Court Opinion

ID: 4603141
Source: CourtListenerOpinion
Date Created: 2020-11-20 19:31:19.361153+00
Date Added: 2024-06-11T07:52:47.807673
License: Public Domain

E. T. SCHULER, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.Schuler v. CommissionerDocket Nos. 51237, 54775, 63736.United States Board of Tax Appeals29 B.T.A. 415; 1933 BTA LEXIS 948; November 23, 1933, Promulgated *948  1.  The petitioner was president and general manager of a family corporation which he had dominated and controlled since its incorporation in 1906.  Belonging to the corporation were shares of stock in another corporation, which in and during the year reviewed were sold and their proceeds paid to petitioner, who, as received, deposited them to his own credit in a bank.  Held, the petitioner having failed to show satisfactorily that such funds were invested, as contended by him, to the use and benefit of the corporation, the respondent's determination that they constituted dividends in his hands, within section 115(a) of the Revenue Act of 1928 (sec. 201(a), Acts of 1924 and 1926) will not be disturbed.  2.  Penalty for failure to file income tax returns for 1925 affirmed.  W. S. Pritchard, Esq., for the petitioner.  De Witt M. Evans, Esq., for the respondent.  LANSDON *415  Three appeals from the respondent's determinations of the petitioner's income taxes are consolidated in these proceedings.  The years and deficiencies asserted are as follows: 1925, $14,712 with *416  penalty of $3,678; 1926, $9,466.56; 1927, $46,153.88; 1928, $2,212.54; *949  and 1929, $990.33.  The issues raised are: (1) Whether or not, in contemplation of the taxing statutes, the petitioner received informal dividends of the proceeds of the sale of capital assets of a corporation which he largely controlled, and (2) whether or not the respondent erred in imposing a penalty against petitioner for failure to file an income tax return for the year 1925.  FINDINGS OF FACT.  The petitioner is an individual residing at Gadsden, Alabama, and during the years in review was president and treasurer of an investment holding corporation known as the Coosa Land Co.  During the years here material the capital stock of the Coosa Land Co. consisted of 100 shares, one of which stood in the petitioner's name, one in the name of N. J. Schuler, his wife, and 98 in the name of G. H. Schuler, a brother, residing in New York City.  For all practical purposes, the only person active in the affairs of the Coosa Land Co. since its organization in 1908 has been the petitioner, and since that time the company has functioned principally, if not wholly, as a holding company for investments made by him in its name.  No formal distribution of the corporation's profits, if any, *950  has ever been made by the Coosa Land Co.  Prior to 1913 the Coosa Land Co. acquired a number of shares of the stock of the Alabama Traction, Light & Power Co. which were later exchanged for stock of a successor corporation known as the Southeastern Light & Power Co.  These shares of the last mentioned corporation were issued to G. H. Schuler, the brother of petitioner, living in New York City, who made sales of them during the year in review.  As such sales were made their proceeds were remitted to the petitioner who, upon receipt thereof, deposited them in a bank to his own personal account.  These receipts, by years, were as follows: 1925, $112,000; 1926, $81,787; 1927, $272,563.93; 1928, $43,463.71; and 1929, $28,979.09.  The petitioner also received a salary of $2,400 from the Coosa Land Co. for services as its president in each of these years.  The petitioner filed no income tax return for the year 1925, but in his original return for 1926 reported the amount above noted for that year as the gross sale price received for the sale of "S.E. & P. Co." stock, and computed a gain amounting to $63,967, upon which he paid taxes as income for that year.  In that computation the petitioner*951  attributed to the stock sold a gross base value of $18,000 as of March 1, 1913.  Later the petitioner filed an amended return *417  for 1926, in which he excluded the item originally reported respecting the stock sales at issue.  The respondent held that the amounts above set forth must be regarded as informal dividends received by petitioner from the Coosa Land Co., and, as such, are subject to the surtax provided for corporation dividends in the years received.  OPINION.  LANSDON: The respondent applied section 115(a) of the Revenue Act of 1928 (sec. 201(a), Act of 1924 and 1926) to the facts in petitioner's transactions with his corporation, and held that under its provision the disputed payments constituted taxable dividends.  This provision reads as follows: (a) Definition of dividend. - The term "dividend" when used in this title * * * means any distribution made by a corporation to its shareholders, whether in money or in other property, out of its earnngs or profits accumulated after February 28, 1913.  The petitioner concedes that he received the payments as set forth in our findings, but contends that he received them as agent of the Coosa Land Co., and*952  that they were all reinvested, or otherwise expended in the interest of that corporation.  He has furnished us no records of investments made or details of expenditures, from which we may determine the ultimate disposal of the disputed funds, and whether or not, if invested, he acted within the scope of agency, if any, and for the benefit of his principal.  We are convinced that the Coosa Land Co. was a one man corporation, and, for all practical purposes, the alter ego of the petitioner.  He seems to have dealt with its affairs with a free hand, and without advice, consent, or restraint from its board of directors or other stockholders.  In this situation, although such powers are not expressly given him, we are inclined to recognize his general powers to deal with the corporation's funds and invest them largely as he may see fit, so long as it is shown that they are, in fact, invested for the corporation, whose separate identity is recognized, and not commingled with his own in such a way as to amount to an appropriation.  When used in connection with agency, the term "investment" has a highly legal significance.  It means the laying out of money in such a manner as to produce*953  revenue, or to purchase income-producing property.  ; ; ; ; ; . The answers to the questions here raised are functions of the Board which are not satisfied by expressions of a witness' opinion or conclusions, *418  however honest they may be.  The petitioner has assumed to answer these questions for us instead of giving the facts from which we may find the answer.  We cannot accept the petitioner's naked statements as proof that he made the investments he claims to have made for his company; or, from them, find how he disposed of the controverted funds.  ; ; ; . The petitioner refers to the fact that his stockholding in the Coosa Land Co. was of but one share and that no*954  dividends were declared by the corporation in the years here involved and argues (1) that that corporation was at no time under his control; or (2), if so, that his ratable share in such distribution would have been nominal only.  Although we are convinced that the petitioner's dominance over the corporation was sole and complete to the extent that he could, and probably did, use it in transactions wholly his own, wherein he took losses and absorbed profits without interference from the other stockholders and without formal corporate records being kept, we are of opinion that the question of corporate regularity is of no importance to his taxable status as the actual recipient of the disputed funds, if he did so receive and retain them, as the respondent found.  Clearly the purpose of the statute above quoted was to make taxable all corporation profits earned since February 28, 1913, when permanently separated from surplus and delivered to a "stockholder", whether legally distributed or not.  ; *955 . The petitioner received the payments in dispute and in his audit the respondent has held that they constituted income to him and were taxable as dividends under the law quoted.  This holding is presumed to be correct unless the petitioner shows that the respondent committed error in his conclusion.  This the petitioner has failed to do and we accordingly approve the respondent's conclusion.  ; affd., ; The taxpayer concedes and the record shows that he received taxable income in 1925 which he neglected to report as required by law.  In this situation it was mandatory on the respondent under section 1003 of the Revenue Act of 1924 to impose a delinquency penalty and assess and collect the same.  ; ; ; *956 ; . Decision will be entered for the respondent.