Citations
- 52 F. Supp. 637
Full opinion text
COXE, District Judge.
This is an action to recover an alleged over-payment of income taxes for 1925, amounting to $66,218.88, with interest from December 15, 1926.
The action is based on the refusal of the commissioner to allow any deduction from gross income on account of an asserted loss resulting from the partial liquidation in 1925 of the Tank Storage and Carriage Company, Ltd., a wholly owned British subsidiary of the plaintiff. This loss was stated in the original complaint at $315,-894.30', but the amount was increased by amendment at the trial to $509,376. The plaintiff computes the amount of the alleged overpayment at $66,218.88 by applying the effective tax rate of 13% for 1925 to the presently asserted loss of $509,376.
The government in its amended answer not only denies that the plaintiff sustained any loss in 1925 in connection with the partial liquidation of the Tank Storage and Carriage Company, Ltd., but challenges the right of the plaintiff to maintain the action at all on the ground that the claim for refund was not seasonably filed. It also sets up various claims for recoupment based on alleged under-payment of taxes by the plaintiff in other years than 1925.
The trial of the action took a wide range, and considerable evidence was introduced with respect to the 1913 value of the plaintiff’s original investment in the Tank Storage and Carriage Company, Ltd. There was also considerable evidence relating to the government’s claims for recoupment. The critical issue in the case is, however, whether the claim for refund was seasonably filed, and on that issue the facts have for the most part been stipulated, and may be stated briefly.
The plaintiff (formerly Standard Oil Company of New York) is a large corporation, with various foreign and domestic subsidiaries. On February 1, 1912, the plaintiff (then called Standard Oil Company of New York) purchased from the Standard Oil Company of New Jersey the entire outstanding stock of the Tank Storage and Carriage Company, Ltd. (hereinafter called “Tank Company”) consisting of 10,000 shares. The amount immediately paid by the plaintiff does not appear, but it has been stipulated that on June 10, 1912, the Tank Company issued an additional 5,000 shares, which were subscribed for by the plaintiff, and that the plaintiff was then the owner of 14,997 shares of the 15,000 shares of the Tank Company, which it had acquired at a cost of $457,825.89. This stock had at the time a par value of 7 pounds for each share and it was fully paid.
The Tank Company was organized in 1888 under English law. The business for a number of years prior to February 1912, consisted of the operation of pipe lines and storage by its Russian branch, and during this period the operating loss amounted to about 2,000 pounds a year. After the acquisition of the control of the Tank Company by the plaintiff, the Tank Company purchased from a subsidiary of the Standard Oil Company of New Jersey a fleet of tankers and sailing vessels which had theretofore been operating in Asiatic waters. The Tank Company also arranged for the construction of other vessels. The funds required to finance this program were advanced by the plaintiff, and appear on the plaintiff’s books as loans carrying 5% interest. As of December 31, 1912, the Tank Company owed the plaintiff on account of these advances, with interest, $2,-514,121.85, and by December 31, 1913, the indebtedness had increased to $4,436,474.48.
In 1914, the par value of the stock of the Tank Company was changed from 7 pounds to 1 pound, and the plaintiff received 7 shares of the new stock for each old share held. The result of this conversion was that the plaintiff held 104,979 shares of the new 1 pound par stock in place of the 14,997 previously held. Later, in 1914, and in 1915, the capital of the Tank Company was increased to 1,500,000 shares of 1 pound par stock, and the entire amount of the increase, consisting of 1,395,000 shares was subscribed for at par, and taken by the plaintiff. The plaintiff used in part payment of these new shares the indebtedness then existing to it from the Tank Company.
In 1917, the Tank Company sold its entire Asiatic fleet to Standard Transportation Company, Ltd., another subsidiary of the plaintiff, for $5,734,595.45, and with this money and other funds to the credit of the Tank Company with the plaintiff, the Tank Company retired at par 1,375,000 of the shares which had previously been acquired by the plaintiff in 1914 and 1915. This left the Tank Company with only 125,000 shares still outstanding, all held by the plaintiff, with the ex