John Robinson Shows Co. v. Commissioner

JOHN ROBINSON SHOWS CO., PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

SELLS FLOTO CIRCUS CO., PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

John Robinson Shows Co. v. Commissioner

Docket Nos. 13893, 13964.

United States Board of Tax Appeals

12 B.T.A. 806; 1928 BTA LEXIS 3448;

June 25, 1928, Promulgated

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The petitioners and the Howes Great London Shows Co. were affiliated during the fiscal years ended January 31, 1921, and January 31, 1922.

J. A. B. Hossack for the petitioners.

R. H. Ritterbush, Esq., for the respondent.

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MARQUETTE

These proceedings, which were duly consolidated for hearing and decision, are for the redetermination of deficiencies in income and profits taxes asserted against the John Robinson Shows Co. in the amount of $36,804.90 for the fiscal years ended January 31, 1920, and January 31, 1921, and against the Sells Floto Circus Co., in the amount of $5,687.82 for the fiscal year ended January 31, 1922. The only issue raised is whether the Sells Floto Circus Co. and the Howes Great London Shows Co., were affiliated with the John Robinson Shows Co. during the fiscal years ended January 31, 1921, and January 31, 1922.

FINDINGS OF FACT.

The John Robinson Shows Co. was incorporated in December, 1919, under the laws of Ohio with an authorized capital stock of $100,000, which was issued to Jerry Mugivan, Bert Bowers and Ed Ballard in equal amounts. They continued to own all of the capital stock of the corporation from the date it was issued until July 6, 1921, when they transferred it to the American Circus Co. as hereinafter set forth. Jerry Mugivan was president and treasurer of the company and manager of the circus operated by it. Mugivan and Bowers were directors of the corporation.

The Hagenbeck-Wallace Shows Co. was incorporated in December, 1919, under the laws of Ohio by Jerry Mugivan, Bert Bowers, and Ed Ballard, with an authorized capital stock of $100,000. All of the capital stock was issued to Mugivan, Bowers, and Ballard in equal amounts and was owned and held by them until July 6, 1921, when they transferred it to the American Circus Co.

The Howes Great London Shows Co. was incorporated in April, 1920, under the laws of Ohio with an authorized capital stock of $100,000, all of which was issued to Mugivan, Bowers, and Ballard in equal amounts. Shortly after the organization of the corporation, Mugivan, Bowers, and Ballard entered into a written agreement with C. D. Odom, who was acting as manager of the show operated by the corporation, to sell to Odom 250 shares, or one-fourth of the capital stock. The said written agreement was as follows:

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WHEREAS, the first parties own or control the entire issued and outstanding capital stock of THE HOWES GREAT LONDON SHOWS COMPANY, a corporation organized and existing under and by virtue of the laws of the State of Ohio, (hereinafter generally called "Ohio corporation"); and

WHEREAS, the first parties have heretofore agreed with the second party to cause said Ohio corporation to sell and issue to the second party 250 shares of the capital stock of said Ohio corporation, which said shares have been issued to the second party contemporaneously with the execution hereof; and

WHEREAS, one of the considerations for the sale and issuance of said shares of stock to the second party was the execution of this agreements by the second party; and

WHEREAS, it is deemed by the parties hereto to be to the best interests of the Ohio corporation, and its stockholders, to enter into this agreement in order that no part of the capital stock of the Ohio corporation at any time owned or controlled by the second party shall be subject to be bought for speculative purposes, or by interests or persons adverse or unfriendly to the Ohio corporation or its stockholders, or at prices which may be detrimental to their welfare.

NOW THEREFORE, in consideration of the provisions in this agreement contained by the parties hereto respectively to be performed, and in consideration of the mutual benefits to be derived herefrom, and other good and valuable considerations this day in hand paid by the first parties to the second party, receipt whereof by the second party is hereby acknowledged, the parties hereto have agreed, and now hereby do, for themselves respectively, and for their respective heirs, executors, administrators, donees, legatees, legal representatives, transferees, and assigns, mutually agree to and with each other as follows:

1: (a) During the existence of the Ohio corporation, neither the second party, nor his heirs, legatees, executors, administrators, or legal representatives, (all of whom are included in the term "second party") shall or will, without the prior written consent of the first parties, or the survivor or survivors of them, directly or indirectly sell, transfer, assign, mortgage, pledge, incumber, or otherwise dispose of (or attempt to do, or permit the same to be done, voluntarily or by operation of law or otherwise), any or all of the said shares of the capital stock of the Ohio corporation, acquired by the second party, as aforesaid, or any increase thereof, or any additional shares which may hereafter be acquired by the second party, unless and until such second party shall in every instance first offer to sell the same to the first parties, or the survivor or survivors of them, at the then book value thereof, as determined hereunder.

