Milton Dairy Co. v. Willcuts

• Decision Date: 31 July 1925
• Docket Number: No. 1477.,1477.
• Citation: 8 F.2d 178
• Parties: MILTON DAIRY CO. v. WILLCUTS, Collector of Internal Revenue.
• Court: U.S. District Court — District of Minnesota

8 F.2d 178 (1925)

MILTON DAIRY CO. v. WILLCUTS, Collector of Internal Revenue.

No. 1477.

District Court, D. Minnesota, Third Division.

July 31, 1925.

Ira C. Oehler, of St. Paul, Minn., for Milton Dairy Co.

Lafayette French, Jr., U. S. Atty., of St. Paul, Minn., and T. Ellis Allison, of Washington, D. C., Sp. Atty., Bureau of Internal Revenue, for defendant.

MOLYNEAUX, District Judge.

The facts in this case may be stated as follows: In the computation by the taxpayer of its income and excess profits tax for the fiscal year ended February 28, 1918, and the fiscal year ended February 28, 1920, it adopted an invested capital; that upon an audit of the return of the taxpayer the government refused to accept the invested capital set up, but reduced the invested capital of the corporation for the fiscal year 1919 by the sum of $11,489.26, and for the fiscal year of 1920 by the sum of $29,853.03, which amounts were claimed by the taxpayer to be undivided profits or earned surplus, that on February 28, 1917, the company had an operating deficit shown on its books of approximately $70,000, and when it claimed to have earned surplus it still had the same unprovided-for deficit, which was greater than the total alleged earned surplus for the two years in question.

Reduction in invested capital operates to increase taxes. The increase was accordingly assessed and paid, and the correctness of the assessment is now in dispute. The statute involved is Revenue Act of 1918 (40 Statutes at Large, pp. 1057, 1092, and 1093 Comp. St. Ann. Supp. 1919, § 63367/16i):

"Sec. 326. (a) That as used in this title the term `invested capital' for any year means (except as provided in subdivisions b and c of this section);

"(1) Actual cash bona fide paid in for stock or shares;

"(2) Actual cash value of tangible property, other than cash, bona fide paid in for stock or shares, at the time of such payment, but in no case to exceed the par value of the original stock or shares specifically issued therefor, unless the actual cash value of such tangible property at the time paid in is shown to the satisfaction of the Commissioner to have been clearly and substantially in excess of such par value, in which case such excess shall be treated as paid-in surplus: Provided, that the Commissioner shall keep a record of all cases in which tangible property is included in invested capital at a value in excess of the stock or shares issued therefor, containing the name and address of each taxpayer, the business in which engaged, the amount of invested capital and net income shown by the return, the value of the tangible property at the time paid in, the par value of the stock or shares specifically issued therefor, and the amount included under this paragraph as paid-in surplus. The Commissioner shall furnish a copy of such record and other detailed information with respect to such cases when required by resolution of either house of Congress, without regard to the restrictions contained in section 257;

"(3) Paid-in or earned surplus and undivided profits; not including surplus and undivided profits earned during the year;

"(4) Intangible property bona fide paid in for stock or shares prior to March 3, 1917, in an amount not exceeding (a) the actual cash value of such property at the time paid in, (b) the par value of the stock or shares issued therefor, or (c) in the aggregate 25 per centum of the par value of the total stock or shares of the corporation outstanding on March 3, 1917, whichever is lowest;

"(5) Intangible property bona fide paid in for stock or shares on or after March 3, 1917 in an amount not exceeding (a) the actual cash value of such property at the time paid in, (b) the par value of the stock or shares issued therefor, or (c) in the aggregate 25 per centum of the par value of the total stock or shares of the corporation...