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33

Findings of Fact

plaintiff could not sign checks on the baseball pool ticket operation after June 29, 1952.

38. Prior to June 30, 1952, the plaintiff knew the combination to the safe maintained in the offices of the baseball pool ticket operation. After the Rushville Moose took over the baseball pool ticket operation from the plaintiff on June 29, 1952, the combination of the safe was changed and the plaintiff no longer knew the combination to the safe.

39. Beginning with June 30, 1952, Federal withholding of income tax and social security tax statements were prepared by the Rushville Moose and were sent to the District Director of Internal Revenue covering employees of the Rushville Moose. These statements and the Federal income and social security tax withheld and paid to the District Director were for Mr. Nugent, Mr. Smith, and Mrs. Owen, employees of the Rushville Moose and formerly employees of the plaintiff. The checks to the District Director of Internal Revenue were drawn on the bank account of the Rushville Moose maintained at the Indiana National Bank, Indianapolis, Indiana.

40. Fryberger, as secretary of the Moose Lodge at Rushville, made quarterly reports to the office of the Supreme Lodge of the Moose at Mooseheart, Illinois. The reports reflect the financial activities of the Moose Lodge. The reports from the Rushville Moose Lodge reflected the financial return from the baseball ticket lottery operation although not specifically set out in the report. The sums from the baseball lottery were reflected under the heading "Donations". For the three-month period August 1, 1952 to October 31, 1952, the report shows receipts for the Lodge of $2,257.36 and on the Club side receipts of $2,506.91. For the period May 1 to July 31, 1952, the report reflects receipts for the Lodge of $2,000 and for the Club of $1,286. Some expenses of the Rushville Lodge and expenses for operation of the baseball pool were paid out of the bank accounts of the baseball pool operation. Money was transferred from the bank account of the Rushville Moose at the Indiana National Bank, Indianapolis, Indiana, by check to Rushville Lodge

No.

1556 L.O.O.M., Rushville, Indiana. Only the net profits went to the Rushville Moose and until the profits were

Findings of Fact

149 C. Cls. transferred from the Moose bank account at the Indiana National Bank in Indianapolis to the Moose account in Rushville the sum would not be reflected in the quarterly reports sent to the Supreme Lodge. For the period of operation of the baseball pools by the Rushville Moose, the Moose received around $12,000 to $13,000.

41. The Rushville Moose employed Mr. Lew Angermeier to obtain a ruling from the Commissioner of Internal Revenue regarding the liability of the Rushville Moose for the Federal wagering excise tax. Mr. Lew Angermeier is an associate of George S. Olive and Company, which is a firm of Certified Public Accountants in Indianapolis, Indiana, having somewhere between 36 and 40 accountants. A request for a ruling on behalf of the Rushville Moose was filed on July 30 and September 15, 1952. In addition the George S. Olive Company made an audit of the Moose books covering the former "Big Tom" baseball ticket lottery operation and undertook an audit of the Moose operation of the former Rahke baseball ticket lottery operation. Angermeier went to Washington, D.C., and talked to officials of the Internal Revenue Service in an effort to get a ruling of the Revenue Service that the Rushville Moose was exempt from the wagering excise tax. The Rushville Moose Lodge paid George S. Olive Company for their work in attempting to get the ruling. The Rushville Moose paid George S. Olive Company the sum of $750 for the audit of the Moose books involving the lottery operation. The check was drawn on the Rushville Moose bank account at the Indiana National Bank, Indianapolis, Indiana, in which the money from the baseball pool ticket lottery formerly conducted by the plaintiff was deposited. The Rushville Moose books, maintained by Mrs. Owen, properly reflected this payment.

42. The request for the ruling filed by Angermeier on behalf of the Rushville Moose was signed by William Beam, Governor of the Loyal Order of Moose, Rushville Lodge No. 1556 and was attested by Chester Fryberger, Secretary. The seal of the Rushville Moose Lodge was impressed over part of Fryberger's signature. In the request for ruling dated September 15, 1952, filed by the Rushville Moose

33

Findings of Fact

Lodge No. 1556, with the Commissioner of Internal Revenue, the Rushville Moose state, among other things, that:

a. The Rushville Moose began on June 30, 1952, and has [sic] since continued the operation of a lottery involving the sale of baseball tickets.

b. Fryberger was duly commissioned by the Rushville Lodge as secretary and was confirmed by the Supreme Council of the Supreme Lodge of the World Loyal Order of Moose.

c. The operation of the lottery was "by and exclusively for the benefit of the applicant".

d. The Rushville Moose borrowed $9,000.00 to begin operations and opened a bank account at the Indiana National Bank, Indianapolis, Indiana.

e. The Rushville Moose employed Paul Nugent, Richard E. Smith, Gertrude C. Owen and Lawrence Hilton (part time) to conduct the baseball pool activity.

f. The price paid by the Rushville Moose to Rahke Printing Company, Inc., Silent Salesman Company, and Masten Printing Co. for the baseball tickets was reasonable.

