Trippett v. Commissioner of Internal Revenue
| Citation | 118 F.2d 764 |
| Decision Date | 14 May 1941 |
| Docket Number | No. 9731.,9731. |
| Parties | TRIPPETT et al. v. COMMISSIONER OF INTERNAL REVENUE. |
| Court | United States Courts of Appeals. United States Court of Appeals (5th Circuit) |
Conan Cantwell and W. H. Sanford, both of Dallas, Tex., for petitioners.
Lee A. Jackson, Sewall Key, and F. E. Youngman, Sp. Assts. to Atty. Gen., Samuel O. Clark, Asst. Atty. Gen., and J. P. Wenchel, Chief Counsel, Bureau of Internal Revenue, and John W. Smith, Sp. Atty., Bureau of Internal Revenue, both of Washington, D.C., for respondent.
Before SIBLEY, HUTCHESON, and McCORD, Circuit Judges.
The Texota Corporation was incorporated in 1931 under the laws of the State of Texas. Its charter authorized the issuance of 750 shares of no par value stock divided into equal parts of Class A and Class B shares. On April 5, 1934, R. G. Trippett and A. H. Meadows jointly acquired a majority of the Class B shares and thereafter caused themselves to be elected directors of the corporation. Later they held a directors meeting and elected themselves president and secretary-treasurer respectively of Texota Corporation. In the meantime three producing oil wells had been drilled on the oil and gas lease owned by the corporation.
There was much dissension among the stockholders of the corporation and on December 17, 1934, after many offers and counter offers had passed, Trippett and Meadows sent a telegram to the "opposition stockholders" offering to buy their shares of Class A and Class B stock. The offer was accepted by the "opposition stockholders" on December 19, 1934, and the stock was purchased through the Peoples National Bank of Tyler, Texas. Trippett and Meadows thus became owners of all the capital stock of Texota Corporation. They intended to later liquidate the corporation.
On December 19, 1934, through one S. A. Cochran, a broker, Trippett and Meadows learned that Rancho Oil Company was interested in purchasing the oil and gas lease owned by Texota, and that it was willing to pay $180,000 for the lease if an additional well was drilled. Through Cochran a meeting between the Rancho representative and Trippett and Meadows was arranged for December 20th. The meeting was held and the terms of the sale were agreed upon. It was agreed that Rancho Oil Company would pay $165,000, this being the $180,000 less a $5,000 broker's commission, and $10,000, the cost of drilling an additional well.
On December 31, 1934, the stock which had been forwarded to the Peoples National Bank was paid for with money borrowed from that bank by Trippett and Meadows. On the same day all certificates of stock of Texota Corporation were cancelled and two new certificates, one for all the Class A stock and one for all the Class B stock, were issued in the name of Meadows, for himself and Trippett. These new certificates were pledged to the bank as security for the Trippett and Meadows loan.
After Trippett and Meadows had agreed to buy the stock, they had their lawyers prepare a paper for the liquidation of Texota Corporation. This instrument, which was a consent of stockholders to liquidate the corporation, was signed on December 27, 1934, by Meadows as sole stockholder, and was certified to by the president and secretary of the corporation. In some manner this paper went to the files of Rancho Oil Company instead of to the files of the Secretary of State. Never having been filed in the office of the Secretary of State the paper was without legal effect.
On January 5, 1935, Texota Corporation executed a conveyance of its oil and gas lease to Meadows for a recited consideration of "$10.00 and other valuable considerations". As a matter of fact no consideration actually passed from Meadows to the corporation. On the same day Meadows assigned the oil and gas lease to Rancho Oil Company, and attached to the assignment a draft for $165,000 which was paid on January 7, 1935. On the day the draft was paid the notes made by Trippett and Meadows to the Peoples National Bank for the money borrowed to purchase the stock were paid in full. Texota Corporation was formally dissolved on August 14, 1936, by the filing of a consent to dissolution with the Secretary of State. Texota Corporation wound up its business affairs sometime in 1935 and distributed the remainder of its assets to Trippett and Meadows.
The Commissioner determined that Texota Corporation realized a profit from the sale of the oil and gas lease to Rancho Oil Company, and determined deficiencies in income and excess profits taxes for the tax year ending July 31, 1935, in the respective amounts of $20,773.61 and $7,223.96. On petitions of Texota Corporation, Trippett, and Meadows, the Board of Tax Appeals entered decisions sustaining the deficiencies and holding Trippett and Meadows liable for the taxes as transferees of the dissolved corporation. Trippett et al. v. Commissioner, 41 B.T.A. 1254.
In his letter notifying Texota Corporation of the assessment of the deficiencies asserted against it, the Commissioner stated that he had found that there had been "no liquidating dividend declared or paid by the corporation prior to the sale" of the oil...
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