Utility Trailer Manufacturing Company v. United States
| Decision Date | 28 December 1962 |
| Docket Number | Civ. No. 1439-60-WM. |
| Citation | 212 F. Supp. 773 |
| Court | U.S. District Court — Southern District of California |
| Parties | UTILITY TRAILER MANUFACTURING COMPANY, Plaintiff, v. UNITED STATES of America, Defendant. |
COPYRIGHT MATERIAL OMITTED
Mackay, McGregor & Bennion and Robert M. L. Baker, Los Angeles, Cal., for plaintiff.
Francis C. Whalen, U. S. Atty., Walter S. Weis and Loyal E. Keir, Asst. U. S. Attys., Los Angeles, Cal., for defendant.
This is an action for the recovery of federal income tax deficiencies paid by plaintiff for the fiscal years ending September 30 in 1954, 1955, 1956, 1957, and 1958. Deficiencies in the aggregate amount of $165,875.86 were assessed. Plaintiff paid the deficiencies plus interest on January 4, 1960, and on March 29, 1960, filed claims for refund. The Commissioner of Internal Revenue had taken no action on the claims when this action was commenced on December 29, 1960.
On the basis of stipulations in the pretrial order, the exhibits received in evidence, and oral testimony at the trial, the court makes the following findings of fact:1
FINDINGS OF FACT
1. Plaintiff was incorporated on June 18, 1916, under the name of "Los Angeles Trailer Company", with an authorized capital stock of 500 shares. On or about May 24, 1921, the name of the corporation was changed to "Utility Trailer Manufacturing Company". Its principal place of business is in the city of Industry, California.
2. In accordance with the method of accounting employed in keeping plaintiff's books and records, which, insofar as here pertinent, was the accrual basis, plaintiff within the time prescribed by law filed its federal income tax returns for its fiscal years ending September 30 in each of the years 1954, 1955, 1956, 1957, and 1958.
Upon an audit of its returns, the Commissioner of Internal Revenue determined deficiencies which, with interest, were paid by plaintiff to the District Director of Internal Revenue on January 4, 1960, in the total sum of $192,404.54. The amounts of the deficiencies and interest for each fiscal year ending September 30 are as follows:
Deficiency
and Tax Interest
1954 $18,458.79 $5,546.93
1955 28,404.46 6,831.07
1956 36,144.18 6,523.77
1957 43,569.21 5,249.78
1958 39,299.22 2,377.33
3. On or about March 29, 1960, within the three-year period prescribed by Section 6511(a) of the Internal Revenue Code of 1954, plaintiff filed with the District Director of Internal Revenue claims for refund in the amounts shown in the preceding finding.
4. None of the claims for refund has been disallowed by the Secretary of the Treasury, or his delegate, as prescribed by Section 6532(a) (1) of the Internal Revenue Code of 1954. More than six months have elapsed from the date of filing each claim for refund. No assignment or transfer of the claims has been made.
5. The history of plaintiff's issuance of its capital stock is as follows:
Shares Outstanding
Common
6/17/16 — Authorized
500 Sh. $100 Par
11/18/16 Original issue 84
12/31/16 Total issued 105
12/31/17 Total issued 186
12/31/18 Total issued 206
12/31/25 Total issued 304
12/31/48 Total issued 313
6/20/49 — Authorized
10,000 Sh. $100 Par
9/28/49 Stock Dividend—3443 Sh
9/30/49 Total issued 3,756
4/1/54 Issued for notes—42 Sh
9/30/54 Total issued 3,798
7/18/55 — Authorized
10,000 Sh. Pfd. $100 Par;
10,000 Sh. Com. $100 Par
8/18/55 Exchange of 1,788 Sh. Com.
for 5,811 Sh. Pfd.
Shares Outstanding
Common Preferred
9/30/55 Total issued 2,010 5,811
5/2/58 — Authorized on Recapitalization:
10,000 Sh. Pfd. $100 Par
200,000 Sh. Class A Com. $5 Par;
(20-1 split of old Com.);
40,000 Sh. Class B Com. $5 Par
Class A Class B Preferred
9/30/58 Total issued 40,200 543 5,811
The total par value of plaintiff's issued and outstanding stock as of September 30, 1958, was approximately $798,000.00. This consisted of stock issued for cash of approximately $52,000.00 and capitalized earned surplus of $746,000.00. Plaintiff paid nontaxable stock dividends in 1949 and 1955 to the extent of $344,000.00 and $402,000.00, respectively.
