Case Name: Lambert WILLETT, Petitioner, v. COMMISSIONER OF INTERNAL REVENUE, Respondent; Mary T. WILLETT, Petitioner, v. COMMISSIONER OF INTERNAL REVENUE, Respondent; John L. WILLETT, Petitioner, v. COMMISSIONER OF INTERNAL REVENUE, Respondent; Thompson and Virginia S. WILLETT, Petitioners, v. COMMISSIONER OF INTERNAL REVENUE, Respondent
Court: United States Court of Appeals for the Sixth Circuit
Jurisdiction: United States
Decision Date: 1960-04-12
Citations: 277 F.2d 586
Docket Number: Nos. 13731-13734
Parties: Lambert WILLETT, Petitioner, v. COMMISSIONER OF INTERNAL REVENUE, Respondent. Mary T. WILLETT, Petitioner, v. COMMISSIONER OF INTERNAL REVENUE, Respondent. John L. WILLETT, Petitioner, v. COMMISSIONER OF INTERNAL REVENUE, Respondent. Thompson and Virginia S. WILLETT, Petitioners, v. COMMISSIONER OF INTERNAL REVENUE, Respondent.
Judges: 
Reporter: Federal Reporter 2d Series
Volume: 277
Pages: 586–593

Head Matter:
Lambert WILLETT, Petitioner, v. COMMISSIONER OF INTERNAL REVENUE, Respondent. Mary T. WILLETT, Petitioner, v. COMMISSIONER OF INTERNAL REVENUE, Respondent. John L. WILLETT, Petitioner, v. COMMISSIONER OF INTERNAL REVENUE, Respondent. Thompson and Virginia S. WILLETT, Petitioners, v. COMMISSIONER OF INTERNAL REVENUE, Respondent.
Nos. 13731-13734.
United States Court of Appeals Sixth Circuit.
April 12, 1960.
Weick, Circuit Judge, dissented.
Charles I. Dawson, Louisville, Ky. (Bullitt, Dawson & Tarrant, John A. Fulton, of Woodward, Hobson & Fulton, Rucker Todd, Louisville, Ky., on the brief), for petitioners.
Morton K. Rothchild, Washington, D. C. (Charles K. Rice, Lee A. Jackson, Robert N. Anderson, Washington, D. C., on the brief; Arch M. Cantrall, John M. Morawski, Dept. of Justice, Washington, D. C., on docket), for respondent.
Before MARTIN, CECIL and WEICK, Circuit Judges.

Opinion:
CECIL, Circuit Judge.
The principal question involved in this appeal from the Tax Court is whether or not gain resulting from certain transactions is ordinary income to Willett Brokerage Company, a partnership, for the sale of its inventory of whiskey or a capital gain derived from the sale of the common stock of Wildwood Corporation.
The history of the organization of the partnership of Willett Brokerage Company, Wildwood Corporation and the Willett Distillery Company, a Kentucky Corporation are found in the Findings of Fact of the trial judge. T. C. Memo. 1957-189.
The validity of the partnership is not in issue. It was formed by agreement dated January 1, 1945. Lambert Willett, his wife Mary T. and four of their children were the original partners. Subsequently other children were brought into the partnership through gifts of partnership interests from the mother and father. These gifts have been sustained by the Tax Court so that at the time of the transactions with which we are concerned the partnership consisted of the father, mother, one daughter and seven sons. All of these parties entered into a new agreement June 25, 1946. Each held interests in varying proportions.
The partnership carried on a wholesale business in whiskey, making sales in bulk and bottles through the sale of warehouse receipts. During the years 1945 through 1947 sales were made in excess of one million dollars. The partnership made its last purchase of whiskey on May 2, 1946 when it purchased 589 barrels from the distilling corporation.
Wildwood Corporation was organized under Kentucky laws, July 30, 1947 and on July 31 a written agreement was executed between it and Willett Brokerage Company whereby about 58% of the assets of the partnership were transferred to the corporation in exchange for stock.
