The opinion of the court was delivered by: Perry, District Judge.
Plaintiff, Standard Realization Company, brings this action to
recover alleged overpayments of income and excess profits taxes
made by plaintiff under protest on deficiency assessments after
the Commissioner had disallowed its claims for refund.
Plaintiff, which was engaged in the mining of quartzite at its
mine located near Ottawa, Illinois, and in the processing and
sale of silica sand and flour at its plant located at Ottawa,
Illinois, contended that it should have been allowed certain
expenses incurred by it incident to the bagging of silica and
flour and also contended that the adjustments made by the
Commissioner as well as the deficiencies determined by him and
the assessments resulting therefrom were erroneous and illegal
because, as it alleged in its complaint:
"(a) Percentage depletion should have been computed
at the rate of 15%, rather than 5% as computed by the
Commissioner. The product mined, quarried or
otherwise extracted by plaintiff, and sold by it, is
quartzite within the meaning of Section 114(b)(4)
(A) (iii) of the Internal Revenue Code of 1939 as
amended [26 U.S.C.A. § 114(b)(4)(A) (iii)], and,
accordingly, plaintiff properly computed its
depletion by applying a rate of 15%.
"(b) Said percentage depletion should have been
computed on the net selling price of all grades of
plaintiff's product without adjustment and in
computing "gross income from the property," as
defined in Section 114(b)(4)(B) of the Internal
Revenue Code of 1939, as amended, plaintiff is
entitled to include as `ordinary treatment process'
the cost of, and profit on, items including, but not
limited to, screening, grinding, bagging, bags,
loading for shipment, and shipping material."
The Commissioner viewed plaintiff's operations as a scooping up
of sand instead of the mining of quartzite and therefore computed
the percentage depletion at only 5% instead of 15%.
During the trial of the cause which was heard by the court
sitting without a jury, evidence was introduced which
conclusively established that plaintiff's operations — which
consisted of blasting hard quartzite rock with dynamite and then
breaking it down by the use of hydraulic pumps — were indeed
regular mining operations carried on in order to prepare the
quartzite for commercial use.
Having heard and considered the evidence herein, the exhibits
introduced at the trial, the briefs submitted by counsel, and
being fully advised in the premises, the court finds the facts
and states the conclusions of law as follows:
1. Plaintiff is a dissolved corporation organized under the
laws of the State of Delaware, qualified to do business as a
foreign corporation in Illinois, with its principal place of
business in Chicago, Illinois.
2. Plaintiff was incorporated in Delaware on October 2, 1953,
under the name "Blackhawk Mining Corporation" as a wholly owned
subsidiary of Standard Silica Corporation, an Illinois
corporation (sometimes hereinafter referred to as "Illinois
Standard"). Effective November 9, 1953, Illinois Standard was
merged by statutory merger procedure, into its wholly owned
subsidiary, Blackhawk Mining Corporation. All of its assets were
thereby transferred to the surviving Delaware corporation, and
the corporate name of the surviving corporation, the plaintiff
herein, was changed to Standard Silica Corporation. On January 5,
1955, the corporate name of plaintiff was changed to Standard
3. On or about December 2, 1955, plaintiff was dissolved as a
corporation pursuant to the laws of the State of Delaware. In
connection with said dissolution, and as part of said dissolution
procedure, plaintiff, on or about December 30, 1954, sold all of
its mining properties and other tangible assets to Ottawa Silica
Company, a Delaware corporation, and it has paid two liquidating
dividends to its stockholders from the proceeds of said sale.
Plaintiff has not since said sale and is not now carrying on any
business activities other than taking the necessary steps to
collect a refund of the Federal income and excess profits taxes
which are the subject matter of this suit.
4. Under the laws of the State of Delaware, a corporation
incorporated under the laws of that state, and dissolved under
said laws, continues in existence for the term of three years
from the date of its dissolution for certain specific purposes,
8 Del. C. § 278; the period of three years from the date of
dissolution of the plaintiff expired on December 3, 1958.
5. Under the laws of the State of Delaware, a corporation
incorporated under the laws of such state, and dissolved under
such laws, continues to be a body corporate beyond such
three-year period with respect to any action, suit or proceeding
begun or commenced by or against said corporation within said
three-year period. The suit of the plaintiff was commenced within
6. On or about March 10, 1953, the plaintiff's predecessor,
Illinois Standard, filed in the office of the Collector of
Internal Revenue at Chicago, Illinois, its Federal corporate
income and excess profits tax return for the calendar year 1952,
and paid the tax shown thereon in the amount of $86,000.78 in
installments on March 12, 1953, June 18, 1953, September 21,
1953, and December 14, 1953.
7. On or about February 11, 1954, the plaintiff filed in the
office of the District Director of Internal Revenue at Chicago,
Illinois, a Federal corporate income and excess profits tax
return on behalf of its predecessor, Illinois Standard, for its
taxable period January 1, 1953 through November 8, 1953, and paid
the tax shown thereon in the amount of $130,107.42 in
installments on February 15, 1954, May 12, 1954, August 6, 1954,
and December 12, 1954.
8. On or about March 8, 1954, the plaintiff filed in the office
of the District Director of Internal Revenue at Chicago,
Illinois, its Federal corporate income and excess profits tax
return for its taxable period November 9, 1953 through December
31, 1953, and paid the tax shown thereon in the amount of
$12,528.25 in installments on March 15, 1954, June 15, 1954,
September 14, 1954, and December 8, 1954.
9. On or about June 14, 1955, the plaintiff filed in the office
of the District Director of Internal Revenue at Chicago,
Illinois, its Federal corporate income tax return for the
calendar year 1954, and paid the tax shown thereon in the amount
of $77,059.97 in installments on March 11, 1955 and June 15,
10. On or about March 4, 1958, plaintiff filed timely and
proper claims for refund in the amount of $6,867.84 for the
calendar year 1952, in the amount of $14,401.93 for the taxable
period January 1, 1953 through November 8, 1953, and in the
amount of $1,367.60 for the taxable period November 9, 1953
through December 31, 1953.
11. Said three claims for refund were based on the fact that
plaintiff's predecessor, Illinois Standard, and plaintiff, on the
returns for the three tax periods covered by said claims, had
erroneously adjusted the basis for computation of percentage
depletion by excluding certain bagging costs and had erroneously
included, in computing the gross income from the property, sales
of ground silica at the average selling price of unground grades
of silica rather than at the net selling price of such ground
12. The United States sent plaintiff notices on November 17,
1958, disallowing in full said three claims for refund,
which notices were ...