Court Opinion

ID: 4597604
Source: CourtListenerOpinion
Date Created: 2020-11-20 19:19:34.231915+00
Date Added: 2024-06-11T07:51:49.985388
License: Public Domain

VALLEY BANK, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.Valley Bank v. CommissionerDocket No. 17678.United States Board of Tax Appeals18 B.T.A. 48; 1929 BTA LEXIS 2123; November 9, 1929, Promulgated *2123  Affiliation denied.  Theodore B. Benson, Esq., for the petitioner.  Harry LeRoy Jones, Esq., for the respondent.  MURDOCK *48  The Commissioner made a determination as follows in regard to the petitioner's income and profits-tax liability for the years 1917 to 1920 inclusive: YearDeficiencyOverassessment1917$547.201918$2,942.731919289.3619201,001.15*49  The petitioner's allegation of error is as follows: That the Commissioner failed to affiliate taxpayer with the Gila Valley Bank & Trust Co. of Globe, Ariz., for the years 1917 to 1920, notwithstanding the fact that substantially all of the stock of both banks is owned and controlled by the same interests.  In accordance with the stipulation of the parties we make the following findings of fact.  FINDINGS OF FACT.  1.  The petitioner is a corporation organized and existing under the laws of the State of Arizona, with its principal office at Phoenix, Arizona.  2.  The Gila Valley Bank & Trust Company is a corporation organized and existing under the laws of the State of Arizona, with its principal office at Globe, and with branches at Miami, *2124 Safford, Clifton, Morenci, Ray, Hayden, and Winkelman, Arizona.  The above mentioned towns are located in the Gila Valley, in the mining district of Globe and Miami.  3.  On November 9, 1914, the Valley Bank of Phoenix, suspended operations due to financial difficulties.  Certain officers, directors, and stockholders of the Gila Valley Bank & Trust Company, organized the Valley Bank, the petitioner, to succeed the Valley Bank of Phoenix, which had suspended operations.  The petitioner assumed the liabilities and took over the good assets of the old bank.  4.  The petitioner commenced business December 31, 1914, with a capitalization in the amount of $500,000.00.  5.  The stockholdings on January 1, 1918, in both companies were as follows; January 1, 1918Stockholders common to Valley BankGila Valleyboth corporationsNumber of sharesPercentNumber of sharesPer cent 1.  C. E. Mills2,01140.2223023.00 2.  L. D. Ricketts1,00220.0410310.30 3.  R. E. Moore501.00101.00 4.  George E. Olney1002.0010010.00 5.  T. A. & J. H. Pascoe40.80898.90 6.  B. M. Goldwater2154.30101.00 7.  H. S. Van Gorder1002.00535.30 8.  J. R. Todd10.20101.00 9.  J. D. Parks10.20101.0010.  M. H. McLean20.40101.0011.  George and Maud Kingdon20.40202.0012.  George W. P. Hunt10.205.50Total3,58871.7665065.00Other stockholders1,41228.2435035.00Total capital stock issued5,000100.001,000100.00*2125 *50  The stockholdings as of January 1, 1919, and January 1, 1920, in both companies were as follows: Jan. 1, 1919Majority stockholdersValley BankGila ValleySharesPer centSharesPer cent 1.  C. E. Mills2,01140.2223023.00 2.  L. D. Ricketts1,34026.8010310.30 3.  R. E. Moore1002.00101.004.  George E. Olney1002.0010010.005.  T. A. & J. K. Pascoe40.80898.906.  B. M. Goldwater4759.50101.007.  H. S. Van Gorder1503.00535.308.  J. R. Todd10.20101.009.  J. D. Parks10.20101.0010.  M. H. McLean20.40101.0011.  George and Maud Kingdon2204.40202.0012.  George W. P. Hunt10.205.50Total4,48689.7265065.00Minority stockholders51410.2835035.005,000100.001,000100.00Jan. 1, 1920Jan. 1, 1920Majority stockholdersValley BankValley BankGila ValleySharesPer centSharesPer cent 1.  C. E. Mills2,01140.2223023.00 2.  L. D. Ricketts1,23324.7010310.30 3.  R. E. Moore1002.00101.004.  George E. Olney1002.0010010.005.  T. A. & J. K. Pascoe40.80898.906.  B. M. Goldwater4759.50101.007.  H. S. Van Gorder1503.00535.308.  J. R. Todd10.20101.009.  J. D. Parks10.20101.0010.  M. H. McLean20.40101.0011.  George and Maud Kingdon2204.40818.1012.  George W. P. Hunt10.205.50Total4,38187.6271171.10Minority stockholders61912.3828928.905,000100.001,000100.00*2126  The stock ownership as at January 1, 1921, was identical with that as at January 1, 1920, except that H. S. Van Gorder increased his holdings in the Gila Valley Bank & Trust Company from 53 shares to 103 shares.  6.  The officers and directors of both corporations during the years in question were as follows: Years 1918-1920, inclusiveValley BankGila Valley Bank 1.  C. E. MillsPresident and directorPresident and director. 