W 188 61 UNITED STATES TAX COURT REPORTS (182) made, but in fact, an assessment may not be made until a notice of deficiency has been mailed and the period for commencing an action in the Tax Court has expired or until such action has become final. Thus, it is the mailing of a notice of deficiency which must take place first, and there is no reason to believe that Congress intended to allow an assessment to be made on the final day of the period but not to allow a notice of deficiency to be mailed on such day. If the respondent mails the notice within the period of limitations, he has taken the action required of him, and the courts may have believed that under such circumstances, Congress intended for the running of the statute of limitations to be suspended. FEITE FARM EQU VERADA HESS COR An analysis of the statutory scheme also demonstrates that "after" in section 6503 (a) (1) cannot mean "the day after." Section 6503 (a) (1) provides that the statute is suspended for the period during which the respondent is prohibited from making an assessment. Section 6213 (a) prevents the respondent from making an assessment until a deficiency notice is mailed and until the expiration of the period during which the taxpayer can petition the Tax Court for a redetermination of the deficiency, or if a petition is filed, until the decision of the Tax Court is final. The petitioner has argued that since the prohibition period is the same as the period set aside for Tax Court proceedings, it begins the same day the petitioning period begins, the day after the notice is mailed, and consequently the suspension begins the day after mailing. However, under the petitioner's theory, there would be a gap in the suspension period of 1 day during which an assessment could be made. The respondent is prohibited from making an assessment until the mailing of the notice, and under the petitioner's interpretation of the law, he is prohibited from making an assessment during the period beginning on the day after the mailing of the notice. Under such reading of the statute, the respondent is not prohibited from making an assessment on the day of the mailing of the notice. Nothing in the statute warrants an interpretation which would allow an assessment to be made during the period of a day or less. The legislative history of section 277(b) of the Revenue Act of 1926, though sketchy, indicates that the respondent cannot make an assessment at any time until the question of whether there are taxes due has been determined. Conf. Rept. No. 356, 69th Cong., 1st Sess., p. 42 (1926). Therefore, the prohibition period is continuous, and as the suspension period tracks the prohibition period, the suspension commences upon the mailing of the deficiency notice. The parties are directed to move or otherwise act with respect to further proceedings in this case on or before December 19, 1973. Docket Nos. 4791 On Oct. 31, 1960 change for, inter d ment between W anation had ec reached by knowl 0's loss on the sal such business are stock. Held, such this case is the val adduce "strong pr Andre M. Saltoun oner in docket N Jerman Sinrich, B er in docket Nos. 5 Charles B. Wolfe, J FORRESTER, Judge: deficiencies: Peti F Farm Equipment Co.... Cocket No. 1367-7 4ent of income ta on is the valuati Back which formed Etten predecessors Some of the facts a The original petitio ver), a Delaware c at the time its pe me tax returns fort WHITE FARM EQUIPMENT CO. 189 WHITE FARM EQUIPMENT COMPANY, A DELAWARE CORPORATION (SUCCESSOR TO OLIVER CORPORATION, A DELAWARE CORPORATION), PETITIONER v. COMMISSIONER OF INTERNAL Revenue, RESPONDENT AMERADA HESS CORPORATION, SUCCESSOR BY MERGER OF HESS OIL AND CHEMICAL CORPORATION, PETITIONER V. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT Docket Nos. 4792-69, 5842-70, 1367-71. Filed November 14, 1973. On Oct. 31, 1960, W acquired O's farm equipment business in exchange for, inter alia, 655,000 shares of W common stock. The agreement between W and O assigned a value to the stock which valuation had economic significance in the transaction and was reached by knowledgeable parties through arm's-length bargaining. O's loss on the sale of its farm equipment business and W's basis in such business are both determined by the fair market value of the stock. Held, such fair market value of the stock under the facts of this case is the value assigned to it by the parties, O having failed to adduce "strong proof" to overcome such value. Andre M. Saltoun, Dennis I. Meyer, and Neal J. Block, for the petitioner in docket No. 4792-69. Norman Sinrich, Burton G. Lipsky, and