Mellon v. Heiner, 6980.
| Decision Date | 17 February 1936 |
| Docket Number | No. 6980.,6980. |
| Citation | 14 F. Supp. 424 |
| Parties | MELLON v. HEINER. |
| Court | U.S. District Court — Western District of Pennsylvania |
Smith, Shaw, McClay & Seifert, William A. Seifert, John G. Frazer, and William Wallace Booth, all of Pittsburgh, Pa., and Donald D. Shepard, of Washington, D. C., for plaintiff.
Frank J. Wideman, Asst. Atty. Gen., Andrew D. Sharpe, M. H. Eustace, and George H. Zeutzius, Sp. Assts. to Atty. Gen., E. L. Updike, Gen. Counsel, Treasury Department, of Washington, D. C., and Horatio S. Dumbauld and D. Lloyd Claycomb, Asst. U. S. Attys., both of Pittsburgh, Pa., for defendant.
The court makes the following:
Findings of Fact.
1. A. W. Mellon, hereinafter called the plaintiff, resided in the city of Pittsburgh, Allegheny county, Pa., and in the Western District thereof, when suit was filed.
2. Defendant, D. B. Heiner, since on or about the 1st day of August, 1921, to on or about the 1st day of July, 1933, and at the time this suit was instituted, was the duly appointed, qualified, and acting collector of internal revenue in and for the Twenty-Third District of Pennsylvania, and is a resident of the borough of Kittanning, in the Western District thereof.
3. Plaintiff, during the year 1920 and at all times before and since, has kept his books and records and has filed his income tax returns on the cash receipts and disbursements basis of accounting.
4. On or before the date appointed by law, to wit, March 15, 1921, plaintiff filed with the then collector of internal revenue for the Twenty-Third District of Pennsylvania, his income tax return for the calendar year 1920, and upon the dates appointed by law, duly paid to said collector and to defendant the tax of $919,777.86 shown by said return to be due to the government of the United States as follows:
March 15, 1921................... $229,944.46
June 15, 1921.................... 229,944.46
September 15, 1921............... 220,293.77
September 15, 1921 (credit on
account of overpayment of
1917 tax) ..................... 9,650.69
December 15, 1921 ............... 229,944.48
___________
Total ........................ $919,777.86
5. By letter dated February 21, 1927 the Commissioner of Internal Revenue (hereinafter called "Commissioner") notified plaintiff that his tax return for the year 1920 had been examined in connection with a report of a federal revenue agent and that as a result of such examination a deficiency in tax of $190,419.70 was disclosed. Said additional tax for the year 1920 was the result of the Commissioner adding to plaintiff's income profits alleged to have been realized in that year from the sale of whisky.
6. Thereafter, and on or about March 23, 1927, defendant notified plaintiff that the Commissioner had assessed the deficiency in tax of $190,419.70 for the year 1920, as set forth in said Commissioner's letter, and served on plaintiff notice and demand for the payment within ten days of said sum of $190,419.70 together with interest thereon of $12,082.52, and threatened to assess and collect additional interest, and make seizures if payment should not be made within the specified ten days' time.
7. On or about April 1, 1927, under written protest and for the purpose of avoiding additional interest, penalties, and seizures, plaintiff paid to defendant said sums of $190,419.70 and $12,082.52.
8. On or about December 12, 1918, plaintiff, his brother R. B. Mellon, and H. C. Frick entered into two separate written partnership agreements to trade and do business under the respective names of "A. Overholt & Company" and "West Overton Distilling Company"; each being registered under the Fictitious Names Act (54 P.S.Pa. § 21 et seq.). True and correct copies of said partnership agreements are attached to the statement of claim, made part thereof, and marked Exhibits "A" and "B," respectively.
9. The aforesaid two partnerships were dissolved by the death of Mr. Frick on December 2, 1919. No new partnership agreements were entered into by the two surviving partners, nor since then have any partnership agreements ever existed between the surviving partners or between the surviving partners and the personal representatives of the deceased partner, relative to the businesses of the former partnerships.
