*1 Before PARKER NORTHCOTT, WESTERN MARYLAND RY. CO. v. COM Judges, OF Circuit Judge. MISSIONER INTERNAL SOPER, District REVENUE. Appeals, Court Fourth Circuit. Circuit PARKER, Judge. This pe- Circuit is a July 1, 1929. tition Maryland Railway the Western to review a decision of the Board No. 2837. Appeals. of Tax The point involved is the railway company to deduct in years its income returns for the 1918 and 1919 an amortized of the bond dis- arising upon count sale of Maryland Company, Western predecessor ownership of its railroad *2 696 property. given exchange The Board of Tax based against for the notes held its denial primarily upon company. of the deduction the old The bonds which constitut- the upon fact that a new had been ed a lien property affected the were not created as a payment result of the consolidation of the by reorganization, was but their Kailway Maryland by The Western assumed the corporation, new which as- subsidiary its corporations various sumed all the corpo- of , 1917, this new as- and had ration its all and subsidiaries and took payment sumed the of of . Among the bonded indebted- their assets. assets, which ness. by It reasoned corpora- that the new were shown books the old of property
. which took over the of the old and by petitioner which were tion and taken over debts, paid upon assumed its on reorganization, had discount was the amount set n consequently the bonds and was not entitled on account of discount in the sale of to amortize same. bonds. only The facts as to the bonded indebtedness Not petitioner books of do the show April, and the discount are discount, appears that between the bond but it also 1904, August, 1911, corporation petitioner required and by Com- Interstate predecessor petitioner, which was Commission, of the merce under latter’s classi- Maryland Railway Company, the Western income, profit, loss, gen- fication of $46,633,000 mortgage issued and sold of first eral accounts, prescribed balance sheet ac- cent, per 1,1902, 4 dated October bonds, 20 cordance with section the Interstate of maturing 1, 1952, October of 20), carry at a discount Commerce Act USCA to on § up on $3,638,451.67. This discount was set general unextinguished balance sheet the company January 1, the books as of question of the discount on bonds and to thereof, 1910, the annual proportion by charge against amortize same income charged amounting $80,796.24, off remaining was bonds. life of the year questions each thereafter. presented by peti- Two are regard reorganiza- The facts with (1) Whether, : where are sold at tion bonds which held discount, amortized, are that the such discount time, railroad purposes, at that income tax the life Western for of oyer Maryland Company, all bonds, by deducting proportion owned the annual subsidiary corporations gross the stock in seven income for each year; thereof from operated respects property it as (2) so, whose all if whether the to deduct ands own, keeping but one set of books and by in this case reason the discount was lost reports making the Interstate Commerce reorganization and the just though proper- all Commission by the assets liabilities consolidated corporations all were company. ties of owned system. single operated it as At question appears On the first $50,000,000 outstanding upon railway company kept had com- that time it books of the $10,000,000 stock, mon and preferred basis, 234(a) (2) of the accrual and section owed, provides in addition to bonded indebtedness the Revenue of 1918 for the de- Act referred, aggregating *3 discounts, necessary accounting sense, nomic and to amortize the discount over the " involved, life of herein the bonds.” are nature of deferred regulations they accrued and that may be These Commissioner proper part requirements proportionate applicable are in accord with year Commission, each taxable a Interstate Commerce have involved be taken and recently gross year-, from approved by deduction income in been Tax such Board of Appeals concept and not in Chicago, case of that this is conflict but Rock Island Railway harmony provisions & Pacific rather in Co. Commissioner of with v. Revenue, Acts 1916 1918.” They Internal 13 A. 988. Revenue B. T. are apparently also Cases practice by in'accord conflict with this laid down approved by accounting decision were dis Ac reviewed the Board and authorities. See tinguished, counting Procedure, by Practice careful Arthur examination seen be in (1919) pp. 66, 134-155; Lowes Dickinson not to conflict. Thus the case Corporation by Accounting, Commissioner of Internal Old R. Bennett Revenue v. J. Colony 1st) (1917) 269-272; (C. 408, R. R. pp. Accounting, F.