Court Opinion

ID: 4600687
Source: CourtListenerOpinion
Date Created: 2020-11-20 19:26:07.363801+00
Date Added: 2024-06-11T07:52:21.088542
License: Public Domain

PIO CRESPI, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.Crespi v. CommissionerDocket No. 103133.United States Board of Tax Appeals44 B.T.A. 990; 1941 BTA LEXIS 1248; July 11, 1941, Promulgated *1248  The petitioner owned all the stock in a corporation, the charter of which expired.  The business was continued as before.  About seventeen months later the petitioner and the holders of two qualifying shares, as trustees, transferred the assets of the former corporation to a new corporation of the same name, in consideration of assumption of the liabilities of the old corporation and release of the trustees from the trust.  The new stock was issued in the same amount to petitioner, with two qualifying shares to the same holders of qualifying shares in the old corporation.  Under local law the old corporation could not secure a new charter.  In the issuance of the new stock, it was, upon a list made, allocated by shares against shares of the old stock.  Held, that the basis to petitioner of new shares sold was the average cost of the new shares, represented by the cost base (cost of old shares) of the assets transferred to the new corporation.  Robert Ash, Esq., for the petitioner.  D. D. Smith, Esq., for the respondent.  DISNEY*991  This proceeding involves income tax for the calendar year 1938.  Deficiency was determined in the amount of*1249  $9,670.56.  The question presented is whether petitioner was denied the use of the proper base as to corporate stock sold by him.  From evidence adduced, we make the following findings of fact.  FINDINGS OF FACT.  1.  By July 1926 the petitioner had acquired, upon various occasions all of the stock, i.e., 1,000 shares, par value $1,000 each, of Crespi & Co., a corporation.  Two shares, for qualifying purposes, stood in the names of G. T. Naylor and H. K. Knowles.  He continued to hold all of such stock until the charter of Crespi & Co. expired by limitation on July 20, 1933.  Thereafter the business was continued as theretofore.  A stockholders' meeting was held on November 23, 1934, and a resolution was adopted, reciting in material part that the charter had expired on July 20, 1933; that thereafter the president and board of directors had continued, and still continued, to conduct the business of the corporation and had only recently been advised of the expiration of the charter; that the business and affairs of the corporation automatically passed to them as trustees, under the statute of Texas; that the charter could not lawfully be revived, that there was a corporate surplus*1250  of approximately $1,035,000; that it was desired to continue the corporate business without interruption or change of any kind, in the same manner as before, and that the business and corporate property should be acquired by a new corporation to be known as Crespi & Co., and to assume all obligations of the former corporation; that it was therefore resolved that a charter for such new corporation be secured, the corporation to have a capital of $1,000,000 with 1,000 shares, each of $1,000 face value, subscribed in the same amounts as stock was held in the former corporation, that is, 998 shares by Pio Crespi and one share each by H. K. Knowles and G. T. Naylor, the subscription to be paid by surrender and cancellation of all stock owned by the incorporators, for a like number of shares in the new corporation; and that the board of directors and trustees of Crespi & Co. (the old corporation) be authorized and instructed to transfer all the properties thereof to the new corporation in consideration of its agreement to assume all obligations of the old corporation and release of the trustees from their trust.  Pursuant to such resolution, and on December 13, 1934, the three trustees*1251  executed, with warranty of title, a transfer of all of the assets of the former corporation to Crespi & Co., the new corporation, articles of incorporation of which were likewise executed by the three parties on December 13, 1934.  The charter for the new corporation *992  was procured on December 17, 1934.  Its provisions were in accordance with the resolution above recited.  The stock in the new corporation was issued on December 17, 1934, to the same persons and in the same amounts as in the former corporation.  Prior to such issuance, Pio Crespi instructed G. T. Naylor, the secretary, how to issue the stock, by giving him a list or record as to how to issue the stock in the new company.  This list was pasted in the stock book of the new corporation.  It contains a list, in numerical order, of fourteen stock certificates issued in the new corporation in a first column, and opposite each such certificate number and in a second column, headed "Old Cert.", other numbers indicating old certificates.  This list was followed in the issuance of stock certificates in the new corporation.  A third column is headed "Per Share", with amounts in dollars set opposite each certificate number, *1252  and a fourth column, headed "Cost", shows the total cost, opposite each certificate number.  The list also contains a separate list of the old shares alone, showing separately the number of each old certificate, number of shares, original cost, and cost per share.  Old certificates No. 20, for 149 shares, and No. 21, for 1 share, are shown to have a total original cost of $220,343, or $1,468.95 per share.  