*1043 RES JUDICATA. - The instant proceedings involve income taxes for the year 1919. The only controverted issue is the amount of earnings or profits of the Phelps Dodge Corporation accumulated since February 28, 1913, on hand and available for dividends on January 1, 1918. This precise question was involved and adjudicated in Arthur Curtiss James,13 B.T.A. 764">13 B.T.A. 764; affirmed in Commissioner v. James, 49 Fed.(2d) 707, a prior proceeding brought by the same petitioner involving taxes for the year 1918. Held, the question presented for determination was conclusively established in the prior proceeding and is no longer open to determination between respondent and this petitioner. Tait v. Western Maryland Railway Co.,289 U.S. 620">289 U.S. 620.
*712 This proceeding is for the redetermination of a deficiency in income tax for the calendar year 1919 in the amount of $178,202.17. Petitioner contends that not only is there no deficiency in tax, but that*1044 there was a substantial overpayment, and asks that we determine *713 the amount of such overpayment. The contentions of petitioner will be stated later on in the opinion.
FINDINGS OF FACT.
The petitioner, Arthur Curtiss James, is an individual, a citizen of the United States, and resides in New York City.
He at all times kept his books of account upon the cash receipts and disbursements basis and at all times rendered his Federal income taxes upon such basis and upon the calendar year basis. Petitioner was, throughout the calendar year 1919, a stockholder of the Phelps Dodge Corporation, sometimes hereinafter referred to as the corporation. The corporation had outstanding throughtout the calendar year 1919 only one class of stock, namely, common stock, and of its total outstanding stock, numbering 450,000 shares, the petitioner throughout the calendar year 1919 owned 151,397 shares, or 33.64377 percent thereof.
The petitioner, on March 12, 1920, duly filed his income tax return covering the taxable year 1919. The return indicated a taxable income of $3,228,756.52, and petitioner paid to the collector of internal revenue for the second district of New York a tax*1045 thereon of $2,031,853.73, in four equal quarterly installments. All of the items in the return are admitted to be correct except the item or items relating to distributions received by the petitioner from the corporation during the calendar year 1919, which are the subject of this controversy, and an item of $703,442.37, covering amounts contributed by the petitioner during that year to corporations organized and operated exclusively for religious, charitable, scientific, literary, or educational purposes, no part of the net earnings of which inured to the benefit of any private shareholder or individual. At least $618,161.24 was contributed by petitioner during 1919 to such religious, charitable, and educational institutions.
The Phelps Dodge Corporation is a corporation organized and existing under the laws of the State of New York, having been incorporated in 1885 under the name of Copper Queen Consolidated Mining Co. In 1917, pursuant to the applicable provisions of the laws of the State of New York, its name was changed to Phelps Dodge Corporation. The corporation at all times during the year 1919 kept its books of account and rendered its tax returns upon the accrual basis*1046 of accounting. It did not keep its books during the calendar year 1919 in such manner as to show earnings or profits for the accounting periods within which distributions were made by it, but it kept its books in such manner that its earnings were determinable or determined only upon an annual basis and at the end of each year.
*714 Prior to March 20, 1917, the corporation was exclusively an operating company and was engaged in the business of operating certain copper mines. At that time, the stock of the Phelps Dodge Corporation was owned by Phelps Dodge & Co., Inc., a New York corporation. Phelps Dodge & Co., Inc., also owned or controlled the stocks of certain other corporations which owned and operated copper, coal, and other mines, namely, the Detroit Copper Mining Co. of Arizona, a Michigan corporation; Burro Mountain Copper Co., a New Mexico corporation; Stag Canon Fuel Co., a New Mexico corporation; Bunker Hill Mines Co., a West Virginia corporation; Moctezuma Copper Co., a West Virginia corporation; Phelps Dodge Mercantile Co. (a sales company), a New York corporation; and certain other assets and cash.
On March 20, 1917, Phelps Dodge & Co., Inc., transferred*1047 to the Phelps Dodge Corporation all of the capital stock of the Detroit Copper Mining Co. of Arizona, Burro Mountain Copper Mining Co., and Stag Canon Fuel Co. (which corporations at once dissolved and transferred to Phelps Dodge Corporation all the mines, properties, and other assets which they owned), and also all of the capital stock of the Bunker Hill Mines Co., Moctezuma Copper Co., and Phelps Dodge Mercantile Co., which corporations continued as before to conduct their own operations. For these acquisitions, the Phelps Dodge Corporation paid to Phelps Dodge & Co., Inc., the total sum of $73,000,000 in certificates of indebtedness, apportioned as follows:
| Detroit Copper Mining Co. of Arizona | $18,000,000 |
| Burro Mountain Copper Co | 13,000,000 |
| Stag Canon Fuel Co | 15,000,000 |
| Bunker Hill Mines Co | 1,000,000 |
| Moctezuma Copper Co | 23,500,000 |
| Phelps Dodge Mercantile Co | 2,500,000 |
On March 31, 1917, the Phelps Dodge Corporation purchased from Phelps Dodge & Co., Inc., all of the remaining assets of that corporation (except the stock in the Phelps Dodge Corporation which it owned, and a sufficient amount of cash to meet its outstanding liabilities) for $1,450,000, *1048 paid in similar certificates of indebtedness.
