*1125 1. Petitioner, a foreign corporation, did not file income tax returns for any of the taxable years 1929 to 1932, both inclusive, until (a) after the Commissioner had determined deficiencies and mailed notice thereof, and (b) until after this proceeding was at issue before the Board on petition and answer duly filed. Held, the returns so filed did not comply with the requirements of section 233, Revenue Acts of 1928 and 1932, so as to entitle petitioner to the benefit of deductions and credits. Taylor Securities, Inc.,40 B.T.A. 696">40 B.T.A. 696.
2. A sale of stock of the Bank of America by petitioner in 1929, held, on the evidence to have been consummated in New York and not in Montreal, Canada, so that the gain realized therefrom was subject to United States income tax.
3. Corporation A, a domestic corporation, in 1932 exchanged substantially all of its assets for all of the capital stock of corporation B, a foreign corporation. A immediately distributed B's stock among its shareholders, without requiring the surrender by its shareholders of their stock in A. Held, the transaction was not a reorganization of the corporate business, and hence did not constitute*1126 a reorganization within the meaning of the revenue acts. Gregory v. Helvering,293 U.S. 465">293 U.S. 465; held, further, the gain derived by petitioner from the receipt of shares of B's stock is not exempt from recognition for tax purposes within section 112(g), Revenue Act of 1928.
4. Petitioner received dividend distributions in 1932 from a foreign corporation, and it is not shown that less than 50 per centum of such corporation's income was derived from sources within the United States. For lack of proof, in respect of which the burden is upon petitioner, held that such dividends, to the extent determined by respondent, must be treated as income from sources within the United States, subject to United States income tax. Sec. 119(a)(2)(B), Revenue Act of 1932.
*911 Respondent determined deficiencies in petitioner's income tax liability, and penalties, as follows:
| Year | Deficiency | 25% penalty | 50% penalty |
| 1929 | $9,376.77 | $2,344.19 | $4,688.39 |
| 1930 | 2,365,03 | 591.26 | None |
| 1931 | 1,185.51 | 296.38 | None |
| 1932 | 6,854.56 | 1,713.64 | None |
*1127 The issues presented for decision are (1) whether petitioner, a foreign corporation, is entitled to the benefit of any deductions in computing its taxable income, where it failed to file with the proper collector of internal revenue income tax returns for any of the years involved until (a) after respondent had made his determination of deficiencies and mailed notice thereof, and (b) until subsequent to the filing of the petition and answer and the proceeding was at issue before the Board; (2) whether assessment and collection of the deficiencies are barred by limitations; (3) whether a certain sale of stock of the Bank of America made by petitioner in 1929 was consummated in the United States so that the gain derived therefrom constituted income from sources within the United States subject to United States income tax; (4) whether petitioner realized taxable income in 1932 by reason of distributions made to it by the Suffolk Corporation of Delaware or Suffolk Co., Ltd., a foreign corporation; and (5) whether petitioner is liable for delinquency penalties because of its failure to make and file income tax returns for the taxable years within the time prescribed by law.
FINDINGS*1128 OF FACT.
Petitioner, now dissolved, was during the taxable years a corporation organized under the laws of the Colony of Newfoundland about February 1929. It was formed by B. T. Feustman as his personal holding corporation. At the time of its organization, Feustman transferred to petitioner 3,250 shares of class A common stock of Blair & Co., Inc., and $200 cash, for which he received all of petitioner's capital stock, except two qualifying shares issued to his nominees. The stock of Blair & Co., Inc., had cost Feustman $187,470.36.
At the time of the formation of petitioner, Feustman was a junior vice president of Blair & Co., Inc., in charge of sales. Blair & Co., Inc., was engaged in the business of buying and selling securities. Feustman also had a small interest in Blair & Co., a partnership, which was a bank of deposit and a paying agency for coupons and dividends and acted as a fiscal agent.
*912 Shortly after the formation of petitioner, an agreement was entered into, with plan annexed, dated New York, April 15, 1929, entitled "Plan and Agreement for Consolidation of Blair & Co., and Blair & Co., Inc., into the Bank of America National Association and the*1129 Bancamerica Corporation." It was the purpose of the plan and agreement that, through consolidation, the Bank of America National Association, hereinafter called the Bank or Bank of America, would acquire the business and good will of Blair & Co., a partnership, and such assets of the partnership and of Blair & Co., Inc., as the bank might elect to acquire; and it was provided that Bancamerica would acquire the business and good will of Blair & Co., Inc., and certain of the remaining assets of the Blair partnership and corporation, including the right to use the name "Blair." It was further provided that the net assets of the Blair partnership and corporation, in excess of $50,000,000, would be vested in a corporation referred to in the agreement as the Excess Assets Corporation.
The Bancamerica Corporation mentioned in the reorganization agreement was later called the Bancamerica-Blair Corporation; it was a subsidiary of the Bank of America, and took over the securities business of Blair & Co., Inc. The Bank of America took over the banking business of Blair & Co., and the Excess Assets Corporation, organized under the name of Suffolk Corporation for purposes of liquidation, took*1130 over such assets and assumed such liabilities of Blair & Co., Inc., as the Bancamerica-Blair Corporation did not acquire or assume. The Suffolk Corporation was organized in 1929 under the laws of Delaware in connection with the reorganization mentioned.
Petitioner had an office in St. John's, Newfoundland, in the office of its Canadian counsel, but such business transactions as it had, which were very limited, were conducted by Feustman, its sole stockholder and president, from his office in New York. Petitioner had no office in Montreal, Canada, and Feustman did not spend any of his time in Newfoundland.
