# Appendix — United States v. Bass > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386413_0367%3A01 ## Record - **Collection:** Supreme Court brief - **Document type:** Appendix - **Published:** January 1, 1971 - **Citation:** 404 U.S. 336 ## Text ATES ea By Ee icrakh ~~ oe s i | APPENDIX a the Suprne Gout af the wie States “Deroeas Ter, 1970 —— = . No. 4082. : 70-5 2 -Unrtep States OF AMERICA, PETITIONER \. v. ; : = . MIssIssIPPI CHEMICAL CoRPORATION, ET AL. . os x =, ON WRIT OF CERTIORARI TO THE UNITED STATES. COURT OF APPEALS FOR THE FIFTH CIRCUIT. | PEIITION FOR WRIT OF CERTIORARI FILED mek 1970 _ CERTIORARI GRANTED FEBRUARY 22, 1971 ht the Supreme our of te- Wied Sites OcToBER TERM, 1970 oi 3 : Ba 1082 ane. Unrrep STATES OF AMERICA, PETITIONER v. MisstssiPPr CHEMICA} CORPORATION, ET AL. X ON WRIT OF CERTIORARI. THE UNITED STATES COURT OF © “APPEALS FOR JHE FIFTH CIRCUIT 2 : Pee @ 7 alee oe INDEX SS Page Docket entries of the District Court of the°U nited States_- eeace « Complaint in Mississippi Chemickl Corporation v. United States_:----_ 5 Complaint. in-Coastat-Chemical Corporation v. United States__--__-- 55. “~~ _Knswer in Coastal Chemieal Corp. v. United States__..2-2.-+---2 2... 7 . 79 at Answer in Mississippi Chemical Corp. v. United States________—----- 86 gene ea as.to Facts and Documents filed in Coastal Chemical Corp. - . United States..2. ..---,---- Ea RGR Lae Tes PRE CE . 93 \ Stigudation as to Eacts and Documents filed in Mississippi Chemical oS 7” \ Corp. v. United States. at aa) eee Oe ag ia Ble ng Gate ES a a 1fl_ . Exhibits to the Stipulation as to Facts and Documents filed in Coastal Chemical Corp. v. United States and | Misdissippi Chemical Corpora- . ‘ tion ¥. United. Bates... =|... v0 cn ec de ek eee eee nee - 123 — _-Exhibit$’2; 5-A; 6-A; 7;8;9-] ; 10-C; 10-D; 11; 12-A; 12-B; ae «6 $C; 15; 18-A; 16-B; 10-8 et -* 123 Defendant’s Exhibit , TR Se leeeuuns eakencukbmes een Sue 2-- 216 Defendant’s Exhibit 3../..._...-:..-_-----.--- Sanat Satiek i... - 216 _ Defendant’s Exhibit '4__/_--_-_-______________- 2 Loe urea pews 217 ~. Defendant’s Exhibit 5.-._.______- Sse Bisa ends leoienidie iitew busine tain 2 .'38. Deposition of Walter C. Werlander:.....-..2------- 22-22-2222: --- 225-. ..Transcript of Testimony ‘taken November 7, 1968_.+--.- lecwcnnct « 22 Opinion of the distric® ej a weee----+* 842 - Judgment of the district court in inate id Chemical Corp.» Vv. United ; Slates. __._- Sip te alate asa eicsni at cies se aa ioe ea wan te wm cig oa 346 Judgment of the district court in Coastal ee Corp.. ¥ Vv. United . PU hao ooo twining ape iw Bie Bees es Eee ewe tneSepach codecs -. 847 Opinion of the court of appeals eee baie hee a ase ne ee ‘bnew ke . ee (1) " - , ; o oe : INDEX—Continued | Teta “ - Page \adamend of the Seart Oe iiss a hk Sls a tndinsncketens | H4 Order of Supréme “Court of the United States granting a Writ of Bear! dated — BO, POU ninse sens eeeanaeh eeaneonse 375. / H “ . ~ . 7 : ‘ j * bad ; ‘ ‘ a . - = .MississipP1 CHEMICAL CoRPORATION, PLAINTIFF - For Plaintiff: te se ys ee os 7 John C. Satterfield ~ - | “— : P.O. Box 466 : ? Yazoo City, Miss. * . ss 39194 | vs. ° UNITED STaTEs OF AMERICA, DEFENDANT. — ~__-«~ For Defendant: * CONSOLIDATED WITH CIVIL ACTION , ; ‘ - Robert E. Hauberg P.O. Box 2091 No. 1214 PER ORDER’ FILED 4-8-68 . *.* ; . - '. Jackson, Miss. 39205 ae l-- | | |” “Basis of Action:. Claim for| Income Tax Refund 4 “12-13-67 J, S. ; Date’ “Plaintiff's Account -- Receival Disbursed oa bs Band i ° is 12-15-67 ‘Satterfield 2-2 - eet —_ ee. 15,00 22 “20-67. US. Treas. 8. CD16-5-- ------------ 22-22-24 Pane -- 15.00 Abstract of costs, To Whom Due, US. Clerk. Amount $15.90... 0° Date § ~* - Bilings-Proceedings . . 12-15-67 COMPLAINT with four copies with Exhibits A through: F—filed. 12-15-67 SUMMONS issued and forwardéd to. U.S. Marshal with four copies and four.copies of complaint-and exhibits A through F attached ~ ; _ for service on U.S. Attorney and Attorney General: 2- 9-68 ‘Copy of Rule as to Non-Resident here ‘mailed to John Satter- , field. a 2-19-68, Answer of Defendant, United States of America, with Certificate of service thereon—filed, 2-28-68 Marshal's return of serv ice on summons éxecuted on the Un ted ; ~~ $tates of America December 19, 1967 by mailing a copy 0 “the | ——) Summons and Complaint to Ramsey Clark, Attorney General, USA, Department of Ju: itice, Washington, D.C. (Registry Re ceipt attached to ‘return )—and Executed at: Jackson, Miss. on December 19, 1967 by delivering-a copy of the summons and . complaint to Joseph E. Brown, Assistant U.S. Attorney—filed. (QQ) ve Pa 2. par an Ae . ae . : 4 - er 5 : Date a Sa eee Filtngs-Proceedings . @ on, 2. 4- 4-68 Plaintiff's Motion to Corisolidate Civil Action Nos. 1313 and baad, o) with Certificate of Service, filed. : +- 8-68 “ORDER : consolidating Civil Action Nos. 1 213: ‘and 1214 for hear- ™ ° ing. and otherwise (with the exception that separatg, judgments: ’ shall be entered in each proceeding) and shall be considered : together upon the docket of this Court as if: both had been ot assigned upon the docket Civ il Action No. 1213, filed and entered OB, 1968, Page 91. (Copies ‘mailed attoffieys) ee : 5-14-68 DEPOSITION of Walter C. . Varlanger, ar. President, Nae . Orleans Bank for Cooperativ es, taken by’ ‘Defendant on April 19, 1968, filed. ES cok * “11- 668 Stipulation as to facts and documents w ith copies of exhibits 30-A through 32 attached, filed. — : 11- 5-68 Marshal's return exectited on subpoena : as to A. E. Beall, filed. _ 11-T1-68 EXHIBITS: P-1 through P-5; D-1 through D-4, filed. Pane oF 1-17-69 Court Reporter’s transcript’of hea ring before Hon. Harold Cox on November 7, 1968, filed. © - [ur) 2-14-69 Finding of Facts and- Conclusigns of Law es “s nuaiate e & Sg ‘judgment accordingly may be presented for entry ice accordance with this opfnion in each of these cases.”, filed. 2 -2-14-69 Copy,of above mailed to attorneys. Haybers and, Sitterfield. 2-18669 At frection of Judge Cox, 1st page of stbove Opinioh peneeaget. 3-24-69 Copy of above Judgment. nailed te‘attorneys of. record. 3-24-69. JUDGMENT: Ordered, ‘adjudged ~and dec reed: that. plaintiff, Mississippi Chemical Corp. a corp., do hay € and: Tecov er of and from the defendant, the United States of. America, the princi 4 Sum of 385, 298.: 51, together with interext thereon at the rate of -* “six per cent ‘per annum as follows : From April 4, 1966, upon the sum of $33, 859.37, from June 29, 1967, upon the sum of $20,006. fi, and from July 21, 1967, upon the sum of $31,433.03, all interest - ‘ ‘beirig payable until this judgment is pad, filed and entered. Beat O.B: 1969, Page 42. 3-24-69 Final JS-6 Card, filed. _ 5-21-69 Defendant's , Notice of Appeal to the U:S. Court of Agwesia: for the ¥ - Fifta Cireuit from Judgment entered herein on March 24, 1968, - with Certificate of Serv ‘ice, filed. 5-22-69 Certified copy of above Notice of — ‘mailed 40 Clerk of Fifth, Circuit. . 6323-69 Order’ extending time for filing the rec ord upon. Spero fitiy (30) . days or a total of ninety .(90) days ‘from:the date of filing of the first. Notice of Appeal, filed and enterest O.B. 1008, Page 131. ‘ - ¢ . (Copy mailed to Fifth Cireuit. )* . 7 - . ar i er st Ss + ‘ . % - y - 1213, PER ORDER mg. 48-68 Unitep. STATES oF AMERICA, DEFENDENT : P.O. Box 466 | CONSOLID ATED WITH CIVIL ACTION NO. - Yazoo City, Miss. 39194 For. Defendant: 8 . * Robert E. Haubérg » 3 Gg ene "" _. P.O. Box 2001- “6p mM ; , +Jaekson, (Miss. 39205 a See s ‘of actfon: Claim | for — Tax Refund ‘ ee hee Aa gT I. ry ee ee e ; : o ve f ‘. pe “9 es ” PiathAs ocelot” : ig Réceived Disbursed _ * 12-15-67 Satterfield. °-£._, son eae eeeneNieg hae ee 00-07 UB. Yrent CD 16-8202: £28002 22. oben ate eee 15.00 Abstract of yah tT Whom a its US. Clerk, Amount 15. 5.00. e, - Date — ar OO ae "Filings Procécdings \e ° ‘12-15-67 COMPLAINT original and four copies-—with Exhibits ‘ik through Fattached—filed. . i +. * 12-15-67 ,SUMMONS issued and forwgriledino US. ‘Marshal with Four copies Symmons—complaint and exhibits attached—for service on U.S. Attorney and Attérney General. {[v] 2-19-68 Answer of, Defendant, United States of Anierica, with. Cer- . peel tificate of Sérvice—filed. - ‘3 1-68 Marshal's return on summons, executed; filed. ° + +468 Plaintiff's Motion to Consolidaté Civil Action Nos. 1213 and 1214, CSwith Certificate of Service, filed.. 4+ 8-68 ORDER : consolidating Civil Action Nos. 1213 and 1214 for hearing and otherwise (with the exception that separate judgments ‘ + ghail-be éntered in each proceeding) and shall be considered to- ' gether upon the docket of this Court as if botlvhad been assigned F supon the docket Civil Action No. 1213, filed and entered OB, en Page 91. {Copies mailed attorneys) . . & id . , o e st \ 4 3 A o ri : of .. 3 - * [rv] A true_copy, I hereby certify. — ‘ 7” Rowesr’ C. Tuomas, i: Ge aaa es “a ; y a terk. ; ; : a (SEAL) e, : Pas a o8 ; . : ‘ * . Ee ““ , . Sears” aan 3 -- By /s/-B. Price,. é > —— ; f 7 7 : . ; e Deputy Clerk. Dated a oe Co aoe oe , No. 1214-Civil DOCKET © : TitleofCase ‘Attorneys CoastaL CHEem-caL CorporaTioS, PLyINTIFF " ForPlaintiff Bi Ghigo tS +. gree : _ John C. Satterfield~— Date °° coe ’ Filings- ‘Proceedings NS ans * » 5-14-68 DEPOSITION of ¢ Walter c. Verlander, Jr., Presiient, New ‘ ; Orleans Bank for Cooperatives, taken by Defendant on April 39, : . 1968, filed in Civil Action? No. 1218, * | x ll- 6-68 Stipulation as to Facts ang Documents = Exhibits (In Rox) ail _. attached, filed.. ra 11-11-68 EXHIBITS: P-1 tlir gh P-5.; D-1. throu h D6, filed. . = 1-17-69 Court Reporter's transc ript of. hearing before Hon-Hirold Cox on November 7, 1968, filed. (Transe —_ placed in Civil an No. 1218) .° - : ' 2-14-69. Finding of Facts and Conclusions of Law : . . “4 separate fade. ; - -ment accordingly may be presented for entry in accordance w ith thi¥ opinion in each of these casés,’ ’ filed. 2-14-69 Copy of above mailed to. attorneys Hauberg and Satterfield. [yt] 2-18-69 At direction of Judge Cox, 1st page of above Opinion ~ ' subgtitited. , y, 38-2469 J UDGMENT: Ordered and adjudged that nlainiit: Coastal Chem- ical Corp. ‘ecover from defendant U.S.A., the sum. of $265,044.35, plus interest thereon. as pévided by law; no costs be assessed herein, filed and enterpd. | CAR. 1969, Page 41. (Copy . .: mailed attorneys of record.) _ . 3-24-69 Final JS-6 Card. filed. : 21-69 Deféndant’ s Notice of Appeal to’ the U'S. Court of Soaeiia for the eo. = Fifth Circuit from J udgment entered herein on Mar¢h 24, 1969, __ with Certificate of Service, filed. . 5-22-69 Certified copy of abovegNotice of oo mailed: to Clerk of the Fifth Circuit..- . 8 6-23-69 Order: extending time for filing record on appeal to 90 day s tees . dateé of filing first notice of ik sis anand and entered OB, 1969, Page ———— °- 6-23-69. Copy of above order forwarded to Fifth Cireuit Court of Appeals ws A true copy, I hereby certify. . a . . to Rear C. THoMa . ; - - Clehk. : . ™~ : e* . s ~ ‘ . . "Xe 4 By: /s/ B.\Price, . ce 4 Deputy Clerk. + (SEAL) oh 2 a a oo , a . \ © @ 7 - . ‘ Me . “= Rtas Court. ‘In the United States District Chit for + the Southern Judicial District of Mississippi, Western Division : - Civil Action No. 7213-. ~ : : Mississ1PP1 CHEMICAL Corporation, PLAINTI? 