Erdman, Calvin Pardee, Individually and Executor, and Estate of Finder, Nathan, Individually and Coexecutor, and Lillian__ 411 Goldstein, Annie, Estate, and Nathan E., Individually, Executor, and Levine, Lazarus I., et al., Executors, as Alleged Transferee__. 945 Pachella, Dominick F., Estate, and Petronila R., Individually and Admin Spingolo, Frank, Warehouse Co___. 1 Stein, Samuel, Estate, and Estate of Esther M., Alleged Transferees___ 945 Weinreich, Oscar, Estate____. Weinrich, Geraldine Snyder, Individually and Executrix.. 830 107 1173 504 962 817 365 365 REPORTS OF THE TAX COURT OF THE UNITED STATES FRANK SPINGOLO WAREHOUSE COMPANY, INC., PETITIONER, V. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. Docket No. 76980. Filed October 6, 1961. Petitioner corporation was organized in 1947 and engaged in the refrigeration and air-conditioning business. It had net operating losses from 1950 through 1953. At the end of 1953 petitioner was reduced to a corporate shell and all of its stock was sold to Frank Spingolo, who had been operating a profitable trucking business as a sole proprietorship. On January 9, 1954, Spingolo transferred to petitioner all of the assets and liabilities of his sole proprietorship and petitioner has since engaged in the trucking business. Held, that the net operating loss deduction arising from the operation of the refrigeration and air-conditioning business from 1950 through 1953 is not available to petitioner in 1954 to reduce its net profits from its trucking business. Robert E. Tout, Esq., for the petitioner. James Booher, Esq., for the respondent. The Commissioner determined deficiencies in petitioner's income tax for the calendar year 1954 in the amount of $17,413.10 and for the taxable period January 1 to September 30, 1955, in the amount of $2,342.48. After certain concessions by the parties, the only issue remaining is the deductibility of the $28,561.12 net operating loss deduction which petitioner claimed on its income tax return for 1954. FINDINGS OF FACT. Some of the facts were stipulated and, as stipulated, are incorporated herein by this reference. Petitioner, formerly known as Valley Refrigeration and Air Conditioning Company (hereinafter sometimes referred to as Valley), was organized as a California corporation in 1947. Its outstanding stock consisted of 2 shares, 1 owned by James D. Glenn and the other by Robert E. Connolly. From its inception and until December 31, 1953, its business consisted of and was limited to the sale and installation of refrigeration and air-conditioning equipment. Valley incurred net operating losses during each of the years 1950 through 1953, aggregating $28,561.12. 1 Toward the end of 1953 Glenn and Connolly decided to terminate their association in the refrigeration and air-conditioning business. Glenn wanted to get out of the enterprise entirely, and Connolly proposed to continue Valley's business as a sole proprietorship. Accordingly, Connolly entered into a contract on December 9, 1953, to purchase all of Valley's "assets and business, except $100 cash, as a going concern" in consideration of his canceling certain obligations of the corporation to him and the assumption by him of specified liabilities of the corporation. Valley's directors, by resolution, and Valley's stockholders, by written consent, approved this sale. Robert E. Tout, a certified public accountant, who later became an attorney and is counsel for petitioner in this Court, had been doing Valley's accounting work at least since 1950 and was familiar with Valley's net operating losses. Tout had also been doing accounting work since 1948 for Frank Spingolo, who conducted a profitable trucking business as a sole proprietorship. Tout had prepared income tax returns for both Valley and Spingolo during these years. Spingolo was considering incorporating his business, and Tout suggested to him that he purchase Valley's stock. Spingolo's attorney, Marquam C. George, advised him that he saw no objection to taking over an existing corporation provided that Spingolo could be assured that "he was not taking over liabilities." On or about December 9, 1953, Spingolo executed a written offer to purchase the Valley stock then owned by Glenn and Connolly. The offer read in part as follows: I, Frank Spingolo agree to pay $1,000.00 for the entire present stock issue of Valley Refrigeration and Air Conditioning Company, a California Corporation, and have deposited $1,000.00 with John Burd, attorney at law, Central Bank Bldg., Oakland, California, escrowholder herein. This purchase is subject to the following conditions: (1) That R. E. Connolly and James Glenn agree to sell and do deposit with said escrow holder duly executed assignments to Spingolo of the shares of stock owned by them, which shares are agreed to be the entire stock issue of Valley Refrigeration and Air Conditioning Company. (2) That the said Connolly and Glenn promptly and successfully take all necessary proceedings to change the name of the corporation to Frank Spingolo Trucking Company, and to amend the Articles of Incorporation to include transportation and trucking within the business purposes of the corporation. That Frank Spingolo obtain approval by the California Public Utilities Commission of the transfer of the present carrier franchises of Frank Spingolo, an individual, to Frank Spingolo Trucking Company, Inc. The minutes of Valley's board of directors meeting held on December 10, 1953, record the following events occurring at this meeting: The Treasurer announced that he had received a written offer to purchase the shares of Mr. Glenn and Mr. Connolly ***. He advised the directors that it was the intention of himself and of Mr. Glenn to sell the shares, but that a condition to such sale was that the corporation amend its Articles so as to change the corporate name and to include transportation and truck |