1925 BTA LEXIS 2202 | B.T.A. | 1925
Lead Opinion
The taxpayer alleges error on the part of the Commissioner, first, on the ground that the amounts above set forth were
In effect, the railroad companies agreed among themselves, as set forth in the above findings of fact, to construct the bridge over the Ohio River and to create for that purpose the taxpayer corporation, and to share the cost of that facility in the manner laid down in the agreements. Briefly, charges were to be made for the services rendered in amounts deemed sufficient to pay all of the expenses of the taxpayer and in addition to retire its indebtedness at maturity. In the first instance, bills were rendered monthly upon a traffic basis, but if the amounts collected under these bills were insufficient to meet the charges of the taxpayer, supplemental bills were rendered for each of the several months, making up the deficits and calling for contributions by the railroad companies in the proportions of their original payments to the taxpayer. To the extent that the taxpayer’s funds derived either under the original or the secondary bills were devoted to the retirement of bonds, the railroad companies were to receive preferred stock in the exact amount of their contributions used for that purpose. This was in accordance with the contract entered into July 1, 1915, by the two original participating railroad companies, and after September 1, 1920, participated in by the Illinois Central. .
From the beginning, the funds so contributed by the railroad companies were earmarked partly for the ordinary expenses of the taxpayer and partly for its capital requirements. In so far as the contributions were used or to be used for ordinary expenses, interest, taxes, and dividends, there can be no question that the railroad companies were making payments for services rendered by the taxpayer, which constituted expenses to themselves and income to the
We are not unmindful of the decisions cited by the Commissioner—namely, Houston Belt & Terminal Ry. Co. v. United States, 250 Fed. 1; Northern R. R. Co. v. Lowe, 250 Fed. 856; Boston Terminal Co. v. Gill, 246 Fed. 664; Blalock v. Georgia Ry. & Electric Co., 246 Fed. 387; Anderson v. Morris & Essex R. R. Co., 216 Fed. 83; and Rensselaer & Saratoga R. R. Co. v. Irwin, 249 Fed. 726. None of these decisions, however, are pertinent to the question here at issue. They deal solely with the proposition to which reference was made briefly at the beginning of this opinion. Nor do we overlook the argument made by the Commissioner that the payments on account of preferred stock were in effect stock dividends. Had the contract provided for the distribution of preferred stock not upon the basis of the payments made for the use of the taxpayer’s facilities, but upon the basis of common stock holdings, there would be much force in the Commissioner’s suggestion. As set forth above, however, in the findings of fact, this was not the case, and the funds contributed by the railroad companies were offset by preferred stock issued or required to be issued in the exact amounts contributed by each of the several railroad companies. Under these circumstances, the funds never reached the stage of surplus subject to distribution then or at a future date in the form of dividends — either cash or stock. From the beginning the funds so paid represented contributions by the railroad companies, for which they had an absolute right to the issuance to them of pre