Stifel v. COMMISSIONER OF INTERNAL REVENUE
| Decision Date | 21 February 1934 |
| Docket Number | Docket No. 60738-60740. |
| Citation | 29 BTA 1145 |
| Parties | ARTHUR C. STIFEL, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. EDWARD W. STIFEL, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. HENRY G. STIFEL, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. |
| Court | U.S. Board of Tax Appeals |
J. Robert Sherrod, Esq., for the petitioners.
E. L. Corbin, Esq., for the respondent.
Petitioners seek a redetermination of deficiencies in income tax for the calendar year 1928 in the respective amounts of $104, $466.30, and $458.71. Approximately $16,760 is in controversy, due to the contention of each petitioner that he has overpaid his tax liability for the year in question. The error assigned in each petition is identical and is as follows:
The Commissioner of Internal Revenue has erroneously included in net income distributions received by the petitioner from the J. L. Stifel & Sons Company in the amount of $42,268.21 for the year 1928, which amount was paid from capital of the corporation.
The proceedings were submitted upon the pleadings. The following summary of the facts alleged in the petitions and admitted by respondent in his answers will be sufficient for the purposes of this report.
Each petitioner is an individual, with his residence and place of business in Wheeling, West Virginia. Each petitioner filed his income tax return for the calendar year 1928 on the following dates, showing the following tax liabilities:
Arthur C. Stifel, March 16, 1929 ______________________ $20,270.91
Edward W. Stifel, March 19, 1929 ______________________ 24,504.20
Henry G. Stifel, March 25, 1929 _______________________ 17,747.46
J. L. Stifel & Sons, a corporation, was organized on June 1, 1920, and acquired the business of J. L. Stifel & Sons, a copartnership, for 12,000 shares of $100 par value preferred stock and 60,000 shares of no par value common stock. The common stock was set up on the corporation's books at $30 a share.
Each petitioner herein owns 20,000 shares of the no par common stock and 4,000 shares of the preferred stock of J. L. Stifel & Sons.
The fair market value of the assets paid in for the preferred and common stock of J. L. Stifel & Sons on June 1, 1920, was $3,326,502.88, which was set up on the books of the corporation as follows:
Preferred stock ________________________ $1,200,000.00
Common stock, no par value _____________ 1,800,000.00
Paid-in surplus ________________________ 326,502.88
_____________
Total _____________________________ 3,326,502.88
For the seven-month period from June 1 to December 31, 1920, and for each of the calendar years 1921 to 1928, inclusive, the operating profits and losses of J. L. Stifel & Sons were as follows:
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Year | Income | Losses
-----------------------------|-------------|--------------
1920 (7 mos.) ______________ | ___________ | $532,026.24
1921 _______________________ | $192,406.60 | ____________
1922 _______________________ | 335,159.73 | ____________
1923 _______________________ | 311,492.92 | ____________
1924 _______________________ | 125,788.25 | ____________
1925 _______________________ | $149,637.53 | ____________
1926 _______________________ | 105,592.64 | ____________
1927 _______________________ | 179,542.81 | ____________
1928 _______________________ | ___________ | $39,059.87
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From the date of its organization up to January 1, 1929, J. L. Stifel & Sons made the following distributions on its capital stock:
1922 _______________________ $104,000
1923 _______________________ 204,000
1924 _______________________ 180,000
1925 _______________________ 180,000
1926 _______________________ $180,000
1927 _______________________ 126,000
1928 _______________________ 180,000
In his income tax return each petitioner included as dividends distributions of $60,000 received from J. L. Stifel & Sons, a corporation, in 1928.
The respondent in determining the deficiencies herein made several minor corrections in petitioners' returns, which are not disputed here, but did not change the amount of dividends each petitioner reported as set forth in the preceding schedule.
Each petitioner now contends that under section 115 (a) and (b) of the Revenue Act of 1928 only $17,731.79 of the $60,000 received is taxable as a dividend, and that the balance, or $42,268.21, is a distribution of capital and is not taxable. The respondent contends that each petitioner is taxable on the full $60,000 received.
For the purpose of clearly illustrating the manner in which petitioners and respondent arrive at their respective results, the detailed computation of each is set forth in the following schedule:
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