Rogers v. COMMISSIONER OF INTERNAL REVENUE
| Decision Date | 09 January 1935 |
| Docket Number | 55546.,Docket No. 45051,52449,52448 |
| Citation | 31 BTA 994 |
| Parties | MAY ROGERS, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. HORACE S. TUTHILL, JR., PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. EDNA MAY THRALL, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. |
| Court | U.S. Board of Tax Appeals |
Hugh Satterlee, Esq., and I. Herman Sher, Esq., for the petitioners
Mason B. Leming, Esq., for the respondent.
These proceedings were consolidated for hearing and report and involve the redetermination of deficiencies of $8,279.98 and $70,563.17 in income tax for 1925 in the cases of May Rogers and Horace S. Tuthill, Jr., respectively, and deficiencies of $70,095.85 and $1,936.32 in income tax for 1925 and 1928, respectively, in the case of Edna May Thrall. The sole issue in Docket No. 45051 is the fair market value on June 22, 1922, of common stock of the Sheffield Farms Co. and Sheffield Condensed Milk Co. In Docket Nos. 52448 and 52449 the question is the fair market value on September 1, 1919, of common stock of the companies just mentioned and the Sheffield By-Products Co., and, if certain stock of such corporations was acquired on July 29, 1921, by purchase rather than by way of gift, the cost thereof. The March 1, 1913, value of stock of the Sheffield By-Products Co. is also involved in Docket No. 52448. The question involved in Docket No. 55546 is the fair market value on certain dates of preferred stock of the Sheffield Farms Co., and, if a portion of the stock was acquired by purchase instead of by gift, the cost of such stock.
FINDINGS OF FACT.
The Sheffield Farms Co., hereinafter referred to as the Sheffield Co., upon its organization in 1902 under the laws of New York, with an authorized capital stock of 5,000 shares of common stock, each share of the par value of $100, took over the assets and business of a partnership and two corporations engaged in the sale of milk in New York City, in exchange for substantially all of its capital stock. The authorized capital stock of the Sheffield Co. was subsequently increased. The number of shares of stock outstanding at the times indicated was:
April 1, 1902, to March 1, 1909 _________________________ 5,000
January 1, 1910 _________________________________________ 5,930
January 1, 1911, to January 1, 1917 _____________________ 10,000
January 1, 1918, to January 1, 1920 _____________________ 13,298
January 1, 1921, to January 1, 1923 _____________________ 40,000
January 1, 1924 _________________________________________ 40,600
January 1, 1925 _________________________________________ 45,868
August 31, 1925 _________________________________________ 46,135
November 1925 ___________________________________________ 46,771
An issue of nonassessable preferred stock, par value $100, bearing 6 percent per annum cumulative dividends and redeemable after five years from the date of issue at $107.50, was authorized in 1911. The stock was issued from time to time during 1911 and 1917. From the close of 1917 through 1925 there were outstanding 15,000 shares of preferred stock, on which dividends of $90,000 per year were paid quarterly.
The business of the Sheffield Co. has always been principally the sale of milk at retail in and around New York City. In 1919 it was one of the largest distributors of milk in the territory in which it did business.
The tangible assets and surplus of the Sheffield Co. on the dates specified and the corporation's earnings for the fiscal periods ending on such dates, after deducting dividends paid on preferred stock, as reflected by the corporation's books were as follows:
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Date | Tangible assets | Earnings | Surplus
---------------------------------------------|-----------------|--------------|---------------
March 1, 1904 ______________________________ | $511,972.86 | $70,557.29 | $50,557.29
March 1, 1905 ______________________________ | 660,908.11 | 55,209.35 | 90,766.73
March 1, 1906 ______________________________ | 833,177.95 | 93,085.04 | 163,851.68
March 1, 1907 ______________________________ | 1,246,687.64 | 344,796.25 | 488,765.89
March 1, 1908 ______________________________ | 1,465,698.21 | 220,798.01 | 664,563.90
March 1, 1909 ______________________________ | 1,666,940.26 | 221,694.33 | 816,258.53
Dec. 31, 1909 ______________________________ | 2,061,325.11 | 266,939.54 | 965,758.21
Dec. 31, 1910 ______________________________ | 2,921,654.44 | 307,543.90 | 1,176,395.88
Dec. 31, 1911 ______________________________ | 3,551,579.51 | 291,142,43 | 1,307,538.31
