Stevenson-Chislett, Inc. v. United States
| Decision Date | 28 June 1951 |
| Docket Number | Civ. No. 8117. |
| Citation | 98 F. Supp. 252 |
| Parties | STEVENSON-CHISLETT, Inc. v. UNITED STATES. |
| Court | U.S. District Court — Eastern District of Pennsylvania |
David B. Buerger and Smith, Buchanan & Ingersoll, all of Pittsburgh, Pa., for plaintiff.
Theron Lamar Caudle, Asst. Atty. Gen., Andrew D. Sharpe, Andrew F. Oehmann, Sp. Assts. to Atty. Gen., Edward C. Boyle, U. S. Atty., Pittsburgh, Pa., for defendant.
This is an action instituted by plaintiff corporation under Section 1346(a)(1) of the Judicial Code, 28 U.S.C. § 1346(a) (1), to recover the sum of $3,942.94 paid for income taxes for the calendar year 1945. From pleadings and proof I make the following
1. Stevenson-Chislett, Inc., a corporation and the plaintiff herein, filed its Federal Income Tax Return for the calendar year 1945 with the Collector of Internal Revenue at Pittsburgh, Pennsylvania, on March 15, 1946, and it paid to him the income tax shown due on the return in the amount of $3,942.94 in installments as follows:
April 3, 1946 $ 985.74
June 24, 1946 985.74
September 25, 1946 985.73
December 17, 1946 985.73
_________
$3,942.94
No part of the said amount has ever been refunded or in any manner repaid.
2. On March 15, 1949, plaintiff filed with the aforesaid Collector a claim for refund of 1945 income tax, in the amount of $3,492.94, on the ground that plaintiff had sustained a loss by embezzlement, in the amount of $20,925.20, which was discovered during 1945; that said loss was not compensated for by insurance or otherwise; and that said loss had not been reflected in its 1945 return. The Commissioner of Internal Revenue had rendered no decision on the claim for refund when this action was commenced September 21, 1950.
3. Early in 1945, during an audit of plaintiff's books, a discrepancy of $24,135.14, as of December 31, 1944, was discovered between the accounts receivable control account in the general ledger and the total of the individual accounts receivable. Of this amount, $16,882.09 had been posted during October, 1944, as credits to the accounts receivable control account with no corresponding bank deposit. Later investigation determined that the exact amount of the discrepancy between the individual accounts receivable in the accounts receivable ledger and the accounts receivable control account in the general ledger as of December 31, 1944, was $21,675.37.
4. Investigation revealed that the cashier-bookkeeper over a period of several years had manipulated the books and records of the plaintiff for the purpose of covering up cash shortages by accumulating for several months credit slips of individual accounts receivable accounts. Credit slips were posted in later months and there were usually several months of credit slips unposted to the accounts receivable control account in the general ledger.
5. The difference in the two accounts, $21,675.37, represented amounts embezzled from the plaintiff by a person or persons unknown. The said funds were not taken at one time but represented a succession of embezzlements covering an unascertained number of years. Because of the manipulation of the books and records by the cashier-bookkeeper, aided and abetted by an officer of the corporation, and the silence of other employees who knew of or suspected the manipulation, the responsible officers of the corporation did not discover the embezzlement and loss until 1945 when an audit and investigation disclosed the cash shortage.
6. The loss by embezzlement was not compensated for by insurance or otherwise.
7. In view of the series of embezzlements, the nature of the records available and the reluctance to cooperate on the part of the persons involved or suspected, it was a practical impossibility to ascertain the exact year or years in which the succession of shortages occurred.
8. An attempt to segregate the exact year or years in which such shortages occurred would have required a very detailed and extensive audit and investigation with no assurance that such investigation would have disclosed the actual dates of the acts of embezzlement.
9. Plaintiff used reasonable efforts and diligence under the circumstances of this case in attempting to ascertain the times at which the various embezzlements occurred.
10. Plaintiff made reasonable efforts to detect the identity of the guilty party or parties, including, among others, examination of the suspected persons by accountants and lawyers, detailed analyses of the personal bank accounts of suspected persons, and extended attempts to obtain a confession from the person toward whom suspicion most strongly pointed. It was only upon the considered advice of the plaintiff's attorneys that there was not sufficient basis to institute either civil or criminal action under the circumstances that the plaintiff abandoned its attempt to recover the amounts embezzled.
11. The plaintiff failed to deduct the said loss in its computation of net income in its return for the year 1945.
Throughout the trial of the case, and in its brief, the Government has taken issue with the plaintiff on several important facts; that the plaintiff has suffered a loss by embezzlement; that reasonable efforts were made to attempt to place the dates of loss if they did occur; and that the plaintiff made reasonable efforts to determine the identity of, and obtain redress from, the guilty party or parties, if loss occurred.
The Government contends in this case that because of one fact elicited in a statement obtained from a witness and introduced in evidence at the trial, namely, that certain of the petty cash funds were used to pay for C. O. D. purchases, the plaintiff has failed to prove embezzlement. I do not so understand the evidence. It appeared clear to me that cash purchases were accounted for and that the amount, $21,675.37, represented unaccounted for shortages.
The Government further contends that if funds were embezzled or stolen, the loss was sustained in 1944 or in prior years to which it should have been apportioned. I agree that the actual thefts occurred in 1944 and prior years, and under ordinary circumstances should have been apportioned to those years. A detailed and extensive audit might have thrown some light upon the period during which the delays in posting took place, but such audit would have required checking with individual grocery store customers. This type of investigation would not only have been burdensome but presented little likelihood of success. Further, it is questionable whether such information would have ascertained the time of the acts of embezzlement. I find that under the circumstances it is not reasonable to require the taxpayer to expend substantial sums on an extensive audit which, at best, had little hope of success in fixing the times of the embezzlements which are the losses here claimed.
One contention of the Government has given me considerable concern, and that is its allegation that the plaintiff has failed to make a real effort to force an accounting from the person or persons who, according to the evidence, might have been...
To continue reading
Request your trial
-
Alsop v. CIR
...more literal reading of the statute would have demanded. The record in one of the two cases there decided, Stevenson-Chislett, Inc. v. United States, D.C.W.D.Pa. 1951, 98 F.Supp. 252, shows that the embezzling employee had made proper entries of receipts of income in the accounts, which, at......