#### CHEVROLET MOTOR CO. v. THE UNITED STATES1

[No. B-413.

Decided November 7, 1927]

*On the Proofs*

*Capital-stock taw; sec. 1000 (a), revenue art of 1918; holding company and company doing business.*— A manufacturing corporation, originally organized for profit, continuing after the disposition and sale of its good will and manufacturing assets to maintain its corporate entity and carry on witli its remaining assets, and engaging in business transactions inimical to the processes of final liquidation, all of which results in profit to its stoek- ■ holders, is doing business within the meaning of section 1000 (a) of the revenue act of 1918.

*The Reporter’s*statement of the case:

*Mr. Charles R. Carroll*for the plaintiff. *Messrs Melville Chwreh*and *John Thomas Smith*were on the brief.

*Mr. Fred K. Dyar,*with whom was. *Mr. Assistant Attorney General Hermcm. J. Galloioay,*for the defendant.

The court made special findings of fact, as follows:

I. The plaintiff is a corporation duly organized and existing under and by virtue of the laws of the State of Delaware and having its principal place of business in the city of Wilmington in said State.

II. Among the many general broad powers granted by the charter were the right to buy, sell, and manufacture automobiles and motor vehicles of all kinds and description and their accompanying parts; to draw, make, accept, indorse, discount, execute, and issue promissory notes and bills of exchange; to issue bonds and to secure the same by note, ,to purchase, *212bold, and reissue the shares of its capital stock, and to acquire the good will, rights, and property, and to undertake and hold in part the assets and liabilities of any person, firm, association, or corporation and to pay for the same in cash, stocks, or bonds of its own.

III. Its main business was the manufacture and sale of automobiles on a large scale. The business was conducted through the operations of various subsidiary companies incorporated under the laws of the several States.

IV. On May 1, 1918, plaintiff transferred to .the General Motors Corporation, a Delaware corporation, all its assets and good will, exclusive of 450,000 shares of common stock of the General Motors Corporation which were then owned by plaintiff but including plaintiff’s entire stock interest in its various subsidiaries, in payment for which the General Motors Corporation assumed all plaintiff’s liabilities and delivered to plaintiff 282,684 shares of General Motors1 Coloration common stock. The acquisition of .these shares, combined' with the shares already owned, gave the plaintiff 732,684 shares of common stock of the General Motors Corporation, which placed the Chevrolet Motor Company in the position of controlling stockholder of the General Motors Corporation.

V. Subsequent to the sale in May, 1918, the entire organization of the Chevrolet Motor Corporation was transferred to the General Motors Corporation. The Chevrolet Motor Company from then ceased to manufacture and sell motor cars. Its executive offices were thereafter located in Wilmington with the General Motors Corporation and the officers of the General Motors Corporation'who served as officers of the Chevrolet Motor Company received no salaries in the latter capacities. Expenses of the Chevrolet Company were reduced to clerical hire, bookkeeping, and office rent.

Its operations consisted of receiving dividends upon its stock holdings in General Motors Corporation and distributing the proceeds among its own stockholders; and accepting the surrender of its own stock and distributing in exchange therefor a proportionate part of its assets, consisting of stock in the General Motors Corporation and cash.

*213During the months of August and September, 1919, plaintiff borrowed the sum of $5,000,000 in order to exercise certain rights to subscribe for additional stock- of General Motors Corporation offered at a price below the then market value. This amount was used by plaintiff in the purchase of said stock and was repaid May 24, 1920.

On October 1, 1920, an additional sum of $7,000,000 was' borrowed for the same purpose. This amount was repaid in May, 1921.

Both loans were made in order to exercise its right as a large stockholder of the General Motors Corporation and to subscribe for further stock to protect plaintiff’s existing investment in that corporation.

In October, 1919, the General Motors Corporation, having subscribed for 300,000 shares of stock in the Fisher Body Corporation (a New York corporation), at $92 per share, and finding it unnecessary and inconvenient to pay therefor entirely in cash, but being unable to give its own notes to the Fisher Body Corporation by reason of the provisions of the law of the State of New York, requested plaintiff to issue its (plaintiff’s) notes in the amount of $22,840,000 in favor of the Fisher Body Corporation as payment for the stock not paid for in cash, offering at the same time to issue its own notes in plaintiff’s favor, in like amount and tenor, and undertaking to hold plaintiff harmless in the transaction. Plaintiff agreed to and did issue its notes in the amount of $22,840,000 as requested to the General Motors Corporation. On June 30, 1921, ail but $5,840,000 of such notes had-been retired with funds supplied by the General Motors Corporation.

