Court Opinion

ID: 8591986
Source: CourtListenerOpinion
Date Created: 2022-11-23 15:51:03.348128+00
Date Added: 2024-06-11T16:54:33.029947
License: Public Domain

Whitaker, Judge,
concurring:
I think Public Law 189, 61 Stat. 324, was intended to give to the successor corporation the right to avail itself of the *330unused excess profits credit of the predecessor corporation as of the time when tbe successor corporation was required to file its income tax return. If this is true, no deficiency resulted and, therefore, no interest is due.
I am satisfied that it was the purpose of Public Law 189 to give to the successor corporation the full right to use the unused excess profits credit of the predecessor corporation without restriction. To require it to pay interest on what would have been a deficiency except for Public Law 189, places restrictions on the use of the unused excess profits credit of the predecessor corporation which was not intended by Public Law 189.
For this reason I concur.
BINDINGS OB BACT
The court makes findings of fact, based upon the stipulation of the parties, and the briefs and argument of counsel, as follows:
1. This suit and the causes of action herein set forth arise under the Internal Revenue laws of the United States of America and in particular under Chapters 1 and 2 of the Internal Revenue Code of 1939. The plaintiff seeks to recover from the United States the sum of $2,225,643.31 together with interest thereon as provided by law, which sum represents interest assessed and collected by the Commissioner of Internal Revenue with respect to an alleged excess profits tax deficiency of $8,560,166.51 for the calendar year 1942.
2. Plaintiff duly filed its excess profits tax return for the calendar year 1942 with the Collector of Internal Revenue at St. Louis, Missouri. It reported no excess profits tax liability. On its excess profits tax return for 1942 plaintiff claimed an unused excess profits credit carryover from the years 1940 and. 1941 in the amount of $21,451,087.58. On October 25,1946, plaintiff was advised by letter from the internal revenue agent in charge at St. Louis, Missouri, of a proposed deficiency in excess profits tax for 1942 in the amount of $11,835,302.77. In arriving at this proposed deficiency the unused excess profits credit carryover was disallowed in full. Plaintiff’s excess profits tax liability *331was subsequently determined to be $29,551.77, and tliat amount was assessed pursuant to stipulation filed in the Tax Court of the United States. No other deficiency in excess profits tax for 1942 was ever assessed by the Commissioner.
3. In determining the aforesaid deficiency of $29,551.77 in excess profits tax for 1942, plaintiff was allowed an unused excess profits credit adjustment in the amount of $11,624,-5.09.17. This adjustment was due to unused excess profits credits of plaintiff’s predecessor corporation, Wabash Railway Company, for the years 1940 and 1941. It is plaintiff’s contention that it was entitled to the allowance of the said unused excess profits credit adjustment at the time of filing its 1942 excess profits tax return and at all times throughout the year 1942 and at all times thereafter. It is defendant’s contention (1) that plaintiff was not entitled to the allowance of the said unused excess profits credit adjustment until the enactment of Public Law 189, 80th Congress, 1st Session, Act of July 15,1947, 61 Stat. 324, and consequently (2) that from March 15,1943 (the due date of the excess profits tax return for the calendar year 1942) to July 15, 1947 (the date on which Public Law 189, supra, became law), plaintiff owed excess profits taxes for the year 1942 in addition to the aforesaid deficiency of $29,551.77. This alleged additional liability amounted to the sum of $8,560,-166.51, referred to above.
4. Interest in the amount of $2,225,643.31 was collected from plaintiff in respect of the alleged deficiency of $8,560,166.51 referred to above. Collection was affected as follows:

