*1 Jf) CO. v. COM- HOWELL TURPENTINE INTERNAL OF MISSIONER REVENUE.
No. Appeals, Circuit. Fifth
Circuit Court of
June *2 Pulpwood was made Company resulted Turpentine
Hоwell it, accord- realizing taxable reported C. ing to law. The case T. divided, question this the court On opinion arguing several majority for theories, some mistaking think as we law, culminating principles of testimony unimpeached disregard of taxpayer and the presented both minority opinion we Commissioner. As regard as and unanswerable. correct ordinarily minority judges factfinders the majority, and would be controlled regard their reviewing court need not views; they say is no sub- there but here support stantial evidencе is all conclusion and that evidence raising question prop- contrary, thus er for our consideration. documents
The evidence consists presented testimony Howell of D. F. taxpayer Harry and of W. Rein- (cid:127) presented by Commissioner. stein attempt at contradiction or There is no impeachment. questions are documents and whether effect are overridden the circumstances. these. the facts are
In brief outline Turpentine Company incor- porated capital Florida in with a $100,000 cоnducted and thereafter pine lands it owned the business turpentine distillery making and rosin at a County and another Union in Baker County. acres thus used Besides the 5000 Fla., Milam, Jacksonville, Robt. R. 45,500 acquired Company about acres petitioner. unproductive, lands which were of cutover conducting reforesta- but on which it Sp. Jackson, Fox and A. Newton K. Lee process nature and artifi- Gen., Key, Atty. Acting Sewall Assts. Company planting trees. The Gen., Wenchel, cial Chief Atty. Asst. P. J. money making and in Revenue, Counsel, Bureau of Internal optiоns granted successively in 1940 Marshall, Atty., Bureau of Sp. R.C. Inter- buyers prospective C., to different Revenue, Washington, D. nal both lands, purchase price reduced all its respondent. year. option Rayon- last was to each HUTCHESON, SIBLEY, Before expired Aug.- ier, Inc., No and it LEE, Judges. Circuit testimony purports document part any effort thereafter show SIBLEY, Judge. Circuit to sell. Company decision whether question for Howell, holding a sale had been in 1940 who Court’s D. 'Ox beginning from the 53,488 Baker and Union of the acres of land Florida, per cent ownеd 85 National Counties.
321' pledged per purchase and a owning collateral for its sons each cent two cent, price, previously owning per Long employee, Long, said he former *3 1940, sell shortly August debt, having it for left after would the he testifies that Company. sons, being the his the three date the three he conferred with On Howells, now directors, owning a decision not all the reached in for- the and again try meeting mal stockholders permit to resolved that the to to the Turpentine lands, liquidate Company to it. Thеre- dissolve and sell should the Howell, up ap- wind affairs August having its and its after collect assets on Pulp- discharge obligations and proached Turpentine complete- its and and National ly liquidate, liquid and if offering sell land wood assets should offered, be price pay mortgage insufficient to at a lower before on the than physical properties, president met Rein- attorney and should , Milam, subject distributed his an be attorney mortgage, stein with and and own reached, that all agreement assets be was and Reinstein was distributed in kind papers, payment cooperat- exchange draw Milam full asked for their ing. stock. Actual Both Howell and Reinstein testified was dissolution directed that to be withheld it was understood that till positively distribution accomplished. Turpentine Company be Sept- title was in Howell Also on hour, ember liquidation at a later process, but that a was in three Howells met with Reinstein his duly the contract the in- to be made with office was executed the written dividual stockholders on the basis that contract which оn August agreed 25 accomplished been would be on and direct- prepared. ed to be conveyance special fixed Some provi- time for the of title. sions Reinstein, of this contract will witness, the Commissioner’s was adverted asked, later. It concluded provision with a negotiations “You had no with the that if the Howells answered, convey were as such?” and he unable to fee simple per “No, title to cent understanding lands, 80 of the was that contract should terminate. wanted to sell as individuals and On October Commissioner liquidating corporation, pur- advised and the entire Code, suant to Internal Revenue conferences understanding, 148(d), were with § 26 contract, 148(d), U.S.C.A. Int.Rev.Code the contract.” stated § proposed liquidation of September 6, Turpentine not executed till clearly and Company and copy of the explicitly signed and is stockholders’ states resolution was annexed. individually. three Howells Turpentine Factors, Inc., Rosin Pending preparation contract, of this Jacksonville, Sept. products which handled on telegram Howell sent Turpentine Company public letter1 acted also accountant who acted as banker for it D. Turpentine Howell, auditor F. held Company, stat- mortgage lands, ing $249,- on buyer’s on which had assured subject owing, Howell to a would credit on he buy all the stock $114,303, leaving account of a balance of Company instead of the $139,442. Turpen- laud if D. Howell owed the taxes, it save Howell income Company $120,502. tine sum of wished An addi- the auditor to come $27,056 down assist working him sup- tional sum of interest out a was then proper method selling Noth- the stock. posed be due but was held not to be ow- ing came this however; stock Commissioner, Cir., in Howell v. sold, the contract was made first 26, 1940, gave F.2d On December he agreed on. Factors, Inc., personal $180,500 note for Sept. On younger 6 the Howells ac- given credit that amount. He quired from Long percent his 5 thereupon of the gave Turpentine Company stock had it transferred Factors, Inc., their $170,198, into draft names. Howell testified Long’s by Turpentine stock over indorsed signed Turpén says “me,” letter is “Howell concludes, “I” and “I Co., throughout yours truly.” tine ID. personal F. Howell.” but is a am letter. prior mortgage ticular Factors,
