Tillotson Construction’s Mitchellville elevator is a key part of Heartland’s grain operation

The Heartland Cooperative elevator complex at Mitchellville, Iowa.

Story and photos by Kristen Cart

The Mitchellville elevator is visible from Interstate 80, and the rounded head house drew my attention as we headed through Iowa on our way home from our recent trip out West. “Just one more stop, OK, kids?” I said, and they answered with groans. I think I promised ice cream to quell the protest.

The main elevator built by Tillotson Contruction Company of Omaha, with grain drier.

I parked the van, air conditioner running, in a shady spot and hopped out with my camera. Thunderheads threatened nearby, but the storm seemed to be moving off, and the sun peeked out and illuminated the scene. I took advantage of the beautiful light to photograph the elevator.  As I finished up, I saw a truck rounding the corner from an alley into the gravel lot beside the elevator, so I flagged the driver down to ask if he knew anything about it. We were in luck.

The driver introduced himself as Ed Baldwin, a grain truck driver for Webb Farms. He was more than happy to talk about the elevator, having trucked “at least two million bushels” in and out of Michellville. Bill and Stan Webb own the farm, and Ed purchased his truck from their father who used to truck his own grain. Ed gave me a quick outside tour of the elevator property.

The Younglove annex viewed from the driveway.

Ed explained the Heartland Cooperative operation at Mitchellville. He did not know the builder of the “head house,” as he termed the main elevator, but he knew the adjacent annex was built by Younglove in 1972.  The bins had numbers and he pointed out the function of each one. All the way to the left was a new bin with its own leg that was built in the 1980s and used for damaged corn. Immediately to the right of it, on one end of the Younglove annex, was a bin dedicated to soybeans. The rest of the annex held corn, with the main house taking all the wet corn since it gave access to the grain drier.

The Younglove annex is placarded with the date of construction.

During harvest, the employees kept a grueling schedule filling the bins, especially during a wet year. Jim Dietrich, grain manager for Heartland Co-op at Mitchellville, would pull a twenty-four hour shift to accept the grain into the main elevator and dry it. The drier had a capacity of seven thousand bushels per hour, which would limit the amount of grain that could be taken in. Ed said the main house would take seven semi loads per hour of grain that needed to be dried. Shipments from the elevator were by rail, unless capacity was reached and grain needed to be trucked.  Trucking would be the exception for Mitchellville’s operation.

Census data, genealogical work establish Tillotsons from 17th-century onward

In the following passage, Kristen, an experienced genealogist, destroys the myth that my grandmother, Margaret Irene McDunn Tillotson, always perpetuated about the Tillotsons being an Irish family:

I seem to have had a run of very good luck. Your [Tillotson] tree is verified back to 1816 with the census and before that, other researchers have the family back to the 1750s in Connecticut. It was an early family. Lots of families moved west around the time of the Civil War, and some of these very earliest families seem to have gravitated toward Nebraska. It does not surprise me at all to find a New England root for your family.

Charles [father of Reginald] was the son of John W. Tillotson, and his father was John W. Tillotson. They came from Cazenovia, Madison County, New York. The younger John moved to Missouri, then Iowa, then Nebraska. The online researcher has an Ephraim as father of the older John, and an Abraham before that. (I have evidence that Abraham Tillotson served in the Revolutionary War, and got a pension.) The researcher said they came from Hebron, Connecticut. I have not chased down wives. The elder John had a good amount of land—220 acres—in 1860, improved and worth quite a bit of money.

One webpage has data as far back as the 17th century.

The 1910 census reveals important information. Charlie and Rose Tillotson were 30 and 35 years old, respectively, were able to read and write, and lived on Alda Street in Elba, Howard County, Nebraska. (The seat of this east-central county is St. Paul.) They had already had brought Joseph, age four, and Reginald, age two, and an as yet unnamed baby daughter into the world. Both boys were born in Iowa, but the girl, undoubtedly Mary, had been born in Nebraska, so the Tillotson family had come there within the last two years. Charlie’s occupation is given as carpenter, his place of occupation was an elevator, he evidently had employees, and the family rented a house.

