Premier Packing Co. v. COMMISSIONER OF INTERNAL REVENUE
| Decision Date | 15 June 1928 |
| Docket Number | Docket No. 10192. |
| Citation | 12 BTA 637 |
| Parties | PREMIER PACKING CO., PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. |
| Court | U.S. Board of Tax Appeals |
Ralph W. Smith, Esq., and Claude I. Parker, Esq., for the petitioner.
A. H. Fast, Esq., for the respondent.
This proceeding results from the determination of a deficiency in income and profits taxes for the month of February, 1918, amounting to $18,364.70.
Petitioner alleges error in that (1) respondent in computing the taxable net income, included the sum of $36,860.08 as gain derived in the sale and transfer of its assets to another corporation, when in fact no profit accrued; (2) assessment and collection of the deficiency is barred due to the expiration of the statutory period provided therefor; (3) in computing the amount of the deficiency credit has not been given for any part of the tax amounting to $1,278.17 which was reported and paid on the return of petitioner for the fiscal year ended January 31, 1919, filed in June, 1919.
FINDINGS OF FACT.
Petitioner, a California corporation, was organized in 1914, with its principal place of business at San Diego, for the business of packing and marketing tuna fish.
The packing of tuna fish on the Pacific coast first assumed important proportions in the year 1909. In 1917 an unusually large catch of fish and an extraordinary demand for the canned fish coupled with high selling prices combined to make that year the most profitable ever known to the industry. In consequence, at the beginning of 1918 prospects appeared bright to a number of men of experience in the business, and they formed a plan to organize a large corporation and purchase the assets and businesses of four fish-packing companies, including petitioner. It was recognized that additional cash capital would be required and this was arranged for through subscriptions for capital stock, in part by parties already interested in the predecessor corporations and to a small extent from others who may be designated as outsiders. Accordingly, a corporation, known as the International Packing Corporation, hereafter referred to as the "new corporation," was organized with authorized capital stock of 10,000 shares, par value $100. In January, 1918, a group of men headed by W. V. Ambrose purchased all of the capital stock of petitioner for $100,000 and the latter became president of the corporation, his associates being elected as directors. All of these parties were active promoters of the organization of the new corporation and the following month that corporation took over all of the assets of petitioner and of three other corporations and assumed all the liabilities of petitioner.
B. Haussels sold out his interest in another corporation, the Long Beach Tuna Packing Co., not a party to the consolidation, and invested the proceeds in the capital stock of the new corporation with the understanding that he would be elected its president. C. E. Van Landingham was a broker handling fish products and it was agreed he would have the general sales agency for the products of the new corporation. The so-called "outsiders" were friends of B. Haussels, who followed his lead in investing in the new corporation.
Capital stock of the new corporation was issued as follows, in February, 1918, for assets and cash:
-----------------------------------------------------------------------
| Shares | Par value
---------------------------------------------------|--------|----------
For assets: | |
To petitioner ________________________________ | 1,250 | $125,000
To Pacific Tuna Canning Co ___________________ | 1,090 | 109,000
To San Pedro Packing Co ______________________ | 1,250 | 125,000
To Pioneer Fish Production Co ________________ | 300 | 30,000
|________|_________
Total _______________________________________ | 3,890 | 389,000
|========|=========
For cash at par: | |
To promoters _________________________________ | 1,815 | 181,500
To outsiders _________________________________ | 305 | 30,500
|________|_________
Total _______________________________________ | 2,120 | 212.000
|========|=========
Grand total _________________________________ | 6,010 | 601,000
-----------------------------------------------------------------------
This issue of stock for assets was on the basis of book values determined by the parties to the transaction, plus appreciation of such values for the purposes of the deal as follows:
-------------------------------------------------------------------------------
| Book assets | Appreciated | Total
-----------------------------------------|-------------|-------------|---------
Petitioner _____________________________ | $92,661.09 | $32,338.91 | $125,000
Pacific Tuna Canning Co ________________ | 104,861.76 | 55,138.24 | 160,000
San Pedro Packing Co ___________________ | 107,820.14 | 17,179.86 | 125,000
Pioneer Fish Production Co _____________ | 30,000.00 |____________ | 30,000
|_____________|_____________|__________
Total _____________________________ | 335,342.99 | 104,657.01 | 440,000
---------------------------------------------------------------------------------
In addition to the issue of 1,090 shares of stock, the new corporation paid the Pacific Tuna Packing Co. for its assets the sum of $51,000 in cash.
