Slover v. Comm'r of Internal Revenue
| Decision Date | 29 April 1946 |
| Docket Number | 7573,7593,Docket Nos. 7557,7592,7594,7595. |
| Parties | SAMUEL L. SLOVER, PETITIONER, ET AL.,1 v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
Corporate transferee of property held not to have ‘inherited‘ earnings and profits of transferor corporation under doctrine of Commissioner v. Sansome, 60 Fed.(2d) 931, where, on reorganization, receipt of transferee's stock by transferor's sole stockholder (petitioner) had been taxed as ordinary dividend. Charles L. Kaufman, Esq., for the petitioners.
Elmer L. Corbin, Esq., for the respondent.
Petitioners in these consolidated cases seek redetermination of deficiencies in Federal income tax as follows:
+----------------------------------------------------------------------+
¦Petitioner ¦Year 1940¦Year 1941¦Total ¦
+----------------------------------------+---------+---------+---------¦
¦Samuel L. Slover ¦$907.74 ¦$6,762.00¦$7,669.74¦
+----------------------------------------+---------+---------+---------¦
¦Fay Slover ¦1,980.76 ¦20,496.95¦22,477.71¦
+----------------------------------------+---------+---------+---------¦
¦Henry S. Lewis ¦47.97 ¦822.09 ¦870.06 ¦
+----------------------------------------+---------+---------+---------¦
¦Mary Sheild Lynch ¦69.80 ¦898.93 ¦968.73 ¦
+----------------------------------------+---------+---------+---------¦
¦Howard G. Martin ¦52.80 ¦1,038.49 ¦1,091.29 ¦
+----------------------------------------+---------+---------+---------¦
¦James G. Martin, Jr., and Anne T. Martin¦27.34 ¦982.06 ¦1,009.40 ¦
+----------------------------------------------------------------------+
The single question, common to all petitioners, is whether distributions to petitioners during the taxable years by a realty corporation which had received its assets on a reorganization were dividends or distributions of capital.
The cases were submitted on the pleadings and a stipulation of facts.
The stipulated facts are hereby found accordingly. They disclose the following:
Petitioners are all residents of Norfolk, Virginia. They duly filed their respective income tax returns for the years in question with the collector of internal revenue at Richmond, Virginia.
In determining the deficiencies involved, respondent included in the income of the respective petitioners for the calendar year 1940 and 1941 the following sums representing distributions made in those years to the respective petitioners by the Fayver Realty Corporation, a Virginia corporation (hereinafter sometimes referred to as Fayver):
+------------------------------------------------------------+
¦Petitioner ¦Year 1940¦Year 1941¦
+----------------------------------------+---------+---------¦
¦Samuel L. Slover ¦$1,375.37¦$9,800 ¦
+----------------------------------------+---------+---------¦
¦Fay Slover ¦4,912.01 ¦35,000 ¦
+----------------------------------------+---------+---------¦
¦Henry S. Lewis ¦392.96 ¦2,800 ¦
+----------------------------------------+---------+---------¦
¦Mary Sheild Lynch ¦392.96 ¦2,800 ¦
+----------------------------------------+---------+---------¦
¦Howard G. Martin ¦392.96 ¦2,800 ¦
+----------------------------------------+---------+---------¦
¦James G. Martin, Jr., and Anne T. Martin¦392.96 ¦2,800 ¦
+------------------------------------------------------------+
Fayver was organized on or about June 17, 1935, and by deed dated July 5, 1935, the S. L. Slover Corporation, also a Virginia corporation, pursuant to a plan of reorganization, as defined by section 112(g)(1)(C) of the Revenue Act of 1934, transferred and conveyed to Fayver properties (which were principally real property) having an aggregate fair market value of $120,161.20 at the time of the transfer.
At the time of the transfer the S. L. Slover Corporation had assets which were carried on its books at a total cost of $1,637,904.13 (including the transferred properties, which were carried on its books at their aggregate cost of $531,656.11), and then had undistributed earnings accumulated since March 1, 1913, of $941,080.97. The transfer of the properties was made in exchange for all of Fayver's capital stock, consisting of 1,000 shares of common stock without par value, which stock was contemporaneously distributed to Samuel L. Slover an income tax thereon in the amount of $62,405.60 for the year 1935, which, together with the interest upon it, has been fully paid by Samuel L. Slover.
