Savannah Ship Chandlery & Supply Co. v. Commissioner ( 1928 )

SAVANNAH SHIP CHANDLERY & SUPPLY CO., PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Savannah Ship Chandlery & Supply Co. v. Commissioner

Docket No. 14805.

United States Board of Tax Appeals

13 B.T.A. 958; 1928 BTA LEXIS 3128;

October 12, 1928, Promulgated

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The Commissioner taxes as income to petitioner certain profits made on the purchase and sale of ships. The evidence was found to establish that such gains were not income to this petitioner, which had no part in the transaction.

T. J. O'Brien, Jr., Esq., for the petitioner.

T. M. Mather, Esq., for the respondent.

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PHILLIPS

This proceeding is for a redetermination of income and excessprofits taxes for 1920 amounting to $17,241.05.

FINDINGS OF FACT.

Petitioner is a Georgia corporation with principal offices at 201 West River Street, Savannah, and is engaged in the business of trading in ships' supplies. The 500 shares of petitioner's stock were held by the following persons in 1920:

	Shares
J. F. O'Brien	206
J. F. Paulsen	112
G. H. Meinert	82
V. B. Avery	80
J. H. Paulsen	20

O'Brien was petitioner's president and treasurer in 1920. He was also president of two other companies, from which he received salaries in excess of the salary paid him by petitioner. He was also a stockholder and director of the Propeller Tow Boat Co., which company paid him no salary.

The total outstanding capital stock of the Propeller Tow Boat Co. in 1920 was $200,000, divided into 2,000 shares of the par value of $100 a share. The following holders of petitioner's stock owned the following number of shares of the stock of the Propeller Tow Boat Co. in 1920:

	Shares
J. F. O'Brien	155
V. B. Avery	128
J. F. Paulsen	37
J. H. Paulsen	29
G. H. Meinert	None

On or about June 24, 1920, two tow boats were bought by O'Brien from the Propeller Tow Boat Co. for $105,000, and were sold on the same day by O'Brien to one Armstrong for $110,000. Armstrong made payment directly to the Tow Boat Co. O'Brien received a check for $5,000 on the same day from the Propeller Tow Boat Co. to account for the profit made on the transaction. He deposited the check in a bank to his personal account. On the same day he gave his personal checks to the following persons in the following amounts:

J. F. Paulsen	$1,120
J. H. Meinert	820
V. B. Avery	800
J. H. Paulsen	200

On or about July 13, 1920, O'Brien purchased three tugs from the Propeller Tow Boat Co. for $50,000. He made one cash payment of $1,000 on July 13, 1920, and a further payment of $49,000 in cash on July 21, 1920. The tugs were delivered on July 14, 1920. He borrowed $33,500 on July 21, 1920, from Globe Dredging Co. and also borrowed some money from his sister for the purpose of paying for the tugs. He sold one of the tugs on or about August 10, 1920, for $40,000, and the other tugs on or about September 15, 1920, for $45,000. He endorsed the two checks for $40,000 and $45,000 which he received from the sale of the tugs, deposited them to petitioner's credit in its bank, and was credited with $85,000 on petitioner's books.

On December 22, 1920, entries were made on petitioner's books charging O'Brien's personal account and crediting the accounts of the following persons in the following amounts:

J. F. Paulsen	$7,571.20
G. H. Meinert	5,543.20
V. P. Avery	5,408.00
J. H. Paulsen	2,552.00

Petitioner gave notes to those persons in those amounts.

Commissioner has added to petitioner's income for 1920 profits on the purchases and sales of the five boats amounting to $40,000.

OPINION.

PHILLIPS: The respondent takes the position that the profit made by one O'Brien, the president of the taxpayer, on the purchase and sale of certain boats was taxable income to the petitioner. The petitioner contends that these transactions were not made by it or for it and that it had no part in them. The position taken by the respondent appears to be based on the action of O'Brien in sharing these profits with those who were his associates in this corporation. This petitioner appears to have been only one of a number of corporations in which O'Brien and its other stockholders were interested. It was not engaged in the business of buying and selling ships, but in the business of trading in ships' supplies. It took no part in the transactions which gave rise to the profit which the Commissioner seeks to tax as its income. The distribution made by O'Brien was sufficient to justify inquiry into the relationship which existed between O'Brien, the individuals who shared in the profits, and the various enterprises in which they were interested, for the purpose of learning whether O'Brien was acting for himself, as agent for these individuals, or as agent for one of the corporations. The record before us discloses, however, that whatever may have been the relationship between O'Brien and these individuals, this petitioner was not involved and the gain is not taxable to it.

Decision will be entered for the petitioner under Rule 50.