*33 Decision will be entered under Rule 50.
Petitioner Aramo-Stiftung, a foreign foundation, through bankers in Switzerland, placed dividend-producing securities in the names of brokers in New York. Dividends were paid to the brokers. Question as to the identity of the owner of the securities arose, and in 1945 the brokers refused to pay the dividends to the petitioner until proof of identity of the owner was made. During the taxable years, 1940-1943, no demand for payment of the dividends to the petitioner is shown. Held, on the facts that no error is shown in the determination that the petitioner was taxable on the dividends and liable to penalties for failure to file income and personal holding company tax returns; petitioner Oak Commercial Corporation held not taxable.
*947 These proceedings, consolidated for hearing and disposition, involve deficiencies in income tax, declared value excess profits tax, personal holding company surtax, and penalties for the years 1940, 1941, 1942, and 1943, in the following amounts:
| Aramo-Stiftung -- Docket No. 11612 | |||||
| Personal | 25% penalty, | ||||
| 25% penalty, | holding | personal | |||
| Year | Income tax | income tax | company | holding company | Total |
| surtax | surtax | ||||
| 1940 | $ 3,159.73 | $ 789.93 | $ 15,578.65 | $ 3,894.66 | $ 23,422.97 |
| 1941 | 6,217.20 | 1,554.30 | 18,431.60 | 4,607.90 | 30,811.00 |
| 1942 | 6,080.40 | 1,520.10 | 17,027.80 | 4,256.95 | 28,885.25 |
| 1943 | 6,040.80 | 1,510.20 | 16,915.60 | 4,228.90 | 28,695.50 |
| Total | 111,814.72 |
| Oak Commercial Corporation -- Docket No. 11007 | |||||
| Personal | 25% penalty, | ||||
| 25% penalty, | holding | personal | |||
| Year | Income tax | income tax | company | holding company | Total |
| surtax | surtax | ||||
| 1940 | $ 284.33 | $ 87.74 | $ 10,310.61 | $ 2,577.65 | $ 13,260.33 |
| 1941 | 691.90 | 269.91 | 17,901.40 | 4,475.35 | 23,338.56 |
| 1942 | 725.60 | 366.62 | 16,246.88 | 4,061.72 | 21,400.82 |
| 1943 | 672.06 | 338.35 | 15,033.36 | 3,758.34 | 19,802.11 |
| Total | 77,801.82 |
The issues to be determined as to Aramo-Stiftung are: (1) Did the respondent err in determining that petitioner is subject to Federal income tax on dividends from stock of domestic corporations in the amounts above set forth? (2) Is petitioner subject to tax as a personal holding company? (3) Is petitioner liable for the 25 per cent penalty for failure to file income tax returns and personal holding company tax returns for the taxable years? The issues to be determined as to Oak Commercial Corporation are the same, except that no question arises as to penalty for failure to file income tax returns.
A stipulation of facts was filed. We adopt same by reference and find the facts therein set forth. Such part thereof*36 as it is considered necessary to set forth is included with other facts found from evidence adduced in our findings of fact.
FINDINGS OF FACT.
Aramo-Stiftung, petitioner in Docket No. 11612, is a legal entity organized in December 1937 under the laws of the principality of Liechtenstein. Its creator and founder was Max Kolb (hereinafter referred to as Kolb), an attorney at law practicing in Zurich, Switzerland. Kolb is a citizen and resident of Switzerland and has not been in the United States since December 1937.
The purpose for which Aramo-Stiftung was created was to care for the beneficiaries of the foundation (Stiftung), who would be the persons so designated by its board of trustees. The board of trustees is appointed by the founder and consists of Kolb and Max E. Meyer (hereinafter referred to as Meyer), the latter also being a resident and citizen of Switzerland.
Max Habicht (hereinafter referred to as Habicht), a nephew of Kolb, also a Swiss citizen and a member of the Swiss bar, was associated with the law firm of Hardin, Hess & Elder, in New York City, from June 1939 until 1941. Shortly after the outbreak of the war in Europe in September 1939, Habicht discussed in a*37 general way with Kolb, in Switzerland, various methods by which the property of Europeans might be transferred to the United States for safekeeping, in view of the existing political situation. Without mentioning any particular client or the amount of funds involved, Kolb indicated that he desired to have certain property held in custody in the *949 United States without revealing the identity of the true owners thereof.
