Loftis v. Commissioner

OPINION.

SteRNHagen:

The respondent has included within the decedent’s income for 1919 the amount of $70,007.19 by treating it as a dividend distribution made by the company to him in that year. To sustain this determination the respondent relies not upon an express declaration of dividend, which admittedly was not made, but upon circumstantial facts Avhich it is said can be reconciled only with the conclusion that such a dividend was in fact made. This circumstantial evidence consists principally of the fact that the decedent during his lifetime included Avithin his 1919 income the profits of the Houston business and that Provancher’s book entry of 1921 took the liouston assets out of the corporate surplus as of April 1, 1919. Reliance is placed by the respondent also upon the fact that the decedent fully controlled the affairs of the corporation during his lifetime and that formal declaration of dividends had never been made. These circumstantial facts are not in our opinion sufficient to establish either that a dividend was declared or that in any other way the decedent received the $70,607.19 in question, particularly in vieAv of the petitioner’s evidence to the contrary.

The corporation with its oavii funds bought the business in Houston. It has never, so far as the record shows, ceased to be the true owner of the business, and as such to stand behind it. During the year in question the Houston business Avas treated as a branch of the company’s business, just as many other branches. The fact that it adjusted itself to the Texas Hays by trading indirectly under a trade name does not destroy the evidence of its acts of ownership. But, hoAveA^er that maj? be, Ave are here concerned with the question whether in 1919 this decedent received the Houston assets, and not with the manner and'style of the conduct of the Houston business. Even although the decedent might have returned the income from the Houston business as his OAvn in 1919, it would still be an open question when and hoAv he became the owner. The fact that an adjusting charge to surplus was made on the corporation’s books in 1921 does not, even if it was authorized, and certainly not if unauthorized, establish such receipt in 1919. While book entries may afford some evidence to support a fact, it is Avell established that they can not of themselves prove a fact otherwise authoritatively denied. Here Provancher’s entry Avas said by him to have been made upon his own initiative without consulting any corporate officer, Avas retroactive to a time which he knew nothing about, and was expressly made only that the balance between the Chicago books and the Houston books might be preserved. Such an entry is as evidence too Aveak to give support to the conclusion that income was received.

We are of opinion from the evidence that the decedent in 1919 did not have the income of $70,607.19 attributed to him by the respondent, and the determination in this respect is reversed.

Judgment will be entered on %0 days' notice, under Bule 50.