
    OXFORD PAPER COMPANY v. THE UNITED STATES
    [No. J-446.
    Originally decided November 2, 1931.
    Judgment March 21, 1932]
    
      Mr. Lyle T. Alverson for the plaintiff. Johnson & Shores were on the brief.
    
      Messrs. Lisle A. Smith, and T. H. Lewis, jr., with whom was Mr. Assistant Attorney General Charles B. Rugg, for the defendant.
   GreeN, Judge,

delivered the opinion:

The plaintiff in this case brings suit to recover $223,684.80 alleged to have been wrongfully collected from it as income taxes for the year 1917.

The action is based on a claim that in determining the amount of plaintiff’s tax for that year the commissioner refused to allow the plaintiff for a loss sustained in the exchange of certain bonds for preferred stock of the Nash-waak Pulp & Paper Company, Ltd. The parties agree that the bonds exchanged were purchased by plaintiff in 1916 at an actual cost of $771,071.50 in cash, and that plaintiff received stock in the Nashwaak Company therefor in the amount of $850,000 face value, which, however, it contends was actually worth only $40 a share, or $340,000. The commissioner refused to allow any loss whatever therefor, holding in effect that the stock was worth what the bonds cost.

It will be seen that the question is wholly one of fact to be determined on the evidence submitted in the case.

It is contended on behalf of the defendant that the only way to establish the market value of shares of stock in a closely held corporation like the Nashwaak Pulp & Paper Company, where there is no evidence of any sales, is to ascertain the value of the property which they represent, assigning to each share its proportionate worth. The authorities cited on behalf of defendant pertain to common stock. Undoubtedly in estimating the value of common stock under circumstances like those in the instant case, the value of the net assets of the corporation have an important bearing. They may also have some application in the case of preferred stock, but the value of preferred stock may be much less than the value of the assets. In any event, we find nothing in the evidence which shows the value of the property of the corporation except that it is stipulated that the balance sheet of the company for the year in question is as shown in the findings of fact. But the mere fact that the balance sheet states the assets of a corporation to be a given sum is no evidence that such value actually exists, as many persons have found to their sorrow.

It is also contended by defendant that the testimony with reference to actual sales prices of high-grade preferred stock on the open market is not admissible to show the value of the preferred stock involved herein. But we think when the dividend rate of these stocks is shown, and other matters showing how such stock is rated, that while such evidence is not conclusive, it tends to show the value of preferred stock bearing a dividend rate equivalent to that of the stock in question, and may be considered together with all of the other evidence in the case bearing thereon in determining the value of the stock of the Nashwaak Pulp & Paper Company. Proceeding in this maimer, we find the value of the stock received by the plaintiff in exchange for bonds at the time of the exchange to have been $60 a share, and that plaintiff by such exchange sustained a loss of $261,071.50.

It follows from what has been said above that plaintiff is entitled to recover herein and that the amount of its taxes for the year involved should be computed after allowance has been made for this loss, but there seems to be some question as to whether by inadvertence the amended stipulation executed by the parties is correct in all particulars. Counsel for plaintiff say in argument'—

“We desire that this proceeding be settled according to the right of the matter, and notwithstanding the stipulation, we agree that any recovery should be calculated in light of the actual invested capital, corrected income and the taxes paid.”

Accordingly judgment will be withheld with leave to the respective parties to submit a computation of the proper tax and amount to be refunded in accordance with the conclusions stated above. If the parties agree with reference to the result of the computation, judgment will be entered for the amount so fixed, otherwise the court will have the computation made and the judgment entered.

Whaley, Judge; Williams, Judge; Littletox, Judge; and Booth, Chief Justice, concur.

On March 21, 1932, the court sustained defendant’s motion for new trial in so far as to change the finding as to fair value of the preferred stock of the Nashwaak Co. from $60.00 to $70.00 a share, and add a further finding as follows:

“The parties agree that the calculation made by the Commissioner of Internal Revenue of the plaintiff’s taxes for the year 1917 is correct except that it is subject to such a correction as may be caused by the allowance, if any, of a deduction from income for the loss, if any, arising from the exchange of bonds for preferred stock. The commissioner found that the plaintiff and the Montmorency Lumber Company were affiliated throughout the year 1917, that their consolidated invested capital for said year was $4,224,158.33, and that their consolidated net income (without any deduction on account of exchange of the bonds for stock) was $1,491,122.50, of which the net income of the plaintiff (without any deduction on account of the exchange of bonds for stock) was $1,486,097.43. The excess-profits tax credit was found by the commissioner in computing plaintiff’s tax to be $383,174.25, and in computing the tax liability of plaintiff the commissioner allocated 98.525% of the tax of the consolidated group to the Oxford Paper Company and 1.475% to the Montmorency Lumber Company. In computing the consolidated net income of the affiliated companies for 1917, the commissioner made a deduction of $10,171.67 on account of a dividend received, and also made a deduction of the same sum in computing the income tax of plaintiff for the same year.”

