Court Opinion

ID: 4604489
Source: CourtListenerOpinion
Date Created: 2020-11-20 19:34:21.82236+00
Date Added: 2024-06-11T07:53:01.148359
License: Public Domain

O. E. MOESER, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.Moeser v. CommissionerDocket No. 13476.United States Board of Tax Appeals14 B.T.A. 326; 1928 BTA LEXIS 2996; November 16, 1928, Promulgated *2996  LOSS - TRANSFER OF CORPORATE STOCKS RESULTING IN A REORGANIZATION. - The petitioner, prior to the reorganization, was a minority stockholder in each of three associated corporations.  The majority stockholding interests, by virtue of their dominating influence, brought about a consolidation of the three companies, in effecting which each stockholder of two of the companies assigned his stock for a nominal consideration to the third company and thereafter the first two companies transferred their assets to the third company and were dissolved.  The petitioner retained and continues to own his stockholding interest in the third company.  Held, that the transaction is not one upon which loss or gain could be predicated as of the time of reorganization.  Benjamin Poss, Esq., for the petitioner.  Brice Toole, Esq., for the respondent.  TRUSSELL *326  Petitioner appeals from respondent's determination of a deficiency of $627.01 in income tax for the calendar year 1921, and assigns as error the action of respondent in disallowing credit for an alleged loss on sale of stock.  FINDINGS OF FACT.  Petitioner is a resident of Port Washington, Wis. *2997  , and during and prior to the calendar year 1921, was secretary of the Wisconsin Chair Co., a corporation organized under the laws of that State, and with its principal office in that city, and having an outstanding capital stock of $500,000 preferred and $500,000 common stock.  Of this petitioner owned $6,500 of preferred and $15,000 of common.  During that year petitioner was also secretary of the United Phonograph Corporation, a Wisconsin corporation located at Sheboygan in that State, and having an outstanding capital stock issue of $100,000, of which petitioner was the owner of $2,800, purchased by him for that sum in 1917 and 1918.  Petitioner was also during that year secretary of the New York Recording Laboratories, a Wisconsin corporation, maintaining a laboratory at New York, a recording studio at Chicago, and a record-manufacturing plant at Grafton, Wis.  This last corporation had an outstanding capital stock of $100,000, of which petitioner owned $300 purchased for that sum by him in 1917.  The first named corporation manufactured furniture and phonographs, the second manufactured phonographs, and the third, phonograph records.  During the calendar year 1921 all of the*2998  stockholders of the United Phonograph Corporation and the New York Recording Laboratories were also stockholders in the Wisconsin Chair Co., owning *327  all of the stock of that company with exception of $20,000 belonging to a Mrs. D'Arenett and $40,000 belonging to a Mrs. Barrett, who were the wife and daughter respectively, of a former president of that company, who had died the previous year, and from whom they had received the stock as gifts or bequests.  During the year 1921 the stockholdings of the D'Arenett estate and the wife and daughter mentioned amounted to 70 per cent of the common stock of the Wisconsin Chair Co. and the estate owned 70 per cent of the stock of each of the two other companies mentioned.  The Wisconsin Chair Co. had for some years financed the other two companies with advances of money and in 1920 issued bonds, all of the stockholders of the other two corporations assigning to it their stock in those corporations for purposes of securing the bond issue, it being deposited as collateral on the bond obligation.  During the calendar year 1921 one Bostwick, then president of the Wisconsin Chair Co. and owner of 70 per cent of the preferred stock*2999  of the company and 10 per cent of the stock of each of the other companies, requested the stockholders of these two latter companies to transfer to the Wisconsin Chair Co. their stockholdings to permit that company to take over these two properties.  The reason for the transfer was that the Wisconsin Chair Co. was considerably involved through loans to the other two companies and a consolidation was desired to strengthen its position.  At this time the stock of the New York Recording Laboratories was considered to have a considerable value as there were prospects of its making large profits.  The petitioner, together with all other stockholders of the two smaller companies, during 1921 transferred his stock to the Wisconsin Chair Co. for a consideration expressed as "$1.00 to be paid for the sealing and delivering of these presents, the receipt whereof is hereby acknowledged, and other good and valuable consideration." It was expected by the majority stockholders that the reorganization would result in strengthening the financial position of the Wisconsin Chair Co. and enhancing the value of its stock.  Upon the transfer of this stock to the Wisconsin Chair Co. the two smaller*3000  companies executed bills of sale to that company covering all of their assets and were subsequently dissolved.  Petitioner took credit, as a loss, upon his return for the calendar year 1921 for $3,098, the difference between $3,100, the cost of his stock in these two dissolved corporations, and $2, the sum received under the transfer.  OPINION.  TRUSSELL: Transactions detailed in the findings of fact resulted in a consolidation of three corporations.  The petitioner continued to own the same amount of stock in the consolidated company that *328  he had originally in the company which was continued and became the consolidated company.  The consolidated company acquired the assets of the two lesser companies practically without consideration.  Whether this resulted in the immediate enhancement of value of the stock of the consolidated company we are not advised as neither the petitioner nor the respondent offered any testimony in respect to the volume or the value of the assets of the several companies before consolidation or the consolidated company after consolidation.  The record shows, however, that the petitioner, who prior to the consolidation held 2.15 per cent of*3001  the stock of the Wisconsin Chair Co., after the consolidation still owned an interest equivalent to 2.15 per cent of the total assets of the three companies, and that he is yet standing to profit or to lose by virtue of the consolidation depending upon what in the future may transpire.  We are of the opinion that petitioner did not realize a loss in 1921 by reason of this transfer and is not entitled on account thereof to a deduction from gross income for the year.  Judgment will be entered for the respondent.