(2d) C. 26 Modern A. Principles by premium Its dealt of a Problems, its with the and Some of amortization Henry prior adoption bonds pp. 187-189; issued in (1913) Rand Hatfield amendment; come tax Accounting, by William and it was held that Outline of S. Krebs a 434, 435; imposed upon tax could (1923) pp. Accounting, Theory premium & not be a prior adoption Practice, by Kester (1918) received Roy pp. 367, B. of the amend 368; gave Theory by Congress power ment tax. Accounts which Practice, (C. 9th) So. (1920) Earl A. Pac. R. Co. v. Muenter pp. Saliers 168-170. In the C. A. 837, 260 Chicago, F. Baldwin Locomotive v. Rock Island & Pacific Works (C. 59, & Case, 3d) McCoach C. A. 221 F. and C. Board Tax fully, S., 41, A. R. R. v. U. 53 Ct. Cl. went matter Co. were cases into the and laid arising corporation law, we think is correct excise tax down what rule required receipts which returns on following language: such the cash matters basis, and and disbursements corporation contemplates a allowed deduc “Whenever only paid, issuing securities, interest which had been long-term three methods accrued, present not carry that which had does Rev themselves: Shall bonds enue Act 1918 1057). Stat. and be After market rate at interest issued they agree careful par, carry greater cases, examination of or shall a rate than with the Board that, rate at a where bonds premium, the market and be sold or are sold at discount, a carry proper pur it is they shall a for income than tax less the market poses be rate and sold discount amortized over be at a discount? Which of the life of the pursued proportionate these methods that a should be is deter by part present mined thereof be needs the future deducted as accrued prospects of the company, gross but it from matters not interest income. plan adopted, things being other We come question then the second equal, finally the rate paid will in the ease: Has deduct the be the market and not the contract rate. amortized of the discount lost been true income of can re the reorganization reason of cor only flected poration spread that sold the bonds and the the life of the bonds. The most material ele of its assets and liabilities the consol determining ment in company? the contract rate of idated We think not. the first .in In terest, is, place, perfectly whether that, although the bonds shall be sold it clear par premium at discount, at is time. there has although Thus proposition no one would corporation consider the the consolidated is a le distinct premium pay he gal entity places for bonds from those whose it has tak once en, nevertheless, nor would one issue bonds at discount in all rela essential day they which are tionships, occupies exactly posi due and collectible the it they are issued. occupied. Since time is such vital Its management element tion which determining premium same, same, is is assets are its stock perceive why difficult same, should holders are the element except not be into same, floating taken consideration determin indebted ing why taxable time should has ness of old been taken income— 698 242, preferred new, Stearn, actions. See 265 U. S. Weiss v. the first stoek 490, 44 Ed. 33 A. L. R. change might 1001, S. 68 whieh been effected Ct. L. have 42 520; Phellis, S. 257 S. reorganization, old U. v. U. S. without Macomber, manifestly 180; Ct. 66 L. bearing upon whieh can Ed. Eisner v. have no words, 252 Ed. the matter of U. S. 40 S. Ct. 64 L. bond discount. other Lewellyn, 9 1570; Corp. in A. L. R. Oil v. stepped the consolidated has Gulf supra; Alpha U. place Co. v. S. whieh issued Portland Cement relationship (C. 3d) 339; A. occupies Appeal C. A. J. same F. Siegel, 186; Appeal H. E. Bru occupied. towards re B. T. them that It has A. think, therefore, agreement baker, ceived 4 B. T. 1171. We no consideration for its A. pay except corpo technical them as the while assets *4 ly legal entity, practical It is all ration have been to it. distinct whieh transferred purposes mere property has old intents and continuation of the as the same debt, old, owes same and is to the it is entitled to the same deduction the bonded bound way. pay of bond discount that it in the same The Interstate Com account amortized corporation entitled requires merce Commission the unextin the old have been that would reorganization place. guished to, balance if had taken discount be carried on the not that, place, amor In we think irre- of the and that same be the second sheet by charge spective practical identity against re of the tized income for the just though petitioner maining corporations, of as is entitled and new life place;' and, having reorganization had if the to taken