Recherches Industrielles, S. A. R. I. S. A. v. Commissioner

RECHERCHES INDUSTRIELLS, S.A., R.I.S.A., PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. Recherches Industrielles, S. A. R. I. S. A. v. Commissioner Docket No. 101863. United States Board of Tax Appeals 45 B.T.A. 253; 1941 BTA LEXIS 1153; September 30, 1941, Promulgated *1153 The taxpayer, a Swiss corporation, through an American agent rented an "office" from a Jersey City lawyer without obtaining the exclusive use of any room or even desk in his office, it being the lawyer's custom to rent an "office" in the same suite to some 50 other corporations. The taxpayer's agent did not stay there, no books were kept there, and no bank account was maintained, all receipts from American sources being sent directly to its Geneva bank. Held, that the petitioner had no "office" in the United States within the meaning of section 231(b), Revenue Act of 1936. John Eugene Baker, Esq., for the petitioner. Charles Oliphant, Esq., for the respondent. KERN *253 This case comes before us on respondent's determination of a deficiency of $2,084.99 in petitioner's income tax for its fiscal year ended October 31, 1937. It raises the single narrow question whether petitioner, with its principal place of business in Geneva, Switzerland, had an "office or place of business" within the United States, as petitioner contends, and was, therefore, taxable under section 231(b) of the Revenue Act of 1936, or did not, and thus fell under subsection*1154 (a) of the same act. The relevant sections and the relevant portion of article 231-1 of Treasury Regulations 94 are set out in the margin. 1 *1155 *254 FINDINGS OF FACT. The facts were stipulated in part, and do not appear to be seriously disputed, save as to the legal conclusion to be drawn from them. The petitioner, a corporation having its principal place of business at Geneva in Switzerland, made its return for the fiscal year ended October 31, 1937, to the collector at Baltimore. On September 25, 1936, its board of directors appointed Farquhar J. MacRae & Co., accountants, of 90 Wall Street, New York City, its attorney in fact to conduct all its business in the United States of America, "particularly in all matters concerning tax questions, in the same manner as if the corporation were itself present in the United States of America." The stipulated English translation of this power of attorney, but not the original, was put in evidence and is incorporated by reference. Three days later its board of directors by letter designated MacRae & Co. as its agents in America and conferred on them all the powers necessary to fulfill this mission and authorized them to hire an office in its name, in order that it might have an office or place for carrying on business in the United States: "en particulier a louer un*1156 bureau en notre nom, de maniere que nous ayons un bureau ou local pour traiter les affaires aux Etats-Unis." The original letter and stipulated English translation put in evidence are likewise incorporated by reference. Concededly this authority and the corporation's subsequent acts did not constitute carrying on "a trade or business within the United States", within the meaning of section 231(a) or (b). The circumstances of the hiring of the office and what was done there by the corporation are as follows. One McTague, a New York lawyer, leased offices at 921 Bergen Avenue, Jersey City, New Jersey, consisting of three rooms and a foyer, where he practiced law. Through one O'Connor, a special partner of the MacRae firm, petitioner arranged with McTague to obtain "office space" and paid him as rental $100 per annum. For this sum petitioner was to have the use of McTague's law offices for conferences and by McTague's arrangement, the use of the large directors' room in the building for large meetings. Petitioner acquired no right to the exclusive use of any room in McTague's suite of office rooms, for McTague at the same time, according to a common custom of lawyers in Jersey*1157 City, rented the use of his offices to about fifty other corporations, which simultaneously occupied the same space. McTague undertook to meet limited stenographic service requirements and to take care of mail and ordinary business. Petitioner's agent, O'Connor, did not list the corporation in the telephone directory, but did, for about $2, have it listed on the building's directory. Mail addressed to petitioner was directed to the building's street number and did not include McTague's office room number. Petitioner's *255 mail, mostly advertisements, was forwarded to O'Connor in New York City, who paid the postage cost of about $5 per year. O'Connor visited McTague's office about five or six times during the year on petitioner's business, three visits being in relation to New