143 F.2d 823 | 5th Cir. | 1944
Lead Opinion
For the calendar year 1940 the Commissioner assessed additional taxes growing out of a failure of Court Holding Company to return a gain on a sale of real estate as realized by it, instead of by its stockholders who had returned it. A fraud penalty was also imposed. The Tax Court held that the sale was to be attributed to the corporation and upheld the tax, but that though an incorrect position in law had been taken by the corporation, there was no suppression of the facts, and a fraud penalty was not justified. The corporation is here contending that it does not owe the tax.
The fact as found by the Tax Court are fully stated in 2 T.C. 531. The Court Holding Company was a mere holding company, having as its only asset a building in Florida called Mayfield Court Apartments. Its only business was the leasing of this building. There were 50 shares of stock, owned 48 by Minnie Miller and 2 by her husband Louis Miller. He was president of the Company and their son Harry Miller was secretary. Minnie Miller was a director. The current lease was for three years, beginning October 1, 1938, and the rental was due $2,000 October 1, $1,-000 December 15, $1,500 January 15, $2,-000 February 1, $2,000 February 20, for each year. There was an initial deposit also of $2,000 to secure general performance of the lease. During the fall of 1939 the lessees Aaron and Regina Feiwish, and
The Tax Court concluded on these facts that the sale was really made by the corporation, that the transfer of the property to the stockholders “was in fact subject to the petitioner’s prior agreement to sell, and the sale, although in form by the stockholders, was in reality in performance of the prior agreement”. We think this conclusion not sustainable.
In Florida an agreement to sell land is unenforcible unless evidenced by a writing. Comp.Gen.Laws of 1927, § 5779, F.S.A. § 725.01. The $1,000 paid on January 5th, and finally applied on the purchase, as the tax court found, could not then have been a payment on a contract of purchase, because no agreement to sell had been reached till late in February; but if so considered, because later so applied with Feiwish’s consent, under the Florida law a part payment would give no validity to an oral contract to sell land. Tate v. Jones, 16 Fla. 217; Williams v. Bailey, 69 Fla. 225, 67 So. 877; Maloy v. Boyett, 53 Fla. 956, 43 So. 243; Fireman’s Fund Ins. Co. v. Craven, 101 Fla. 155, 134 So. 232. The corporation was never bound by any writing. It was free on February 23 to declare that it would not go forward with the sale, for any reason or no reason. It did so declare, and thereafter there was not even an oral contract. There was no sale agreement binding the property subject to which the Millers took title. The corporate minutes show that they took subject to two mortgages and the lease, and to nothing else. They were free to sell or not sell. They were free if they chose to propose, as they did, to sell on the same
As we see it, the controlling fact is that there was no binding agreement to sell made by the corporation, and even the oral agreement was called off. The Millers wished to sell the property and realize their gain. It could lawfully be done in either of two ways: 1. The corporation could sell and distribute the gain. Or 2. The corporation could liquidate, transfer the property to its stockholders, and they could sell. The tax consequences were more favorable under the latter plan. The Millers found this out in time, before the corporation became bound to sell, and followed the latter plan. The corporation was actually and fully liquidated. It had after February 23 neither property, business nor capital stock. This of course was all done to avoid heavy corporation taxes, but the purpose to escape or reduce taxation in making such a choice of procedure is not unlawful. The procedure actually followed is taxable by the law applicable to it. United States v. Isham, 17 Wall. 496, 21 L.Ed. 728; Gregory v. Helvering, 293 U.S. 465, 55 S.Ct. 266, 79 L.Ed. 596, 97 A.L.R. 1355; Chisholm v. Commissioner, 2 Cir., 79 F.2d 14. This case is like Commissioner v. Falcon Co., 5 Cir., 127 F. 2d 277, rather than Trippett v. Commissioner, 5 Cir., 118 F.2d 764, 765. The Millers have paid taxes on the gain realized as individuals. The defunct corporation cannot rightly be resurrected to be taxed for a sale it did. not make. The tax ought to be redetermined accordingly. The case is remanded to this end.
Judgment reversed.
Dissenting Opinion
(dissenting)-
This is another of those border line tax avoidance cases in which it is only by the skin of its teeth, if at all, that a family holding corporation has escaped taxes on- a sale of its property by the device of a deed in liquidation to its two stockholders so that they in turn might deed it to the purchaser. The facts are fairly and fully set out in the opinion of the Tax Court, 2 T.C. 531. I will not restate them here. It is sufficient to say that it was in effect found with full support in the record, (1) that the taxpayer entered into an oral contract with the purchaser, with all of the terms of the sale agreed on, one of them being that a part of the rent already paid should be credited on the purchase price, (2) that, at the last minute, and admittedly for the sole purpose of avoiding taxes, it concluded to consummate the sale not by deeding the property direct to the purchaser, as it had at first planned, but by a deed in pretended liquidation to its two stockholders who were to carry out the corporation’s contract by deeding it to the purchaser, and (3) that, using the stockholders as a conduit, it carried out its sale to the purchaser exactly as it had agreed to do.
Standing not as Falcon
It is settled law that neither the motive nor the effort to avoid tax consequences will of itself make a taxable transaction out of- one which is not in law taxable, but evasion and avoidance are near allied, and thin partition walls their bounds divide.
Commissioner v. Falcon, 5 Cir., 127 F.2d 277.
Trippett v. Commissioner, 5 Cir., 118 F.2d 764, 765.
Griffiths v. Commissioner, 308 U.S. 355, 60 S.Ct. 277, 84 L.Ed. 319; Gregory v. Helvering, 293 U.S. 465, 55 S.Ct. 266, 79 L.Ed. 596, 97 A.L.R. 1355; Taylor Oil & Gas Co. v. Commissioner, 5 Cir., 47 F.2d 108; Embry Realty Co. v. Glenn, 6 Cir., 116 F.2d 682; Trippett v. Commissioner, 5 Cir., 118 F.2d 764.