Thereafter, the Phelps Dodge Corporation increased its capital stock to 500,000 shares and issued 430,000 shares to Phelps Dodge & Co., Inc., in exchange for its certificates of indebtedness held by that corporation.
Phelps Dodge & Co., Inc., thereupon dissolved and distributed all of its assets to its shareholders in complete liquidation of their shareholdings, and in exchange for its own stock which was turned in for cancellation.
The undistributed earnings and profits of Phelps Dodge & Co., Inc., Detroit Copper Mining Co., Burro Mountain Copper Co., and *715 Stag Canon Fuel Co., accumulated subsequent to February 28, 1913, and on hand March 31, 1917, were as follows:
| Phelps Dedge & Co., Inc.----- | --$435,750.49 |
| Burro Mountain Copper Co.---- | ---671,193.84 |
| Stag Canon Fuel Co.---------- | ---290,715.52 |
| Detroit Copper Mining Co.---- | -1,014,516.31 |
| ------------- | |
| Total------------------------ | -2,412,176.16 |
When in 1918 the Phelps Dodge Corporation filed its income tax return for the year 1917, it attached thereto a statement in part as follows:
STATEMENT OF PHELPS DODGE CORPORATION;
This corporation*1049 was formally reorganized as of March 31, 1917, and is a continuation of the business of Phelps Dodge & Co., Inc. The latter company was the incorporation in December, 1908, of the long established parnership of Phelps Dodge & Company, which had owned and operated valuable mines in the Southwest for a number of years prior to that time. Phelps Dodge Corporation owns the physical properties of all the companies taken over by Phelps Dodge & Co., Inc., at the time of its organization, except those of the Moctezuma Copper Company, which by reason of their location in Mexico, are retained in a separate corporation. In addition it owns the capital stock of Phelps Dodge Mercantile Company and the mines of the Burro Mountain Copper Company, both acquired by Phelps Dodge & Co., Inc., since the year 1908. In substance, in form, in manner of organization, in par value of capital stock ($45,000,000), and in tangible property owned, Phelps Dodge Corporation is the same as Phelps Dodge & Co., Inc., and should be so regarded.
During the calendar year 1919, certain distributions were made by the Phelps Dodge Corporation to its stockholders, which distributions were payable by the corporation, *1050 were received pro rata by the petitioner as a stockholder, and were reported in the petitioner's income tax return as follows:
| Date payable | Amount of | Amount received | Amount reported |
| and received | dividend | by petitioner | in return |
| Jan. 2, 1919 | $3,600,000.00 | $1,211,176.00 | $908,382.00 |
| Apr. 2, 1919 | 1,125,000.00 | 378,492.50 | 378,492.50 |
| July 2, 1919 | 1,125,000.00 | 378,492.50 | 378,492.50 |
| Oct. 2, 1919 | 1,125,000,00 | 378,492.50 | 378,492.50 |
Included in the amount shown above as received by petitioner on January 2, 1919, are United States Converted Second Liberty Loan 4 1/4 percent bonds, at their face amount of $302,750. Said bonds had a fair market value on January 2, 1919, of $95.04 per $100 face value, or $287,733.60.
Petitioner did not report the receipt of a distribution from the corporation of $302,750, par amount of Liberty bonds. In determining the deficiency, the Commissioner added the full par amount of the Liberty bonds to the petitioner's income.
*716 The earnings of the corporation for the calendar year 1919 were $422,850.08. These earnings consisted entirely of distributions received in 1919 from various corporations, aggregating*1051 $789,689.04, from which was deducted the operating loss of the corporation for that year in the sum of $366,838.96.
The earnings and profits of the corporation, accumulated subsequent to February 28, 1913, and on hand at the beginning of 1919, were $2,653,024.29.
As to the earnings and profits accumulated since February 28, 1913, and on hand January 1, 1919, the petitioner introduced in evidence a certified transcript of the record before the Circuit Court of Appeals for the Second Circuit in the case of James v. Commissioner,1 including the determination and findings of fact of the Board of Tax Appeals, the statement of recomputation filed by the respondent under Rule 50, pursuant to order of the Board, and the judgment of affirmance of the Circuit Court of Appeals. The certified transcript of the record in that case (hereinafter referred to as the 1918 case) was pleaded in the amended petition and attached thereto in full as Exhibit C.
