which notices were received by plaintiff on November 18, 1958.
13. By letters dated July 15, 1958, the United States, acting
through the Commissioner of Internal Revenue, notified plaintiff
of the determination of deficiencies in income and excess profits
taxes in the amount of $74,916.25 for the calendar year 1952, the
amount of $108,314.12 for the taxable period January 1, 1953
through November 8, 1953, the amount of $18,746.54 for the
taxable period November 9, 1953 through December 31, 1953, and
the amount of $51,615.31 for the calendar year 1954.
14. The adjustments of the Commissioner of Internal Revenue,
insofar as here relevant, resulted from his determination that
plaintiff and its predecessor, Illinois Standard, were entitled
to compute percentage depletion at the rate of 5%, rather than
the rate of 15% used on the returns, and that "the gross income
from the property" on which said percentage depletion should have
been computed was less than the net selling price of all grades
of plaintiff's product.
15. The asserted deficiencies in taxes totaling the amount of
$253,592.22, with interest thereon in the amount of $72,620.47,
were paid under protest by the plaintiff on November 20, 1958 to
the defendant's District Director of Internal Revenue at Chicago,
16. The plaintiff filed timely and proper claims for refund
with respect to and in the amount of said taxes and interest on
November 26, 1958, and duplicates of said claims for refund on
November 28, 1958, with defendant's District Director of Internal
Revenue at Chicago, Illinois.
17. Notices of disallowance in full of said claims for refund
were sent by the United States to the plaintiff on November 28,
1958, and were received by the plaintiff on December 1, 1958.
18. The principal business of plaintiff and of its predecessor,
Illinois Standard, (hereinafter referred to as "plaintiff") at
all times mentioned herein, was the mining of quartzite at its
mine located near Ottawa, Illinois, and the processing and sale
of silica sand and flour at its plant located at Ottawa,
19. Plaintiff's mineral exists in a rock formation which has to
be uncovered by the removal of overburden. The upper surface is
then cleansed in preparation for extraction of the mineral. The
rock is so firm that sheer walls have stood for years bearing the
weight of railroad tracks, and tunnels through the mine have
stood for years without any support whatever.
20. The exposed rock formation must then be blasted by
dynamite. Dynamite charges of 250 to 300 pounds are placed in
drilled holes approximately 30 feet apart and some 12 feet from
the face of the quarry. Secondary blasting is then necessary to
break up the remaining pieces. During the tax periods here in
question, the plaintiff used large quantities of high explosives
in connection with its mining operations.
21. Following the secondary blasting, the disintegrating
process is continued by means of high-pressure water jets
directed against the exposed surface of the partially
disintegrated rock and by the use of sledge hammers. The small
pieces and particles are then carried by water to the base of the
quarry where the mixture of quartz particles and water is pumped
through rubber-lined pipes to the processing plant. The granular
quartz are then subjected to primary and secondary washing
operations which consist of agitating the grains and subjecting
them to high-pressure jets, further disintegrating the quartz
particles and removing the binder material, which also consists
largely of quartz.
22. Following the washing, the granular quartz is placed in
bins to drain and is then dried in steam dryers, screened over
multiple vibrating screens, and graded into nine sizes and sold
by plaintiff under the trade name "Blackhawk Silica Sand." The
separation into various sizes is necessary in order to meet the
commercial demand for the product. A portion of the larger
grain-sized quartz particles is ground into pulverized
form and sold in several different degrees of fineness under the
trade name "Microsil Ground Silica."
23. A portion of the plaintiff's product is then loaded in bulk
in freight cars. This requires the sealing of each freight car
prior to the loading, by lining the car with paper, in order to
prevent seepage and the possible intrusion of impurities. The
balance of plaintiff's product is packaged in bags which are then
sealed and loaded into freight cars for shipment.
24. The total shipments of silica made by the plaintiff for the
years 1952, 1953 and 1954 showing, for each of said years, in
tons and dollars, ground and unground silica, and ground and
unground silica shipped in bags, is as follows:
(Not Ground) (Ground Silica)
Tons Dollars Tons Dollars
for the year 217,854 $825,248 58,735 $541,932
in bags 42,107 394,749 32,031 340,220