# Brief for the Respondent in Opposition — Soeder v. United States

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Brief for the Respondent in Opposition
- **Published:** January 1, 1944
- **Citation:** 323 U.S. 720

## Text

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CITATIONS
Cases:

Burroughs Bldg. Material Co. v. Commissioner, 47 F.2d 178. 7,8
Chicago, R. I. & P. Ry Co. v. Commissioner, 47 F. 2d 990,

certiorari denied, 284 U. 8. 618- vat Pore ate 7
Commissioner v. Heininger, 320 U. 8. 467 se ewan hac os 7,8
Eversman v. Shipman Co., 115 Ohio St. 269... - 9
Great Northern Ry. Co. v. Commissioner, 40 F. 2d 372, cer-

tiorari denied, 282 U.S. 855__- Satins wines tee 7,8
Harden M. Loan Co. v: Commissioner, 137 F. 2d 282, i
certiorari denied, $20°U. S, 701.252 050. 2. eee 7
SRRONE: VDE GUO GOO th. Ae Bodo eho d ene ean oucces 10
Helvering v. Superior Wines & Liquors, 134 F. 2d 373____- 7 i
Morrissey v. Commissioner, 296 U. 8. 344- pi gmcwhawa s 10 ‘
Rugel v. Commissioner, 127 F. 2d 393_- saci wer nace Fae | ee
Sweeny v. Driller Co., 122 Ohio St. 16.............._--- 9
Tunnel R. R. v. Consmiesianer, 61 F. 2d 166, certiorari
bi ae oy tr ES aoe oo oa eu naenuniwes nceccoees 7
Statutes: Pal
Revenue Act of 1926, c. 27, 44 Stat. 9, Sec. 1114... ____- ll §
Revenue Act of 1936, c. 690, 49 Stat. 1648: :
gn GET A re even Te - oe
PO eee ote eee OEE en tote neo ter bie iitee 11 ;
BOSS. ose ee Pema eae tee coe sea 12 F
BR oe co eeu anes ke, eee Bape fer Bae HOGS 12 é
eit oA beers aes ne een ee eae 13 2
SE RSC OES ERO pares one pee ea 10, 13
Ohio General Code, Secs. 5509-5513__..____.________-._- 9
Throckmorton’s Ohio Code, Annotated (1940 Ed.):
Sections 1080-1 to 1080-23______._______ Sea eee 3,7
Miscellaneous:
8 Fletcher, Cyclopedia of Corporations:
SS INR nad pried eaters cme meme Stree Nicene die oe 9
a Ran ene oe ee ae 8
| 5G AACE Pe ON ip ee ny On Fem 2 8
Rules of the Supreme Court of the ‘United States:
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600509—44——-1

Guthe Supreme Court of the nited States

OcrosBerR TERM, 1944

No. 195

WILLIAM J. SorpeER AND EpWARD A. SOEDER,
PETITIONERS
v,

Unitrep States OF AMERICA

ON PETITION FOR A WRIT OF CERTIORARI TO THE UNITED
STATES CIRCUIT COURT OF APPEALS FOR THE SIXTH
CIRCUIT

BRIEF FOR THE RESPONDENT IN OPPOSITION

OPINIONS BELOW

The District Court delivered no opinion. The
opinion of the Circuit Court of Appeals (R. 643-
644) is reported at 142 F. (2d) 236.

JURISDICTION

The judgment of the Circuit Court of Appeals
was entered on April 20, 1944 (R. 643-644).
A petition for rehearing was denied on May 22,
1944 (R. 659). The petition for a writ of cer-
tiorari was filed on June 26, 1944. The jurisdic-
tion of this Court is invoked under Section 240

(1)

2

(a) of the Judicial Code, as amended by the Act
of February 13, 1925.