The fair market value of the 1,250 shares of stock issued to petitioner for its assets was $88,139.92.
The shares of stock which were issued to petitioner were, the same date, reissued to the stockholders of petitioner.
Petitioner kept its books and filed its income-tax returns on the basis of a fiscal year ending on January 31. It filed a return for the fiscal year ended January 31, 1919, on June 16, 1919, showing a tax liability of $1,278.17, which was paid by the new corporation and no profit was reported in this return on account of the transfer of its assets to that corporation. Subsequent to the end of its fiscal year 1919, but prior to filing the return, petitioner had failed to pay the California license tax and under date of March 1, 1919, its rights, privileges and powers under state law were suspended and they remain suspended. Petitioner has never been formally dissolved but has carried on no activities since February, 1918. R. D. Steel, Will E. Keller and W. V. Ambrose were the last elected and qualified directors and the first named is the last elected secretary of petitioner. The by-laws of petitioner provided as follows:
The Directors shall have power:
To appoint and remove at pleasure all officers, agents, and employees of the Corporation, prescribe their duties, fix their compensation, and require of them security for faithful service.
To conduct, manage and control the affairs and business of the Corporation, and to make rules and regulations not inconsistent with the laws of the State of California, or the By-Laws of the Corporation, for the guidance of the officers and the management of the affairs of the Corporation.
ARTICLE VII. President.
2nd. He shall sign, as President, all Certificates of Stock, and all contracts and other instruments in writing which have been first approved by the Board of Directors, and shall draw checks upon the Treasurer.
ARTICLE VIII. Secretary.
The Board of Directors shall elect a Secretary.
1st. It shall be the duty of the Secretary to keep a record of the proceedings of the Board of Directors and of the stockholders 2nd. He shall keep the Corporate Seal of the Corporation and the book of blank Certificates of Stock, fill up and counter-sign all Certificates issued, and make the corresponding entries in the margin of such books of issuance; and he shall affix said Corporate Seal to all papers requiring a seal.
3rd. He shall keep a proper transfer book and a stock ledger in debit and credit form, showing the number of shares issued to and transferred by any stockholder; and the dates of such issuance and transfer.
4th. He shall keep proper account books and discharge such other duties as pertain to his office, and as are prescribed by the Board of Directors.
5th. The Secretary shall serve all notices required either by law, or by the By-Laws of the Company; and in case of his absence, inability, refusal or neglect so to do, then such notices may be served by any person thereunto directed by the President or Vice-President of the Company.
In October, 1922, an instrument was executed as follows:
WHEREAS, a field examination has been made of the books and returns of the PREMIER PACKING CO. OF CALIF., a corporation organized under the laws of the State of California, but now dissolved, as a result of which an additional tax was recommended for the fiscal years ended January 31, 1917 and 1918, and for the month of February, 1918, in the aggregate amount of $27,864.14; and
WHEREAS, the former officers of said corporation do not agree with the recommendations made by the field Revenue Agent and desire to submit for the consideration of the Income Tax Unit a statement setting forth their contentions in the premises, and desire further to have said statement given full and careful consideration by the officials of the Income Tax Unit before final determination of the tax liability for said periods is made;
THEREFORE, the undersigned, on behalf of the Premier Packing Co. of California, a corporation now dissolved, in consideration of the assurances given them by the officials of the Income Tax Unit of the Bureau of Internal Revenue that the liability...
To continue reading
Request your trial