Pursuant to the plan of consolidation above referred to, petitioner, acting through its president, Feustman, exchange 3,250 shares of stock of Blair & Co., Inc., for 4,251 shares of stock of Bank of America, 3,250 shares of Suffolk Corporation of Delaware, and $98 in cash. Certificates representing the 4,251 shares of Bank of America stock were received by the Bancamerica-Blair Corporation, and held for the account of petitioner.
In carrying out the plan of consolidation, a committee was formed to represent the stockholders of Blair & Co., Inc. Feustman was not a member*1131 of this committee. After the consolidation had been consummated, *913 one of the former senior officers of Blair & Co., Inc., approached Feustman and inquired whether his company would be willing to sell 586 shares of its Bank of America stock at a price of approximately $150 per share, which was considerably below the market value. This stock, along with similar shares owned by other former Blair stockholders, was to be sold to certain individuals who had had a percentage interest in the profits of Blair & Co., Inc., and are referred to as "percentage men." Feustman agreed to sell the 586 shares of stock as requested.
At the time of the transaction, the "percentage men" had funds to their credit with the Bancamerica-Blair Corporation, and their accounts were debited with the selling price of the Bank of America stock, consisting of a total in excess of 15,000 shares. The aggregate selling price was in excess of $2,000,000. The "percentage men" were former executives or stockholders of Blair & Co., Inc., some of whom lived in New York and some abroad.
On or about May 25, 1929, the sum of $2,120,950 was deposited with the agency of the Bank of Montreal in New York, *1132 and on that date a letter was written to the Bank of Montreal at Montreal, Canada, by one C. A. Elliott, treasurer of the Bancamerica-Blair Corporation, advising that the Montreal Bank would shortly receive by wire transfer for credit the amount mentioned, and requesting that such amount be distributed in accordance with detailed instructions contained in the letter, which included the following items: "$1,568,360 to be wired to us for use on Monday through your local agent in New York"; and "$83,480 to the Canadian Bank of Commerce, Montreal, Canada, for account of Ardbern Company, Ltd."
On May 25, 1929, one J. A. Crooks, who was then an employee of the Bancamerica-Blair Corporation and had been an assistant to the comptroller of Blair & Co., Inc., left New York to go to Montreal, Canada. He acted under instructions of the committee heretofore mentioned or of the treasurer of Blair & Co., Inc. Crooks took with him certificates representing more than 15,000 shares of Bank of America stock, including 586 shares owned by the Ardbern Co., Ltd. Crooks was instructed to take the certificates to Montreal for the purpose of making a sale of the stock at that place. The certificates*1133 were in "street" names, that is, names of nominees of the corporation. Crooks received the certificates from an employee of the Bancamerica-Blair Corporation who at the time was on duty in the securities cage.
Crooks took with him a letter of introduction and identification addressed to an executive in the Bank of Montreal. Upon his arrival, Crooks presented this letter to the bank executive, and was *914 turned over to one of the executive's assistants, to whom Crooks delivered the stock certificates above mentioned. Crooks ascertained that the funds were in Montreal, available to the sellers of the stock, and he remained there with the assistant to the bank executive during the day while payments were made to the various sellers. Crooks accepted the word of the Bank of Montreal that proper credits had been made on its records, and checked with the Canadian Bank of Commerce to ascertain that it had received the proper deposits. On May 27, 1929, the Canadian Bank of Commerce placed to the credit of petitioner's account $83,480, and on May 31, 1929, petitioner's account was debited in the same amount.
Prior to his departure, Crooks had no discussion with Feustman in*1134 regard to the sale of any Bank of America stock in Montreal, and upon his return to New York he made no report to, and had no conversation with, Feustman relative to this particular transaction.
The gain to petitioner resulting from the sale of the 586 shares of stock of Bank of America amounted to $63,093.06.
On September 19, 1929, petitioner sold an additional 83 shares of stock of Bank of America, from which a taxable profit in the amount of $13,712.43 was derived.
Petitioner's income for the year 1929, exclusive of any profit realized on the sale of shares of Bank of America stock, consisted of rents $191.59 and dividends on stock of domestic corporations $8,246.24, or a total gross income of $8,437.83. Petitioner's deductions for the year 1929 were; interest paid $2,996.26, taxes $50, general expenses $117.28, and dividends of domestic corporations $8,246.24, making total deductions of $11,409.78.
In 1930 petitioner had total income of $19,710.59, consisting of interest in the amount of $68.15 and dividends from domestic corporations in the amount of $19,642.44. Its total deductions for that year amounted to $23,249.94, consisting of interest $3,250, taxes $50, general*1135 expenses $307.50, and dividends from domestic corporations $19,642.44.
In 1931 petitioner had total income of $9,879.26, consisting of interest $42.26, and dividends from domestic corporations $9,837. During 1931 petitioner paid out for interest $2,291.25, taxes $50, and general expenses $234.25. In addition, petitioner sustained a loss of $25,604.02 on a sale of securities, making the total of its deductions far in excess of its income.
In 1932, exclusive of any taxable gain derived from the Suffolk Corporation or Suffolk Co., Ltd., petitioner's income included interest $244.88 and dividends from domestic corporations $485.66, or a total of $730.54. The taxable gain derived from the Suffolk distributions, involved in one of the issues herein, respondent determined to be in *915 the amount of $49,340.64. During 1932 petitioner paid interest in the amount of $513.09, taxes $45.42, general expenses $253.80, and legal fees $825. In addition petitioner sustained a loss of $60,627.13 on a sale of 9,270 shares of Transamerica stock for $32,072.87, the cost basis of which was $92,700.