After his return to New York Habicht had some correspondence on this subject with Kolb and discussed the matter with members of the law firm of Hardin, Hess & Elder. It was suggested that an American corporation be organized to act as custodian and to hold in a safe deposit box funds and securities transmitted by Kolb on behalf of his unnamed clients, which proposal was agreed to by Kolb.
Oak Commercial Corporation, petitioner in Docket No. 11007, was organized on December 20, 1939, under the laws of the State of New York. The incorporators were Habicht, Monroe Collenburg, and Benjamin Rippe, the latter two being employees of Hardin, Hess & Elder. The entire authorized capital stock of Oak Commercial Corporation (100 shares of $ 100 par value) was issued *38 to Habicht for the sum of $ 10,000, which amount was taken out of the funds transmitted by Kolb. Habicht continued to be the sole stockholder of the corporation until November 1944, when the stock was endorsed over to Frank Rashap, an associate of the law firm of Hardin, Hess & Elder. The directors and officers of Oak Commercial Corporation, from the time of its organization until November 1944, were as follows: Kolb, director; Habicht, director, president, and treasurer; Rashap, director, vice president, and secretary. Since November 10, 1944, Rashap has been president and treasurer and Collenburg has been vice president and secretary.
At the first meeting of the board of directors of the Oak Commercial Corporation, held on December 21, 1939, a resolution was adopted whereby the corporation agreed to comply with the request of Kolb and to receive from him for temporary safekeeping certain securities and cash declared to be the property of his clients, and it was further resolved that upon receipt of the property a safe deposit box be procured in which it should be kept.
In January 1940 there were delivered to Oak Commercial Corporation by various bankers and brokers in New York*39 City, pursuant to instructions given them by bankers in Zurich, Switzerland, approximately $ 777,000 in cash, $ 11,000 in United States war bonds, and approximately $ 300,000 in securities, stocks, and bonds, all of which were placed in the safe deposit box which the Oak Commercial Corporation had rented from the Chase Safe Deposit Co.
The securities thus delivered to Oak Commercial Corporation were endorsed in blank and have remained registered in the names of the brokers, or their nominees, from whom they were received, as follows: J. & W. Seligman & Co., Brown Bros. Harriman Co., E. F. Hutton & Co., Swiss Custodian Corporation, Dominick & Dominick, and Edward Rice & Co.
*950 By reason of the fact that the securities stood in the names of the brokers from whom Oak Commercial Corporation received them, the dividends on these securities for the years 1940 to 1943, inclusive, were paid to the respective brokers, as follows:
| 1940 | 1941 | 1942 | 1943 | |
| J. & W. Seligman & Co | $ 487.50 | $ 650.00 | $ 650.00 | $ 650.00 |
| Brown Bros. Harriman Co | 10,068.00 | 10,719.00 | 9,729.00 | 9,824.00 |
| E. F. Hutton & Co | 981.00 | 906.00 | 681.00 | 456.00 |
| Swiss Custodian Corporation | 6,738.38 | 9,383.00 | 8,308.00 | 8,306.00 |
| Dominick & Dominick | 175.00 | 230.00 | 200.00 | 200.00 |
| Edward Rice & Co | 700.00 | 700.00 | 700.00 | 700.00 |
*40 These dividends have not been paid over to Aramo-Stiftung or to Oak Commercial Corporation but have been retained by the respective brokers who received them, as above set out.
Some time prior to September 30, 1941, Oak Commercial Corporation received from Kolb a sealed envelope which purported to contain the name of the owner of the property held by it in the safe deposit box, with instructions that the envelope was not to be opened until Kolb gave his consent thereto.
In October 1941 Oak Commercial Corporation filed with the Treasury Department "Report Form TFR-300, Series A," on which were listed the cash and securities which it claimed to be holding as custodian for an unknown client of Kolb, among the securities listed being all of the above listed securities. Rider "A," attached thereto, reads as follows:
The officers of the Oak Commercial Corporation have made efforts both here and abroad to ascertain the identity of the owner or owners of the property described above, but have been unable to ascertain the identity of the owner except that the Oak Commercial Corporation has in its possession a sealed envelope purporting to contain the name of the owner of the property. However, *41 this envelope was sent to the Corporation by Dr. Max Kolb of Switzerland, who advised the Corporation that he is under a professional duty as attorney not to open the envelope nor to disclose the contents of the same until so directed by his client. Accordingly he has requested the Corporation not to open this envelope without his express instructions.
