Hoffman v. United States

• Decision Date: 14 March 1940
• Citation: 32 F. Supp. 939
• Parties: HOFFMAN v. UNITED STATES.
• Court: U.S. District Court — Southern District of New York

32 F. Supp. 939

HOFFMAN v. UNITED STATES.

District Court, S. D. New York.

March 14, 1940.

Charles Seligson, of New York City (Sidney J. Loeb, of New York City, of counsel), for plaintiff.

John T. Cahill, U. S. Atty., of New York City (Clarence W. Roberts, Asst. U. S. Atty., of New York City, of counsel), for defendant.

PATTERSON, Circuit Judge.

The action is brought to recover overpayment of income tax in the amount of $8,262.80, made by the bankrupt, Charles E. Ruckstuhl, for the year 1929. The action is under the Tucker Act, 28 U.S.C. § 41 (20), 28 U.S.C.A. § 41(20). After a number of preliminary motions, it has been tried on the merits.

Ruckstuhl, the bankrupt, was in the typesetting business. Desiring to engage in speculations in real estate without incurring personal liability for losses, he formed a corporation, C. E. Ruckstuhl, Inc., in 1924, to engage in real estate operations. The company was a one-man affair. Ruckstuhl owned practically the entire capital stock, was president, and ran the business as he saw fit. In 1928 the company became owner of an undivided 35 percent interest in real estate on East 45th Street, New York City; the remaining interests were owned by four others. The property was managed by Friedenberg, one of the co-owners. In 1929 it was sold by the owners at a profit. As reported by Friedenberg on a partnership or information return for 1929, the sale price was $1,400,000, made up of cash of $275,000, existing mortgages of $785,000, and a purchase money mortgage of $340,000. The cost was $1,066,958.33. The sale was treated as one on an installment basis, and of the total profit of $333,041.67, profit of $148,912.50 was reported as profit in 1929; and 35 percent of the profit for 1929, $52,736.58, was reported as the share of Ruckstuhl. Other income from the property was reported, and Ruckstuhl's share was put at $13,184.15. Ruckstuhl in his 1929 tax return included $52,119.37 as his own profit from sale of the real estate; he also included as his income the further sum of $13,801.36 representing income from the real estate. There are minor discrepancies between the figures in the Friedenberg return and the figures in the Ruckstuhl return, but they are of no importance. Ruckstuhl paid tax of $9,392.48 for that year, and of this amount $8,262.80 was due to the inclusion of the two items of income from the East 45th Street property. The present action is to recover the $8,262.80 as an overpayment.

The plaintiff insists that the two items were mistakenly reported by Ruckstuhl as personal income, that in reality they were income of the company. The testimony of the accountant for Friedenberg as "managing partner" and also of Ruckstuhl's accountant tended to show that the crediting of the income to Ruckstuhl instead of to his company was an error or oversight on their part. On the other hand, the information return made out by Friedenberg originally showed the income as going to "C. E. Ruckstuhl, Inc."; the "Inc." was erased prior to filing the return. The company's books in 1929 showed that an item of $13,174.80 was credited to Ruckstuhl in 1929, to record "transfer of interest" in the 45th Street property to him; a later correcting entry, apparently made in 1933, cancelled the entry, with notation that a contemplated transfer of the company's interest in the real estate to Ruckstuhl had not been carried out. The Commissioner in 1931 proposed an additional assessment against Ruckstuhl. The latter made protest in November 1931, and in the protest he requested refund of $8,262.89 because of the alleged error in including the income from the 45th Street property as his own income. On March 12, 1932, he filed formal claim for refund. The claim was denied on April 6, 1934.

Meanwhile Ruckstuhl had filed voluntary petition in bankruptcy in July 1932. He was duly adjudicated bankrupt and Irving Trust Company was appointed trustee in bankruptcy. He did not list his claim of overpayment of income tax as an asset in his schedules and did not inform the trustee of the existence of any such claim. The trustee was discharged and the estate closed in June 1936.

Certain further facts concerning the company, C. E. Ruckstuhl, Inc., will be stated. In its 1929 tax return it reported a loss of some $800 and no tax. The items of income from the 45th Street realty were not in the return. No tax for 1929 was ever paid. While the company held an interest in the purchase money mortgage taken on the sale of the real estate and later acquired the entire ownership of the mortgage, it did not include the mortgage among the assets listed in its tax return for 1929. The company was indebted to Ruckstuhl for loans, and between February 1932 and July 1932 it made payments to the extent of $50,000 in reduction of the debt. The company filed petition in bankruptcy in July 1932, at the same time that Ruckstuhl filed, listing assets at nothing and liabilities at more than $100,000. The records both of Ruckstuhl and of the company were taken by the trustee in bankruptcy and were later destroyed.

The present action was brought by Ruckstuhl on April 2, 1936. The time within which the action might be brought expired on April 6, 1936. The United States in 1937 moved to dismiss the petition of Ruckstuhl. The bankruptcy proceeding involving him having been reopened and Hoffman appointed new trustee, Hoffman made a cross-motion to be substituted as party plaintiff in place of Ruckstuhl. The motion of the United States was denied and that of Hoffman was granted by Judge Mandelbaum. Hoffman was accordingly substituted as plaintiff by order of December 23, 1937, and on January 3, 1938, he served and filed a supplemental petition.

1. The defendant insists that the action was commenced too late. The action by...