CITIZENS'BANK v. Miller-Link Lumber Co.

• Decision Date: 31 December 1926
• Docket Number: No. 223.,223.
• Citation: 16 F.2d 163
• Parties: CITIZENS' BANK OF LAFOURCHE v. MILLER-LINK LUMBER CO.
• Court: U.S. District Court — Panama Canal Zone

16 F.2d 163 (1926)

CITIZENS' BANK OF LAFOURCHE v. MILLER-LINK LUMBER CO.

No. 223.

District Court, E. D. Texas, Beaumont Division.

S. D. Bennett, of Beaumont, Tex., Asst. U. S. Atty., for the United States.

Baker, Botts, Parker & Garwood, of Houston, Tex., for receivers of Miller-Link Lumber Co.

ESTES, District Judge.

I quote from the brief of the receivers the following statement, which appears to be uncontroverted, with respect to the facts involved:

"On April 12, 1918, the Orange Maritime Corporation filed with the federal internal revenue collector of this district its income tax and excess profits tax returns for the year 1917. In its income tax return it listed among items deductible from its gross income the following:

                  Donations and subscriptions               $585.95
                  Subscribed by employes to Red Cross         11.00
                

"The government disallowed these deductions and increased its net income by those amounts.

"In the excess profits tax return the amount of the tax depended upon the amount of invested capital. In its return the corporation set out its invested capital as follows:

                  Capital, surplus, and undivided profits
                   at the close of the preceding year    $20,000.00
                  Adjustment by way of additions          23,207.42
                                                        ___________
                     Total invested capital              $43,207.42
                

"The return disclosed, however, the $23,207.42 was arrived at as follows: `On March 29, 1917, we derived from the sale of a vessel built by us $84,000, which vessel cost $55,056.77, and the profit thus derived being a realization of earnings or profit for the following taxable year remained in the business for nine-twelfths of the taxable year, being equivalent to nine-twelfths of $30,943.23, or $23,207.42, additional invested capital for the taxable year 1917.'

"The government disallowed this on the ground that, since the $30,943.23 was undivided profits earned during the taxable year 1917, same could not be included as invested capital under the Act of October 3, 1917, § 207(a) (3), being Comp. St. § 6336 3/8h. It therefore disallowed this additional capital and increased the excess profits tax. The total increase in income tax and excess profits tax was $2,815.07.

"In January, 1922, the Orange Maritime Corporation owed the Miller-Link Lumber Company over $314,000. At that time also it owed the First National Bank of Orange, Joe Miller, and George E. Holland certain amounts. In January, 1922, the Orange Maritime Corporation transferred all of its assets to the receivers of the Miller-Link Lumber Company, which assets consisted practically entirely of unliquidated claims upon fire insurance policies. Under the contract which has been introduced in evidence, the claims of the First National Bank, Joe Miller, and Mr. Holland were to be paid first, and the receivers were to hold the balance of the assets received by them ratably for itself and all other creditors. At that time no other claims were known to the parties. After the above three claims were paid, the receivers realized approximately $119,000.

"It was agreed by the parties on the trial of this case that at the time the contract was made, in January, 1922, the Orange Maritime Corporation was insolvent, and has been insolvent ever since, and that the receivership of the Miller-Link Lumber Company is insolvent, and has been insolvent ever since that time.

"In December, 1922, the government sent a notice to the Orange Maritime Corporation that it intended to disallow the deductions above pointed out and increase the taxes....