7 U8. . “THE Unrrep STATES OF AMERICA, DEFENDANT © eee - COMPLAINT: a _ (Filed Dec. 15, 1967) - . ‘Count I Comes Mississippi Chemicat Corporation, a corporation ' or- ganized under the laws of the State.of Mississippi, and files this- ‘suit against The United States of Ameri¢a and for cause, of action says: | fe. . | : ‘“ i - 8 es ° | Plaintiff js a corporation: organized under thé laws of the State of Mississippi with ‘its domicile and principal place of business in’ Yazoo City, Mississippi; in the Southern District : Of Mississippi, — Division, of the United States District, . \ I. 7 a Defendant is The United States of America upon whom serv- ice of process may be had by service of simmons ‘upon the United States District Attorney of Jackson, Mississippi, and _ by sending a copy of the summons and complaint to the Attor- . ney General of the United States at Washington, D.C. III. This is an action of a civil nature for the recovery of United States income taxes and interest paid thereon, which income taxes and interest were erroneously or illegally assessed and wrongf ae collected. (5) c Pre ee a ee Plaintiff is organised urider the General Corporate Laws. of ° the State &f Mississippi bit is’a:cooperative qualified to receive - financing under the Statutes of the. United Statés of America as a cooperative. It is and since the beginning of its operation has been engaged in manufacturing fertilizer and distributing. ; ‘same primarily to its stockholder-patrons. ‘ P - . V. - ~ (a) Plaintiff duly filed its Federal income tax return for its . fiscal year ending June 30, 1961, om or before the due date thereof with the District Director of Internal Reveriue at Jack- son, Mississippi. On said tax return, plaintiff deducted from its ° gross income the amount of $18,464.09 which plaintiff had been required to pay during such fiscal year to the New Orleans Bank ©: for Cooperatives under the ‘provisions of Section 1134d(a) (3). -: ‘af Title 12, United States Code. On or about March:14,, 1966, an Internal Revenue Agent's report: (dated January 10, 1966): _ was submitted to plaintiff and in said report the Revenue | Agent erroneously disallowed the deduction of $18,464.09 wHich _ plaintiff had been. required to pay to the New Orleans Bank for Cooperatives under the’ provisions of on 1134d(a) (3) of Title 12, United States Code. (b) In said Revenue. Agent’s report Gime January 10, 1966), the Revenue Agent erroneously included in plaintiff's — incorne for the fiscal year ended June 30, 1961, the sum of $28 630.64 as the alleged value 6f Class C stock of the New . Orleans Bank for Cooperativ es, which Class C’stock had been receiv ed- by plait? ff from the New Orleans Bank; fer Coopera-. - tives'as patronage dividends in accordance with’ Section 1138 | ned of Title 12, United States Code. The Farm Credit Act of 1955 (Section 1134d (a) (3).of Title 12, USC) requires a borrower from a Bank of Cooperatives to purchase quarterly Class C. stock, of such Bank in an amount. ~ equal to not less than ten per cent nor more than twenty-five per cent of the amount. of interest payable by it to the Bank during such calendar quarter. The Board: of Directors of the New Orleans Bank for Cooperatives has provided for a pay- Py "fiscal yéar ended. June 30,.1961: ’ Code. Plaintift would show that'sajd: payments. werg properly | - deductible from its gross income for fiscal. year ended June 30° ss ' 1961, either as additional interest paid to said New Orleans hereinafter set forth. ee | ment of fifteen per cent of the amount of interest payable to — said Bank by organizations borrowing from it. During the fiscal_, year ended June. 30, 1961, plaintiff paid the New Orleans Bank~’ for Cooperatives $18,464.09 for such Class C stock and plaintiff - deducted said amount from its gross income. Plaintiff -was re- quired, to pay. said amount to the New Orleans Bank for Co- operatives in confection with interest payments ‘under the provisions.ef Section -1134d (a)(3) of Title 12, United States - XI. . That by Certified letter dated December 13, 1967, plaintiff was notified that its Claim for Refund for fiscal year ending o. ° vr. June 30), 10G@% had been denied. Thefe is attached:hereto as - Exhibit B letter front the District Director of Internal Reye- nue, Jackson, Mississippi,’ denying plaintiff's said. Claim. for Refund for fiscal year ending June 30, 1961. , WHEREFORE, "plaintiff prays judgment against the deferfftant in the amount of $24,489.26 and applicable interest.paid of $7,728.69 and interest thereon as allowed by law; and for costs - of this action, and for such.other and further relief as. to the . Court may seem just anid proper. _ Count II = . a re ar ee Plaintiff re-alleges and re- avers each and every allegation of paragraphs | I through IV of Count I above. Om. | (a) Plaintiff duly filed its Federal inconte tax return for its ° fiscal year ending June 30, 1962, on or before the due date thereof with the Djstrict Director of Internal cs i at Jack- - son, Mississippi. On said taxfreturn, plaints cted from its gross income the amount of $16,421.75 which: lai tiff had been- » required to pay during such. fiscal-yearto the New Orleans . ” Bank -for-Cooperatives under the provisions'of Section 1134d (a)(3) of Title 12, United States Code. On or about March 14, 1966, an Internal Revenue Agent’s report ‘(dated January 10, 1966) was submitted to plaintiff and in said report the Revenue _ Agent erroneously disallowed the deduction of $16,421.75 which plaintiff had been required to pay to the New Orleans. Bank for Cooperatives under the -provisions of Section eee ets) of Title 12, United States Code, . .(b) In said. Revenue ‘Agent’s report (dated January 10, eT 1966), the Revenue Agent erroneously included in plaintiff’s income for the fiscal year ended June 30, 1962, the’ sum of $27,489.40 as the alleged value ‘of Class C stock of the New Orleans Bank for Cooperatives, which Class C stock had been received by plaintiff from the New Orleans Bank. for Coopera- tives as patronage. dividends in accordance with Section 1134 __1(b) of Title 12, United Statés Code. - 10 2 =- -* 3 ye Oe. 7, - The Farm Credit Act of 1955 (Section 1134d (a) (3) of Title 12, USC) requirega borrower from a Bank of Cooperatives to.» _ purchase quarterly Class C stock of sueh Bank in an amount * equal to not less than ten per cent nor more than. twenty-five per cent of the amount of interest payable by it to the Bank during such calendar quarter. The Board of Directors of the | New Orleans Bank for Cooperatives has provided for a pay- — -- ment of fifteen percent of the amount.of interest payable to said Bank by organizations borrowing from it. During the fiscal year ended June 30, 1962, plaintiff paid the New Orleans Bank for Cooperatives $16,421.75 for such Class C stock and plain- tiff deducted said amount from its gross income. Plaintiff was required to pay said amount to- the New Orleans Bank for - _ ' Cooperatives i in-connection with interest payments under he- —. ss provisions gf Section 1434d (a)(3) of Title 12, U nited States ‘Code. Plaintiff would showathat said payments were propetly deductible from its gross income f& fiscal year ended J uneé 30, _ 1962, either as adgitional interest paid to said New Orleans \ Bank for Cooperativ es, or as ordinary and bene tran - expense: or as a loss on a transaction entered inf for profit, and that the Class C stock received by the plairitiff from said © - Bank for said. payment had -no market value for the reasons — hereinafter set forth: is & ; IV. Section 1134: 1(b) of Title 12, U aited States Code, provides «© for the-tSsuance: by a Bank for Cooperatives of patrojiage re-. fands to. organizations borrowing from such. Bank.’ During fel yeat ending June 30, 1962, plaintiff borrowed money from e New Orleans Bank for Cooperatives and plaintiff received Class C stock from the New Orleans Bank for C ooperatives as patronage dividends in the stated. amount of $27,489.40. The Class C stock received by plaintiff from said Bank as patronage _refunds has no market value (as hereinafter set.forth) and the taxpayer included same in its income tax return for said fiscal - year at $1.00 per share for identification purposes only. Plain- tiff would show. that said $27,489.40 received ag Class C stock ’ of said Bank should not be ineluded in its taxable 1 income for fiscal year ended June 30, 1962. - 3 of (a) That the amount said by plaintiff to the New jew Orleans Bank ‘for Cooperatives for the fiscal year ending June 30, 1962,’ ‘for the privilege of borrowing from said Bank is a proper de- . . - ductible expense: -either as additional interest paid, or as an ordinary afid 7 necessary business expense, or 4s‘a loss on a trans- - actron entered into for profit; that at the time of such purchase, . , the’Class C stock of the New Orleans Bank for Cooperatives was not actually corporate stock at all and-was entirely worth- “Jess; that no certificates of any nature were issued therefor; ‘that no dividerids w “could be payable thereon; ‘that no a ere incident thereto; that there was no.possi- _ i of appreciation in value; that such Class C.stock could not be sold or transferred and the issuer thereof refused to. | consider: it as collateral for loans; and that as a result sald So- called: Class C stock had no fair ‘market value. (b) That the Class C stock received by plaintiff ‘from the . Lis New Orleans Bank for. Cooperatives as a patronage dividend - - a for the fiscal year ending June’30, 1962, should not’ bé included in plaintiff's income since such Class C'stock had no market "value; that at the time of such purchase, the Class C stock was not actually corporate stock at all and was entirely worthless; .° that no certificates of any nature were issued therefor ; that no dividends were or could be payablé thereon; that no voting rights were incident thereto; that there was no possibility of appreciation in value; that such Class C stock could not be sold . or transferred and the i issuer thereof refused to consider it as collateral for loans; and that as a result said’so-called Class € ' stock had) no fair market value. ° . 7 = 4 “* ee oe : wo sé —— VI : 4. S t 4 As: a eeaule of the herein described sAjcetienta to plaintiff's ae © | taxable income for fiseal year. ending June 30, 1962, plamtiff == .paid ‘additional income taxes. of $22;798.79 plus applicable in- .° — terest of $5,504.76 thereon for its fis¢al year ending June 30, ' - 1962. The aforesaid degermination by defendant of a deficiency in plaintiff’ s income tax of $22,798.79 was erroneous. VIL. - On or about October 12, 1967, plaintiff filed its Claim for Re- fund.for. fiscal I year endinig June 30, 1962, said Claim apne for 12. a refund of income taxes ¢rroneously assessed and patd in the | amount of $22,798.79 plus applicable interest of $5,504.76. Said -* Claim for Refund for fiscal year ending June 30, 1962, (includ-- _ ing all Exhibits attached thereto), is attached hereto as Exhibit C and made a part hereof as if copied herein. SWI. | That by Certified letter. dated Desenber 13, 1967, plaintiff was notified that its Claim for Refund for fiscal year. ending * June 30, 1962, had been denied. 