Case Name: WESTERN PAC. R. CORPORATION v. BOWERS, Collector of Internal Revenue
Court: United States District Court for the Southern District of New York
Jurisdiction: United States
Decision Date: 1927-12-31
Citations: 26 F.2d 82
Docket Number: 
Parties: WESTERN PAC. R. CORPORATION v. BOWERS, Collector of Internal Revenue.
Judges: 
Reporter: Federal Reporter 2d Series
Volume: 26
Pages: 82–89

Head Matter:
WESTERN PAC. R. CORPORATION v. BOWERS, Collector of Internal Revenue.
District Court, S. D. New York.
December 31, 1927.
Taylor, Bowie & Marsh, of New York City (John F. Bowie and Rollin Browne, both of New York City, of counsel), for plaintiff.
Charles H. Tuttle, IT. S. Atty., of New York City (Nathan R. Margold, Asst. U. S. Atty., of New York City, and Alexander W. Gregg and L. H. Baylies, both of Washington, D. C., of counsel), for defendant.

Opinion:
THACHER, District Judge (after stating the faets as above).
The foregoing statement of the plaintiff's activities during the three annual periods preceding the taxable periods here in question is substantially alleged in the complaint, and is supported by uncontroverted testimony adduced on the trial. Liability for the tax attaches only if the corporation engages in business during the taxable period, and during the preceding year as well. Section 1000, Revenue Act 1918, article 26 Treasury Dept. Regulations 50, approved June 21, 1920. The question for decision is whether the activities of the plaintiff were such as to subject it to the special excise tax imposed by the statute "with respect to carrying on' or doing business."
The question presented is clarified by attempting to state the plaintiff's contentions: First, it is contended that some of the plaintiff's activities were those merely incident to the passive holding' of property upon which it received income which it invested or distributed to its stockholders. All of these activities, it is said, are to be laid aside under the decisions in McCoach v. Minehill & S. H. R. Co., 228 U. S. 295, 33 S. Ct. 419, 57 L. Ed. 842, and Zonne v. Minneapolis Syndicate, 220 U. S. 187, 31 S. Ct. 361, 55 L. Ed. 428. Second, the plaintiff's advances to the operating company are said to have been casual isolated transactions, not entered upon for profit or in the regular course of business, and are therefore not to be regarded as were the advances made by the plaintiff in Phillips v. International Salt Co., 274 U. S. 718, 47 S. Ct. 589, 71 L. Ed. 1323. Third, it is said that whatever else was done was incidental to the enfoi'eement of the judgment against the Denver Company, and that to enforce a judgment is not to conduct business. Thus all that was done is removed from the realm of business by an analytical process which exalts the form, and ignores the substance. The argument must yield to reality.
Viewing the transactions as a whole, there can be no doubt that the plaintiff was constantly engaged in pursuing the purposes for which it was organized as a business corporation, was continuously exercising the highest degree of business judgment, and was constantly making decisions involving financial success or failure in innumerable business transactions. It may very well be that the enforcement of a simple judgment for money damages does not involve what is ordinarily meant by the term "doing business." The judgment creditor places an execution in the hands of the sheriff, and by the process of levy and sale the debt is collected and paid. But where, as in this case, the collection of the debt involves constant activity, not only in the conduct of proceedings looking to the levy of process and the sale of property thereunder, but to the protection of the judgment creditor's interests upon the sale, involving large financial transactions, the negotiation of substantial credits, the purchase of extensive properties, the negotiation and execution of plans for their reorganization, the incorporation of companies to operate these properties, and all of the varied activities disclosed by the record in this ease, it can hardly be said that, in the doing of these things, the judgment creditor does not engage in business within the very general sense of the statute. What was done is well within the definition approved in Flint v. Stone Tracy Co., 220 U. S. 107, 31 S. Ct. 342, 55 L. Ed. 389, Ann. Cas. 1912B, 1312:
" 'Business' is a very comprehensive term and embraces everything about which a person can be employed. Black's Law Diet. 158, citing People v. Commissioners of Taxes, 23 N. Y. 242, 244. "That which occupies the time, attention and labor of men for the purpose of a livelihood or profit.' Bouvier's Law Dictionary, vol. 1, p. 273."
The rule is stated in Von Baumbach v. Sargent Land Co., 242 U. S. 503, 37 S. Ct. 201, 61 L. Ed. 460:
"It is evident, from what this court has said in dealing with the former cases, that the decision in each instance must depend upon the particular facts before the court. The fair test to be derived from a consideration of all of them is between a corporation which has reduced its activities to the owning and holding of property and the distribution of its avails and doing only the acts necessary to continue that status, and one which is still active and is maintaining its organization for the purpose of continued efforts in the pursuit of profit and gain and such activities as are essential to those purposes."
In Edwards v. Chile Copper Co., 270 U. S. 452, 455, 46 S. Ct. 345, 346 (70 L. Ed. 678), it was said:
"The exemption 'when not engaged in business' ordinarily would seem pretty nearly equivalent to when not pursuing the ends for which the corporation was organized, in the eases where the end is profit."
It cannot be said that reorganizing the corporate and financial structure of a great railroad system is not "business" of the highest importance. Looking through formal rights and relationships, it is apparent that it was for this that the plaintiff was organized. The Western Pacific was only a part of a great railroad system, and, unless the Denver properties could be reorganized and retained as an integral part thereof, the reorganization was but half accomplished. When the plaintiff corporation was organized, it was apparent that the enforcement of thie bondholders' claims against the Denver Company would probably involve the reorganization of that company. The plaintiff corporation was the corporate instrumentality utilized for the accomplishment of this purpose, and this purpose clearly characterizes the activities in which the plaintiff engaged. It is not consistent with reality to say that all it was doing was to enforce a judgment. It furnished the brain and financial resources by which the ultimate reorganization of the Denver properties was accomplished and the integrity of the entire- system assured upon a reorganized financial basis. The innumerable transactions in which it engaged preceding the accomplishment of this result were transactions of a strictly business nature. If what it did was not business within the general sense of the statute, it is difficult to imagine what is. I think it may be said with certainty of conviction that a very much stronger showing of business activity is presented than was presented in Phillips v. International Salt Co., supra, as an examination of the record and of the opinion of the Circuit Court of Appeals for the Third Circuit (9 F.[2d] 389) in that case will disclose.
Result is that the complaint herein must be dismissed. If either party desires to do so, special findings of faet may be proposed within ten days.