Zeeman v. United States
| Decision Date | 13 July 1967 |
| Docket Number | No. 65 Civ. 1037.,65 Civ. 1037. |
| Citation | 275 F. Supp. 235 |
| Parties | Audrey L. ZEEMAN, individually and as Executrix of the Estate of Leon S. Lees, Jr., Plaintiff, v. UNITED STATES of America, Defendant. |
| Court | U.S. District Court — Southern District of New York |
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Kamerman & Kamerman, New York City, for plaintiff, Jerome Kamerman, Alvin D. Lurie, New York City, of counsel.
Robert M. Morgenthau, U. S. Atty., Southern Dist. of New York, for defendant, Irwin B. Robins, Asst. U. S. Atty., of counsel.
In this tax refund action, the plaintiff, Audrey L. Zeeman, alleges that, as a limited partner of Ira Haupt & Co., she suffered a loss of $250,000 when that firm was thrown into insolvency in November of 1963 as a result of the notorious salad oil scandal. She seeks to carry back this alleged loss against the tax paid by her and her late husband for the years 1960, 1961 and 1962. The government, in turn, denies that plaintiff is entitled to a deduction, either for a proportionate share of the partnership loss or for the loss of her investment in Haupt. The government further contends that if the plaintiff properly took a deduction in 1963 because of the alleged loss, she may not carry back the loss, as an individual taxpayer, against the tax paid on joint returns filed by the plaintiff and her late husband. The government has also put in issue the accuracy and completeness of the tax return filed by the plaintiff for 1963 and the joint returns filed by the plaintiff and her late husband for the years 1960, 1961 and 1962.
After hearing the testimony of the parties and permitting a reopening of the trial on the application of the plaintiff, examining the exhibits, the pleadings and proposed findings of fact and conclusions of law submitted by counsel, this court filed an opinion on April 14, 1967.
On May 11, 1967, motions made by both sides for further findings of fact and conclusions of law, pursuant to Rule 52(b) of the Federal Rules of Civil Procedure, were argued and the trial was reopened on May 18, 1967 on the application of the plaintiff. The government then moved, pursuant to Rule 15(b) of the Federal Rules of Civil Procedure, to amend its answer so as to include a counterclaim for taxes, timely assessed, but not yet paid for the years 1960, 1961 and 1962. The government's motion was granted on June 23, 1967.
In her reply to the counterclaim, the plaintiff denies the essential allegations of the counterclaim and, in turn, asserts three affirmative defenses and two "counterclaims." The first affirmative defense pleaded the three-year statute of limitations for assessment of additional taxes. At a hearing held on July 3, 1967, to consider evidence on the question of waivers of the statute of limitations, the plaintiff withdrew her second affirmative defense (Tr 1277). The "Third Affirmative Defense and First Counterclaim" asserts that the assessments are void and illegal in that plaintiff was denied judicial review of the assessments in the Tax Court. Lastly, by the "Second Counterclaim" the plaintiff seeks a refund of taxes paid for 1962 because the joint return was improperly drawn so as to include her late husband's share of income of Ira Haupt & Co. for the year 1962.
Upon hearing the motions for further findings, considering the testimony and the evidence adduced at the reopenings of this trial and considering the amended pleadings, this court makes the following Amended Findings of Fact and Conclusions of Law:
AMENDED FINDINGS OF FACT
1. Ira Haupt & Co. (hereinafter "Haupt") was a limited partnership during the calendar year 1963. For federal income tax purposes, it reported its income on a cash basis, using the calendar year as its reporting period. (Tr 731; Exs. 1-4, 56-58)
2. During 1963, Haupt was engaged in a general stock brokerage and commission business in New York City. It had seats on the principal stock and commodity exchanges, including the New York Stock Exchange, the New York Produce Exchange and the Chicago Board of Trade.
3. Haupt was formed as a limited partnership on April 1, 1960, under Article 8 of the Partnership Law of New York, McKinney's Consol.Laws, c. 39, as the successor to a general partnership of the same name. A Certificate of Limited Partnership was filed in the County Clerk's office of New York County on April 21, 1960. The partnership agreement, dated April 1, 1960, and amended from time to time, was in force during the year 1963. (Tr 24, 26, 27; Ex. 56)
4. The Haupt partnership agreement of April 1, 1960 included the following:
5. The plaintiff was admitted, with the approval of the New York Stock Exchange, as a limited partner of Haupt on July 1, 1963, in accordance with the terms of the partnership agreement. She consented to be bound by those terms and agreed to contribute $250,000 as her contract capital. (Exs. 18, 59, 64, 79). On July 1, 1963, the plaintiff transferred to Haupt cash and securities having a value of approximately $251,500. This resulted in an overage, at the time of transfer, of approximately $1,500 in terms of her required contract capital. The cost basis of the cash and securities transferred to Haupt by plaintiff was not less than $251,000. (Tr 575, 582, 588; Exs. 13, 59).
6. Following the execution on July 1, 1963 of the Certificate of Admission of the plaintiff as a limited partner of Haupt, a Certificate Amending the Certificate of Limited Partnership was circulated among, and signed by, all the general and limited partners except one. One signature was still missing when the firm ceased to operate on November 20, 1963; the execution of the certificate was not completed nor was the certificate filed in the County Clerk's Office of New York County. (Tr 82-85, 93; Exs. 59, A)
7. During 1963, Haupt began a business relationship with Allied Crude Vegetable Oil Refining Corporation (hereinafter "Allied"), under which Haupt made susbtantial loans to Allied. Haupt also acted as a broker for Allied for the purchase on the New York Produce Exchange and the Chicago Board of Trade of spot and future contracts to buy cottonseed oil and soybean oil.
8. The loans to Allied, hereinafter called "export loans," were provided for in a Letter of Intent exchanged by the parties, under which Haupt agreed to lend from time to time up to $2,500,000 to Allied against actual export orders, secured by warehouse receipts for cottonseed oil or soybean oil issued by American Express Warehousings Ltd., a subsidiary of American Express Co., or Harbor Tank Storage Co. (hereinafter "Harbor Tank"). Harbor Tank operated a tank storage farm at Bayonne, New Jersey, under a lease with Allied.
9. At the outset of the aforesaid business relationship between Haupt and Allied, Haupt asked for and received from Allied a statement of its balance sheet as of a current date. The balance sheet, supplied in May of 1963 by Anthony DeAngelis, President of Allied, had been falsified by him and it reflected exaggerated inventories of cottonseed and soybean oil. (Tr 389-392, 394, 465-466, 846, 848; Exs. 91, 132)
10. Haupt lent Allied $2,500,000 on May 28, 1963, pursuant to the Letter of Intent, on a demand promissory note, and received as security a warehouse receipt.
11. Although the Letter of Intent was never revised, employees of Haupt successively enlarged these loans to Allied, which ultimately exceeded $13,000,000, each time receiving as collateral additional warehouse receipts and export contracts.
12. In Haupt's role as broker for Allied, Haupt, for the account of Allied, entered into contracts for the purchase of cottonseed oil and soybean oil for future delivery dates on the New York Produce Exchange and the Chicago Board of Trade. Under the rules of these...
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