1940 Omaha directory shows new home addresses for Tillotsons

The Omaha city directory for 1940 shows new information for the Tillotsons as compared to the year before.A change within the business organization was that Rose Tillotson had relinquished her duties as treasurer to daughter Mary V. Tillotson. But Rose continued to serve as company secretary.

All the home addresses were different for 1940.

Joe and Sylvia Tillotson were living at 2205 Jones, apartment 213.

Rose and Mary Tillotson, mother and daughter, shared a place at 3100 Chicago St.

And Reginald’s address is given as RD 2, Florence. RD could be the abbreviation for rural delivery. His family lived in the hills north of Florence, which was the village at the far north of Omaha.

1939 Omaha directory locates Tillotson Construction in Grain Exchange Building

The Omaha city directory for 1939, found by Kristen on Ancestry.com, verifies the status of the Tillotsons. From these pages it emerges that Tillotson Contruction Company kept offices at 720 Grain Exchange Building. Joseph H. Tillotson was president, Reginald O. Tillotson was vice-president, and their mother Rose A. (Brennan) Tillotson was secretary-treasurer in this  year.“Grain elev,” as seen in the listing, would refer to the company’s specialty.

Company president Joe Tillotson appears to have lived at 345 N. 41 St. with his wife Sylvia.

For the other Tillotsons, what could be a residential address of 1804 Dodge St. is given, although the directory’s abbreviations aren’t clear. Included here are Mrs. C.H. (Rose) Tillotson, who was by then the widow of Charles H. Tillotson, and Mary Tillotson, Reginald’s sister.

It seems unlikely that Reginald lived with his mother and sister at 1804 Dodge St. because by 1939 he and his wife Margaret already had at least four children of their own.

All this is in keeping with the announcement the previous autumn of Tillotson Construction Company’s establishment.

Tillotson Construction wins U.S. tax case in 1962

TILLOTSON v. MCCRORY, 202 F. Supp. 925 (D.Neb. 03/17/1962)

[1] UNITED STATES DISTRICT COURT DISTRICT OF NEBRASKA [2] 0522-0524 [3] 202 F. Supp. 925, 1962.DNE.0000004<http://www.versuslaw.com&gt; [4] March 17, 1962

[5] R. O. TILLOTSON and Margaret Tillotson, Plaintiffs, v.

James L. McCRORY, Defendant, and United States of America, Intervenor. Mary V. TILLOTSON, Plaintiff, v. James L. McCRORY, Defendant, and United States of America, Intervenor. TILLOTSON CONSTRUCTION COMPANY, a corporation, Plaintiff, v. James L. McCRORY, Defendant, and United States of America, Intervenor

[6] Harry Welch, and James McGreevy, Omaha, Neb., for plaintiffs in all cases. , R. Michael Duncan, Dept. of Justice, Washington, D.C., for defendant and intervenor in all cases.

[7] The opinion of the court was delivered by: ROBINSON

[8] These cases were consolidated for trial and were tried to the Court.

[9] Briefly, the causes of action are as follows: The Tillotson Construction Company seeks a refund or $ 22,654.41, plus interest, representing income taxes for the calendar year 1953, 1954, and 1955, allegedly erroneously assessed and collected. The United States intervened in this action seeking to collect an unpaid assessment against the company for 1955 income taxes in the amount of $ 96,596.20, plus interest.

[10] The estate of R. O. Tillotson and his widow, Margaret Tillotson, seek the refund of $ 180.20, plus interest, representing 1955 income tax allegedly overpaid. The United States intervened seeking to collect an unpaid assessment against them for 1955 income taxes in the amount of $ 47,031.85, plus interest.

[11] Mary V. Tillotson seeks refund of $ 180.19, plus interest, representing the 1955 income tax allegedly overpaid. The United States intervened seeking to collect an unpaid assessment against her for 1955 income tax in the amount of $ 49,301.31.

[12] Three issues were presented for determination:

[13] 1. Whether the Commissioner abused his discretion in allocating certain items of income and expense reported by Tillotson Contracting Company, a partnership, to the 1954 and 1955 income of the Tillotson Construction Company, a corporation under the provisions of Section 482 of the Internal Revenue Code of 1954, 26 U.S.C.A. ␣482.

[14] 2. Whether the Commissioner was correct in his determination that rent paid for construction equipment by the corporation to the partnership for the years 1952-1954, inclusive, was excessive and therefore not allowable as a business expense deduction to the Corporation.

