(dissenting).
I must respectfully dissent from the majority opinion of the court.
The statute under which the deficiency Was here found by the Board of Tax Appeals is set forth in hsec verba in the majority opinion. The penalty required by the statute may be imposed only if the corporation is found to have accumulated an unreasonable surplus with the purpose of permitting its shareholders to escape surtax. United Business Corporation of America v. Commissioner, 19 B.T.A. 809, affirmed (C.C.A.) 62 F.(2d) 754, 755, cer-tiorari denied 290 U.S. 635, 54 S.Ct. 53, 78 L.Ed. 552. The ultimate question therefore before the court in the case at bar is, Did the corporation accumulate an unreasonable surplus with the purpose of enabling its sole stockholder to escape surtax?
The statute creates a presumption of such a purpose upon the part of the corporation if its gains or profits are permitted to accumulate beyond its reasonable needs. Under the statute such an accumulation is prima facie evidence of that purpose in the corporation.
An examination of the authorities convinces me that the effect of the statute’ creating the presumption, in the case at bar, as stated in United Business Corporation v. Commissioner, supra, is simply to make the taxpayer show its hand; or, not to mix the metaphor, to show its state of mind. In the case of A. D. Saenger, Inc., v. Commissioner, 33 B.T.A. 135, affirmed (C.C.A.) 84 F.(2d) 23, certiorari denied, 299 U.S. 577, 57 S.Ct. 42, 81 L.Ed. 426, the Board stated that “the display of that ‘hand’ does *936not relieve the taxpayer if it discloses the state of mind the statute condemns.”
A state of mind, an intent or purpose may be proved in a number of ways. An accused may state what was in his mind at the time of the commission of the act subject to penalty. Generally such a person makes it plain that his purpose was an innocent one, that he did not possess the mens rea required by the statute. Such statements are received by courts generally with some skepticism, since under such circumstances avowals of innocence are much more common than declarations of guilt. The matter of proof generally is not allowed to rest upon the statements of the accused. The possession of the guilty mind or of the guilty purpose may be proven in other ways by other testimony.
In the case at bar the petitioning corporation had one stockholder, Henry Kohl. He had built the business of the corporation from the operation of 3 stores to 815 stores by January 31, 1931, the end of the tax year in which the alleged deficiency oc-cured. He continuously contemplated the purchase or operation of additional units. His every effort was devoted to increasing the size of the petitioner’s business.
He drew only sufficient salary to take care of his needs in a frugal manner. The profits of the petitioner, under Kohl’s direction, were ploughed back into the business. The minority opinion of the Board and the majority opinion of the court find the reason for the accumulation of surplus by the petitioner to be Kohl’s obsession to create an ever greater chain of grocery stores and that this was the primary reason for the accumulation of the large surplus. Such may be the reason, but such reason is not incompatible with a desire to prevent the imposition of a surtax upon the sole stockholder.
There are other facts. It is a fact that when Kohl was in need of funds he procured them from the corporation by loans, frequently without interest, rather than by the payment of dividends from the assets of the corporation. It was stated in United Business Corporation v. Commissioner, supra, where the court was dealing with loans very similar in their nature to those in the case at bar, “These loans are incompatible with a purpose to strengthen the financial position of the petitioner, but entirely accord with a desire to get the equivalent of his dividends under another guise.”
There was such evidence before the Board that it might find, without regard to any presumption, that the surplus of the petitioner was permitted to accumulate beyond its reasonable needs for the' purpose of permitting the stockholder to avoid surtax. For example, the profits of the petitioner were very large. For the tax year under discussion that profit was over $780,-000. In the three years preceding the tax year, the net profits of the petitioner were in excess of $800,000 annually. At the end of the taxable year the surplus of the corporation was more than $8,000,000; its liabilities were less than $1,000,000. Inventories on the other hand never exceeded $3,200,000, and accounts payable were never more than $400,000. Within the taxable year the petitioner loaned Kohl $140,-000. The total of all sums loaned by the petitioner to its stockholder from the time of its incorporation until the end of the taxable year was in excess of $600,000.
In view of the foregoing, it is my opinion that there was sufficient evidence upon which the Board could base the following findings: “We find as a fact that the petitioner’s accumulation of earnings was far in excess of the ‘reasonable needs’ of the corporate business”; and; “We are also of the opinioft that the evidence of record does not rebut the prima facie presumption created by the statute that the accumulation of earnings beyond the ‘reasonable needs of the business’ was for the purpose of preventing the imposition of the surtax upon its sole stockholder.”
This finding of fact last quoted is in-artistically presented, but the words used plainly indicate that the Board found that the accumulation of surplus beyond the reasonable needs of the petitioner’s business was to the end that surtax might be avoided by the stockholder. In this connection it .should be particularly noted that the loan of $140,000 by the petitioner to Kohl within the period of the taxable year did have the effect of permitting the stockholder to avoid imposition of surtax, otherwise unavoidable had the sum been paid to him as a dividend.
One question remains: Are the findings of the Board referred to findings of fact? In my opinion they are such, and therefore, being based upon sufficient evidence, cannot be disturbed. A. D. Saenger, Inc., v. Commissioner, supra; United States v. R. C. Tway Coal Sales Co. (C.C.A.) 75 F.(2d) *937336; United Business Corporation v. Commissioner, supra; R. & L., Inc., v. Commissioner (C.C.A.) 84 F.(2d) 721; Helver-ing v. Rankin, 295 U.S. 123, 131, 55 S.Ct. 732, 736, 79 L.Ed. 1343.
The judgment of the Board of Tax Appeals should be affirmed.