The dividend policy of petitioner throughout the period involved herein was to pay dividends*1136 amounting to its entire annual net income, reserving only an amount sufficient to pay a part of the interest due in the following year on its indebtedness. Feustman reported in his individual income tax returns, as dividends received from petitioner, $4,000 in 1929, $13,500 in 1930, $6,000 in 1931, and none in 1932.
Petitioner was not advised until 1937 that it should have filed United States income tax returns for the years 1929 to 1932, inclusive and Feustman, its president, thought the filing of such returns was not necessary because of his belief that it had no taxable income. In 1935, one Price, a revenue agent, called on Feustman and stated he thought there was some tax due, but did not suggest that returns be filed. When petitioner received the 30-day letter, its vice president, Ludlow S. Fowler, who was a practicing lawyer, became acquainted with the Government's claims and advised Feustman that returns should be prepared and filed. Corporation income tax returns on form 1120 were thereafter prepared and verified by Feustman, as former president, on June 7, 1937, at Havana, Cuba. Fowler attempted to file these returns at a conference with one Muller, a representative*1137 of the Bureau of Internal Revenue, held in New York early in June 1937. Muller refused to accept the returns on the technical ground that they had not been properly executed.
On July 3, 1937, the deficiency notice from which this appeal was taken was mailed to petitioner by respondent. The original petition was filed September 29, 1937, and respondent's original answer was filed December 7, 1937. The hearing was held in New York January 13, 1939.
Pursuant to the provisions of section 3176 of the Revised Statutes, as amended, corporation income tax returns for the taxable years involved herein were prepared for petitioner on July 9, 1937, and thereafter signed by the Commissioner of Internal Revenue.
On November 12, 1937, Fowler, representing petitioner at a conference with one Marsh, of the Bureau of Internal Revenue in Washington, again tendered the returns verified by Feustman on June 7, 1937, at Havana, Cuba, and Marsh received them subject to a settlement being made of the case. The documents were not subsequently returned to petitioner prior to the hearing of this proceeding.
*916 On October 28, 1938, petitioner filed with the collector of internal revenue*1138 at Baltimore, Maryland, United States income tax returns for the years 1929 to 1932, both inclusive, which disclosed no tax due for either of said years, and disclosed no information concerning any of the transactions involved in this proceeding. The occasion for the filing of the returns last mentioned was the fact that petitioner learned that respondent took the position that the prior returns received by Marsh had not been property filed. Petitioner received no notice that respondent had prepared returns for it under section 3176 of the Revised Statutes, as amended.
Petitioner owned approximately 1.5 percent of the total outstanding capital stock of Suffolk Corporation of Delaware, which consisted of 205,853 shares without par value. Shortly after its formation in 1929, the Suffolk Corporation made cash loans to its stockholders at the rate of $20 per share, for which the stockholders, including petitioner, executed and delivered to the corporation interest-bearing promissory notes. The amount so received by petitioner was $65,000. Later some of the corporation's stockholders experienced financial difficulties, and some of them pledged their Suffolk stock for loans, of which*1139 the corporation had notice, although the stock was not transferred to the names of the pledgees.
In the latter part of 1931 or early in 1932, the Suffolk Corporation took steps looking to the declaration of a dividend to be paid with notes of its stockholders then held by it, and in that connection sought the advice of an attorney in New York who specialized in corporation law and reorganizations. The Suffolk Corporation was advised by the attorney that, since some of its stockholders had become insolvent or had pledged their stock for loans, it could not under the laws of any of the states of the United States distribute to its stockholders their notes held by it in payment of a dividend, nor could a dividend be declared and the notes offset against it in payment, but that such a dividend might be declared and so paid under the laws of the Colony of Newfoundland.
In February 1932 the Suffolk Corporation of Delaware, hereinafter sometimes called the corporation, caused a new corporation to be organized under the laws of Newfoundland under the name of Suffolk Co., Ltd., hereinafter called the company, and on February 16, 1932, an agreement was entered into whereby the corporation*1140 agreed to transfer practically all of its assets to the company in exchange for the latter's capital stock. The company agreed to assume all of the liabilities of the corporation. The corporation further agreed to reduce its capital from $205,853 to $2,058.53 and to distribute immediately all of the stock of the company to its stockholders without requiring them to surrender the corporation's certificates.
*917 The provisions of the agreement were carried into effect, and petitioner received 32 1/2 shares of the stock of the company. Thereafter, the corporation carried on no business activities but was kept alive, on advice of its attorney, because of the fact that it owned coupon bonds of the Pan-American Petroleum Co. of California and had acted as a petitioning creditor in receivership proceedings then pending.
On February 20, 1932, the Suffolk Co., Ltd., declared a dividend of $2,100 per share, and in July 1932 it declared a dividend of $175 per share. The February distribution was made in notes and cash, and the July dividend was paid in cash. As a result of these distributions petitioner received its own note or notes given to the corporation in 1929. Respondent*1141 has determined that as a result of these distributions petitioner received a taxable dividend of $49,340.84.
OPINION.
HILL: Respondent originally asserted for the year 1929 the fraud penalty provided in section 293(b) of the Revenue Act of 1928, but on brief he concedes that the evidence fails to show that any part of the deficiency for that year is due to fraud with intent to evade tax and admits that he was in error in proposing such fraud penalty. On this issue, therefore, we find for petitioner.
