Midland Valley Railroad Co. v. COMMISSIONER OF INTERNAL REVENUE
| Citation | 19 BTA 423 |
| Decision Date | 26 March 1930 |
| Docket Number | Docket No. 25000. |
| Parties | MIDLAND VALLEY RAILROAD CO., PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. |
| Court | U.S. Board of Tax Appeals |
W. R. Spofford, Esq., for the petitioner.
R. W. Wilson, Esq., for the respondent.
This proceeding is for the redetermination of a deficiency in income and profits taxes of $121,239.08 for the calendar year 1920. The errors alleged to have been committed by the respondent are:
1. That he included in the net income for 1920 the sum of $642,666.10 representing the excess of Government compensation allowed for 1918 and 1919 over the amount of the so-called "standard return" for said years;
2. That he included in its net income for 1920 the sum of $322,720.75 which was paid to it in that year by the United States Railroad Administration as compensation for loss and damage to property during the period of Federal control; and
3. That he has included in its net income the amount of $11,399.97 received during 1920 on account of so-called "donations."
FINDINGS OF FACT.
The petitioner is a corporation organized and incorporated under the laws of the State of Arkansas, and its principal office is located at Muskogee, Okla.
The petitioner is engaged in the operation of a railroad. Its books and accounts were kept on the accrual basis at all times material to this proceeding.
On December 28, 1917, the President of the United States, by Proclamation dated December 26, 1917, took possession and assumed control of the petitioner's railroad property as of January 1, 1918, and retained such possession and control until February 28, 1920, the conclusion of the period of Federal control, when the property was returned to the petitioner.
The petitioner did not, after the enactment of the Federal Control Act of March 21, 1918, execute the just compensation agreement commonly known as the "standard return" (its average railway operating income for the three years preceding Federal control) authorized by that act, but filed an application with the Director General of Railroads for compensation in excess of the standard return, on the ground that abnormal conditions made compensation on such basis inequitable in its case.
Negotiations were continued during 1918, 1919, and 1920, and on March 11, 1919, the Director General of Railroads offered annual compensation based upon the average income for the preceding two years, or $530,000, as opposed to $444,435.95, the amount of the standard return.
This increased compensation was refused by the petitioner and, upon its application, the determination of compensation was referred to a board of referees appointed by the Interstate Commerce Commission. This board fixed the compensation at $765,679 per annum (approximately the net railway operating income of the petitioner for the year ended December 31, 1917). The Railroad Administration at first declined to accept this award, with the result that the question was referred to the United States Court of Claims in the form of a suit brought by the petitioner, but the case having been settled, was never brought to trial.
Settlement was effected in 1920 between the petitioner and the Director General on the basis of $765,679 as annual compensation to be paid by the United States to the petitioner for the use of its property. Final settlement between the petitioner and Director General of Railroads was made on this basis, pursuant to agreement dated January 3, 1921, by which the petitioner received the sum of $550,000 in settlement of balance of annual compensation then due, open accounts and all other claims against the Director General. A statement from the records of the Director General, showing the amount paid by the Director General and its application to various accounts of petitioner and settlement of petitioner's claims against the United States, follows:
---------------------------------------------------------------------------------------------------------
| Original Claim | Claim as
| of Company | Settled
-------------------------------------------------------------------------|----------------|--------------
Compensation ___________________________________________________________ | $2,002,833.32 | $1,656,879.15
Less Advances, Loans, Etc ______________________________________________ | 887,040.00 | 887,040.00
| -------------- | -------------
| 1,115,793.32 | 769,839.15
Rental Interest on Completed A & B _____________________________________ | 13,334.81 | 13,334.81
| -------------- | -------------
Balance due to corporation _____________________________________________ | 1,129,128.13 | 783,173.96
| ============== | =============
OPEN ACCOUNTS DUE TO CORPORATION | |
| |
Cash on hand, December 31, 1917 ________________________________________ | 445,676.94 | 445,676.94
Agts. & Condt'rs. Bal. Dec. 31, 1917 ___________________________________ | 165,580.22 | 165,580.22
Assets, Dec. 31, 1917—Collected ________________________________________ | 159,503.94 | 159,503.94
Revenue Prior to Jan. 1, 1918 __________________________________________ | 36,668.87 | 36,668.87
Cash Payment on Open Account ___________________________________________ | 105,120.00 | 105,120.00
| ______________ | _____________
Total _____________________________________________________________ | 912,549.97 | 912,549.97
| ============== | =============
OPEN ACCOUNTS DUE TO CORPORATION | |
| |
Liabilities, Dec. 31, 1917, Paid _______________________________________ | 694,464.49 | 694,464.49
Corporate Transactions _________________________________________________ | 281,929.23 | 281,929.23
Expense Prior to Jan. 1, 1918 __________________________________________ | 53,228.71 | 53,228.71
| ______________ | _____________
Total ______________________________________________________________ | 1,029,622.43 | 1,029,622.43
Bal. due from Corp'n Open Accts ________________________________________ | 117,072.46 | 117,072.46
| ______________ | _____________
Balance due to Corporation _____________________________________________ | 1,012,055.67 | 666,101.50
| ============== | =============
OTHER ITEMS DUE TO CORPORATION | |
| |
Equipment Retired ______________________________________________________ | 28,562.55 | 29,203.88
Road Property Retired and Not Replaced _________________________________ | 3,215.53 | 1,023.61
| ______________ | _____________
Total _____________________________________________________________ | 31,778.08 | 30,227.49
| ============== | =============
OTHER ITEMS DUE FROM CORPORATION | |
| |
Additions and Betterments _____________________________________________ | 356,844.99 | 367,843.85
Material & Supplies—Excess _____________________________________________ | 80,593.59 | 80,593.59
A & B—Adjustment of Prices on M & S used in A. & H. work _______________ | 4,406.41 | 4,406.41
Interest other than Rental Interest ____________________________________ | ______________ | 1,933.00
| ______________ | _____________
Total ____________________________________________________________ | 441,844.99 | 454,776.85
Bal. due from Corpn. on Other Items ____________________________________ | 410,066.91 | 424,549.36
| ______________ | _____________
Bal. due to Corporation ________________________________________________ | 601,988.76 | 241,552.14
| ============== | =============...To continue reading
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