Jersey taxation of petitioner. The only source of petitioner's income from within the United States was dividends paid it by the George Silver Import Co. This company opened a bank account in Geneva, and paid its dividends directly to petitioner's office in that city. Petitioner had no bank account in New Jersey. OPINION. *1158 KERN: In this case petitioner was not engaged in trade or business within the United States and no showing is made that it intended to engage in trade or business here. Therefore, under the reasoning of the majority opinion in Aktiebolaget Separator,45 B.T.A. 243, it could have no "office or place of business" within the United States within the meaning of section 231(b) of the Revenue Act of 1936, and on the authority of that case we must decide in favor of respondent. However, it might be well to point out that, even under the reasoning of the dissenting opinion filed in that case, we should reach the same result. Here the "office" was not a fixed place in which the collector could find a properly authorized agent of petitioner; it was not a place where adequate records of the petitioner's American income could be found; and it was not a place from which control over that income was retained. In reality, this "office" performed no real function. O'Connor, representing petitioner's appointed agent, the MacRae firm, visited the office only about six times during the year, and three of these visits had to do solely with New Jersey tax matters. *1159 Whether or not petitioner was taxable in New Jersey under New Jersey law obviously will not aid us in construing the Federal statute. Burnet v. Harmel,287 U.S. 103. Petitioner had the exclusive use, apparently, of no room in the suite of the lawyer, McTague, and it may be doubted on the evidence whether it had the exclusive use of even a desk. McTague stated that he extended the use of his office for a like consideration to some fifty other corporations at the same time, and that they were all there, "but", he carefully added, "of course, you couldn't see them." Apparently his office, like that of many other lawyers in Jersey City, was a sort of corporation clubroom where their agents might abide temporarily, but hardly simultaneously, in communion with the domiciliary State of New Jersey, in order to comply with the requirement of a local office under state law. Petitioner's agent received no mail for petitioner at this "office," save advertisements, had no listed telephone, collected *256 no dividends, handled no New Jersey bank account for petitioner, kept no books of account, had no permanent employees, and, in so far as the evidence shows, did no*1160 acts of an ordinary business nature at its New Jersey "office." Obviously, therefore, petitioner's use of the "office" was both "incidental" and "casual" within the meaning of the Treasury regulations, and in no way did it fulfill the tests laid down in the dissenting opinion in Aktiebolaget Separator, supra. Decision will be entered for the respondent. Footnotes 1. Sec. 231. Revenue Act of 1936 - (a) NONRESIDENT CORPORATIONS. - There shall be levied, collected, and paid for each taxable year, in lieu of the tax imposed by sections 13 and 14, upon the amount received by every foreign corporation not engaged in trade or business within the United States and not having an office or place of business therein, from sources within the United States as interest (except interest on deposits with persons carrying on the banking business), dividends, rents, salaries, wages, premiums, annuities, compensations, remunerations, emoluments, or other fixed or determinable annual or periodical gains, and income, a tax of 15 per centum of such amount, except that in the case of dividends the rate shall be 10 per centum, and except that in the case of corporations organized uner the laws of a contiguous country such rate of 10 per centum with respect to dividends shall be reduced to such rate (not less than 5 per centum) as may be provided by treaty with such country. (b) RESIDENT CORPORATIONS. - A foreign corporation engaged in trade or business within the United States or having an office or place of business therein shall be taxable without regard to the provisions of subsection (a), but the normal tax imposed by section 13 shall be at the rate of 22 per centum instead of at the rates provided in such section. * * * Art. 231-1, Regulations 94 - * * * (b) Resident foreign corporations. * * * * * * The term "office or place of business," however, implies a place for the regular transaction of business and does not include a place where casual or incidental transactions might be, or are, effected. These provisions apply to taxable years beginning on or after January 1, 1936, but have no retroactive application to prior taxable years. * * * ↩