Harvey Blitz, for the petitioner in docket Nos. 5842-70 and 1367-71. Charles B. Wolfe, Jr., for the respondent. FORRESTER, Judge: Respondent has determined the following income tax deficiencies: In docket No. 1367-71 petitioner Amerada Hess has claimed an overpayment of income tax in the amount of $2,300,554. The issue for our decision is the valuation of 655,000 shares of White Motor Co. common stock which formed part of the consideration in an exchange in 1960 between predecessors of the petitioners. FINDINGS OF FACT Some of the facts are stipulated and are so found. The original petitioner in docket No. 4792-69 was Oliver Corp. (New Oliver), a Delaware corporation whose principal office was in Chicago, Ill., at the time its petition herein was filed. New Oliver's Federal income tax returns for the period from November 1, 1960, to December 31, 1960, and for the taxable years 1961 and 1962 were timely filed using an accrual method of accounting with the district director of internal revenue in Chicago, Ill. Throughout the period from November 1, 1960, to December 31, 1962, New Oliver was a wholly owned subsidiary of White Motor Corp. (formerly White Motor Co., hereinafter referred to as White Motor). In October 1969 New Oliver was merged into Minneapolis Moline, Inc., also a Delaware corporation, which shortly thereafter changed its name to White Farm Equipment Co. (White). White is the successor to the rights, assets, and liabilities of New Oliver, and is a wholly owned subsidiary of White Motor. At the time White filed an amended petition its principal place of business was in Hopkins, Minn. Amerada Hess Corp. (Hess), petitioner in docket Nos. 5842-70 and 1367-71, is a Delaware corporation with its principal office in Woodbridge, N.J. Hess is the surviving corporation of a merger on June 20, 1969, between Hess Oil & Chemical Corp. and Amerada Petroleum Corp. Hess Oil & Chemical Corp. timely filed its Federal income tax returns for the taxable years 1964 and 1965 on the accrual method of accounting with the district director of internal revenue in Newark, N.J. Hess Oil & Chemical Corp. was the surviving corporation of a merger on May 23, 1962, between Cletrac Corp. and Hess, Inc., and affiliated companies. Prior to October 31, 1960, Cletrac Corp.'s corporate name had been the Oliver Corp. (Old Oliver). From 1929 until October 31, 1960, Old Oliver was engaged primarily in the farm equipment business. Beginning in 1944 Old Oliver also manufactured and sold crawler tractors for both agricultural and industrial purposes. It marketed its farm equipment throughout the world and in 1959 its sales volume ranked seventh among all farm equipment manufacturers. Old Oliver's common stock was listed on the New York Stock Exchange, and throughout the period from 1951 to 1960 it traded at prices substantially below pro rata book value. For several years prior to 1960 Old Oliver had been actively inveștigating the possibility of a merger or a substantial sale of assets. Its management was dissatisfied with recent earnings performance, but was convinced that to substantially improve earnings would be a lengthy task. Many of its management practices and policies were being questioned, and the continuity of its management was doubtful because of age. It was also having difficulty in financing the research and development activity necessary to maintain its farm equipment products in a competitive position with its industrial rivals. Because of the recent bankruptcy of another farm equipment manufacturer, lending institutions and the financial markets in general were guarded in their appraisal of the farm equipment industry. (189) WHITE FARM EQUIPMENT CO. 191 In late 1959 Old Oliver and Studebaker-Packard reached a tentative agreement on a major exchange of assets. However, the proposed exchange did not receive the approval of Studebaker-Packard's board of directors and the negotiations were terminated in January 1960. During 1959 and 1960 Old Oliver also held talks regarding a possible major exchange with representatives of Minneapolis-Moline Co., another manufacturer of farm equipment. In March 1960 Old Oliver contacted White Motor about a possible sale of all the assets comprising its farm equipment business except cash and accounts receivable. White Motor was primarily engaged in the manufacture, sale, and servicing of large motortrucks. Based on new truck registrations in the United States in 1959, White Motor ranked third in the number of trucks in the classification of 19,501 pounds or more gross vehicle weight. Its principal competitors were Mack