4 here is ; attached hereto as Ex-. hibit D letter fromthe District’ Director of Internal Revente, : Jackson, Mississippi, denying plaintiff's said Clainr for Refund for fiscal year ending June 30,1962. e - WHererorg, plaintiff prays judgment, against the defendant. - in the amount of $22,798.79 and applicable -interest paid of- $5,504.76 and interest thereon as allowed:by law; nd for costs * of this action, and for such other and further relief as to the . Court may seem just and proper. | | ~ CounrIll ° > Q I | paragraphs I through F¥ of Count I abov e. (a) Plaintiff duly filed its ‘Federal income tax return for its - fiseal. year ending June 30, 1963,‘on or before the due date thereof with the District Director of Internal Revenue at Jack- | “son, Mississippi. On said tax return, plaintiff’ deducted from — _. its gross income the amount of $18,863.35 which plaintiff had -. been nequired to pay: during such fiscal year to the New Orleans _Bank*for Cooperatives under the provisions of Section 1134d (a) (3) of Title 12, United States Code. On or about March 14, 1966, aiiInternal Revenue Agent’s report (dated January 10, 1966) was submitted to plaintiff and in said report the Revenue Agent erroneously disaHowed the deduction of $18,863.35 which plaintiff had been required to pay to the New Orleans Bank for Cooperatives under the provisions of Seotion 1194d(2) (3). of Title 12, United States Code. Plaintiff re-alleges and re-avers each aud every allegation of — ® —— @ Cs 13 - (b) In said Revenus ‘Agent’s report (dated . January 10, 1966), the Revenue: Agent erroneously included -in plaintiff's income for the fiscal year ended June 30, 1963, the sum of $25,152.83 as the alleged value of Class C stock of the New ‘Orleans Bank for Cooperatives, which Class C: stock had been “Teceived by plaintiff from the New. Orleans Bank for Co- : ‘operatives as patronage dividends in accordance with Section ~ 1134 A(by of. Title 12, United States Code. . a UII. . oe . The Farm. Credit Act of 1955 (Section 1134d. d (a) (3). ‘of Title ‘12; USC), requires a borrower from a Bank of Cooperatives to purchase quarterly Class C stock of such Bank in an amount equal to not less than ten per cent nor more than twenty-five _ per cent of the amount of interest payable by. it to the Bank . during such calendar quarter. The ‘Board of Directors of the | New Orleans Bank for Cooperatives has provided for a payment . of fifteen per cent of.the amount of interest payable to said - _ Bank by organizations borrowing. from it. During the fiscal year ended June 30, 1963, plaintiff. paid the New Orleans Bank “for Coopératives $18, 863.35 for such Class C stock and plain- . tiff deducted said amount from its gross income. Plaintiff was. ‘required to pay said amount to the New Orleans Bank for Cooperatives i in.conne¢tion with interest payments under the ~ provisions of Section 1134d (a) (3) of Title 12, United States Code. Plaintiff would show that said payments were properly. deductible from its gross income for fiscal year ended June 30, 1963, either as additional interest paid to said New Orleans Bank ‘for Cooperatives, or as ordinary and necessary business expense, or as a loss on a transaction entered into for profit, and that the. ’ Class © stock received’ by the plaintiff from said Bank for said _ payment had no market value for the reasons s hereinafter set | forth. IV. . Section 1134 tb) of Title 12 United States Code, provides _ for the issuance by a Bank for: ‘Cooperatives. of patronage re- funds wo organization borrowing from such Bank. During figcay year ding June 30, 1963, plaintiff borrowed money from the New Orleans Bank for Cooperatives and plaintiff received hg Class C stock from the New. Orleans Bank:for proses: as & 14 7 | ~. « patronage dividerids i in the ea amdunt of $25, 152.83, ‘The Class © stock received by plaintiff from said Bank as patronage’. refunds has no market value (as hereinafter set. forth) and the’ ” taxpayer included same in its income ‘tax return for said fiscal year at $1.00 per share for, identifigation purposes only.. Plain- — tiff would show that said $25,152.93 received as Class Q stock . of said Bank should not be included in its taxable income for - - fiscal year otter June 30, 1963. : ; | VY. - (a) That the amount paid by plaintiff to the New Orleans . ¢ Bank for Cooperatives for the fiscal year ending June 30, 1963, . for the privilege of borrowing from said-Bank i is a proper‘de- ductible expense either as. additional interest paid, or as an ° ordinary and necessary btisiness expense, or’ds a loss on 4 trans-_ .’ action entered into for profit; that at,the time ‘of such purchase, the Class C stock of the New Orleans Bank: for Cooperatives was not actually eorporate stock at all aid was entirely worth- , __less; that i certificates of any’ nature were issued therefor; “that no dividends were-or could be payable thereon; that no | ; voting sights were incident thereto; that there was no possi- " bility of appreciation in value; that stich Class © stock could not be sold or transferred and the issuer thereof refused to con- _ sider it as collateral for loans; and’that as a result said so-called _ Class C stock had no fair market v alue. ‘ (b) That the Class C stock received by plaintiff from the . New Orleans Bank for Cooperatives as a patronage dividend for. | the fiscal year ending June: 30, 1963, should not be included in plaintiff's income since such Class C stéck had no market value; that at the time of such purchase, the C®ss‘C stock was nat aetually. corporate stock at all and was entirely worthless; that-no, certificates of any nature weresissued therefor; that no — dividends were or could be payable thereon; that’ no voting. rights were incident thereto; that there was no possibility of appreciatjon. in value; that such “Class © stock -could not . | be‘ sold: or transferred and the issuer-thereof refused to con- sider it as collateral for loans; and that as a result said. so-called : Class C stock had no fair market value. i - VI. - Asa result the herein described dilecnente @ claintiff’s | iazable’ incapue for fiscal year eniging a 30, 1963, plaintiff . - age ‘eae: ‘ > ¥ . . tl : CJ “ . . . — . (3) Astock certificate to evidence its issue. (4) Possibility of Appreciation i in value... (5) Transferability. — (6). Market value. (7)*Collateral value. : : : See letter of November 1, 1965, to the Bhamining Agent, Mr. Koch, fora full discussion of each of the above items. . A fundamental rule in Federal Income Tax law is that the - substance of a transaction rather than mere form controls tax liability. This rule is most frequently asserted bythe govern- ment against the position taken by the taxpayer, \often with, . = ~.. : great success. Certainly’ ‘the- rule should be equally applicable ‘ when applied by the taxpayer against the contention of ‘the government. * Cases are legion where soniething called pre by. the tax- . “payer i is held to be something else, such as ‘a bond or note, for .. the purpose of federal income taxation. These cases mnake it quite clear that the name by. which an instrument is called may be rélapively uniniportant for. tax purposes. W hat is im- - portant are the characteristics of the ‘instrument in question: An instrument may be stock within the meaning of State Cor- poration Law, yet it may be considered as a debt instrument for | */the purpose of income taxes. As noted above, when the charac- teristics of Class.“C” stock. are carefully, analyzed, it.beconies— _/ evident. that while. the law relating’ to Banks for Cooperatives - ‘|. calls this instrument “stock”, it is clearly not stock ome, the meaning of F ederal Income Tax law. _ '»*Required puréhases should be treated consistent wit patron- : age. dividends: The record shows that Class “C”’ .stock is like- wise issued as a. patronage dividend. Under Reg. Sec. 1.6]-5 - non-cash dividends received from a cooperative are ineludable ’. only to the extent of fair market value, and this is presumed to be lacking where redemption rests in the discretion of a board of directors. We believe that it is not open to serious question /Athat Class “C”” Stock received as. a patronage dividend should . not be taken into ificome because of its lack of fair market value. : Incidentally, we\ see no-reason for doubting that Reg. Sec. - 1.61-5 and the: Sections 1381 through 1388, IRC. (Subchap- ter T) pertaining to cooperatives and their. patrons applies to the Banks for Coopératives and ‘their patrons. Reg. ; ‘Sec. _ _ 1.1381-1. provides that Subchapter T applies “to any corpora- tiort operating on & cooperative basis and allocating amounts to ‘patrons on the basis of the: business done with or for such patrons.” Reg. Sec. £:1388-1(e), defines the term “patron” to _ include cooperative associations. Reg: Sec. 1.65-1 contains no — definitions, but we believe the above definitions are etearly 4 applicable.’ © — ? This being the’ case, it oertaiady 1 is not logieai to conclude that Class “Cc stock which is ‘purchased is somehow ‘different, and © should be’set up as an asset at full face value. If “C” stock has. no nts when received as a patronage dividend, it-seems in- contf6Vvertible that it likewise has no value when purchased. In . - both cases.it is exactly the same thing, and is issued for exactly . @ . > : ‘ ne Oe ° A ll LE : ee 0) he te ; . J 27 ~ the same purposes. Bank officials tell us that it is treated ihe /. .. same on.the books of the B : _ Redft?ed purchase of Clas “ce stock ¢ 18 Fouls different from “other Federal Agency stock pugchases: The next feature that’ ‘should be noted is that the amount of the required purchase of * Class “C” stock is tied directly:to the amount of interest paid. per ~ During the years involved, the amount of required purchase — : . established by the New Orleans Bank for Cooperatéves was 15 “per cent. In any event, this is different from the required pur- -chase of stock in the Federal National Mortgage Association — and Production Credit Associations, which also require certain stock purchases as # condition to doing business. In the case of the Federal National Mortgage Association (“Fannie Mae”) the law requires that when a mortgage is sold a. to Fatinie Mae, they ‘seller must purchase stock in Fannie Mae . in an amount equal to 3 per cent of the mortgage sold. How- ever, Fannie Mae stack has a market value and may be and is’ frequently sold. This is in contrast to Class “C” s stogk ina Bank for Cooperatives, which has no marketvalué and in which - there ate no known instances of its ever having been sold to _ another purchaser. - = + Likewise in the case of PCA, the cas is required. to have “invested ini Class “B” ‘stock an amount equal to 5 percentof _ the, principal borrowed, but this Class “B” steck has a very ° ‘ . definite market value and as a matter of practice we understand that PCA’s repurchase that stock at cost when a-loan is retired. Again this'is in sharp contrast to Class. “C” stock. in a Bank for Cooperatives, which.has no economic value but is merely ; | imiposed by