Court Opinion

ID: 4608508
Source: CourtListenerOpinion
Date Created: 2020-11-20 19:42:52.440249+00
Date Added: 2024-06-11T07:53:43.252591
License: Public Domain

ALEXANDER TRUST PROPERTY, DAVID S. LANSDEN, TRUSTEE, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.Alexander Trust Property v. CommissionerDocket No 6980.United States Board of Tax Appeals12 B.T.A. 1226; 1928 BTA LEXIS 3381; July 9, 1928, Promulgated *3381  The petitioner held to be an unincorporated association and subject to tax as a corporation.  David S. Lansden, Esq., for the petitioner.  F. R. Shearer, Esq., for the respondent.  SIEFKIN*1226  This is a proceeding for the redetermination of a deficiency in income and profits taxes for the period from August 15, 1919, to December 31, 1919, and for the year 1920 in the total amount of $6,180.85.  The error alleged is that the respondent computed the tax upon the petitioner as though it were a corporation.  The petitioner claims it is a partnership.  FINDINGS OF FACT.  In August, 1919, Charles Feuchter, James H. Galligan, William F. Grinstead, Henry E. Halliday, William J. Johnston, and David S. Lansden, all residents of Cairo, Ill., arranged to purchase a number of pieces of real estate and a small amount of personal property from the then owners.  Instead of taking conveyances of the property to the six men interested, title was taken in the names of Charles Feuchter and David S. Lansden, who thereupon executed a declaration of trust dated August 15, 1919, in which the property involved was to be known as Alexander Trust Property.  Feuchter*3382  and Lansden *1227  were called Trustees and issued to themselves and each of the four other men a certificate showing their interest in Alexander Trust Property.  The declaration of trust was as follows: TO ALL TO WHOM THESE PRESENTS SHALL COME - GREETING: WHEREAS, by four (4) certain indentures of even date herewith and to be herewith recorded, executed by HENRY PARSONS and EDWIN PARSONS, as Trustees of the Cairo Trust Property, certain lots and tracts and parcels of land and property rights and interests in the Counties of Alexander and Pulaski, in the State of Illinois, and by another certain indenture of even date herewith and to be herewith recorded, executed by GEORGE PARSONS and MARY SHIELDS PARSONS, his wife, certain other lots and tracts and parcels of land in the County of Alexander, in the State of Illinois, have been conveyed and assured to the undersigned CHARLES FEUCHTER and DAVIS S. LANSDEN, AS TRUSTEES OF ALEXANDER TRUST PROPERTY, and to the survivor of them and to his and their successors and assigns forever, reference being had for a particular description of said lots and tracts and parcels of land to said indentures, or to the record thereof in the Recorders' *3383  officers in and for said Counties of Alexander and Pulaski, and WHEREAS, by a certain bill of sale of even date herewith, executed by said HENRY PARSONS, and EDWIN PARSONS, and Trustees of Cairo Trust Property, certain office furniture, fixtures and other chattels and by a certain other bill of sale of even date herewith, executed by the HERALD PRINTING COMPANY and by GEORGE PARSONS, certain printing presses, linotype machines and other newspaper or printing establishment, equipment, fixtures, furniture and chattels have been bargained, sold and delivered to the undersigned CHARLES FEUCHTER and DAVID S. LANSDEN, AS TRUSTEES OF ALEXANDER TRUST PROPERTY, and to the survivor of them and to his or their successors and assigns forever, reference being had for a more particular description of said personal property to the said bills of sale, NOW, THEREFORE, BE IT KNOWN THAT WE, the undersigned CHARLES FEUCHTER and DAVID S. LANSDEN, of the City of Cairo, in the County of Alexander and State of Illinois, and each of us, do hereby acknowledge and declare that the said lots, tracts and parcels of land and premises and said personal property, and all right, title and interest therein, of*3384  every kind and description, were conveyed and bargained, sold and delivered to and are now held by us to, for and upon the following terms, conditions, uses, intents and purposes; FIRST: The beneficial interest in said lots, tracts and parcels of land and premises and said personal property shall be divided into ten hundred and fifty (1050) shares of the par value of one hundred (100) dollars each, for which shares certificates shall be issued by said CHARLES FEUCHTER and DAVID S. LANSDEN, AS TRUSTEES OF ALEXANDER TRUST PROPERTY, or their successors.  Said trust estate and property shall be known as "ALEXANDER TRUST PROPERTY." The certificates for the ten hundred and fifty (1050) shares above provided for shall be delivered to William F. Grinstead, William J. Johnston, Charles Feuchter, James H. Galligan, Henry E. Halliday and David S. Lansden, each one of whom shall receive a certificate or certificates for an aggregate of one hundred and seventy-five (175) shares.  Said shares shall be regarded as personal property, and upon the death of any shareholder his share and interest shall go to his personal representatives and shall not pass or descend as real estate.  Said shares*3385  shall be transferred only in person, or by attorney duly authorized, on the books of said Trustees to be kept by them for that purpose at their office in the City of Cairo, upon surrender of the certificate therefor.  *1228  SECOND: The said CHARLES FEUCHTER and DAVID S. LANSDEN as such Trustees, and the survivor of them, and his or their successors, shall have the general management and control of all of the property, real and personal, and of all rights and interests therein conveyed to or acquired by or to be conveyed to or acquired by them and of the proceeds thereof.  They shall have power to manage, protect, control, improve, use, lease, rent, sell, convey and dispose of, mortgage or otherwise encumber all or any part or parts of said property and estate and of the rights and interests therein which may now be held by them or which may be hereafter acquired by them, as such Trustees, in any other property and estate, either for cash or on credit, or partly cash and partly on credit, or for other property or things, or in part or in whole in exchange for other property, and upon such terms and conditions and for such considerations as they shall, from time to time, deem*3386  for the best interests of the trust estate and the shareholders.  