QUESTIONS PRESENTED

Petitioners, who are the sole stockholders and
officers of a milk company, were convicted of pro-
curing and counselling the preparation and filing
of false and fraudulent tax returns of the com-
pany for the years 1936 and 1937, and of attempt-
ing to evade the company’s taxes for such years.
The questions apparently presented by the peti-
tion’ are as follows:

1. Did the trial court err in refusing to charge
the jury, as requested by petitioners, that the com-
pany, which kept its books on the accrual basis,
was entitled to deduct for 1936 and 1937, if found
to be ordinary and necessary business expenses,
certain payments made to petitioners during those
years to reimburse them for unlawful rebates
given to customers of the company in 1933, 1934,
and 1935?

9. Did the trial court err in charging the jury
as a matter of law that the company was to be
regarded as a corporation under Section 1001 (a)
(2) of the Revenue Act of 1936, and hence was
required to file income and excess-profits tax re-
turns for the years 1936 and 1937?

1 The petition contains no specific statement of the ques-
tions presented, as required by Rule 38 (2). While a failure
to comply with this requirement may be sufficient reason for

denying the petition (Rule 38 (2), and cases cited), we shall
undertake to show that the petition also fails on the merits.

BED Bie TE Hg

3
STATUTES INVOLVED

The pertinent statutory provisions are set forth
in the Appendix, infra, pp. 11-13.

To ES OATS

eRe

STATEMENT

Petitioners, William J. Soeder and Edward A.
Soeder, are secretary-treasurer and president, re-
spectively, of Soeder Sons Milk Company (R. 60,
63, 622), and each owns fifty per cent of the com-
pany’s stock (R. 590). On May 12, 1943, they
were convicted in the District Court for the North-
ern District of Ohio, Eastern Division, of procur-
ing, counseling and advising the preparation and
presentation of false and fraudulent tax returns
of Soeder Sons Milk Company for the years 1936
and 1937, and of attempting to defeat and evade
income and excess profits taxes of the company
during such years (R. 24-25). Each was sen-
tenced to imprisonment for one year and a day,
and fined $5,000 and costs (R. 26-28). On appeal
to the Circuit Court of Appeals for the Sixth Cir-
cuit, the convictions were affirmed (R. 643-644).

The evidence relating to each of the questions
presented may be summarized as follows:

1. Soeder Sons Milk Company engaged in a
general dairy business in Cleveland, Ohio (R. 589).
From June 22, 1933, to July 1, 1935, there was in
effect in Ohio a statute commonly called the Burk-
Herner Act (Throekmorton’s Ohio Code, Anno-
tated (1940 Ed.), Sections 1080-1 to 1080-23,
inclusive), which established a general scheme of

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4

regulation of the milk industry in the state. The
statute made unlawful the sale of milk at a price
lower than the minimum prescribed by the Ohio
Milk Marketing Commission. Petitioners violated
the Act by secretly paying cash rebates to numer-
ous customers of Soeder Sons Milk Company (R.
90, 94, 97, 362, 373, 383, 385, 387). During all of
the years in which the Act was in effect, as well
as in 1936 and 1937, the years involved in the
indictment, some of the company’s income was
diverted directly to petitioners and was neither
recorded as income on the company’s books nor re-
ported in its tax returns (R. 96-100, 604-605).
The company’s bookkeeper testified that from 1934
to 1938 varying amounts of cash receipts were
segregated and paid directly to the petitioners as
reimbursement to them for the rebates which they
had paid to the customers (R. 96-100). Petition-
ers made no attempt to show the extent, if any, to
which the income so diverted in 1936 and 1937
represented rebate payments for which petitioners
had not been reimbursed in prior years.

The books of the company were kept on the
accrual basis (R. 399).

Petitioners requested the trial court to charge
the jury that in computing the income-tax liability
for the taxable years involved, the jury should de-
duct all rebates and discounts which were found
to be ordinary and necessary business expenses
during such years, even though such payments

—

o

were made in violation of the Burk-Herner
Act (Requests Nos. 8 and 9, R. 583-584). The
court refused to give such an instruction, but
charged the jury that petitioners were not guilty
of fraud if they merely attempted to reduce taxes
by honestly claiming deductions to which they
believed the company was legally entitled (R.
556).