Old certificate No. 20 appears opposite new certificate No 9, for 1 share, No. 10, for 50 shares, No. 11, for 50 shares, and No. 12, for 48 shares, a total of 149 shares.  Old certificate No. 21 appears opposite new certificate No. 13 for 1 share.  All other certificates appear similarly numbered, but are here immaterial.  Old certificates Nos. 20 and 21 were purchased by the petitioner from one Helmbrecht on July 31, 1926, at $1,468.95 per share.  The shares in the new corporation were issued in certificates of 100 and 50 shares because it was the petitioner's intention to sell a portion of them to his son to bring him into the "firm." By letter dated June 3, 1938, from the petitioner to his son, and acceptance thereof on June 6, 1938, the petitioner sold 75 shares of the*1253  new stock to his son for $1,468.95 per share.  The stock certificates (in the new corporation) delivered were No. 10, for 50 shares, and a certificate representing 25 shares from certificate No. 11.  The total cost to petitioner of all of the stock in the old corporation was $610,343, or $610.34 per share.  OPINION.  DISNEY: The petitioner contends that he had no profit upon the sale of the 75 shares of stock to his son, for the reason that he sold it for $1,468.95 per share, that the certificates delivered were No. 10 and a substitute for a part of No. 11, that Nos. 10 and 11 were issued and *993  identifiable against No. 20 of the old corporation, which in turn was purchased from Helmbrecht at $1,468.95 per share.  The respondent argues that the petitioner owned all of the stock in the old corporation at a cost of $610,343, that he acquired all of the 1,000 shares of stock in the new corporation for the same price because it was issued for the assets of his old corporation, which he owned after it had ceased to exist, and that therefore he realized a profit of the difference between $610.34 per share, cost, and $1,468.95 per share, sale price, or $64,395.32, of which*1254  50 percent was taxable under section 117(b), Revenue Act of 1938.  The only question of difference between the parties is whether the new stock which was sold is identifiable with certain shares of the old.  In our opinion it is not.  The old corporation had ceased to exist and could not under Texas law secure a new charter.  The assets therefore belonged to the directors, who were the stockholders, as trustees.  Petitioner was the only stockholder, except for two qualifying shares.  He therefore owned the assets, subject to claims of creditors.  . These were transferred to the new corporation, the stock of which was, in the same amounts as in the old corporation, issued to the petitioner, and the two nominees holding qualifying shares.  We think there was not even a de facto corporation in existence when the new one was organized, for the petitioner had merely overlooked the expiration of charter and had made no attempt to organize a new corporation.  On this subject 14 Corpus Juris 226 reads as follows: [§ 232] h.  Expiration or Repeal of Charter. Although there are some decisions to the contrary on the ground*1255  that there is still sufficient color of authority for a de facto corporate existence, the weight of authority is to the effect that a corporation is dissolved ipso facto, in the absence of provision to the contrary, on expiration of the period of its existence fixed by its charter or by general law, as the case may be, or on repeal of its charter, and that since there is no longer any law under which it can legally exist, it cannot acquire the status of a corporation de facto after expiration of such period, or after such repeal, by continuing to exercise corporate powers; and its corporate existence after such period may be questioned by any one, and collaterally as well as directly, unless there is color of authority for continued existence, as by reason of an act apparently extending its charter, or unless there are elements of an estoppel.  We are therefore unable to see the applicability of those cases, such as , cited by the petitioner, and involving exchange of stock in the same corporation and the rather usual question of intent to identify shares.  Here, shares had ceased to exist, and the assets upon dissolution of the*1256  corporation, in effect by liquidation, passed to the petitioner.  The assets only were transferred to the new corporation.  The Commissioner determined that the assets had, in the hands of the petitioner, a base of $610,343, *994  and that basis must be deemed correct, the petitioner having adduced no evidence to show a different base.  That was therefore the cost to him of the 1,000 shares of stock issued to him in the new corporation, and each of the 75 shares sold had a base of $610.34.  There was an attempt to identify new shares with old shares which were nonexistent.  New shares were not issued for specific old shares, but all new shares, as a whole, were issued for the transfer of the assets of the assets of the old corporation, as a whole.  Though the consideration for the transfer of assets was recited as assumption of the liabilities of the old corporation and release of trustees' liability, the only reason for issuance of all stock to petitioner was his ownership of all assets of the old corporation.  The attempt to identify was, in our opinion, futile, and the principles applied in such cases as *1257  (688 citing various cases) apply here.  We hold that no error has been shown in the determination of deficiency. Decision will be entered for the respondent.