The distribution of assets between the partnership and corporation was as follows: Of a total of $49,253.47 cash in bank $39,332.14 was left in the partnership and $9,921.33 was transferred to the corporation; out of a total of $139,-877.52 in bulk whiskey (warehouse receipts) $209.70 was left in the partnership and $139,667.82 was transferred to the corporation; $1,240.30 cases (bottled goods) was retained in the partnership and $24,484.93 was transferred to the corporation; total cooperage in the amount of $12,539.74 was retained by the partnership; all of the office equipment less reserve was transferred to the corporation in the amount of $611.70; all notes receivable and accrued interest amounting to $75,950 were retained by the partnership; prepaid insurance in the sum of $1,355.64 was left in the partnership and $2,690.23 was transferred to the corporation; thus of the total assets $130,627.52 remained with the partnership and $177,376.01 was transferred to the corporation. Liabilities of accounts payable, taxes payable and notes payable in the amount of $144,-376.01 were assumed by the corporation. Liabilities of notes payable in the sum of $420 were kept by the partnership. These distributions gave the corporation a net worth of $33,000 for which 330 shares of stock were issued to the partners in proportions equal to their interests in the partnership. The partners then executed notes to the corporation in the sum of $67,500 for preferred stock of the same par value and in proportions to the stockholders equal to their common stock holdings.
About August 6 while Thompson Willett and his father were in Chicago in the interest of making sales of whiskey, Thompson received a call from Mr. Fred Metzger, a whiskey broker of New York, advising him that he had a client who was interested in buying the shares of Wildwood Corporation. Thompson had previously discussed with Metzger the matter of selling the partnership interests including its inventory of whiskey. In connection with this possible sale Willett Brokerage Company sent an inventory to Metzger on July 3. Metzger in turn sent this inventory to J. E. Friel, an officer of Joseph E. Seagram and Sons Company, on July 7. This was substantially the same inventory that passed from the partnership to Wildwood Corporation on July 31.
On August 19, through Metzger, Thompson Willett, his father, their lawyer and accountant met Mr. Friel. Two days later they agreed on a price of Wildwood shares based on the market value of the inventory of whiskey. The proposition was carried back to Bards-town, Kentucky, where as alleged it was vigorously discussed among the family stockholders. All of the stockholders agreed to sell and an agreement which was dated back to August 15 was signed Sept. 19.
The partnership was dissolved in May 1948. The notes given for the purchase of preferred stock were returned to the makers and this stock cancelled. The corporation made two sales of whiskey after its incorporation and before the sale of its stock. These were sales to R. L. Buse Company of Cincinnati of 50 and 10 barrels of whiskey made on August 8 and 11, respectively. It also secured a Federal permit to engage in the business of wholesale liquor dealer. Mr. Metzger, the whiskey broker who brought the parties together and negotiated the sale, received his commission for the sale of the whiskey. The partnership made further sales of whiskey in October and December of 1947 in excess of $5,000.
A detailed statement of the facts may be found in the Findings of the Trial Judge as reported in T. C. Memo 1957-189. The facts as found are not in dispute. It is claimed however that there was an omission to make findings from certain pertinent and uncontradicted testimony.
The record discloses that there was testimony upon these alleged items upon which the Trial Judge made no findings. Although there was such testimony the Trial Judge could give it such weight as she thought it merited. She was entitled to base her conclusions upon that testimony which under all of the circumstances carried the most weight and seemed the most logical and reasonable.
Section 7482 of Title 26 U.S.C. gives the United States Courts of Appeals exclusive jurisdiction to review the decisions of the Tax Court. This statute was amended in 1948 by adding to the words "shall have exclusive jurisdiction to review the decisions of the Tax Court" the phrase "in the same manner and to the same extent as decisions of the district courts in civil actions tried without a jury." Since this amendment Rule 52(a) of the Federal Rules of Procedure, 28 U.S.C. is applicable to reviews of the Tax Court as it is to reviews of civil actions tried in district courts without a jury. Therefore, "Findings of fact shall not be set aside unless clearly erroneous, and due regard shall be given to the opportunity of the trial court to judge of the credibility of the witnesses." This amendment came before this Court shortly after it was adopted in Wright-Bernet, Incorporated, v. Commissioner of Internal Revenue, 172 F.2d 343. Although the Court reversed the Tax Court it applied the clearly erroneous rule. Commissioner v. Consolidated Premium Iron Ores, Limited, 6 Cir., 265 F.2d 320, 326. Miles-Conley Co. v. Commissioner, 4 Cir., 173 F.2d 958.
