the result of said mergers, petitioner became directly and primarily liable for B's income tax liabilities.
2. Held, that unrestricted cash amounts which B, an accrual basis taxpayer, received in 1954 as prepayments for subscriptions to magazines to be issued and delivered in subsequent years, must be included in B's gross income for the year of receipt. Principle of Schlude v. Commissioner, 372 U.S. 128 (1936), applied.
3. Held, that consent agreements to extend the period for assessment of B's income taxes for the periods involved, which were executed and filed in B's name after the first of the above-mentioned mergers, are valid and effectual; and that assessment of the deficiencies for the periods involved are not barred by limitation.
4. Held, that deficiencies in B's income taxes for taxable periods ended in 1952 and 1953 are approved, in the absence of any available net operating loss carrybacks from 1954 to said prior periods.
The Commissioner determined deficiencies in the income taxes of Best Books, Inc., a New York corporation, for taxable periods and in amounts as follows:
+---------------------------------+
¦Taxable period ¦Deficiency¦
+----------------------+----------¦
¦Oct. 1 to Dec.31, 1952¦$954.36 ¦
+----------------------+----------¦
¦Year 1953 ¦839.47 ¦
+----------------------+----------¦
¦Year 1954 ¦4,653.43 ¦
+---------------------------------+
The notice of deficiency was issued in the name of Best Books, Inc.
The present petitioner, Popular Library, Inc., a New York corporation, filed the petition herein for redetermination of the above-mentioned deficiencies; and it therein stated that such action was taken by it for the following reasons:
A. As of December 30th, 1954 Best Books Inc. was merged into Literary Enterprises Inc., a New York corporation, which thereupon succeeded to all the rights, and became subject to all the liabilities, of Best Books Inc.
B. As of December 31st, 1958, Literary Enterprises Inc. was merged into Popular Library Inc., a New York corporation (the present petitioner), which thereupon succeeded to all the rights, and became subject to all the liabilities, of Literary Enterprises Inc.
The respondent expressly disclaimed during the trial herein, any intention to move for dismissal of the petition; and neither of the parties now contends that this Court lacks jurisdiction to entertain said petition and decide the case. After having considered the facts with respect to said two mergers, as hereinafter set forth in our Findings of Fact, and also after having given consideration to the New York statute under which said mergers were effected, 1 and to relevant decisions of this Court,2 we are convinced and here told: (1) That Popular Library, Inc., as the result of the mergers above mentioned, became and is directly and primarily liable for any deficiencies in the income taxes of Best Books, Inc., for the taxable periods here involved (together with interest thereon according to law); and (2) that the petition filed herein by Popular Library, Inc., for redetermination of said deficiencies is within our jurisdiction.
The issues raised by said petition and to be here decided are as follows:
(1) Whether Best Books, Inc., in its final return for the year 1954 which was filed subsequent to its merger into Literary Enterprises, Inc., was entitled to exclude from its gross income for said year, without prior consent of the Commissioner to any change in its accounting method, certain amounts which it had received in cash during said year as prepayments for subscriptions to one of its magazines— notwithstanding that for all preceding years it had included all amounts received from prepaid subscriptions, in its gross income for the year of receipt.
(2) Whether assessment of any deficiency in the income tax of Best Books, Inc., for its said taxable year 1954, is barred by the statute of limitation—on the ground that the consent for extension of the statutory period, which (like its return) was executed in the name of Best Books, Inc., is invalid and ineffectual.
Both of the above issues relate directly to the deficiency determined for the taxable year 1954. As regards the deficiencies determined for the two other taxable periods above mentioned, these resulted from the Commissioner's disallowance of net operating loss carrybacks from said year 1954; and the allowability of such carrybacks is dependent upon the outcome of the issues above stated.
Best Books, Inc., was incorporated under the laws of the State of New York in 1945. During all taxable periods here involved, it kept its books of account and filed its income tax returns in accordance with an accrual method of accounting, and on the basis of taxable periods ended on December 31. Its returns for all of said taxable periods were filed with the district director of internal revenue for the Upper Manhattan District of New York.
During the year 1954, said corporation was engaged in the business of publishing several magazines, among the titles of which were: Ranch Romances, Fantastic Stories, Top Western Annual, and Mammoth Crossword Puzzles. Such publications are commonly known in the magazine trade as ‘pulps.’ The corporation did its own editing of these magazines; but it contracted out to other concerns, all of the printing thereof, distribution of most of the magazines to newsstands and retail outlets, and also the addressing and mailing of such of the magazines as were sent to subscribers.
