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STANDARD REALIZATION COMPANY v. UNITED STATES

May 31, 1960

STANDARD REALIZATION COMPANY, A DELAWARE CORPORATION, PLAINTIFF,
v.
UNITED STATES OF AMERICA, DEFENDANT.



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:

Findings of Fact.

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 Realization Company.

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 said period.

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, 1955.

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 silica.

12. The United States sent plaintiff notices on November 17, 1958, disallowing in full said three claims for refund, which notices were ...


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