Robillard v. Commissioner , 20 B.T.A. 685 ( 1930 )

BASIL ROBILLARD, EXECUTOR, ESTATE OF MARTHA H. BEEMAN, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Robillard v. Commissioner

Docket Nos. 44008, 45835.

United States Board of Tax Appeals

20 B.T.A. 685; 1930 BTA LEXIS 2057;

September, 8, 1930, Promulgated

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1. FOREIGN INCOME TAX. - Where dividends are received by a citizen of the United States, a resident therein, on stock which he holds in a foreign corporation, a holding company, he is not entitled to credit against the tax on such dividends foreign taxes which were paid at the source for the account of the foreign corporation, a holding corporation, and not for the account of the stockholder.

2. RULING OF COMMISSIONER IN A PRIOR YEAR. - The fact that the Commissioner allowed the credit in a prior year does not preclude his disallowing it in the taxable years, if his former action was erroneous. The Commissioner has no authority to make a ruling at variance with the import of the statute.

Basil Robillard, Esq., for the petitioner.

Ralph S. Scott, Esq., for the respondent.

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BLACK

Petitioner asks redetermination of deficiencies of $16,650.14 for 1924, $12,395.98 for 1925, and $4,455.19 for 1926. The first two years are included in Docket No. 44008 and the year 1926 in Docket No. 45835. The cases were ordered consolidated and were heard together. The question presented is the right of the estate of Martha H. Beeman to credit income taxes paid the British Government under circumstances set out in detail in our findings of fact, against United States income taxes.

FINDINGS OF FACT.

The facts have been stipulated and we approve them and set out such part of the stipulation as we deem pertinent to our decision herein.

1. The taxpayer, during the tax years in question, was a shareholder in the Spirella Securities, Limited (called Securities Co. in this stipulation), a corporation of Ontario, Canada, with its principal office at Niagara Falls, Ontario, and was also life tenant of the estate of Marcus M. Beeman, which was also a shareholder in said corporation, and both individually and as life tenant received income upon the stock of said corporation held by her and said estate.

2. During the tax years in question the Securities Co. owned and held more than a majority of the shares in the capital stock of Spirella Co. of Great Britain, Ltd., a manufacturing corporation of Great Britain, with its principal office at Letchworth, Herts, England (called the British Co. in this stipulation) and more than a majority of the stock in other Spirella manufacturing companies throughout the world. Aside from said investments and $11,500 face value of Dominion Victory bonds and its own books of account, stock record books and a safe, the Securities Co. has had no assets since its inception.

3. The Securities Co. was formed and used only for and as a holding company to hold the stock of the British Co. and other Spirella manufacturing companies to receive the dividends thereon and distribute them to the shareholders of the Securities Co. It never carried on or transacted any other business and its only function during these years was to receive the income on its stocks and bonds and distribute same to its shareholders. During the years in question its shareholders have been in number as follows: in 1924, 53; in 1925, 57; in 1926, 59. All its shareholders are and have always been only officers, directors, key employees or the estates or dependents of such officers, directors, key employees or former employees of one of the Spirella manufacturing companies, except that Paul A. Schoellkopf, then president of Power City Bank, the local financial agency of all Spirella companies, became the holder of 100 shares in its stock and still holds same. Of the 5,000 shares in the capital stock of the Securities Co. issued and outstanding during the years in question, the taxpayer, Martha H. Beeman, was the holder of 510 shares, and the estate of Marcus M. Beeman was the holder of 500 shares, both holding together 20.2 per cent of the entire issued and outstanding capital stock of the Securities Co. Under the by-laws of the Securities Co. its officers were not entitled to and did not receive any salary, except that the secretary, who was also auditor of the company, received a salary as auditor of $300 a year through December 31, 1925, and of $1,000 a year as such auditor after January 1, 1926. The Securities Co. has uniformly distributed the income on its stocks and bonds, except the reserve which it kept, within fifteen days after it received the same. Under its by-laws the treasurer is not authorized to expend or distribute the funds of the company except upon advice of the board of directors. Its officers and directors have always consisted of the managing director, or president, and other executive officers of Spirella manufacturing companies only.

4. The taxpayer, Martha H. Beeman, died December 21, 1926, leaving a will which has been duly probated and which appointed Basil Robillard as executor thereof, and he has qualified as such and is acting as such and is petitioner herein on behalf of her estate. The income-tax returns of the taxpayer and the estate of Marcus M. Beeman and their books and memoranda have been made and kept on a cash receipts and disbursements basis. The tax year of the taxpayer, the estate of Marcus M. Beeman, and of the Securities Co. has been in all cases the calendar year. The taxpayer was a citizen of the United States, resident therein.

5. The Commissioner of Internal Revenue, pursuant to section 222 of the Revenue Act of 1921, the Revenue Act of 1924, and the Revenue Act of 1926, has allowed to the taxpayer credit for the years 1924 and 1925 and hereby stipulates to allow to taxpayer for the year 1926 credit against her income taxes due to the United States for the amount of British income tax (within the limits of section 222) deducted at the source by the British Co. and paid by it to Great Britain from and upon the dividends paid in said years by the British Co. upon shares of stock in the British Co. then held by the taxpayer and by the estate of Marcus M. Beeman.

6. The Commissioner has refused to allow to the taxpayer credit against her said income taxes for the years in question for any part of the income tax of Great Britain deducted by the British Co. from its dividends paid to the Securities Co. upon the stock held by that company, which tax was paid to Great Britain by the British Co.

