Powell v. United States, Civ. 66-835

• Decision Date: 27 January 1969
• Docket Number: 66-845.,Civ. 66-835
• Citation: 294 F. Supp. 977
• Parties: Frank C. POWELL, Jr. and Doris Dae Powell, Plaintiffs, v. UNITED STATES of America, Defendant. H. H. HELGERSON and D. F. Helgerson, Plaintiffs, v. UNITED STATES of America, Defendant.
• Court: U.S. District Court — District of South Dakota

294 F. Supp. 977

Frank C. POWELL, Jr. and Doris Dae Powell, Plaintiffs, v. UNITED STATES of America, Defendant.

H. H. HELGERSON and D. F. Helgerson, Plaintiffs, v. UNITED STATES of America, Defendant.

Civ. 66-835, 66-845.

United States District Court D. South Dakota, S. D.

January 27, 1969.

Robert C. Heege, of Davenport, Evans, Hurwitz & Smith, Sioux Falls, S. D., for plaintiffs.

Harold C. Doyle, U. S. Dist. Atty., for the District of South Dakota, and Gene R. Bushnell, Asst. U. S. Atty., of Sioux Falls, S. D., and Daniel J. Dinan, Dept. of Justice, Washington, D. C., for defendant.

MEMORANDUM DECISION

NICHOL, Chief Judge.

Taxpayers have brought two actions, consolidated for trial by stipulation, requesting a refund in taxes paid during 1961 and 1962 on the ground that their deduction of certain legal fees from their gross income during the years in question, which the Commissioner disallowed, was allowable under Sec. 212 of the Internal Revenue Code of 1954.

The facts (also stipulated) are as follows: On December 3, 1960, taxpayers D. D. Powell, F. C. Powell, Jr., and H. H. Helgerson, granted an option to the Gibraltar Life Insurance Company of America (hereinafter called Gibraltar) to purchase 38,388 shares of the capital stock of the National Life of America (hereinafter called National), and at the same time made and executed a Stock Purchase Agreement with Gibraltar. On or about May 31, 1961, Gibraltar assigned its rights under the option to one J. S. Shively, who entered into a "Memorandum of Agreement" with aforementioned taxpayers on June 2, 1961. Pursuant to the Stock Purchase Agreement, the initial net payment of $727,585 was made on or before June 15, 1961, and the taxpayers' stock was placed in escrow as security for the balance of the purchase price.

On or about July 13, 1961, the Insurance Commissioner of the State of South Dakota took custody of the securities of National to prevent consummation of a $2,815,516.25 investment contemplated by the Shively group, acting under said Purchase Agreement as the new management of National. National then brought a mandamus action against the Insurance Commissioner in the state Circuit Court for the Sixth Judicial Circuit, Hughes County, South Dakota, to compel the Commissioner to release those assets which he had seized. The taxpayers intervened in that action.

On September 30, 1961, taxpayers D. D. Powell, F. D. Powell, Jr., and H. H. Helgerson, commenced a class action for their own benefit and for the benefit of National and its stockholders and policy holders, against J. S. Shively, et al., in the Circuit Court for the Fourth Judicial Circuit, Davison County, South Dakota. Defendants J. S. Shively, et al., attempted to remove that action to this court, but the case was thereafter remanded to the Circuit Court.

As a consequence of the intervention in the mandamus action in the state Circuit Court of South Dakota, Sixth Judicial Circuit, the commencement of a class action in the state Circuit Court of South Dakota, Fourth...