Subsequent to April 20, 1942, at the insistence of the Treasury Department, the envelope was opened in the presence of a representative of the Treasury Department and Rashap, and it was found to contain a certificate to the effect that Aramo-Stiftung was the owner of the property which had been delivered to Oak Commercial Corporation, as custodian.
Shortly after the filing of the above described "TFR-300," the Treasury Department sealed the safe deposit box in which the Oak Commercial Corporation kept the cash and securities and it has since remained sealed and can not now be opened without permission of the Federal Reserve Bank.
*951 Under date of July 5, 1945, Aramo-Stiftung advised each of the New York brokers referred to above, in writing, that it was the owner, and had been the uninterrupted owner since several years before*42 the outbreak of the war in 1939, of the securities which the broker had delivered to Oak Commercial Corporation under instructions dated December 1939. It also advised each broker that it was the owner of the dividends received by such broker with respect to those securities from 1940 to 1945, inclusive, and each broker was requested to pay to the United States Government the Federal income taxes due for the years 1940 to 1945, inclusive, at the rate applicable to a nonresident foreign corporation, and to credit the balance of the dividends to Aramo-Stiftung, to whom all the accumulated dividends were claimed to belong. Each of these letters was signed by Kolb and Max E. Meyer and there was inclosed therein a copy of the certificate of the chancelry of the County Court of Liechtenstein, dated January 15, 1941, which stated that upon the organization of Aramo-Stiftung in December 1937 Kolb was appointed as sole member of the board of the foundation and Meyer was appointed as administrator of the property, with the right to sign and represent singly, and that they still functioned as such.
All New York brokers declined to follow the instructions given them by Aramo-Stiftung, in its*43 letter dated July 5, 1945. The primary reason given was the absence of satisfactory evidence of the beneficial ownership of the securities. Some of the brokers pointed out that it would be necessary to obtain a Treasury Department license before paying over the dividends. One of the letters indicated that an application for a Treasury license had been filed and was denied by the Foreign Funds Control Department of the Federal Reserve Bank. Some of the brokers indicated that they would require certain guarantees before paying over the dividends.
All of the taxes in controversy herein are with respect to the dividends referred to above.
Oak Commercial Corporation filed with the collector of internal revenue for the second New York district timely income tax returns for the years 1940, 1941, 1942, and 1943, which returns disclosed no income. Oak Commercial Corporation did not file a personal holding company tax return for any of these taxable years. Aramo-Stiftung did not file an income tax return or a personal holding company tax return for any of the taxable years involved herein.
An affidavit signed by Kolb and Meyer before the vice consul of the United States of America at *44 Zurich, Switzerland, contained in part the following:
c) No citizen of Germany or Japan nor any person domiciled in German or Japanese territory or in territory occupied by one of these nations has or has had since Aramo Foundation was established in 1937 any interest whatsoever, *952 directly or indirectly, in the said assets deposited with Oak Commercial Corporation.
d) Aramo Foundation has not received any of its capital, either at its foundation in 1937, or since that date directly or indirectly, from any person or institution having domicile or seat of business in Germany or Japan or in countries occupied by either of these nations, or having German or Japanese citizenship.
From April 20, 1943, until November 7, 1944, there was no postal service between the United States and Switzerland and between the United States and Liechtenstein.
OPINION.
The first issue for our determination is whether the respondent erred in determining that petitioner Aramo-Stiftung is subject to Federal income tax on dividends from stock of domestic corporations, in the amounts set forth above. The determination is presumed to be correct. To overcome the presumption, petitioner argues: "The assessment*45 against Aramo-Stiftung was improper since it was with respect to dividends which, although claimed by Aramo-Stiftung as its property, were never paid to it and cannot be deemed to have been received by it" and "The assessment of any income taxes with respect to the dividends involved in these petitions is premature and must await the actual or constructive receipt of the dividends by the owner."
According to the record, petitioner Aramo-Stiftung claims to be the actual owner of the stock from which the dividends arise. The brokers to whom the dividends were paid do not dispute that claim, and no other party has claimed the dividends. Furthermore, a defense for this action would be a showing on the part of petitioner Aramo-Stiftung that it is not the owner of the stock here in question, but rather than such a showing, the contrary is attempted to be shown, that is, Aramo-Stiftung claims to be the owner. Since there is no real conflict between the parties concerning the fact that Aramo-Stiftung is the owner of the stock here in question, we see no reason to pursue the query further.