Of the issues presented for decision, we shall first consider issue (2), since it raises a question of limitations, which, if sustained, would be a bar to recovery of any of the deficiencies in controversy. Petitioner asserts that assessment and collection of the deficiencies are barred by the provisions of section 275(c) of the Revenue Acts of 1928 and 1932, quoted in the margin. 1 Petitioner points to the fact that Feustman, its sole stockholder, reported in his individual income tax returns dividends from petitioner for 1929 of $4,000, for 1930 of $13,500, and for 1931 of $6,000, and argues that this brings the case at least in substance within the purpose and language of*1142 section 275(c). But the above amounts which Feustman so reported were only the amounts actually distributed to him in the years named and were not the full amounts of petitioner's distributable income for those years. The facts found herein show that even on the basis of Feustman's returns and of petitioner's contention as to amounts of its distributable income Feustman failed to *918 report $1,274.29, $2,603.09, and $1,303.76 of such distributable income, respectively, for the years 1929, 1930, and 1931. This fact indicates that Feustman was not reporting under section 275(c). Accordingly, we hold that such section does not apply.
Petitioner's plea of limitation must in any event fail for lack of proof of the dates on which the shareholder's*1143 returns were filed for the respective years. Feustman made no attempt to fix such dates in his testimony, nor are the dates of the either execution or filing shown on the copies of the returns introduced in evidence. In the absence of such proof, we can not say that the notice of deficiency for any of the taxable years was not mailed within four years after the date on which the shareholder's return was filed. Where there is no proof of the date of filing of the return, this Board will not hold that a deficiency is barred. ; ; .
Issue (1) raises the question of petitioner's right to the benefit of deductions in computing its taxable income, under the circumstances set out in our findings of fact above. Respondent determined the deficiencies on the basis of gross income, and contends that petitioner is not entitled to the allowance of any deductions because the facts do not bring it within the limitations prescribed in section 233 of the Revenue Acts of 1928 and 1932. 2 Petitioner argues that the returns prepared on form 1120 and lodged*1144 with conferee Marsh of the Bureau of Internal Revenue in Washington on November 12, 1937, of the returns filed with the collector at Baltimore, Maryland, on October 28, 1938, constituted substantial compliance with the statute so as to entitle it to the benefit of the deductions now claimed. If the returns filed meet the requirements of the statute, the parties are in agreement as to the amounts of the deductions allowable, and respondent admits that in such event the deductions allowable for each of the taxable years exceed gross income, with the exception of the year 1929. Even if petitioner's contentions be conceded, it still appears that it had taxable net income for 1929 in an amount not less than $10,740.48.
*1145 The alleged returns prepared for petitioner on form 1120 and verified in Cuba by Feustman on June 7, 1937, were during the same month attempted to be filed with conferee Muller in New York, but Muller refused to accept them. Petitioner argues that such refusal was wrongful. However, these same forms were later, in November *919 1937, tendered to and received by Marsh, an employee of the Bureau in Washington, conditioned upon a settlement of the case.
In support of its contention that returns may properly be filed by a taxpayer with the Commissioner, or subordinate employee of the Bureau of Internal Revenue, other than a collector, petitioner cites and quotes at length from an unreported opinion of this Board entered April 13, 1939, in American Investment & General Trust Co., Ltd., Docket No. 85714. It is obvious from petitioner's quotation from such opinion that the cited case is distinguishable on the facts. There it was contended that no returns had been filed, but it affirmatively appeared that returns had been filed, since the deficiencies were determined upon the basis of information contained in returns accepted by the Bureau. The deficiencies in the present*1146 proceeding had been finally determined by respondent on the basis of a revenue agent's report, the deficiency notice mailed to petitioner, and the petition filed with the Board prior to the date on which petitioner's first set of returns were tendered to and conditionally received by conferee Marsh in Washington. The cited decision does not support petitioner's present contention.
Section 52(a) of the applicable revenue acts provides that every corporation subject to the income tax shall make a return, and section 53(b)(2) provides that returns of corporations shall be made to the collector of the district in which is located the principal place of business or principal office or agency of the corporation, or, if it has no principal place of business or principal office or agency in the United States, then to the collector at Baltimore, Maryland.Also, section 233, supra, it will be noted, requires a foreign corporation to file its return with the collector in order to receive the benefit of deductions. There is no statutory authority for the making or filing of a return with the Commissioner of Internal Revenue, nor is it his duty or the duty of any conferee*1147 or employee of the Bureau, other than the collector designated in the statute, to accept returns. This question was considered by us in ; affd., ; certiorari denied, , where we said at page 607:
Petitioner contends that a return for this fiscal year was executed by the officers of the petitioner and delivered to the revenue agent at his request; that he promised to file the return, and that the execution and lodgment of the return with the revenue agent meets the requirements of the statute. There is no merit in this contention. * * * It is no part of the duties of an internal revenue agent or of an internal revenue agent in charge to file returns for taxpayers. That is the duty which law places on the shoulders of the taxpayers.
Petitioner did not, by the lodgment of returns with conferee Marsh, discharge the duty which the statute laid upon it. Also, the action of petitioner in filing returns with the collector at Baltimore on October *920 28, 1938, was ineffective to bring it within the limitations of the statute so as to entitle it to the benefit of deductions. *1148 These returns were filed (a) after respondent had determined the deficiencies and prepared returns for petitioner under section 3176 of the Revised Statutes, as amended, and (b) after the petition and answer had been filed and the case was at issue before the Board, and only approximately two and one-half months prior to the hearing. Returns filed under such circumstances do not meet the requirements of section 233. . On the point under discussion, the facts of the instant proceeding are not distinguishable in any material respect from those of the Taylor case. On authority of that decision and for the reasons therein stated, which need not be repeated here, respondent's action in computing the present deficiencies without the allowance of deductions is approved.