Counsel for the petitioners contend that the Trial Judge erred in the conclusions drawn from the undisputed facts. It is stated in the opinion "After considering carefully the entire record, all of the circumstances, and all of the argument and contentions of the petitioners we conclude that there was in substance a single transaction under which the Willett Brokerage Company, the partnership, sold an inventory of whiskey warehouse receipts in the ordinary course of its business to two affiliates or subsidiaries of Joseph E. Seagram & Sons Co., in which transaction the creation of Wildwood Corporation was one step, the sale of its common stock was another step, and Wildwood Corporation was merely a conduit through which the inventory of whiskey warehouse receipts passed to those who desired to acquire them." (469a petitioners' appendix)
As part of the reasoning to sustain the conclusions and in answer to arguments advanced by counsel for the petitioners the Trial Judge took the position that partnership interests could not be sold and be given capital gains' treatment. There was some conflict on this point in 1947. The Commissioner's ruling did not permit capital gains' treatment in such sales. This view was supported by City Bank Farmers Trust Co. v. United States, 1942, 47 F.Supp. 98, 97 Ct.Cl. 296. The opposite view is taken by the following cases: Commissioner of Internal Revenue v. Shapiro, 6 Cir., 1942, 125 F.2d 532, 144 A.L.R. 349; Thornley v. Commissioner of Internal Revenue, 3 Cir., 1945, 147 F.2d 416; McClellan v. Commissioner of Internal Revenue, 2 Cir., 1941, 117 F.2d 988; Stilgenbaur v. United States, 9 Cir., 1940, 115 F.2d 283.
The Trial Judge also considered that there was a tax advantage to the purchaser to buy from a corporation rather than a partnership.
It is claimed that this reasoning of the Trial Judge is erroneous but a reviewing court may sustain a judgment if for any reasons it finds that it is proper and correct. Securities and Exchange Commission v. Chenery Corporation, 1943, 318 U.S. 80, 88, 63 S.Ct. 454, 87 L.Ed. 626; Helvering v. Gowran, 1937, 302 U.S. 238, 245, 58 S.Ct. 154, 82 L.Ed. 224; Sherman v. Air Reduction Sales Co., 6 Cir., 1958, 251 F.2d 543; Ginsburg v. Black, 7 Cir., 1956, 237 F.2d 790, certiorari denied 353 U.S. 911, 77 S.Ct. 669, 1 L.Ed. 2d 665; In re Barlum Realty Co., 6 Cir., 1946, 154 F.2d 562.
The Trial Judge drew an inference from all of the facts, the sequence of events and the entire record that the purchaser was not interested in buying interests of a partnership.
Thompson Willett testified, "I know one thing that Mr. Friel very definitely told me, and he said that he did not want to buy any property, any physical property except whiskey. Well, I said that it was a coincidence, I said, 'It's a coincidence, Mr. Friel, that we don't have anything else to sell right now; I couldn't sell you the distillery because the distillery burned on the 14th of August, substantially burned.' " (163a petitioners' appendix) There may have been other advantages to the purchaser in buying the stock of a corporation rather than the interests of a partnership, but we are concerned only with what the parties actually did.
The distribution of the assets between the partnership and the corporation gives rise to a persuasive fact in this case. If the sole consideration of the partners had been to do business through a corporation rather than a partnership it would have been logical for them to have transferred all of the assets. It is significant that aside from the paper transaction of issuing notes for preferred stock 98% of the assets of the corporation consisted of whiskey and cash transferred from the partnership.
After a careful reading of the entire record submitted by the petitioners and consideration of all the facts and circumstances in these cases we consider that there is ample evidence to support the Findings of Fact and the conclusions and inferences drawn therefrom. They are not clearly erroneous.
Counsel for the petitioners contend that the clearly erroneous rule is not applicable to conclusions drawn by the Trial Judge from undisputed facts.
In Commissioner of Internal Revenue v. Consolidated Premium Iron Ores, Limited, supra, it was pointed out by this Court that not only is there a conflict in the Circuits on this point but there are also conflicts on it within the Circuits. This is true in the Sixth Circuit. (See cases cited in the Consolidated Premium Iron Ores case.) On this question we adhere to the view expressed in the Consolidated Premium Iron Ores case.
It is conceded by counsel for the petitioners that the decision in reference to the sale of shares of Wildwood Corporation will be conclusive as to the nature of the sales to Buse. It is not necessary therefore to discuss the second question presented on behalf of petitioners.
For the reasons herein expressed the judgment of the Tax Court is affirmed.