Opinion · United States Tax Court

Eveready Loan Co. v. Commissioner

Eveready Loan Co. v. Comm’r, 2 T.C. 1035 (T.C. 1943)

Type: Opinion
Court: United States Tax Court
Jurisdiction: Federal
Date: 1943-11-29
Topic: general

OPINION. Hill, Judge: The single question presented is whether petitioner, under the facts above stated, was in existence before Januar'y 1, 1940, within the meaning of section 712 (a) of the Internal Revenue Code as amended by section 13 of the Excess Profits Tax Amendments of 1941. This section is as follows: SEO. 712. EXCESS PROFITS CREDIT-ALLOWANCE. (a) Domestic Corporations. — In the case of a domestic corporation which was in existance before January 1,1940, the excess profits credit for any taxable year shall be an amount computed under section 713 or section 714, whichever amount results in the lesser tax under this subchapter for the taxable year for which the tax under this subchapter is being computed.

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Cited by: 11 opinions

EVEREADY LOAN CO. v. COMMISSIONER OF INTERNAL REVENUE,2 T.C. 1035(1943)

EVEREADY LOAN COMPANY, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE,

RESPONDENT.

Docket No. 593.

United States Tax Court.

Promulgated November 29, 1943.

Petitioner's certificate of incorporation was filed in the office of the Secretary of State of New Jersey on December 19, 1939, but business was not commenced until January 2, 1940.Held,petitioner was in existence prior to January 1, 1940, within the meaning of section 712 (a) of the Internal Revenue Code as amended and is entitled to have its excess profits credit for 1940 computed under section 713 or 714 of the Internal Revenue Code, as amended, whichever method results in the lesser tax.

Frank L. Wiemer, C. P. A.,for the petitioner.Robert S. Garnett, Esq.,for the respondent.

Respondent determined deficiencies in petitioner's income tax, declared value excess profits tax, and excess profits tax for the year 1940. No objection is lodged as to the income and declared value excess profits tax adjustments and such deficiencies stand as determined. Petitioner, however, seeks a redetermination of the excess profits tax deficiency by having its excess profits credit computed under the income method in the place and stead of the invested capital method which was used by respondent. The amount involved is $939.37. The sole question is whether petitioner, a domestic corporation, was in existence before January 1, 1940, within the meaning of section 712 (a) of the Internal Revenue Code as amended by sectionPage 103613 of the Excess Profits Tax Amendments of 1941, providing that the excess profits credit with respect to such corporations shall be computed under the method resulting in the lesser tax.

The excess profits tax return for the year in question was filed with the collector of internal revenue for the fifth district of New Jersey.

The case was submitted upon a stipulation of facts incorporating therein three joint exhibits. We adopt such stipulation as our findings of fact, which, less the exhibits, is substantially as follows:

FINDINGS OF FACT.

Petitioner is a corporation, engaged since January 2, 1940, in the small loan business in Jersey City, New Jersey. It was incorporated on December 19, 1939, by virtue of a certificate of incorporation filed in the office of the Secretary of State of the State of New Jersey, which was acknowledged under the seal of the secretary on that day.

Its first directors' meeting was held on December 22, 1939, and it was there resolved that petitioner purchase from Sophie L. Saltstein, administratrix of the estate of Maurice S. Saltstein, deceased, all the assets, furniture, fixtures, and accounts receivable and payable of the Eveready Loan Co., formerly belonging to decedent, for $73,511.82. On the same day petitioner's capital stock was issued to the subscribers in exchange for $25,000. The checks representing this sum were deposited to the account of "Eveready Loan Company" in a Jersey City bank. The stockholders advanced petitioner $57,000 on December 29, 1939, and this was placed in the same bank account.

The business operated by Maurice S. Saltstein as a sole proprietorship prior to his death was continued by the administratrix through December 31, 1939, and she filed an income tax return for the business for the calendar year 1939. On January 2, 1940, petitioner issued a check for $73,511.82 in purchase of the following assets and liabilities of the Eveready Loan Co. from the administratrix:

Assets: Cash ......................................... $9,018.49 Loans receivable ............................. 216,954.49 Furniture and fixtures ........... $3,752.77 Less reserve for depreciation .... 1,213.93 ---------- 2,538.84 ---------- 228,511.82 Liabilities: Notes payable ................................ 155,000.00 ---------- Net worth......................................... 73,511.82

Prior to the acquisition of these assets, petitioner had no place of business open to the public, no furniture or fixtures, no assets otherPage 1037than the money in the bank account, and no income. It did not engage in the small loan business or hold itself out as ready and willing to do so, nor did it transact any business other than make the purchase referred to above, until January 2, 1940.

Petitioner filed no tax return for 1939. It filed an income tax and two excess profits tax returns, original and second, for 1940. Its fiscal year is the calendar year and it keeps its accounts and files its returns on the cash receipts and disbursements basis.

OPINION.