The third issue is whether or not profit derived by petitioner from the sale in 1929 of 586 shares of Bank of America stock is subject to the United States income tax. Respondent determined, as stated in the deficiency notice, that petitioner sold 586 shares of Bank of America stock on May 27, 1929, and realized therefrom a profit of $63,093.06; also that petitioner*1149 sold 83 shares of stock of the same bank on September 19, 1929, at a profit of $13,712.43. The profit from both transactions, in the aggregate amount of $76,805.49, respondent included in gross income in determining the deficiency for 1929. Petitioner assigns no error in respect of respondent's action in taxing the profit on the sale of the 83 shares, nor does petitioner raise any question concerning the amount of the gain derived from the sale of the 586 shares, but alleges that the latter sale was made in Montreal, Canada. Hence, petitioner argues that the profit sought to be taxed to it by respondent was derived by a foreign corporation from the sale of property in a foreign country and is not subject to United States income tax. The sole question, then, is whether or not this sale was consummated in Canada, as petitioner avers, or whether it was in fact made in New York, as respondent contends.
The record does not disclose a very clear picture of the transaction in controversy. We have difficulty in ascertaining precisely what transpired in that connection. Feustman, president of petitioner corporation, testified in part as follows:
Q. Who was it, then, who approached*1150 the Ardbern Company, or you as president of that company, in connection with the sale of any part of the Bank of American stock, of the 4,251 shares?
A. I can not answer because I do not remember which one of the officers of Blair & Company came to me; but one of them did, I presume, and told me of a plan to sell certain amounts of stock by various stockholders in order to provide, at a special price, stock for some of the percentage men in the old firm of Blair & Company. * * *
Q. *921 Then give me the details of how Ardbern Company sold a part of its stock of the Bank of America. * * *
A. At sometime after the merger, one of the senior officers of Blair & Company came to me and asked me whether my company would not sell a certain number of shares of stock at a price far below the market in order to provide some stock for certain other people to purchase, and I said yes, I would do it.
Q. Was the person a member of this committee that was formed? A. I do not know. I presume so, but I can not say yes. * * * Q. And after you gave your consent to it, what happened?A. I presume that after I gave my consent the stock was sold. * * *
Q. What part*1151 did you, as a representative of Ardbern Company, have to do with the sale of this stock?
A. Nothing. * * *Q. Did you authorize Mr. Crooks to take the certificates up to Montreal and sell them there?
A. I personally did not, no.Q. What other officer or employee of Ardbern Company authorized Mr. Crooks to take the certificates up to Montreal?
A. I presume the one who authorized him to was the person to whom I had agreed to sell the stock.
Feustman further testified that while he had no personal knowledge of the matter, he understood that the 586 shares sold by his company, the certificates of which were in the possession of the Bancamerica-Blair Corporation, were sent by a messenger, one Crooks, an employee of that corporation, to Montreal, Canada, where they were sold to the Bank of Montreal, which paid petitioner corporation by check or draft deposited to its credit in the Canadian Bank of Commerce; he did not know who purchased the stock owned by the Ardbern Co.; it was not handled as an individual transaction, but as a part of a composite sale that involved "a lot of money and other shares of stock." Prior to this transaction, the certificates representing*1152 the shares of stock owned by petitioner had been handed to Feustman for endorsement.
Crooks testified that on May 25, 1929, he received from the securities clerk of the Bancamerica-Blair Corporation certificates representing more than 15,000 shares of Bank of America stock (including the 586 shares owned by petitioner), and was instructed by a member of the stockholders' committee or by the treasurer of Blair & Co. to take the certificates to Montreal, Canada, for the purpose of making a sale of stock at that place. Prior to his departure Crooks had no discussion with Feustman regarding the matter, and made no report to him on his return. What Crooks did in Montreal, as related in his testimony, we have summarized in our findings of fact above. It is not shown that Crooks had any authority to make a sale but was merely the messenger who carried the stock certificates to Montreal. Prior to Crooks' departure, the sum of $2,120,950 was deposited with *922 the New York agency of the Bank of Montreal, and a corresponding credit was wired to the Canadian Bank of Commerce, which distributed the money, upon Crooks' arrival with the stock certificates, in accordance with instructions*1153 contained in a letter from the treasurer of the Bancamerica-Blair Corporation. In accordance with those instructions, $1,568,360 was wired back to New York for use of the Bancamerica-Blair Corporation two days later, on Monday, May 27.
While the details of the transaction are not clear, as before pointed out, it does reasonably appear, we think, that nothing was done in Canada which could be construed as constituting a sale of the stock involved in this case. Petitioner's stock certificates were endorsed in blank by Feustman, as president, and delivered in New York to the committee or other person representing the purchaser or purchasers. Neither Feustman nor any other officer of petitioner authorized or directed any one to take the stock certificates to Montreal, Canada, for sale.
No negotiations between the parties were carried on in Canada; no contract of purchase or sale was entered into there; neither purchaser nor seller was present in person or represented by an agent in Montreal, unless Crooks or the Bank of Montreal could be so designated, and certainly the record does not indicate that either had any authority to represent any one in connection with the making of*1154 the sale of stock in controversy. Crooks merely took the stock certificates to Montreal and turned them over to the bank. The bank performed purely clerical functions in accordance with the detailed instructions contained in the letter from the treasurer of the Bancamerica-Blair Corporation.