On May 26,1920, the company borrowed $4,500,000 for use in purchasing 150,000 shares of General Motors common stock to prevent their being dumped on the market, with a consesquent lowering in the market price thereof and a shrinkage in the value of the shares then held by the Chevrolet Co. To prevent another large block of General Motors stock from being dumped on the market which would have generally depreciated the value of General Motors stock, a company was formed, known as the Du Pont Securities Company, as a vehicle to make the purchase of such stock. This company secured $20,000,000 with which to make the pur*214chase of such stock by issuing its notes in that amount and selling its capital stock to the plaintiff and to the Du Pont Company. The Chevrolet Company acquired $2,800,000 of such stock. Later, this was sold to the Du Pont Company in accordance with a resolution of the Chevrolet Company of April 14, 1921, which reads as follows:

“ Whereas the Chevrolet Motor Company is the owner of $2,800,000 par value of the 8% preferred stock of the Du Pont Securities Company and 16,000 shares of the no par value stock of said company, and it has received a tentative offer from E. I. du Pont de Nemours & Company, of Delaware, to purchase the same and to pay therefor $2,800,000 cash, together with accrued dividends on said preferred stock at the rate of 8%, together with 92,000 shares of the common capital stock of General Motors Corporation; and

“ Whereas the said E. I. du Pont de Nemours & Company is desirous of acquiring 276,000 shares of General Motors Corporation common stock at $13.00 a share; and

“ Whereas it is deemed to the advantage of the Chevrolet Motor Company to dispose of its said holdings in the Du Pont Securities Company and to sell the said 276,000 shares of General Motors Corporation common stock at $13.00 a share, in order to enable it to pay off its outstanding loans and to place it in a position to pay dividends to its stockholders out of dividends to be received by it on its General Motors common stock: Now, therefore, be it

“Resolved, That the proper officers of the company be, and they are hereby authorized and empowered to sell and deliver unto E. I. du Pont de'Nemours *&*Company $2,800,000 par value of the 8% preferred stock and 16,000 shares of the no par value stock of said Du Pont Securities Company in consideration of the sum of $2,800,000 cash, together with accrued dividends at the rate of 8% on said preferred stock to the date of payment and in addition thereto 92,000 shares of the common capital stock of General Motors Corporation, being a part of said agreement that there shall be returned to the Chevrolet Motor Company 549,453 shares of the common capital stock of General Motors Corporation heretofore lent by the Chevrolet Motor Company to said Du Pont Securities Company; and it is

“ *Further*resolvedThat the proper officers of the company be, and they hereby are, authorized and empowered to sell and deliver unto E. I. du Pont de Nemours & Company 276,000 shares of the common capital stock of General Motors Corporation at the price of $13.00 a share.”

*215The shares of stock referred to in. this resolution as having been lent by the Chevrolet Company to Du Pont Securities Company had been lent for the purpose of enabling the Du Pont Securities Company to pledge such shares as part collateral to the $20,000,000 of notes it made to secure the $20,000,000 of cash.

VI. After May 2, 1918, the General Motors Corporation, through the Chevrolet various subsidiaries, conducted the business theretofore conducted by the Chevrolet motor corporation in the manufacture and sale of Chevrolet cars and the parts thereof.

VII. On October 10,1918, the board of directors of plaintiff took the action noted in the following minute:

“ Upon motion duly made and seconded, the following preambles and resolutions were unanimously adopted:

“Whereas the net assets of the company consist of two hundred seventy-eight thousand forty-two aqd 88/100 ($218,-042.38) dollars cash and seven hundred thirty-two thousand six hundred eighty (132,680) shares of General Motors Corporation common stock, and there are outstanding in the hands of the public at the present time six hundred forty-one thousand ninety-five (641,095) shares of the capital stock of Chevrolet Motor Company; and

“Whereas the liabilities of the company have been assumed by General Motors Corporation; now, therefore, be it

“ Resolved, That the president and secretary of the Chevrolet Motor Company be, and they hereby are, authorized and empowered to offer to all the shareholders of the company to acquire their shares on the basis of one and one-seventh (1 1/lth) shares of the common capital stock of General Motors Corporation and forty-four ($0.44) cents in cash for each share of the capital stock of Chevrolet Motor Company, and to that end to do any and all things necessary or proper in their discretion to carry out the terms of said offer and acquire said stock on the basis set forth above;

“ *Fwr'tlier*resolved, That the president be, and he hereby is, authorized to open an account in behalf of the company and in the company’s name with the Guaranty Trust Company of New York, and to deposit therein funds of the company, subject to be withdrawn by checks of the company signed by any two of the following persons: W. C. Durant, J. A. Haskell, P. S. Du Pont, J. J. Kaskob. “ and it is

