UNITED STATES DISTRICT COURT DISTRICT OF NEW JERSEY
March 15, 1957
STATE DISTRIBUTORS, Inc., Plaintiff,
UNITED STATES of America, Defendant
The opinion of the court was delivered by: FORMAN
There are no disputed questions of fact in this case. The plaintiff, State Distributors, Inc., a New Jersey corporation, and the defendant, the United States of America, have stipulated, among others, the following pertinent facts:
Plaintiff owned a group of buildings for retail merchandising in Trenton, New Jersey. On February 14, 1948, a fire occurred in the buildings. They were insured by several companies. The loss was determined to be $ 122,778.25. The property was encumbered by a mortgage to the New England Mutual Life Insurance Company in October of 1946 in the sum of $ 225,000. At the time of the fire plaintiff owed $ 210,622.49 on the mortgage. In accordance with a conventional provision in the mortgage in which plaintiff covenanted to keep the property insured against loss by fire and other risks and to assign policies to the mortgagee, the carriers paid the proceeds of the policies directly to the mortgagee. The balance of the mortgage was satisfied by the plaintiff by periodic payments, the last of which was made in May, 1949.
On June 15, 1948, plaintiff filed with the then Collector of Internal Revenue for the First District of New Jersey its corporate tax return for its fiscal year March 1, 1947, to February 29, 1948, having been granted an extension of time to file the said return. In it plaintiff reported the receipt of rental income of $ 40,000 for the taxable year, deductions amounting to $ 28,316.75, or a net income of $ 11,683.25, on which it computed its income tax liability to be $ 2,587.15, which it satisfied.
On May 1, 1953, the Commissioner of Internal Revenue notified the plaintiff of a tax deficiency brought about as follows:
Net income as disclosed by return $11,683.25
Unallowable deductions and additional income:
(a) Depreciation $258.64
(b) Gain on Involuntary Conversion 23,180.70
Corrected Net Income $35,122.59
Tax Deficiency 5,854.66
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