(b) Every such offer shall be made in writing and shall be delivered personally or sent by registered mail with proper postage and properly addressed to the first parties, or the survivor or survivors of them, at his or their last known post-office address or addresses, and shall state the number of shares offered.

(c) The first parties or the survivor or survivors of them, or such thereof as shall be desirous of so doing, shall have the first and exclusive right and privilege for a period of sixty days after the receipt of any such written offer, or the mailing of the same, as aforesaid, to purchase all of the said offered shares at said value in proportion to their then holdings of the capital stock of the Ohio corporation; and written notice of such election shall be given within said sixty days to the second party, either personally or by registered mail, addressed to his last known post office address. If any of the first parties shall not desire to purchase his proportion of the stock so offered, then the remaining party or parties shall have and are given the first and exclusive right and privilege for such period of sixty days to purchase at his or their option, either his or their proportion, or all of said offered stock at said value.

(d) If at any time any such stock shall have been offered for sale in the manner aforesaid, and shall not have been purchased by any of the first parties, as aforesaid, then the second party shall be free to make disposition thereof to any outsider, provided, however, that he shall have no right to and he shall not make any such disposition to any outsider without first offering to sell such stock to the first parties, or the survivor or survivors of them, at the actual price which such outsider shall bona fide offer to pay therefor, and in the event of any such stock being offered in the manner last aforesaid to the first parties, all of the provisions of clause "c" of this paragraph one shall apply and govern, excepting only that the right or privilege of purchase shall exist for a period of only twenty days after the receipt or mailing of such written offer.

(e) Whenever the parties hereto shall not otherwise agree, then the purchase price of any stock purchased hereunder shall be payable by the purchaser to the seller in cash, contemporaneously with the delivery to the purchaser of the certificates of the shares of stock purchased.

2. If the second party shall die then and in such event his heirs, legatees, administrators, executors, or legal representatives, shall and will in like manner offer to sell to the first parties, or the survivor or survivors of them, all of the shares of the capital stock of the Ohio corporation owned by the second party at the time of his death, at the then book value thereof, as determined hereunder, and such first parties, or such thereof as shall be desirous of so doing, shall in like manner have the first and exclusive right and privilege for a period of sixty days after the receipt of mailing of such written offer, to purchase said offered shares at said price, said purchase and sale to be made under the same terms and conditions and to be paid for in like manner as hereinbefore in paragraph one hereof provided. If at any time any stock shall have been offered for sale in the manner aforesaid, and shall not have been purchased by any of the first parties, as aforesaid, then the offering party shall be free to make disposition thereof to any outsider, provided, however, that the offering party shall have no right to and shall not make any such disposition to any outsider without first offering to sell such stock to the first parties, or the survivor or survivors of them, at the actual price which such outsider shall bona fide offer to pay therefor, and in the event of such stock being offered in the manner last aforesaid to the first parties, all of the provisions of Clause "c" of paragraph one shall apply and govern, excepting only that the right or privilege of purchase shall exist for a period of only twenty days after the receipt or mailing of such written offer.

3. The book value of the said shares of stock shall, for all of the purposes of this agreement, be determined on the basis of the inventory taken next preceding the time of the offer provided for hereunder and in making such inventory no value shall be placed on the good will and unexpired leasehold interests, if any, of the Ohio corporation, and all trade rights, trade marks, trade names, and patents, if any, shall be valued at their actual cost to the Ohio corporation.

4. No sale, transfer, assignment, mortgage, pledge, bequest, gift, transfer by descent or by virtue of any execution or order of court or operation of law or any other disposition of all or any of the said shares of stock now or at any time hereafter owned or controlled by the second parties hereto in violation of or contrary to any of the terms, conditions, or provisions here, shall be valid, but every purchaser, assignee, transferee, mortgagee, pledgee, legatee, donee, and holder of any or all of said shares of stock now or at any time hereafter owned or controlled by the said party, otherwise than in accordance with this agreement, shall in all respects and at all times be subject to all of the terms, provisions, and conditions of this agreement.

5. If at any time during the term of this agreement the capital stock of the corporation shall be increased or decreased or any additional shares shall be issued, such increased or decreased capital stock owned or controlled by the second party and any additional shares hereafter acquired by the second party shall be subject to each and all the terms, conditions and provisions hereof.

6. For the purpose of carrying into effect the provisions of this agreement, the parties hereto shall deposit with the Secretary of the Ohio corporation a signed copy of this agreement, which said signed copy shall be held by said secretary and his successors in office, and all transactions with reference to any of said shares of stock shall be governed by the provisions of this agreement, and this agreement shall be full notice to the officers and directors of the corporation of the rights and obligations created hereunder.

7. All of the terms, conditions, stipulations, and obligations in this agreement contained shall be mutually binding upon and run in favor of all the parties hereto and their and each of their respective heirs, executors, administrators, donees, legatees, legal representatives, transferees and assigns.

