Byrd Printing Co. v. Commissioner ( 1929 )

BYRD PRINTING CO., PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Byrd Printing Co. v. Commissioner

Docket No. 14902.

United States Board of Tax Appeals

15 B.T.A. 55; 1929 BTA LEXIS 2924;

January 25, 1929, Promulgated

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INVESTED CAPITAL. - The amounts withdrawn by the president of petitioner and carried on its books as an account receivable, held to be a bona fide indebtedness representing an asset and a part of petitioner's invested capital at face value.

,George T. Adams, Esq., and Frank J. Albus, Esq., for the petitioner.

L. A. Luce, Esq., for the respondent.

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TRUSSELL

The petitioner herein has appealed to the Board from the respondent's determination of an overassessment in the amount of $340.07 for 1920, and a deficiency in the amount of $7,194.52 for 1921, in the matter of petitioner's income and profits-tax liability for those years.

At the hearing, respondent made a motion to dismiss this proceeding as to the year 1920, due to the Board's lack of jurisdiction for the reason that no deficiency has been determined by the Commissioner for that year. The said motion is granted and this proceeding is dismissed in so far as it pertains to the taxable year 1920. .

The alleged deficiency in tax for the year 1921 is the result of the respondent's exclusion from invested capital of the amount of $129,938.34 representing the total of numerous withdrawals made by the president of petitioner over a period of several years. Petitioner alleges that the said action of respondent was erroneous.

FINDINGS OF FACT.

Petitioner is a Georgia corporation engaged in a general printing business at Atlanta. Since its incorporation in 1906 it has had outstanding 500 shares of capital stock, 2 of which have been held by C. P. Byrd, its president, and the other 498 of which have been held by the wife of C. P. Byrd. The business was originally operated as a partnership, under the name and style of Byrd & Pattillo, but prior to incorporation the business was owned and conducted by C. P. Byrd individually.

Over a period of several years C. P. Byrd made numerous withdrawals of cash from the surplus of petitioner, which sums were charged to his account and carried on the books of petitioner as an account receivable. At the close of the year 1921, the sums withdrawn amounted $129to,938.34. The sums advanced by petitioner were considered as loans by both petitioner and Byrd, were carried as an account receivable and included in petitioner's assets in all its financial statements and capital-stock-tax returns. Petitioner secured credit from banks on the basis of the (Byrd's) account receivable being an asset worth 100 cents on the dollar. Byrd endorsed, as an individual, all of petitioner's notes given to the banks for loans. During the life of the said account Byrd's net worth, exclusive of his investment in petitioner, exceeded the amount withdrawn, and he always intended to repay petitioner in full. At various times Byrd made payments in cash to petitioner, which were credited to his account.

The said withdrawals were used by Byrd for investments in real estate. In the early part of 1922, Byrd satisfied his entire indebtedness to petitioner by deeding to it certain real property which cost and had a value in excess of the amount of the indebtedness. Petitioner's charter permits it to own or deal in real estate.

In its return for the year 1921 petitioner included in its invested capital the total amount withdrawn by Byrd, claiming that such amount represented a bona fide loan out of earned surplus and constituted an asset in the form of an account receivable worth 100 cents on the dollar. Respondent excluded the said amount from invested capital on the ground that it constituted payments in anticipation of dividends rather than bona fide loans.

The amounts withdrawn by Byrd over a period of years and totaling $129,938.34 at the close of the year 1921, were a bona fide indebtedness to petitioner and were properly carried on its books as an account receivable worth 100 cents on the dollar.

OPINION.

TRUSSELL: The issue is whether Byrd was indebted to petitioner for the amounts withdrawn by him from time to time.

The evidence shows that for several years Byrd withdrew from petitioner at various times, sums of money which were used by him for investments in real estate. Petitioner considered the said withdrawals as loans by it to Byrd, which were charged to his account and carried on petitioner's books as an asset in the form of an account receivable. Byrd held only two shares of petitioner's stock, and as such stockholder he was not entitled to take the funds in question as dividends or distributions of profits. Byrd acknowledged his indebtedness to petitioner for the said withdrawals; new that petitioner's financial statements and capital-stock-tax returns included the account receivable as an asset at face value; made cash payments to petitioner from time to time, which were credited to his account, and in the early part of 1922 he settled the entire indebtedness at 100 cents on the dollar. During the year 1921 and prior thereto Byrd's net worth, exclusive of his investment in petitioner, greatly exceeded his indebtedness to petitioner and the account receivable constituted an asset of petitioner at its face value.

Upon all the facts and circumstances of record we are of the opinion that the account receivable represented a bona fide indebtedness in the amount of $129,938.34 and constituted an asset which should be included in petitioner's invested capital at face value for the year 1921. Cf. ; ; .

Judgment will be entered pursuant to Rule 50.