Company Inc. Company liquidation. to a and all indebtedness other was cancelled. discharged and was thereby be- sell it validly may But contract Turpen- 26, 1940, the Also December liquida- steps towards fore are taken corporate action by formal tine tion, prospect of if he has a reasonable propor- conveyed Howells three time fixed obtaining tо within title holdings, respective stock conveyance. This 53,448 in Baker and Union of land acres people in of stockholders true *4 conveyance and separate By obtaining Counties. a general prospect a of who have remaining conveyed all the bill of sale personal willing assume a title to next their assets On the to them. un- is not fail. “It they should liability if surren- certificates, which had been convey stock persons by a agree to to usual dered, On marked cancelled. they no notwithstanding time certain Howells, by joined too, day, contract, three the land at time of title to 53,448 wives, conveyed acres respective up- validity agreements and the such Pulpwood Corporation, to the of land assumes held. In such cases vendor according its payment to con- which made making acquiring the title and risk payment tract, part of cash conveyance, damages in responding or $180,500 on his applied by Plowell D. F. bargain. his loss of the vendee’s ** * Factors, following given Inc. note to with situated Whenever one 1940, Turpentine day, 28, December land that can to a reference tract he its affairs com- formally declared by vol- acquire thereto, either title liquidated, resolved that pletely title, parties holding the untary act of the dissolved, directors and the be equity, he proceedings or in or lawat things necessary to do all were instructed agreement position a valid to in make charter. it and surrender the dissolve thereof, to disclosing without sale Secretary it dissolv- declared of State Am.Jur., Vendor nature of his title.” 55 14, tax ed October 1941. The income re- Purchaser, dissenting 12. § Comp'any did not turn of the p. 511, J., case judges quote 66 C. in this report any gain to from the may 40, be valid of sale Sect. “A contract reported gains capital Howells land. The good if in faith and enforceable arising in from dividend on their stock’ notwithstanding subject the vendor charged liquidation. The Commissioner the vendor at the realty to which matter is $207,- in the sale title, a no entering the contract has time of 261, taxes assessed additional accоrd- agrees to interest than he con- or a less ingly. sustained the as- The Tax Court as to vey, least where he is so situated at substantially. sessment proper, convey time.” able to be too, language Tax cite, They to some mis- We address ourselves first Commissioner, T.3 pf Court in Williams v. conceptions law. of a stockhold- very case C. necessary It was to a sell an individual contracts to er who as as stock contract of sale Howells expects acquire he soon to prior action holders thаt corporation. D liquidation of his Here agreed to a dissolution the cor alone, percent as owner 85 poration thereby “equit have become prevent stock, could owners” lands. able of the A stockholder lands, selling and he could out title, equitable, no legal has or acquire title. force corporation’s property. His interest majority judges are further pro part it is a rata of the residuum on in prior supposing that because error in liquidation, interest much of a in like long Seрtember 6 Howell consulted partnership property, partner in which we liquidation, only about discussed, as a stockholder authorities, citing the in Bahr sons, position as a he was his two Commissioner, Cir., 5 F.2d 371. He v. stockholder, representing himself and his by selling sell his interest his can proposing to sons, effectively par- convey any but he cannot Stats, law, Florida Florida course, Under the realized by do. either open but left both 19-11, 612.46, F.S.A., days ten notice choice That § stockholders. to all and a two-thirds vote choice was purpose dictated meeting, saving else unani- objection or is no to it. was de This consent, necessary an cided respect mous written another form of federal dissolution, of a taxation Isham, actual meet- the notice United States v. Long easily given to could the Wall. Gregory In v. question Helvering, carry Howells’ vote 55 S.Ct. U.S. objection. Long held, over in fact was L.Ed. his But A.L.R. “The glad payment sell oí taxpayer stock to decrease the amount of pledged, tlie debt which it and he what would otherwise be his taxes, аlways posi- altogether them, by so. The Howells were to avoid means acquire liquid- permits, which the title to the land cannot law be doubted.” corporation, general This providing ation of rule was admitted in Com *5 way Tower, they payment missioner v. chose the 327 U.S. for corporation’s S.Ct. 164- the They creditors. did not A.L.R. 1135. Here corporation genuine there unquestionably to act for in a have the offer- was liquidation final ing August corporation. sell and the the on to laud ol September personal sale cоntract of All documents state The the and was the con 6. they not, reciting tract all the is the stockholders that did hut im the liquidation, pending acted their own and which had in fact in names for them- been formally ordered before the contract was selves. signed. no previous negotiation There was 2. The confessed fact the purchaser between