Revell, Inc. v. Riddell

• Decision Date: 23 March 1960
• Docket Number: No. 16331-16333.,16331-16333.
• Citation: 273 F.2d 649
• Parties: REVELL, INC., Appellant, v. Robert A. RIDDELL, District Director of Internal Revenue, and the United States of America, Appellees. William MALAT, Appellant, v. Robert A. RIDDELL, District Director of Internal Revenue, and the United States of America, Appellees. LOUIS LESSER ENTERPRISES et al., Appellant, v. Robert A. RIDDELL, District Director of Internal Revenue, and the United States of America, Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

273 F.2d 649 (1959)

REVELL, INC., Appellant, v. Robert A. RIDDELL, District Director of Internal Revenue, and the United States of America, Appellees.

William MALAT, Appellant, v. Robert A. RIDDELL, District Director of Internal Revenue, and the United States of America, Appellees.

LOUIS LESSER ENTERPRISES et al., Appellant, v. Robert A. RIDDELL, District Director of Internal Revenue, and the United States of America, Appellees.

Nos. 16331-16333.

United States Court of Appeals Ninth Circuit.

December 21, 1959.

Rehearing Denied March 23, 1960.

George T. Altman, Beverly Hills, Cal., for appellants.

Charles K. Rice, Asst. Atty. Gen., Meyer Rothwacks, Helen A. Buckley, Lee A. Jackson, Attys., Dept. of Justice, Washington, D. C., Laughlin E. Waters, U. S. Atty., Edward R. McHale, Asst. U. S. Atty., Los Angeles, Cal., for appellees.

Before STEPHENS, HAMLIN and JERTBERG, Circuit Judges.

JERTBERG, Circuit Judge.

We have before us three appeals in three separate cases. As the legal issue presented in the three cases is the same we granted leave to consolidate the cases for briefing and argument.

In each case the plaintiff sought to enjoin the collection of income and excess profits taxes which had been assessed and to cancel the purported assessment and any lien which may arise therefrom. In each case the district judge dismissed the action for lack of jurisdiction of the district court over the subject matter of the action. The order of dismissal by the district court in each case was based on Title 26 U.S.C.A. § 7421(a), Internal Revenue Code of 1954, which reads as follows:

"Prohibition of suits to restrain assessment or collection

"(a) Tax. — Except as provided in sections 6212(a) and (c), and 6213 (a), no suit for the purpose of restraining the assessment or collection of any tax shall be maintained in any court."

History of Case No. 16,331

If we have been successful in following the skein of circumstances leading up to the assessment in this case, the factual situation as gathered from the plaintiff's third amended complaint is as follows: The skein begins with the California corporation named Revell, Inc., whose capital stock was wholly owned by Lewis H. Glaser and Royle L. Glaser, husband and wife, which corporation will be referred to as Revell No. 1. Thereafter fifteen corporations were formed¹ which became transferee corporations of Revell No. 1. Seventy-five per cent of the capital stock of these transferee corporations was likewise owned by Mr. and Mrs. Glaser. In 1957 one of these transferee corporations, namely Cutlass Molds, Inc., the collection of whose taxes is in issue on this appeal, was merged into another transferee of Revell No. 1, namely S.U.S. 312 Molds, Inc. In 1958 Revell No. 1 was itself merged into S.U.S. 312 Molds, Inc., and later the name of S.U.S. 312 Molds, Inc. was changed to Revell, Inc., which we will hereafter refer to as Revell No. 2. Thus Revell No. 2 became the transferee of both Revell No. 1 and Cutlass Molds, Inc.

On December 2, 1957, the Commissioner of Internal Revenue sent three notices of tax deficiency determinations. One notice was sent to Cutlass Molds, Inc., one notice was sent to Revell No. 1 apparently as transferor of Cutlass Molds, Inc., and the third notice was sent to Mr. and Mrs. Glaser.

The notice sent to Cutlass Molds, Inc. stated: "You are advised that the determination of your income and excess profits tax liability for the taxable year ended March 31, 1954, discloses a deficiency of $2,659.54, as shown in the statement attached." In the attached statement appears the following:

"This determination of your income and excess profits tax liability has been made upon the basis of information on file with the Internal Revenue Service.

"It is determined that you and the following 14 corporations are transferee corporations of Revell, Inc., and the surtax exemption and excess profits credit claimed in your return are disallowed in accordance with the provisions of sections 15(c) and 129 of the Internal Revenue Code of 1939 26 U.S.C.A. §§ 15(c), 129 and sections 1551 and 269 of the Internal Revenue Code of 1954 26 U.S.C.A. §§ 1551, 269."

There is then listed the corporations listed in footnote 1 except Cutlass Molds, Inc.