2. On January 2, 1922, petitioners and three oth-
ers (Henry Soeder, Daisy Soeder, and Elmer G.
Derr) executed articles of incorporation of ‘‘Soe-
der’s Sons Company” for the purpose of carrying
on a general dairy business in Cleveland (R. 638).
These articles were cancelled by the Secretary
of State of Ohio on February 15, 1924, for
failure to pay franchise taxes, were reinstated
on January 22, 1935, and were again cancelled for
the same reason on February 15, 1926, without
subsequent reinstatement (R. 359). Some time
thereafter the company began to use the name
“Soeder Sons Milk Company”’ instead of ‘‘Soe-
der’s Sons Company’”’ (R. 590). Petitioners in-
tended to amend the articles of incorporation to
show this change of name, but no such action was
actually taken (R. 590). A state corporation
franchise tax return for the year 1934 was filed
by the company with the Secretary of State of
Ohio in 1935, but was returned by him with the
statement that he had no record of a corporation

6

by the name of ‘“‘Soeder Sons Milk Company”
(R. 418). A personal-property tax return for the
year 1934 was filed with the Ohio Department of
Taxation by the company as a corporation (R.
340). During 1935 the corporation’s tax account-
ant discussed with a representative of the Bureau
of Internal Revenue the question whether the com-
pany should continue to file corporate income-tax
returns, and was advised that it should (R. 418).
Petitioners frequently referred to themselves as
officers and stockholders of the corporation (R.
63, 104, 108, 176, 377, 438-".9, 589-590, 622), and
they described the company as a corporation (R.
590, 622).

The trial court charged the jury as a matter of
law that the Soeder Sons Milk Company was a
corporation for tax purposes (R. 553), and re-
fused to grant petitioners’ requested charge that
the corporate status of the company was a question
of fact to be determined by the jury (R. 585).

ARGUMENT

1. The refusal of the trial court to give the re-
quested instructions charging the jury to deduct
the rebate payments if found to be ordinary and
necessary business expenses was clearly correct on
two separate grounds.

First, since the company kept its books on the
accrual basis, any deductions for rebates, if allow-
able at all, were allowable only for 1933, 1934, and
1935, the years in which they were actually paid

7

to the customers and in which the sales to which
they relate were made. The years involved in the
indictment are 1936 and 1937. The Burk-Herner
Act expired on July 1, 1935. No comparable
statute was in effect during 1936 and 1937, and
there is no evidence in the record of any rebate
payments made in 1936 or 1937 or with respect to
1936 and 1937 sales.

Secondiy, since the rebates were paid in vio-
lation of law, they were not deductible as ordi-
nary and necessary business expenses under
Section 23 (a) of the Revenue Act of 1936,
Appendix, infra, p. 11. Great Northern Ry.
Co. v. Commissioner, 40 F. (2d) 372 (C. C. j
A. 8), certiorari denied, 282 U. 8. 855; Burroughs i
Bldg. Material Co. v. Commissioner, 47 F. (2d) 178
(C. C. A. 2); Chicago, R. I. & P. Ry. Co. v. Com-
missioner, 47 F. (2d) 990 (C. C. A. 7), certiorari
denied, 284 U. S. 618; Tunnel R. R. v. Commis-
stoner, 61 F. (2d) 166 (C. C. A. 8), certiorari
denied, 288 U. 8. 604; Rugel v. Commissioner, 127
F, (2d) 393 (C. C. A. 8); Helvering v. Superior
Wines &: Liquors, 134 F. (2d) 373 (C. ©. A. 8);
Harden M. Loan Co. v. Commissioner, 137 F. (2d)
282 (C. C. A. 10), certiorari denied, 320 U. S. 791.
Commissioner v. Heininger, 320 U. 8. 467, upon
which petitioners principally rely, does not sup-
port their contention. The deduction permitted
there was a lawful payment of attorneys’ fees in-
curred in defending a business against a fraud or-
der of the Post Office Department. In this case

ii _

8

the rebate payments constituting the alleged deduc-
tions were themselves unlawful.’