*1052 The 1918 case involved the petitioner's 1918 income tax liability and was between the same parties as here. The earnings and profits of the Phelps Dodge Corporation accumulated since February 28, 1913, and on hand January 1, 1918, its earnings and profits in 1918, and its distributions to its stockholders in 1918 were litigated in the 1918 case and determined by this Board and the Circuit Court of Appeals - and are in issue in the instant case.
The recomputation filed under Rule 50, pursuant to the determination and findings of the Board in the 1918 case, shows that the earnings and profits of the Phelps Dodge Corporation on hand January 1, 1918, as found by the Board, were $838,503.14; that the available earnings and profits for the calendar year 1918 as found by the Board were $10,412,411.81, making a total of $11,250,914.95 earnings and profits available for distribution to stockholders; and that the distributions from these available earnings and profits during 1918, totaling $8,597,890.66, were as follows:
| March 29 | $3,320,366.06 |
| June 28 | 2,595,971.56 |
| September 30 | 2,681,553.04 |
The distributions made by Phelps Dodge Corporation to the petitioner during the taxable year 1919 from sources other than earnings and profits accumulated subsequent to February 28, 1913, did not exceed the fair market price or value as of March 1, 1913, of stock of the Phelps Dodge Corporation acquired by the petitioner before March 1, 1913, and/or the cost of stock of Phelps Dodge Corporation acquired by petitioner subsequent to March 1, 1913, and held by him during the taxable year 1919, after applying all proper credits and reductions of such March 1, 1913, value and/or cost basis.
On March 7, 1926, petitioner, on Treasury Department Internal Revenue Service Form 843, duly filed a claim for refund based upon income tax payments made by him on account of the calendar year 1919 with the collector of internal revenue for the second district of New York, as required by the provisions of law in that regard and the regulations*1054 of the Treasury Department established in pursuance thereof, asserting that the petitioner had returned as taxable a greater part of the distribution which he had received from the Phelps Dodge Corporation than was properly taxable. On January 12, 1925, the petitioner filed a waiver on Treasury Department Form 1435-M, as amended 1924, consenting to extend the period prescribed by law for redetermination, assessment, and collection of the amount of income, excess profits, or war profits taxes due under any return made by him for the year 1919 under the Revenue Act of 1924, or prior revenue acts, for the period of one year after the expiration of the statutory period of limiation within which assessments of taxes might be made for the year mentioned, or the statutory period of limitation as extended by section 277(b) of the Revenue Act of 1924. This waiver was approved by the Commissioner of Internal Revenue on January 12, 1925. Petitioner filed another waiver on Form 872-A on December 12, 1925, extending the time prescribed by law for making assessment for the year 1919 to December 31, 1926. The deficiency notice was mailed to petitioner on May 13, 1926.
OPINION.
BLACK: In*1055 his determination of the deficiency, respondent allowed petitioner a deduction of $618,161.24 as contributions made to religious, charitable, and educational institutions. Petitioner in his return had claimed a deduction of $703,442.37 for this purpose. At the *718 hearing, petitioner announced his acceptance of respondent's adjustment of this item. The agreement of the parties as to this item will be observed in a determination under Rule 50.
The same situation prevails as to the $302,750 par value Liberty bonds distributed to petitioner as a dividend January 2, 1919. Petitioner admits that this was a taxable distribution to the extent that earnings were available for its distribution, but insists that the fair market value of the bonds at the date of distribution rather than their par value should govern in determining the amount of dividend received. Respondent concedes that the fair market value of the bonds should govern rather than their par value, as used in his deficiency notice, and effect will be given to this concession in a determination under Rule 50.
We summarize below the points of law urged by the petitioner in this proceeding:
(1) The findings of*1056 fact and the determination of the Board and the Circuit Court of Appeals in the 1918 case are conclusive upon the parties hereto as to earnings and profits of the Phelps Dodge Corporation, and its distributions therefrom, during the period from February 28, 1913, to January 1, 1919, and the doctrine of estoppel by judgment applies thereto.
But if this Board shall hold to the contrary on this point, nevertheless -
(2) Such findings of fact and determination of the Board and the Circuit Court of Appeals in the 1918 case make a prima facie case as to the earnings and profits of the Phelps Dodge Corporation and its distributions therefrom during the period from February 28, 1913, to January 1, 1919, and that prima facie showing is not impaired by the proof introduced by the respondent at the hearing, as to either -
(a) The failure on the part of the Government's accountant, in preparing data used by counsel as a basis for a stipulation filed in the 1918 case, to compute such prior earnings and profits under the socalled proration rule; or
(b) The failure of the Government's accountant, in preparing such data, to include an amount representing the undistributed earnings and profits*1057 of Phelps Dodge & Co., Inc., as shown by its books of account, at the time of its dissolution, March 31, 1917; or
(c) The failure of the Government's accountant, in preparing such data, to include an amount representing the undistributed earnings and profits of the Detroit Copper Mining Co. of Arizona, Burro Mountain Copper Co., and Stag Canon Fuel Co. at the time of the transfer of their assets to the Phelps Dodge Corporation on or about March 20, 1917.