Inc.,

43. About the middle of September, 1952, Fryberger came to the plaintiff and told him that the Federal tax department had said that the Moose might not be able to operate without paying the wagering tax and that a ruling was coming on the point. Several days later Fryberger talked to the plaintiff again and said that it looked like the Moose would be taxable and asked to break the contracts between the Rushville Moose and the printing companies and the lease between the Rushville Moose and the plaintiff. It was agreed that the contracts be terminated September 30, 1952. On September 30, 1952, the plaintiff went back into the baseball pool ticket operation and began collecting and paying the tax as did his competitors.

44. Anyone engaging in wagering activities is required

by law

expire

to purchase a $50 wagering stamp. These stamps at the end of the Government's fiscal year on June.

30. The plaintiff purchased a stamp for the period November 1, 1951 to June 30, 1952. From the period June 30, 1952 to September 29, 1952, the plaintiff had no wagering stamp. On September 29, 1952, the plaintiff bought from the Revenue Service a wagering stamp that would expire on June 30,

Syllabus

149 C. Cls.

1953. The plaintiff had no wagering stamp for the period June 30, 1952 to September 29, 1952, the period covered by the operation of the baseball pool by the Rushville Moose. The Revenue Service did not proceed against the plaintiff for failure to purchase a wagering stamp for the period June 30, 1952 to September 29, 1952.

45. Sometime in February, 1953, an auditor of the Supreme Lodge of the Moose appeared at the Rushville Moose office and relieved Fryberger of his job as secretary of the Rushville Moose Lodge. Fryberger was not relieved of his office of Vice President of the Indiana State Moose Association and served out his term of office. Fryberger was told that he had violated the by-laws of the Moose by permitting gambling by the Rushville Moose and that he was fired.

46. The plaintiff was not engaged in operating a baseball ticket pool and was not engaged in the business of accepting wagers for the period June 30, 1952, to September 30, 1952.

CONCLUSION OF LAW

Upon the foregoing findings of fact, which are made a part of the judgment herein, the court concludes as a matter of law that plaintiff is entitled to recover five hundred dollars ($500), with interest as provided by law. The court further concludes that defendant is not entitled to recover on its counterclaim and its counterclaim is dismissed.

GEORGE W. GILMORE AND ROBERTA GILMORE v. THE UNITED STATES

[No. 454-57. Decided February 3, 1960]

ON THE PROOFS

Taxes, income; capital gains; timber cutting.-In an action to recover income taxes alleged to have been erroneously assessed and collected on amounts received by a logging company and treated by the Commissioner of Internal Revenue as ordinary income rather than as capital gains under section 117 (k) (1) of the Internal Revenue Code of 1939 and section 631(a) of the Internal Revenue Code of 1954, it is held that under its contract to cut the timber for another company which in turn had a contract to purchase and cut the same timber from the

54

Opinion of the Court

owner, where it appears that the parties to plaintiff's contract intended that plaintiff should be the owner and seller of the logs to the other contracting party, plaintiff, in effect, stepped into the shoes of the original purchaser and thus had a contract right to cut the timber entitling it to treat the amount in question as capital gain rather than as ordinary income. Plaintiff is entitled to recover.

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Taxes, income; capital gains; gain or loss in case of timber or coal.— Under section 117(k) (1) of the Internal Revenue Code of 1939 providing that if a taxpayer so elects, the cutting of timber, during the year by a taxpayer who owns or has contract right to cut timber shall be considered as a sale or exchange of the timber, the taxpayer must have some property right in the logs cut to entitle him to capital gains treatment. Internal Revenue

409.3

Taxes, income; capital gains; gain or loss in case of timber or coal.— Where the taxpayer's contract to cut timber contained no direct provision permitting him to sell the timber to persons of his choice but also did not expressly forbid such a sale, it is reasonable to conclude that the taxpayer, despite his express contractual obligation to deliver the logs to a specific dump, could have disposed of the logs as he chose. The fact that the taxpayer did not in fact attempt to sell the logs to anyone other than the other contracting party is immaterial as there was no necessity to look for another purchaser under the circumstances. Internal Revenue 409.3

Mr. Charles P. Duffy for the plaintiffs. Mr. Fred S. Gilbert, Jr., and Mr. Carl E. Davidson were on the briefs.

Mr. Harold S. Larsen, with whom was Mr. Assistant Attorney General Charles K. Rice, for the defendant. Mr. James P. Garland and Mr. Lyle M. Turner were on the brief.

LARAMORE, Judge, delivered the opinion of the court:

Plaintiffs in this action seeks to recover income taxes in the amount of $142,740.75 for the years 1952, 1953, and 1954 on the theory that amounts received by them in these years for logging certain timber were capital gains rather than ordinary income.

The sole question presented is whether the plaintiffs are entitled to the benefits of the capital gains provisions of section 117 (k) (1) of the Internal Revenue Code of 1939,

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