Date Manner of Collection Amount

Nov. 1954 Credit of a part of an agreed overpay- $2, 046, 747. 32 ment of income tax and interest thereon for the year 1942.
Mar. 1955 Credit of additional interest on 1942 86, 650. 89 income tax.
Apr. 11,1955 Cash payment by plaintiff- 92,245.10
2, 225, 643.31
5.On July 27,1955, and within the time prescribed by law, plaintiff filed a claim for refund of the aforesaid $2,225,643.31. Under date of March 29, 1956, the Commissioner mailed to *332plaintiff by registered mail a notice of the complete dis-allowance of the claim.
6. Plaintiff’s alleged right to the allowance of an unused excess profits credit adjustment of $11,624,509.17 in computing its 1942 excess profits tax liability as it existed prior to July 15,1947, arises from the circumstances set forth in the following subparagraphs:
(1) Wabash Railway Company was a corporation organized and existing under the laws of the State of Indiana. It was engaged in business as a common carrier by rail.
(2) Wabash Railway Company was in receivership throughout the year 1941, and had been in receivership since December 1,1931, under the jurisdiction of the United States District Court for the Eastern Division of the Eastern District of Missouri.
(3) Acting under orders of the aforesaid District Court, the receivers of Wabash Railway Company prepared and filed with the Court a Plan of Reorganization. The Plan included the following statement with respect to carrying out the Plan:
It is contemplated that the New Company [plaintiff] will acquire title to the properties and assets of the [Wabash] Railway Company through foreclosure of existing mortgages, purchases at receivers’ sales or otherwise, the exact procedure to be determined by the Reorganization Managers and that any securities of The Wabash Railroad Company [predecessor company prior to 1915 reorganization] or the Railway Company not publicly held will be cancelled in reorganization.
(4) Pursuant to the Plan of Reorganization and to an order of the aforesaid District Court, Wabash Railroad Company, plaintiff herein, was organized in 1937 trader the laws of the State of Ohio, for the purpose of acquiring all of the railroad and other properties of Wabash Railway Company. Prior to January 1, 1942, plaintiff conducted no business and had no assets other than $1,000.00 paid in for stock upon its organization.
(5) As of midnight, December 31, 1941, plaintiff did acquire all of the railroad and other properties of Wabash Railway Company, pursuant to the Plan of Reorgani*333zation, as a result of a foreclosure sale held under a Final Decree of Foreclosure and Sale entered on October 2, 1941, by the aforesaid District Court. Since that date plaintiff has continued to operate as a common carrier by rail, doing business substantially as a continuation of Wabash Railway Company.
(6) Pursuant to the Final Decree of Foreclosure and Sale, plaintiff assumed “All unpaid indebtedness and liabilities and all obligations of the Receivers, including Receivers’ Certificates mentioned in this Decree and obligations with regard to pension payments heretofore authorized by order of this Court, contracted or incurred to and including the date of sale in the maintenance, management or operation of the properties and premises of the Railway Company and its Receivers, wherever the same may be located within or without the United States Judicial District for the Eastern Division of the Eastern District of Missouri.” The liabilities assumed included all liabilities for taxes of any kind.
(7) In a decree of the aforesaid District Court dated August 29, 1941, it was found and held that the equity of the holders of all of the preferred stock and all of the common stock of Wabash Railway Company was without value. The stock transfer books of Wabash Railway Company were closed permanently on December 30,1941. After December 31,1941, Wabash Railway Company had no assets and transacted no business.
(8) Wabash Railway Company had unused excess profits credits for the years 1940 and 1941 in amounts sufficient to give rise to an unused excess profits credit adjustment of $11,624,509.17 for the year 1942.
7. On November 9, 1942, the Commissioner of Internal Revenue issued a ruling to the effect that the transaction by which plaintiff acquired the properties of Wabash Railway Company did not constitute a reorganization under the meaning of Section 112 (g) of the Internal Revenue Code of 1939. The ruling correctly sets forth the treatment provided by the Plan of Reorganization for the holders of the stock and securities of Wabash Railway Company.
*334CONCLUSION OF LAW
Upon the foregoing findings of fact, which are made a part of the judgment herein, the court concludes as a matter of law that plaintiff is entitled to recover with interest thereon as provided by law, and judgment will be entered to that effect. The amount of recovery will be determined pursuant to Eule 38 (>c).
In accordance with the opinion of the court and on a memorandum report of the commissioner as to the amount due plaintiff, it was ordered August 27,1958, that judgment for the plaintiff be entered for $1,473,877.01, with interest as provided by law on $1,381,631.91 from November 8, 1954, and on $92,245.10 from April 11,1955.