7. Whether or not, as a matter of law, taxpayer is entitled, pursuant to said section 222 of the revenue act applicable thereto, to credit for any part of the British income taxes paid to the British Government by the British Co. at the source on behalf of the Securities Co. and in respect to the dividends paid to it by the British Co. as above set forth, the parties stipulate that the computation of the deficiency, if any, including the amount of taxpayer's taxable income and the amount of any such credit can and will be settled under Rule 50 of the rules of practice of the Board of Tax Appeals.

OPINION.

BLACK: The sole issue involved in this proceeding is whether or not petitioner, a resident and citizen of the United States, is entitled to credit, against United States income taxes, taxes paid to the British Government by a Canadian corporation of which petitioner was a stockholder. Petitioner claims such right under section 222(a)(4) of the Revenue Acts of 1924 and 1926, which reads:

In the case of any such individual who is a member of a partnership or a beneficiary of an estate or trust, his proportionate share of such taxes of the partnership or the estate or trust paid or accrued during the taxable year to a foreign country or to any possession of the United States, as the case may be.

Petitioner claims that because the decedent, whom he represents, was a stockholder in the Spirella Securities, Ltd., of Canada, and because that corporation was a holding company rather than an operating company, decedent stockholder was the beneficiary of a trust within the meaning of the above quoted section, and is therefore entitled to the credit. We do not agree to that contention. We concede of course that a corporation can be a trust and obtain its corporate powers for the purpose of carrying out the trust agreement. To that effect is , relied upon by petitioner in his brief. But we do not where that case has any bearing on the present proceeding There is nothing in the record which is now before us, so far as we have been able to discern, which discloses that the Spirella Securities, Ltd., of Canada, was organized to take over and administer a trust agreement, nor is there anything in the record which discloses that petitioner, as a stockholder of such corporation, was a "beneficiary of a trust" as that term is commonly understood in legal parlance. On the contrary, it appears to us that petitioner's decedent was a stockholder in an ordinary holding corporation and occupies no different status from stockholders of such corporations generally. Suppose the Spirella Securities, Ltd., had been a New York corporation, instead of a Canadian corporation, and petitioner had been a stockholder thereof - would it be contended that she would have a right to take as a credit against the surtax on dividends received from such New York corporation, the foreign tax which the corporation itself had paid on dividends received from the Spirella Co. of Great Britain? We think not. Under that state of facts, the Spirella Securities, Ltd., of New York would take credit against its own corporation income tax under article 612, Regulations 65 and 69, Revenue Acts of 1924 and 1926, respectively. This article reads:

Domestic corporation owning a majority of the stock of foreign corporation. - A domestic corporation which owns a majority of the voting stock of a foreign corporation from which it receives dividends (not deductible under section 234) in any taxable year, shall be entitled to credit against the amount of its income tax, the same proportion of the sum of any income, war-profits, or excess-profits taxes paid or accrued by such foreign corporation to any foreign country or to any possession of the United States, upon or with respect to the accumulated profits of such corporation from which such dividends were paid, which the amount of any such dividends received bears to the amount of such accumulated profits. But in no case shall such credit exceed the same proportion of the taxes against which it is credited, which the amount of such dividends bears to the amount of the entire net income of the domestic corporation in which such dividends are included. * * *

It is the Spirella Securities, Ltd., of Canada, and not its stockholders which owns the stock in the Spirella Co. of Great Britain, and the dividends received on that stock belong in the first instance to it. If it were a domestic corporation, it would be entitled to take credit against its own corporation income taxes, the amount of foreign taxes paid to the British Government on the dividends on its stock in the Spirella Co. of Great Britain. But not being a domestic corporation, it has no tax liability in the United States against which it can take such credit. We know of no authority of law which would permit its stockholders to take credit against their own tax liability for such taxes paid on the theory that they are beneficiaries of a trust within the meaning of section 222(a)(4), quoted at the beginning of this opinion. Respondent's holding on that point is approved.

Petitioner proved that the Commissioner allowed the credit against petitioner's income tax for the year 1921 under the same facts and circumstances as exist in this proceeding, and that taxpayer has relied in the taxable years now before us upon Commissioner's prior construction. Petitioner, therefore, contends that the Commissioner should be bound by his former ruling and should not now be allowed to change it. We can not sustain this contention of petitioner. An erroneous interpretation of a statute by the Commissioner does not conclude the United States on a subsequent modification of the ruling or create equities in favor of the petitioner requiring the judicial adoption of the first interpretation. ; ; certiorari denied, .

On final determination under Rule 50, petitioner should be allowed credit against the tax of income taxes paid to the British Government by the Spirella Co. of Great Britain on dividends disbursed direct to petitioner's decedent, as a stockholder in the Spirella Co. of Great Britain, and as a life tenant of the stock owned by the estate of her deceased husband, Marcus M. Beeman.

Petitioner should be taxed only on the amounts actually received from Spirella Securities, Ltd., of Canada, without any credit against the tax for foreign taxes paid by the Spirella Co. of Great Britain on dividends disbursed to Spirella Securities Co., Ltd., on stock owned by it. In other words, the dividends received by petitioner's decedent from Spirella Securities, Ltd., should be taxed as income to petitioner without reference to any foreign tax which had been paid by Spirella Co. of Great Britain for account of Spirella Securities, Ltd., of Canada.

Judgment will be entered under Rule 50.