the deduction claimed because for rate the lia- deduction is to be allowed as basis the assets and assumed taken rights making determining was un- for bilities of old Among government recapture it. lia- questionably clause entitled to Act, is Transportation no reason as shown its> there bilities the old determining issue; among why it should not be allowed was the bond as- in books sets was the amount set all, After while as taxation also. bond basis of charged legal against an- difference between whieh was there a technical they corporations, new amortized thereof. the old and the holding assets, matter, practical liabilities both same as as representing place took the old to both same that principle said, has -discount is ownership, it is a settled items. As been bond permit really be themselves to deferred at the matu- “courts not interest will but, therefore, of law rity When, mere forms the new blinded or deceived of the bonds. fictions, with the sub regardless deal will assumed the if as the old, agreement transaction involved pay stance of the the bonds matu- jus rity necessarily corporate agreement exist as embraced not agency did Chicago, pay Mil require.” this deferred whieh tice of the ease is included Minneapolis Paul R. Co. v. in the face corpo- waukee & St. the bonds. As the new 501, 38 S. Ct. Ass’n, 247 U. S. pay this, Civic is bound ration there is no reason 1229); Pac. L. Ed. Southern why should way it not amortize it in same 540, 62 corporation. S. Lowe, 247 U. 38 Ct. S. old Co. v. as the Le Corporation v. 1142; argued, Gulf Oil however, Ed. It the new L. cor- Ed. poration 63 L. pay 39 S. Ct. wellyn, agreed 248 U. S. has the full face of 133. the bonds in consideration of the assets trans- impor peculiar just it, that, reason, is of The rule stated ferred to this has cases; for, unless courts full tance in received consideration for them tax has regard not substance suffered no discount. But careful no means grave taxation, there is follows. The form matters fact bonds have been sold provisions danger presupposes one hand at a discount on the through they carry pre- will evaded tech rate whieh than laws less of the tax they sale; will work vailing other that at the and it is on the time but nicalities and unnecessary hardship on fair assume has that this taken unreasonable been into agreed note the price paid is instructive to account taxpayer. It the terms years corporate in recent transfer of many cases decided tax assets. ignore not hesitated The matter takes care of itself in case have to questions the courts whieh forms, this; corporate decide for it is mani- parties light have discount was mirrored of what fest involved corporation by rather old actually than on basis the affairs fact done, they trans actual much have clothed their assets were that less than in whieh forms
they would have been had exacted, exactly is mirrored way pass same hands the assets into the reorganization. a man cannot lift As corpora- himself his bootstraps, own so a cannot, by process reorganiza- mere tion, wipe increase its actual out assets the fact pay that it is bound to bond discount reality which is in deferred interest. stated, For the reasons think that denying taxpayer there error the deduction on account of bond discount. the Board Tax decision of accordingly will reversed, and the cause will proceedings be remanded for further conformity this opinion.
Reversed. *5 NORTHCOTT, Judge (dissent- Circuit ing). regret I I cannot concur conclusion, that, my above for reason opinion, separate corporations the two legal entities, un- that the new reorganization payment der the assumed par regardless value for the further reason that (J. Pawhuska, Okl. Tillman, of A. Fred the new Mo., on the Cardigan, City, Kansas A. way acquired charge off the plaintiff in brief), for error. proportionate part of the Lewis, Atty., Oklahoma Roy U. S. St. originally the bonds sold. Asst, Atty. City, Leahy, Sp. pH., and T. J. Atty. Luhring, Gen., and R. Asst. (O. Gen. Sp. Brown, Pagan E. and Edwin Oliver Atty. Gen., brief), Assts. for the United States. RAMSEY v. UNITED STATES. STONE, Before Judge, Circuit and FAR- SYMES, IS and Judges. District Eighth Appeals, Circuit Court of Circuit. July 1, 1929. FARIS, Ramsey, Judge. tried, District
No. 7870. convicted, imprisonment and sentenced to murder, life for the crime country, Henry Indian he and killed one shot Roan, sued out this writ of error to reverse such sentence. The facts and circumstances of the al-
leged murder, as disclosed by the evidence
heard
trial,
voluminous.
Moreover, these facts are to be found in the
opinion of this
court
the case of
v.
Hale
States,