2.  L. D. RickettsVice president and directorVice president and director 3.  R. E. MooredoGeneral manager & director. 4.  George E. OlneyDirector and stockholderDirector and stockholder. 5.  T. A. PascoeStockholderVice president and director 6.  B. M. GoldwaterDirector and stockholderStockholder. 7.  H. S. Van GorderStockholderCashier and director. 8.  J. R. TodddoAsst. gen. mgr. & director. 9.  M. H. McLeandoDirector and stockholder.10.  George KingdondoDo.11.  George W. P. HuntdoDo.7.  The stock of the petitioner at annual meetings was voted at follows: Annual stockholders' meeting, January 15, 1918SharesC. E. Mills, present in person2,004L. D. Ricketts, present in person1,002B. M. Goldwater, present in person215George A. Olney, present in person200J. H. Kibbey, present in person10R. E. Moore, present in person50H. S. Van Gorder, proxy to C. E. Mills10M. H. McLean, proxy to C. E. Mills20Norman Carmichael, proxy to C. E. Mills20C. E. Hull, proxy to R. E. Moore5B. A. Packard, proxy to R. E. Moore100T. A. Pascoe, proxy to R. E. Moore40George Kingdon, proxy to R. E. Moore20E. W. Graves, proxy to R. E. Moore20P. T. Hurley, proxy to R. E. Moore10E. F. Whittlesey, proxy to R. E. Moore20J. R. Todd, proxy to R. E. Moore10George W. P. Hunt, proxy to R. E. Moore10T. F. Cole, proxy to C. E. Mills1,002W. R. Battin, proxy to R. E. Moore5E. M. Blake, proxy to R. E. Moore10J. D. Wick, jr., proxy to R. E. Moore10Total shares voting and present4,883Total outstanding shares5,000*2127 *51  Business consisted of election of directors for ensuing year.  Annual stockholders' meeting, January 21, 1919SharesB. M. Goldwater, present in person475J. H. Kibbey, present in person5A. T. Esgate, present in person30A. T. Esgate, proxies from others2,169Total shares voting and present2,679Total outstanding shares5,000Annual stockholders' meeting, January 20, 1920R. E. Moore, present in person100R. E. Moore, proxies from others3,857H. S. Van Gorder, present in person150A. T. Esgate, present in person30A. T. Esgate, proxies from others134J. R. Todd, present in person10T. C. McReynolds, present in person50J. H. Kibbey, present in person5Total shares voted and present4,336Total outstanding shares5,000Annual stockholders' meeting, January 26, 1921C. E. Mills, present in person2,011L. D. Ricketts, present in person1,235B. M. Goldwater, present in person475A. T. Esgate, present in person30A. T. Esgate, proxies from others94R. E. Moore, present in person100R. E. Moore, proxies from others775C. E. Mills, proxies from others20L. D. Ricketts, proxies from others5Total shares voted and present4,745Total outstanding shares5,000*2128 *52  8.  The stock of the Gila Valley Bank & Trust Co. at annual meetings was voted as follows: Annual stockholders' meeting, January 18, 1918SharesC. E. Mills, present in person230T. A. Pascoe, present in person69M. H. McLean, present in person10George Kingdon, present in person10George Olney, present in person100J. R. Todd, present in person10R. E. Moore, present in person10H. S. Van Gorder, present in person53Elizabeth Douglas, proxy to C. E. Mills6Marjorie Efromson, proxy to C. E. Mills10Mrs. H. Jacoby, proxy to C. E. Mills1R. D. Kennedy, proxy to C. E. Mills4John Langton, proxy to C. E. Mills25Mrs. E. C. Little, proxy to C. E. Mills7T. O'Brien, proxy to C. E. Mills1J. D. Parks, proxy to C. E. Mills10Mrs. E. V. Pickett, proxy to C. E. Mills50L. D. Ricketts, proxy to C. E. Mills103H. V. Snell, proxy to C. E. Mills18N. Solomon, proxy to C. E. Mills8Bernice Thorpe, proxy to C. E. Mills2Lena Thorpe, proxy to C. E. Mills2A. Trojanovich, proxy to C. E. Mills61D. W. Wickersham, proxy to C. E. Mills69B. M. Goldwater, proxy to T. A. Pascoe10G. W. P. Hunt, proxy to T. A. Pascoe5C. A. Little, proxy to T. A. Pascoe3J. H. Pascoe, proxy to T. A. Pascoe20Gin Ah Quong, proxy to T. A. Pascoe7C. L. Rawlins, proxy to T. A. Pascoe7Total shares voting and present921Total shares outstanding1,000Annual stockholders' meeting, January 14, 1919J. R. Todd, present in person10T. A. Pascoe, present in person69John Langton, proxy to T. A. Pascoe25E. V. Pickett, proxy to T. A. Pascoe50H. S. Van Gorder, proxy to T. A. Pascoe53E. C. Little, proxy to T. A. Pascoe7R. E. Moore, proxy to T. A. Pascoe10George Kingdon, proxy to T. A. Pascoe10J. H. Pascoe, proxy to T. A. Pascoe20B. M. Goldwater, proxy to T. A. Pascoe10G. L. Rawlins, proxy to T. A. Pascoe7H. V. Snell, proxy to T. A. Pascoe18C. A. Little, proxy to T. A. Pascoe3A. Trojanovich, proxy to