Docket No. 13050.
04-20-1928
ROSENBAUM BROTHERS, INC., PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
J. C. Halls, Esq., for the petitioner. J. Harry Byrne, Esq., for the respondent.
J. C. Halls, Esq., for the petitioner.
J. Harry Byrne, Esq., for the respondent.
This proceeding is for the redetermination of a deficiency in income and profits taxes asserted by the respondent for the year 1918 amounting to $1,199.91. The deficiency arises by reason of the disallowance by the respondent of the sum of $157,665.94 as invested capital, this amount being the difference between the book value of certain assets and their actual value when they were acquired by the petitioner in February, 1916, in exchange for its capital stock. The facts of this case were stipulated by the parties as follows:
FINDINGS OF FACT.
That Rosenbaum Brothers, Inc., a corporation, was organized under the laws of the State of Illinois; that its charter was issued in 1890 for a term of 25 years; that its authorized and issued capital stock was $200,000 par value; that said charter expired by limitation on July 9, 1915; that through an oversight this fact did not become known to the petitioner's officers until the following year, when a new charter having a life of 99 years was secured; that this charter last referred to was issued on February 24, 1916, under the laws of the State of Illinois, the same State under which the first charter was issued; that this charter last referred to authorized, and there was issued, capital stock of a par value of $200,000.
That in the interim between the date the old charter expired, to wit, July 9, 1915, and the date the new charter was secured, to wit, February 24, 1916, the business continued to operate and function in the same manner as it had operated and functioned under the corporate charter secured in 1890.
That when the new charter was issued there was no change of domicile, capitalization, officers, directors, stockholders, assets, or name, nor of business methods or practices.
That at the time the new charter was issued the assets and liabilities remained on the books at the same figure as they appeared on the books prior to the issuance of said new charter.
At the time the new charter was issued on February 24, 1916, the attached instrument, Exhibit A, which is a true copy of the original, was executed and delivered.
That the attached instrument, Exhibit B, is a true excerpt from the minutes of the subscribers of the capital stock of the petitioner held on February 19, 1916.
It is further stipulated and agreed that in the event the Board of Tax Appeals should hold that the petitioner is entitled to evaluate its assets, for invested capital purposes, as of the date the new charter was issued on February 24, 1916, the petitioner is entitled to an increase of its invested capital for the year 1918 of $157,665.94.
EXHIBIT A.
KNOW ALL MEN BY THESE PRESENTS, That Rosenbaum Brothers, a corporation organized under the laws of the State of Illinois on July 9, 1890, whose charter expired by limitation on July 9, 1915, party of the first part, in consideration of one dollar and other good and valuable considerations this day to it in hand paid, at or before the ensealing and delivery of these presents, by Rosenbaum Brothers, a corporation organized under the laws of the State of Illinois on the 24th day of February 1916, party of the second part, the receipt whereof is hereby acknowledged, has granted, bargained, sold and delivered and by these presents does grant, bargain, sell and deliver unto the said party of the second part, all of the business, property, assets and effects of said Rosenbaum Brothers, a corporation organized under the laws of the State of Illinois on July 9, 1890, including the entire goodwill, leasehold interests, trade names, trade rights, trademarks, choses in action, and all interests, legal or equitable, belonging to said corporation, or in which it now or at any time heretofore has had any interest whatsoever.
It is expressly understood that the second party shall and hereby does assume the payment of all debts and liabilities of every kind and nature now or at any time heretofore existing, of said Rosenbaum Brothers, a corporation organized under the laws of Illinois on the 9th day of July, 1890.
IN WITNESS WHEREOF, the said parties have caused this instrument to be executed by their respective proper officers, and have caused their respective corporate seals to be hereto affixed, as of the 24th day of February, 1916. ROSENBAUM BROTHERS, A corporation organized under the laws of Illinois, on July 9, 1890. Attest: (Signed) W. C. RENSTROM, Secretary. SEAL. By (Signed) E. L. GLASER, President. Attest: (Signed) W. C. RENSTROM, Secretary. SEAL.
EXHIBIT B.
The Chairman stated that the Commissioners had accepted as payment in full for all of said subscriptions to the capital stock of this company, aggregating $200,000 par value, a transfer of the business, property, assets and effects of Rosenbaum Brothers, a corporation organized under the laws of the State of Illinois, on July 9, 1890, and whose charter expired by limitation on July 9, 1915 — said transfer being subject to the payment of all the debts and liabilities of said corporation.
OPINION.
