47 F. Supp. 259 | Ct. Cl. | 1942
delivered the opinion of the court:
The Ford Motor Company (Michigan) was on and prior to May 1, 1920, a wholly owned subsidiary of plaintiff, the Ford Motor Company (Delaware) which, also, was the parent corporation of a large number of other affiliated corporations during the taxable years 1921 to 1926 inclusive.
May 1, 1920 plaintiff, being the owner of 100 percent of the stock of the Michigan corporation, liquidated this wholly owned subsidiary by surrendering all of its capital stock (except 3 qualifying shares) in exchange for all of its assets. Under the pertinent statute and the applicable decisions, this liquidation by plaintiff of the subsidiary was a taxable transaction. In May 1939 the defendant, through a decision and determination of the Commissioner of Internal Revenue so determined, and on that basis another suit by plaintiff for 1920 for an alleged overpayment on other grounds was settled and dismissed on the understanding and stipulation in open court that plaintiff realized a liquidation profit from such, liquidation not greater than $6,315,781.98 on which there was a deficiency tax (though barred) sufficient to offset the claimed overpayment (on other grounds) sued for in that case (No. 43806) in the amount of $3,879,039.98, plus interest collected of $485,182.18.
On May 1, 1920 the depreciable assets acquired by plaintiff from the Michigan corporation on liquidation had a stipulated fair market value of $40,387,694.43 in excess of the cost of such assets to the liquidated Michigan corporation.
In making consolidated tax returns for the years 1921 to 1926 inclusive on which income and profits taxes of $117,-213,605.24 were paid, plaintiff computed its deductions for depreciation on account of the assets acquired in liquidation May 1, 1920, on the amount then determined by plaintiff as the actual fair market value of such depreciable assets on May 1, 1920. It also used the same basis for 1920. When the Commissioner of Internal Revenue audited the returns
The action of the Commissioner in' holding that plaintiff was required to use actual cost to the liquidated corporation instead of actual fair market value on acquisition of the assets was based on the erroneous conclusion that since the Michigan corporation was a wholly owned subsidiary the liquidation of that corporation and the acquisition by plaintiff of ownership of all of its assets in exchange for the surrender of its entire capital was an intercompany transaction and that because of this a different basis for the purpose of depreciation was not permissible.
Timely and proper refund claims were filed by plaintiff, all of which were rejected, after suits were instituted, in so far as they asserted the right to depreciation’deductions on a basis other than cost to the liquidated corporation.
Upon the facts set forth in the findings the amounts of the overpayments for the years 1921 to 1926, if plaintiff is entitled to compute depreciation as claimed, are less than those claimed in the petitions because the defendant has. allowed and paid certain items of the refund claims, other than as to depreciation, and because the amount of the depreciation deduction for each of the years involved on the basis of the stipulated actual fair market value of depre-ciable assets is less than the depreciation deductions claimed in the petitions on a higher alleged fair market value.
Section 202 of the Revenue Act of 1918 (40 Stat. 1057) which governs the transaction which occurred May 1, 1920, provided that when property is exchanged for other property, the property received in exchange shall for the purpose
The defendant cites no case or statutory provision, and we think there are none, which supports the decision of the Commissioner with respect to the depreciation basis used in determining and collecting the additional taxes and interest for 1921 to 1926. Burnet v. Aluminum Goods Co., supra, and all other decisions of the courts and the Board of Tax Appeals, oppose the position originally taken as to depreciation in these cases. Cerro de Pasco Copper Corporation v. United States, 82 C. Cls. 442; H. Lissner Co. v. United States, 52: Fed. (2d) 1058; Remington Rand, Inc. v. Commissioner, 33; Fed. (2d) 77; Burnet v. Riggs National Bank, 57 Fed. (2d) 980; American Printing Co. v. United States, 53 Fed. (2d) 98; Munising Motor Co., 1 B. T. A. 286; The Walker-Crim-Co., Inc., 1 B. T. A. 599; Rouse, Hempstone &. Co., Inc., T B. T. A. 1018 , Monarch Electric & Wire Co. v. Commissioner,. 12 B. T. A. 158, affirmed 38 Fed. (2d) 417; Gould-Mersereau-Co. v. Commissioner, 21 B. T. A. 1316, 1326.
In the determination of the additional taxes on account of which recovery is sought, the defendant seems to have placed some reliance upon Section 331 of the Revenue Act of 1918-But such reliance was clearly not justified. The first portion of that section so relied upon wholly related, as its positive language shows, to the matter of invested capital only.. The decisions are uniform in holding that it has no application to the basis for deductions for depreciation. Monarch-Electric & Wire Co. v. Commissioner, supra; Gould-Mersereau Co. v. Commissioner, supra; Rouse, Hempstone & Co., Inc., supra, and American Printing Co. v. United States, supra.
Plaintiff is entitled to recover such amounts for the years involved as represent overpayments not barred by limitation: by reason of the failure of defendant to compute and allow deductions for depreciation on the actual fair market value of the depreciable assets. These deductions for the years 1921 to 1926, inclusive, should be computed upon the stipulated
It is so ordered.
In accordance with the foregoing decision, a computation of the tax liability of plaintiff was filed by the respective counsel, as follows:
No. 55091 — an overpayment of additional tax and interest of $526,534.63 for 1921.
No. 45427 — an overpayment of additional tax and interest of $347,974.47 for 1922, $375,868.17 for 1923, $243,842.33 for 1924, $293,798.18 for 1925, and $214,223.87 for 1926; a total of $1,475,707.02.
Whereupon, on November 4, 1942, judgment was entered for the plaintiff, as follows:
In No. 45091, judgment for $526,534.63 with interest at 6 per cent per annum from July 13,1926, as provided by law.
In No. 45427, judgment for $1,475,707.02 with interest at 6 per cent per annum from the dates of payments of the several amounts, as set forth in Finding 18, as provided by law.