National Metropolitan Bank of Washington v. United States

• Decision Date: 14 May 1965
• Docket Number: No. 235-61.,235-61.
• Citation: 345 F.2d 823
• Parties: NATIONAL METROPOLITAN BANK OF WASHINGTON v. The UNITED STATES.
• Court: U.S. Claims Court

345 F.2d 823 (1965)

NATIONAL METROPOLITAN BANK OF WASHINGTON v. The UNITED STATES.

No. 235-61.

United States Court of Claims.

May 14, 1965.

Karl Riemer, Washington, D. C., for plaintiff. Pehle, Mann, Riemer & Luxford, Washington, D. C., of counsel.

Gilbert W. Rubloff, Washington, D. C., with whom was Asst. Atty. Gen. Louis F. Oberdorfer for defendant. C. Moxley Featherston, Lyle M. Turner and Philip R. Miller, Washington, D. C., were on the brief.

Before LARAMORE, Acting Chief Judge, and DURFEE, DAVIS and COLLINS, Judges.

DURFEE, Judge.

This is an action for refund of income taxes. Plaintiff bank was in business for many years, but on May 20, 1958, was placed in voluntary liquidation and assigned all its assets to the American Security and Trust Company, which assumed all its liabilities. During subsequent liquidation, the affairs of plaintiff were in the hands of a Liquidating Committee. Plaintiff itself did no banking business after May 20, 1958.

In August, 1958 the District of Columbia assessed plaintiff for gross receipts tax in the amount of $49,428.68 for the period July 1, 1957 through May 20, 1958, which was the day that plaintiff went out of business. The payment of the District of Columbia gross receipts tax was actually made by check drawn by the American Security and Trust Company on August 7, 1958. Section 162 of the Internal Revenue Code of 1954, 26 U.S.C. § 162 (1958 ed.) permits the deduction of "* * * all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business * * *." Defendant contends that plaintiff bank cannot initially establish that it, not its successor, paid or incurred the expense which it claims is deductible; that taxpayer ceased to exist for tax purposes on May 20, 1958, and could not file a tax return or sustain a net operating loss thereafter for a carryback to 1956.

Plaintiff is entitled to claim a deduction somewhere for the payment of the tax of $49,428.68 to the District of Columbia for its gross receipts for the period July 1, 1957 through May 20, 1958, when plaintiff went out of the banking business. Although plaintiff bank agreed to then assign all of its property and assets to the American Security and Trust Company on May 20, 1958, plaintiff did not thereafter become a mere corporate "shell," or cease to exist as alleged by defendant. On that same day, the shareholders of plaintiff bank voted to place it in voluntary liquidation under the provisions of §§ 5220 and 5221 of the United States Revised Statutes, 12 U.S.C. §§ 181, 182 (1958 ed.) to take effect at 5 p. m. on May 20, 1958. Three persons were, by the same action, appointed a liquidating committee of the bank with full authority to act for the bank in all matters during liquidation. Upon due notice to the Comptroller of the Currency of this action, the Comptroller replied that he intended on May 21, 1958, to report National Metropolitan in voluntary liquidation as of 5 p. m., May 20, 1958. The Liquidating Committee continued to act until June 9, 1959, when it filed its final report with the Comptroller of the Currency. Until that time, plaintiff bank continued in legal existence at least for tax purposes. It was neither insolvent nor in the hands of a receiver and was capable of suing and being sued for the purpose of winding up its business until its affairs were completely settled. National Bank v. Insurance Company, 104 U.S. 54, 26 L.Ed. 693 (1881); Chemical National Bank of Chicago v. Hartford Deposit Company, 161 U.S. 1, 16 S.Ct. 439, 40 L.Ed. 595 (1896); Rosenblatt v. Johnston, 104 U.S. 462, 26 L.Ed. 832 (1881).