HILL,Judge:

The single question presented is whether petitioner, under the facts above stated, was in existence before January 1, 1940, within the meaning of section 712 (a) of the Internal Revenue Code as amended by section 13 of the Excess Profits Tax Amendments of 1941. This section is as follows:

SEC. 712. EXCESS PROFITS CREDIT — ALLOWANCE.

(a) DOMESTIC CORPORATIONS. — In the case of a domestic corporation which was in existance before January 1, 1940, the excess profits credit for any taxable year shall be an amount computed under section 713 or section 714, whichever amount results in the lesser tax under this subchapter for the taxable year for which the tax under this subchapter is being computed. In the case of all other domestic corporations the excess profits credit for any taxable year shall be an amount computed under section 714. (For allowance of excess profits credit in case of certain reorganizations of corporations, see section 741.)

It is to be observed that a domestic corporation in existence before the named date has the privilege of an excess profits credit computation under either section 713 (income method) or section 714 (invested capital method). Its tax is the lesser amount resulting from the application of the respectively computed credits. Otherwise a domestic corporation (unless it comes within provisions not material here) is confined to an excess profits credit computation under section 714.

The answer to the question turns on the meaning of the term "in existence" in relation to a domestic corporation, as that term is used in the quoted section. Respondent contends that the term means "operating existence." He denied petitioner a credit computation under section 713 since, admittedly, petitioner did not conduct its small loan business prior to January 1, 1940. Petitioner, in effect, asserts that the term means "corporate being" and that this was acquired on December 19, 1939, the day the certificate of incorporation was filed.

Congress, in the exercise of its sovereign power to tax, might have set forth, in most unequivocal language, the test to be applied in ascertaining when a domestic corporation was "in existence" for the purposes of section 712 (a). It would have been a simple matter to have specifically made, beyond any question whatever, the actualPage 1038conducting of business the test. Such requirement would have been binding and conclusive, declarations in state corporation laws regarding the date from which "existence" runs to the contrary notwithstanding.Rudolph Wurlitzer Co. v.Commissioner,81 F.2d 971. Respondent's position, in such circumstances, would be invulnerable to attack. But Congress saw fit only to include in this taxing provision an expression of well known legal meaning, as used in connection with corporations, and to let it go at that. We must assume, therefore, that Congress intended that the expression be understood in the usual sense. Certainly, we are not warranted, in view of the recognized meaning of the words, to attribute to them a different or a further import.United Statesv.Merriam,263 U.S. 179;Helveringv.Hammel,311 U.S. 504. As Mr. Justice Holmes said inUnited Statesv.Fidelity Trust Co.,222 U.S. 158, at page 160:

The statute does not invite speculation in new nomenclature, or attempt to reach profounder conceptions than those familiar to the law. * * * We presume that it [Congress] used familiar legal expressions in their familiar legal sense.

What is the familiar legal meaning of the term here under consideration? Briefly, we elucidate. Corporations are creatures of law. They have no being save at government will and have no powers apart from those authorized by grant or implied therefrom. They come into existence, in a legal sense, at the moment the conditions precedent thereto, as determined by the statute under which they are formed, are complied with. They are thereafter "in existence" until their life is terminated. As used by Congress in section 712 (a), "in existence" contemplates just this and no more, for such is the commonly understood legal meaning of the term as applied to corporate entities. Moreover, it is a well recognized truth that conditions precedent to the existence of a corporation are far from identical with conditions precedent to the corporation's right to engage in business. Fletcher on Corporations, vol. 1, § 167. Hence, not only may a corporation be in existence without engaging in business, but it may exist even without being empowered to engage in business.

Petitioner being a New Jersey corporation, it becomes necessary to look to the laws of that state to resolve the specific controversy here.United Statesv.Cambridge Loan Building Co.,278 U.S. 55;Rudolph Wurlitzer Co. v.Commissioner, supra. This, by necessary implication of the Federal taxing statute.Commissionerv.Jones,16 F.2d 496. Cf.Burnetv.Harmel,287 U.S. 103. The New Jersey corporation law, N. J. S. A. 14:2-4, which was in force on December 19, 1939 (since amended), provided in part as follows:

The certificate (of incorporation) shall be signed in person by all the subscribers to the capital stock named therein, be proved or acknowledged as requiredPage 1039for deeds of real estate, be recorded in a book kept for that purpose in the office of the Clerk of the County wherein the principal office of the corporation in this state shall be established and, after being so recorded, shall be filed and recorded in the office of the Secretary of State. * * *

The persons so associating, their successors and assigns, shall, from the date of such filing, be a body corporate by the name set forth in the certificate, subject to dissolution as hereinafter provided. * * *

We have found, as is stipulated, that petitioner's certificate of incorporation was filed in the office of the New Jersey Secretary of State on December 19, 1939. By virtue of the New Jersey statute above quoted, petitioner was "in existence" on that day within the meaning of section 712 (a). The fact that no business was conducted until after January 1, 1940, is immaterial.

Respondent erred in failing to compute petitioner's excess profits credit under each method. If credit under section 713 results in a lesser excess profits tax than has been determined by respondent, petitioner must have the benefit of such saving.Decision will be entered under Rule 50.