Court Opinion

ID: 4609172
Source: CourtListenerOpinion
Date Created: 2020-11-20 19:44:10.922207+00
Date Added: 2024-06-11T07:53:50.249631
License: Public Domain

CASSIDY COMPANY, INC., PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.Cassidy Co. v. CommissionerDocket No. 9368.United States Board of Tax Appeals11 B.T.A. 190; 1928 BTA LEXIS 3857; March 23, 1928, Promulgated *3857  Evidence examined and value of tangible property paid in for capital stock determined as of January 24, 1919, for invested capital purposes.  Willard N. Baylis, Esq., and P. A. Galleher, Esq., for the petitioner.  Harry LeRoy Jones, Esq., for the respondent.  MILLIKEN *190  This proceeding is for the redetermination of deficiencies in income and profits taxes for the years 1920 and 1921, in the respective amounts of $5,461.19 and $3,146.74.  The only error that is urged is that respondent erred in regard to the year 1920, in fixing petitioner's invested capital at $135,000, and for the year 1921, at $172,170.34, whereas the correct amounts were in excess thereof.  Other errors were alleged relative to losses on patterns, patents, machinery, bad debts, and depreciation but these were abandoned at the hearing.  FINDINGS OF FACT.  Petitioner is a corporation which was incorporated on January 21, 1919, under the laws of New York, with its principal office and place of business in Long Island City, N.Y.  It is engaged in the business of manufacturing and selling lighting fixtures.  In 1889 the Cassidy & Son Manufacturing Co. was organized*3858  under the laws of New York.  In the latter part of 1918, this latter corporation was adjudged a bankrupt, and a receiver was appointed who continued the business.  In January, 1919, the bankrupt's assets were sold as a going concern.  At the sale, W. J. Matheson bid in the entire property for *191  $110,000 and assumed certain obligations incurred by the receiver in the amount of $18,199.41.  Matheson transferred his bid to petitioner for $125,000 par value of its preferred stock and $10,000 par value of its common stock, and in further consideration of the assumption by petitioner of the obligations incurred by the receiver.  Petitioner complied with the terms of sale and acquired as a going concern the business and assets of the Cassidy & Son Manufacturing Co.  The lighting fixture business so acquired by petitioner had been conducted by its predecessor and others for about fifty years and during that time much valuable machinery and fixtures had been acquired, including patents, trade marks, patterns, dies, chucks, etc.  At the time of bankruptcy the factory was in Long Island City and the bankrupt maintained a handsome showroom in New York City.  The assets acquired by*3859  petitioner from the bankrupt included machinery, merchandise, plant equipment, office furniture and fixtures, bills receivable, patents and trade marks, unexpired policies of insurance, unexpired leases, United States bonds and a second-hand automobile.  It also acquired from the receiver $3,046.54 in cash The receiver made a profit during the receivership of $1,535.97.  The assets, tangible and intangible, including cash, acquired by petitioner at the time of its organization had a fair market value of $212,000.  OPINION.  MILLIKEN: At the hearing, it was conceded by both petitioner and respondent that the only question submitted to the Board was what was the fair market value of the assets acquired by petitioner from the bankrupt corporation by reason of petitioner's assumption of the bid of Wm. J. Matheson.  On this point the only evidence introduced was an appraisal of the assets of the bankrupt and the testimony of Herman Plaut, one of the appraisers.  This appraisal was made pending the bankruptcy proceedings, probably in January, 1919.  The appraisal placed the value of all the assets of the bankrupt, exclusive of money held by the receiver, at $212,034.22.  Plaut had*3860  engaged in the same business as the bankrupt and in the same locality for over forty years.  His customers and the bankrupt's customers were, to a large extent, the same.  He was one of the bankrupt's most formidable competitors.  He had frequently acted as appraiser in cases of bankruptcy of similar businesses, and had several times been employed as an expert witness in cases requiring knowledge of such business, among such employments being one by the State of Pennsylvania in the litigation over its capitol at Harrisburg.  He had no interest in the bankrupt corporation or in the petitioner corporation.  He testified that each article *192  or asset, with the exception of certain patterns, dies and chucks, was valued separately.  These patterns, dies and chucks were valued as a whole at $40,000.  This amount was for less than their cost.  These items were over 26,000 in number.  Without such articles a business of this character could not be successfully conducted.  Plaut testified that $40,000 was their minimum reasonable value.  We see no reason to doubt the correctness of his testimony on this point.  With reference to the value of the assets of the bankrupt, Plaut testified: *3861  Q.  What would you say was the actual market value of this property at that time, as shown in this exhibit No. 12, which excludes cash and includes all other assets which you were able to find in that corporation?  A.  I should say that appraisal represents the minimum value of it at a forced sale, and it would be worth a great deal more to anybody who would continue the business thereafter, all under a lump sum.  Q.  Will you tell us what is the market value under the conditions that you have given of those assets, excluding cash, at the time this appraisal was made?  A. $212,034.22.  While we have no doubt that the assets which were appraised had a fair market value equal to that shown by the appraisement, we do not know whether all the assets appraised were acquired by petitioner.  The receiver continued the business and, of course, sold part of the assets and perhaps bought others.  On this latter point, we are not informed.  It may be, therefore, that the cash on hand, which was acquired by petitioner, resulted from the disposal of some of the assets appraised.  On the whole, we are of the opinion that the fair market value of the assets including cash acquired by petitioner*3862  in exchange for its capital stock was $212,000.  While it may appear peculiar that the amount we have found largely exceeds the amount bid at the bankruptcy sale, yet, as we said in  - We see no reason to regard the receiver's sale or any other sale as more than evidence of value, and where, as in this appeal, the preponderance of the evidence is that the actual value was otherwise, the plain language of the statute must be followed and invested capital allowed on the basis of the actual value of the property paid in for stock.  See also . The value which we have found, less the amount of obligations of receiver assumed by petitioner, should be included in petitioner's invested capital as of the date of its organization.  Judgment will be entered on 15 days' notice, under Rule 50.