Since Fayver's organization on June 17, 1935, its earnings and distributions have been as follows:
+----------------------------------------------------------------+
¦Year¦Earnings ¦Distributions¦Year¦Earnings ¦Distributions¦
+----+---------------+-------------+----+----------+-------------¦
¦1935¦1 ($1,425.50)¦None ¦1939¦$92.22 ¦$12,000 ¦
+----+---------------+-------------+----+----------+-------------¦
¦1936¦(298.01) ¦None ¦1940¦184.36 ¦10,000 ¦
+----+---------------+-------------+----+----------+-------------¦
¦1937¦2,115.61 ¦$6,000 ¦1941¦(8,261.43)¦70,000 ¦
+----+---------------+-------------+----+----------+-------------¦
¦1938¦657.23 ¦None ¦ ¦ ¦ ¦
+----------------------------------------------------------------+
All earnings and profits of Fayver, accrued since its organization, have been distributed and treated by both Fayver and its stockholders as ordinary taxable dividends.
During the years 1940 and 1941 Fayver sold certain of the properties acquired by it from the Slover Corporation, and the proceeds of the sales were distributed by Fayver to its stockholders on a ratable basis, pursuant to resolutions duly adopted by its board of directors providing for the distribution thereof as liquidating dividends and directing that at the time of the respective distributions Fayver's secretary place suitable legends evidencing such liquidating distributions on Fayver's outstanding stock certificates. This was done by the secretary.
During the years 1940 and 1941 petitioners respectively owned the following number of shares of stock of Fayver:
+----------------------------------------------------------------+
¦Samuel L. Slover ¦140 shares¦Howard G. Martin ¦40 shares¦
+-----------------+----------+-------------------------+---------¦
¦Fay Slover ¦500 shares¦James G. Martin, Jr., and¦ ¦
+-----------------+----------+-------------------------+---------¦
¦Henry S. Lewis ¦40 shares ¦wife ¦40 shares¦
+-----------------+----------+-------------------------+---------¦
¦Mary Sheild Lynch¦40 shares ¦ ¦ ¦
+----------------------------------------------------------------+
The Fayver stock owned by petitioners Fay Slover, Henry S. Lewis, Mary Shield Lynch, Howard G. Martin, and James G. Martin, Jr., was acquired by them prior to the year 1940, through gifts from Samuel L. Slover.
During 1940 and 1941 petitioners received distributions from Fayver in the following amounts, which they treated in the manner indicated:
+-----------------------------------------------------------------------------+
¦ ¦ ¦Earnings since ¦Remainder of distribution ¦
¦ ¦Total ¦organization ¦treated as a return of capital¦
¦ ¦distribution ¦treated as taxable ¦in reduction of basis of stock¦
¦ ¦ ¦income ¦ ¦
+------------+-------------+-------------------+------------------------------¦
¦ ¦1940 ¦1941 ¦1940 ¦1941 ¦1940 ¦1941 ¦
+------------+------+------+-----------+-------+------------------+-----------¦
¦Samuel L. ¦$1,400¦$9,800¦$24.63 ¦None ¦$1,375.37 ¦$9,800 ¦
¦Slover ¦ ¦ ¦ ¦ ¦ ¦ ¦
+------------+------+------+-----------+-------+------------------+-----------¦
¦Fay Slover ¦5,000 ¦35,000¦87.99 ¦None ¦4,912.01 ¦35,000 ¦
+------------+------+------+-----------+-------+------------------+-----------¦
¦Henry S. ¦ ¦ ¦ ¦ ¦ ¦ ¦
¦Lewis------)¦ ¦ ¦ ¦ ¦ ¦ ¦
+------------+------+------+-----------+-------+------------------+-----------¦
¦Mary Sheild ¦ ¦ ¦ ¦ ¦ ¦ ¦
¦Lynch------)¦ ¦ ¦ ¦ ¦ ¦ ¦
+------------+------+------+-----------+-------+------------------+-----------¦
¦Howard G. ¦ ¦ ¦ ¦ ¦ ¦ ¦
¦Martin-----)¦400 ¦2,800 ¦7.04 ¦None ¦392.96 ¦2,800 ¦
¦each ¦ ¦ ¦ ¦ ¦ ¦ ¦
+------------+------+------+-----------+-------+------------------+-----------¦
¦James G. ¦ ¦ ¦ ¦ ¦ ¦ ¦
+------------+------+------+-----------+-------+------------------+-----------¦
¦Martin,Jr.,)¦...To continue reading
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