THE ARDBERN COMPANY LIMITED v. COMMISSIONER OF INTERNAL REVENUE, Docket No. 90881.
| Citation | 41 BTA 910 |
| Decision Date | 23 April 1940 |
| Docket Number | Docket No. 90881. |
| Parties | THE ARDBERN COMPANY, LIMITED, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. |
| Court | U.S. Board of Tax Appeals |
J. Sterling Halstead, Esq., for the petitioner.
W. Frank Gibbs, Esq., for the respondent.
Respondent determined deficiencies in petitioner's income tax liability, and penalties, as follows:
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Year | Deficiency | 25% penalty | 50% penalty
-------------------------------------------------------|------------|-------------|------------
1929__________________________________________________ | $9,376.77 | $2,344.19 | $4,688.39
1930__________________________________________________ | 2,365.03 | 591.26 | None
1931__________________________________________________ | 1,185.51 | 296.38 | None
1932__________________________________________________ | 6,854.56 | 1,713.64 | None
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The issues presented for decision are (1) whether petitioner, a foreign corporation, is entitled to the benefit of any deductions in computing its taxable income, where it failed to file with the proper collector of internal revenue income tax returns for any of the years involved until (a) after respondent had made his determination of deficiencies and mailed notice thereof, and (b) until subsequent to the filing of the petition and answer and the proceeding was at issue before the Board; (2) whether assessment and collection of the deficiencies are barred by limitations; (3) whether a certain sale of stock of the Bank of America made by petitioner in 1929 was consummated in the United States so that the gain derived therefrom constituted income from sources within the United States subject to United States income tax; (4) whether petitioner realized taxable income in 1932 by reason of distributions made to it by the Suffolk Corporation of Delaware or Suffolk Co., Ltd., a foreign corporation; and (5) whether petitioner is liable for delinquency penalties because of its failure to make and file income tax returns for the taxable years within the time prescribed by law.
FINDINGS OF FACT.
Petitioner, now dissolved, was during the taxable years a corporation organized under the laws of the Colony of Newfoundland about February 1929. It was formed by B. T. Feustman as his personal holding corporation. At the time of its organization, Feustman transferred to petitioner 3,250 shares of class A common stock of Blair & Co., Inc., and $200 cash, for which he received all of petitioner's capital stock, except two qualifying shares issued to his nominees. The stock of Blair & Co., Inc., had cost Feustman $187,470.36.
At the time of the formation of petitioner, Feustman was a junior vice president of Blair & Co., Inc., in charge of sales. Blair & Co., Inc., was engaged in the business of buying and selling securities. Feustman also had a small interest in Blair & Co., a partnership, which was a bank of deposit and a paying agency for coupons and dividends and acted as a fiscal agent.
Shortly after the formation of petitioner, an agreement was entered into, with plan annexed, dated New York, April 15, 1929, entitled "Plan and Agreement for Consolidation of Blair & Co., and Blair & Co., Inc., into the Bank of America National Association and the Bancamerica Corporation." It was the purpose of the plan and agreement that, through consolidation, the Bank of America National Association, hereinafter called the Bank or Bank of America, would acquire the business and good will of Blair & Co., a partnership, and such assets of the partnership and of Blair & Co., Inc., as the bank might elect to acquire; and it was provided that Bancamerica would acquire the business and good will of Blair & Co., Inc., and certain of the remaining assets of the Blair partnership and corporation, including the right to use the name "Blair." It was further provided that the net assets of the Blair partnership and corporation, in excess of $50,000,000, would be vested in a corporation referred to in the agreement as the Excess Assets Corporation.
The Bancamerica Corporation mentioned in the reorganization agreement was later called the Bancamerica-Blair Corporation; it was a subsidiary of the Bank of America, and took over the securities business of Blair & Co., Inc. The Bank of America took over the banking business of Blair & Co., and the Excess Assets Corporation, organized under the name of Suffolk Corporation for purposes of liquidation, took over such assets and assumed such liabilities of Blair & Co., Inc., as the Bancamerica-Blair Corporation did not acquire or assume. The Suffolk Corporation was organized in 1929 under the laws of Delaware in connection with the reorganization mentioned.
