137 F.2d 961 | 9th Cir. | 1943
Lead Opinion
Here for review is a decision of the Board of Tax Appeals, now called the Tax Court of the United States, which sustained a determination by respondent, the Commissioner of Internal Revenue, that there was a deficiency of $66,858.86 in respect of petitioner’s income tax for its fiscal year ended March 31, 1936. The determination was based on § 102 of the Revenue Act of 1934, 26 U.S.C.A. Int.Rev. Acts, page 690, which provides:
“(a) Imposition of Tax. There shall be levied, collected, and paid for each taxable year upon the adjusted net income of every corporation (other than a personal holding company as defined in section 351) if such corporation, however created or organized, is formed or availed of for the purpose of preventing the imposition of the surtax upon its shareholders or the shareholders of any other corporation, through the medium of permitting gains and profits to accumulate instead of being divided or distributed, a surtax equal to the sum of the following:
“(1) 25 per centum of the amount of the adjusted net income not in excess of $100,000, plus
“(2) 35 per centum of the amount of the adjusted net income in excess of $100,000.
“(b) Prima Facie Evidence. The fact that any corporation is a mere holding or investment company, or that the gains or profits are permitted to accumulate beyond the reasonable needs of the business, shall be prima facie evidence of a purpose to avoid surtax.”
Petitioner is a corporation. It is not a personal holding company. Its adjusted net income for the taxable year — the fiscal year ended March 31, 1936 — was $220,-889.68. Its income tax, exclusive of surtax, for the taxable year was $30,372.33. It overpaid that amount by $452.53. Respondent (1) determined that petitioner’s gains and profits were permitted to accumulate beyond the reasonable needs of its business, hence (2) determined that petitioner was availed of for the.purpose of preventing the imposition of the surtax upon its shareholders through the medium of permitting gains and profits to accumulate instead of being divided or distributed, hence (3) determined that petitioner was required by § 102 to pay a surtax of $67,-311.39,
Petitioner says that the Board “erred in failing to find from the evidence that at March 31,1936, petitioner’s known business needs for cash were in excess of the amount which it then possessed.” No such finding was required. The issue was not whether petitioner's known business needs for cash exceeded the amount which it possessed on March 31, 1936. The issue was, instead, whether petitioner’s gains and profits were permitted to accumulate beyond the reasonable needs of its business.
Petitioner says that the Board “erred in refusing to admit as evidence exhibits offered on behalf of petitioner containing what the books and records showed for the taxable years ended March 31, 1939, March 31, 1940, and March 31, 1941.” Petitioner’s brief does not, as required by our rules,
Petitioner says that the Board ■“erred in failing to find that during the taxable year of its sole stockholder
Petitioner says that the Board “erred in holding that the evidence does not overcome [respondent’s] determination that petitioner was availed of for the purpose of permitting gains and profits to accumulate instead of being distributed.” What the Board actually held was this:
“Petitioner was availed of * * * for the purpose of preventing the imposition of the surtax upon its shareholders through the medium of permitting gains and profits to accumulate instead of being divided or distributed.
“The determination of the respondent that the provisions of section 102 of the Revenue Act of 1934 are applicable to the net income of petitioner for the taxable year is presumed to be correct and must stand unless overcome by evidence. * * *
“The controlling question is whether petitioner permitted its gains and profits to accumulate beyond the reasonable needs of its business. Such fact is by státute ‘prima facie evidence of a purpose to avoid surtax.’ Section 102(b).
“The burden was upon petitioner to establish that undistributed accumulated profits were not beyond the reasonable needs of its business. * * *
“The evidence does not overcome the determination of respondent that petitioner was availed of for the purpose of preventing the imposition of surtax upon its shareholders by permitting gains and profits to accumulate beyond the reasonable needs of the business instead of being distributed. Accordingly, we sustain the respondent.”
The Board’s holding that petitioner was availed of for the purpose of preventing the imposition of the surtax upon its shareholders through the medium of permitting gains and profits to accumulate instead of being divided or distributed appears to have been based on respondent’s determination that petitioner’s gains and profits were permitted to accumulate beyond the reasonable needs of its business. Whether that determination was correct or incorrect was the principal, if not the sole, issue in the case. The burden of proving it incorrect rested on petitioner.
Evidence was produced. Some of the evidence produced by petitioner tended to prove that its gains and profits were not permitted to accumulate beyond the reasonable needs of its business. Evidence having been so produced, the presumption ceased, and thenceforth the issue depended “wholly upon the evidence.”
Decision vacated and case remanded, with directions to (1) find from the evidence, and from it alone, whether petitioner’s gains and profits were permitted to accumulate beyond the reasonable needs of its business, such finding to be in addition to those heretofore made, and (2) thereupon enter such decision as may be proper.
25% of $100,000 plus 35% of $120,-889.68.
$67,311.39 less $452.53.
26 U.S.C.A. Int.Rev.Code, § 1117.
Petitioner owned and operated a school.
See our Rules 20(d) and 30(3).
Ralph Hemphill was petitioner’s sole stockholder. His taxable year was the calendar year.
Lucas v. Kansas City Structural Steel Co., 281 U.S. 264, 271, 50 S.Ct. 263, 74 L.Ed. 848; Welch v. Helvering, 290 U.S. 111, 115, 54 S.Ct. 8, 78 L.Ed. 212; Helvering v. Taylor, 293 U.S. 507, 512-516, 55 S.Ct. 287, 79 L.Ed. 623; Theatre Investment Co. v. Commissioner, 9 Cir., 119 F.2d 477, 479; J. K. McAlpine Land & Development Co. v. Commissioner, 9 Cir., 126 F.2d 163, 164; Commissioner v. Warner, 9 Cir., 127 F.2d 913, 916; San Joaquin Brick Co. v. Commissioner, 9 Cir., 130 F.2d 220, 225.
Welch v. Helvering, supra; Old Mission Portland Cement Co. v. Helvering, 293 U.S. 289, 294, 55 S.Ct. 158, 79 L.Ed. 367; Theatre Investment Co. v. Commissioner, supra; J. M. Perry & Co. v. Commissioner, 9 Cir., 120 F.2d 123, 124; J. K. McAlpine Land & Development Co. v. Commissioner, supra; Commissioner v. Warner, supra; San Joaquin Brick Co. v. Commissioner, supra.
J. M. Perry & Co. v. Commissioner, supra; San Joaquin Brick Co. v. Commissioner, supra; Helvering v. Talbott’s Estate, 4 Cir., 116 F.2d 160, 162. See, also, New York Life Ins. Co. v. Gamer, 303 U.S. 161, 166-172, 58 S.Ct. 500, 82 L.Ed. 726, 114 A.L.R. 1218.
Concurrence Opinion
(concurring).
I think it well, however, to make plain that the ultimate fact in this case is that the corporation was “availed of for the purpose of” avoiding a surtax. The mere accumulation of more than a reasonable fund for the proper conduct of the business is not enough. This fact produces only a prima facie showing of the ultimate fact. I have no doubt as to the correctness of the Commissioner of Internal Revenue’s determination in this case that the corporation was availed of to avoid a surtax, and the record reveals ample substantial evidence in support of the Tax Court’s conclusions to that effect.