Whatever was done to constitute a purchase on the one hand and a sale on the other obviously was done in New York. Prior to the departure of Crooks for Montreal, all negotiations had been concluded and the contract of purchase and sale assented to by all interested parties; the stock certificates were in "street names" in the possession of the Bancamerica-Blair Corporation; they were endorsed in blank, so that physical delivery would constitute transfer of title, and the money consideration to be paid for the stock was likewise then in the possession of the same corporation, having been taken out of credits to the account of the percentage men. Many of the percentage men, who were the purchasers, lived in and near New York City. So far as they were involved, therefore, the money which they had paid and the stock certificates which they were to receive therefor were merely sent up to Canada, *1155 the money returned immediately for delivery to the sellers and the certificates returned for delivery to the purchasers. In fact, of the *923 $2,120,950 wired to Montreal on May 25, more than a million and a half dollars was returned for use of the Bancamerica-Blair Corporation on May 27, apparently for payment over to certain of the sellers. This, in our opinion, did not constitute a sale in Canada. As to petitioner, it does not appear specifically what disposition was made of the certificates of stock owned by it, but the amount of the selling price was placed to its credit in the Canadian Bank of Commerce on May 27 and withdrawn by check four days later, on May 31.
After an agreement of purchase and sale has been entered into and to complete the transaction there remains only an exchange to be made of the property for the consideration, the sale can not be said to be made at another place merely because such exchange is consummated there. The sale is made at the place "where the final act of the seller, causing title to pass, was done." *1156 ; affd., ; certiorari denied, . Any other conclusion would be to regard form rather than substance, to "elevate artifice above reality."
"It is well established that title to property passes at the place of sale where the final act of the seller making effective the sale takes place." , and authorities cited. When Feustman, as president of petitioner corporation, endorsed the stock certificates in blank and delivered them to the agent of the purchasers in New York, it not being shown that it was intended that title thereto should pass at some other time or place, nothing further remained to be done by the seller, petitioner herein, to make the sale effective in accordance with Feustman's agreement. Petitioner was thereupon entitled to receive the consideration agreed upon. There is nothing in the record to indicate that Feustman had agreed that the sale should be consummated in Canada, or that the transaction there was at his request or for the benefit of his company. Obviously, of course, he must have designated*1157 the Canadian Bank of Commerce as a depositary of the money to be paid for the stock, but he testified that neither he nor any other officer of petitioner corporation authorized Crooks to take the certificates to Montreal and sell them, but that such proceeding, he presumed, was authorized by the person to whom he had agreed to sell the stock. Feustman testified that after he endorsed and delivered the certificates in New York he had nothing further to do with the transaction.
Petitioner cites and relies principally upon the East Coast Oil Co. and Hazleton Corporation decisions, supra. The factual situations in those cases distinguish them from the present proceedings. In the Hazleton case, while the taxpayer corporation negotiated the sale of its stock to the bankers in San Francisco, it was clearly understood *924 that the sale was to take place in Canada and not in the United States. The agreement to sell was specifically predicated upon that condition. The stock certificates were then in Canada, on deposit with the Bank of Montreal. The bankers appointed the Royal Trust Co. of Montreal their agent for the purchase of the stock. On the facts presented, *1158 we reached the conclusion that the sale was consummated in Canada for the reason that it was the intention of all parties concerned that the seller should part with its title in the stock by delivery of the shares to the Royal Trust Co. in Montreal. No such facts appear in the instant case.
In , the taxpayer was a corporation organized under the laws of Mexico, dealing in crude petroleum and having agents in the United States for negotiation of sales. The profits sought to be taxed arose from sales of oil to parties in the United States through agents of the company, under contracts for future delivery, payments to be made to such agents in the United States after delivery. Some of the contracts provided for delivery f.o.b. and others for delivery c.i.f. Under either form of contract, title to the oil passed from seller to buyer on delivery of the oil to the ocean carriers at the company's docks in Mexico. In affirming our decision that the profits derived from such sales were not subject to the United States income tax, the Circuit Court of Appeals said:
In this case the important question is when and where were the profits*1159 earned. The company is a Mexican corporation, necessarily domiciled in that country. The property sold was produced in Mexico. The contract provided for firm sales. No profit resulted from the mere execution of the contracts. The oil was delivered to the buyer in Mexico. The title passed to the buyer in Mexico. When title passed the profit was earned in Mexico. Collection of the price in the United States was merely incidental and did not earn the profit.
In the instant case, since petitioner, acting through its president Feustman, endorsed its stock certificates in blank and delivered them to the agent of the purchasers in New York and it is shown that petitioner did not authorize any one to take the certificates to Canada for sale or delivery to the purchasers, we hold that the sale was made in New York, and that the profit derived therefrom is subject to the United States income tax. Collection of the price in Canada "was merely incidental and did not earn the profit." On this issue respondent's determination is approved.
Issue (4) involves the question of whether or not petitioner received taxable gain from distributions made to it in 1932 by the Suffolk Corporation*1160 of Delaware or by the Suffolk Co., Ltd., a Newfoundland corporation. In computing the deficiency for 1932, respondent included in petitioner's gross income "distribution from Suffolk Corporation $49,340.84." Petitioner alleges that respondent erred "in *925 determining that the taxpayer received a taxable distribution from the Suffolk Corporation during the year 1932 amounting to $49,340.84, or a taxable distribution in any amount."
Petitioner contends that, since the Suffolk Corporation transferred substantially all of its assets to the Suffolk Co., Ltd., in exchange for all the latter's stock, this was a reorganization within the meaning of clause (B) of section 112(i)(1) of the Revenue Act of 1928, 3 and, since the Suffolk Corporation immediately distributed to its shareholders, in pursuance of the plan of reorganization, all of the Suffolk Co.'s stock without the surrender by its shareholders of their stock in the Suffolk Corporation, no gain to the distributees is recognizable under the provision of section 112(g) of the 1928 Act. 4
*1161 Respondent takes the position that the transaction did not constitute a reorganization under the doctrine of , but further contends, in the alternative, that, even if it should be held to be a reorganization, petitioner would still remain subject to tax on gain from distributions made to it during 1932 by the Suffolk Co., Ltd., in an amount equal to that determined by respondent. The latter contention is based on the provisions of section 119 of the Revenue Act of 1932, to which further reference will be made.