way of additional interest cost. It. is significant to note that in the case of both the required ; "purchase ‘of Fannie Mae’ stock and PCA stock, the-amount of stock required to be purchased is based on principal and thus i¢-needs to be purchased only once. Class “C” stock purchased it¥@ Bank for Cooperatives is based on interest paid by the bor- -. wér 4nd it is thus in the nature of an‘additional and recurring oe: bts: ‘of éxpense. This distinction is very important. Provisions on guaranty find equivalents indicates that true | stock is not involved: Another reason for concluding that Class “C” stock is not teally stock is the fact thatthe law creating the Banks for Cooperatives provides that where-a cooperative asso- , , ciation i is 3 not authorized under the laws of the state in which od OR @ . Re nee” ee = we + — 28 @ 2 dividend when the practical result of the transaction is — to distribute accumulated earnings essentially pro rata among - the shareholders while leaving the ownership of the corpora- si, - tion basically the same ‘and when the distribution is not con- nected with a:partial liquidation of the assets of the corporation? See Keefe v. Cote (1st Cir. 1954) 213 F. 2d 651 at 656. A re- demption of Class “C” stock would be pro: rata and would: — leave the ownership of the Bank for Cooperatives unchanged— . each borrower would continue to have one vote.only. A partial liquidation occurs under Sec. 346, IRC only when there is a ‘genuine business contraction. _ , Under 12 USCA Sec. 1134d(a) (3), Class ““C” ‘stock’ would be redeemed out of earnings and would not.be the result: of a business contraction. From the foregoing, it is manifest that any redemption of Class “C” stock would be essentially equiva- . lent to‘a dividend and should be treated as ordinary income to the recipient. This tends to show the non-capital nature of. - Class “C”’ stock. If Class “C” stock is redeemed, the Bank for ' Cooperatives must -have sufficient earnings to enable it to dis- . tribute profits, which then can be called.a redemption of Class © ~ “C” stock. .. fags : -'* Purchase of Class “C” Stock is Déductible as an Ordinary ; . . Logs: Even if a court’ rejected the foregoing arguments: and _ denied a deduction for the required purchase of Class “C” stock ° as an interest exppuse under Sec. 163 IRC, nevertheless the required purchasefof Class “C” stock is deductible as-a loss under Sec. 165 IRG. oH °** | . In order to make the purchase of Class “C” stock deductible as an ordinary loss, it is necessary to establish two points: (1) that any loss realized is an ordinary loss rather than a capital ~ loss, and (2) that the amount of the loss is equal to the pur- chase price. In effect, we have shown that Class “C” stock hasno market price or value when purchased. ° | Any Loss on the Purchase of Class “C” Stock.is Ordinary - Loss: There is no doubt about the fact that any loss suffered on the purchase of Class “C” stock will be-an ordinary loss ‘Tather. than a capital loss. ‘This is for the réason that such stock - is purchased by reason of business siecessity rather than for ‘investment. There are a number of cases to support this posi- _ tion, and this point is conceded by IRS. See, for example, Tulane Hardwood Lumber Company, 24 TC 1146; Western NY . . ° ie 30° Wine paad Liquor Company, 18 TC 1090: McMillan Mortgage a, Company, 36 TC 924; Weather-Seal, Inc., TC Memo 1963-102; Smith & Weldon Incorporated v. US., 164 Supp. 605. Worthlessness of Class “C’” Stock: This has been demon- strated in our submission Senne the patronage dividend : in Class “C” stock. ‘Value ‘must be determined at time of issuance: One further ~ point.and this i is critical. Worthlessness of-Class ni Oe stock must ten years later with the benefit of hindsight. Thus, worthless- ness of Class “C.stock at time of its issuance in 1956 cannot be measured by any value it might have in 1966 by reason of anticipation of its redemption in a few. more years. This is fully discussed i in our r original submissian. | SATTERFIELD, SHELL, Witrams AND Burorp . Attorneys at Law _ 652 First National Bank Building Jackson, Mississippi 39205 ae November 1, 1966 INTERNAL REVENUE SERVICE Jackson, Mississippi ' Attention: Mr. John J. Koch co GENTLEMEN: In connection with the examination of the. returns of Mississippi Chemical. Corporation ‘and - Coastal - Chemical Corporation, we are writing to call your attention to the status of Class “C” Stock in the New Orleans pe for Cooperatives. -THe Farm Credit Act of 1955 revised the capital structure of the 12 Banks for Cooperatives and the Central Bank for Cooperatives by prov iding for three classes of stock. Ste 12 USCA See. 1134d. Class “A” stock ‘is government capital and is held by the Governor of the Farm Credit Administration on ~ behalf of the United States, Class. “A” stock was issued in ex- - change for stock ‘held’ in the Banks for Cooperatives by the - Governor, on the éffective date of the Farm Credit Act of 1955. Class “B” stock: is investment stock -and provision is made for the payment of diyidends not to exceed 4 per cent per annum. It is non-voting stock and it is owned principally by cooperative associations. ; 3i Class “C” stock is issued to farmer-cooperatives which bor-. — row from the Banks for Cooperatives. A farmer-cooperative ‘acquires Class “C” stock in two ways in doing business with a. Bank for Cooperatives: . ee = (1) As a patronage dividend. 12 USCA Sec. 1134e(b). (2) Required purchase as a condition to a loan. 12 USCA Sec. 1134d(a)(3). ’ So long as a Bank for Cooperatives has Class.\‘A” stock out- standing, all earnings (after the payment of a franchise tax, setting aside of required reserves and’ dividends on Class: “B” a stock) must be allocated to patron-cooperatives as patronage . | ; - dividends in. the form .of Class “C” stock. 12 USCA See. - 1134e(a). When all government capital (Class “A” stock) in a Bank for Cooperatives has been retired, it loses its exemption | from income taxes. See 12 USCA Sec. 1138¢. _ In 1964 Congress passed P.L. 88-528 which aménded the law pertaining to patronage dividends of Banks for Cooperatives to provide that, for any fiscal year that ‘a Bank for Coopera- tives is subject to Federal income taxes, it shall pay in money rather than Class “C” stock such portion of its taxable income . as is necessary to permit it to issue qualified written notices of allocation for the balance. See 12 USCA Sec. 1134e(b). The Farm Credit Act of 1955 also requires a borrower from a Bank for Cooperatives to invest quarterly in Class “C” stock - _ in an amount equal to not less than 10 per cent nor more than 25 per cent of the amount of interest payable by it to the Bank . during ‘such calendar quarter. The Board of Directors of the NOBC has provided 15 per cent. Payments for such “C” stock are made quarterly or when the regular interest payments of the borrower are made. See 12 USCA Sec. 1134d (a) (3). | The Internal Revenue Service issued technical information release No; 69 on February 14, 1958, in which it announced that it would conform with the principles enunciated by court de- cisions if connection with the tax treatment of allocations of patronage dividends by cooperative associations to its patrons. _ The cases referred to were the Long Poultry Farms case (249 ‘F. 2d 726) decided.in.1957 and the Carpenter case (219 F. 2d__ 635) decided in 1955. These cases had held that a patron was required to report non-cash patronage dividends received from ~ cooperative associations.as income only to the extent that such . non-cash patronage refunds had fair market value. Whére such LA 420-613 O—71——3 32 patronage refunds had no fair market value, the patron was not required to include them in.his gross income in the year the notice of the non-cash refund was received. Regulation Sec. 1.61-5 implementing TIR No.. 69 hecaie effective December 3, 1959. It provides that non-cash patron- age refunds are includable i in the gross income of patrons to the - extent of the fair market value of the document notifying the patron of the amount of the allocation made,o him at the-time _ of its receipt by the patron. Any document which 1s payable. only at the discretion of the cooperative association or which is otherwise subject to the conditions. beyond the control of the - patron shall be considered not to have any fair market vatue at the time of its receipt by the. patron, unléss it 1s clearly estab- '. lished to the contrary. * The following are characteristics of Class “cr stock, which ‘are defined in 7 USCA Sec.1134d: (sic) - Right to dividends: The law prohibits the payment of divi- ‘+ dends on Class “C’)stock. ° Voting rights: In effect, Class “C” stock is nonvoting. Each holder of one or more shares of Class “C” stock which is eligible to borrow from a Bank for Cooperatives is entitled to one vote; . provided, however, that any holder which within the period of 2 years next preceding the cut-off date for voting has not been a borrower from a Bank in which it holds Class “C”’ stock shall - not be entitled to a vote. From this it is clear that it is not the - ownership ‘of Class “C” stock which gives a right to vote, but the borrowing from a Bank for Cooperatives. Regardless of how many shares of Class -“‘C” stock a cooperative owns, it still has only one vote. \ Possibility of appreciation in value: There is no possibility | of any appreciation in value of Class “C” stock since at most it would be worth par at.such times as it might be redeemed. _ Delivery of stock certificates: No stock ‘certificates have - been delivered by the NOBC to MCC or Coastal to evidence ownership of Class “C” stock. - Transferability: Class “‘C” stock is not teicicterable, except ‘under very limited conditions. The only known instances of transfers of Class “C” stock.in NOBC have been pursuant to a dissolution or merger and then the stock has been transferred. at no value. Market value: "Fhere is no oinares value for Class “CO stock since it has not been sold nor can it be sold for all practical’ ne ne é 33 "> purposés, “Certainly so long as the holder is indebted to the ~~ issuing bank, “C” stock would not be marketable because it is ‘impressed with .a lien in favor of the Bank. 12 USCA Sec. . 1134d(c). The lack of:market value will -be discussed in more detail later. _ - Collateral value: Obviously, “C” stock would have no value as collateral with any lender other than the issuer because of the foregoing characteristics. It is important to note, however, ‘that it has no value as collateral even with the issuing Bank. © _ In fact, we have been informed by officials of Banks for Co- _ operatives that in evaluating the financial position of an appli- cant for a loan, any value assigned to Class “C” stock by the applicant is disregarded and is not considered an ‘asset. Class “C” stock is issued as a patronage dividend. Under. - ~ Reg. Sec. 1.61-5 non-cash dividends received from a coopera- _ tive are includable only to the extent of. fair market value, | and this is presumed to be lacking where redemption, rests in the discretion of a board of directors. We believe’ Mat it is ‘ not open to serious question that Class “C” stock received as “a patronage dividend should not be taken into inconie because - - of its lack of fair market value. : | : _* . What will happen when all government capital has been retired? It is my understanding that the: Banks for Coopera- : -tives at Berkeley and Houston recently completed the retire- ment of all government capital and thus will be in a position to begin retirement of Class “C” stock. The NOBC expects - to have the last of its government capital retired during the - ".’ -next two or three years. Here is what the law says on retire- ment of Class “C” stock: “After retirement of all Class “A” - stock, Class “C” stock also may be retired at par by calling the oldest outstandifig Class “C” stock, but Class “C” stock that was issued for a fiscal year period shall not be called for retire- ~ ment until all Class ‘B’ stock that was issued during or prior to that\ fiscal year has been called for retirement.”°12 USCA Sec. 1134d(a) (3). , - - Under 12 USCA Sec. 1134d(a)(3), Class “C” stock would be redeemed out of earnings and would not be the result of a business contraction. If Class “C’’ stock is redeemed, the Bank for Cooperatives must have sufficient. earnings to enable it to distribute profits, which then can be called a redemption ‘ of Class “C’* stock. | _ | | 34 Whether or not there is a redlemption ‘of. Class “C” stock. and to what extent depends upon the following factors: (1) Future Se of the Bank. Past or accuniulated earnings will not provide funds to retire such stock. (2) The state of the law relating to Banks for Cooperatives at the time. If, for example, the law were amended quire the payment of all current earnings in cash, no Cl “C” stock could be retired, (3) The discretion of the Board of Direc As to the worthlessness of Class “C" stock, we submit the following: 1., Class “C” stock has no ‘vied value. It has ao simi heet : value because no market is maintained in it, and, because the owner ‘is virtually prohibited from disposing of it, as was dis- - cussed earlier. As mentioned above, the only known instances — of transfer of such stock have been at no value. Regulations - Sec. 1.61-5 which govern the receipt of Class “C” stock’ as patrongZe dividends provide that any document which is payaWie only at the discretion of the issuer, or which is other- wisé subject to conditions beyond thé control of the patron, shall be considered not to have any fair market value at the time of its receipt by the patron. The law provides that “C” _stock is redeemable only at the discretion of the Board of _ . Directors of the Bank for Cooperatives, and redemption is contingent on future earnings of the issuer and on the state of the law at the time. Moreover, there i is ‘a special’ ‘situation in the case of Banks for Cooperatives regarding control of: . thé patrons. The greatest number of directors which patrons ~ of a Bank for Cooperatives can elect is two out of a total of © ~ seven. See 12 USCA’ Sec. 1134, Sec,.640b and 640d. Thus, the | patrons of a bank for cooperatives have very little control over . - its Board of Directors. In the case of most cooperatives, the patrons elect the entire Board of Directors. Thus, we believe ~ wecan show conclusively’ by the government’s own regulations that Class “C” stock has no market value. 2. The law prohibits the payment of dividends on Class “C” stock. Fhe most it.could-ever be worth is its issue price ° "many years later, and this is contingent on factors over which _ the holder has. virtually ne control. No voting rights attach -to the issuance of additional Class “C” stock. These factors all point-to worthlessness.: va ~ ¢ AC, . ' ; 2 : ; 3 ee obs: re sxsrep Pymom page I i ial a ES A et a Cn : New ORLEANS BANK. FOR COOPERATIVES ON Rovine- MENT OF GOVERNMENT CAPITAL *} "It is deemed. advisable at this time for the board to recon- - ° sider and restate the bank's policy regarding the retirement of _~ Class A stock in the bank. At the meeting.of the board held on May 20, 1959, a program of retiring class:A stock over a period of 20 years with full retirement on June 30, 1976, was approved. | The goal and actual retirement, of stock under this program. is presented below. » * . . , - . . e- . . a ed 1957_........° 181,300 6,746,800 181,300: 6,746,800 __________ 1958_.______. 229,800 6,517,000 -229,800 6,517,000 ___..____- 1959... 247,000 6, 270,000 - 247;000 6, 270,000 -_._.___-- 1960_-..____- 270,000 - 6,000,000 300,009 5,970,000 __..______ 1961__._...__ 275,000 5,725,000 © 350,000 5, 620;000 _._.-___-- 1962__..____. 275, 600 . 5,450,000 350,000 5,270,000 ____._.___ 4063 .....:2.. 3007000 © 5, 150,000 . 390,000 4,880,000 _-_.-_____ 1964.._______ 300,000 4,850,000 450,000 - 4,430,000 _.______ I. 1965_________ 325,000 4,525,000 660,000 3,770,000. $755, 000 1966____-___- 350,000 4,175,000 _-.....-.-------2- Lee 2 1967______°__ 375,000 3,800,000 ___..-_._-_-___-_22_____-___ ee 1968... -.__- 400,000 3,400,000 _..._._-__.___-_-___ Le Lee 1969________- : 400,000 3,000,000 _-_-._______- tales ececciace : 1970_________ ' 400,000 2,600,000 -._._-_22-_--- 22-2 LL eee 1971_____- _./ 400, 000 ~ 2, 200, pie eetene beh ee gece ence viene 1972_._______ 400,000 1,800,000 __._--._____-___-_______.._ ee 1973__._____- 400,000 1,400,000 _.__.____-______:______-_ 2. __ 1974_-___:___ 400,000 1,000,000 _________-_-_____-_-.-________ Le 1975________- 400,000. 600,000 __________.________-___1___- LL > 1976 (20 . ’ - years)...:.. | 600,000 -.....(---- ete eee od a = ‘This schedule of class A stoek retirement, was aineored by the board as a general objective with the understanding that, under very high interest rate conditions or in the event of sub-— stantial losses on loans, deviations from the schedule would be _ , necessary. - At its meeting held on Januaky 2 23, 1964, the board was in- formed that, with the approval of the Governor of the Farm Credit Admisistration and the Federal Farm Credit’ Board, the’ - class A stock might be retired ahead of the above mentioned schedule with funds obtained through the sale of debentures. « The officers of the bank at that time felt that the prepayment of class A stock would be advantageous to the bank and its bor- | _ rowers, and the board unanimously approved such retirement as / of June 30, 1966. The Federal Farm Credit Board at, its Febru- ' ary 5, 1964, meeting approved and sathorized Tetirement of | / Fe at oR ean tae eae, Te ee meprres art en = ess = S : oo * oy’ \ ‘ 38 the class A stock of the bask ouletanding as of i 30, 1966, or at the close of any subsequent-fiscal ‘year. U pon such retire- ment the bank was authorized to call and retire the class B stock then outstanding and the oldest class C stock. with the ‘ provision that the maximum amount of class C stock retired - shall not exceed the net cash*available from earnings and sale ig class C stock for any year.less patronage dividends and divi- : dends oni capital stock paid ih cash. Although not specifically stated in the minutes. of the meet- _ ing of -the board at ‘which the prepayment of class.A stock through the sale of debentures was approved, it was under- | stood by.the board and the bank’s officers that a substantial increase in interest rates on debentures would make the pre- _ payment of a large amount of class A stock uneconomical and, | ~ insuch event, t prepayment shoutd be deferred. Because of ur relations with the Central Bank for. Coopeta- 7 tives through- participations, it is not practicable’ to retire the class A stock i in this bank until similar stock in the Central - -Bank-has beer retired, which under the present program of. the 7 Central Bank Will be on J une 30, 1968. Subsequentl gested that consideration be given to a plan under which more of the bank’s net\earnings could be distributed i in cash after the class A stock has\been retired.. These borrowers: expressed in- terest in a more flexible policy under which a district bank for. cooperatives could develop a patronage dividend program de- signed to fit the needs of its’ borrowers. It was the judgment of . this group that the bank should be on a current eash refund ’ basis and the revolving of ¢lass C stock should be minimized and that each borrower. be reqfiired to invest in class C stock in an amount sufficient to capitalize its loans. This of - permanent: capital and larger cash refunds, referred to generally as the cash payment plan, has been approved ‘by over 90 per _ cent of the bank’s stockholders but is not considered favorably. by most of the other district banks.’ K A-special commitee appointed by the board to study the capital program for the-bank reported to the board at-its meet- _ing held on November.17, 1965, and recommended that, when t “permitted by law, borrowers be given a choice bétween two ; _ programs; namely, the cash plan with a type»of permanent — - eapital.and cash rebates and the revolving plan as now provided ° ° several of the bank’s larger borowen sug- bine whited bf ~ ae le we ‘by law. This committée also recommended .that legislation ‘necessary to implement this program. be sought. After fully © _ considering the recommendations of this commitee, the Sard _ unanimously approved the.same. From the foregoing it appears that the program for. the f retirement.of class A stock as set out in the schedule attached . to the mintites of May 20, 1959, meeting of. the board was © -. amended by the action of the board on January 23, 1964, which '” authorized the prepayment of class, A stock on June 30, 1966, . with funds obtained through the sale of debetitures. The officers 4 of the bank are of the opinion that. such prepayment — : be deferred for the following reasons: ; _.. 1. Th interest rates on debentures has decreased and. ‘the gross interest spread on loans has declined to the extent that retirement through the sale of debentures 4 is’ not now economi- 4 cally advantageous: 2. It will facilitate oaseilians of the Leith to defer retirement ‘of class.A stock to such’a time as the class A stock of the Central Bank for Cooperatives is retired and the Central Bank begins. . revolving its C stock or rebatihg its earnings in cash. it 3. The stockholders of the bank have expressed their desire for a-cash payment plan, which, if adopted and implemented, - - would probably affect the decision to repay class A stock. In view of the-foregoing, it is recommended: | 1. That the prepayment of class A stock through the ‘sale of debentures be deferred until such time as the officers of the bank - determine that it will be advantageous to the bank and its bor- _ rowers for the board to reconsider this subject. _ 2. That, until otherwise detérmined by the board, the pro- © gram of class A stock retirement adopted on may 20, 1959, be continued. = * (Handwritten notation on botton of above dociment: This policy approved by Board of Directors at-meeting held on Feb. 25, 1966, and. memo made a part of the minutes. ENED ony 6 soe. ; : ° 7 = ; mo . / ° f / 40 Newo'Orleana hiek for Someruinas bh. & en, 8 . "CO. Stock : Year a “\. ' Tesued by ‘Year ; er ae wenden eee nn ele ceena---l--l- «= $86, 589. 66 et = ET cnn cunts riaticiocyin are) Reena vem neds . tent. of the anticipated loss. Any stock in excess of the antici- .