134 F.2d 217 | 5th Cir. | 1943
What is for decision here is whether payments petitioner made in 1936 and 1937, to the Arkansas Gas Company and the Ohio Fuel Oil Company pursuant to the provision
Petitioner is here insisting that, though it did not sign the contract and in the sense of affixing its name to it, it did not execute it, this is merely quibbling since .the undisputed facts show that the contract was signed with the purpose and intent that petitioner and the other companies created by Penn Wyo would carry it out.
Respondent contests this and urges further that if this be conceded, petitioner would be no better off for (1) the contract under which the payments were made does not, as is essential under the section, require that a portion of petitioner’s earnings and profits of the taxable year be "paid within the taxable year in discharge of the debt; (2) petitioner has failed to show that, amounts paid were to ,the extent of the credits claimed paid within the year; and (3) the amounts paid;were paid not in discharge of a debt but as Returns on a capital investment or speculation into which Arkansas and Ohio had entered as joint adventurers with Penn Wyo.
These questions were not passed upon by the Board, and since we agree with the Board that petitioner did not execute the contract, we pass without discussion the commissioner’s other contentions. As shown by the facts summarized in. the margin,
“Credits of Corporations
“In the case of a corporation the following credits shall be allowed to the extent provided in the various sections imposing tax—
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“(c) Contracts Restricting Payment of Dividends.
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“(2) Disposition of profits of taxable year. An amount equal to the portion of the earnings and profits of the taxable year which is required (by a provision of a written contract executed by the corporation prior to May 1, 1936, which provision expressly deals with the disposition of earnings and profits of the taxable year) to be paid within the taxable year in discharge of a debt, or to he irrevocably set aside within the taxable year for the discharge of a debt; to the extent that such amount has been so paid or set aside. For the purposes of this paragraph, a requirement to pay or set aside an amount equal to a percentage of earnings and profits shall be considered a requirement to pay or set aside such percentage of earnings and profits. As used in this paragraph, the word ‘debt’ does not include a debt incurred after April 30, 1936.”
By an agreement dated April 10, 1920, Penn Wyo Trust was formed to prospect for oil and gas. On July 1, 1920, petitioner and Atlantic were organized by the trust which owned their entire capital stock, to hold applications, permits and leases. Before the end of 1921, the trust, having exhausted its funds, negotiations were begun for additional capital, with the result that on December 20, 1921, Arkansas Natural Gas Co. and Ohio Fuel Oil Co., as first parties, and the Trust, as second party, executed the agreement on whieh petitioner relies. It provided that all pevmits and leases which the trust owned (either directly or through ownership of the stock of the two companies) were to be transferred to operating companies in which the trust would own all the stock. Arkansas and Ohio were to take over the management of these companies and were to loan or advance the trust all monies necessary to finance their operations. The trust in turn was to make advances to the operating companies to be evidenced by notes and open accounts, and the trust was to assign them to Arkansas and Ohio as security for their loans and advances to the Trust. All profits of the operating companies were to be used to reduce the loans from the trust and profits were tojbe paid to Arkansas and Ohio for application against their loans and advances to the trust until they were fully repaid, and, thereafter, Arkansas and Ohio were to retain 60 percent of the net profits and pay over the remaining 40 percent of the trust. Neither the trust nor the trustees were to be Kable for the loans, for their payment Arkansas and Ohio to look solely to the net profits of the operating companies. Three new corporations were formed, and all their capital stock was owned by the trust. All the permits and leases not owned by the petitioner or the Atlantic were trensferred by the trustee to one or another of the five companies. Pursuant to the contract, Arkansas and Ohio assumed control of the five operating companies, including petitioner, and advanced substantial sums of money during succeeding years for development and operation of the properties, and there were heavy unpaid balances in 1935, 1936 and 1937. None of the operating companies had any net income in 1936 and 1937 except petitioner. Though petitioner’s net income for each of these years was respectively $16,359.21 and $14,436.-87, it paid on the unpaid balance $20,-000 in 1936 and $30,000 in 1937, and in its returns for the calendar years claimed credits in the years in question respectively, of $13,277.80 and $32,908.81.
Helvering v. Ohio Leather Co., 63 S. Ct. 103, 87 L.Ed. _, Nov. 9, 1942; Helvering v. Northwest Steel Mills, 311 U.S. 46, 61 S.Ct. 109, 85 L.Ed. 29; Atlantic Co. v. Commissioner, 5 Cir., 129 F.2d 87; Commissioner v. Dulup Oil Co., 5 Cir., 126 F.2d 1019; Caroline Mills v. Commissioner, 5 Cir., 126 F.2d 857.