San Marcos Hotel Co. v. Commissioner of Internal Revenue

This appeal involves the excess profits tax liability of petitioner for the year 1944. It arises under former section 718 of the Internal Revenue Code, 26 U.S.C.A. § 718 , and its determination depends upon whether the “equity invested capital” of petitioner used for purposes of computing the “credit” to which petitioner is entitled in determining its excess profits, tax was properly decreased by the Commissioner pursuant to section 718(b) (1), because of “Distributions in previous years”.

The petitioner is a corporation organized under the laws of the State of Arizona in 1914. Until 1933 it operated the San Marcos Hotel in Chandler, Arizona, and at present is again so engaged. From its inception until 1933 petitioner was a wholly owned subsidiary of Chandler Improvement Company. Its original assets were acquired from Chandler by the issuance of all of its $300,000 par value authorized capital stock in exchange for the hotel properties valued at $199,109.78. During the course of its operations petitioner became heavily indebted to Pacific Mutual Life Insurance Company on obligations which were endorsed by Chandler. During the same period Chandler became indebted to the petitioner…