~ pated loss would be left. for normal revolving.-The barik could refrain from offsetting the stock against the loan account and “wait until the stock is revolved and then apply the proceeds as - a reduction of the loss in the year of. revolving. This would be more. cumbersome accounting and the mere offsetting of the stock against the loan does not in itself give, any value to the stock. With regard to iia letter of December 13, your first request is for information pertaining .to official action taken by the board of directors and the bank-with regard to payment of C: stock after all the A stock has been retired. The bank is. not -.permitted to revolve any class C stock, of course, until all class A (US. Government) is retired. With respect to this, we enclose acertified copy of an excerpt from the board minutes of May 20, 1959, along with the proposed schedule of class A stock retire- | ments. You will notice that at this meeting, the district board, ’ at the request of the bank’s president, approved a goal for final — retirement of class A stock as of June 30, 1976, or over a period ’ of 20 years from June 80, 1956. This policy was reaffirmed dur- ing the intervening\years from 1959 up until January 1964, at: which time the board approved. the recommendation of bank , Officials to prepay the Government capital by issuance of con- ~ solidated debentures, but not earlier. than Juwe 30, 1966. We . enclose a certified copy of an excerpt from these minutes for your review. Following that meeting, the Federal Farm Credit board approved the’ bank’s request to retire all class A stock outstanding as Aprly as June 30, 1966 by issuance of debentures. However, this approval provided that the maximum amount of class C-stock to be revolved in any fiscal year is limited to the net cash available from earnings and sale of class C stock for that year. A-copy of a letter from the Farm CrédityAdmin- istration evidencing this approval is enclosed. Subsequent to . that time, however, it was brought to our attention that the Central Bank would not retire its class'A stock-any earlier than June 30, 1968. Beeause of the fact that revolving all C stock of the district bank. i in cash i is generally. contingent on the re- se a) 43 volving of the Central Bank, and because of the recent rise in " interest costs and reduction of interest spread, and because most of our cooperatives prefer a cash rebate plan of operations and > permanent capital, the banks’ executive committee’s feeling at ‘this time is that it will not recommend the’ prepayment of class A stock any earlier than June 30, 1968, or possibly later. As an observation; I might point out to you that since our official plan was a 20-year plan up until 1964, it would appear — that. this factor would be of primary significance in determining. valuations of Mississippi Chemical Corporation and Coastal Chemical Corporation owned class C stock of the bank acquired ° prior to 1964. . , You have requested information pertaining to any action that the directors of the bank .have taken concerning C stock in- volved in a situation. where.a cooperative is going out of busi- ness or there is a foreclosure of a loan by NOBC. The procedures for retirement under a foreclosure unre been discussed previ- ously -in this letter. As to retirements for a cooperative going oat of business, the | manual permits the bank in the case of liquidation or dissolu- tion of any present or former borrower to retire and cancel the. _association’s stock at the fair book value thereof, not exceeding ‘par, under certain conditions as follows: _ I..The retirement of ‘such stock would not unduly» affect the financial position of the bank. 2. There is reasonable assurance that the business of the borrower. has not been continued: under circum- - stances. in which it would be proper and feasible for the successor’ to acquire and hold the -interest of its > precedessors in the bank. — | . However, any such retirements are subject io certain limita- tions and authorizations. The manual states that the board may _ give. blanket approval for the bank’s executive committee. to retire up to $5,000 of C stock without consulting the.board as .to each such request. Any retirements from $5,000 to $25,000 - can be made only by prior approval of the board of directors. If the retirement exceeds $25,000 it has to be approved by the — . Farm Credit Administration. . Regarding these manual provisions our bead. in ‘its meeting of November 15, 1961, approved a policy that it would reserve the right to review each individual case. before approval of re-. la 44 tirement of stock or any other equities of such borrower rather than give the executive committee blanket approyal to retire any amount up to $5,000. A certified copy of these minutes is _attached for your information. ; q The executive committee as a matter of inoliey a never rec- ommended to the board to retire any C stock out of order for a liquidating co-op on the basis that this would establish a dan- - gerous precedent and could result in inequities. We trust this covers all of your questions in each letter, and if we can be of further assistance, let ‘us know. Very truly yours, / s/ N. F.. Pendinian ea 'N. F. PENDLETON | , oat. _ ; President NFP:fm © | New ORLEANS a FOR COOPERATIVES . P.O.. Box 50072, - New Orleans, Louisiana 70150 July 16, 1965 GENTLEMEN: Subject: Notification of or refund for fiscal year June 30, 1965, -payable in ‘Class C stock. For the year ended June 30, 1965, the benk’ S ncrnings after _provision for franchise: tax, dividends on Class B stock, ‘and transfers to allocated surplus, amounted-to $480,742.77. In ac- cordance with, our bylaws, these earnings are to be. distributed *- in Class C stock to borrowing associations in proportion to the - total gross interest earnings. Since ‘our gross interest for. this period amounted to $2,677,084.49, this patronage refund amounts to 17.9577 per cent of the gross interest. We accordingly wish to. officially notify you that your class C stock. patronage refund for the year ended June 30, 1965, amounts to$ . , and has been set up on the records of the bank. It is our recommendation that this amount be reflected in your records by a debit to investments in C stock in the bank - and a credit. to your operating income at face value. For your general information, we present below a statement — _~ .of your cooperative’s investment in the capital accounts of this - bank as of the close of business June 30, 1965, after giving eect to the above class C stock. — dca ~~ Class C stock? s Balance at a - Balance at * June 30, 1964 ~During Year Jung 30, 1965 . Class B stock: ----.-_-.--,---------- or er Snes 3 ’ Qualifying share_.______- ane ee ae b . $ “$ From quarterly investment by co-. operative associations (15% of interest)_._._._-.-____.__._____- $ $ §$ From earnings distributed’ as a: _ aoe: refund in C stock - Sondeen .$ $ . $ Total C stock...:-..---------- $ $ $ ‘Your very erulpi “ wyg/ J.C. Boras | - J.C. Buras Assistant Treasurer Exhibit A | ° -Novemser 17, 1965 Mr. Joun J. Roce fo. Internal Revenue Agent . _ U.S¢Freasury Department P.O. Box 1659 | oo Meridian, Mississippi . . ; ‘ Dear Mr. Kocu: ‘Subject: Mississippi Chemical Corporation, Coastal Chemical Corporation, Yazoo City, Mississippi . ~ Reference is made-to your letter of November 9 to the are concerning examination of the income tax returns of the sub-~~ ject cooperatives. = «' ~ ¥ ” You have inquired cobtane of™ot the. hank assigns any collateral value to borrower-owned class C stock. The policy: of this bank is to assign no value for collateral purposes to class. C stock owned by a borrower in determining the loan-base of the applicant. - In the event of default, and/ or foreclosure of a loan, the bank * is authorized under Section 153 of the Bank for Cooperatives: - manual to-apply the fair value (not exceeding face) of class C 46 stock owned by the’ defaulting borrower ony under. certain conditions, as follows: 1. The borrower has been. iedaved bankrupt;: co - 2. The»berrower has had &substantial part of its property placed’in the hands of a receiver; 3. The borrower has ceased operation,or © ~ 4, The indebtedness of the borrower is considered tacollecti- . - blei in the judgment of the bank. -If we.can be of further assistance on. this, awe advise. | Very: truly. yours, . DM. Nevins . - Vice President and Treasurer - DMN:fm ‘ | ec: Mr. John C. Satterfield - General Counsel Mississippi Chemical Corporation ” ‘ U.S. TREaAsurY DEPARTMENT ‘INTERNAL REVENUE SERVICE Office -of the District Director. P.O. Box. 1659; Meridian, Mississippi . Te November 9, 1965 Mr. Neat F. Penpieton, President : The New Orleans Bank for Cooperatives . - ' P.O. Box 50072 New Orleans, Lotisiana 70150 — P 7 In Re: ‘Mississippi Chemical Corporation, Coastal Chemical Corporation, Yazoo City, Mississippi . Dear Mr. PENDLETON: In connection with the per i Pe of the Federal income tax returns of the above-named — 2. the following information is. requested: | ’ In granting the approval of the améunt loanable, is any value assigned to the “C” stock. owned by the -borrower.-In oth ’ words, let us assume that. the facilities, forming the basis:o appraisal and loan are not sufficient in value to cover the normal ,t value\equired by your Bank, is tlte class “C” stock considered in the pproval of the amount loanable. 47 * It is assumed, that in the case of default and foreclosure, the face amount of the “C” stock is utilized and applied. against the ' indebtedness. : - « Theinformation requested i is oniier authority of Section 7602 of the Internal Revenue Code of 1954. btu reply at an omy date would be highly appreciated. : , Yours truly , ° e _ Joun J. Kocu | | lef JJ. wd ‘Internal Revenue Agent ExcerPr’ — THE Miwa OF THE: Masrie OF THE BoarD .. OF DIRECTORS OF THE NEw 7” Bank FOR rarer, " HELp May 20, 1959 In discussing interest rates, Mr. Chavanne wheationnd: the desirability of having some goal for the rate of class A stock retirement. Each director was handed copy of a schedule (Exhibit 2) showing a proposed program for retirement of class A stock over a period ‘of 20 years. After discussion, motion was made, seconded, and unanimously carried approving this schedule for class A stock retirement as a gentral objective with ' the understanding that, under very high interest rate conditions ~ or in the event of some substantial loss on bad loans, the bank- would find it necessary to deviate from the schedule Tate of retirement. - . I hereby certify that the above isa true ‘ind ound excerpt from the minutes of the regular meeting of the Board of Directors of the-New Orleans Bank for Cooperatives held on May 20, 1959. . Dated this 3rd iad of December, 1965. | /s/- C. D. Powe Assistant Secretary 420-6130—71—4 ~ =. - on 27 = 3 Pa =o «A t / ° ‘ a , | 48 ‘N.O.B:C. Program of Class A Stock Retirement ° Goal Year Ended ° Actual 9 -—--—-—-—-—-*——--—_———-————_. . Retire Balance Original A Stock. _--___-- oe omune ene nenee Sn xe wn ee ore $7, 000, 000 | - 6-30-56. eg ------ $71, 900 $71, 900 6, 928, 190 6-30--57_ : 181, 300° - 181,300 6, 746, 800 ° a a 229,800 229,800 ~ 6,517,000 . 