[15] 3. Whether the Commissioner was correct in disallowing some of the partnership’s claimed

Page 1 of 5depreciation deduction based upon a determination of longer useful lives of certain of the construction equipment owned by the partnership.

[16] The Tillotson Construction Company, hereinafter referred to as the corporation, was incorporated under the laws of Nebraska in 1938. As of May 1, 1952, the stockholders of the corporation were Rose Tillotson — 37 shares; Reginald O. Tillotson — 8 shares; and Mary V. Tillotson — 5 shares. Rose Tillotson, mother of Reginald and Mary, passed away intestate in 1953 and Reginald and Mary became the owners of her shares of stock.

[17] Tillotson Contracting Company, hereinafter referred to as the partnership, was formed in May of 1952 for the purpose of carrying on general building, construction and contracting business. The profits of the partnership were to be divided 50% To Reginald and 50% To Mary Tillotson.

[18] The corporation filed income tax returns on a calender year completed-contract basis for the years 1952-1955 inclusive. It returns for the years 1952 and 1953 showed net operating losses. The 1954 return showed a deduction for the net operating loss carryover remaining after carryback to the year 1951 and claim for refund was filed to recover the 1951 taxes paid, based upon the carryback. Upon audit, the Commissioner allowed an overassessment for 1951 based on a carryback of the 1952 operating loss, and asserted deficiencies for 1953 and 1954. These deficiencies were paid and claims for refund were filed with the District Director.

[19] The corporation return for the calendar year 1955 and the partnership return for its fiscal years ending April 30, 1955, and 1956, the joint return of R.O. and Margaret Tillotson and the individual 1955 return of Mary V. Tillotson were audited and the revenue agent carried forward the allocations of profits on contracts completed by the partnership to the corporation’s 1955 income and carried forward the Commissioner’s rental deduction adjustment. The corporation filed a claim for refund for allegedly overpaid 1955 taxes, based on the theory that certain costs should have been accrued as deductible expenses on the 1955 return, thereby reducing the income as reported on the alleged tax liability of the corporation. On the same date, Reginald and Margaret Tillotson and Mary V. Tillotson filed separate claims for refund for allegedly overpaid 1955 taxes based on the theory that certain partnership costs should have been included as deductible expenses on its partnership return for its fiscal year ending April 30, 1955, thereby reducing their 1955 distributable shares. After the lapse of six months without formal disallowance, the corporation brought suit on its disallowed claims for the years 1953 and 1954 and its claim for the year 1955, and the individual taxpayers filed their suits on their claims for the year 1955.

[20] The Commissioner thereupon issued statutory notices of deficiency to the corporation and to Reginald and Margaret Tillotson and Mary V. Tillotson for the year 1955, for the amounts involved in the three actions herein. Notice and demand were served, taxpayers defaulted, and the United States proceeded to intervene in these actions under the provisions of ␣7422(e), 26 U.S.C.A. 1958 ed., ␣7422, to recover the unpaid assessments.

[21] Section 482 of the Internal Revenue Code of 1954, provides as follows:

[22] ‘Allocation of income and deductions among taxpayers.

[23] ‘In any case of two or more organizations, trades, or business (whether or not incorporated, whether or not organized in the United States, and whether or not affiliated) owned or controlled directly or indirectly by the same interests, the Secretary or his delegate may distribute, apportion, or allocate gross income, deductions, credits, or allowances between or among such organizations, trades, or businesses, if he determines that such distribution, apportionment, or allocation is necessary in order to prevent evasion of taxes or clearly to reflect the income of any of such organizations, trades, or businesses.’ (26 U.S.C. 1958 ed., ␣482.)

[24] This section of the statute authorizes the Commissioner to distribute or allocate gross income and deductions between businesses owned or controlled directly or indirectly by the same interests if he determines that such distribution or allocation is necessary in order to prevent evasion of taxes or clearly to reflect the income of these businesses.

[25] The evidence presented here shows that the partnership was organized in May of 1952 as an equal partnership of Reginald and Mary Tillotson and that the initial business of the partnership consisted of renting construction equipment formerly owned by the corporation to the corporation for use of the corporation on construction jobs. The corporation was organized in 1938 and it engaged in the construction of grain elevators. It is undisputed that the Tillotson name became well known in this business. In 1952, Reginald and Mary were the managing officers and stockholders of the corporation and while their mother was the majority stockholder, she was inactive in the business.