With Aramo-Stiftung's undenied ownership of the dividends as a premise, we next examine the facts *46 to determine whether the Commissioner's determination has been proved incorrect. Petitioner Aramo-Stiftung's strongest argument on this point appears to be that it did not constructively receive the dividends here in question. With this we can not agree. The dividends were paid by the domestic corporations to the brokers because the brokers were the record owners of the stock. Such a payment released the domestic corporations from further liability or responsibility concerning the dividends. The details of how the stock came to be registered in the names of the brokers, rather than in the name of the actual owner are lacking from the record. A bare thread of information is all we have on this point. *953 That is the fact that the brokers received instructions from bankers in Switzerland to transfer the stock here in question, endorsed in blank, to Oak Commercial Corporation. These instructions were followed, but the reasons for following them are not to be found. Furthermore, it is not explained why this method (of giving instructions to the brokers through the bankers in Switzerland) was not followed concerning the payment of the dividends to the actual owners. Instead*47 of using the same method of giving instructions through the bankers in Switzerland, Aramo-Stiftung later, in 1945, requested the brokers to pay it the dividends. With no further information, it appears proper for the brokers to require guarantees and other information, as they did, before paying the dividends.
The doctrine of constructive receipt of income is embodied in Regulations 111, section 29.42-2. 1 The pertinent part of this regulation as pertaining to the instant case is as follows: "To constitute receipt in such a case the income must be credited or set apart to the taxpayer without any substantial limitation or restriction as to the time or manner of payment or condition upon which payment is to be made, and must be made available to him so that it may be drawn at any time, and its receipt brought within his own control and disposition." (Italics supplied.) The dividends here in question were set apart by the paying domestic corporations when they were delivered to the brokers. Though the identity of the owner of the dividends may have been undisclosed at the time of payment to the brokers, it still remains a fact that the availability of the dividends rests*48 in the hands of the owner. "The test is the availability of the sum credited to the account of the taxpayer. If available, it is taxable as income." (Italics supplied.) Foley v. Commissioner, 94 Fed. (2d) 958. The owner of the stock here in question permitted the certificate of stock to be registered in the name of the brokers in the manner heretofore described. The fact that the brokers turned the stock certificates over to Oak Commercial Corporation is a strong indication that they had some contact with the actual owner of the stock.
*49 As the above regulation indicates, the question turns on the fact of whether or not there is any substantial limitation or restriction as to the time or manner of payment. The petitioner has not proved that any such limitations or restrictions exist. True, the brokers have *954 made certain requirements that must be met before they release the dividends to Aramo-Stiftung, but these requirements were of mere proof of identity.
We do not have here a case of conflicting claims to the dividends, rendering it impossible for the petitioner Aramo-Stiftung to collect until the end of litigation over the fund, nor one of "vain efforts to collect" from a debtor who contends that another should pay, as in C. Florian Zittel, 12 B. T. A. 675. True, Aramo-Stiftung had requested payment, but there was no denial of liability by the brokers. In effect, they "set apart" the dividends to whoever was the owner, within the language of the regulation above quoted, and were ready to pay the real owner. The funds could be "drawn upon" by Aramo-Stiftung at any time, if it was the owner. The brokers did not deny this, did not claim for themselves the dividends, but *50 merely required to be made safe in paying out. The dividends were "made available" to Aramo-Stiftung, providing only that it was the owner. In our opinion, this was not such condition or impediment to receipt as to prevent constructive receipt. It must be remembered that Aramo-Stiftung says it is the owner, entitled to the dividends. That Kolb, creator and founder of Aramo-Stiftung, who appointed its trustees and was one of the two trustees, caused these securities to be transmitted to a corporation formed at his instigation and placed in the names of the brokers. It was Kolb who named Aramo-Stiftung as owner and signed the letters advising the brokers of ownership by Aramo-Stiftung and that the dividends belonged to Aramo-Stiftung and should be credited to it, after payment of taxes. Considering the control which Aramo-Stiftung had had over the property, we find it not reasonable to believe that it could not have demonstrated its ownership to the dividends to the satisfaction of the brokers. Their requirements seem reasonable, under all the circumstances. Apparently, for reasons not disclosed by the record, a desire for anonymity of the beneficiaries of the "Stiftung," or *51 foundation, was the reason for not complying with the brokers' requirement, and not inability to comply therewith. At least it has not been shown that it was not within the power of Aramo-Stiftung to make such disclosure as to satisfy the brokers. No effort is shown, aside from the one set of letters or directions, and that was not until July 5, 1945 -- whereas we have here before us 1940-1943. In other words, no effort was made in the taxable years to secure the dividends, and they were apparently voluntarily left with the brokers. Nothing of record shows that in 1940-1943, the brokers refused to pay to Aramo-Stiftung, or were ever requested so to do. Under all these circumstances, we conclude and hold that it has not been shown that the Commissioner erred in taxing the dividends to Aramo-Stiftung for the taxable years.
