dissenting: We are dealing in these cases with, a penalty statute and it would seem to me that we should hesitate before we substitute our judgment for the judgment of the directors of petitioners and find that the small accumulations that were added to surplus in 1946 by each of these taxpayers were beyond the reasonable needs of their businesses.
The record contains evidence of factual situations which confronted the petitioners and which prompted the accumulation of earnings. One was the constant threat of competition from the larger chains of theatres and, whether this danger was real, the petitioners honestly believed that it was, as evidenced by the acquisition of theatre sites by the Latchis group from time to time in order to forestall the incursion of their territory by chains. Second, there was genuine need in 1946 for relatively costly renovation and re-equipment of petitioners’ thea-tres. The third situation grew out of the fact that the persons holding mortgages on the theatres were demanding that they be curtailed due to the fact that the theatres had been allowed to get in a run-down condition. While the mortgages were primarily the liability of D. Latchis, Inc., which owned the theatre properties, nevertheless, if petitioners were to remain in business, foreclosure on the properties had to be averted and to accomplish this they had to stand ready to advance the funds required for curtailment. Advances so made in 1946 by Keene amounted to some $26,000 and by Claremont to $14,000.
Upon the facts present in these proceedings, it my view that the business of the petitioners and of D. Latchis, Inc., should be regarded as merely branches of the same business. All have the same stockholders and officers. The petitioners were the active operators of properties owned by Latchis, and while Latchis was the record owner, the petitioners assumed the role of ownership to the extent of furnishing improvements and making provision for reduction of mortgages.
I do not think that the loans to stockholders can be regarded as significant. The only loans of any importance were to Peter Latchis and those loans were made for the specific purpose of being used by him for the protection of the business of petitioners. The amounts advanced to him were carried as loans as a bookkeeping matter but, from a practical point of view, they were merely held by him in escrow for the benefit of petitioners.
We have recently said in Crawford County Printing & Publishing Co., 17 T. C. 1404, that:
Determination of the reasonable needs of its business is, in the first place, a task for the officers and directors of the corporation. What is reasonable in one situation may be unreasonable in a different context of facts. We should be hesitant to attribute a sinister or ulterior motive to the corporation unless such a factual situation clearly appears. The law contemplates that any legitimate business may grow if legitimate means be employed.
In these proceedings, the evidence is convincing that the officers and directors of the petitioners were honest in their determination of the need to accumulate earnings rather than to distribute them. They have shown that, in their opinion, there were various reasons which prompted their action. The exact amount that would be needed for the several contingencies which confronted them could not be foretold with certainty, but clearly their actions were not based on any ulterior motive, and I can not say that my judgment is better than theirs as to the amount that would be needed in the business. Moreover, we find here actual expenditures by the petitioners of substantial amounts for the protection and furtherance of their businesses as the needs arose and as equipment became available.
I think the petitioners should prevail.
Johnson, J., agrees with this dissent.