[26] Commencing in 1954 the partnership began taking grain elevator construction contracts in its own name as well as continuing to rent construction equipment to the corporation for jobs being performed by the corporation. During the calendar year 1954 the partnership completed one contract and the Commissioner allocated the gross profits on this contract to the corporation. During the calendar year 1955 the partnership completed eight contracts and the Commissioner allocated the gross profits from those contracts to the corporation’s 1955 income and made a corresponding allocation of administrative expense to the corporation and partnership income was adjusted accordingly. The issue for the Court’s determination is whether the Commissioner abused the disrcretion granted him under ␣ 482 in making this allocation.

[27] The Government contends that the taxpayers cannot properly contest the ‘common control requirement’ of ␣482, alleging that the two entities, the corporation and the partnership, were being operated by the same people, and as of the date the partnership started to undertake construction contracts, they were the sole beneficial owners of the corporation’s stock.

[28] Treasury Regulation 118 (1939 Code), ␣39.45-1(a)(3), defines the term ‘controlled’ in ␣482 to include:

[29] ‘* * * any kind of control, direct or indirect, whether legally enforceable, and however exercisable or exercised. It is the reality of the control which is decisive, not its form or the mode of its exercise. * * *’

[30] The important criteria discussed by the Courts in ‘split-up’ cases has been whether the split-up represented a logical, natural or functional division of the business, and whether the split-up was motivated by business reasons or tax avoidance. See and compare: Idaho Livestock Auction v. United States, D.C., 187 F.Supp. 875; Twin Oaks v. Commissioner, 9th Cir., 183 F.2d 385, 24 A.L.R.2d 466; Raymond Pearson Motor Co. v. Commissioner, 5th Cir., 246 F.2d 509; Seminole Flavor Co. v. Commissioner, 4 T.C. 1215, 1219-1221; Buffalo Meter Co. v. Commissioner, 10 T.C. 83, 89; Palm Beach Aero Corp. v. Commissioner, 17 T.C. 1169, 1174.

[31] From the evidence presented in these cases the Court finds that the corporation and the partnership were, during the period in question, separate and distinct entities with legitimate business purposes. At all times subsequent to the formation of the partnership, books and records were kept by the joint bookkeeping department of the two organizations reflecting the financial position of each and the income derived from these respective businesses was readily ascertainable and attributable to the business which earned it. The books and records of the organizations were inspected and audited by an independent auditing firm and separate bank accounts were kept by the two organizations. There were no attempts to distort the true gross income of either organization.

[32] The businesses here in question were separate and distinct entities with legitimate business purposes, and even though controlled by the same interests, they transacted business between themselves at arms length. From the record here I have concluded that the Commissioner erred in allocating funds of the partnership to the corporation.

[33] As to the second issue presented by these cases, the Commissioner, as part of the deficiencies in issue here, disallowed the deduction by the corporation of part of the equipment rentals charged by the partnership.

[34] Section 23(a)(1)(A) of the Internal Revenue Code of 1939, and Section 162(a) (3) of the Internal Revenue Code of 1954, provide as follows:

[35] Internal Revenue Code of 1939: [36] ‘ ␣23. Deductions from gross income. [37] ‘In computing net income there shall be allowed as deductions: [38] ‘(a) (As amended by ␣121(a), Revenue Act of 1942, c. 619, 56 Stat. 798) Expenses. [39] ‘(1) Trade or business expenses.

[40] ‘(A) In general. All the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business, including * * * rentals or other payments required to be made as a condition to the continued use or possession, for purposes of the trade or business, of property to which the taxpayer has not taken or is not taking title or in which he has no equity. * * *’ (26 U.S.C. 1952 ed., ␣23.) Internal Revenue Code of 1954: ‘ ␣162. Trade or business expenses.

[41] ‘(a) In general. There shall be allowed as a deduction all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business, including —

[42] ‘(3) rentals or other payments required to be made as a condition to the continued use or possession, for purposes of the trade or business, of property to which the taxpayer has not taken or is not taking title or in which he has no equity.’ (26 U.S.C. 1958 ed., ␣162).