corporation. the the and gaiu Howells knew there a latent in was the uncoutradicted testimony The supports the land, it heavily and that more would be (dear writing. There was a choice made as by taxed if by corpora realized a sale the to liquidation how should be carried them, than if as by tion realized out, chosen means were lawful. liquidation kind, after legal a in of no ¡he opinion 3. significance. beginning majority From The makes of federal I). much of the fact F. Howell income it taxation has been between established that August September taxable respect to 6 became im in such a gain income pressed that a not sale all does the stock wаs exist tmíil hiere is a realization a simpler way and better sell to by property. it a conversion of land than The corporation, to liquidate government right has no to wrote the tax it till it is if,:; purchaser auditor gain realized. No the value in lauds signified willingness had corporation proceed is taxable to a realized unless buy way. the laud that us, a sale By white it owns seems the land. dissenting did to the judges, law a distribution mere property settled in irrelevancy. idea kind was not without ns The liquidating sale carried dividend out. original The plan of is not gain by taxed a realization of the stockholders sell corporation, ing proceeded is taxed to was each share individuals with. The holder when suggested of what value receives the stock did not involve exceeds investment his any participation corporation in stock. in the sale, and carried out if would have been corporation This not succeeding stockholder:', the act of the It did alone. in its business. There was no obstacle not tend corporation that the show' deciding, the stockholders formally or selling tlie land. informally, liquidate corporation, provide payment for debts, opinion Its majority The next ar kind, over its gues prop.-¡ty take instead of that because on Sept. corpora 6 the corporation letting the the land sell if it met liquidate first resolved could, pay proceeds its debts dissolve, adding, resolution tlie “and the (> n (cid:127) turn balance or The them. United hereby declared to be in object could States not to either liquidation”; course. because three Howells same, provided tax laws taxing for gains signed afterwards on corporation, di- (the have trustees must they of sale individual acting merely by rectors) being di- could not for corporation, acted relationship their trust title evade dispose they rectors could not detriment for which of a creditor benefit; and, discuss- (after own for their trustee,” ques- they begs the merely were cases), concluded ing it was government not acting necessarily tion. liquidation trustees right unless the sale to this tax referred in We corporation. are made, corporation. not so If Regulations Sec. Treasury argument to the tax government had no 21; income 19.22(a) “Gross dis- sense creditor. Liquidation: When up by solved, usually wound its affairs are also concluded dissolution. o.r trustees in receiver that because the Howells’ stock certificates continued corporate existence 27, the were not till December cancelled pay- assets and liquidating purpose not conveyances 26 could of December trustees receiver or and such the debts exchange been corporation for stand in stead of for the since the consideration Any sales of purposes. paid. we think is been This ’ treated as made them if September The stockholders had law. ascertaining purpose of in kind 6 all voted to receive realized gain No or loss is or loss. exchange payment “in full for said *6 distribution corporation from the mere stock; to stock and that such distribution complete partial in or kind of in its assets and cоmplete be in cancellation holders ap- they may liquidation, however have all in redemption of its stock accordance depreciated in value since preciated or liquidation.” plan this When with be- exists acquisition.” distinction A conveyances they accepted December 26 corporation and liquidation aof tween the was in the stock all assets kind liquidate may The officers its dissolution. redeemed, paid off and and surrender law dissolution, it, here, prior to they as did could and certificates cancellation till Dec. when which not voted appear compelled. It been does not have except the sur- everything had been done surrendered, only they were that when law, charter. The Florida render of the they were marked cancelled on December Stats, F.S.A., 612.48, Florida § not affect the if 27. transaction been provides that after dissolution has they been marked. had never by Secretary certified of State question The whether final is years directors trustees for become three consistently any which there is evidence represent corporation in final ad- prove that taken to with law can be justments. Until dissolution the officers made not the stockholders act directors continue to as first such. The plainly contract is this sale. The written quoted-Regula- three of the above sentences All one stockholders as individuals. apply tion the situation their terms to corporate minutes that cor show They after dissolution. do not make poration liquidating by a distribution position as directors and Howells kind. property the stockholders different before December as deeds are to them tenants in common always they 28 from what had been.- It holdings. proportion to their stock Regulation last that is the sentence next day title the to the stockholders made case, applies confirming to this what we purchaser only had dealt with them as who above, paragraph