While the deficiency notice alleges that petitioner received taxable gain in the amount included therein in income from Suffolk Corporation of Delaware, respondent says that the pleadings are broad enough to include a distribution of that amount from any source, and on this point petitioner does not object to the sufficiency of the pleadings. It should also be noted that petitioner on brief raises no question as to the amount of the distribution taxable to it, if it should be held to have received a taxable distribution during 1932.
In connection with the consolidation of the Blair companies with the*1162 Bank of America in 1929, the Suffolk Corporation of Delaware was organized for the ostensible purpose of liquidating such of the Blair assets as were not taken over by the Bank or its subsidiary. Undoubtedly one of the purposes of the organizers of the Suffolk Corporation was to have it effect such liquidation, but the conclusion *926 is inescapable from a consideration of the whole record that that was not the sole actuating motive.
Shortly after the formation of the Suffolk Corporation in 1929, it proceeded to make cash "loans" to its stockholders at the rate of $20 per share, taking interest-bearing promissory notes of the stockholders therefor. Petitioner owned 3,250 shares of Suffolk Corporation stock and received a "loan" in the amount of $65,000. Since the Suffolk Corporation's capital stock consisted of 205,853 shares, it must have distributed more than four million dollars among its stockholders in the form of so-called loans. The source from which the corporation obtained this money, like many other pertinent and material facts, the record does not directly disclose; however, since these "loans" were made to the stockholders shortly after the formation of the*1163 Suffolk Corporation, the assumption would seem to be justified that it had received the funds, along with other assets, either from Blair & Co., the partnership, or from Blair & Co., Inc., or both. Obviously, the new corporation had not had sufficient time to realize such a large sum of money from the liquidation of assets.
At any rate, late in 1931 or early in 1932 the directors of the Suffolk Corporation decided to declare a dividend payable in the notes of the stockholders then held by it, but it developed that, because of the insolvency of some of the stockholders and the pledging of their stock as collateral security for loans, this could not be done under the laws of any state of the United States. Upon consultation with an attorney in New York, it was ascertained that a corporation organized in Newfoundland could declare a dividend payable in stockholders' notes, or offset the notes against dividend payments in the circumstances involved. Accordingly, in February 1932, the Suffolk Corporation of Delaware caused the Suffolk Co., Ltd., to be organized under the laws of Newfoundland, and the former corporation transferred substantially all of its assets to the latter company*1164 in exchange for all its capital stock. Thereafter, on February 20, 1932, the Suffolk Co., Ltd., declared a dividend of $2,100 per share, which was paid in notes and cash, and in July of the same year declared another dividend of $175 per share, which was paid in cash.
As a result of these transactions, the large accumulation of cash which the old Blair concerns apparently transferred to the Suffolk Corporation, along with other assets to be liquidated, was finally distributed to the old Blair stockholders in their capacity as Suffolk stockholders, and, at least so far as the present petitioner is concerned, if its contentions be sustained, it has received its proportionate part of such cash without the payment of any tax thereon.
*927 The facts established by the evidence immediately suggest a number of questions, definite answers to which it is difficult to find in the record. Why did not the Blair firm distribute the accumulated cash to its stockholders at or prior to the consolidation? If it had done so, the stockholders would have had to pay a tax on their dividends, but, by transferring the funds to Suffolk of Delaware and causing that corporation immediately to*1165 distribute the money among the stockholders as "loans", no tax liability was incurred. Whatever may have been the motive for the so-called Suffolk reorganization, we think the evidence does not indicate that it was for the purpose of reorganizing the corporate business. It is well settled that if a transaction is such as to constitute a reorganization in reality, it is to be treated as nonetheless effective because of a motive to decrease or avoid taxes. But if every element required by the quoted statute is to be found in what was done, the transaction does not constitute a statutory reorganization unless it is a reorganization of the corporate business; "a transfer of assets by one corporation to another in pursuance of a plan having no relation to the business of either" is not a reorganization within the meaning of the taxing statute, whether the motive relates to taxation or anything else other than a business or corporate purpose.
Petitioner suggests in its brief that the purpose of the alleged reorganization was to put the Suffolk Corporation on a basis which would be fair to all of its stockholders; that, because some*1166 of the stockholders had become insolvent and pledged their stock, the impossibility of collecting upon their notes would result in a relative loss to stockholders who were able to pay. But another result achieved by the transfer of the Suffolk Corporation's assets to the Newfoundland company was to diminish or perhaps absolutely destroy the value of the collateral pledged by the insolvent stockholders to secure loans made by their creditors in good faith. Neither such a result nor the purpose suggested by petitioner, we think, had any reasonable relation to the business of either corporation, and therefore did not constitute a reorganization within the meaning of the tax act. Cf. .
We need not, however, rest our decision of this issue solely on the conclusion that the transaction was not a reorganization. Section 119(a)(2)(B) of the Revenue Act of 1932 provides that an amount received as dividends from a foreign corporation shall be treated as income from sources within the United States unless less than 50 per centum of the gross income of such foreign corporation was derived from sources within the United States. It is not shown*1167 in the instant case what percentage of the gross income of the Suffolk *928 Co., Ltd., was derived from United States sources, and hence the dividends received by petitioner from that corporation in 1932, to the extent determined by respondent, must be treated as income subject to United States income tax.