The amended petition alleges error in the determination that *955 Aramo-Stiftung is a personal holding company, but, though the matter was briefed by the respondent, the petitioner does not, upon brief, refer to the question, making its entire argument upon the issue as to whether income was received. We therefore regard the contention of error as to personal*52 holding company as abandoned, and affirm the Commissioner in that respect.
The third issue to be determined as to Aramo-Stiftung is whether it is liable for the 25 per cent penalty for failure to file income tax and personal holding company tax returns for the taxable years.
No evidence was introduced on behalf of petitioner Aramo-Stiftung to show that its failure to file timely income tax returns and personal holding company tax returns was due to reasonable cause, and petitioner's brief contains no argument with reference to the penalties asserted. It is true that it is stipulated that from April 20, 1943, until November 7, 1944, there was no postal service between the United States and Switzerland or between the United States and Liechtenstein, but this fact would not affect timely filing of returns for 1940, 1941, 1942, or 1944. It obviously might have affected timely filing for 1943, but no reliance is placed upon such facts, and no reports, timely or otherwise, were filed at any time for Aramo-Stiftung. Sections 508 and 291 of the Internal Revenue Code2 expressly provide for such penalties and we hold petitioner liable under said sections.
*53 The three issues to be determined as to Oak Commercial Corporation, Docket No. 11007, may be disposed of summarily. On brief, respondent makes the statement that it is not his contention that taxes should be collected from both of these petitioners on the same items of income. Due to our holding in regard to Aramo-Stiftung and this view on the part of respondent, we consider it unnecessary to discuss these issues further, other than to say that we see no liability on the part of Oak Commercial Corporation for any of the taxes assessed by the Commissioner.
Decision will be entered under Rule 50.
Footnotes
1. Sec. 29.42-2. Income Not Reduced to Possession. -- Income which is credited to the account of or set apart for a taxpayer and which may be drawn upon by him at any time is subject to tax for the year during which so credited or set apart, although not then actually reduced to possession. To constitute receipt in such a case the income must be credited or set apart to the taxpayer without any substantial limitation or restriction as to the time or manner of payment or condition upon which payment is to be made, and must be made available to him so that it may be drawn at any time, and its receipt brought within his own control and disposition. A book entry, if made, should indicate an absolute transfer from one account to another. If a corporation contingently credits its employees with bonus stock, but the stock is not available to such employees until some future date, the mere crediting on the books of the corporation does not constitute receipt.↩
2. SEC. 508. ADMINISTRATIVE PROVISIONS.
All provisions of law (including penalties) applicable in respect of the taxes imposed by chapter 1, shall insofar as not inconsistent with this subchapter, be applicable in respect of the tax imposed by this subchapter, except that the provisions of section 131 shall not be applicable.
SEC. 291. FAILURE TO FILE RETURN.
(a) In case of any failure to make and file return required by this chapter, within the time prescribed by law or prescribed by the Commissioner in pursuance of law, unless it is shown that such failure is due to reasonable cause and not due to willful neglect, there shall be added to the tax: 5 per centum if the failure is for not more than thirty days with an additional 5 per centum for each additional thirty days or fraction thereof during which such failure continues, not exceeding 25 per centum in the aggregate. The amount so added to any tax shall be collected at the same time and in the same manner and as a part of the tax unless the tax has been paid before the discovery of the neglect, in which case the amount so added shall be collected in the same manner as the tax. The amount added to the tax under this section shall be in lieu of the 25 per centum addition to the tax provided in section 3612 (d) (1).↩