6. Plaintiff is in the manufacturing business. It is America's oldest trailer builder. It makes a complete line of commercial heavy duty trailers, including flat beds, van boxes and refrigerator trailers. Most of the equipment is custom built. Prior to 1938 it manufactured primarily the chassis for trailers. In order to meet competition, it built its own body shop in 1938. Plaintiff also has a foundry, which it acquired in 1933. The foundry has been operated at a separate location. At the time of its advent into body manufacturing in 1938 plaintiff had about 175 to 200 employees. As of September 30, 1953, it had between 700 and 800 employees.
7. Plaintiff sells to transportation companies and other companies using freight hauling equipment. Sales are handled through separate distributing companies. The principal sales offices are located in Los Angeles, San Diego, San Francisco and Phoenix. Other sales offices are located in various cities in California, as well as in Portland, Oregon; Seattle, Washington; Denver, Colorado; Salt Lake City, Utah; Dallas and San Antonio, Texas; and Boise, Idaho. The Los Angeles distributor, the largest, is owned by the Bennett family, which owns the controlling interest in plaintiff. Plaintiff has a stock interest in several of the companies, including approximately a one-third interest in the San Francisco distributor. It has also had a distributor in Hawaii for many years, and its sales have extended to South America and New Zealand.
8. When plaintiff began its operations, the trailer manufacturing business was in its infancy. In general, the growth of the trailer industry has paralleled the growth of the trucking industry.
During the World War II years of 1942 to 1945 plaintiff was largely in government work, building trailers for the Armed Services, most of which was on a cost-plus-fixed-fee basis.
A great demand for truck trailers developed within a few years after the end of World War II. This was particularly noticeable in 1948 when plaintiff began having difficulty meeting the pent-up demand. The demand fell off in 1949, but built up again rapidly during the Korean War. The years 1950 through 1952 were exceptionally good years. In 1951 and 1952 plaintiff had to allocate trailers to its distributors because it could not fill all of the orders. Although plaintiff dispensed with its allocation after 1952, the great demand for trailers still continued.
9. In addition to several companies based in the West, plaintiff's principal competition consists of four national companies with western branches. In point of sales plaintiff ranks between fifth and tenth nationally, and ranks first among the western based companies. It is second in volume of sales in the eleven western states.
10. Capital is an important factor in the trailer business. In order to meet competition successfully, plaintiff has been forced to invest "a lot of money" in plant and equipment. Meeting competition, as well as the demands of the business, has required continuous expansion. Plaintiff has had to increase constantly both its working capital and its fixed investments in order to grow and compete. Plaintiff has "ploughed back practically all of the earnings in the company", except for approximately $7,500.00 per year. The expansion in 1954 and 1955 was part of that continuous process, and plaintiff's need for capital has continued to the present time.
11. In obtaining funds for operation plaintiff borrowed from the usual commercial channels such as banks. Beginning around 1940, it also obtained funds from its stockholders and key employees, for which it issued instruments in the form of promissory notes. The outstanding balances of these notes, where the maturity dates exceeded one year, at the close of each fiscal year from 1941 to 1948, were as follows:
Fiscal Year
Ended 9/30 Balance
1941 $ 65,000.00
1942 101,760.00
1943 158,860.00
1944 213,400.00
1945 253,500.00
1946 309,100.00
1947 355,700.00
1948 367,500.00
Plaintiff made it a practice to confine its long-term borrowings to loans from stockholders, employees, and relatives of stockholders. Its bank loans were restricted to current financing. In borrowing from employees, plaintiff encouraged the Plaintiff made no effort at any time to borrow from a commercial lender in order to pay off the stockholder-noteholders.
During the years 1940 through 1947 the stockholder loans were carried on plaintiff's balance sheets as "Optional Liabilities" under "Net Worth".
12. On September 30, 1949, plaintiff called in for cancellation the notes referred to in Finding 11, then aggregating $367,500.00, with maturity dates from September 30, 1954, to September 30, 1957. New...
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