"* * * You are allowed a surtax exemption of $1,562.50 and an excess profits credit of $1,562.50 which is your share of a single surtax exemption of $25,000.00 and a single excess profits credit of $25,000.00 allocated equally among you, Revell, Inc., and the above 14 transferee Corporations of Revell, Inc.

"Net Income

"The net income of $8,445.33 disclosed by your income tax return for the taxable year ended March 31, 1954, is accepted as correct.

"Excess Profits Net Income

"Inasmuch as no Corporation excess profits schedule has been filed, your excess profits net income is determined to be $8,445.33."

There then appears a detailed Computation of Tax, Summary thereof, and statement of deficiency.

On April 16, 1958 the deficiency in the tax was assessed, and thereafter the plaintiff Revell No. 2 filed its action in the district court to enjoin collection of such deficiency.

The second notice of tax deficiency determination was sent to Revell, Incorporated probably Revell No. 1, as transferor of Cutlass Molds, Inc. In the notice sent to Revell, Incorporated, it is stated: "You are advised that the determination of your income and excess profits tax liability for the taxable year ended June 30, 1954, discloses a deficiency of $155,809.03, as shown in the statement attached." In the attached statement appears the following:

"This determination of your income and excess profits tax liability has been made upon the basis of information on file with the Internal Revenue Service.

"It is determined that the income and deductions reported in the returns of the following 16 corporations represent income and deductions properly includible in your return for the taxable year ended June 30, 1954, within the meaning of sections 22(a) and 45 of the Internal Revenue Code of 1939 26 U.S.C.A. §§ 22(a), 45 and/or Sections 61(a) and 482 of the Internal Revenue Code of 1954 26 U.S.C.A. §§ 61(a), 482.

"In the alternative, it is determined that you are the transferer of the following indicated 15 corporations and the surtax exemption claimed in your return is disallowed in accordance with the provisions of sections 15(c) and 129 of the Internal Revenue Code of 1939 and/or sections 1551 and 269 of the Internal Revenue Code of 1954.

"You are allowed a surtax exemption of $1,562.50 which is your share of a single surtax exemption of $25,000.00 allocated equally among you and the 15 corporations indicated as your transferees."

There is then listed the corporations appearing in footnote 1 and another corporation which is designated as follows: "Stratojet Molds, Inc. (Not for transferee purposes)."

"* * * * * *

                                "Adjustments to Net Income
                                                Income Tax      Excess Profits
                                                Net Income        Net Income
                  "Net Income as disclosed by
                   return                       $ 43,332.04     $ 55,753.31
                  Unallowable deductions and
                   Additional Income
                   (a) Miscellaneous selling
                       expense                     1,800.00        1,800.00
                   (b) Legal expense                 529.25          529.25
                   (c) Additional income         237,146.81      237,146.81
                                                 ___________     ___________
                  Net Income, as adjusted        $282,808.10     $295,229.37
                "Explanation of Adjustments
                "(a) and (b) * * *
                "(c) The net of the incomes and deductions reported by the
                previously-listed 16 corporations during the taxable year ended
                June 30, 1954, are re-allocated to you as previously explained."
                

There then appears a detailed Computation of Tax, Summary thereof, and statement of deficiency.

A petition for redetermination of this deficiency determination was timely filed in the Tax Court of the United States, and such petition is pending and undetermined.

The third notice of tax deficiency determination was sent to Mr. and Mrs. Glaser. In the notice of tax deficiency determination sent to Mr. and Mrs. Glaser it is stated: "The determination of your income tax liability for the above taxable year taxable year ended December 31, 1954 discloses a deficiency or deficiencies in the amount shown above and in the statement attached." In the attached statement appears the following:

"This determination of your income and excess profits tax liability has been made upon the basis of information on file with the Internal Revenue Service.

* * * * * *

"Adjustments to Taxable Income

"(a) Your income is increased in the amount of $192,370.58 which constitutes 75% of the total incomes (or losses) of the so-called seventeen corporations listed below:"

There is then listed the corporations appearing in footnote 1 except Hot Rod Molds, Inc., and there is added three additional corporations, to-wit: Inter Con Molds, Inc., Stratojet Molds, Inc., and Bomber Molds, Inc.

"These seventeen entities are not recognizable for federal income tax purposes and the income allocated herein was generated by your efforts and disposed of under your direction and control. Accordingly, said income is reportable by you under the provisions of section 61(a) and/or 482 of the Internal Revenue Code of 1954."

There then appears a detailed Computation of Tax, and statement of deficiency.

A petition for the redetermination of this tax deficiency determination was timely filed by Mr. and Mrs. Glaser in the Tax Court of the United States. Said petition remains pending and undetermined.

History of Case No. 16,332

The tax curtain opens on 23 separate corporations and a partnership owned by these corporations.² Thereafter the 23 corporations and the partnership were dissolved and the assets transferred.

On March 4, 1958 the Commissioner of Internal Revenue sent five notices of tax deficiency determinations to William...