Hemphill Schools, Inc. v. Commissioner

Here for review is a decision of the Board of Tax Appeals, now called the Tax Court of the United States, which sustained a determination by respondent, the Commissioner of Internal Revenue, that there was a deficiency of $66,858.86 in respect of petitioner’s income tax for its fiscal year ended March 31, 1936. The determination was based on § 102 of the Revenue Act of 1934, 26 U.S.C.A. Int.Rev. Acts, page 690, which provides:

Petitioner is a corporation. It is not a personal holding company. Its adjusted net income for the taxable year — the fiscal year ended March 31, 1936 — was $220,-889.68. Its income tax, exclusive of surtax, for the taxable year was $30,372.33. It overpaid that amount by $452.53. Respondent (1) determined that petitioner’s gains and profits were permitted to accumulate beyond the reasonable needs of its business, hence (2) determined that petitioner was availed of for the.purpose of preventing the imposition of the surtax upon its shareholders through the medium of permitting gains and profits to accumulate instead of being divided or distributed, hence (3) determined that petitioner was required by § 102 to pay a surtax of $67,-311.39, 1 and hence (4)…

(concurring).

I think it well, however, to make plain that the ultimate fact in this case is that the corporation was “availed of for the purpose of” avoiding a surtax. The mere accumulation of more than a reasonable fund for the proper conduct of the business is not enough. This fact produces only a prima facie showing of the ultimate fact. I have no doubt as to the correctness of the Commissioner of Internal Revenue’s determination in this case that the corporation was availed of to avoid a surtax, and the record reveals ample substantial evidence in support of the Tax Court’s conclusions to that effect.