MISSOURI-ILLINOIS RAILROAD COMPANY v. United States

• Decision Date: 03 May 1967
• Docket Number: No. 65 C 96(1).,65 C 96(1).
• Citation: 268 F. Supp. 214
• Parties: MISSOURI-ILLINOIS RAILROAD COMPANY, Plaintiff, v. UNITED STATES of America, Defendant.
• Court: U.S. District Court — Eastern District of Missouri

268 F. Supp. 214

MISSOURI-ILLINOIS RAILROAD COMPANY, Plaintiff, v. UNITED STATES of America, Defendant.

No. 65 C 96(1).

United States District Court E. D. Missouri, E. D.

May 3, 1967.

Mark M. Hennelly and Gilbert P. Strelinger, St. Louis, Mo., Robert T. Molloy, Washington, D. C., for plaintiff.

Richard D. Fitzgibbon, Jr., U. S. Atty., John A. Newton, Asst. U. S. Atty., St. Louis, Mo., for defendant.

HARPER, Chief Judge.

MEMORANDUM OPINION

This suit was instituted by the plaintiff for a refund of $3,097.73, plus interest, of income taxes paid for the taxable year 1958. The suit was timely filed and jurisdiction of this court exists under 28 U.S.C.A. § 1346(a) (1). The plaintiff allegedly paid the Republic of Mexico $6,453.60 in taxes for the year 1958. The plaintiff claimed this amount as a foreign income tax credit under 26 U.S. C.A. § 901 on its 1958 Federal income tax return, but the claim was disallowed. However, the defendant's auditing agent did allow the amount as a deduction from gross income. The difference between allowing the $6,453.60 as a deduction but not as a credit is allegedly the $3,097.73 in suit.

The facts come to this court by way of oral testimony, depositions, and various exhibits.

The plaintiff railroad, a Missouri corporation, is and was during 1958, a common carrier by rail in interstate commerce. In the normal course of its business, the plaintiff rents its railroad cars to other railroads, including Mexican railroads. When one railroad's cars are used by another railroad, a daily or per diem rental rate is charged by the owner to the user railroad. The per diem rental rate in the United States was $2.75 in 1958. A special per diem rate is applied when Mexican railroads use American owned cars in Mexico. Prior to January 1, 1954, the Mexican railroads using an American or Canadian owned car in Mexico paid to the owner the Mexican per diem rate minus a percentage which it was required to withhold under Mexican income tax law. The amount so withheld was supposed to be turned over to the treasury of Mexico, with the owner of the car receiving proper credit. At the end of the year the American or Canadian owner would file a Mexican income tax return with the tax determined on a graduated scale.

On January 1, 1954, a new Mexican income tax law became effective. Under this law American and Canadian railroads were obligated to pay an income tax on income received from the rental of railroad cars to the Mexican railroads. The taxable income was to be determined by each schedule, and those who are engaged in acts of commerce are obligated to pay the tax under Schedule 1, Commerce. The basis (Article 26th) of the tax in this schedule is the difference between the income received by the taxpayer during a period and the deductions authorized by law.

Article 28th under Schedule 1, Commerce, provides:

"ARTICLE 28th. When because of the nature and the characteristics of the operations carried out by the taxpayers it is not possible, by ordinary procedure, to determine with exactness the taxable income, the Department of the Treasury may enter into agreements for the determination of the tax base."

Pursuant to Article 28th, an agreement was entered into between the Mexican tax authorities, certain Mexican railways and the American and Canadian railroad companies which regularly delivered railroad cars to the Mexican frontier for carriage in Mexico by Mexican railroads. This agreement provided, in part, that the rental charges paid by the Mexican railroads for the rental of American and Canadian cars were subject to the payment of Mexican income tax; that the payment of the tax was to be accomplished by withholding from the total accrued rentals the difference between the Mexican per diem car rental rate and basic or American and Canadian per diem car rental rate; that the Mexican railroads were authorized and compelled to withhold the tax involved and pay such amount to the Mexican Treasury, the balance being paid to the American and Canadian railroads.

In a copy of a purported Mexican income tax return for the year 1958, the plaintiff claimed income of $21,244.15 from car rentals in Mexico of which $6,453.60 was allegedly withheld by the Mexican railroads for payment to the Mexican Treasury. There is no verification of the figures nor any proof that the return was ever filed.

There are three issues in this case:

1) Did the plaintiff-taxpayer prove, for the year 1958, that it actually paid any sum in taxes to the Republic of Mexico?

2) If the plaintiff has proven that it did pay a tax to the Republic of Mexico upon the per diem rentals earned in 1958 by the plaintiff from the use of its railroad cars in Mexico, was such tax an income tax, excess profits tax, war profits tax, or a tax in lieu thereof, so as to entitle the plaintiff to a foreign tax credit against its United States income tax liability for the year 1958?

3) What, if any, application do the limitation provisions of section 904 of the Internal Revenue Code have on any tax that might have been paid in this case?

As to the first issue above, a tax refund case such as the present one is in the nature of an action for money had and received, and it is incumbent upon the plaintiff to prove the exact dollar amount to which it is entitled. Lewis v. Reynolds, 284 U.S. 281, 52 S.Ct. 145, 76 L.Ed. 293; Missouri Pacific Railroad Co. v. United States, 338 F.2d 668, 168 Ct.Cl. 86. Thus, the plaintiff must not only prove that taxes were...