*“ Further*resolved, That the Guaranty Trust Company be, and it hereby is, authorized and empowered to transfer and *216deliver shares of the common capital stock of General Motors Corporation, owned by Chevrolet Motor Company, to the stockholders of the Chevrolet Motor Company on the basis of one and one-seventh (1 1/Yth) shares of General Motors Corporation common stock, together with forty-four ($0.44) cents in cash, for each share of Chevrolet Motor Company stock acquired by the company;; and

“ *Fwrther*resolved, That said Guaranty Trust Company, on behalf of the company, is authorized, in lieu of fractional shares, which are not to be issued, to pay cash therefor on the basis of $125 a share for General Motors Corporation common stock, and to charge the same, together with the necessary expenditures in connection with carrying out the offer made to the stockholders of the Chevrolet Motor Company, relative to acquiring Chevrolet Motor Company stock, to the account of the Chevrolet Motor Company.”

VIII. On October 11, 1918, a special meeting of stockholders of plaintiff was duly held, at which there were present in person or by proxy stockholders holding '581,543 shares out of 642,500 then outstanding. At this meeting the acts of the directors since the last annual stockholders’ meeting were ratified, including explicitly the proposition to stockholders to exchange their shares for their proper proportion of the company’s assets. The secretary thereupon sent out, under the date, a circular letter to stockholders in the following form:

Chevrolet Motor Compaht,

*176Jj. Broadway, New Yorh, October 11,1918.*

To the Stockholders of the Chevrolet Motor CompaNY :

At a special meeting held to-day the stockholders of your company approved the action of the board of directors au-thorising the officers of the company to make an offer to the stockholders of the company to acquire the capital stock of this company by issuing in exchange for each share of Chevrolet Motor Company stock one and one-seventh shares of General Motors Corporation common stock and forty-four cents in cash.

A statement of the assets and liabilities of the Chevrolet Motor Company, taken from the books as of October 11, 1918, is enclosed herewith, from which it will be noted that the assets of the company consist solely of General Motors Corporation common stock and cash in an amount equal to exactly one and one-seventh shares of General Motors common stock and forty-four cents in cash for each share of *217the capital stock of the Chevrolet Motor Company issued and outstanding.

As the Chevrolet Motor Company can issue no fractional shares of General Motors Corporation common stock, all fractional shares of General Motors Corporation common stock will be bought by the company and paid for in cash at the rate of $125 per share.

Arrangements have been made under which stockholders may send their Chevrolet Motor Company stock, properly endorsed in blank and witnessed, to the Guaranty Trust Company, 140 Broadway, New York City, upon receipt of which the Guaranty Trust Company w,ill immediately forward to said stockholders check and certificates for the number of shares of General Motors Corporation common stock to which each stockholder is entitled under the terms of this offer.

The General Motors Corporation has declared a dividend of $3.00 per share, payable November 1,1918, to its common-stock holders of record at the close of business October 18, 1918, so that those stockholders of the Chevrolet Motor Company whose shares are in the hands of the Guaranty Trust Company on or before October 18, 1918, will receive a dividend of $3.00 per share on the General Motors Corporation common stock issued to them ,in exchange therefor, which dividend will be paid on November 1st as aforesaid. Should the’ stock of any Chevrolet Motor Company stockholder reach the Guaranty Trust Company after October 18, 1918, to be exchanged under the terms of this offer, the General Motors Corporation stock issued in exchange therefor will not carry this $3.00 dividend, but in lieu thereof the Guaranty Trust Company will, on November 1, 1918, send a check to such Chevrolet Motor Company stockholder for an equivalent amount.

For your convenience there is enclosed a form of letter which stockholders may use in forwarding stock to the Guaranty Trust Company.

Yours very truly,

J. T. Smith, *Secretary.*

IX. Subsequent to October 11, 1918, at which time there were outstanding 642,500 shares of stock, a large majority of its stockholders availed themselves of one or other of these offers, surrendering their holdings and receiving their proportion of the company’s assets, consisting of common stock in General Motors Corporation, and cash; pursuant to this method of liquidation there had been retired approximately *21833 per cent of the total outstanding capital stock of plaintiff by June 30,1920, and more than 80 per cent by June 30,1921.

X. The said offer was amended in pursuance of a resolution duly adopted by the board of directors on April 25, 1919, reading as follows:

“ Resolved, That the offer heretofore made to stockholders of Chevrolet Motor Company to exchange their shares be amended, and a further offer be made to the shareholders to exchange their shares on the basis of 1,272 shares of General Motors Corporation common stock for each share of Chevrolet Motor Company stock, together with $4.35 in cash (fractional shares of General Motors Corporation common stock to be purchased by the company on the basis of $180 a share); and

“ *Further*resolved-, That the officers of the company be, and they hereby are, authorized and directed to extend the benefit of this offer to stockholders who have exchanged their stock on the old basis since March 15th, 1919.”