As regards those magazines which were mailed to subscribers, prepayments for these were received by Best Books, Inc., in cash, at the times when it obtained the subscriptions. Such cash prepayments for subscriptions, at the time of their receipt, were taken into the corporation's accounts without any restriction as to their use, and were thereafter employed in the operation of its business. Also for all taxable periods prior to that ended on December 31, 1954, Best Books, Inc., had followed the regular practice of including all such cash receipts from subscriptions in its gross income for the year of receipt.
On December 30, 1954, Best Books, Inc., together with three other domestic corporations named Best Publications, Inc., Visual Editions, Inc., and See Publishing Co., Inc., were all merged into Literary Enterprises, Inc., a New York corporation which had theretofore been organized in 1946. And about 4 years later, on December 31, 1958, said Literary Enterprises, Inc., together with two other domestic corporations named Better Publications, Inc., and Standard Magazines, Inc., were all merged into the present petitioner, Popular Library, Inc. Each of said mergers was effected under the provisions of section 85 of the Stock Corporation Law of New York, as amended (N.Y. Stock Corp. Law, sec. 85), the material provisions of which are set forth in the margin.3
The mergers became effective on the above-mentioned respective dates of December 30, 1954, and December 31, 1958, when the prescribed certificates of merger were filed with the Department of State of the State of New York. In each case, the ‘possessor’ corporation expressly assumed on the particular effective date, pursuant to resolutions of its board of directors which were set forth in the certificate of merger, all obligations of each of the merged corporations; and at the same time, ‘all of the estate, property, rights, privileges and franchises' of each of the merged corporations were vested in the possessor corporation ‘but subject to all liabilities and obligations of such other corporation(s),‘ pursuant to the provisions of the above-mentioned New York statute.
At the time of each merger, the possessor corporation owned all the outstanding shares of stock of each of the merged corporations. But until immediately prior to each merger, the principal stockholder and also the president of each of the corporations involved was Ned L. Pines.
Subsequent to the effective date of the first merger on December 30, 1954, under which Best Books, Inc., was merged into Literary Enterprises, Inc., an application (Form 7004) for an extension of 90 days within which to file the income tax return of Best Books, Inc., for its taxable year 1954, was filed in said corporation's name with the district director of internal revenue in New York; and thereupon such extension of time was granted.
Subsequently, under date of June 13, 1955, the income tax return of Best Books, Inc., was filed. This return was prepared in the name of that corporation; was signed and verified by the above-mentioned Ned L. Pines, as president; and the corporation's seal was affixed thereto. The return made no mention that said corporation had theretofore been merged into Literary Enterprise, Inc.; and it also made no mention of the fact that the return was the final closing return for Best Books, Inc.
In said 1954 income tax return of Best Books, Inc., there was excluded from the corporation's taxable income, the amount of $21,451.64 representing cash prepayments received during said year for subscriptions to one of its magazines, Ranch Romances. This item was not separately identified in the return, but in the attached closing balance sheet for the year 1954, there was included among the listed liabilities, the following item:
The above-mentioned amount of $21,451.64,...
To continue reading
Request your trial
-
James M. Pierce Corporation v. CIR
...601, 9 L.Ed.2d 633 (1963); American Auto. Ass'n v. United States, 367 U.S. 687, 81 S.Ct. 1727, 6 L.Ed.2d 1109 (1961); Popular Library, Inc., 39 T.C. 1092, 1098 (1963). See Automobile Club v. Commissioner, 353 U.S. 180, 188-190, 77 S.Ct. 707, 1 L.Ed.2d 746 (1957). Cf. Beacon Publishing Co. v......
-
Pleasanton Gravel Co. v. Comm'r of Internal Revenue
...1938), affg. a Memorandum Opinion of this Court; Phillips v. Lyman H. Howe Films Co., 33 F.2d 891 (3d Cir. 1929); Popular Library Inc. v. Commissioner, 39 T.C. 1092 (1963). Petitioner argues that the Form 872 purporting to extend the statute of limitations to December 31, 1978, was not vali......
-
Springfield Productions, Inc. v. Commissioner
...of Michigan v. Commissioner, supra, and are apparently overruled. Bell Electric Co. v. Commissioner, supra; Popular Library Inc. v. Commissioner Dec. 26,041, 39 T.C. 1092 (1963). Accordingly, the entire $133,333.32 is includible in income in the 1965 taxable year. Concurrently, we must redu......
-
BJR Corp. v. Comm'r of Internal Revenue
...rev.); see Turnbull, Inc., 42 T.C. 582, 583—587, affirmed 373 F.2d 91 (5th Cir.), certiorari denied 389 U.S. 842; Popular Library, Inc., 39 T.C. 1092, 1099—1100; Texsun Supply Corp., 17 T.C. 433, 440—442; Shamrock Oil Co., 29 B.T.A. 910, 914—915, affirmed 77 F.2d 553 (5th Cir.); cf. A.D. Sa......