Tucker v. Commissioner of Internal Revenue, 15328
| Decision Date | 18 October 1955 |
| Docket Number | 15329.,No. 15328,15328 |
| Citation | 226 F.2d 177 |
| Parties | Earle F. TUCKER and Martha Tucker, Petitioners, v. COMMISSIONER OF INTERNAL REVENUE, Respondent. Earle F. TUCKER, Petitioner, v. COMMISSIONER OF INTERNAL REVENUE, Respondent. |
| Court | U.S. Court of Appeals — Eighth Circuit |
Joseph A. Maun, St. Paul, Minn. (William R. Busch, Jerome B. Simon, and Bundlie, Kelley & Maun, St. Paul, Minn., on the brief), for petitioners.
David O. Walter, Atty., Dept. of Justice (H. Brian Holland, Asst. Atty. Gen., and Ellis N. Slack, Atty., Dept. of Justice, on the brief), for respondent.
Before SANBORN, COLLET and VAN OOSTERHOUT, Circuit Judges.
These are petitions to review decisions of the Tax Court redetermining deficiencies in the income taxes of the petitioners for the years 1947, 1948 and 1949. The Commissioner of Internal Revenue determined that payments made by the Universal Motor Company, of Bismarck, North Dakota, of 20% of its net profits during those years to a former stockholder, pursuant to a contract with him, were taxable to the petitioners as constructive dividends, and assessed deficiencies accordingly. The Tax Court sustained the Commissioner. 23 T.C. 115. Since both cases arose out of the same factual situation, they were consolidated for trial in the Tax Court and for review here. The evidentiary facts are virtually undisputed. The petitioners assert that the conclusion reached by the Tax Court that the payments in question were taxable to them as income is without adequate evidentiary support.
The Universal Motor Company was a North Dakota corporation. The original incorporators were John R. Fleck, his brother J. A. Fleck (also known as Jack Fleck), and Gordon V. Cox, a Bismarck attorney. The company had a terminable sales agency contract or franchise from the Ford Motor Company and was engaged at Bismarck, North Dakota, in selling Ford, Lincoln and Mercury automobiles and Ford parts.
From 1935 to 1939, John R. Fleck was the active manager of the Universal Motor Company and in control of a majority of its capital stock. In 1935, Earle F. Tucker was employed by Fleck as sales manager of the Universal Motor Company. John R. Fleck then owned a stock interest in the Fleck Motor Sales Company, a General Motors agency in Bismarck which was being managed by his brother. The brother had stock in the Universal Motor Company. In 1939, John R. Fleck bought out the stock interests of his brother in both the Universal Motor Company and the Fleck Motor Sales Company. John R. Fleck then left the Universal Motor Company and took over the active management of the Fleck Motor Sales Company. He made Tucker general manager of the Universal Motor Company.
That created a situation which was opposed to the policy of the Ford Motor Company with respect to its agencies. That policy was that the manager of a Ford agency should have the controlling stock interest in the corporation holding the franchise. C. H. Arnold, a representative of the Ford Motor Company, charged with the supervision of its agency in Bismarck, early in the year 1945 discussed with Tucker and John R. Fleck this conflict in policy resulting from the fact that Tucker, the manager of Universal Motor Company, was a minority stockholder. Arnold stated that, in order for that company to continue to hold its franchise, it was necessary that the manager have 51% of its outstanding stock. He suggested that Fleck either leave the Fleck Motor Sales Company and return to the active management of the Universal Motor Company or that he sell Tucker enough stock to give him control of Universal. The Universal Motor Company was advised that if its affairs were not arranged so that its manager owned the controlling stock interest, termination of its Ford franchise would be considered. Fleck was unwilling to return to the active management of the Universal Motor Company and to part with his stock interest in it.
There were 400 shares of the capital stock of Universal Motor Company outstanding. Of these, 151 shares were in the name of Blanche E. Fleck, wife of John R. Fleck. He owned 57 shares, Gordon V. Cox had 80 shares, and Earle F. Tucker had 112 shares. It was necessary for Tucker to acquire 92 additional shares of stock if he was to have the 51% stock ownership.
Fleck advised Cox that it was very important to keep the Universal Motor Company together and that if Cox would sell his 20% stock interest to Tucker, the Company would pay Cox 20% of its earnings during the next five years, and, in addition, $2,000 for each of those years as attorney's fees.
Following negotiations between Cox, Fleck...
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