Court Opinion

ID: 4620556
Source: CourtListenerOpinion
Date Created: 2020-11-21 02:42:54.27563+00
Date Added: 2024-06-11T07:55:50.884345
License: Public Domain

FRED A. BARTMAN, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.  MRS. ROY L. BARTMAN, PETITIONER, v. COMMISSIONER OR INTERNAL REVENUE, RESPONDENT.  HARRY N. BARTMAN, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.Bartman v. CommissionerDocket Nos. 10171-10173.United States Board of Tax Appeals10 B.T.A. 116; 1928 BTA LEXIS 4187; January 23, 1928, Promulgated *4187  Under the evidence, held, that the petitioners realized taxable gain on the dissolution of the Hill Clothes Shop in 1920.  L. M. Hirschtritt, Esq., for the petitioners.  Alva C. Baird, Esq., for the respondent.  MARQUETTE *116  By these proceedings, which were duly consolidated for hearing and decision, the petitioners seek the redetermination of deficiencies in income tax asserted by the respondent for the year 1920, as follows: Fred A. Bartman$1,987.66Mrs. Roy L. Bartman5,282.60Harry N. Bartman6,398.23FINDINGS OF FACT.  The petitioners are individuals residing at Chicago, Ill.The Hill Clothes Shop was incorporated in the year 1915 with a capital stock of $10,000 divided into one hundred shares of the par *117  value of $100 each, all of which was fully paid and outstanding and was owned by the petitioners in equal amounts.  The petitioner Fred A. Bartman was president and treasurer, and the petitioner Harry N. Bartman was secretary of the corporation during its corporate life.  The petitioners constituted the corporation's board of directors.  The petitioner Mrs. Roy L. Bartman is the mother of the*4188  petitioners Fred A. Bartman and Harry N. Bartman.  When the Hill Clothes Shop was incorporated the officers above named were elected and they continued as such officers, without the formality of any further election, until the corporation was dissolved.  No formal or regular meetings of the stockholders or directors were held, but the petitioners Fred A. Bartman and Harry N. Bartman met informally from time to time and discussed the corporation's business and formulated its policies.  No minutes were kept of these meetings and they were never attended by Mrs. Roy L. Bartman, as she took no active part in the business.  No dividends were ever declared by the Hill Clothes Shop and its net earnings, after deducting officers' salaries and other expenses, were carried to surplus and used in the business.  No distribution of the earnings was ever made either actually or on the corporation's books, nor did the stockholders ever withdraw any part of such earnings from the business or report them in their income-tax returns for the years 1915 to 1920, inclusive.  The Hill Clothes Shop was dissolved on April 9, 1920, and its assets transferred to a partnership composed of the three petitioners, *4189  Fred A. Bartman, Mrs. Roy L. Bartman, and Harry N. Bartman, which partnership continued the business from and after that date.  The respondent determined that the surplus of the Hill Clothes Shop on April 9, 1920, was $78,875.16 and that each of the petitioners, as a result of the dissolution of that corporation and the transfer of its assets to the partnership, realized taxable gain in the amount of $26,291.72 and he added that amount to the income of each petitioner for the year 1920 and determined deficiencies in tax as hereinabove set forth.  The surplus of the Hill Clothes Shop on April 9, 1920, was in fact $72,697.04.  OPINION.  MARQUETTE: The parties to this proceeding have stipulated that if the petitioners realized taxable gain as the result of the dissolution of the Hill Clothes Shop and the transfer of its assets to the partnership composed of the three petitioners, the amount of such gain to each petitioner was $24,305.05 instead of $26,291.72 as heretofore determined by the respondent.  The petitioners contend, however, *118  that it was understood and intended by the three stockholders of the Hill Clothes Shop that the net earnings for each year should become*4190  and be the property of the stockholders; that they considered that the surplus standing on the corporation's books had in fact been distributed among and belonged to them, and was subject to their demands; that there was in fact no surplus belonging to the corporation to be transferred to the partnership and that therefore they realized no taxable gain as a result of the dissolution of the corporation and the transfer of its assets.  Upon consideration of the evidence herein we are unable to agree with the petitioners' contention.  There is nothing in the record which supports the conclusion that the net earnings of the Hill Clothes Shop were at any time distributed to the stockholders either formally or informally.  There was no formal declaration of a dividend nor was any part of the net earnings distributed or credited to the stockholders on the corporation's books.  On the other hand the evidence clearly shows that the net earnings were carried to surplus and remained on the books as a part of the corporation's capital.  Regardless of what the stockholders thought about their right to the earnings, the evidence fails to show that they, prior to the dissolution of the corporation, *4191  ever took any steps to appropriate them to themselves that can be considered as amounting to a dividend or distribution.  We are of the opinion that the amounts carried in the surplus account were in fact and in law the property of the corporation and not of the stockholders, and that each of the petitioners, upon the dissolution of the corporation, realized taxable gain in the amount of $24,305.05.  Judgment will be entered on 15 days' notice, under Rule 50.