said in that no is That mode lawful deal individuals. this by corporation from the realized distribu- ing knowingly argu taxes not saved an liquidation, its assets in kind in ir- done, power ment that it was not so but a respective appreciation of their in value argument ful that it That the cash was. acquisition. since their proceeds repay the sale from went money further F. Howell statement which D. had advanced corporate “The government previous pay that off the had statu right tory upon only right. based debts was The stockholders negotiation no interest any- in the has themselves arrange among could put as a necessary forwаrd the Commissioner money chose to way they raise positively that credible Pie testifies in the witness. fact assets. The free the negotiation not with reserved the Howells written contract pros Company, place; but with acres, their old home the sale few pective owners understood had some faith F. Howell D. still he progress, be then and that for a drew turpentine and contracted business sold; accordingly. There written contract land turpentine lease some nor incon testimony circumstance at 25 cts. each crossties neither to cut witness testimony sistent arrangement with with this before; by some happened. Inferences who knows what some of the resi- apparently kept his sons might if he not Pulp- been made have property not deeded dential lawfully to the may the testified made Corporation; evidence that wood is no fact-finders, jurors contrary the Howells whether Turpentine Company judges or hoard In members. Southern Corporation. theOn the land to that sold Walters, R. Co. v. 284 U.S. 52 S.Ct. contrary, persоnal matters would these have 239, the sole issue was whether by the Com- proper place in a sale had no stopped crossing flagged a train no pany. No issue made and required by ordinance. There was evi disposition the Howells to the was taken as speed crossings, at nearby dence among themselves made opinions required up get as to the time only plausible ground sell. did not speed stop, after a full from which it put inferring sale to forward stop; could be inferred there was full is that been unimрeached by it witnesses at was owned D. there particular ap- posi crossing testified and could tively flag, train negotiated stop Com- propriately Supreme Sept. equally reversed a verdict pany prior 6. But Court based *7 on the inference controlling contrary true that he the stock- was unauthorized. appropriately Pennsylvania In Chamberlain, and could as R. v. holder Co. 333, 341, 391, 394, negotiated for himself did not have to U.S. 53 S.Ct. land, circumstances, 819, principle under the
own the the was elaborated thus: “The рrecluded desired inference squarely He testifies he ne- is for do so. the respondent’s gotiated only the other further reason that himself and given depends upon Long recovery had di- the stockholders. him no existence a authority, promptly particular Long fact rect but sold them which must he inferred from facts, permissible proven had had his stock. If he not sold it is not this positive getting retaining pro on face the of the otherwise insisted un land, unimpeached testimony the contract would not contradicted rata of wit the affected; provision actually since a nesses the have been consistent with facts percent proved, it if title from which testimony the stood to 80 contract it affirmative delivered, Long of the ly appears sought land be ar.d the fact to be in percent not exist. This ferred conclusion re only 5 of it. could have claimed from a many sults consideration of deci judge only who saw and heard sions, following of which the are exa testify is the writer of Howell the dis a mples.2 direction a verdict was opinion. senting say But if we affirmed. need not be believed because of his finan case, many cases, the cial interest the there is Reinstein We do discuss more this, represented Pulpwood from the this and other like who or less inferior boy platform 2 Among small the a cited in Frazier the eases v. rapidly moving death; Georgia Banking train to his Co., Railroad & judge appellate regretful 990, the trial held 807, court interest Ga. 33 S.E. testimony the conductor’s trying writer, that he was to the it marks tho burial of get hoy big damage per into must the coach suit. his first He had accepted. juries conductor, be suaded two tliat tho be lieving trespasser, him to had forced be S26 must majority, judgment Tax Court’s Supreme Court courts. The one from the it I think majority opinion, but Com follow the
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contrary majority sought which the to draw. dealing for themselves and That inference believe we corporation. Indeed, record not for the *8 misconceptions all been made at but for the which, according contains no fact which law to we adverted. Es reason, rules of it could be in- judgment teeming to be not acсord making ferred that aside, we set it' ance with law and direct agents. through stockholders as its proceedings further in accordance with Tax Court authorized to determine opinion may proper rede presents record the facts as the them termine taxes involved. inferences reasonable from the facts draw It without authority determined.
Reversed. findings contrary to those make It cannot draw disclosed the record. HUTCHESON, Judge Circuit (concur- contrary inferences those which ring). compels. record agree I with result and with reached opinion. in the majority it said I what LEE, Judge (concurring). Circuit agree particularly with the view of Sibley’s Judge opinion. I concur in To opinion that that five fact members contrary conclusion the reach court would Court, including Tax member that title in evidence, disagree hold with heard the sufficient warrant a find- is of itself alone de- the others conclusions negotiations on behalf findings opinion prive the of the ma- looking sale of prop- to a ordinarily weight jority of the attached on the passing to them “expertise” theory of erties administrative corporate sale. purposes findings. true that because