UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW JERSEY
December 13, 1966
Fin Hay Realty Company, Plaintiff
United States of America, Defendant
Wortendyke, District Judge.
The opinion of the court was delivered by: WORTENDYKE
Findings of Fact and Conclusions of Law
WORTENDYKE, District Judge:
This is a corporate taxpayer's action for refund, with interest, of Federal income taxes paid upon alleged deficiency assessments for the calendar years 1961 and 1962. The deficiency assessments resulted from a disallowance of expenses claimed as interest.
This Court has jurisdiction of the subject matter under 28 U.S.C. § 1346(a)(1) and over the parties. The statutory conditions precedent to the institution of the action have been complied with.
The payments received by the corporate taxpayer, upon which the taxpayer claimed allowance for interest paid during the tax years, were held to have been contributions to taxpayer's capital and not bona fide loans.
The facts were stipulated, and I find as follows:
1. The plaintiff is a New Jersey corporation which was organized in 1934 for purposes of acquiring and holding real estate for rental.
2. At its formation, stock was issued in equal amounts to Frank L. Finlaw and J. Louis Hay in consideration of payment of $10,000 from each.
3. On February 16, 1934, the two stockholders advanced to the plaintiff $15,000 a piece.
4. On March 1, 1934, plaintiff purchased a 24-family apartment building located at 214-216 Wainwright Street, Newark, New Jersey, for $39,000 in cash.
5. On April 30, 1934, Finlaw and Hay advanced to the plaintiff $35,000.
6. On May 1, 1934, the plaintiff purchased two 33-family brick apartment buildings at 241 and 249 South Arlington Avenue in East Orange, New Jersey, for $175,000 plus adjustments, of which $100,000 was paid through a purchase-money mortgage with Hoover Investment Company, and the balance from the cash advanced to the plaintiff by Finlaw and Hay.
7. The Wainwright and Arlington properties were the plaintiff's only income-producing assets.
8. On January 6, 1938, Finlaw advanced to the plaintiff $2,000 and on April 29, 1939, Hay also advanced to the plaintiff $2,000.
9. In 1939, the plaintiff purchased equipment (stokers and refrigerators) in the amount of $6,488.
10. On December 31, 1940, the two stockholders advanced to the plaintiff $1,000 each.
11. Sometime in 1940, the plaintiff purchased additional equipment in the amount of $2,014.58.
12. A summary of the advances made to the plaintiff by the stockholders, with the capital expenditures which followed the payments, is as follows:
Paid Date Expenditure Date
$ 30,000 Feb. 16, 1934 $39,000. Mar. 1, 1934
70,000 Apr. 30, 1934 75,000. May 1, 1934
4,000 Jan. 6, 1938
Apr. 29, 1939 6,488 1939
2,000 Dec. 31, 1940 2,014.58 1940
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