*2464 Held, that an amount representing loans from a corporation to the petitioner and which during the taxable year was canceled and released to him by a resolution adopted unanimously by the stockholders of the corporation represented a payment of dividends.
*1015 This is a proceeding for the redetermination of a deficiency of $2,880.66, in income tax for 1921. The deficiency results from the action of the respondent in including in the petitioner's net income subject to surtax an amount of $24,824.82 representing the total amount of loans made to him during 1919 and 1920 by V. Loewer's Gambrinus Brewery Co. and which by a resolution adopted by the stockholders of the company on April 21, 1921, was canceled, released and discharged.
On motion of the petitioner at the hearing, the petition was amended so as to allege that the taxes for 1920 and 1921 were not assessed within the time fixed by the Revenue Acts. Certain facts are stipulated.
FINDINGS OF FACT.
The V. Loewer's Gambrinus Brewery Co. is a domestic corporation duly organized under*2465 the laws of the State of New York, and has its office and principal place of business in the City, county and State of New York. This corporation was organized prior to the year 1890. Up to the time of the enactment of the National Prohibition Amendment, the said corporation was engaged in the manufacture and sale of lager beer, ales and porter, and is now engaged in the manufacture and sale of cereal beverages in accordance with the National Prohibition Act and the Volstead Act.
The capital stock of said corporation, at the time of its organization and up to and including the 21st day of April, 1921, was the sum of $100,000, consisting of 1,000 shares of common stock of the par value of $100 each.
*1016 Prior to the year 1920, and up to and including the 21st day of April, 1921, Ida L. Dowling, now known as Ida Loewer, was the owner of 333 1/3 shares of the capital stock of said corporation, same being a one-third share or interest in said corporation; one-third share or interest, amounting to 333 1/3 shares was held and owned by Jacob Loewer and his family; and the other one-third share or interest, amounting to 333 1/3 shares, was held and owned by Henry D. Muller*2466 and his wife and family.
In 1921 and up to and including April 21, 1921, the stock of the said corporation was owned and held by the following named persons and in the amounts set opposite their names, to wit:
| Shares. | |
| Jacob Loewer | 84 1/3 |
| Ida Loewer Dowling | 333 1/3 |
| Katherine Muller | 63 1/3 |
| Henry D. Muller | 54 |
| Henry D. Muller, Jr | 54 |
| Charles Louis Draz | 10 |
| Irene Snyder | 54 |
| Florence Folcke | 54 |
| Amy C. Draz | 73 |
| Valentine L. Muller | 54 |
| Amelia Loewer | 83 |
| Vera K. Halstead | 73 |
| Robert M. Halstead | 10 |
| Total | 1,000 |
On various dates in 1919 and 1920, said Henry D. Muller borrowed from said corporation the sum of $24,824.82 as follows:
| December 20, 1919 | $9,000.00 |
| July 1, 1920 | 1,271.20 |
| July 1, 1920 | 800.00 |
| July 1, 1920 | 250,00 |
| July 30, 1920 | 7,600.00 |
| November 21, 1920 | 238.00 |
| November 21, 1920 | 2,582.28 |
| November 21, 1920 | 3,083.34 |
| 24,824.82 |
The books of account of V. Loewer's Gambrinus Brewery Co. show that this amount was carried as a loan.
At a duly constituted meeting of the stockholders of said corporation, held on April 26, 1921, at the office of the company, at which all of the stockholders owning all of the outstanding*2467 and issued capital stock of said corporation were present, either in person or by proxy, and at which meeting the officers and directors of said corporation were present, the following resolution was unanimously adopted, to wit:
*1017 All special loan accounts and accounts of every other nature and description appearing upon the books to be owing by Mr. Jacob Loewer, Mr. Henry D. Muller, Sr., and Mrs. Ida Loewer Dowling, and any accounts appearing to be due by any other stockholders, are hereby directed to be cancelled, released and discharged, and the Auditor of the company is directed to cancel the same of record, and the officers of the company are directed to execute general releases to Mrs. Ida Loewer Dowling and Messrs. Jacob Loewer and Henry D. Muller, Sr., the release to be executed to Mr. Jacob Loewer shall be executed in behalf of the Brewery by Mr. Henry D. Muller, Sr., as treasurer, and Mrs. Ida Loewer Dowling as secretary; the release to be executed to Mrs. Ida Dowling shall be executed in behalf of the Brewery by Mr. Jacob Loewer as president and Mr. Henry D. Muller, Sr., as treasurer; and the release to be executed to Mr. Henry D. Muller shall be executed in*2468 behalf of the Brewery by Mr. Jacob Loewer as president and Mrs. Ida Loewer Dowling as secretary; and such releases shall be immediately delivered to the respective parties.
