Stoffregen v. Moore

• Decision Date: 26 March 1920
• Docket Number: 4673.
• Parties: STOFFREGEN v. MOORE, Internal Revenue Collector.
• Court: U.S. District Court — Eastern District of Missouri

264 F. 232

STOFFREGEN v. MOORE, Internal Revenue Collector.

No. 4673.

United States District Court, E.D. Missouri, Eastern Division.

March 26, 1920

Jourdan Rassieur & Pierce and John M. Goodwin, all of St. Louis, Mo for plaintiff.

Benj. L. White, Asst. U.S. Atty., and A. L. Boulware, Sp. Asst U.S. Atty., of Washington, D.C., for defendant.

FARIS District Judge.

Plaintiff sued defendant, as collector of internal revenue of the United States for the First district of Missouri to recover the sum of $9,678.54 paid by plaintiff under protest as income tax for the year 1913. There is no dispute about the facts, which in brief substance run thus:

Plaintiff and one Steinwender, long partners in business in the city of St. Louis, as dealers in coffees, teas, and spices incorporated their business under the laws of Missouri in 1896, and said business ever since has been and now is a corporation of Missouri under the name and style of Steinwender-Stoffregen Coffee Company (hereafter I shall refer to this corporation simply as the company). When incorporated, the capital stock of the company was $150,000, divided into 1,500 shares of the par value of $100 each. Of these shares, Steinwender owned 750, plaintiff owned 749, and one Carl Stoffregen, the son of plaintiff, owned 1. These three persons constituted all of the shareholders and directors of the company till June, 1912, when Steinwender died. In September, 1913, plaintiff purchased the interest of Steinwender in the company, under orders duly made by the probate court of the city of St. Louis. Plaintiff paid for this Steinwender interest the full book value thereof, to wit, $339,380.02, in cash.

After the death of Steinwender, but before the purchase by plaintiff of the interest of the former's estate in the company, and on October 3, 1913, the Income Tax Act, under which the defendant collected the money in controversy, took effect, as of March 1, 1913. Act Oct. 3, 1913, 38 Stat. 166, c. 16, Sec. 2. From the year 1898 until December 26, 1913, the company declared no dividends whatever, but carried its annual earnings on its books to the credit of the surplus account. On December 1, 1912, which date seems to have been the end of the company's fiscal year, this surplus account amounted to $569,111, omitting odd cents as unnecessary to this statement or to the argument. On December 1, 1913, this surplus had grown to $631,826, thus showing the company's income for its fiscal year 1913 to have been $62,715.

In December, 1913, for a reason not particularly pertinent here (but which may be briefly stated as the desire of plaintiff to reward certain faithful employes with an interest in the company), the capital stock of the company was increased from the original 1,500 shares to 5,000 shares, likewise of the par value of $100 each. In order to put these new shareholders on an equality with plaintiff and his son, who were then the owners of all of the original stock of the company, the company declared a dividend of all existing surplus, amounting then, as already stated, to the sum of $631,826, and passed this dividend to the credit of the plaintiff on the books of the company. This surplus was then represented almost wholly by goods, wares, and merchandise upon the shelves and in the warehouses of the company, and by solvent accounts and bills receivable, it is to be assumed, since it then had only some $3,000 in cash on hand. Against this credit, so transferred to plaintiff on the books of the company, there was at once made a charge of $350,000, being the aggregate of the amounts advanced by plaintiff as loans made by him to the new shareholders, in order that the latter might acquire shares in the company. The balance of this dividend, so credited to plaintiff, as above stated, was subsequently, and at some indefinite time prior to June, 1915, paid to him by the company presumably in cash.

Thus in brief, run so many of the facts as I deem pertinent to the contentions made, respectively, by plaintiff and the defendant. Substantially the contention of the plaintiff is that he is bound by the provisions of the Income Tax Act, supra, to pay a tax only on such income as accrued to him from his part of the earnings of the company after the 1st day of March, 1913. The defendant contends that plaintiff is bound to pay an income tax on the whole of the surplus of the company which was transferred to the credit of plaintiff on December 26, 1913, to wit, $631,826, less, of course, the sum in cash paid by plaintiff to the estate of Steinwender for the interest in the company of the latter, to wit, the sum of $339,380. The exact figures I do not regard as material, for upon the trial it seems to have been assumed that the sum exacted from plaintiff was the correct amount due from him, if he was by law subject to pay a tax on this dividend at all. Likewise, therefore, it seems to have been assumed that, if plaintiff is entitled to recover at all, the sum sued for is the correct sum due to him. The question, in short, is: Does the dividend declared to plaintiff, and...