8. Whenever any notice shall be necessary to be given hereunder, it shall be sufficient if given either personally to the parties entitled thereto or if mailed to such party by registered mail duly stamped and addressed to his last known address.

Odom, however, was able to pay for only 100 shares of stock at the time the agreement was executed and only that number of shares was actually transferred and delivered to him at that time. He paid the remainder of the purchase price about July 6, 1921, and received the balance of the 250 shares on that date. Odom was president of the corporation and he, Mugivan, Bowers, and Ballard constituted its board of directors.

The Sells Floto Circus Co. was organized under the laws of Colorado in December, 1920, with an authorized capital stock of $350,000 which was issued to Mugivan, Bowers, and Ballard in equal amounts. Shortly after the corporation was organized, Mugivan, Bowers, and Ballard entered into a written agreement to sell, and did sell, 875 shares, or one-fourth of the capital stock, to Zack Terrell, who was employed by the corporation as manager of the circus operated by it. Mugivan was president of the corporation, Terrell was treasurer, and the four stockholders constituted the board of directors. The written agreement between Mugivan, Bowers, Ballard, and Terrell, contained the same provisions relative to, and the same restrictions on the sale of the stock purchased by Terrell, as the contract under which Odom purchased stock in the Howes Great London Shows Co.

Mugivan, Bowers, Ballard, Odom, and Terrell always considered the John Robinson Shows Co., the Sells Floto Circus Co, and the Howes Great London Shows Co., as a single enterprise, and the John Robinson Shows Co. as the parent company. Money was advanced by one to the other as needed, and animals and other property were transferred from one show to the other at cost. Odom and Terrell had charge of their respective shows, but the management of the corporations, their financing and their business policies, were entirely in the hands of and were controlled and dictated by Mugivan, Bowers, and Ballard.

On May 5, 1921, the American Circus Co. was organized under the laws of Delaware by Mugivan, Bowers, and Ballard to take over the stock of the four circus companies named herein. On July 6, 1921, the stock of these four companies was transferred to the American Circus Co. and the stockholders received one share of the stock of the American Circus Co. for each share of their stock in the other companies. At that time the capital of the Howes Great London Shows Co. was greatly impaired through operating losses.

The respondent has determined that the John Robinson Shows Co. and the Hagenback-Wallace Shows Co. were affiliated during the fiscal years ended January 31, 1920, January 31, 1921, and January 31, 1922, and that the other two companies were not affiliated with them during those years.

OPINION.

MARQUETTE: The only question presented by the record in this proceeding is whether the Howes Great London Shows Co. and the Sells Floto Circus Co. were affiliated with the John Robinson Shows Co. and the Hagenback-Wallace Shows Co. during the fiscal years ended January 31, 1920, January 31, 1921, and January 31, 1922. The respondent concedes that the John Robinson Shows Co. and the Hagenback-Wallace Shows Co. were affiliated during that period.

The evidence herein shows that the Howes Great London Shows Co. and the Sells Floto Circus Co. were not organized until subsequent to January 31, 1920. Since they were not in existence during any part of the fiscal year ended January 31, 1920, it follows that they were not affiliated with any other company in that year.

The evidence also clearly shows that on July 6, 1921, all of the capital stock of the four companies named was transferred to the American Circus Co. and from that date was owned and held by that company. Since all of the capital stock of the four companies involved herein was owned by the American Circus Co. from July 6, 1921, to the end of the fiscal year ended January 31, 1922, they were clearly affiliated within the purview of section 240(c)(1) of the Revenue Act of 1921. There therefore remains to be considered only the question of whether they were affiliated during the fiscal year ended January 31, 1921, and the period February 1 to July 6, 1921.

While the evidence relative to the question of affiliation for the fiscal year ended January 31, 1921, and the period February 1, to July 6, 1921, is not as conclusive as is the evidence relative to the period July 6, 1921, to January 31, 1922, we think it is sufficient to establish the petitioners' claim. It clearly shows that the companies were in fact, and were so considered by the stockholders, a single economic unit dominated and controlled by Mugivan, Bowers, and Ballard. They owned outright all of the capital stock of the John Robinson Shows Co. and the Hagenbeck-Wallace Shows Co., 90 per cent of the capital stock of the Howes Great London Shows Co., and 75 per cent of the stock of the Sells Floto Circus Co., and in addition they had a very real control over the stock held by Odom and Terrell, who were in reality only employees of Mugivan, Bowers, and Ballard in the operation of their road shows, and whose ownership and dominion of the stock standing in their names were limited and abridged by the contract under which they had purchased the stock. We are of the opinion that Mugivan, Bowers, and Ballard owned or controlled substantially all of the stock of the four companies during the fiscal year ended January 31, 1921, and the period February 1, to July 6, 1921, and that the companies were affiliated.

Judgment will be entered under Rule 50.