Huntington Securities Corporation v. Busey, 3670.
| Decision Date | 31 December 1939 |
| Docket Number | No. 3670.,3670. |
| Citation | 26 F. Supp. 849 |
| Parties | HUNTINGTON SECURITIES CORPORATION v. BUSEY, Collector of Internal Revenue. |
| Court | U.S. District Court — Southern District of Ohio |
Arnold, Wright, Purpus & Harlor, of Columbus, Ohio, for plaintiff.
Francis Canny, U. S. Atty., of Dayton, Ohio, Ray J. O'Donnell, Asst. U. S. Atty., of Columbus, Ohio, and James W. Morris, Asst. Atty. Gen. (Andrew D. Sharp and Mills Kitchin, Sp. Assts. to the Atty. Gen., on the brief), for defendant.
This is an action seeking refund of income and excess profits taxes paid by the plaintiff under protest and for which the plaintiff duly filed its claim for refund.
By a stipulation of the parties, trial by a jury was waived and the case submitted to the Court upon an agreed statement of facts.
This action for refund arose by reason of an assessment of an income tax in the sum of $6,967.62 and an excess profits tax of $1,112 for the taxable year of 1933 and an assessment of an income tax of $5,989.87 and an excess profits tax of $849.91 for the taxable year of 1934. The plaintiff paid all these sums plus interest of $1,354.38 on March 20, 1936. The total amount paid was $16,273.78.
The assessment of the taxes was due to the action of the Commissioner of Internal Revenue, wherein he changed the inventory basis of the securities held by the plaintiff to a current market value basis as of the beginning and end of the years 1933 and 1934, and on such changed basis made his computation of taxes, which resulted in the finding by him that the plaintiff had a net income for the taxable year of $50,673.62 and for the taxable year 1934 of $43,562.70.
The plaintiff is a corporation which was organized for the purpose of taking over the securities of the Huntington National Bank and to engage in the business of buying and selling securities as a dealer in securities.
In the agreed statement of facts, the plaintiff objects to the statement made in paragraph 7 and to Defendant's Exhibits 1 to 16 inclusive, on the ground that the same are immaterial, irrelevant and incompetent.
The objections are hereby overruled for the reason that the statement and the exhibits have some relevancy to the method pursued by the plaintiff in valuing its inventory and, for that reason, are material and there is no ground on which they are incompetent.
Plaintiff has introduced its income tax returns for the years 1929 to 1934, inclusive. These are the only returns the plaintiff made, as it was in existence during those years only. In the 1929 return, it states that its inventories were valued at cost. Beside this is a notation of "$401,598.28," yet the plaintiff used $446,690.45 as the value of its inventory in its return. In the agreed statement of facts, it is stated that cost was $448,361.97.
The plaintiff did not make a statement as to how its inventory was valued in its 1930 return. In the agreed statement of facts, it is disclosed that plaintiff used $530,711.60 in its return and that cost was $538,318.55.
In its 1931 return the plaintiff stated under valuation of inventories, that its inventory was written down to market through September 30, 1931, and that its inventory stood at book cost as of December 31, 1931. In the agreed statement cost is revealed as $572,806.04 and plaintiff used $557,224.74 in its return.
In its 1932 return the plaintiff stated that its security inventory had been carried at book value throughout the taxable year.
In its 1933 return the plaintiff stated that its inventory was carried at book (cost) value throughout the year. In the agreed statement cost appears as $307,310.11 and plaintiff used $335,117.43 in its return.
In its 1934 return the plaintiff stated that its inventory was carried at book (cost) value throughout the year. Cost was $114,137.91 and plaintiff used $122,317.73 in its return.
The discrepancies between cost and the amount used by the plaintiff in its returns are accounted for in paragraph 10 of the agreed statement. It is stated there that in some instances the profits from the sale of a block of securities were used to reduce the book cost of the remaining securities of the same block; and contrariwise, in some instances, when the sale from a block of securities resulted in a loss, such loss was then used to increase the book cost of the remaining unsold securities of the same block; also, in some instances, there were partial write downs in the book cost of certain securities. There is no evidence that this method conforms as nearly as may be to the best accounting practice or that it clearly reflects income.
On December 26, 1929, the Board of Directors of the plaintiff adopted a resolution directing the manager in closing the books of the plaintiff as of December 31, 1929 to adjust the book value of all securities owned by the plaintiff to the current market value of such securities and to apply any profits shown, to reduce the item...
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