Petitioner had an office in St. John's, Newfoundland, in the office of its Canadian counsel, but such business transactions as it had, which were very limited, were conducted by Feustman, its sole stockholder and president, from his office in New York. Petitioner had no office in Montreal, Canada, and Feustman did not spend any of his time in Newfoundland.
Pursuant to the plan of consolidation above referred to, petitioner, acting through its president, Feustman, exchanged 3,250 shares of stock of Blair & Co., Inc., for 4,251 shares of stock of Bank of America, 3,250 shares of Suffolk Corporation of Delaware, and $98 in cash. Certificates representing the 4,251 shares of Bank of America stock were received by the Bancamerica-Blair Corporation, and held for the account of petitioner.
In carrying out the plan of consolidation, a committee was formed to represent the stockholders of Blair & Co., Inc. Feustman was not a member of this committee. After the consolidation had been consummated, one of the former senior officers of Blair & Co., Inc., approached Feustman and inquired whether his company would be willing to sell 586 shares of its Bank of America stock at a price of approximately $150 per share, which was considerably below the market value. This stock, along with similar shares owned by other former Blair stockholders, was to be sold to certain individuals who had had a percentage interest in the profits of Blair & Co., Inc., and are referred to as "percentage men." Feustman agreed to sell the 586 shares of stock as requested.
At the time of the transaction, the "percentage men" had funds to their credit with the Bancamerica-Blair Corporation, and their accounts were debited with the selling price of the Bank of America stock, consisting of a total in excess of 15,000 shares. The aggregate selling price was in excess of $2,000,000. The "percentage men" were former executives or stockholders of Blair & Co., Inc., some of whom lived in New York and some abroad.
On or about May 25, 1929, the sum of $2,120,950 was deposited with the agency of the Bank of Montreal in New York, and on that date a letter was written to the Bank of Montreal at Montreal, Canada, by one C. A. Elliott, treasurer of the Bancamerica-Blair Corporation, advising that the Montreal Bank would shortly receive by wire transfer for credit the amount mentioned, and requesting that such amount be distributed in accordance with detailed instructions contained in the letter, which included the following items: "$1,568,360 to be wired to us for use on Monday through your local agent in New York"; and "$83,480 to the Canadian Bank of Commerce, Montreal, Canada, for account of Ardbern Company, Ltd."
On May 25, 1929, one J. A. Crooks, who was then an employee of the Bancamerica-Blair Corporation and had been an assistant to the comptroller of Blair & Co., Inc., left New York to go to Montreal, Canada. He acted under instructions of the committee heretofore mentioned or of the treasurer of Blair & Co., Inc. Crooks took with him certificates representing more than 15,000 shares of Bank of America stock, including 586 shares owned by the Ardbern Co., Ltd. Crooks was instructed to take the certificates to Montreal for the purpose of making a sale of the stock at that place. The certificates were in "street" names, that is, names of nominees of the corporation. Crooks received the certificates from an employee of the Bancamerica-Blair Corporation who at the time was on duty in the securities cage.
Crooks took with him a letter of introduction and identification addressed to an executive in the Bank of Montreal. Upon his arrival, Crooks presented this letter to the bank executive, and was turned over to one of the executive's assistants, to whom Crooks delivered the stock certificates above mentioned. Crooks ascertained that the funds were in Montreal, available to the sellers of the stock, and he remained there with the assistant to the bank executive during the day while payments were made to the various sellers. Crooks accepted the word of the Bank of Montreal that proper credits had been made on its records, and checked with the Canadian Bank of Commerce to ascertain that it had received the proper deposits. On May 27, 1929, the Canadian Bank of Commerce placed to the credit of petitioner's account $83,480, and on May 31, 1929, petitioner's account was debited in the same amount.
Prior to his departure, Crooks had no discussion with Feustman in regard to the sale of any Bank of America stock in Montreal, and upon his return to New York he made no report to, and had no conversation with, Feustman relative to this particular transaction.
The gain to petitioner resulting from the sale of the 586 shares of stock of Bank of America amounted to $63,093.06.
On September 19, 1929, petitioner sold an additional 83 shares of stock of Bank of America, from which a taxable profit in the amount of $13,712.43 was derived.
Petitioner's income for the year 1929, exclusive of any...
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