10. Immediately after the dissolution of the partnerships as aforesaid, the surviving partners began the liquidation of the two partnerships, and since that time, December 2, 1919, until January 31, 1921, acted in respect to the assets and businesses of the said two former partnerships as liquidating trustees. By written agreement dated January 31, 1921, the liquidating trustees appointed the Union Trust Company of Pittsburgh, liquidating agent, to carry out the liquidation of the assets and businesses of the said two former partnerships, true and correct copies of which are attached to the statement of claim, made part thereof, and marked Exhibits "C" and "D," respectively.
11. The books and records of the liquidating trustees for said former partnerships were kept on the cash receipts and disbursements basis of accounting.
12. Liquidation was finally consummated and distribution made by the said liquidating agent to the surviving partners and the estate of the deceased partner in the year 1925.
13. During the period of liquidation, from December 2, 1919, to and including the year 1925, no distilling operations had been carried on by the said liquidating trustees, or by the said liquidating agent, and all sales of assets of the former partnerships by either the said liquidating trustees or by the said liquidating agent were made under the then existing laws, both federal and state, relating to the sale and transportation of distilled spirits or intoxicating liquors.
14. On December 2, 1919, and during said period of liquidation from 1919 to 1925, there were debts and large contingent liabilities outstanding against the said former partnerships, and no distribution of assets could have been legally made by either the said liquidating trustees or the said liquidating agent until said debts and contingent liabilities had been released, paid, or satisfied.
15. Plaintiff and R. B. Mellon, while acting in the capacity of liquidating trustees, kept the assets of the said former partnerships, including cash, separately, treating the same as trust properties, and did not commingle such assets of cash with their own assets or cash.
16. The Commissioner determined and settled the federal tax liability of the estate of the deceased partner for the years 1920 and 1925 by holding that the so-called profits of A. Overholt & Co. and West Overton Distilling Company for the year 1920 did not constitute taxable income in that year but did constitute taxable income in the year 1925, the year in which final distribution in liquidation was made, and the estate of the deceased partner paid the tax on that basis.
17. The Commissioner increased plaintiff's share of the so-called net income or profits during the liquidation of A. Overholt & Co. and West Overton Distilling Company for the year 1920 from $48,350.74 and $5,960.55 as reported on the return to $281,779.95 and $52,814.28, respectively.
18. Plaintiff duly filed tax returns for the years 1921 to 1925, both inclusive, and for said years reported his share of the so-called profits or losses of the liquidating agent of the partnerships A. Overholt & Co. and West Overton Distilling Company, and paid the tax on the profits so reported, although he did not actually receive any payment from the liquidating trustees until final distribution in liquidation in the year 1925.
19. The Commissioner in examining the return for the year 1924 eliminated the profit and the loss so reported for that year with the following explanations as set forth in his letter to plaintiff dated November 14, 1928:
20. The Commissioner in examining the income tax return filed by the plaintiff for the year 1925 included in income for that year the differences between the cost values of said partnerships as of December 2, 1919, and the amounts received in final liquidation including the so-called profits and losses for the years 1920 to 1924, inclusive. The amounts actually received in liquidation in the year 1925 included the so-called profits and losses of the liquidating agent for all said prior years.
21. On or about March 19, 1929, plaintiff filed with the defendant, on the form prescribed by the Commissioner for that purpose, claim for refund of said sums of $190,419.70 tax and $12,082.52 interest, on the ground that said additional tax for the year 1920, the interest thereon, and the assessment and collection thereof were in all respects illegal and void, for the reasons hereinbefore stated.
22. The Commissioner took no action upon plaintiff's claim for refund for more than six months before suit was brought, but has denied said claim subsequent to suit.
23. The sum received from the sale of whisky certificates by A. Overholt & Co. and West Overton...
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Heiner v. Mellon
...Both having died, the suits are by their executors. In No. 144, the District Court entered judgment for $202,502.22 with interest (14 F.Supp. 424); in No. 145 for $187,787.17 with interest. These judgments were affirmed by the Circuit Court of Appeals, 3 Cir., 89 F.2d 141. Certiorari was gr......