Beneficial Industrial Loan Corporation v. Handy, 2.

• Decision Date: 31 August 1936
• Docket Number: No. 2.,2.
• Parties: BENEFICIAL INDUSTRIAL LOAN CORPORATION v. HANDY, Collector of Internal Revenue.
• Court: U.S. District Court — District of Delaware

16 F. Supp. 110

BENEFICIAL INDUSTRIAL LOAN CORPORATION v. HANDY, Collector of Internal Revenue.

No. 2.

District Court, D. Delaware.

August 31, 1936.

Richards, Layton & Finger, of Wilmington, Del., and Jackson R. Collins, of New York City, for plaintiff.

Leonard E. Wales, U. S. Atty., of Wilmington, Del., and Robert H. Jackson, Gen. Counsel, Bureau of Internal Revenue, and William Boyd Duff, Sp. Atty., Bureau of Internal Revenue, both of Washington, D. C., for defendant.

NIELDS, District Judge.

Indebitatus assumpsit under U.S.Rev. St. § 3226, as amended (26 U.S.C.A. §§ 1672-1673), to recover moneys wrongfully collected by the defendant from the plaintiff as corporate income taxes. In its declaration plaintiff alleges: "That the collection on September 26, 1931, of $2,486.54, by the defendant from the plaintiff, as and for an alleged additional corporate income tax and interest thereon for the fiscal year ended December 31, 1929, as aforesaid, was illegal and invalid. That by reason of the facts aforesaid there * * * is now due from the defendant to the said plaintiff the sum of $2,486.54 with interest thereon from September 26, 1931." Defendant pleads non assumpsit and statute of limitations. Defendant further moves for judgment "for the reasons that there is not sufficient or substantial evidence to warrant judgment for the plaintiff and that the defendant is entitled to such judgment as a matter of law under the evidence and facts of the case."

The following facts are stipulated by the parties: December 15, 1928, plaintiff was incorporated. May 8, 1929, plaintiff with American Loan Company and Industrial Bankers of America, Inc., entered into an agreement entitled an "Agreement and Act of Consolidation" which was filed with the secretary of state of the state of Delaware on May 9, 1929. March 13, 1930, plaintiff filed an income tax return including therein income from January 1, 1929, to May 9, 1929, the effective date of said "Agreement and Act of Consolidation." This return showed a computed tax due for said period of $29,318.70 which amount was paid to defendant. September 5, 1931, the Commissioner of Internal Revenue assessed an additional corporate income tax for the period in question against plaintiff in the amount of $2,284.47 with interest in the sum of $202.07. This additional assessment was made by reason of the disallowance of a claimed deduction amounting to $20,767.93. September 28, 1931, said tax and interest were paid to defendant. May 7, 1929, the item of $20,767.93 disallowed was paid to Haskins & Sells, certified public accountants for accountants' charges. The item consists of the following:

                  "1. Professional services rendered
                in the general examination
                for the purpose of reviewing
                the operations for the three
                years ended December 31, 1928
                of the accounts of the companies
                the control of which is being
                acquired by Beneficial Industrial
                Loan Corporation, pursuant
                to a reorganization agreement
                dated December 31, 1928
                in the preparation from the
                books without verification of a
                consolidated balance sheet, December
                31, 1928, of the same
                companies, and in the preparation
                of our report dated May 4
                1929 relating thereto                       $19,917.93
                  "2. Professional services rendered
                in the computation of valuations
                of properties being acquired
                by Beneficial Industrial
                Loan Corporation from Benex
                Corporation, Collex Corporation
                and Ibex Corporation
                pursuant to Paragraph 2 of
                the reorganization agreement
                dated December 31, 1928, and
                in the preparation of our report
                dated May 4, 1929 relating
                thereto; in the preparation
                of revised exhibits of future
                earnings and capital requirements
                to be attached to
                the reorganization agreement
                dated December 31, 1928                         850.00
                                                           ___________
                    Total                                  $20,767.93"
                

October 1, 1931, plaintiff filed with the Commissioner of Internal Revenue a claim for the refund of $2,284.47, the amount of deficiency taxes paid. September 8, 1932, the claim for refund was rejected.

The services rendered by Haskins & Sells are summarized in their invoice as reviewing the operations for three years ended December 31, 1928, of the accounts of various companies, the computation of valuations of the properties of these companies and the preparation of revised exhibits of future earnings and capital requirements to be attached to the reorganization agreement.

The plaintiff was incorporated on December 15, 1928. Two weeks thereafter it was a party to an agreement dated December 31, 1928, whereby it agreed to acquire the property of certain companies in exchange for shares of its capital stock. This agreement was not the "Agreement and Act of Consolidation" of May 8, 1929. The accounting firm of Haskins & Sells was employed in reviewing the operations of Collex Corporation, Benex Corporation, and Ibex Corporation, etc., for three prior years. The details and character of the accountants' services are set forth in the invoice and amount to $20,767.93. The deduction of this amount by the plaintiff was disallowed on the audit of its return and resulted in the payment of the additional tax.

Plaintiff contends that the invoice of Haskins & Sells is an ordinary and necessary expense of the taxable period; that the services were ordinary audit service that had not been rendered by any certified public accountant for the three prior years; that the purpose of securing the audit was for routine use and corporate information. These contentions have no basis in the stipulated facts....