1 Syllabus to him in 1942 and 1944 were a partial return of capital lost by him in 1933, involving a deductible loss from which he received no tax benefits, since the loss exceeded his income for that year. Plaintiff's claim for refund was denied. Internal Revenue 421 Same; tax benefit doctrine under 1942 Revenue Act.-The "tax benefit" doctrine, as stated in Section 22 (b) (12) (D) of the Internal Revenue Code, inserted by the Revenue Act of 1942, provides that recovery of bad debts, prior taxes and delinquency amounts shall be excluded from gross income to the extent to which the deductions allowed on such transactions had not resulted in a reduction of the taxpayer's income tax. See Dobson v. Commission, 320 U. S. 489; also T. D. 5454. Internal Revenue 325, 421 Same; payment of assessment on bank stock an additional cost of the stock. It is settled by the decisions that the payment of an assessment on bank stock is an additional capital cost of the stock. Since the law treated the plaintiff as the owner of national bank stock for assessment purposes, it is held that, with equal recognition of the realities of the situation, the law should so treat him for the purpose of the tax benefit doctrine. Internal Revenue 421 Same; basis of recovery.—Is is held that plaintiff should be allowed to count up the original cost of his stock, add to that his assessment, deduct from the total the amount by which he had tax benefits in 1933 and 1934 from his deductions for loss on his stock, and recover the difference without liability for income taxes. Since plaintiff's recoveries of principal on his settlement fund certificate in 1942 and 1944 were much less than this difference, plaintiff should not have been taxed upon these amounts as income. Internal Revenue 421 Same; payment of interest on settlement fund certificate was taxable income. The payment of interest in 1944 on the settlement fund certificate was taxable as income. Plaintiff is not entitled to recover on this item. The Reporter's statement of the case: Mr. George L. Morris, Jr., for the plaintiff. Mr. Walter F. Kramer was on the briefs. Mr. J. W. Hussey, with whom was Mr. Assistant Attorney General Theron Lamar Caudle, for the defendant. Messrs. Andrew D. Sharpe and Ellis N. Slack were on the brief. Mr. Richard H. Akers, Trial Commissioner. Findings of Fact The court made findings of fact as follows: 122 C. Cls. 1. The plaintiff was at all times material, and is, a citizen of the United States residing in Detroit, Michigan. All income tax returns hereinafter mentioned were filed with, and all payments made to, the United States Collector of Internal Revenue at Detroit. 2. On March 4, 1943, the plaintiff filed his individual income tax return for the calendar year 1942, disclosing a total tax liability of $126,603.11. On January 26, 1944, he filed an amended return showing a total tax liability of $122,764.01. 3. On February 24, 1944, the plaintiff filed his individual income tax return for the calendar year 1943, disclosing a total tax liability, in view of the provisions of the Current Tax Payment Act, of $162,334.20. The plaintiff made payments as follows: $63,301.56 on account of his tax liability for 1942; $62,664.96 on estimated tax for 1943; withheld by employer $1,353.60; and $35,014.08 with the filing of the return for 1943. 4. On January 31, 1945, the plaintiff filed his individual income tax return for the calendar year 1944, disclosing a total tax liability of $151,157.28, which liability he satisfied by payments aggregating $135,092.81 on the estimated tax, $17,600.40 withheld by his employer, a total of $152,693.21. The excess of $1,535.93 was applied as a credit on the plaintiff's estimated income tax liability for 1945 (see finding 20). On September 16, 1946, the plaintiff filed an amended individual income tax return for the calendar year 1944, disclosing a total tax liability of $151,243.31, that is, $86.03 in excess of the amount shown on the original return. The amount of $86.03 was paid by the plaintiff at the time of the filing of the amended return. 5. On January 7, 1946, the plaintiff filed his individual income tax return for the calendar year 1945, disclosing a total tax liability of $132,225.20, which amount was satisfied by payments on the estimated tax liability of $113,751.80 (exclusive of the $1,535.93 overpaid for 1944), an amount withheld by the plaintiff's employer of $18,199.65, and a balance of cash with the return of $273.75. 1 Findings of Fact Weber Oil Payments 6. During the years 1934 and 1935 the plaintiff acquired 150 shares of the capital stock of Weber Oil Company, a corporation organized under the laws of the State of Michigan, at a total cost of $10,233.33. The plaintiff was not one of the original stockholders. 7. On September 30, 1941, the plaintiff sold and transferred to The Ohio Oil Company these 150 shares of the capital stock of the Weber Oil Company. The 150 shares so sold by the plaintiff were part of 3,125 shares, the total number of the outstanding shares of stock of the Weber Oil Company, all of which 3,125 shares were sold by the stockholders of the Weber Oil Company to The Ohio Oil Company on the same day, namely, September 30, 1941. 