[43] These sections of the code provide for the deduction of rentals or other payments required to be made as a condition to the continued use or possession, for purposes of the trade or business, of property to which the taxpayer has not taken or is not taking title or in which he has no equity. The issue here is whether the payments in question represented actual rental payments required to be made as a condition to the continued use or possession of the property. If they were not wholly rental payments then the excess is not deductible.

[44] The Court of Appeals for the Eighth Circuit has held that in cases of close relationship between lessor and lessee, close scrutiny of the situation is appropriate in determining whether some part of the amounts designated as rentals were in fact disguised distributions of profits or dividends, Potter Electric Signal & Manufacturing v. Commissioner, 8 Cir., 286 F.2d 200; and arrives at the determination by inquiry into what constitutes a reasonable rental for the property in issue. The taxpayer who claims the deduction has the burden of proof to establish what amounts constitute reasonable rentals and must overcome the presumption of correctness of the Commissioner’s determination.

[45] The record here shows that the taxpayers relied upon the rates set out in the Associated Equipment Distributors rental compilations. Four expert witnesses from the Omaha area testified that the rentals charged were fair and reasonable and the Court is not convinced that the rates paid were in excess of what the lessee would have been required to pay had they dealt at arms length with a stranger. The Court cannot disregard the unimpeached and competent testimony of the taxpayers here, which stands uncontradicted. E. Albrecht & Son v. Landy, 8 Cir., 114 F.2d 202.

[46] The final issue presented is raised by the Commissioner’s reduction of the partnership’s depreciation deduction. The partnership, which owned all of the construction equipment used in the business after the acquisition from the corporation in May, 1952, deducted depreciation on the equipment. Depreciation was computed on a composite 30% Rate (or 3 1/3 year useful life) both on the new equipment and the old equipment purchased from the corporation. The Commissioner determined that the equipment subsequently purchased by the partnership had a longer useful life. The determination had the effect of decreasing the allowable depreciation deduction to the partnership, and it is this determination of a longer useful life for the subsequently purchased equipment that the taxpayers here dispute.

[47] Section 167(a) of the Internal Revenue Code of 1954, 26 U.S.C.A. ␣167(a) allows a reasonable allowance for the exhaustion, wear and tear of property used in business or trade. Section 1.167(a)-1(a) of Treasury Regulations on Income Tax, 1954, provides that the useful life of property shall be determined by reference to the taxpayer’s experience with similar property. A determination as to useful life is therefore a factual conclusion.

[48] Expert testimony by the taxpayers was to the effect that the depreciation allowance used by the partnership in connection with the used equipment and the smaller equipment was correct and comparable with the rate used by other companies in the Omaha area. I have concluded that while a life of five years might be appropriate for new equipment purchased by the partnership, such a conclusion cannot be reached as to the other equipment and that the composite five-year depreciation period determined by the Commissioner is unrealistic and must be overruled.

[49] In summary, the Commissioner’s allocation of construction profits from the partnership to the corporation is overruled. The Commissioner’s disallowance of rental deduction by the corporation on part of the equipment rentals charged by the partnership are overruled. The Commissioner’s adjustments to the partnership’s depreciation deduction on the construction equipment are overruled.

[50] Counsel for the plaintiffs will prepare Findings of Fact, Conclusions of Law and a Judgment, incorporating therein the stipulation of the parties, submit them to counsel for the Government for approval as to form only, and file them with the Court within 45 days from the date hereof.

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Tillotson Construction partners announced September 9, 1938

In the business pages of the Evening State Journal (Lincoln, Nebraska), on September 9, 1938, the new corporation of Tillotson Construction of Omaha, Nebraska, was announced, listing Joseph H. Tillotson, Reginald O. Tillotson, and Rose A. Tillotson as partners.  The firm would specialize in the construction, reconstruction, and repair of grain elevators, warehouses, and similar buildings.

Rose A. Tillotson was the mother of Joe and Reginald. Her husband and their father, Charles (b. 1880, Brunswick, Missouri), had died in June of 1938 in Concordia, Kansas. She was born Rose Brennan on March 4, unknown year, in Ireland and died in the 1950s in Omaha while in her late-80s.