At various subsequent times the ratio of exchange was altered to correspond to the respective current market or book values of the stock, so as to offer proper inducement to such exchange.

XI. On July 31, 1920, plaintiff filed with the collector of internal revenue for the second district of New York a return as to capital stock for the year ended June 30, 1921. A copy of this return marked *“*Exhibit A” is attached to the petition herein and is made a part hereof by reference.

XII. On April 6, 1922, plaintiff paid under protest to the collector of internal revenue of the second district of New York, at New York City, the sum of $89,787, the amount demanded by said collector as a tax assessed and levied in pursuance of the revenue act of 1918, section 1000, for the year ending June 30, 1921, and then and there delivered to said collector a letter, a copy of which, marked “ Exhibit B,” is attached to the petition and made a part hereof by reference. The said collector thereupon executed and delivered to plaintiff a receipt, a copy of which, marked “ Exhibit C,” is attached to the petition and made a part hereof by reference.

XIII. On May 6, 1922, plaintiff filed with the collector of internal revenue at New York a claim in due form for the *219refund of the taxes so collected, a copy of which, marked “ Exhibit D,” is attached to the petition herein and is made a part hereof by reference. On July 28, 1922, the Commissioner of Internal Revenue denied the claim for refund, a copy of which decision, marked “ Exhibit E,” is annexed to the petition herein and made a part hereof by reference.

The court decided that plaintiff was not entitled to recover.

1

 Certiorari denied.

Booth, Judge,

delivered the opinion of the court:

The Chevrolet Motor Company, a Delaware corporation, sues to recover $89,187.00 and interest thereon. The suit is predicated upon an alleged illegal assessment and exaction of capital-stock taxes made by the Commissioner of Internal Revenue upon the corporation’s tax return for the period July 1, 1920, to June 30, 1921.

The commissioner acted under section 1000 (a) of the revenue act of 1918 (40 Stat. 1057, 1126), which, in so far as pertinent, reads as follows:

> “SectioN 1000 (a). That on and after July 1, 1918, in lieu of the tax imposed by the first subdivision of section 407 of the revenue act of 1916, (1) every domestic corporation shall pay annually a special excise tax with respect to carrying on or doing business, equivalent to $1 for each $1,000 of so much of the fair average value of its capital stock for the preceding year ending June 30 as is in excess of $5,000. In estimating the value of capital stock the surplus and undivided profits shall be included; * * * (c) The taxes imposed by this section shall not apply in any year to any corporation which shall not engage in business (or in the case of a foreign corporation not engaged in business in the United States) during the preceding year ending June 30.”

There is no jurisdictional question involved. The facts upon which the plaintiff now relies are substantially similar to the record before the commissioner and are not involved or disputed. The plaintiff’s corporate powers under its charter were extensive; primarily the purpose of its incorporation was to engage in the manufacture and sale of motor vehicles of all kinds. On May 1, 1918, the plaintiff sold and transferred to the General Motors Corporation, another Delaware corporation, all of its assets, except 450,000 shares *220of the common stock of the General Motors Corporation which it then and had for some time owned. The consideration for the sale was the assumption of all outstanding liabilities of the plaintiff and the transfer to it of 282,684 additional shares of General Motors common stock. Subsequent to the close of this transaction the plaintiff continued ifs corporate entity and during the period here involved engaged in and completed the following activities, viz: It provided for the exchange of its shareholders’ stock for General Motors stock at the ratio of one share of its own stock for one and one-seventh shares of General-Motors stock and 44 cents in cajsh. In August and September, 1919, plaintiff borrowed $5,000,000 to enable it to exercise stockholders’ rights in acquiring additional General Motors common stock at less than its market value. In October, 1920, the plaintiff again borrowed $7,000,000 for the same purpose.

In October, 1919, the General Motors Corporation subscribed for 300,000 shares of stock of the Fisher Body Corporation of New York State at an agreed price of $92.00 per ¿share. Under the laws of New York the Fisher Body Corporation was precluded from accepting the notes of the General Motors Corporation for such amounts as the General Motors Corporation did not wish to pay in cash. In order to consummate the deal the General Motors Corporation arranged with the plaintiff to issue its notes to the Fisher Body Corporation for $22,840,000, which was done; $5,840,-000 of the total amoxmt of the indebtedness remained outstanding and unpaid to the plaintiff by the General Motors Corporation on June 30, 1921. On May 26, 1920, plaintiff again borrowed $4,500,000 to purchase an additional 150,000 shares of the common stock of the General Motors Coiporation. This purchase, as the proof shows, was made to prevent the sale of the stock involved in the open market and for fear of depressing the market price.

