Citizens Trust Co. v. Commissioner

CITIZENS TRUST CO., BY MARINE TRUST CO., SUCCESSOR BY MERGER, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. Citizens Trust Co. v. Commissioner Docket No. 38027. United States Board of Tax Appeals 20 B.T.A. 392; 1930 BTA LEXIS 2143; July 29, 1930, Promulgated *2143 Organization expenses of a state bank held not deductible as a loss when such bank was merged with another bank under the laws of the State of New York. E. C. Gruen, C.P.A., for the petitioner. Ralph S. Scott, Esq., and E. M. Niess, Esq., for the respondent. SEAWELL *392 This proceeding involves a deficiency in income tax as determined by the Commissioner for the period January 1, 1923, to December 15, 1923, in the amount of $8,747.79. The issue involved is whether organization expenses which were paid by the Citizens Trust Co. from 1917 to 1920, inclusive, and disallowed by the Commissioner as a deduction in those years, may be allowed as a deduction in computing net income of the Citizens Trust Co. for the period January 1, 1923, to December 15, 1923, on the ground that on the latter date the corporate existence of the Citizens Trust Co. ceased. FINDINGS OF FACT. The Citizens Trust Co. (hereinafter sometimes referred to as the "company") was a banking institution organized under the laws of New York in or prior to 1917 and had its principal office in Buffalo. In connection with the organization of the Citizens Trust Co. *2144 , this company expended $26,234.43. Of that amount, $22,188.92 was disallowed by the Commissioner as a deduction in computing the company's net income for 1917 and $4,045.50 was disallowed as a deduction in computing the company's net income for 1918, 1919, and 1920. The foregoing amounts were included by the Commissioner in the company's invested capital for the appropriate years from 1917 to 1920, inclusive. On December 15, 1923, the Citizens Trust Co. was absorbed by merger under the banking laws of New York by the Marine Trust Co. of Buffalo. *393 In computing the net income of the Citizens Trust Co. for the period January 1, 1923, to December 15, 1923, the Commissioner disallowed a deduction claimed in the amount of $26,234.43 on account of the foregoing organization expenses. OPINION. SEAWELL: What is here contended is that since the amounts expended in connection with the organization of the Citizens Trust Co. were capital items which could not be exhausted over the life of the corporation (), the cost of such capital items constituted a deductible loss to the Citizens Trust Co. when such company was*2145 merged with the Marine Trust Co. on December 15, 1923. The facts are very meager as to what occurred in such merger, the only information we have being that "the Citizens Trust Co. was absorbed by merger, under the Banking Laws of the State of New York, by the Marine Trust Co." That is, as we understand the situation, the corporate activities of the two institutions were continued under the corporate name and identity of the Marine Trust Co. In McKinney's Consolidated Laws of New York, vol. 4, p. 432, the following statements and citations of authorities appear with respect to the merger of banks under the laws of New York: Status of merged corporation generally. - A merged corporation does not continue to exist after the merger nor is it identical with the one into which is is merged. , affirming . But the scheme of the Banking Law is "that the corporation which is merged with another should lose its identity only so far as its separate existence is concerned, and that it should be swallowed up in the other and become an integral part thereof, carrying into the corporation*2146 which survived all its rights, powers, liabilities and assets, except the indicia and attributes of a corporate body, distinct from that into which it is merged." ; , affirmed in (1912) . Upon the evidence before us and under the laws of New York governing mergers of this character, we fail to see the justification for saying that a loss was sustained by the Citizens Trust Co. in the merger on account of the expenditures incident to its original organization. Such an ending of the corporate life of a corporation is entirely unlike that involved in , where there was a surrender of the corporate charter and a dissolution of the corporation. There a complete extinction of the corporation occurred, whereas in the instant case all "rights, powers, liabilities and assets" survived except the "indicia and attributes *394 of a corporate body distinct from that into which it is merged." Besides, we have no evidence from which we*2147 could conclude that the transaction was one which would give rise to a taxable gain or deductible loss under the Revenue Act of 1921 or, if it were such a transaction, that a loss was in fact sustained. Judgment will be entered for the respondent.