Koelling v. United States, Civ. No. 537.

• Decision Date: 14 February 1957
• Docket Number: Civ. No. 537.
• Parties: Lydia P. KOELLING, Orel Koelling and Elinor Rae Koelling, Plaintiffs, v. UNITED STATES of America, Defendant.
• Court: U.S. District Court — District of Nebraska

171 F. Supp. 214

Lydia P. KOELLING, Orel Koelling and Elinor Rae Koelling, Plaintiffs, v. UNITED STATES of America, Defendant.

Civ. No. 537.

United States District Court D. Nebraska.

February 14, 1957.

Edward L. Vogeltanz, Ord, Neb., for plaintiffs.

Donald R. Ross, former U. S. Atty., and William C. Spire, U. S. Atty., Omaha, Neb., and John N. Stull, Acting Asst. Atty. Gen., and Andrew F. Oehmann and M. Carr Ferguson, Attys., Dept. of Justice, Washington, D. C., for defendant.

DELEHANT, Chief Judge.

Plaintiffs instituted this action under Title 28 U.S.C. § 1346(a)(1), to recover in behalf of Lydia P. Koelling the sum of $435.65, and in behalf of Orel Koelling and Elinor Rae Koelling the sum of $403.32, with interest on each of such sums, as additional income tax for the year 1950, allegedly collected wrongfully. Defendant denies liability for all or any part of the sums claimed. The taxes involved arose out of the operations and returns of plaintiffs for the several years, 1950 and 1951, vide infra. In the interval embracing those years, and especially in 1951, plaintiffs Lydia P. Koelling and Orel Koelling were engaged in a partnership enterprise whose operations included the ownership of a herd of cattle used for breeding purposes. The partnership made for each of the years a partnership return of income. And for each of the years Lydia P. Koelling individually filed her own income tax return, and Orel Koelling and Elinor Rae Koelling, who were and are husband and wife, filed a joint return. Elinor Rae Koelling is sometimes identified simply as Elinor Koelling.

The complaint of plaintiffs contains allegations of the details of the operations, tax returns and tax payments of the parties and the returns of the partnership which defendant largely admits. To the extent that they are admitted, those allegations are set out in a footnote.¹ Plaintiffs' complaint also makes several assertions that are denied by the answer. These include (a) the averment at different places, sometimes directly, sometimes by way of inference or implication, that their payments of taxes for the two years resulted in legally unwarranted overpayments whose recovery they seek; (b) sundry arguments, conclusions and assertions embodied in the claims for refund severally filed by plaintiffs; (c) the existence during 1950 and 1951 of a customary and usual practice among accountants and persons assisting taxpayers in the general area within which plaintiffs reside, including a local United States Internal Revenue Agent, whereby depreciation of depreciable property was computed in the general manner contended for by plaintiffs; (d) the assertion that the method of computing depreciation of cattle followed by plaintiffs conformed to Treasury Department Regulations III, section 29.23 (1)-5; (e) the employment by the partnership, from its erection and without earlier challenge by the Collector or Director, of the method of computing depreciation for which plaintiffs contend, from which they seem to argue that they acquired a right to continue so to employ it; (f) the conclusion that defendant is indebted to the several plaintiffs in the amounts in their behalf respectively prayed for, and (g) that the claims of the several plaintiffs are meritorious.

With the issues made by the complaint and the answer, the parties entered into, and filed, a stipulation in writing wherein they agreed "that this case shall be submitted to one of the judges" of this court, "for his decision upon the facts as set forth in this stipulation, and the pleadings as filed in this action, without any further evidence". The facts set forth in the stipulation, therefore, become vital. And, so far as it contains agreement upon facts unreservedly made, those facts are set out in a footnote,²

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included in which is a brief summary of the material incorporated into paragraph 10 of the stipulation through photographic copies.

It may be understood that the court accepts and finds to be true the facts agreed to in the complaint and answer as reflected in footnote 1 and those embraced in the stipulation as copied into footnote 2.