The Treasury Regulations concerning deductibility of taxes provide:

"§ 1.164 — 1. Deduction for taxes. — * * * taxes imposed by the United States * * * or a political subdivision thereof * * * are deductible from gross income for the taxable year in which paid or accrued, according to the method of accounting used in computing taxable income. * * * In general, taxes are deductible only by the person upon whom they are imposed. * *"

When the gross receipts tax was imposed upon plaintiff bank by the District of Columbia it was no longer in the banking business, but it was still a legal entity against whom the District could have proceeded to enforce collection of the tax which was assessed against the bank after it went into liquidation. The primary obligation for payment of the tax to the District remained upon plaintiff as long as it continued in legal existence. Although the American Security and Trust Company had agreed to assume all of plaintiff bank's debts, liabilities and obligations, its payment of this tax was made for and on behalf of plaintiff bank. Defendant relies mainly on Citizens National Trust & Savings Bank of Los Angeles v. Welch, 119 F.2d 717 (9th Cir. 1941), but in that case the action was brought by the assignee national bank; the items claimed had been disallowed as deductions in computing the net income of the assignor state bank, but had been allowed for the assignee national bank. There is nothing here before us to indicate that the assignee American Security has ever claimed or received the benefits of this tax deduction. The court, in the above cited case, in rejecting the contention that plaintiff assignee national bank paid the items as the agent of the assignor state bank, noted that the state bank did no business after the consolidation and concluded at page 719, "* * Obviously a bank which is doing no business cannot be doing business by or through an agent." This statement is not applicable to the facts in our case. Plaintiff bank was not doing business as a bank, but its legal entity continued as long as it continued in liquidation.

Under the agreements for purchase of assets and assumption of liabilities between plaintiff bank and American Security, plaintiff bank agreed that immediately after the closing date of May 20, 1958, when it would cease doing business as a bank, "* * * it will proceed to complete its liquidation by distributing its assets and thereupon dissolve." Emphasis supplied.

Section 6012 of the 1954 Code, 26 U.S.C. § 6012 (1958 ed.) is entitled "Persons required to make returns of income," and subsection (b) (3) thereof provides:

"(3) Receivers, trustees and assignees for corporations.

"In a case where a receiver, trustee in bankruptcy, or assignee, by order of a court of competent jurisdiction, by operation of law or otherwise, has possession of or holds title to all or substantially all the property or business of a corporation, whether or not such property or business is being operated, such receiver, trustee, or assignee shall make the return of income for such corporation in the same manner and form as corporations are required to make such returns."

Defendant concedes in its brief that this section "requires that the existence of a liquidating corporation be continued for federal tax purposes on the same basis and in the same manner as in the past, as long as the corporation's affairs are being settled and its assets are not actually distributed to the shareholders of the corporation." We accept this construction of the statute, but we do not accept the distinction attempted by defendant in arguing that plaintiff bank on May 20, 1958, became a corporation de facto dissolved. Plaintiff bank remained in the process of liquidation until the filing of the final report of its Liquidating Committee on June 9, 1959, effective as of May 29, 1959. Accordingly, we find that the payment of plaintiff's District of Columbia 1958 tax by American Security on August 7, 1958 was for and in behalf of plaintiff, which remained in legal existence for tax purposes during 1958 and until its liquidation had been completed.

We turn now to the actual merits of the claim before us. On August 14, 1958, National Metropolitan filed a Federal income tax return for the period January 1 through May 20, 1958, and claimed the tax payment of $49,428.68 to the District of Columbia as a deduction. By an appropriate statutory notice of deficiency, the Commissioner of Internal Revenue determined that this deduction should be disallowed. National Metropolitan challenged the correctness of this determination by petition to the Tax Court of the United States, where the case is still pending.

Later, on or about June 14, 1960, National Metropolitan filed another Federal income tax return claiming the same deduction of $49,428.68 for gross receipts tax paid to the District of Columbia as that claimed in the return filed on August 14, 1958, which is before the Tax Court. However, the June 1960 return was for the period May 21 through December, 1958 with no gross income reported because plaintiff was not in the banking business during that period.

National Metropolitan then, about June 15, 1960, filed a claim for refund of income taxes paid for the year 1956. The claim as finally revised was in the sum of $25,702.21, based upon the deduction of a carryback to 1956 of the net operating loss sustained by National Metropolitan for the period May 21 through December 31, 1958. Upon...