The opinion
ROYAL BAKING POWDER CORPORATION, STANDARD BRANDS, INCORPORATED - SUCCESSOR IN INTEREST, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
Royal Baking Powder Corp. v. Commissioner
Docket No. 106984.
United States Board of Tax Appeals
47 B.T.A. 370 ; 1942 BTA LEXIS 698 ;
July 22, 1942 , Promulgated
*698 Where dividend resolution dated September 28, 1936, provided for a dividend payable October 1, 1936, and checks were dated October 1, 1936, the dividend was not paid in the taxable year ended September 30, 1936, although some of the checks were handed to stockholders on September 30, 1936, and others were placed in the mail on the same date.
C. W. McKnight, Esq., for the petitioner.
Thomas R. Charshee, Esq., for the respondent.
VAN FOSSAN
*371 The Commissioner determined a deficiency in income and undistributed profits taxes of $19,308.37 against petitioner, the Royal Baking Powder Corporation (Standard Brands, Inc., successor), for the taxable year ended September 30, 1936.
The first issue is whether the provisions of the Revenue Act of 1934 or 1936 are applicable in taxing the net income of petitioner during the fiscal year ended September 30, 1936. The second issue concerns the question whether, if the provisions of the Revenue Act of 1936 are applicable in taxing the net income of petitioner, petitioner was entitled to a dividends paid credit in the amount of $98,350 for its taxable year ended September 30, 1936.
FINDINGS OF FACT.
*699 We adopt as our findings of fact the following stipulation of the parties:
The Royal Baking Powder Corporation, hereinafter referred to as Royal, was a Delaware corporation, having had its principal office at 595 Madison Avenue, New York, New York, and was formed and incorporated on February 19, 1936.
Royal was inactive and possessed no assets from February 19, 1936, to September 4, 1936. On September 4, 1936, it began doing business, having at that time acquired all of the assets and liabilities of the Royal Baking Powder Co., a New Jersey corporation, in exchange for its capital stock.
Royal filed its first corporation income and excess profits tax return with the collector of internal revenue for the third district of New York on December 15, 1936. It stated in its return that its taxable year ended September 30, 1936, but did not state the date its taxable year began. It computed its tax at the rates applicable to corporations under the provisions of the Revenue Act of 1934, amounting to $14,525.60.
Royal claimed and was allowed exemption from excess profits tax for the taxable year ended September 30, 1936, upon the basis that it was exempt from the capital stock *700 tax, having done no business prior to July 1, 1936.
On September 28, 1936, the board of directors of Royal declared its first dividends, and on September 29, 1936, it deposited funds in a special dividend account at the First National Bank of New York in the amount of $98,350, which was to be paid as follows: To Standard Brands Incorporated, holder of 98,631 shares preferred at .42 per share - and checks delivered by hand after banking hours September 30, 1936 $41,425.02
To other holders of 1,369 shares preferred at .42 per share - and checks deposited in the mail September 30, 1936 574.98
$42,000.00
To Standard Brands Incorporated, holder of 801,782 shares common stock at .07 per share - and checks delivered by hand after banking hours September 30, 1936 $56,124.74
To other holders of 3,218 shares common at .07 per share - deposited in the mail September 30, 1936 225.26
$56,350.00
Total dividends $98,350.00
*372 The dividend resolution of the board of directors of Royal passed September 28, 1936, is as follows:
VOTED FURTHER, That a dividend of forty-two cents (42??) per share on the Preferred Stock, (being at the rate of 6% per annum for *701 the period from September 4th to September 30th, 1936) and a dividend of seven cents (7??) per share on the Common Stock of this Company, be and are hereby declared, payable from surplus and from net profits arising from the business, October 1st, 1936 to stockholders of record as at the close of business September 30th, 1936.
On or after September 30, 1936, the following journal entry voucher No. 923, dated September 30, 1936, was made upon the books of Royal: Account Number Debit Credit
Dividends - Preferred 49 10 01 $42,000.00
Dividends - Common 49 10 02 56,350.00
Dividends Payable 70 09 01 $98,350.00
Dividends for 26 days ending Sept. 30, 1936 - Payable Oct. 1, 1936.