8. The aforementioned sale of 3,125 shares of the capital stock of Weber Oil Company by the stockholders of the Weber Oil Company was evidenced by a written agreement which was executed by all the stockholders of that company on September 30, 1941. The consideration paid and to be paid under the agreement by the purchaser, The Ohio Oil Company, to the sellers, the stockholders of the Weber Oil Company, for the entire 3,125 shares of stock was both present and deferred as more particularly defined in the agreement which is in evidence as the plaintiff's Exhibit 1 and is incorporated herein by reference. The agreement contains the following provisions with respect to the consideration to be paid for the stock: Ohio shall pay $1,500,000.00 in cash, hereinafter called the down payment, to be paid to said agent at the time all of said issued and outstanding capital stock of the Weber Oil Company is duly endorsed, assigned, and delivered to Ohio by the respective owners thereof, $1,000,000.00 deferred payment, payable $500,000.00 to said agent for the stockholders on or before six (6) months after the date of said down payment, without interest, provided said payment shall be made when due, and with interest at six percent (6%) after the date when due; and $500,000.00 to be paid by Ohio to said agent for the stockholders on or before one (1) year after the date Findings of Fact 122 C. Cls. of said down payment, without interest, provided said payment shall be made when due, and with interest at six percent (6%) after the date when due. In addition to said down and deferred payments, Ohio shall, out of the oil produced, saved and marketed, assign and pay to the said agent for the stockholders, at its office in Bay City, Michigan, an oil payment of oneeighth (%) of the gross proceeds of the oil produced, saved and marketed if, as, and when, produced from the leases now owned by the Weber Oil Company in the Reed City area, at the posted or market price in the field, in the Counties of Osceola and Lake, State of Michigan, and now definitely defined as appears in "Exhibit A" attached hereto and made a part hereof, up to and not to exceed $2,000,000.00, which payments shall be made as follows: Three cents (34) per barrel on all such oil produced, saved and marketed from such leases owned by Weber Oil Company in the Reed City area, except land owners' and presently existing over-riding royalty oil, shall be paid to the said agent for the account of Alvin H. Weber, and the remainder of such one-eighth (%) interest in such proceeds shall be paid to such agent for the account of the stockholders until the said stockholders and said Alvin H. Weber, jointly, shall have received the total sum of $2,000,000.00. In addition to the above oil payments, and immediately after such payments have been completed as aforesaid, stockholders are to receive a one-sixteenth (16) over-riding royalty from the gross proceeds of the oil produced, saved and marketed if, as, and when, produced from the leases now owned by the Weber Oil Company in the Reed City area, at the posted or market price in the field, in the Counties of Osceola and Lake, State of Michigan, as defined in said "EXHIBIT A," less the sum of three cents (34) per barrel on oil produced from said wells, except all royalty oil, which Ohio agrees to pay to the agent for the account of Alvin H. Weber. It is mutually understood and agreed that as to the West Branch and Arenac fields, in the Counties of Ogemaw and Arenac, State of Michigan, as now definitely defined as appears in "Exhibit A" and made a part hereof, neither the stockholders nor Alvin H. Weber shall be entitled to receive payments from the oil produced or over-riding royalty from the present producing horizons. On any production obtained in formations below the Dundee sands upon leases now owned by the Weber Oil Company in Ogemaw and Arenac Counties, 1 Findings of Fact the stockholders shall receive a one-sixteenth (16) overriding royalty from the gross proceeds of the oil produced, saved and marketed therefrom at the posted or market price in the field after deducting three cents (34) per barrel on the oil produced as aforesaid, except all royalty oil, which shall be paid to the said agent for the account of Alvin H. Weber. It is the intention of the parties hereto that the three cents (34) per barrel payments to be made to the agent for the account of Alvin H. Weber are to be deducted from the one-eighth (%) oil payments and one-sixteenth (16) over-riding royalty payments due to be made as hereinbefore set forth, and the net difference is to be paid to the designated agent for the stockholders. The contract further provided that upon transfer to Ohio Oil of the Weber Oil stock, Ohio contemplated dissolving the Weber Oil Company and assigning all rights under the contract to the designated agent for the stockholders of Weber Oil. Further provisions included the following: It is further mutually understood and agreed that all said oil payments and over-riding royalty payments to be made hereunder shall cease and terminate as to any lease as to which the daily average production per well per month shall be less than ten (10) barrels. As additional security for the stockholders, if Ohio at any time elects to surrender all or any part of the unoperated leases or leaseholds now owned by Weber Oil Company, it may do so provided that in such event Ohio shall give Alvin H. Weber, as agent for the stockholders, fifteen (15) days' notice of Ohio's intention so to do, whereupon the stockholders may take over during said time, and thereupon Ohio shall assign such leases so taken over by the stockholders and the stockholders shall thereupon assume all obligations of the lessee thereunder. Said notice to stockholders shall be given to Alvin H. Weber as their agent, and he is hereby authorized and empowered to take over such leases for the stockholders if in his judgment he considers it beneficial or wise so to do. In the event the stockholders shall fail to so take over such lease or leases within such fifteen (15) days, then Ohio may proceed to surrender the same. That as to the surrender of any operated leases or leaseholds, similar rights shall exist provided that the value of all materials, supplies and property belonging to Ohio and located upon or forming a part of said leases or leaseholds shall be first mutually agreed |