Wiese v. COMMISSIONER OF INTERNAL REVENUE, Docket No. 77690.
| Decision Date | 19 March 1937 |
| Docket Number | Docket No. 77690. |
| Citation | 35 BTA 701 |
| Parties | HARRY E. WIESE, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. |
| Court | U.S. Board of Tax Appeals |
H. Kennedy McCook, Esq., for the petitioner.
B. H. Neblett, Esq., for the respondent.
Respondent determined a deficiency in petitioner's income tax for the year 1932 in the amount of $30,080.17. Petitioner assigns as error the action of the respondent in treating as dividends received in 1932 amounts theretofore in prior years withdrawn by petitioner from a corporation of which he was the sole stockholder. Respondent denies the alleged error, and specially pleads that in any event petitioner is now estopped to deny that such withdrawals were loans and that their discharge by corporate action in 1932 constituted a dividend taxable to him as income for 1932.
FINDINGS OF FACT.
Petitioner is a citizen of the State of Missouri, residing in the city of St. Louis.
The Wiese Printing Co. is a corporation organized in 1925 under the laws of Missouri, having outstanding 500 shares of capital stock. Since incorporation of the Wiese Printing Co. petitioner has owned 498 shares of its capital stock, and has been in complete control of the corporation, with the title of president. Two qualifying shares of stock were issued in the names of two employees of the company, but the actual owner was the petitioner.
There has been carried on the books of the printing company since 1925 an account for petitioner to which were debited all withdrawals made by him, except salary payments, during the respective years, and to which were credited all credits from the corporation to which he was entitled.
Prior to the incorporation of the printing company, petitioner conducted the business in his individual capacity. No minute books were ever kept by the corporation, except for the minutes of the first meeting organizing the corporation, and no dividends were ever authorized by the board of directors of the corporation in any year.
In December 1932 petitioner, as president of the printing company, employed a certified public accountant to make an examination of the books of the company. In making the examination the accountant noted that the ledger disclosed a large debit balance in petitioner's account. As a result of an analysis of this account, it was ascertained that there were included therein charges which were applicable to the corporation. The other items in the account represented withdrawals of cash from the corporation by petitioner for his personal use, and personal items of petitioner which were paid out of the corporation's funds.
The said accountant made as of December 31, 1932, with the acquiescence and consent of the petitioner, a series of journal entries to reflect certain adjustments on the books of account of the corporation, including the following:
Withdrawals of profits not formally authorized
in the minutes of the company ______________ $94,801.95
Harry E. Wiese __________________________________________ $94,801.95
To transfer withdrawals to a separate account
1926 _____________________________________ $4,582.00
1927 _____________________________________ 8,728.51
1928 _____________________________________ 18,333.33
1929 _____________________________________ 27,201.41
1930 _____________________________________ 3,928.03
1931 _____________________________________ 30,572.64
1932 _____________________________________ 1,456.03
__________
$94,801.95
The ledger accounts of the corporation were adjusted accordingly, and a new account was opened, entitled "Harry E. Wiese — Withdrawals of Profits Not Formally Authorized in the Minutes of the Company", with a debit balance of $94,801.95.
On March 15, 1933, the petitioner filed amended personal Federal income tax returns for the calendar years 1930 and 1931, and included therein as dividends the amounts of $3,928.03 and $30,572.64, respectively, representing withdrawals from the corporation of the nature referred to hereinabove, which had not been previously reported in the petitioner's Federal income tax returns for the years 1930 and 1931. He thereafter paid the additional taxes shown on the amended returns.
On August 1, 1935, the petitioner filed amended personal Federal income tax returns for the calendar years 1926 to 1929, inclusive, and reported thereon as dividends the amounts representing withdrawals from the printing company of the nature referred to hereinabove, not authorized by the board of directors but received by the petitioner in the years indicated and charged to his personal account, as follows:
1926 __________________________________________ $4,582.00
1927 __________________________________________ 9,023.71
1928 __________________________________________ 18,522.03
1929 __________________________________________ 28,431.91
The petitioner paid to the collector of internal revenue the additional amounts shown as taxes by said amended returns.
At all times when withdrawals were made by petitioner from the printing company and charged to his account, there were available sufficient earnings with which to make such distributions, and the authorized capital of the corporation was at no time impaired as the result of such distributions.
The petitioner filed his personal Federal income tax returns for all years from 1925 to 1932, inclusive, upon the basis of cash receipts and disbursements.
As the result of a revenue agent's examination in August 1933, he concluded that $106,156.37 represented withdrawals not authorized in the minutes of the company, and concluded that this amount was income to the petitioner in the year 1932. Respondent, in his 90-day letter dated August 3, 1934, sustained the revenue agent, but reduced the amount of $106,156.37 by $2,963 and increased the net income of petitioner by $103,193.37.
Both the revenue agent and the respondent arrived at the amount of $106,156.37 by totaling the adjusting entries made as of December 31, 1932, which reduced the personal account of petitioner.
In the year 1932 petitioner withdrew from the corporation in excess of salary $1,456.03, which was reported as a dividend in his original Federal income tax return for that year, filed with the collector of internal revenue on March 15, 1933.
The Wiese Printing Co., in its original Federal income tax returns for the years 1925 to 1931, inclusive,...
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