Dec. 31, 1912 ______________________________ | 4,115,656.97 | 414,541.46 | 1,582,079.77
Dec. 31, 1913 ______________________________ | 5,026,408.12 | 419,115.12 | 1,868,694.89
Dec. 31, 1914 ______________________________ | 5,713,228.55 | 454,732.89 | 2,183,177.78
Dec. 31, 1915 ______________________________ | 6,248,171.46 | 311,241.30 | 2,349,669.08
Dec. 31, 1916 ______________________________ | 6,843,491.63 | 419,922.94 | 2,649,592.02
Dec. 31, 1917 ______________________________ | 8,044,150.08 | 303,136.41 | 3,003,293.33
Dec. 31, 1918 ______________________________ | 9,093,422.37 | 678,403.13 | 3,483,092.54
Dec. 31, 1919 ______________________________ | 9,881,859.84 | 707,565.10 | 3,920,975.41
Dec. 31, 1920 ______________________________ | 14,100,590.63 | 816,336.67 | 4,439,323.53
Dec. 31, 1921 ______________________________ | 14,581,341.55 | 271,588.76 | 4,470,912.29
Dec. 31, 1922 ______________________________ | 16,376,268.07 | 360,538.20 | 4,381,471.69
Dec. 31, 1923 ______________________________ | 18,194,558.32 | 910,854.03 | 5,009,025.72
Dec. 31, 1924 ______________________________ | 19,241,053.67 | 1,411,825.81 | 5,967,043.78
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Good will was carried on the books March 1, 1903, 1904, 1905, and 1906, at $302,436.51, $259,156.11, $239,460.52, and $154,640.26, respectively. Thereafter the item appeared in the books at a value of $302,436.51.
The tangible property of the Sheffield Co. was carried on its books from 1902 to 1920 at cost less depreciation. In 1920, as the result of an appraisal made by the Keystone Appraisal Co. between May 1 and August 30, 1919, under the direction of one of its officers with many years of experience as an appraiser, the Sheffield Co. increased the book value of its tangible assets by $2,549,250. The appraisal was made on the basis of reproduction costs, less depreciation for condition and known existing and future obsolescence.
The Sheffield Co. had a drivers' strike, beginning in 1921 and ending in 1922, which reduced its earnings during the period of the strike.
From 1910 to 1925, inclusive, the Sheffield Co. paid dividends on its common stock as follows:
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Year | Rate | Amount
---------------------------|---------|--------------
| Percent |
1910 _____________________ | ______ | $78,369.23
1911 _____________________ | 11 | 110,000.00
1912 _____________________ | 13 | 130,000.00
1913 _____________________ | 11 | 110,000.00
1914 _____________________ | 12 | 120,000.00
1915 _____________________ | 12 | 120,000.00
1916 _____________________ | 12 | 120,000.00
1917 _____________________ | ______ | 130,298.00
1918 _____________________ | 14 | $186,172.00
1919 _____________________ | 12 | 159,576.00
1920 _____________________ | 15 | 199,470.00
1921 _____________________ | 6 | 240,000.00
1922 _____________________ | 6.5 | 260,000.00
1923 _____________________ | 7 | 283,300.00
1924 _____________________ | 8 | 358,578.50
1925 _____________________ | 5 | 229,894.00
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The sales of milk of the Sheffield Co. from 1904 to 1910 averaged $2,788,945 per year. The average number of routes which it owned each year from 1910 and the average number of quarts of milk sold daily on such routes each year, together with the amount of sales for each year, were:
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| | Average |
Year | Average | number | Selling
| number | of quarts | price
| of routes | sold |
---------------------------|-----------|-----------|------------------
1910 _____________________ | 420 | 102,949 | $5,398,804
1911 _____________________ | 514 | 121,658 | 6,298,875
1912 _____________________ | 538 | 132,081 | 7,388,986
1913 _____________________ | 744 | 184,952 | 9,441,339
1914 _____________________ | 835 | 209,936 | 10,636,457
1915 _____________________ | 904 | 226,740 | 11,606,269
1916 _____________________ | 979 | 246,315 | 13,473,027
1917 _____________________ | 864 | 199,921 | 16,673,305
1918 _____________________ | 898 | 240,118 | $26,344,010
1919 _____________________ | 1,047 | 280,703 | 32,615,817
1920 _____________________ | 1,181 | 327,133 | 38,909,566
1921 _____________________ | 1,286 | 363,867 | 35,915,818
1922 _____________________ | 1,388 | 383,374 | 34,611,885
1923 _____________________ | 1,407 | 414,679 | 41,032,448
1924 _____________________ | 1,654 | 483,718 | 44,666,750
1925 _____________________ | 1,889 | 549,023 | 53,180,886
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The fair market...
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