Trucks, Inc., General Motors Corp., Ford Motor Co., Chrysler Corp., and International Harvester Co. White Motor also sold trucks in Canada and 68 other foreign countries. White Motor expressed an interest in acquiring Old Oliver's farm equipment business as a complement to its existing business and the two companies entered serious negotiations. The principal negotiators were A. L. Mailman (Mailman) for Old Oliver and J. P. Dragin (Dragin) for White Motor. Mailman had considerable experience in negotiations of this type, having represented himself or others in the purchase or sale of assets or businesses on approximately 50 occasions. A number of these transactions involved assets worth $30 to $50 million. He had been a partner in Mailman Brothers, a private investment firm, since 1932, and was a member of Old Oliver's board of directors. In addition he controlled a substantial block of Old Oliver's outstanding stock. In 1960 Old Oliver had approximately 2,575,000 shares of common stock outstanding. On October 31, 1960, Mailman and his brother, J. L. Mailman, their wives, and companies they controlled held 209,848 shares of such stock. In addition, 114,508 shares were held in trust by other individuals for the benefit of the Mailman family. The 324,356 shares held by or for the Mailman group constituted the largest block of Old Oliver stock held by any one group. In 1960, Dragin was White Motor's executive vice president for finance and administration and was a certified public accountant. He had previously participated in a number of asset acquisitions by White Motor, and had known Mailman in a business relationship for a number of years. At their first meetings in March 1960, Mailman informed Dragin that Old Oliver preferred to sell its farm equipment business for cash. It was soon clear, however, that White Motor could not raise nearly enough cash, and that the major part of the consideration would have to be White Motor stock and securities. It was also understood from early on in the negotiations that White Motor would not acquire Old Oliver's cash, accounts receivable, or liabilities. At no point during any of their negotiations did Dragin and Mailman ever discuss the value to be placed on White Motor's common stock for accounting or for tax purposes. Further discussions between Dragin and Mailman took place in April, May, and June. During this period Dragin made a physical examination of the five plants to be purchased from Old Oliver and reviewed pictures, descriptions, and reports prepared by his staff relating to the assets to be purchased. He also engaged Sidney Kriser (Kriser), an expert auctioneer and appraiser of industrial property, to prepare a liquidating appraisal of a large portion of these assets. Kriser visited the plants and submitted a report to Dragin wherein he appraised the liquidating value of the real estate at $2,950,000, and the machinery and equipment at $4,800,000. The book value of these assets at the time of appraisal was $3,519,000 and $7,960,000, respectively. On June 16, 1960, White Motor's executive committee voted to submit to its board of directors a proposal to purchase the assets comprising the farm equipment business of Old Oliver. An outline of the terms of this proposal was stated in a letter from Dragin to Mailman dated June 17, 1960. The letter contained the following tentative description of how White Motor proposed to pay for Old Oliver's farm equipment business: The purchase price is to be an amount equal to the aggregate sum of the book value (after depreciation) of the fixed assets to be sold plus the book value (on the LIFO basis and after deducting the reserve for obsolescence) of the inventory to be sold, less 20% of the aggregate sum of the book value of said fixed assets and of said inventory determined as aforesaid. It is to be understood that the payment of the aforesaid purchase price shall entitle The White Motor Company to the exclusive use of the names "The Oliver Corporation" and "Oliver International S. A.” *** The purchase price is to be paid (a) by the delivery of five hundred thousand (500,000) shares of Common Stock of The White Motor Company, to be considered as having a value of Twenty-five Million Dollars ($25,000,000), and (b) the balance of the purchase price is to be paid in cash or in debentures at par The closing of the transaction is to take place on October 31, 1960, or as soon thereafter as practicable The White Motor Company has to arrange financing satisfactory to its Board of Directors before some of the provisions of the contemplated contract can be agreed upon. |