6-30-50... 2-2 cee ee cee ... 247,000 — 6, 270, 000 6-30-60... ee Lou ak — - 270,000 6, 000, 000. 6-30-41 _. enee wauneenwewene 275, 000 5, 725, 000 - 6-30-62_.00 eee 275,000 — 5, 450, 000 6-30-63... eee ee eee 300,000 _—+5, 150, 000 6-30-64. ‘ . 300,000 - 4, 850,000 | 6-30-65... eee eee, 325,000 4, 525, 000° 6-30-66. ....... 2.22 eee eee 350,000 4, 175, 000 O~-BO-67 onan nnn en oe Se cence cect e ceed ene 375,000 3, 800, 000 © 6-30-68. ___- 400,000 — 3, 400, 000 ca a eS. - 400,000 3, 000, 000 6-30-70... 2 bee 400,000 2, 600, 000 6-30-71... 2 Ee Suvstnnwocus 400,000 2, 200, 000 6-30-72... ee eee eee ee cee 400,000. _1, 800, 000 - 6-30-73... ...._...._..:.- scepanipecuccenmene 400,000° _—1, 400, 000 6-30-74... 2.2 ee sees iuicehich tines 400,000. —‘1, 000,.000 ‘ 6-30-75. _- S ubdcetneecsmeuesace eo ee -2--25-. 400, 000 | 600, 000 * 6-30-76 (20 years) ____-_- ine ah 6c sain akin ace msee on aies 608, GOO ........ eee EXCERPT From. THE . Minvtes OF THe MEETING OF THE ‘BOARD oF DrrEcTORS OF THE NEw ORLEANS BANK FOR CooPEratives _HEwb JANUARY 23, 1964 ae: fe : Sedeeee of Government: ini class A stock outetanding at June 30, 1966, by issue of tonsolidated ‘debentures was next discussed. Schedules covering the subject were handéd to each director. Mr. Pendleton mentioned that this topic was covered at length by the Springfield Bank for Cooperatives at the Presi- | dents’ conference in Houston,.Texas; and, as the Governor of the Farm Credit Administration approved Springfield’s request, it was the feeling of the executive committee that the bank should submit a similar reeommendation to FCA. The president then explained in detail what effects cashing out.the Govern- ment owned stock by going into debt would have on the capital structure of the bank and also the entire cooperatiye bank sys- tem. He pointed out that ¢t September 30, 1963, the bank’s ratio | | 49 of net worth to debentures was .9 to 1 oad under the law the ratio could be as high as 8 to 1. It is.quite obvious that the bank _ has more capita! than it really needs. If the present-program of retiring Government capital is continued, the bank will have by 1973 approximately. $13,000,000.00 of capital, considerably more than the most optimistic projection of loan volume shows will be needed. With regard to the system as a whole, he noted _ that retirement under this plan in 1966 would reduce the maxi- .. mum size loan that the system could make to a borrower. Mr. " Nettles next presented the effect the proposed retirement would have on the bank’s earnings. He noted that it would affect income and earnings to the extent of' the ‘interest cost on approximately $3,500,000. 00, the interest earned on Treas- ury bonds held by the bank would also be taxable; and the bank would be subject. to franchise taxes in the three states. Pro- - jections indicated that-under the proposed plan net gs ° would be reduced by approximately $100,000.00 ann - At the conclusion of Mr. Nettles’ remarks, Mr. Pendleton _ stated that the executive committee had considered the various + aspects of the subject'and unanimously recommends that the '. board approve the retirement of class A stock outstanding at June 30, 1966, by issuance of. débentures, subject to the ap-. proval of the Farm Credit Administration. After'further discus- sion, motion was made, seconded, and unanimously carried ° approving the executive comimittee’s recommendation. I hereby certify that the above is a true and exact excerpt. from the minutes of the regular meeting of the Board of Direc- tors. of the New Orleans Bank for Cooperatives held on Janu- ary 23, 1964. _ _ Dated this 21st day of December, 1965. @ , | -/s/ CAM®. Powe * Farm CREDIT ADMINISTRATION : , _ Washington, D.C., 20578 — tag ao , February 7, 1964 _ Mr. Nea F. PenpD.eton, President New Orleans Bank for Cooperatives ee eee P.O. Box 650072 se @ . New Orleans, Louisiana 701 60 cain mented = @. Dear Mr. Penpupron: This will confirm our telephone con- versation.on February 6 in which we advised you that the Fed- eral Farm Credit Board had approved the request of the New Orleans Bank for Cooperatives for permission to accelerate the. retirement of class A (Government) stock in the bank. The, resolution adopted by the Federal Board ‘was as follows: “RESOLVED that an exception be madé to the policy” .: _ previously adopted by this Board ‘on retirement of class . ' A (Governmeng$capital stock in ‘the banks for coopera- _ ’ tives to provide that the Springfield: ‘Bank for Coopera-. tives and the New Orleans Bank for Cooperatives, with _ -the approval of theit respective boards of directors and ‘the Farm Credit Administration, may: a (1) Accelerate the retirement. of vars A.( sai oa ment) stotk in the bank; (2) Retire, as of June’30, 1966, or at ‘tei close of any Subsequent fiscal year, any amount of class A ¢Govern- - ‘ ment) and class B:stock 1 then outstanding ; and + + (3) Upon retirement of all class ‘A (Government) and — ‘class B stock each of the banks may call and retire the . ' oldest outstanding class C stock, in full-or on a pro-rata | basis, in accordance with the provisidns of the Farm Credit Act, of 1933, as amended by the Farin Credit.Act of 1955; but the maximum amount of lass C stock. re- tired‘as of the close of any fiscal year shall not exceed the net cash available for such retirement from earnings . ~° and sale of class C stock forthe year.” “ou will observe that the maximum amount of class C stock to be retired‘in any fiscal year is limited to the net cash avail- — able from earnings and.sale of class C stock for the year. There- fore, the sources of funds for such retirement would be sub- © stantially as-follows: a ee 1? Net earnings. ee eae ae . 2. Required investment in class C stock paid in cash less the / amount of class G stock of’the Central Bank purchased on ac- | court of particip&tions held by the Central Bank. 3. Cash received | from Central Bank in edempition of equities. Less: : aed locations of Central Bank taken into earnings. 2: Cash distribution i current earnings—required by: law— ° e 4 ; ‘ . 20 percent of the sflocsted migylue. and patronage. refunds. 3. Income taxes and dividends- paid on capital stock, if any. : We hope tliat the accelerated retirement of the stock as pro- posed, which’ will enable the bank to begin paying 20 percent of its current.refunds i in cash and revolvin horrowers’ equities — in cash, will. aid bank in obtaining addjtional business _ which it might not therwise get. ee SE Very _— yours, | ; 3 ae, Gunn E. HEITz;~._ - Director of Cooperative Bank Service. | Excerpt From tHe MINUTES. OF THE MEETING OF THE BoarD OF Directors OF THE NEw ORLEANS Bank FOR RC OOPERATIVES ts HELp NoveMBER 15, 1961 . : Pos _. The board fully discussed regulations issued by. the Farm ° Credit Administration pertaining to the cancellation and -re- tirement of stock and other equities of a borrower in liquidation or dissolution. The consensus was that forthe time being the | board would prefer to review each individual case before ap- . proving the retirement of stock and other equities of any such borrower. ae hereby certify that the above i is a true and exact excerpt . from the minutes of the regular meeting of the Board of Di- « ° ‘rectors of the New Orleans Banlé for eee held on No- _ vember 15, 1961. - Dated this 21st day of December 1 1965. ti, Js ©.D. Pe — Assistant Secretary * , e * . & e ATTACHMENT’ TO AND Mave. A Pair oF Cuats: ( Form 843) Filed by: Mississippi Chémical Co orporation, P.O. Box 388;Ya-. | goo City, Mississippi, "For the fiscal year endé@d Jane 30, 1962 . i In Revenue Agent’s rep@rt dated January , 10, 1966, sub-_ mitted to the above namedqaxpayer under date of March: 14, 2 - 1966, said report covering*the pees set out above, exceptions . - were taken as follows: ? 38 (ce) Interest an , $16,421.7 1 _ The taxpayer acquired « one shave of class C stock «. _. ain the New Orleans Bank for Cooperatives ($100. _** . °- par value) in order to obtain loans from the Bank? 2": -*, Each, borrower must alsa. “purchase additional _— SN ‘stock in an amount equal’to 15 per cetit of itterest aan. id. @n ité*loan. The ee: claimed the cost of. a ‘Cost teckered in eae eee class C stock are s . . ° ~ not deductible. See Rév. Rul. 65-241. «| (d) Patronage Dividend on. “C”’ stock $27,489. 40 ' The taxpayer recéived clas& C sto&k from the New- -. Orleans: Cooperative Bank as patronagesdrvidends ze in the amount stated above. The amount was not - included in income as having‘no value. | ~The Bank, in its notification of patronage re- - ° fund to its shareholders, recommends that the ° amount be reflected at.face value and a credit to ° operating income. - The “C” stock j is assigned as auttaineel against ~ loans, and in the event of default and/or foreclosure of a loan, the stock is utilized in the face amount,— the same as any other collateral having face value. | a The amount .above, is therefore includable in ~~~ income urider section 61 of the 1954 Code. . The income tax related to (¢) above amounted to $8,539.31. on™ | and was paid-as shown by ne acing Cony of letter accompany= \ _ ing the remittance. 2... J + The income tax related to (d), wiedntion to. $14, 259.48, was _agreed to in Form 870 which was sent to Mr. Julian W. John- . son, Appellate Conferee, Internal Revenue Service, US. Treas- _ ury Department, 711-2121 Building, 2121-8th Avenue, North,’ - Birmingham, Alabama 35203. The above amount of income tax was paid July 21, 1967 as part of a sane for $17,954.84, which’ included applicable i interest, It was understood. ‘with Mr. ‘thei that the execution and -. filing of the foregoing Forfn 870 would not preclude the’ filing . of a Claim (Form 848). In fact it was understood that a claim would be filed as a basis of litigation in the appheable US. 7 ‘District Court. ey ff). 