In joining in the stipulation, defendant reserved, by its paragraph 28, an objection to each of its paragraphs 29, 30, and 31 on the ground of its asserted immateriality. In the interest of complete accuracy, those three paragraphs are set out in a footnote.³ Since

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the factual truthfulness of the quoted material is agreed to, it is probably the better administrative course to receive in evidence the three paragraphs and, thereupon, to the extent that the court considers their facts to be immaterial, to make a declaration herein to that effect and in the final ruling to disregard the immaterial items. That may be understood as the action pursued by the court.

The submission now made to the court is agreed by counsel to present only a single narrow question. That is whether, in the computation of the depreciation of the cattle involved, the position of plaintiffs or that of defendant is correct, in other words whether in arriving at the initial base upon which depreciation is to be computed upon cattle for the year 1951, deduction should not (as plaintiff claims), or should (as defendant contends), be made from cost, of the unquestionably existing and anticipated "salvage value" which the cattle customarily possess after they have lived and served through the period of their usefulness in the taxpayers' herd as breeding stock. If this question is to be answered in the manner for which plaintiffs contend they are entitled to recover what they demand. The parties are not in controversy over the amount of the recovery, if any is to be allowed. But if it is to be answered after the manner of defendant's contention, plaintiffs may not have any recovery at all.

First encountered is the ruling respecting the matters contained in paragraphs numbered 29, 30 and 31 of the stipulation, footnote 3, supra. The stipulation agrees, and the court necessarily finds, that the facts there set out are objectively true. What is at stake is their materiality. Paragraphs numbered 29 and 30, on the one hand, and paragraph numbered 31, on the other, are to be classified and, in the appraisal of their materiality, are to be considered separately.

By paragraph numbered 29 it is agreed that through 1950 and 1951, and even before 1950, one Rex D. Stark, an Internal Revenue Agent located in plaintiffs' residential and operating area, within which he assisted taxpayers in preparing federal income tax returns, did not at any time use any formula in computing the depreciation of livestock, whereby in arriving at the depreciation base salvage value was first deducted from the cost of the livestock. By paragraph numbered 30 it is agreed that if each of two attorneys at law, a finance company associate, and a bookeeper for a livestock market in the area, were severally called as witnesses, each would testify, in slightly variant language, to his preparation of a considerable number of federal income tax returns for farmer taxpayers, and that it was not the custom and practice in the area, in computing allowances for depreciation upon breeding livestock, first to make a deduction from cost of acquisition of any sum on account of estimated or computed salvage value of the animals (presumably, though the stipulation at this point does not directly state, at the termination of their estimated usefulness in the taxpayers' herds as breeding stock). As has been intimated, these two paragraphs have to do with a common subject matter.

The court is persuaded, and, therefore, finds and rules, that the facts set out in paragraphs numbered 29 and 30 (accepting the proffered testimony adverted to in number 30 as fairly reflective of facts in harmony with it) are wholly immaterial in this context. The fact that in the general area comprising the residence and operating location of a taxpayer a custom has grown up among taxpayers of computing income in a particular manner is neither controlling nor instructive in support of the taxpayer's observance of that custom in the preparation of his return. What matters is whether the method he employs is correct. Testimony of the sort tendered might easily have materiality if the issue were the good faith of the taxpayer in his following of the method. But that is not the present question, which is rather the validity on its own account of the method itself. The court is, accordingly, uninfluenced in its ruling by paragraphs numbered 29 and 30 of the stipulation, or either of them.

Paragraph numbered 31 stands in a somewhat different plight. Without quoting it again or adequately summarizing it, observation is made that it reflects the cost and sale prices of 173 cows and bulls, of which five milk cows were bought in 1950 and sold in 1955 and all of the rest were bought in 1951 and sold in different groups and at different times through 1952, 1953, 1954 and 1955. From it plaintiffs appear to contend that the aggregate of the amounts thus received was somewhat less than the salvage value of the same animals computed by the government and deducted from cost in arriving at the depreciation base. The court does not declare that this evidence is wholly immaterial, but does conclude that it is not controlling in plaintiffs' favor. Many things conspire to deprive it of that consequence, among which are the want of a showing of the circumstances, and conditions and manner of the sales, beyond an allowable inference from plaintiffs' argument that they occurred under a measure of necessity, thus introducing the possible factor of distress into the sales; the spacing of the sales, and their occurrence generally, if not entirely, within the interval of the estimated useful life in the taxpayers' herd, of the cattle for breeding purposes rather than at or...