T. A. Pascoe61George W. P. Hunt, proxy to T. A. Pascoe5Charles S. Smith, proxy to T. A. Pascoe10Elizabeth Douglas, proxy to T. A. Pascoe6M. H. McLean, proxy to T. A. Pascoe10George A. Olney, proxy to T. A. Pascoe100L. K. Ricketts, proxy to T. A. Pascoe103Gin Ah Quong, proxy to T. A. Pascoe7J. D. Parks, proxy to J. R. Todd10R. D. Kennedy, proxy to J. R. Todd4Total shares voting and present608Total shares outstanding1,000Annual stockholders' meeting, January 13, 1920T. A. Pascoe, present in person69J. R. Todd, present in person10Elizabeth Douglas, proxy to T. A. Pascoe6T. O'Brien, proxy to T. A. Pascoe1H. S. Van Gorder, proxy to T. A. Pascoe53C. E. Mills, proxy to T. A. Pascoe230L. D. Ricketts, proxy to T. A. Pascoe103George Kingdon, proxy to T. A. Pascoe71R. D. Kennedy, proxy to T. A. Pascoe4John Langton, proxy to T. A. Pascoe25Mrs. H. Jacoby, proxy to T. A. Pascoe1J. H. Pascoe, proxy to T. A. Pascoe20C. A. Little, proxy to T. A. Pascoe3George Olney, proxy to J. R. Todd100D. W. Wickersham, proxy to J. R. Todd69R. E. Moore, proxy to J. R. Todd10Total shares voting and present775Total shares outstanding1,000Annual stockholders' meeting, January 25, 1921L. D. Ricketts, present in person103T. A. Pascoe, present in person69George Kingdon, present in person71R. E. Moore, present in person10J. R. Todd, present in person10L. E. Thorpe, proxy to R. E. Moore2Bernice Thorpe, proxy to R. E. Moore2M. H. McLean, proxy to R. E. Moore10E. V. Pickett, proxy to R. E. Moore50H. S. Van Gorder, proxy to R. E. Moore53H. Jacoby, proxy to R. E. Moore1J. H. Pascoe, proxy to R. E. Moore20M. Kohn, proxy to R. E. Moore7J. D. Parks, proxy to R. E. Moore10D. W. Wickersham, proxy to R. E. Moore69N. Solomon, proxy to R. E. Moore8C. S. Smith, proxy to R. E. Moore10B. M. Goldwater, proxy to R. E. Moore10C. L. Rawlins, proxy to J. R. Todd7E. Douglas, proxy to J. R. Todd6H. V. Snell, proxy to J. R. Todd25R. D. Kennedy, proxy to T. A. Pascoe4Total shares voting and present557Total shares outstanding1,000*2129 *54  9.  The Gila Valley Bank & Trust Company kept all deposits with the Valley Bank in Phoenix, cash funds, upon which the Valley Bank allowed interest at the rate of 3%.  The cash balance as carried by the Gila Valley Bank & Trust Company with the Valley Bank and the total deposits in all banks, including the Valley Bank are as follows: Cash balanceTotal balancePer cent ofcarried by Gilacarried with all balance carriedValley with Valleybanks by Gila Valleywith Valley Bank toBankBanktotal balancesAt Dec. 31, 1918$285,788.12$621,967.9646At Dec. 31, 1919388,547.161,430,771.9827At Dec. 31, 1920236,293.62735,635.003010.  There is submitted below a schedule disclosing the amount of notes transferred by the Valley Bank to Gila Valley Bank & Trust Company and also the total notes carried by the Gila Valley Bank & Trust Company.  June 30, 1918Dec. 31, 1918Dec. 31, 1919Dec. 31, 1920Total loans and discount carried$2,486,991.74$2,501,744.36$2,587,980.02$2,765,648.05Loans and discounts assigned by Valley Bank for which no discount or handling charge was made707,318.911,038,767.00858,088.00633,838.00*2130  DISTRIBUTION OF EXPENSES 11.  Supplies and stationery were purchased by the Valley Bank for both the Valley and Gila Valley Banks and the cost of same was allotted between the two institutions.  The executive salaries of those officers who were serving in both banks simultaneously were also apportioned.  The auditor of the Valley Bank was also the auditor of the Gila Valley Bank and his salary and expenses were apportioned.  Certain overhead expenses applying to both banks and paid by the Valley or Gila Valley Bank, as the case might be, was likewise apportioned between the two banks.  BOOKS AND AUDITING 12.  The auditor of the Valley Bank was likewise the auditor of the Gila Valley Bank & Trust Company.  The system and internal check of the Gila Valley Bank was under the direct supervision of the officers of the Valley Bank.  *55  DIRECTORS' MEETINGS 13.  The meetings of the Board of Directors of the Valley Bank and the Gila Valley Bank were held in the same city, at the same time, in the same room and immediately following the other.  Upon the completion of the business of the meeting of the first bank, the same directors would thereupon call to order the business*2131  of the other institution.  The business of both banks was discussed at each of the meetings.  OPINION.  MURDOCK: The Commissioner has not determined a deficiency for the year 1917, but on the contrary has determined an overassessment for that year.  