The opinion of the court was delivered by: MEANEY
The instant action was filed by the plaintiffs herein to recover federal income taxes assessed against them pursuant to the provisions of section 301(c) (1) of the Internal Revenue Code of 1954, 26 U.S.C. § 301(c)(1).
This court has jurisdiction of the matters involved by reason of the provisions of 28 U.S.C. § 1346(a)(1).
The basic facts have been stipulated and the matter was submitted on briefs and arguments thereon.
Immediately preceding the transaction upon which the present dispute arose, Warren and Blanche Archbold, plaintiffs herein, and their son George Archbold owned approximately 98 per cent of Archbold and Company, a New Jersey corporation, organized in 1923 to engage in the business of wholesale selling of flour and supplies to the baking trade. Its shares of stock have always been closely held by the Archbold family and two outsiders, the Archbolds owning 98 per cent thereof.
On June 1, 1925, in order to provide funds for the financing of a warehouse and office, Emma Archbold, mother of Warren Archbold, and an unrelated party, Margaret Allen, paid into the company $ 16,500.00 for which Emma Archbold received 135 shares of 7% Cumulative preferred, non-voting, non-participating stock. Margaret Allen received 30 shares of the same type of stock. On June 1, 1935, Emma Archbold purchased Margaret Allen's 30 shares of preferred stock, making her total holdings 165 shares.
In 1942 Emma Archbold became senile and LeRoy and Warren Archbold, her sons, caused these 165 shares of preferred stock to be transferred to themselves, Warren receiving 83 shares and LeRoy 82 shares. Emma Archbold died in 1956.
After the death in 1954 of LeRoy Archbold, his shares of preferred stock passed to his wife Eveline. In 1956 these shares were redeemed by Archbold & Company which paid $ 8,200.00 therefor. This transaction is not involved in the present suit.
As of January 22, 1957, the stockholdings of Archbold & Company were as follows:
% of % of % of
Stockholders Shares total Shares Common Shares Pfd.
Warren W. Archbold 582 65% 582 72%
Blanche Archbold 83 9 83 100%
George E. Archbold 210 24 210 26
Wm. H. Young, Jr. 15 2 15 2
Joseph A. Lister 1 1
891 100% 808 100% 83 100%
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