Court Opinion

ID: 4497623
Source: CourtListenerOpinion
Date Created: 2020-01-23 18:15:31.515079+00
Date Added: 2024-06-11T08:48:36.178030
License: Public Domain

Turnee,
dissenting: In my opinion, the petitioner was both formed and availed of for the purpose of preventing the imposition of surtax upon its shareholders. During the period of its existence *1196up to the time of the formation of the petitioner, Terminal had accumulated a surplus in excess of twice its capital stock liability. It is claimed that this surplus was required by the reasonable needs of its business, the explanation being that due to the depression it might be forced through a reorganization in bankruptcy unless its entire surplus, including the $870,000 distributed to the petitioner, should be retained within reach. On the other hand, it is explained that it was necessary for Terminal to outwardly divorce itself from the said $370,000 before it could convincingly contend with its lessors that it was in sufficiently straitened circumstances to merit the reduction of rents under the various leases. To me the stories do not ring true and are not at all convincing. It is true that Terminal’s net income for 1931 was approximately half of what it had been in 1930 and for several years preceding, but its net income for 1932 was still equal to approximately half of its capital stock liability. It is also true that Terminal sustained a net loss in 1932, but that net loss amounted to only $5,606.02, and, according to the record, that is the only year up to 1937 that it did not earn a net income and in practically every year a very creditable net income for a corporation of its size. Furthermore, after making the distribution to petitioner, Terminal still had at the end of 1932 a surplus of $363,890.20 to stand between it and bankruptcy, the only indication of which so far as the record shows, was the $5,606.02 loss in 1932. In my opinion, the only convincing reason advanced for making the distribution from surplus was that Terminal desired to put itself in a better position to argue for the reduction of rentals. If, however, it distributed such a portion of its accumulated surplus to its stockholders, those stockholders, Schusser in the main, would have been required to pay substantial surtaxes, and, in order to accomplish a reduction of its surplus and at the same time prevent the imposition of surtax on its stockholders, Terminal and its stockholders caused the petitioner to be organized.
For the reasons stated, I respectfully note my dissent.