MARQUETTE:
The real question presented by the record in this proceeding upon the answer to which our decision herein must rest, is: Is the petitioner a new corporation organized in 1916, so as to make that date the basic point for the computation of its invested capital, or is it merely a continuation of Rosenbaum Brothers, Inc., that was chartered in 1890?
The petitioner contends that Rosenbaum Brothers, Inc., chartered in 1890, although identical with the petitioner as to name, capital stock, stockholders, officers and directors, business and business methods, was, nevertheless, a separate and distinct legal entity; that the petitioner came into existence February 24, 1916, and not before, and that Rosenbaum Brothers, Inc., chartered in 1890, passed out of existence on July 9, 1915, and was extinct from that date forward. It is further contended by the petitioner that at the time of its creation in 1916 it acquired for its capital stock assets, the actual cash value of which was $157,665.94 more than the amount at which they were entered on the petitioner's books, and that it is entitled to increase its invested capital so as to include such actual value.
The respondent admits that the petitioner received a new corporate charter in February, 1916, and that the actual cash value of the assets acquired at that time was greater than their book value, in the amount claimed. The respondent maintains, however, that there is no essential difference between the petitioner and the old corporation of the same name, capital stock, etc.; that looking through form to substance, Rosenbaum Brothers, Inc., has had a continuing existence, at least for taxation purposes, since 1890, and that therefore it can not write up its invested capital to correspond with the increased value of its assets. It may be stated, and it appears to be conceded by both parties hereto, that if Rosenbaum Brothers, Inc., chartered in 1916, is a new, separate, legal entity, and not a continuation of Rosenbaum Brothers, Inc., chartered in 1890, it is entitled to include the assets in question in its invested capital at their value on February 24, 1916, the date it acquired them. (Section 326 (a) (2) and (3), Revenue Act of 1918.)
In our opinion the petitioner is a new entity, separate and distinct from the old corporation of the same name, and under section 326 (a) (2) of the Revenue Act of 1918, may claim as invested capital the full actual cash value of the assets acquired in February 1916. It may be true, as the respondent contends, that the old company remained in existence, as a de facto corporation, after its charter expired. There are a number of Illinois decisions which apparently sustain that view. However, when the petitioner was incorporated in 1916 it was as a new, distinct and separate entity. It was undoubtedly organized for the purpose of continuing under corporate form the business theretofore carried on by the old corporation. But the purpose in the minds of the incorporators can in no way diminish the power and authority of the State of Illinois to grant a new charter and by the granting thereof to create a new corporation. We are here dealing, not with the renewal of an old charter, but the granting of a new one; not with the extension of the life of an old corporation, but with the creation of a new corporate life. The grant of a new charter under the same corporate name in itself shows that the State considered the old company defunct and non-existent.
Nor does the fact that the stockholders of both the old and the new company were the same individuals affect the situation. A corporation is separate and distinct from its stockholders. In re Watertown Power Co., 169 Fed. 252, 255 ; Seep v. Ferris-Haggerty Copper Mining Co., 201 Fed. 886; Fietsam v. Hay, 112 Ill. 293. This identity of stockholders might affect the situation if this case came under the provisions of section 331 of the Revenue Act of 1918, but as that section has no bearing upon corporate organizations prior to March 3, 1917, it does not apply here.
This Board has several times been called upon to pass upon similar questions. In Nazareth Cement Co., 4 B. T. A. 1121, both predecessor and successor companies were organized under the same State law, with the same name, same amount of capital stock, the same officers and directors, and many, if not all, of the same stockholders. We held there "that the petitioner was an entirely new corporation," and that its invested capital was the actual cash value of the property — former assets of the old company — paid in at the time the new company was organized. Again in National Bakers' Egg Co., 3 B. T. A. 1205, where a successor corporation took over the assets of its predecessor, we held that the cash value of such assets, at the time they were taken over, was the measure of the invested capital of the second corporation.
The respondent relies largely upon the cases of Weiss v. Stearn, 265 U. S. 242; Marr v. United States, 268 U. S. 536, and perhaps also upon H. E. Brubaker, 4 B. T. A. 1171. In our opinion none of these cases is really in point. While to some extent the facts resembled those in the instant proceeding, the questions involved and to which the decisions were directed, were entirely different.
Our decision is that the petitioner is entitled to include the assets acquired from the old corporation in its invested capital at their actual cash value at the date of acquisition. The amount has already been stipulated by the parties.
Judgment will be entered on 15 days' notice, under Rule 50.