Scott v. Self
| Decision Date | 12 November 1953 |
| Docket Number | No. 14837.,14837. |
| Citation | 208 F.2d 125 |
| Parties | SCOTT v. SELF, Acting Collector of Internal Revenue. |
| Court | U.S. Court of Appeals — Eighth Circuit |
Herschel H. Friday, Jr., and W. H. Donham, Little Rock, Ark. (Pat Mehaffy and W. J. Smith, Little Rock, Ark., on the brief), for appellant.
Cecelia H. Goetz, Special Asst. to the Atty. Gen. (H. Brian Holland, Asst. Atty. Gen., Ellis N. Slack, Alonzo W. Watson, Jr., Special Assts. to the Atty. Gen., and James T. Gooch, U. S. Atty., Little Rock, Ark., on the brief), for appellee.
Before GARDNER, Chief Judge, and WOODROUGH and COLLET, Circuit Judges.
This appeal is from a judgment of dismissal of an action brought by appellant against W. D. Self, Acting Collector of Internal Revenue for the District of Arkansas, to recover certain federal income taxes alleged to have been erroneously assessed and collected. The taxes for the recovery of which the action was brought were assessed against appellant for the taxable year 1943. The taxpayer alleged that the income involved was the income of a partnership composed of himself and his wife, Juliette B. Scott, whereas the Collector contended that no valid partnership existed and that the entire income was in fact earned by taxpayer.
At the beginning of the year 1942 the Scott Paper Box Company was a corporation, the Alton Paper Box Company being the majority stockholder, holding 351 of the 700 shares of stock outstanding. The Scott company was indebted to the Alton company in the amount of $80,000. The taxpayer acquired all the stock held by the Alton company, taking the stock in the name of the Scott company, which stock so acquired was retired and as a result the outstanding stock of the Scott corporation was reduced to 349 shares, the outstanding certificates representing these shares standing in taxpayer's name except one qualifying share which stood in his wife's name. These certificates of stock were then cancelled and new certificates were thereupon issued, 174 shares being issued to Juliette B. Scott and 175 shares to L. W. Scott. The stock certificate issued to Juliette B. Scott remained in the possession of L. W. Scott at all times. At a meeting of the Board of Directors of the Scott corporation September 21, 1942, a resolution was adopted to dissolve the corporation, which recited that L. W. Scott and his wife, Juliette B. Scott, were the owners and holders of all the issued and outstanding capital stock, and that they proposed and agreed to assume and pay all the corporate indebtedness of the company and to surrender for cancellation all of their stock to the company in consideration for the conveyance and transfer to them of all the property and assets of the company. Juliette B. Scott was not present at this meeting and had slight, if any, knowledge of the action taken. From September 21, 1942 until dissolution of the alleged partnership the business was operated in name as a purported partnership, but was actually operated as a sole ownership by L. W. Scott who made the decisions and earned the income. There was no evidence in the record that Juliette B. Scott ever had any information of what the earnings of the business were, what business the company was doing, or its financial condition. The court found that Juliette B. Scott did not at any time knowingly intend to join together with taxpayer as a partner and to assume the responsibilities and perform any duties as such partner, and that she performed none; that she contributed no independent funds or assets to the partnership at or after the dissolution of the corporation and that her interest, if any, was dependent upon the alleged gift of the corporate stock from her husband, L. W. Scott; that during the tax period in question Juliette B. Scott received no income by reason of any interest she might have had in the alleged partnership, but that such payments she might have received were paid under the obligation of L. W. Scott as her husband and as father of their children; that Juliette B. Scott actually knew nothing of the affairs of the business, and with her background and experience was probably incapable of understanding the affairs fully, even if she had been told; that her signature upon papers, writings and documents was placed there at the direction of her husband and that at the time she signed her name she did not even know the nature of the documents and she did not know their purport or import; and that the so-called partnership was created solely for the purpose of reducing income taxes. Further facts will be developed in the course of this opinion. The court found all the issues in favor of the Collector and from the judgment entered dismissing the action on its merits this appeal is prosecuted.
In his brief appellant predicates his right to reversal upon two issues, (1) that there was a bona fide completed gift for tax purposes of the stock of the Scott Paper Box Company by the taxpayer prior to the dissolution of that corporation and (2) that there was a valid partnership for tax purposes between appellant and his wife, Juliette B. Scott.
It must be conceded that if the Court's findings are sustained by the evidence its judgment was correct. The contention here, however, is that these findings were not sustained by substantial evidence. The findings are presumptively correct and should not be set aside unless clearly erroneous, due regard being given to the opportunity of the trial court to judge of the credibility of the witnesses. Rule 52(a), Federal Rules of Civil Procedure, 28 U.S.C.A. It stands without dispute that the business which in 1943 produced the income here in dispute was as early as 1930 owned solely by appellant. It continued to be operated and controlled by him until 1937 when it was incorporated under the name of Scott Paper Box Company. At that time 351 shares of stock were owned by the Alton Paper Box Company, 348 shares by appellant and one share by appellant's wife. The corporation was indebted to the Alton Paper Box Company to the extent of $80,000. In 1942 appellant purchased the stock of the Alton Paper Box Company and that stock was then retired. The stock certificate representing 348 shares which had been issued to him and the certificate for one share which had been issued to his wife were then cancelled and in lieu thereof a certificate for 175 shares was issued to appellant and a certificate for 174 shares was issued to his wife. Neither at that time nor at any prior time had his wife contributed any money or property to the business, but it is claimed that the stock so issued to her was a gift from appellant. The certificate standing in her name remained in the stockbook and while she signed the formal receipt shown on the stub, she also signed an assignment of the stock, this assignment being printed on the reverse side of the stock certificate. There was no manual delivery of the certificate to her but it remained in the custody of appellant and under his sole control. She testified that she signed the certificate because her husband directed her to do so and not because she desired to do so or understood the nature of the ownership change. Following this stock transaction the directors of the corporation passed a resolution authorizing and directing the sale of all the corporate assets to the appellant and his wife, in consideration for which the vendees were to assume and pay all corporate obligations and pursuant to this resolution there was an assignment and transfer of all the corporate property to appellant and his wife as purported partners. Appellant's wife did not attend the meeting authorizing this transaction and apparently knew but little, if anything, as to its import.
Whether or not appellant's wife contributed any capital to the alleged partnership is dependent on whether she was in fact the owner of the stock represented by the certificate standing in her name and this ownership in turn is dependent upon whether it constituted a completed gift to her from her husband. To constitute a completed gift inter vivos there must be proof of...
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