A stock vote by ballot upon the foregoing resolution was thereupon taken, which resulted in the unanimous adoption of the resolution.
The purpose of the resolution was not in any way to evade the payment of any income tax by the persons named in said resolution, as evidenced by the statement in the income-tax return of the petitioner showing the release by the corporation to him of said amount of $24,824.82.
Said sum of $24,824.82, shown by the said Henry D. Muller to have been released by the corporation, was likewise shown on the books of the corporation as being deducted from the surplus of the corporation, and not taken from 1921 earnings.
The income-tax returns of the corporation show the various adjustments of the same made to its surplus account by the reduction therefrom of the amount released to the petitioner as well as to Jacob Loewer and Ida L. Dowling.
The income-tax return of the corporation for the year 1921 shows that the sum of $24,824.82, the amount involved in this proceeding, as*2469 well as other items, was deducted from the surplus account.
The petitioner herein did not perform any service of any kind whatsoever for the release of said sum of $24,824.82 to him by the corporation.
The cancellation and forgiveness of the indebtedness in the above mentioned sum of $24,824.82 and the release thereof to the petitioner by the corporation was with the sole desire of benefiting the petitioner, and he claims that the same was in the nature of a gift, since no services of any kind were rendered to the corporation by the taxpayer.
The respondent determined that the $24,824.82 represented a distribution in the nature of a dividend to the petitioner from the surplus of V. Loewer's Gambrinus Brewery Co., and as it had not been *1018 shown that such surplus had been accumulated prior to March 1, 1913, the amount in question was subject to surtax.
The petitioner's return for the calendar year 1921 was filed on March 15, 1922. The notice of the deficiency was mailed to the petitioner on January 30, 1926, and the petition was filed with the Board on February 16, 1926. A stamp on the return shows that the deficiency here involved, $2,880.66, was assessed on*2470 May 17, 1926.
OPINION.
TRAMMELL: The petition as amended alleges that taxes for 1920 and 1921 were not assessed within the time provided by law. The notice of deficiency against which the petition in this proceeding was filed shows that a deficiency was determined for 1921 only. The notice does not contain any reference to the petitioner's tax liability for 1920, nor was there any evidence offered to show that the respondent had made a determination of a deficiency for that year. The petition in so far as it relates to the petitioner's tax liability for 1920 is therefore dismissed.
The petitioner alleges that the tax for 1921 was not assessed within the time provided by the revenue acts. The return for 1921 was filed on March 15, 1922. The deficiency notice was mailed on January 30, 1926, and on February 16, 1926, the petition was filed with the Board. The four-year period provided for in the Revenue Acts of 1921 and 1924 within which assessment and collection of the petitioner's tax for 1921 could be made clearly had not expired at the time the deficiency notice was mailed.
Since the filing of the petition with the Board on February 16, 1926, the running of the period*2471 of limitations on assessment and collection of the tax has been suspended. ; ; . Under section 279 of the Revenue Act of 1926 the Commissioner is authorized to make assessment of deficiencies determined by him and against which petitions are pending before this Board. No contention is raised that the assessment in the instant case was not in accordance with that provision of the Act. Therefore, we conclude that as the running of the period of limitations has been suspended since February 16, 1926, the petitioner's contention as to this point must be denied.
The remaining issue relates to the taxability of the $24,824.82 representing loans obtained by the petitioner from V. Loewer's Gambrinus Brewery Co. during 1919 and 1920 and which were canceled, released, and forgiven by action of the stockholders of the company on April 21, 1921.
*1019 The petitioner contends that the amount represented a gift from the corporation. The respondent determined that it was a distribution in the nature of a dividend and subject to*2472 surtax. In support of his determination the respondent relies on our decision in the cases of Ida L. Dowling and . In those cases, we held that the amounts canceled and released to Ida L. Dowling and Jacob Loewer (the other parties named in the stockholders' resolution of April 21, 1921) represented a payment of dividends, and therefore constituted taxable income.
The petitioner contends that the facts as stipulated in his case are such as to warrant our reaching a different conclusion here from that reached in the Dowling and Loewer cases. While it is true that the facts here differ in some respects from those in the other cases, yet we do not think such differences are material. We do not think that the facts here presented warrant the conclusion that the amount in question represented a gift. Accordingly, we are of the opinion that our decision in the Dowling and Loewer cases is applicable and controlling here.
Judgment will be entered for the respondent.