Judgment was thereupon entered for plaintiff in the sum of $97,441.64, with interest from June 14, 1918. With the order was delivered the opinion of the court by—

GreeN, Judge:

The plaintiff has moved the court for judgment on findings of fact previously made by the court and in accordance with the opinion rendered. The defendant resists the motion for judgment and moves the court to make certain changes in the findings and to make additional findings. Both motions have been argued and submitted.

The failure to properly introduce much of the documentary evidence relied upon by both parties would make it difficult, if not impossible, to sustain either motion if it were not for the agreements and concessions made in open court by the counsel for the respective parties. The rules pertaining to the introduction of evidence are the same in the Court of Claims as in other nisi prius courts in the United States. The mere filing of a document or instrument with the clerk is neither offering nor introducing it in evidence; and the practice of dumping upon the court a large number of documents or instruments in which very little is even claimed to be material or competent, without making any statement as to the part thereof which it is claimed should be received in evidence, is disapproved, and marking a collection of different instruments as an exhibit to be used in this manner merely leads to the confusion which exists in the case now before the court.

The motion of the defendant will first be considered.

It is strenuously insisted on behalf of the defendant that the court erred in its finding that at the time the plaintiff exchanged first-mortgage bonds of the Nashwaak Company for preferred stock in the same company the stock was worth only $60 a share. On this matter the court adheres to the view expressed in the original opinion that evidence of the value of preferred stock of other companies engaged in the same business is competent and material as part of the evidence to be considered in determining the value of the stock involved herein. It is, of course, impossible to find any two companies that are in all respects similarly situated, but this does not prevent the court from making allowances for the difference, and when the market values of the other stocks are shown, together with a full statement of their condition in respect to matters which are accepted as showing the value by persons skilled in and accustomed to valuing such stocks, the value so shown becomes relevant. Where other evidence bearing upon the question of value is offered it should be considered, but the weight of the testimony is to be determined by the court, when the court sits as a trier of facts. We have carefully gone over again all of the competent and material evidence presented in the case, and upon reconsideration the court is now of the opinion that the fair value of this preferred stock at the time it was received in exchange for the first-mortgage bonds was $70 a share, and the finding of the court on that point will be amended accordingly. Upon this basis the loss sustained by the plaintiff is the difference between the value of the stock and the cost of the bonds, viz, $176,071.50, which will be used in computing the amount of refund to which the plaintiff is entitled, instead of the amount of the loss as stated in the original opinion.

The defendant also moves the court to make additional findings as stated in its proposed findings Nos. 19, 20, and 21, in the brief and argument on behalf of the defendant. No reason is given for finding No. 20, and we have failed to discover any; but there is no dispute between the parties as to the facts contained in Nos. 19 and 21, and an additional finding will be made which embodies these facts, together with some others whichin the peculiar state of the record would seem to be necessary in order that a computation may be made of the tax after due allowance is made for the loss on the exchange of the bonds for stock. The parties have agreed in open court that Exhibit A on pages 89 and 90 of the record is a correct computation of the tax when made on the basis of the original finding of the court as to the value of the preferred stock. Upon this exhibit we have made a finding of the matters necessary for a computation of the tax under the present holding of the court and find the total tax liability as corrected to be $349,894.72. All through the proceedings in the case the plaintiff has accepted the computation of the commissioner with reference to the amount of tax due as correct with the exception of such a change as would be made necessary by an allowance of the proper sum as a loss on the exchange of the bonds for stock, and plaintiff’s motion for judgment is based upon tbis assumption, to which defendant orally agreed. Plaintiff’s contention is in effect that the amount of refund to which it is entitled is the difference between the tax as computed by the commissioner and the amount now found to have been due after proper allowance for the loss on the exchange of bonds for stock. It may be that if some of the figures stated in the stipulation of facts entered into by the parties were used, the amount of the refund would be found to be a slightly different sum, but we have followed the method of computation agreed by both parties to be correct. The amount determined by the commissioner as the correct tax was $447,336.36. This exceeded the amount which we now find to be the correct tax liability by $97,441.64, which is the amount of refund that plaintiff is entitled to recover with interest as provided by law. Judgment will be rendered accordingly.

Whaley, Judge; Williams, Judge; Littleton, Judge; and Booth, Chief Justice, concur.  