Laster's Estate v. Scofield , 74 F. Supp. 458 ( 1947 )

RICE, District Judge.

The Court finds the facts to be as set forth in the Stipulation on file, and concludes, after considering the facts, the briefs of the parties, and the law, that plaintiff is entitled to recover as prayed for.

The Clerk of the Court will accordingly advise the attorneys of record of the findings and conclusions of the Court, and request plaintiff to prepare and submit to the Court, in accordance herewith, tentative Findings of Fact and Conclusions of Law, together with Judgment to be entered, and submit copies thereof to the attorney for defendant.

Findings of Fact

From the stipulation of facts filed herein by the parties and from the evidence and admissions, the facts are found to be as follows:

I. Plaintiff, a widow, is a resident of Falfurrias, Brooks County, Texas.

II. Frank Scofield, defendant, was the duly commissioned, qualified and acting Collector of Internal Revenue for the First Collection District of Texas at all dates herein involved, and is such official at this time.

III. During the year 1939, plaintiff was the owner of 1,398 shares of the 1,400 shares of capital stock of the Falfurrias Mercantile Company, a domestic corporation,

IV. During the year 1939, the Falfurrias Mercantile Company made a cash distribution of $9,800 to its stockholders. Plaintiff received 1398/1400 of the amount distributed, or $9,786.

V. The following is a true analysis of the “surplus” account on the books of the Falfurrias Mercantile Company for the year 1939:

Deficit, January 1, 1939 Less: Recovery of bad debts $45,332.37

charged off in loss years

from which taxpayer cor-

poration derived no tax

benefits $6,706.19

Net income from other

sources 1,617.44 8,323.63

Difference 37,008.74

Plus: Income tax for 1939 202.18

Cash distribution to stoeli-

stochholders 9,800.00

Deficit, December 31, 1939 $47,010.92

VI. On March 15, 1940, plaintiff filed with the defendant her individual income tax return for the calendar year 1939, showing taxable net income of $13,367.25, which included no part of the aforesaid distribution of $9,786 received by her from the Falfurrias Mercantile Company. That return also disclosed a total tax liability of $952.07, which amount was duly assessed and was paid on March 15, 1940.

VII. Upon audit and examination of plaintiff’s income tax return the Commissioner of Internal Revenue added to plaintiff’s taxable income for 1939 $7,772.59 of the $9,786 distributed to her by the Falfurrias Mercantile Company on the ground that the bad debt recoveries constituted earnings and profits of said company available for the payment of taxable dividends.

VIII. As a result of the adjustment to which reference is made in Paragraph VII above, the Commissioner duly assessed against plaintiff for the year 1939 additional income taxes and interest thereon in the aggregate amount of $1,232.71, which was paid by plaintiff on the dates and in the amounts as follows:

Date Paid Tax Interest Total

October 17, 1941 $1,026.26 $ 97.50 $1,123.76

June 10, 1942 96.22 12.73 108,95

Totals ÍU2148 TTÓÍ28 T232Í7Í

IX. On November 4, 1941, and on June 26, 1942, plaintiff filed an original and amended refund claim, respectively, for the year 1939. These claims were duly rejected by the Commissioner of Internal Revenue by registered letters dated June 30, 1942, and February 28, 1944, respectively.

X. The books of the Falfurrias Mercantile Company, Inc., were kept on the accrual basis for the purpose of its income tax return.

XI. The plaintiff, Mary M. Lasater, died pending suit and upon the trial hereof her estate was substituted as plaintiff.

Conclusions of Law

I. Of the total of $9,786 distributed to Mary M. Lasater by the Falfurrias Mercantile Company during the year 1939, $6,359.35 was a return of capital and not income.

II. Plaintiff is entitled to recover the sum of $1,047.02, with interest at 6% on $938.07 from October 17, 1941, and on $108.95 from June 10, 1942.