Wells Brothers Co. of Illinois v. COMMISSIONER OF INTERNAL REVENUE, Docket No. 11014
| Decision Date | 19 April 1929 |
| Docket Number | Docket No. 11014,11015. |
| Citation | 16 BTA 79 |
| Parties | WELLS BROTHERS CO. OF ILLINOIS, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. WELLS BROTHERS CO. OF NEW YORK, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. WELLS BROTHERS CONSTRUCTION CO., PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. |
| Court | U.S. Board of Tax Appeals |
William H. Thompson, Esq., and Fred Snell, Esq., for the petitioners.
J. Harry Byrne, Esq., for the respondent.
These proceedings, which are duly consolidated for hearing and decision, are for the redetermination of deficiencies in income and profits taxes asserted by the respondent for the years 1917, 1918, and 1920. The deficiency as to Wells Brothers Co. of Illinois is for the year 1917 only and is in the amount of $5,153.75. It arises from the respondent's disallowance of the petitioner's claim that it was affiliated with the Wells Brothers Construction Co. during the year 1917. The deficiencies asserted against the Wells Brothers Construction Co. are $12,525.42 for 1917, $8,639.80 for 1918, and $15,893.42 for 1920. They arise from the respondent's disallowance of (1) the petitioner's claim that it was affiliated with the Wells Brothers Co. of Illinois during each of the years 1917, 1918, and 1920; (2) a claim that certain contracts for which the petitioner issued its capital stock should be included in invested capital; and (3) a claim that stock issued to E. A. Wells, F. A. Wells, and H. L. Wells for services in excess of the amount of money paid them during 1917 and 1918 should be included in invested capital. The pleadings also raised the issue as to whether assessment and collection of the additional taxes for the years 1917 and 1918 are barred by the statute of limitations. At the hearing, on motion of the Wells Brothers Co. of Illinois and the Wells Brothers Construction Co., the Wells Brothers Co. of New York was made a party to the proceedings.
FINDINGS OF FACT.
The Wells Brothers Co. of Illinois, hereinafter called the Illinois Company, was incorporated in 1902 with a paid-up capital stock of $250,000. In 1904 the Wells Brothers Co. of New York, hereinafter called the New York Company, was incorporated with a paid-up capital stock of $100,000. Due to overexpansion, both of these companies were insolvent in the latter part of 1916. Steps were then taken by A. E., F. A., and H. L. Wells, the principal stockholders of the two companies, which resulted in the incorporation on February 12, 1917, of the Wells Brothers Construction Co., hereinafter called the Maine Company, under the laws of Maine. Its capital stock was $500,000, divided into three classes, to-wit, common stock, $150,000; first preferred stock, $150,000; second preferred stock, $200,000. All of the second preferred stock was originally issued to A. E. Wells and F. A. Wells, as trustees. They in turn issued the greater part of this stock to creditors of the Illinois Company and the New York Company, in consideration of the assignments to the Maine Company of the claims of the various creditors. The second preferred stock was redeemable by the corporation at a certain price. The first preferred stock was issued to members of the Wells family, to business associates of A. E., F. A., and H. L. Wells, and to employees of the corporation. All employees purchasing the first preferred stock agreed in writing that upon the termination of their employment for any cause, they would sell their stock to the corporation at its book value. The business of the three companies named was that of general construction work.
All of the capital stock of the Maine Company had voting rights. Each class, voting separately as a class, was entitled to choose directors as follows: the common stock, three directors; the first preferred stock, two directors; and the second preferred stock, two directors. In fact, however, the directors were always selected by the members of the Wells family, who conducted the company and had entire charge and management of its affairs. A. E. Wells and his sons, in advance of corporate meetings, sent out proxies, prepared motions and resolutions, and selected the persons who were to present and second such motions and resolutions. The direction, policy and management of the three companies were left entirely to the Wells family by the other stockholders. The percentages of the capital stock of the three corporations held by the Wells family, employees, business associates of the Wellses, and by creditors, were as follows:
----------------------------------------------------------------------------------------------
| 1917
|--------------------------------
| | New | Maine
| Illinois | York | Company
| Company | Company |
-------------------------------------------------------------|-----------|----------|---------
1. A. E. Wells _____________________________________________ | 40 | 37 | 19.30
2. F. A. Wells, brother of A. E. Wells _____________________ | 40 | 35 | 19.30
3. H. L. Wells, son of A. E. Wells _________________________ | 5 | 7.5 | 19.30
4. P. A. Wells, son of A. E. Wells _________________________ | 5 | 7.5 | ________
5. E. G. Wells, wife of No. 4 ______________________________ | 2 | 7.5 | 0.63
6. Ida K. Wells, wife of No. 2 _____________________________ | _________ | ________ | 3.30
7. Helen K. Wells, wife of No. 3 ___________________________ | _________ | ________ | 0.63
|___________|__________|_________
Total held by Wells family ___________________________ | 92 | 94.5 | 62.46
Employees and business associates __________________________ | 8 | 5.5 | 8.90
Creditors __________________________________________________ | _________ | ________ | 28.64
| _________ | ________ | ________
Total ________________________________________________ | 100 | 100 | 100
==============================================================================================
| 1918
|--------------------------------
| | New |
| Illinois | York | Maine
| Company | Company | Company
-------------------------------------------------------------|-----------|----------|---------
1. A. E. Wells _____________________________________________ | 40 | 37 | 15.36
2. F. A. Wells, brother of A. E. Wells _____________________ | 40 | 35 | 15.36
3. H. L. Wells, son of A. E. Wells _________________________ | 5 | 7.5 | 15.36
4. P. A. Wells, son of A. E. Wells _________________________ | 5 | 7.5 | ________
5. E. G. Wells, wife of No. 4 ______________________________ | 2 | 7.5 | 0.75
6. Ida K. Wells, wife of No. 2 _____________________________ | _________ | ________ | 3.43
7. Helen K. Wells, wife of No. 3 ___________________________ | _________ | ________ | 0.75
8. Alice M. Wells, wife of No. 1 ___________________________ | _________ | ________ | 0.28
| _________ | ________ | ________
Total held by Wells family ______________________________ | 92 | 94.5 | 51.49
Employees and business associates __________________________ | 8 | 5.5 | 11.01
Creditors __________________________________________________ | _________ | ________ | 37.50
| --------- | -------- | --------
| 100 | 100 | 100
=============================================================|================================
| 1920
|---------------------------------
| | New |
| Illinois | York | Maine
| Company | Company | Company
-------------------------------------------------------------|-----------|----------|----------
1. A. E. Wells _____________________________________________ | 40 | 37 | 11.52
2. F. A. Wells, brother of A. E. Wells _____________________ | 40 | 35 | 16.00
3. H. L. Wells, son of A. E. Wells _________________________ | 5 | 7.5 | 11.50
4. P. A. Wells, son of A. E. Wells _________________________ | 5 | 7.5 | ________
5. E. G. Wells, wife of No. 4 ______________________________ | _________ | ________ | 5.07
6. Ida K. Wells, wife of No. 2 _____________________________ | _________ | ________ | 3.00
7. Helen K. Wells, wife of No. 3 ___________________________ | _________ | ________ | 5.07
8. Alice M. Wells, wife of No. 1 ___________________________ | _________ | ________ | 5.67
| --------- | -------- | --------
Total held by Wells family ___________________________ | 92 | 94.5 | 57.83
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