The only significance of the rebate payments was
their bearing on the question whether petitioners
honestly thought such payments were deductible,
and were therefore not guilty of wilfully attempt-
ing to evade taxes. As has already been noted,
however, the jury were properly instructed by the
court on this question, and no complaint is made
here in that regard.

2. The evidence in the record clearly shows that
the business of Soeder Sons Milk Company was
conducted as a corporation, and that petitioners
referred to it as a corporation and described them-
selves as officers and stockholders thereof. No evi-
dence was presented to the contrary. Since the
facts were undisputed, the question of corporate
existence—t. e., the legal significance of such
facts—was one of law to be determined by the
court. See 8 Fletcher, Cyclopedia of Corpora-
tions, See. 3784, p. 79, Sec. 4061, p. 541.

Petitioners’ contention that the ruling of the
lower court on this point was erroneous is not
founded on any evidence showing that the busi-
ness was not conducted as a corporation. Rather,

2 In the Heininger decision this Court cited Great North-
ern Ry Co. v. Commissioner, Burroughs Bldg. Material Co.
v. Commissioner and Rugel v. Commissioner, supra, with
apparent approval as examples of the basic principle gov-
erning the nondeductibility of expenditures proscribed by
federal or state policies.

9

it is based wholly on the supposition that the cor-
poration’s existence had been terminated as a legal
consequence of the cancellation of its articles of
incorporation by the Secretary of State of Ohio
in 1926. The fallacy of petitioners’ argument
lies in the erroneous premise that the cancellation
of the articles of incorporation for nonpayment
of franchise taxes terminated the existence of the
corporate entity. The Supreme Court of Ohio
has held to the contrary. Eversman v. Shipman
Co., 115 Ohio St. 269; Sweeny v. Driller Co., 122
Ohio St. 16. In construing Sections 5509 to 5513,
inclusive, of the Ohio General Code, the court held
in these cases that cancellation of the articles
of incorporation by the Secretary of State for
nonpayment of franchise taxes, pursuant to Sec-
tion 5509, does not automatically terminate the
existence of the corporation, and that even after
such cancellation the final power to forfeit and
annul corporate privileges and franchises rests
in a court of competent jurisdiction to be exercised
in a quo warranto proceeding.

Nor was the corporate existence terminated by
the insertion of the word “‘ Milk”’ in the name of the
company, in view of the well-established principle
that a change in name, even though unauthorized
or legally insufficient, neither affects the continued
existence of a de jure or a de facto corporation
nor converts a de jure corporation into a de facto
one. 8 Fletcher, Cyclopedia of Corporations, See.
3782, p. 78.

10

The Distriet Court was wholly justified, there-
fore, in concluding that the company had the status
of a corporation under state law. But, in any
event, under Section 1001 (a) (2) of the Revenue
Act of 1936, Appendix, infra, p. 13, the company
would be taxable as a corporation even if it were
only a de facto corporation or an unincorporated
association. Hecht v. Malley, 265 U.S. 144; Mor-
rissey Vv. Commissioner, 296 U. S. 344.

CONCLUSION

The decision below is correct. There is no
conflict of decisions, and there is no occasion
for further review. Accordingly, the petition for
a writ of certiorari should be denied.

Respectfully submitted.

CHARLES Fany,

Solicitor General.

SAMUEL QO. CuLarK, Jr.,

Assistant Attorney General.

SEWALL Key,

Rosert N. ANDERSON,

SPURGEON AVAKIAN,
Special Assistants to the Attorney General.

JULY 1944.

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA34806415_2172%3A4. Public record. Not legal advice.