*719 (1) From a reading of the foregoing enumeration of petitioner's contentions, it will be seen that the first issue that we have to decide is whether or not the findings of fact and the determination of the Board in the prior proceedings of Arthur Curtiess James v. Commissioner, for the year 1918, reported at , affirmed by the United States Circuit Court of Appeals for the Second Circuit (reported at ), are conclusive upon the parties hereto as to earnings and profits of the Phelps Dodge Corporation and its distributions therefrom, during the period from February 28, 1913, to January 1, 1919, and the doctrine of estoppel by judgment applies thereto.
*1058 At the time of the hearing of this proceeding, the case of , had not been decided and the presiding Member ruled from the bench as follows:
There can be no question, of course, that a deficiency for 1919 is a different cause of action from a deficiency for 1918; and, therefore, unless the issue was actually litigated between the same parties in the former hearing, it would not be precluded. But, at this time, I am not going to take the responsibility of ruling from the bench that this former hearing is res judicata as to the amount available for dividends from earnings after February 28, 1913, and prior to January 1, 1918. But the record of the prior proceeding will be admitted and then, if the respondent has other evidence, it will be received, with the right of the Board to hold that the record in the former case is Res judicata.
At this point it would be well to emphasize that the only controversy in the instant case between petitioner and respondent is as to the amount of earnings accumulated since February 28, 1913, and on January 1, 1918, available for distribution by the Phelps Dodge Corporation. *1059 There is no dispute by the parties as to the earnings of the corporation for the years 1918 and 1919.
At page 767 of our report in , affirmed in , we found:
The earnings and profits accumulated since February 28, 1913, and on hand January 1, 1918, of each of the following corporations, were as follows: Phelps Dodge Corporation $838,503.14 * * *.
The above finding was based upon a stipulation of facts filed by the parties in the prior proceeding. In that proceeding respondent was contending that the earnings and profits of the subsidiaries of Phelps Dodge Corporation not paid over to the parent corporation were nevertheless abailable for distribution by the parent corporation within the contemplations of section 201 of the Revenue Act of 1918, and should, therefore, be added to the amount of $838,503.14, for the purpose of determining the source of the distributions there in question. That contention was decided adversely to the respondent.
*720 The respondent now contends that he erred in the prior proceeding in stipulating the earnings and profits as being $838,503.14; *1060 that the correct amount should have been $4,549,554.62; and that this error was due (1) in part to his failure to include as a part of the earnings of the Phelps Dodge Corporation the earnings of four other corporations whose assets the Phelps Dodge Corporation acquired in March 1917, viz., Phelps Dodge & Co., Inc., Burro Mountain Copper Co., Stag Canon Fuel Co., and Detroit Copper Mining Co.; and (2) in part to the theory of prorating earnings in the years prior to the taxable year.
In our opinion the question as to the amount of earnings or profits of the Phelps Dodge Corporation accumulated since February 28, 1913, on hand and abailable for dividends on January 1, 1918, is no longer a question that is open to determination between respondent and this petitioner. The question was conclusively established in the prior proceeding. ; ; ;*1061 .
In the latter case, the court succinctly stated that rule which we think governs here, in the following language:
A prior judgment is conclusive evidence as to all matters in issue and thereby determined, in a subsequent suit upon a different cause of action between the same parties or their privies.
Cf. ; ; ; Second National Bank of Saginawv. Woodworth, 66 Fed.(2) 170; .
In determining what portion of the distributions received by petitioner in 1919 was distributed from "earnings or profits accumulated since February 28, 1913" and what portion was not so distributed, the computation should start with earnings and profits accumulated since February 28, 1913, on hand and available for dividends on January 1, 1918, of $838,503.14. The earnings for 1918 and 1919 are not in dispute. Having decided in favor of petitioner on the issue of setoppel by judgment, it will be unnecessary to discuss*1062 his alternative contentions.
Reviewed by the Board.
Decision will be entered under Rule 50.
Footnotes
1. This case was designated as Arthur Curtiss James v. Commissioner of Internal Revenue,↩ Docket No. 2509 of the Board of Tax Appeals. The findings of fact were promulgated by the Board on October 3, 1928 (reported at ), and the decision was entered under rule 50 of the Board on July 9, 1929. the circuit Court of Appeals for the Second Circuit, under Docket No. 161 of that court, on review at the instance of the Commissioner, affirmed the decision of the Board on May 4, 1931 (reported at ).