1933 BTA LEXIS 1326 | B.T.A. | 1933
Lead Opinion
OPINION.
The respondent has asserted a deficiency of $921.91 in income tax against the petitioner for the year 1927. The only issue involved in this appeal from that determination is whether or not the petitioner sustained a deductible loss through an enforced liquidation of its assets and capital stock in that year.
The petitioner is a national banking corporation located at Columbus Junction, Iowa. The par value of its capital stock is $50,000, divided into 500 shares. On June 9, 1927, petitioner’s board of directors, through proper corporate action, suspended its business and turned all of its assets over to a national bank examiner for liquidation. At the time of the taking over by the examiner the book value of petitioner’s assets was $88,569.68, but only the cash included therein, amounting to $10,800, was considered by the examiner to be bankable assets. After a thorough examination the examiner determined that petitioner’s bank might be reopened under certain conditions. These conditions required the stockholders to surrender for cancellation all of their stock certificates, in consideration of the distribution to them of the assets of the bank, and the reissuance and sale of said stock for $125 per share, payable in cash.
Surrender, reissue and sale of the 500 shares of the bank stock were accomplished in accordance with the receiver’s plan, and on July 7, 1927, a meeting was held by the new stockholders, at which they elected a new board of directors for the corporation. On July 8, following their election, petitioner’s new board of directors held
The petitioner contends that the process followed was in effect a sale of its assets to its old stockholders in consideration for their surrender of their stock for cancellation and reissue. There is nothing in the record here to support this theory, or to show that it sustained a loss through the process followed in the taxable year. In the situation which prevailed in petitioner’s affairs, after the bank examiner took charge on June 9, 1927, there was no opportunity of election left either to it or its stockholders to barter or sell its stock or assets. The examiner was in full charge and complete control of its affairs. Neither the conditions he imposed for reopening the bank nor the methods adopted by the board contemplated an immediate passing either of title to or beneficial interest in the assets to the old stockholders. Although the declaration of trust stated, by way of inducement, that it was “ desired ” to convey to the old
The old stockholders, so far as the record shows, were not consulted in the arrangement made to liquidate their stock and reorganize their corporation. That was all done by the board of directors, acting under the mandates of the bank examiner. The trust scheme as devised was accepted by them to serve the single purpose of reorganization. It provided a vehicle through which the nonbankable assets could be eliminated from the bank’s capital and held in suspense for a period of two years, during which time any part or parcel of it could be returned through substitution. The trust was primarily intended to serve the interests of the bank and not the stockholders. In no event could the stockholders receive any benefits from the trust before two years after the execution of the trust instrument.
The petitioner argues that the bank “ disposed of property that cost it $98,569.68, receiving therefor $62,500 ” through which it sustained a loss of $36,069.60 in 1927. Whatever else may be said of the transaction we have discussed, it is clear, as pointed out, that the power of control over the assets which the petitioner reserved to itself through the “ revolving fund ” clause in the trust agreement, and the withholding of any benefits from the stockholders for a period of two years, are inconsistent with any theory of a sale of them to the stockholders. It is therefore erroneous to say that the petitioner disposed of its interests in such property at the instant the trust was created.
The trust agreement also provided that the taxes, current expenses, salaries and examiner’s fees of the “ old bank ” should be a first charge against the assets of the trust and that their prior payment was a condition to any distribution of the assets to the stockholders. There is no evidence as to the amount of these charges, but whatever they were they constituted debts of the petitioner which, when paid, pro tanto increased the sum realized by it in the liquidation of its assets. We therefore are unable to say, even should we hold the transaction to be a sale, that the petitioner sustained a loss as alleged.
The petitioner has wholly failed to prove that it sustained the loss contended for in the taxable year and the determinations of the respondent are therefore approved.
Decision will be entered for the respondent.