L. D. Caulk Co. v. United States

D. Delaware

L. D. Caulk Co. v. United States

116 F. Supp. 835, 99 U.S.P.Q. (BNA) 391, 45 A.F.T.R. (P-H) 498, 1953 U.S. Dist. LEXIS 2320

CourtDistrict Court, D. Delaware

DecidedNovember 19, 1953

DocketCiv. A. No. 1393

StatusPublished

Cited by2 cases

This text of 116 F. Supp. 835 (L. D. Caulk Co. v. United States) is published on Counsel Stack Legal Research, covering District Court, D. Delaware primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook

L. D. Caulk Co. v. United States, 116 F. Supp. 835, 99 U.S.P.Q. (BNA) 391, 45 A.F.T.R. (P-H) 498, 1953 U.S. Dist. LEXIS 2320 (D. Del. 1953).

Pincite

Opinion

LEAHY, Chief Judge.

This is a suit for refund of penalties and interest assessed and collected on the premise plaintiff’s 1941 and 1942 federal withholding tax returns of royalties [836]*836payable to two non-resident aliens were each filed more than five months late.

Plaintiff, a Delaware corporation, held licenses under patents owned by Robert Doge and Emmanuel de Trey. Both patentees were Swiss. Under two licensing agreements, plaintiff obligated itself to pay royalties semi-annually, fifteen days after the close of each six month period. §§ 143(b) and (c) of the Internal Revenue Code, 26 U.S.C.,¹ admittedly required plaintiff to file withholding tax returns of royalties due the non-resident aliens. Critical issue, here, is when the returns were due for royalties attributable to sales made by plaintiff during the year 1941, and the last six months of 1942.

In its treatment of the impact of royalties on its operations, plaintiff, adhering to the accrual method of accounting, entered net royalties and withheld taxes as accrued liabilities of 1941 and 1942. Thus, 1941 and 1942 royalties and taxes were set up as accounts payable on plaintiff’s books and as part of its cost of doing business for those years. The entries were actually journalized as of 1941 and 1942. As soon as sales were determined — necessarily sometime after the •close of the period — royalties were computed as liabilities as of the prior closing date of the period. Sales during the first half of each year were determined early in the second half, but liability entries for the royalties were made as of the preceding June 30th. Similarly, sales during the second half of the year were determined in the following calendar year, but the liability entries were posted as of the preceding December 31st.

Prior to 1941, the withholding returns for Doge and de Trey were prepared by Bullock, a New York Certified Public Accountant, who was agent of both aliens to prepare their personal income tax returns. Plaintiff’s Comptroller testified the corporation relied on Bullock to prepare the returns which were usually forwarded to plaintiff and filed by it. No returns were prepared by Bullock for 1941 or 1942.

Prior to 1941, de Trey had an account with Irving Trust Company in New York to which plaintiff had deposited royalties due him. On June 14, 1941, the account fell under the blocking edict of Executive Order 8785,² but deposits could continue to be made under General License No. 1.³

Alien Doge had no bank account in the United States prior to 1941, and plaintiff’s custom was to request the Swiss Bank Corporation of New York to accept and transmit any royalties due. On January 4, 1943, a license was issued by the Federal Reserve Bank of New York permitting the establishment of a blocked account into which deposits could be made for Doge with the Swiss Bank Corporation. This action was apparently taken at the instance of Doge himself, not plaintiff.

The Royalty Adjustment Act⁴ became effective October 31,1942. By its terms, authority was given to governmental officers to regulate royalties payable with respect to products purchased by the U. S. Plaintiff sold products manufactured under both the Doge and de Trey licenses to agencies of the Government.

Tried to the court on a lengthy stipulation and abbreviated testimony, the matter for decision can best be explicated by the following tabulation:

[837]

Free access — add to your briefcase to read the full text and ask questions with AI