DocketNumber： 45431
Judges： Whaley, Booth, Littleton, Whitaker, Madden
Filed Date： 5/1/1944
Status： Precedential
Modified Date： 11/6/2024
Plaintiff sues to recover additional taxes assessed as a result of the disallowance of deductions in both of the years in question of sums distributed by it to members of the Missouri Farmers Association who made purchases from it, and as a result of the disallowance of a deduction of a bad debt in the year 1934.
The Missouri Farmers Association was an organization of Missouri farmers. It had about 2,000 members. Some of them decided in 1919 to organize the plaintiff corporation for the purpose of dealing in agricultural products. It was organized in that year with an authorized capital of $40,000. It offered its stock for sale to members of the Missouri Farmers Association. Of the 2,000 members of that organization, 235 subscribed for stock. An amount of $19,900 of the authorized capital stock was sold.
Plaintiff did business with the public generally, but as an inducement to the members of the Missouri Farmers Association to trade with it, and in order to induce farmers to join the Missouri Farmers Association, plaintiff adopted by-laws providing for a distribution of all of its net profits in excess of 18 percent to such members of the Missouri Farmers Association as did business with it in proportion to the business each had done. After a surplus equal to 50 per cent of its outstanding capital stock had been accumulated, it agreed to distribute all its net profits in excess of 8 percent.
The adoption of these by-laws was advertised among the farmers of Missouri, and the members of the Missouri Farmers Association did business with plaintiff on the faith of this promise.
In both of the years in question plaintiff deducted the sums so distributed as an expense of doing business.
We think it is entitled to the deduction. The amounts distributed were rebates to purchasers and reduced by the amount of them the total amount received for goods sold.
This is plain, if we keep in mind that plaintiff was an entity separate and distinct from the Missouri Farmers Association. The moving spirits behind its organization were some of the members of that Association, but all members of that Association did not participate in the organization of nor own stock in plaintiff; only those members of the Missouri Farmers Association who subscribed for stock became stockholders in plaintiff and were entitled to the 8 percent dividend. Plaintiff had 235 stockholders, but there were 2,000 members of the Missouri Farmers Association that did business with it. The Missouri Farmers Association and plaintiff were separate and distinct entities. Plaintiff was not even a subsidiary of this Association.
These rebates were not given to stockholders, but only to those purchasers whose contract of purchase entitled them to it. Stock holding had nothing to do with one’s right to the rebate.
Plaintiff’s by-laws promised such rebates to members of the Missouri Farmers Association and these people bought on the faith of this promise and, so, could have enforced the payment of the rebate in a court of law. The obligation to pay it was an enforceable legal liability. As such plaintiff was entitled to deduct it, as a reduction of the amount which it in fact received for its goods sold. Uniform Printing & Supply Co. v. Commissioner, 7 Cir., 88 F.2d 75, 109 A.L.R. 966; Plymouth Brewing & Malting Co. v. Commissioner, 16 B.T.A. 123; Mertens Law of Federal Income Taxation, Vol. 4, par. 25.111.
Defendant in its brief refers to several cases dealing with farmers’ cooperative associations, but these are inapplicable because plaintiff clearly was not a cooperative, but a corporation organized for profit. The persons to whom the rebates were paid were not “members” of plaintiff — the word used in referring to cooperatives;
We are of opinion that plaintiff is not entitled to the deduction in the year 1934 of any part of its deposit in the Queen City Bank of Springfield, Missouri. Control of this bank had been assumed by the Missouri State Finance Department in 1933, and in 1934 the bank was placed in the hands of a liquidator, but at no time during the year did plaintiff, nor indeed the liquidator, know whether or not depositors would be paid in full or what percentage of the deposits would be paid. The liquidator informed plaintiff that he could make no definite statement as to the amount they would be paid, and that all he could then say was that he probably would not be able to pay depositors in full. His mere statement that he probably would not be able to pay the depositors in full is not sufficient to establish that the debt was worthless either in whole or in part. The record does not show when the bank was finally liquidated, but it was sometime after 1935. A total of 12 percent was paid to the depositors.
On the facts we must hold that the debt was not ascertained to be worthless in the year in which a portion of it was deducted and that, therefore, plaintiff is not entitled to the deduction. Spring City Foundry Co. v. Commissioner, 292 U.S. 182, 54 S.Ct. 644, 78 L.Ed. 1200.
The entry of judgment will be deferred until the filing of a stipulation by the parties, or, in the absence of a stipulation, until the incoming of a report by a commissioner as to the correct amount due plaintiff computed in accordance with this opinion. It is so ordered.