At another time later, actuated by the same intent, this plaintiff and a new corporation, known as the Du Pont Securities Company, a Delaware corporation organized for the express purpose of acquiring a large block of General Motors stock about to be sold in the open market, financed the purchase of the entire lot. The Du Pont Securities *221Company obtained $20,000,000 witb which to make the purchase by issuing its notes and selling its stock for that amount, the plaintiff at the time loaning to the Du Pont Securities Company 549,453 shares of its common stock of the General Motors Corporation to pledge as collateral in securing in part the loan of $20,000,000 to the Du Pont Company, and in addition thereto subscribing for $2,800,000 worth of 8% preferred and 16,000 shares of no par value stock in the Du Pont Company. Subsequently this entire block of stock, together with 276,000 shares of General Motors common stock, was sold by the plaintiff to the E. I. du Pont de Nemours Company at a price of $13.00 per share for General Motors and $2,800,000 and accrued dividends for the Du Pont stock. The above transactions, so far as the record discloses, exhibit plaintiff’s activities during the period for which a refund of the tax hei’ein claimed was refused by the commissioner.-

Plaintiff’s case rests exclusively upon a contention that by the terms of the capital-tax statute it is expressly exempted from the payment of the tax, because for the period stated it was not “ carrying on or doing business ” within the meaning and intent of the law; that following the sale of its assets to the General Motors Company it was no more than a mere holding company, engaged in protecting its assets and liquidating its affairs. A great number of cases are cited to sustain its argument. Whatever may be the difficulty in applying the various precedents to the instant case, it must be conceded that the issue itself is not determinable from any fixed and inflexible rule, but is wholly dependent upon the particular situation which presents it. In most, if not all, of the cases the courts have been particular in laying down the rule that each case presents its own peculiar facts, and from these facts the question is alone determinable. Many close and doubtful cases have been before the courts, but where a manufacturing corporation, originally organized for profit and gain, continues after the disposition and sale of its good will and manufacturing assets to maintain its corporate entity and carry on with its remaining assets, engaging in business transactions inimical to the processes of final liquidation, all of which results in profit to its stock*222holders, it can hardly escape the classification of doing business.

It is not the volume of business done, although in this case that is a most significant factor, but the real intent and purpose of the activities of the corporation and those engaged in its management and conduct. If the plaintiff had done no more than to receive and distribute dividends upon its General Motors stock to its shareholders and borrow funds to maintain and increase their value, the contention made for judgment in this case might be meritorious. But the findings disclose that it did a great deal mor'e. While it discontinued to manufacture motor vehicles, it did not reduce its activities to a mere holding company. It continued a series of business transactions designed 'and intended to facilitate the successful conduct of the corporation in which it owned a controlling stock interest, and loaned not only its valuable assets to enable the latter to finance vast and important business undertakings but served itself as a conduit, a subsidiary for the accomplishment of the purpose, and it is seemingly idle to contend that all this, involving millions of dollars, was done without hope or expectation of profit.

Deducible from the findings is a seemingly logical conclusion that plaintiff’s continuance as a corporation during this period of time served an extremely important purpose in aiding General Motors in its business activities and serving the Du Pont Securities Company in securing loans to finance its operations. While plaintiff’s1 officers drew no salary and it maintained no expensive organization and had reduced its overhead to the minimum, a fact accounted for in the transfer of the entire organization of the plaintiff to the General Motors Corporation on the date of sale, nevertheless it continued to function in a way that clearly demonstrates that what was done was not a mere passive, inert activity looking toward the liquidation of its assets or the usual activities of a holding company, but a lively participation in the activities of two other corporations linked with it, and whose success and profits redounded beneficially to the plaintiff. The plaintiff loaned its corporate powers to other corporations, engaged in and became an important instrumentality in their activities, and participated in their *223business transactions. Surely this is carrying on business. If not, it is difficult to characterize it.

We are in accord with defendant’s contention and believe this case to be ruled by the principles announced in *Von Baumbach, Collector, etc.,*v. *Sargent Land Co.,*242 U. S. 503, and *Edwards*v. *Chile Copper Co.,*270 U. S. 452.

The petition will be dismissed. It is so ordered.

Moss, *Judge;*Giiaham, *Judge;*and Campbell, *Chief Justice,*concur.

Hat, *Judge,*took no part in the decision of this case.