They may make such contracts, execute such instruments and obligations, employ such agents, attorneys and servants, make such erections and improvements on said lands and such purchases and sales of real and personal property, leases, donations and investments as may in their judgment be necessary and expedient to promote the interests of the shareholders.  They may invest and reinvest any of the proceeds arising from the trust estate in such manner and upon such terms and conditions as may in their judgment be for the interests of the trust estate and the shareholders.  They shall have the right, from time to time, to borrow such sums of money as they may think necessary for the interests of the trust estate and shareholders and may secure the same by a trust deed, mortgage or other pledge upon all or any part or parts of the property of the trust estate.  They shall not, however, have power to bind the shareholders either individually or collectively to perform any contracts for the payment of any money, or for any other matter beyond the amount of the property and funds which may come into the hands of said Feuchter*3387  and Lansden, as such Trustees, or their successors.  The said Feuchter and Lansden, and their successors, shall pay the taxes, special taxes and assessments and the installments thereof levied or to be levied on any of the trust property and estate and all expenses incident to or connected with the creation and execution of the trust hereby declared and the conduct of its business and affairs.  Any property hereafter acquired by said Feuchter and Lansden, or their successors, as such Trustees, shall be conveyed to and held by them for the same uses and purposes and upon the same conditions as are herein set forth concerning the property now held by said Trustees.  They may, from time to time, distribute and pay to the shareholders, in proportion to their interests and shares, the profits, income and proceeds from sales of the trust property and estate.  They shall exhibit annually to the shareholders at the City of Cairo accounts showing in detail the situation of the property and the amount of receipts and expenditures; and shall also exhibit a similar account whenever required by a majority in interest of the shareholders.  They shall not be answerable for the acts, omissions*3388  or defaults of each other, but only each for his own acts, omissions and defaults.  They shall not be answerable for the misconduct, omission or default of any agent, attorney or servant whom they may have employed but they shall be accountable only for the exercise of reasonable care in the selection of such agents, attorneys or servants as well as in the general management of the trust hereby declared.  *1229  They shall receive such compensation for their services as may, from time to time, be agreed upon by them and a majority in interest of the shareholders.  In the management of the trust property and estate they shall receive such directions as may from time to time be given to them by a majority in interest of the shareholders.  THIRD: At any time, upon thirty (30) days' notice being given to each, the said Feuchter and Lansden, or either of them, or either of their successors, may be removed and a substitute or substitutes appointed, by a vote, at a meeting of shareholders duly convened, of a majority in interest of the shareholders; and in case of the removal, death or resignation of the said Feuchter and Lansden, or either of them, or either of their successors, *3389  at any time, the said shareholders, by a similar vote, shall designate a successor or successors, and upon such removal, death or resignation, said Trustees and their successors, and each of them, or their executors or administrators shall, upon request execute and deliver such conveyances as may be necessary, if any, to transfer to the remaining Trustee and successor, or successors, so much of the said trust estate and property as shall remain in his or their hands after payment of all expenses and liabilities.  The survivor of said CHARLES FEUCHTER and DAVID S. LANSDEN, and his or their successors, shall have and hold the same right, title and interest in said trust property and estate and shall exercise the same power and authority and perform the same duties as are held by, granted to, or to be performed by said Feuchter and Lansden, as such Trustees, as herein set forth.  FOURTH: The said Feuchter and Lansden, or their successors, may hereafter increase or decrease the number of shares before mentioned, whenever they may be thereunto authorized in writing by a majority in interest of the shareholders for the time being; and, if increased, may sell the additional shares so*3390  created either at public or private sale, the proceeds thereof to be expended in the improvement of the unsold portion of the property herein referred to, or hereafter to be acquired by the said Trustees, or to defray the necessary expenses of the trust.  FIFTH: The annual meeting of the shareholders shall be held at three (3) o'clock P.M., on the second Tuesday of February in each and every year at the office of the Trustees in said City of Cairo, or at such other place in said City as may be designated by the Trustees.  The Trustees may call special meetings of the shareholders and shall call such special meetings to be held in said City of Cairo whenever thereunto requested in writing by a majority in interest of the shareholders, but the Trustees shall at least ten (10) days before the time for holding the annual meeting or any special meeting personally deliver or mail to each shareholder, as shown by the books of the Trustees, whose address they may know, a notice of the time and place for the holding of such meeting, and they shall also cause a similar notice, in the case of any such special meeting, to be published at least once in some newspaper published in said City of*3391  Cairo not less than ten (10) days before the time for the holding thereof.  In the request for the holding of any special meeting and in the call or notice thereof the purpose of holding the same shall be stated.  