91 F. Supp. 26 (1950) | Cited 0 times | D. Rhode Island | January 27, 1950

This is an action for refund of undistributed profits surtax paid for the years 1936 and 1937 in the sum of $ 14,223.03, with interest thereon from the date of payment. The taxes were paid under the Revenue Act of 1936, C. 690, 49 Stat. 1648, Sec. 14, 26 U.S.C.A.Int.Rev.Acts,page 823.

The parties filed a second amended stipulation which is as follows:

'It Is Stipulated And Agreed by and between the parties hereto by their respective counsel of record that the following facts are taken to be true, subject, however, with respect to Paragraphs 12, 13, 14 and 18, to any and all objections as to relevancy which may be urged by the plaintiff:

'1. This action arises under the Internal Revenue Laws of the United States, more particularly the Revenue Act of 1936 as amended by the Revenue Act of 1942 and jurisdiction is conferred on this court by Section 24, paragraphs 5 and 20, of the Judicial Code as amended (28 U.S.C.Section 41(5) and (20) (now Sec. 1346)).

'2. The taxpayer was at all times involved in this action and is now a corporation organized and existing under the laws of the State of Rhode Island.

'3. The taxpayer did duly file income and excess-profits tax returns for the calendar years 1936 and 1937 respectively, and duly paid the amount of $ 2,578.67 with respect to 1936 and $ 26,410.57 with respect to 1936 and $ 26,410.57 with respect to 1937, these amounts being the amounts of taxes computed in accordance with said returns.

'4. For the year 1936 the taxpayer reported no surtax due on $ 20,026.48 in undistributed net income on the ground that is was entitled to a credit under the law because it was restricted from paying dividends by a contract entered into prior to 1936. The Commissioner of Internal Revenue, after audit and review, however, determined that the taxpayer was not restricted by such a contract and assessed surtax of $ 3,539.50 for that year, and the taxpayer paid that amount together with interest of $ 467.12 on May 27, 1939.

'5. For the year 1937 the taxpayer reported as net income for the surtax computations on undistributed net income (after allowing for the normal income tax due) the sum of $ 90,523.42. From this sum it deducted $ 25,025 as a credit for dividends distributed during the year, resulting in undistributed profits of $ 65,498.42. On this it computed a surtax due of $ 11,800.55, which it paid during 1938. The Commissioner then made certain minor adjustments increasing the undistributed net income to $ 65,581.72 and the surtax thereon to $ 11,817.61. The taxpayer then paid the $ 17.06 difference together with $ 14.70 in additional income taxes and $ 2.29 in interest on both sums (of which $ 1.23 is attributable to the surtax) on May 27, 1939.

'6. All of the foregoing payments referred to in the preceding paragraphs were paid to Joseph V. Broderick, then Collector of Internal Revenue for the District of Rhode Island, now deceased.

'7. On or about October 18, 1943 the taxpayer filed claims for refund of income taxes paid for the year 1936 and 1937 in the amount of $ 3,526.11 and $ 10,696.92 respectively plus interest on such amounts, which claims were denied by the Commissioner of Internal Revenue on November 28, 1944 by a letter sent the taxpayer by registered mail. The copies of the refund claims herein mentioned attached to the complaint in this action are true copies of the original claims on file with the Commissioner of Internal Revenue.

'8. The taxpayer's adjusted net income of computation of surtax on undistributed net income for 1936 was $ 20,116.09.

'9. The taxpayer's adjusted net income for computation of surtax on undistributed net income for 1937 was $ 90,606.72, and after giving effect to a dividend distribution of $ 25,025 its remaining undistributed net income subject to surtax was $ 65,581.72.

'10. As of December 31, 1935 the taxpayer had a deficit in its earned surplus account of $ 67,787.84. At the same time it had a surplus arising from other than ordinary earnings of $ 11,334.55 (capital surplus). Thus the deficit in the entire surplus account on that date was $ 56,453.29, and the taxpayer's capital was impaired by that amount.

'11. After giving effect to 1936 earnings and allowing for taxes, on December 31, 1936 the taxpayer's deficit in its earned surplus account was reduced to $ 52,467.32. And its capital surplus remained the same. This left a net deficit in the entire surplus account on that day of $ 41,132.77, and the taxpayer's capital was impaired by that amount.

'12. During 1936 the taxpayer acquired 313 shares of its stock having a par value of $ 31,300, for $ 6,435, which it carried on its books at the purchase price pending the vote for reduction of capital stock and actual reduction and retirement. It lawfully retired these shares on February 19, 1937, decreasing its capital stock by $ 31,300 and increasing its capital surplus by $ 24,865, the difference between the $ 31,300 and the cost to it of the shares, namely, $ 6,435. On December 31, 1937 its books thus showed total capital surplus of $ 36,199.55.

'13. At the end of 1937 also the taxpayer applied its $ 90,606.72 in earnings, less the dividend of $ 25,025, to its earned surplus account and reduced its deficit in that account to $ 10,173.64. '14. A summary of the taxpayer's capital and surplus accounts, taken from its income tax returns for 1936 and 1937 is as follows: Dec. 31, 1935 Dec. 31, 1936 Dec. 31, 1937Capital Stock $ 755,800.00 $ 755,800.00 $ 724,500.00Surplus (Capital) 11,334.55 11,334.55 36,199.55Surplus (Earned) ( -- 67,787.84) ( -- 52,467.32) ( -- 10,173.64)Net or Total Surplus ( -- 56,453.29) ( -- 41,132.77) 26,025.91

Back to top