The opinion of the court was delivered by: Robert D. Morgan, District Judge.
DECISION AND ORDER ON MOTION FOR PARTIAL SUMMARY JUDGMENT
This is an action for refund of federal income taxes paid by
plaintiffs as transferees of Best Advertising Corp. (BEST), a
dissolved Illinois corporation. The court has jurisdiction under
28 U.S.C. § 1346(a)(1). Pending for decision is a motion by the
Government for partial summary judgment, under Rule 56(d),
The following facts are undisputed. BEST was incorporated in
Illinois in 1962 for the purpose of soliciting advertisements
from Illinois businesses for insertion in the "yellow pages" of
telephone directories. Subsequently, the Reuben H. Donnelley
publishes all directories distributed by Illinois Bell Telephone
Co., refused to accept the advertisements proffered by BEST. BEST
then filed suit against Donnelley and Illinois Bell, charging
violations of the Sherman Anti-Trust Act. This court granted a
motion to dismiss the complaint on the ground that it failed to
state a claim against the defendants. Best Advertising Corp. v.
Illinois Bell Telephone Co., 229 F. Supp. 275 (S.D.Ill. 1964),
aff'd, 339 F.2d 1009 (7th Cir. 1965). After affirmation by the
Court of Appeals, Donnelley agreed on March 22, 1965 to pay BEST
$67,500 in settlement on condition that BEST abandon plans to
file a petition for writ of certiorari with the Supreme Court of
the United States. The settlement amount was placed in escrow, to
be paid BEST on April 9, 1965, one day after the period for
filing the petition with the Supreme Court expired. Between March
22, 1965 and April 9, 1965, plaintiffs and Eugene E. Hildebrand,
as holders of all BEST stock, assigned the $67,500 claim to
themselves as individuals. On April 9, 1965, the escrow fund was
paid to BEST. On April 12, 1965, plaintiffs adopted and approved
a resolution to dissolve BEST, and on April 14, 1965 the net
proceeds of the settlement, after payment of some corporate
debts, were distributed to the shareholders.
Although BEST filed no corporate income tax return for 1965,
the Commissioner of Internal Revenue determined that the
settlement proceeds were taxable to the corporation as ordinary
income. Plaintiffs paid the assessed tax in 1969. Then, after
their claim for refund was denied, they instituted this suit.
The Government's motion for partial summary judgment attacks
the following paragraph of the complaint:
A. The income was that of the shareholders, not
that of the corporation, in that:
(1) Prior to the collection of such net proceeds
the corporation had ceased doing business and had
adopted a plan of liquidation.
(2) That the right to collect the proceeds, by
virtue of said plan, was, in effect, in the
shareholders and not the corporation.
(3) That the proceeds were collected by the
shareholders as individuals."
The Government argues first that this paragraph is at variance
with the plaintiffs' claim for refund and consequently may not be
considered by the court, under a treasury regulation which
provides in part, "The claim [for refund] must set forth in
detail each ground upon which a credit or refund is claimed and
facts sufficient to apprise the Commissioner of the exact basis
thereof." 26 C.F.R. § 301.6402-2(b) (1). The court agrees that
substantial judicial support for this regulation exists, see
Herrington v. United States, 416 F.2d 1029 (10th Cir. 1969), and
cases cited therein, and that the regulation is more stringent
than general pleading requirements under the Federal Rules of
Civil Procedure. Nevertheless, this court holds that there is no
fatal variance between paragraph 6A of the complaint here and the
following paragraph of plaintiffs' claim for refund:
"The corporation realized no income in 1965, and
therefore owed no income tax, because the collection
of damages from Illinois Bell and Donnelley was after
the corporation had adopted a plan of liquidation.
The collection was therefore that of the shareholders
and not that of Best. The right to collect this money
had been assigned by Best to the shareholders, and
the shareholders collected direct. . . ."
With the exception of the reference in the refund claim to the
assignment, the two paragraphs are substantively identical.
Consequently, this court moves to consideration of the
substantive issues raised by paragraph 6A of the complaint.
The cause of action asserted there raises two possible theories
of recovery: (1) that a plan of liquidation had been adopted
prior to receipt of the settlement proceeds, and that this plan
placed the right to receive the proceeds in the shareholders; (2)
that the settlement was made with the shareholders, rather than
the corporation, and the proceeds thereof were in fact collected
by the shareholders as individuals. Plaintiffs' brief in
opposition to the motion does not pursue the liquidation theory,
and it does fail as a matter of law. See Wood Harmon ...