Opinion
Proceeding by Edwin K. Hoover and others against the United States.
Petition dismissed.
Frederick O. Graves, of Washington, D. C. (Miller & Chevalier, of Washington, D. C., on the briefs), for plaintiff.
Guy Patten, of Washington, D. C., and James W. Morris, Asst. Atty. Gen. (Robert H. Jackson, Asst. Atty. Gen., and Robert N. Anderson and Fred K. Dyar, both of Washington, D. C., on the briefs), for the United States.
Before BOOTH, Chief Justice, and GREEN, LITTLETON, WILLIAMS, and WHALEY, Judges. The court, upon a stipulation of the facts in the evidence, makes the following special findings of fact:
1. Doris McMillan Hoover, the plaintiff originally named in this action, was at all times until the date of her death on January 29, 1936, a citizen of the United States and a resident of Detroit, Mich. Subsequent to her death Messrs. Edwin K. Hoover, Selden S. Dickinson, and Edward B. Twombly qualified as executors of the estate of Doris McMillan Hoover and have been substituted as parties plaintiff herein.
2. On March 14, 1930, Doris McMillan Hoover (at that time Morse) filed her income tax return for the calendar year 1929 with the collector of internal revenue at Detroit, Mich., disclosing therein a tax liability of $64,199.62. The tax so disclosed was paid by Mrs. Hoover during the year 1930 as follows: On March 17, 1930, $16,049.91; on June 17, 1930, $16,049.91; on September 16, 1930, $16,049.90; and on December 15, 1930, $16,049.90.
3. Thereafter, upon audit of the income tax return, the Commissioner of Internal Revenue determined that the tax liability of Doris McMillan Hoover for the year 1929 was $63,139.62, and that there had been an overpayment of $1,060. Such adjusted tax liability was based on net income subject to surtax of $357,210.63 and capital net gain of $951.49, with a credit for income tax paid at the source of $81.45. The overpayment, together with interest thereon of $62.66, was duly refunded to Mrs. Hoover on January 13, 1932.
4. On February 29, 1932, Doris McMillan Hoover filed with the collector of internal revenue a claim in which she asked for the refund of $1 or more upon the ground that:
'The taxpayer owned during 1929 and still owns bonds of Detroit and Port Huron Shore Line Railway Company on which relatively heavy losses have occurred due to the line having been abandoned. It may be that the Treasury Department may eventually decide that this loss should have been claimed by the taxpayer in her tax return for the year 1929, and this claim is, therefore, filed to protect the interest of the taxpayer.'
The claim for refund was rejected by the Commissioner of Internal Revenue on a schedule dated November 1, 1932, and the taxpayer was duly notified of the rejection on that date.
5. Throughout the year 1929 Doris McMillan Hoover owned first mortgage 5 per cent. gold bonds of Detroit & Port Huron Shore Line Railway Company of a par value of $15,000, due January 1, 1950, which had been acquired by her in 1916 at a cost of $13,950.
Detroit & Port Huron Shore Line Railway Company is a corporation which was organized in 1898 under the laws of the state of New York. On January 1, 1900, the railway company issued its 50-year first mortgage 5 per cent. gold bonds, dated January 1, 1900, and due January 1, 1950. The total amount of such bonds issued and outstanding throughout the year 1929 and 1930 was $2,499,000, and this was the total outstanding bond indebtedness of such company.
The Detroit & Port Huron Shore Line Railway Company was placed in receivership in 1925. Shortly thereafter a bondholders' protective committee was formed by the bondholders to protect their interests. The aforesaid bonds of Doris McMillan Hoover were deposited with the committee on October 21, 1925.
On or about June 1, 1929, the bondholders' protective committee adopted a plan for reorganizing the Detroit & Port Huron Shore Line Railway Company in connection with the Eastern Michigan Railway, a corporation which was organized in September, 1928, and which took over most of the net assets and properties which had been owned and operated by the Detroit United Railway Company. On December 13, 1929, the plan was abandoned at a meeting of the bondholders' protective committee, at which time an appraisal of the assets of Detroit & Port Huron Shore Line Railway Company was submitted to the committee by A. L. Drum, president of Eastern Michigan Railway. In the appraisal so submitted it was recommended that operation of the railroad be discontinued and that the assets be disposed of. The appraised value of the assets, as shown in the Drum report, was $1,060,000, and the estimated cost of completing foreclosure, and the estimate of receiver's accounts as of December 31, 1929, shown in the report, was $264,115, leaving an estimated net salvage of $795,885, or $318 per $1,000 bond to participating bondholders.
On December 20, 1929, a decree of foreclosure of the mortgage securing the bonds of Detroit & Port Huron Shore Line Railway Company and an order of sale of all the railway company's assets was entered by the United States District Court for the Eastern District of Michigan, Southern Division. On January 24, 1930, the assets were sold pursuant to the decree of foreclosure and order of sale and were purchased by the bondholders' protective committee for $300,000. The sale was approved by the court on January 25, 1930. The sale price permitted nonparticipating bondholders to realize $67.04 for each $1,000 bond that they held, which amount by order of distribution dated May 15, 1930, was credited to each $1,000 bond. The money used to retire the nonparticipating bondholders' bonds was secured by the committee from a sale of the rolling stock and personalty of the railway company property purchased by it. The estimated amount which the participating bondholders expected to realize from a resale of the real estate purchased was $700,000 or $318 for each $1,000 bond they had deposited with the committee. This estimate was based upon the appraisal heretofore referred to.
On December 30, 1931, there was written off on the books of Doris McMillan Hoover as a loss on account of these bonds the sum of $10,950, which included the sum of $9,180 here claimed as a loss in 1929. No part of this amount was allowed by the Commissioner of Internal Revenue as a deduction from gross income in computing the tax liability of Doris McMillan Hoover for the year 1929, or for the year 1930, and was not claimed or allowed for 1931.
6. Doris McMillan Hoover was at all times herein mentioned thoroughly familiar with the status of Detroit & Port Huron Shore Line Railway Company and the bonds of said company, and the foreclosure sale of the properties of the company herein mentioned.
PER CURIAM.
The essential facts in this case for all practical purposes are similar to the facts involved in the case of McMillan, Trustee, v. United States (Ct.Cl.) 18 F.Supp. 853, this day decided by the court. The issues and the questions of law involved are precisely the same. Under the decision in the McMillan Case the plaintiffs are not entitled to recover. The petition is therefore dismissed.