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Findings of Fact profits tax returns for calendar year periods and on the accrual basis of accounting.
2. Within the time required by law, plaintiff filed with the collector in North Carolina its corporation income tax returns and its excess-profits tax returns, for the years so required by law, disclosing the following amounts of taxes due for each of the years indicated:
The above amounts were paid to the collector by plaintiff on or about the statutory installment dates fixed by law and were accepted by the collector as having been duly paid. By reason of the amended return for 1946, showing a larger amount of tax due than on the original return, plaintiff paid interest in the amount of $1,583.27.
3. Subsequently, as a result of various adjustments affecting the income or excess-profits tax liabilities of plaintiff, which adjustments were agreed to by the Commissioner of Internal Revenue and plaintiff, the following deficiencies in tax were paid by plaintiff, and the following overassessments of tax were credited or refunded to plaintiff for the years indicated:
138 C. Ols. Findings of Fact Postwar refunds of excess-profits tax were allowed as follows: Year 1942.------
------ $779, 762. 52 Year 1943
------- 171, 195. 58 4. Taking into account the taxes paid as set out in finding 2 and the adjustments set forth in finding 3, the adjusted total taxes paid were as follows for the years indicated:
Kind of tax
$8,869. 354. 40
64, 332, 24 11, 582, 658.01
4,765, 808. 82 13, 826, 607.95 7,797, 625, 24
(779, 762. 52) 13,623, 204, 26 1, 711, 955. 76
(171, 195. 58) 12, 650, 196. 97 13, 478, 463. 12 18. 459, 236. 90 21, 400, 121. 47 22,895, 677. 40 150, 164, 284.44
1944. 1945. 1946.. 1947 1948.
5. On March 13, 1950, and within the time required by law, plaintiff filed with the collector its claims for refund of income and excess-profits taxes, including claims for statutory interest, for each of the years 1940 through 1948, as follows:
The basis for each claim for refund was that payments made to employees under article xii of its bylaws, hereinafter generally called “the bylaw,” were deductible or otherwise allowable in computing the net income of plaintiff for the taxable year covered by the claim. In its claims, plaintiff
Findings of Fact stated that such payments fell within one or more of the following categories:
(1) A reasonable allowance for compensation for personal services actually rendered, within the meaning of Section 23 (a) of the Internal Revenue Code;
(2) An ordinary and necessary business expense incurred during the taxable year in carrying on the business of the taxpayer, within the meaning of Section 23 (a) of the Internal Revenue Code;
(3) A part of the cost of goods sold by the taxpayer during the taxable year, in determining the gross income of the taxpayer under Section 22 (a) of the Internal
Revenue Code. See Reg. 111, Sec. 29.22 (a)-5. Such payments were not claimed as deductions or as part of the cost of goods sold in its income tax returns or excessprofits tax returns for any of the years 1940 through 1948. Nor have such payments been allowed as deductions or as part of the cost of goods sold as a result of any adjustments heretofore made in determining the income tax or excessprofits tax liabilities of plaintiff for such years. Such payments were not claimed as deductions or as part of the cost of goods sold in plaintiff's income tax returns for the excessprofits tax base period years 1936 through 1939, nor have such payments been allowed as a result of any adjustments of such returns.
6. There are some discrepancies between the records of plaintiff and the district director regarding the dates of payments of the amounts set out above, which dates would become material in computing interest on refunds in the event it was held that plaintiff is entitled to recover anything in this action. The parties have stipulated that in case of a finding in favor of plaintiff, they will endeavor to reach an agreement as to the proper computations on the basis of the findings, such computations to be used as a basis for the judgment. If there are disagreements the disputed matters will be submitted to the court for determination.
7. As a result of events occurring after its claims for refund were filed, including the adjustments referred to in finding 3, and certain deficiencies in income tax for 1942 and 1943, which are admitted by plaintiff to be due if its
138 C. Cls. Findings of Fact claims for refunds of excess-profits tax for the same years are allowed, the tax refunds claimed in this suit by plaintiff are shown by the following schedule:
No part of such refunds claimed by plaintiff has been refunded, credited, set off, or otherwise allowed by defendant to plaintiff.
8. It has been stipulated that if the court finds and holds that plaintiff is entitled to recover all or part of the amounts ed for in this action, the parties will attempt to reach an agreement as to the amounts recoverable and, if they should so agree, they will file a stipulation with the court showing the amounts recoverable on the basis of the findings and conclusions of the court and in the event of a dispute the matter will be submitted to the court for determination.
9. The Commissioner of Internal Revenue, by registered letters under date of July 9, 1952, notified plaintiff that its claims for refund for each of the years 1940–1948 were disallowed in full.
10. The claims for refund and the disallowance thereof by the Commissioner of Internal Revenue constitute the basis of this suit. All conditions precedent to the maintenance of this suit by plaintiff have been performed or have occurred.
HISTORY OF PLAINTIFF'S COMMON STOCKS
11. When the bylaw, described more fully hereafter, was adopted in 1912, plaintiff had only one class of stock outstanding, 75,250 shares of common stock, $100 par value. Later in 1912 it issued 24,750 additional shares. At the end of 1912, the common stock outstanding consisted of 100,000
Findings of Fact shares, having an aggregate par value of $10,000,000. Up until the end of 1948, the only changes made in the common stock of plaintiff were a split of four shares for one, accompanying a reduction in the par value to $25 a share in 1920, and a further split of two and one-half shares for one, accompanying a reduction in par value to $10 a share in 1929. These reductions in par value increased the number of shares of common stock outstanding to one million, having an aggregate par value of $10,000,000.
12. In 1918, plaintiff issued a class B common stock, $100 par value, in the total amount of 100,000 shares, having an aggregate par value of $10,000,000. In 1920 each share of the class B common stock was exchanged for four shares of new class B common stock, $25 par value. The new class B common stock was also changed by a split of two and one-half shares for one, accompanying a reduction in par value to $10 in 1929. At times pertinent in this case, the new class B common stock had the same rights and privileges as the old common stock, sometimes hereafter referred to as class A common, except that it was not eligible for participation under the bylaw and it had no vote.
13. Stock dividends in the new class B common stock were distributed in 1920 to the holders of common stock and new class B common stock at the rate of 200 percent, in 1922 at the rate of 33% percent and in 1927 at the rate of 25 percent.
14. As a result of these capital changes affecting the B common stocks, the new class B common stock outstanding during the years 1940–1948 consisted of 9,000,000 shares of $10 par, an aggregate par value of $90,000,000. One million shares of class A common were outstanding during this same period.
15. The total amount of capital paid to plaintiff on account of its A common and B common stocks was $20,000,000, $10,000,000 with respect to the A common and $10,000,000 with respect to the B common.
16. Plaintiff never received any greater amount of paid-in capital on account of the common stock participating under the bylaw than it received with respect to common stocks of both classes not eligible for participation under the