Barnhart-Morrow Consolidated v. Commissioner

Taxpayer and petitioner Barnhart-Morrow Consolidated seeks review of the decision of the Tax Court sustaining the determination of deficiencies in taxpayer’s income tax for the calendar years 1936 and 1937. That decision is contended to be erroneous in respect to four separate issues.

A. The first is as to taxpayer's claim that the Tax Court erred in holding that as to the year 1936 taxpayer had not maintained its burden of proof that it was insolvent and in receivership in such sense that under Section 14(d) (2) of the Rev *287 enue Act of 1936, 26 U.S.C.A. Int.Rev. Acts, page 824, it was entitled to an exemption from the surtax on undistributed profits.

Taxpayer is a California corporation engaged in the production of oil and gas from wells in which it had certain property interests. In 1927, 1928, and 1930, it began operating such wells in the Santa Fe Springs field. While so operating in 1931, an action entitled Julian v. Schwartz was commenced in a California state court in which Julian, claiming to be the owner of these properties, sought to restrain Schwartz from taking their possession. In this action Schwartz and certain other persons on cross-complaint claimed to be…