Hancock Bank v. United States

• Decision Date: 05 March 1966
• Docket Number: Civ. A. No. 1041.
• Citation: 254 F. Supp. 206
• Parties: HANCOCK BANK, Trustee of Estate of Anna F. C. Martin, Plaintiff, v. UNITED STATES of America, Defendant.
• Court: U.S. District Court — Southern District of Mississippi

254 F. Supp. 206

HANCOCK BANK, Trustee of Estate of Anna F. C. Martin, Plaintiff, v. UNITED STATES of America, Defendant.

Civ. A. No. 1041.

United States District Court S. D. Mississippi, W. D.

March 5, 1966.

Landman Teller, Vicksburg, Miss., for plaintiff.

E. R. Holmes, Asst. U. S. Atty., Jackson, Miss., for defendant.

WILLIAM HAROLD COX, Chief Judge.

This is a suit to recover income taxes in excess of the amount allegedly due by this trust estate for the year 1957. The taxpayer was on a cash basis in reporting and paying such federal taxes.

The controversy grows out of royalties earned by and due to the trust estate from Humble Oil and Refining Company under a Producer's Form 88 Oil, Gas & Mineral Lease, dated April 21, 1945, embracing four-fifth's of one-sixth royalty interest owned by this trust as lessors in the Berkley Plantation about sixteen miles southeast of Natchez in Adams County, Mississippi. There was some litigation over the estate of Anna F. C. Martin in the state court after her death on December 3, 1942. It does not appear that the outcome of that litigation would have affected the validity of this mineral lease, and it was always treated by Humble as being valid and subsisting. Some controversy existed among the beneficiaries of the trust estate as to their right to royalties earned under this lease as between the life beneficiaries and the remaindermen of the trust; that is, as to whether the royalty itself was income or merely interest on the royalty was income to which the life beneficiary would be entitled. The lease obligated the lessee to pay the lessors royalties without express demand therefor. These royalties were payable as they became due and were income to this taxpayer in those years. It must be and is presumed under the facts and circumstances in this case that these funds were unconditionally available to the taxpayer in those years. The lease provided: "Lessee may pay or tender said rental jointly to such persons or to their joint credit in the depository named herein; or, at lessee's election, the proportionate part of said rental to which each participant is entitled may be paid or tendered to him separately or to his separate credit in said depository; and payment or tender to any participant of his portion of the rentals hereunder shall maintain this lease as to such participant." There was much correspondence between the lessors and the lessee about these royalties, but no demand therefor was ever made or refused. The lessee simply credited these royalties to the lessors from year to year on its books until 1957 after the state litigation involving the estate had been finally concluded when the taxpayer for the first time demanded and was promptly paid all royalties accumulated for the years 1950-1957 inclusive. The taxpayer never reported these royalties or paid income taxes to the United States thereon or the State of Mississippi for the years 1950-1956 inclusive.

The taxpayer paid income taxes on one-sixth of the entire amount of such royalties as if due and available for the first time in its entirety in 1957. Upon discovering its error, the taxpayer requested a refund in the amount of sixty-eight hundred forty dollars forty-four cents which it later amended to twelve thousand one hundred eighty-eight dollars twenty cents. The taxpayer's initial claim for a refund treated the...