Dividends for the previous period of the third quarter to September 4, 1936 paid by R.B.P. Company.
On or after September 30, 1936, the following journal entry voucher No. 4087, dated September 30, 1936, was made upon the books of Standard Brands, Inc., the parent corporation of Royal: Voucher No. 4087 Sept. 30th, 1936
Account Number Debit Credit
STANDARD BRANDS, INC.
Dividend Rec. Royal Baking Powder Corp 61 01 22 $97,549.76
Dividend Income 45 01 01 $97,549.76
To set up Dividend due from Royal Baking Powder Corp. Sept. 30, 1936 and remittance received.
98631 shares Pfd. Stock at .42 per share $41,425.02
801782 shares Com. Stock at .07 per share 56,124.74
$97,549.76
*702 Payment of all of the dividends declared in the amount of $98,350 was made by checks, all of which were dated October 1, 1936, and such checks cleared through the bank on or after October 2, 1936.
On April 18, 1937, Standard Brands, Inc., acquired all of the assets and assumed all of the liabilities of Royal.
*373 OPINION.
VAN FOSSAN: The first question is whether the provisions of the Revenue Act of 1934 or 1936 are applicable in taxing the net income of Royal during the fiscal year ended September 30, 1936.
As stipulated by the parties, Royal did not come into being until February 19, 1936, when it was incorporated under the laws of Delaware. Since it had no assets until September 4, 1936, when it acquired the assets of the Royal Baking Powder Co., a New Jersey corporation, it was a mere shell until that date. The net income reported by it for the taxable year in question was earned between September 4 and September 30, 1936, when its first taxable year ended. In computing its tax for this period Royal applied the provisions of the Revenue Act of 1934.
A taxable year is defined in section 48 of the Revenue Acts of 1934 and 1936 to include "in the case of *703 a return made for a fractional part of a year * * * the period for which such return is made." Thus a taxable year may include a period less than twelve months. ; , and cases cited therein. The period for which Royal's return is made could not begin prior to February 19, 1936, because it did not come into existence until then.
Since Royal's taxable year began after December 31, 1935, the Revenue Act of 1936 applied to its net income during its fiscal year ended September 30, 1936. Accordingly, we hold for respondent on this issue.
Our decision on the first issue makes it necessary to decide whether Royal was entitled to a dividends paid credit in the amount of $98,350 for the taxable year ended September 30, 1936.
Petitioner contends that, since the dividend checks were actually delivered or mailed to Royal's stockholders on September 30, 1936, Royal was entitled to a dividends paid credit for its fiscal year ended September 30, 1936. Respondent, on the other hand, urges that Royal was not entitled to such a credit because the director's resolution *704 authorizing the dividend provided that it was payable October 1, 1936, and because the dividend checks were dated October 1, 1936.
On the facts of record we are of the opinion respondent should prevail. By the resolution of September 28, 1936, the dividends were declared payable on October 1, 1936. October 1 was not within the taxable year ended September 30. The checks were dated, and were therefore payable, October 1. Although some of them were delivered by hand to the payee-stockholders on September 30, they could not have been legally cashed before October 1, and were not actually cashed until October 2 or later. Thus the conclusion seems inescapable that the dividends were not paid either actually or constructively within the *374 taxable year. The entries on petitioner's books afford no solace to petitioner. They support respondent's position equally as much as petitioner's. The journal entry made by Royal and dated September 30 shows the dividends were payable October 1. The facts here are very different from *705 , and the case involves wholly different considerations. The dividend was not paid in the taxable year.
It is equally clear that petitioner does not qualify for dividend payments credit under section 27(d). It would be a far stretch of the language of the act to include within the term "obligations of the corporation" as used in the quoted section, the postdated checks of petitioner corporation. We affirm the respondent.
Decision will be entered for the respondent.