Notice of any meeting may, however, be waived by the shareholders or their duly authorized representatives.  The six men consented to the declaration of trust.  The principal purpose of the organization of the Alexander Trust Property was to make it possible for the City of Cairo to *1230  become owner of the river front property on the Ohio River which had belonged to the Cairo Trust Property.  The option which was given to the six men provided that all of the river front property along the levees was to be sold for $177,500.  The City of Cairo voted a bond issue of $75,000 to take over a portion of the property and the six men put up the other $102,500.  Most of the property acquired by the individuals was sold within ten weeks after it was acquired.  After the property was acquired in August, 1919, no other property was acquired.  All of the six men interested in the property conferred on all of the sales, the great bulk of which were made in 1919, and all took*3392  part in the determination of the important matters connected with the management of the property and the sales.  Deeds to the property purchased read to Feuchter and Lansden.  The moving purpose for acquiring the property by the six men and the City of Cairo was to take the question of the river front out of politics by devising a method by which the city could acquire the river front.  The property involved in the transaction included not only the river front property but a newspaper plant, city lots, and some farm lands.  OPINION.  SIEFKIN: Both parties concede that a trust was not created by the instrument set out in our findings but the petitioner says that a partnership was created and the respondent says that it was an unincorporated association taxable as a corporation.  The respondent points to the provisions of the instrument giving the trustees broad powers to conduct business and says that the mere fact that those powers were not exercised does not vary its classification under the revenue acts.  Our attention is called to the certificates issued to the organizers, stated to be personal property and not passing as real estate on the death of an owner, transferable*3393  as corporate shares are transferred; to the management of the affairs of the business by Feuchter and Lansden (paragraph 2) which, it is argued, makes their powers comparable to the powers vested in corporate directors; to the limitation of liability imposed by the instrument upon the trustees to bind the shareholders for an amount greater than the property on hand; to distributions of income in accordance with shares; to an annual report to shareholders; to the provision for compensation of the trustees; to the provisions for meetings, voting removal of trustees by shareholders, and a control by shareholders; to continued existence by the appointment of successors to either Feuchter or Lansden; and to the provision for increasing or decreasing the shares.  All of these provisions, it is argued by the respondent, make this proceeding exactly analogous to . *1231 There Mr. Justice Brandeis, speaking for the Court, said: It is clear that Congress intended to subject such joint-stock associations to the income and excess profits taxes as well as to the capital stock tax.  The definition given to the term*3394  "corporation" in section 1 applies to the entire act.  The language of the section presents no ambiguity.  Nor is there any inconsistency between that section and sections 218(a) and 335(c), which refer specifically to the taxation of partnerships.  The term partnership as used in these sections obviously refers only to ordinary partnerships.  Unincorporated joint-stock associations, although technically partnerships under the law of many states, are not in common parlance referred to as such.  They have usually a fixed capital stock divided into shares represented by certificates transferable only upon the books of the company, manage their affairs by a board of directors and executive officers and conduct their business in the general form and mode of procedure of a corporation.  Because of this resemblance in form and effectiveness, these business organizations are subjected by the act to these taxes as corporations.  The provisions of the instrument, even when considered in connection with what was actually done under the instrument, indicate to us that the points of similarity to a corporation are so numerous in this proceeding that we must hold it to be so taxable.  The variations*3395  from usual corporate procedure pointed out by the petitioner, such as conferences between all the interested parties respecting any important action, are no more than the departures from usual procedure by a family or closely held corporation, the affairs of which are often loosely conducted.  Nor does the fact that a corporation could not be organized in Illinois for the principal purpose of dealing in real estate, prevent this petitioner from being taxable as an unincorporated association under the Federal law.  The most serious objection raised by the petitioner is, in our opinion, the objection that it is not doing business at all.  Such an objection is based upon a considerable number of cases involving the capital-stock tax, as to which the tax is upon the privilege of "engaging in or carrying on business," in which it has been held that a corporation engaged in liquidating its affairs is not subject to the tax.  See . It is said that here, because the petitioner was merely engaged in selling off the property which it acquired, it was not doing business and, inferentially, the language of Mr. Justice Brandeis cited*3396  above, with respect to doing business in corporate form, does not apply because there is no business.  It may be pointed out, however, that the doctrine contended for is seriously weakened by the following language from , by Mr. Justice Holmes: 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 cases where the end is profit.  *1232  We further point out that here the question is one of classification, not of the nature of the activities, as in the capital-stock-tax cases.  We conclude that the petitioner was taxable during the periods in question as an unincorporated association, i.e., a corporation.  Judgment will be entered for the respondent.