His determination is not the result of the denial of a claim in abatement.  We have no jurisdiction to entertain the present proceeding so far as it relates to that year and the same is hereby dismissed.  As to the other years, the petitioner is claiming that it is affiliated with the Gila Valley Bank & Trust Co. within the meaning of subdivision (b) of section 240 of the Revenue Act of 1918, which provides that two or more corporations shall be deemed to be affiliated - (1) If one corporation owns directly or controls through closely affiliated interests or by a nominee or nominees substantially all the stock of the other or others, or (2) If substantially all the stock of two or more corporations is owned or controlled by the same interests.  It is apparent from a consideration of the foregoing facts that the petitioner has not shown that it is to be deemed affiliated with the other institution under either one of the above*2132  provisions of the Act.  On January 1, 1918, a group of individuals owned 71.76 per cent of the stock of the petitioner and at the same time owned 65 per cent of the stock of the other bank.  Without knowing more, it can not be said that the same interests owned substantially all of the stock of the two corporations, because under such circumstances we must assume that the stockholders owning the remaining 28.24 per cent of the stock of the petitioner are not the same persons who owned the remaining 35 per cent of the stock of the other bank.  See ; ; affd., ; . We have this same difficulty for the other years here in question, and we can not say as to any of the years that substantially all of the stock of the two corporations was owned by the same interests.  Furthermore, the evidence fails to disclose control of the minority stock by the interests owning the majority stock. *2133 ;, as to proxies; ; affd., ; *56 ; . There is no claim that one of the corporations owns directly substantially all the stock of the other, but it is claimed in the petitioner's brief, though not alleged, that one corporation controls through closely affiliated interests, substantially all the stock of the other.  In this the petitioner must certainly fail so far as the year 1918 is concerned, for at the beginning of that year and extending to an unknown time in that year, we must assume that 28.24 per cent of the stock of the petitioner was owned by a number of individuals who owned no stock in the other bank, and 35 per cent of the stock of the other bank was owned by individuals who owned no stock in the petitioner.  The evidence does not show that those owning the majority of the stock in either of these banks exercised control, through closely affiliated interests or otherwise, over the*2134  minority stock.  On January 1, 1919, there had been no substantial change in the identity of the owners of the stock in the Gila Valley Bank & Trust Co., but at that date those owning 65 per cent of its stock owned 89.72 per cent of the stock of the petitioner.  The petitioner contends that under these circumstances the Gila Valley Bank & Trust Co. controls, through closely affiliated interests, substantially all the stock of the petitioner.  It is unnecessary to decide, and we do not decide, whether 89.72 per cent is substantially all the stock of the petitioner, because in any event it can not be said that the Gila Valley Bank & Trust Co. controls through closely affiliated interests this 89.72 per cent of the stock of the petitioner.  It could of course be said that stockholders owning 65 per cent of the stock of the Gila Valley Bank & Trust Co. owned directly 89.72 per cent of the stock of the petitioner, but this fact is no reason to say that the Gila Valley Bank & Trust Co. as a corporation controls, through closely affiliated interests, substantially all the stock of the petitioner, or in fact to say that the Gila Valley Bank & Trust Co. controls any of the stock in the petitioner. *2135  Control must be proven and we can not assume that it exists, particularly where 35 per cent of the stock of the corporation claimed to exercise the control is held by persons who own no stock in the corporation claimed to be controlled.  Such a situation indicates a lack of that unity of interest contemplated by the Act.  Proof of control is lacking.  The situation as to the year 1920 is no different in principle from the situation in 1919.  Judgment will be entered for the respondent.