The petitioner strenuously objects to such holding on the ground that, since the deficiency notice said nothing with respect to any distribtuion from the Suffolk Co., Ltd., it was respondent's burden to prove that the distributions in controversy come within the provisions of section 119, and, there being no proof on this point, respondent can not prevail. In support of this contention, petitioner cites ; affd., , which is based upon . Both of those decisions rest upon an affirmative showing that the tax determination of respondent was arbitrary and excessive. No such showing is made in the case at bar. The burden here is upon petitioner to show in the first instance that respondent's determination is erroneous. *1168 See authorities cited in the Taylor case, supra.Nor may we disapprove the deficiency determined by respondent in the absence of any evidence that the deficiency is erroneous in amount, even if it is shown to be based upon an erroneous principle. ; ; . If petitioner in fact received taxable income as determined by respondent, it is not our duty to aid it to escape the tax thereon merely because respondent, from the information before him at the time of his determination, erroneously concluded that the amount was received from the Suffolk Corporation instead of the Suffolk Co., Ltd. .
On the fourth issue, respondent's action is approved.
The remaining issue is whether or not respondent has properly held petitioner liable for delinquency penalties because of its failure to make and file income tax returns for the taxable years within the time prescribed by law. Section 291 of the Revenue Acts of 1928 and 1932 provides that, in case of a failure*1169 to make and file a required return within the time prescribed by law, 25 per centum of the tax shall be added to the tax, except that when a return is filed after such time and it is shown that the failure to file it was due to reasonable cause and not to willful neglect, no such addition shall be made to the tax.
The duty imposed upon every taxpayer to make and file a timely return in accordance with the provisions of the revenue acts is not a matter of unimportance, and can be disregarded by a taxpayer only at his peril. Every taxpayer is in the first instance his own assessor, and it is his responsibility not only to file a return, but to make a full revelation and fair return of all taxable income, and to deal *929 frankly and honestly with the Government. . Petitioner in this case did neither.
All of petitioner's capital stock was owned by Feustman, its president; it was, during the taxable years, his personal holding corporation. Yet, so far as disclosed by the record, Feustman evidenced no interest in the matter of its tax liability. His attitude was that of complete and utter indifference. It is*1170 not shown that he even consulted the attorney whom he employed to organize the corporation, who acted as its vice president. Some four years after the return for the last taxable year was due, and after a letter had been received from the Commissioner proposing to assess tax deficiencies, the first steps were taken looking to the filing of the required income tax returns. Even then, petitioner did not make a fair revelation, nor indeed any revelation, of the facts surrounding the transactions herein held to have produced taxable income, but decided all questions of tax liability in favor of his corporation. It was more than a year and four months after the first set of returns were prepared and verified by Feustman in Cuba before petitioner took the trouble to ascertain where and with whom the returns should be filed.
The only excuse offered by Feustman in his testimony for the failure to file returns within the time required by law was that he thought the corporation had sustained losses and there was no tax due. He thought that the Bank of America stock sold in 1929 was sold at a loss because the market value was approximately $250 per share when it was sold for about $150*1171 per share; yet respondent determined that the cost basis of the stock was only $34.79 per share, and such determination was not questioned by petitioner.
We think petitioner has not shown that its failure to file returns within the time prescribed by law was due to reasonable cause. The delinquency penalties determined by respondent are, therefore, approved.
Reviewed by the Board.
Decision in respect of all deficiencies in tax and penalties, except the fraud penalty for 1929, will be entered for respondent.
BLACK, dissenting: I dissent from the majority opinion wherein it holds that petitioner has not filed income tax returns for the taxable years in question so as to entitle it to have allowed whatever legal deductions it has proved by the evidence in this case. The returns which petitioner has filed, though late, should in my opinion be considered as removing the ban prescribed by section 233 to the taking of otherwise legal deductions. Petitioner should be taxed with a *930 delinquency penalty of 25 percent of whatever deficiencies there may be, if any, computed by the allowance of whatever legal deductions may have been proven. *1172 Cf. Anglo-American Direct Tea Trading Co., Ltd.,38 B.T.A. 711">38 B.T.A. 711.
ARUNDELL and HARRON agree with this dissent.
LEECH: I concur in the above dissent and, in addition, disagree with the conclusion which the majority reaches on the point appearing as number 4 in the headnote.
Footnotes
1. SEC. 275. PERIOD OF LIMITATION UPON ASSESSMENT AND COLLECTION.
* * *
(c) CORPORATION AND SHAREHOLDER. - If a corporation makes no return of the tax imposed by this title, but each of the shareholders includes in his return his distributive share of the net income of the corporation, then the tax of the corporation shall be assessed within four years after the last date on which any such shareholder's return was filed. ↩
2. SEC. 233. ALLOWANCE OF DEDUCTIONS AND CREDITS.
A foreign corporation shall receive the benefit of the deductions and credits allowed to it in this title only by filing or causing to be filed with the collector a true and accurate return of its total income received from all sources in the United States, in the manner prescribed in this title; including therein all the information which the Commissioner may deem necessary for the calculation of such deductions and credits. ↩
3. SEC. 112. RECOGNITION OF GAIN OR LOSS.
* * *
(i) DEFINITION OF REORGANIZATION. - As used in this section and sections 113 and 115 -
(1) The term "reorganization" means * * * (B) a transfer by a corporation of all or a part of its assets to another corporation if immediately after the transfer the transferor or its stockholders or both are in control of the corporation to which the assets are transferred * * * ↩
4. (g) DISTRIBUTION OF STOCK ON REORGANIZATION. - If there is distributed, in pursuance of a plan of reorganization, to a shareholder in a corporation a party to the reorganization, stock or securities in such corporation or in another corporation a party to the reorganization, without the surrender by such shareholder of stock or securities in such a corporation, no gain to the distributee from the receipt of such stock or securities shall be recognized. ↩