8 | _ 53 “the total | income tax ccmaalsbid by (c) ond (@) above - amounts to $22,798.79 shown:as (g) on Form 843. -It.is claimant’s position that the. interest’ represented by. (d) ‘was deductible and further thatthe class C stock referred to was not worth $100.00 per share during the. fiscal yéarcvended June 30, 1962. An expeditious handling of this claim’ is [oon a con- ference with claimants attorney is ‘requested, and will be ar- - ranged for premptly on:request, in which event John C. Satter- . field, Attorney-at-Law, Box 466, Yazoo (ity, Mississippi should be accordingly notified. Similar claims are being filed by slitadint for the fiscal years | 7 1961 and 1963. *. * 0%, ME *. r * ° ATTACHMENT 70 AND Mave a Parr or CLAIM: (Form 843) Filed by: Mississippi Chemical ae, re 0. _ 388, - Yazoo City, Mississippi For the fiscal year ended June 30, 1963 8 “In Revenue Agent’s report dated January 10, 1966, submitted tothe above fiamed taxpayer under date of March 14, 1966, _ said report covering the period set out above, exceptions were. taken as follows: (jae 2 tS $18,863,365. ‘The taxpayer cael one share of class G stock in the New Orleans Bank for. Cooperatives ($100. par value) inorder to obtain loans from the Bank. Each borrower must also purchase additional “C” . stock in an amount equal. to 15 per cent.of interest - . paid on its loan. The taxpayer claimed the cost of _ acquiring the additional “©” stock as interest in 1 the above amount. . Cost incurred: in purchasing class C stock 1 is ‘ast _ deductible. See Rev. Rul. 65-241. (e) Patronage Dividend:on “C” ‘stock . $26,158.88 | _-., The taxpayer — C stock from the New ' Orleans Cooperative Ba in the amount stated above... The amount was not included i in income as having no value: ’ The Bank, in its notification. of patronage refund «to its shareholders, recommends that the amount be nk as patronage dividends yee ORES A, Diab I Pita Y Sip wid htt , “54 reflected at face value and, - income.. -°. The “C” stock' is assigiyé loans, and in the event of default and/or foreclosure of a loan, the stéck is utilized in the face amount;— the same as anyother collateral having face value. ' The amount’ above, is ‘therefore includable- in income urfder section’ 61 of the1954 Céde. The income tax related. to (¢d) above amounted to $9,808.93: and was paid as shown by attached copy of letter — the remittancé. The income tax related to (e), ambunting. to. $11 304.94, was agreed to\ii Form 870 which was sent to Mr. Julian W. Johnson, Appellate Conferee, Internal Revenue Service,. U.S. ‘Treasury Department, 711-2121 Building, 2121—8th Avenue, North, Birmingham; Alabama: 35208. The above amount of . ‘income tgx was paid-July 21, 1967 as part of e-check for — $13,478.19, which in¢luded applicable interest. ~~ It was undérstood with Mr. Johnson that the execution - and filing of the foregoing Form 870 would not preclude the: - __ years 1961 and 1962. a x ae filing of,a Claim (Form 843). In fact it was understood that a claim would: be filed as a basis of litigation i in 1 the es CS. District Court. The total income tax reprenentee by .(d). and. (e) abover amounts to $21, 113.87 shown as (g) on Form 848. - It is claimant’s position that the>interest. represented by (d) was deductible and-furtherthat the class*C stock referred. to was not worth ‘$100.00 per share ; .during the fiscal year—~- ended June30, 1963. : An expeflitious handling of this claim 1 is requested: ; a con- ference with claimant’s attorney is requested, and will be arranged for promptly on request, in which event John .C. Satterfield, Attorney-at-Law, Box 466, Yazoo City, Mississippi, ° should be accordingly notified.- — - Similar claims are being filed’ by claimant . for the fiscal - + * . 9 ____ _ + / ’ be} credit te operating — | collateral against: \. « In the United States District Court for the Sqpthern Judicial ... _ District of Mississippi, Western. DfVision . “Civil Action No. 1214 - — ~ CoasTau. CHEMICAL CorPoRATION, PLAINTIFF — ft 5 US. 7 THE UNITep StaTes or AMERICA, DEFENDANT. _,COMPLAINT’ (Filed Dec. 15, 1967) ../ - ‘Count E 8 . ° : / . : . Comes Coastal Chemical Corporation, a corporation orga- nized under the laws of the State of Mississippi, and files this ‘Suit against The United States of America and for cause of _ action says: ee eee = Plaintiff is a corporation organized under the laws of the State of Mississippi with its domicile and principal place of business in Yazoo City, Mississippi, in the Southern District of Mississippi, Western Division, of the United States District. ‘ Court. - oe 75 . & © ¢ I its Defendant is The United States‘of America upon whom service of press may be had by service of summons upon the ~ ~-—_——_Gnited Statés-Distriet_A ttorney—of Jackson, Mississippi, and . by ‘sending a copYrof the summons and complaint to the Attorney General of the United States at Washington, D.C.. III. - This is an action of a civil nature.for the recovery of United — incpme taxes and interest paid: thereon, which income taxes and ‘interest were erroneously or illegally, assessed and wrongfully collected. _ ? Le Wik 8 Plaintiff is organized under the General Corporate Laws _~of the State of Mississippi but is a cooperative qualified to receive financing under the Statutes of the United States. of America as a cooperative. It is and since the beginning of its go: 56 operation has been engaged in manufacturing fertilizer and . distributing same primarily ‘to its stockholdef patrons. — dl e e 4 ee oat V 2 , / hd - °"(a) Plaintiff duly filed its Federal income terx return for its ‘fiscal year ending June 30, 1961, on or before the due date thereof with the District Director of Internal.Revenue at Jack- ‘son, Mississippi. On said* tax’ return, plaintiff deducted from '-its gross income the amount of $40,779,88 which plaintiff had — : ‘ bean required to.pay during such fiscal year to the New Orleans =” - Bank for Cooperatives under the provisions of sir ae * (a)(3) of Title 12, United States Code. On or about March 1966, an. Internal Revenue Agent’s report (dated January 10, / 1966) was submitted‘to plaintiff and in saidreport theRevenue ==> — ' Agent erroneausly di lowed the deduction of $40,779.88 = —° which plaintiff ‘had been required to pay to the New Orleans ~— - Bank for Cooperatives under the provisions of Section 1134 Py, (a) (3) of Title 12, United States Code. | “ .(b) In said Revenue ‘Agent's report (dated January. 10, 1966), the Revenue Agent erroneously included in plaintiff's income for the fiscal year ended June 30, 1961, the sunv of $51,- 689.59 as the alleged value of Class C stock-of the New ————e ‘Bank. for Cooperatives, which Class C stock had. been received: by plaintiff from the New Orleans Bank for Cooperatives as patronage dividends in accordance -with:Section 11341(b) of. in Title 12,-United Stafes Code. ee a O= ————— = . The said Revenue Agent’s report reduced plaintiff's net oper-. ating loss deduction by disallowing as-deductions amounts paid | to the New Orleans Bank for Cooperatives under the provisions of Section 1134d(a)(3)- of Title 12, United States Code (as ’ described in paragraph V(a), above), and by including in plain- tiff’s income the face amount of Class C stock Tegeived as pa- * ‘tronage dividends from the New Orleans FED operatives © ___—(as deseribed in paragraph V(b) above), for the following fiscal oe - years in the amounts stated, to-wit: - e (a) Fiscal year ended June 30, 1958: (1) Disallowed deduction’ of $11,670.19 in connection ith pertagat of interest to New Orleans Bank for Co- operatives under Section 1134d(a)(3) of Title 12, USC. ‘(b) Fiscal year ended June 30, 1959: By ‘, ac a “iN : | 9 oy . -(1) Disallowed dedygtion of $33,474.20 in connection with payment of interest to New Orleans Bank for Co- . operatives: under, Section’ 1134(a)(3) of Title 12, USC. | (2) Included as income $14,345.04 received as patron- “age dividend in Class C stock of the New Orleans Bank -- - for -Cooperatives. en a 4: Ss (c) Fiscal year ended Julien 30, 1960: | a_i (1) Disallowed deduction of $46, 172.23 in connec- | tion. with payment of interest to New Orleans Bank for Cooperatives under Section 1134d(a)(3) of Title 12, USC. ° / 5 Includdd as income $47, 361. 32 received as alti . age dividend in Class C stock of the pene Bank - .for Cooperatives. That as a result of the’ ‘above described adjantdhinste, plain-. _ tiff’s net operating loss carry forward was reduced: and plaintiff : for fiscal year ending June 30, 1961, paid additional income taxes of $231.00 plus applicable interest of $63:34. - Plaintiff alleges that its net operating loss deduction should. not be reduced ag set forth in said Reyenue-Agent’s report and _ that plaintiff's net operating loss* deduction and-carry forward - for fiscal yest ded June 30, 1957, June 30, 1958, June 30, - — ~~ 1959, June 30,/1960, and June 30, 1961, should he computed i in | accordance with Exhibit A.whieh-is-attached he hereto and. made a _.____ part-hereof as if copied herein and that said net operating loss deduction carried forward should be $827,744.28 as of June 30, - - 1960, and should be $244,681.92 as of June 30, 1961. 3 a eee | I a aa ; The Farm Credit Act of 1955 (Section 1134(d) ta) (3) title 12, USC) requires a borrower from a Bank for Cooperatives to purchase quarterly Class C Stock of such Bank in an amount. e an ten per cent nor more than twenty-five ~ . per cent of the amount of interest payable by it to the Bank ' during such calendar quarter. The Board of Directors of the ’ New Orleans Bank for Cooperatives has provided for a pay- ment of fifteen per cent of the amount of interest payable to _ said Bank by organizations borrowing from it. During the fiscal © year ended June 30, 1961, plaintiff paid the New Orleans Bank ° for Cooperatives $40, 779. 88 for such Class C stock and ‘plain- tiff deducted said amount from its gross income. Plaintiff was - R Me Oe, required’ ne pay said amount to the New Orleans Bank for Co- operatives in connéction With interest payments under the pro- visions of Section 1134d(a) (3) of-Title 12, United States Code. Plaintiff- show that said payments were properly deductible frony its gross income for fiscal year ended June, 30, -1961,. either. as: additional interest’ paid to said’ New Orleans Bank Aor Cooperatives, or as ordinary and necessary business expense; "or as a loss on a transaction entered into for profit, and that the | Class.C stock received by the plaintiff from said bank for said ., - payment had no market value for the reasons hereinafter set” Sere . Eee ie Nee rae tr ) . a \ vu eps i ee Section 11341(b) ‘of Title 12, United States 2 Codes rSvides for. the issuance by a Bank for Cooperatives: of patronage. refunds to organizations borrowing from such Bank. During fiscal year. ending 1, plaintiff borrowed money from the New * -Osieane Bank he Cooperatives and plaintiff received Class C_ eS ~ stock from the New Orleains Bank for Cooperatives as patronage _ dividends in the stated amount of $51,689.59 The Class C stock . | included same in its:income-tax return for said fiscal year at: NSL .00 per share for identification purposes only. Plaintiff would . - show that said $51,689. 59 received as Class C stock of said Bank should not be included in its taxable income for fiscal year ended June 30 19a. _ oo 7 ' « received by plaintiff from. said Bank as patronage refunds has se - no market valuq (as. hereinafter set forth) and the taxpayer | | “Ix. : | : Ss (a) TRa ‘the saad paid by plaintiff to the New Orleans © . ; Bank for. Cooperatives for the fiscal years ending June 30, 1958, through, June 30;°1961, inclusive, as hereinabove ‘set forth, for the priydlege of borrowing from said Bank are proper deductible expengfs either as additional interest paid, or’as an.;ordinary — cand necéssary business ex ense, Or as a loss on a transaction entered into for profit; that-at; the time of such purchase,. the Class C stock of the New Orleans Bank for Cooperatives was not. actually corporate stock at, all and was entirely worthless; _ that no certificates.of any nature were issued therefor; that no dividends were or could be payable thereon; -that no. voting rights were incident thereto; that there was no possibility of ap- preciation in — that such Class Cstock, could not be 0 g e . _= - - s « - . - " . — . . . — - = a oS . e — or winsferred and the § issuer : theredf rebut to nuit collateral for loans; and'that as a result said so-called Class Cc stock had no fair market value. ae (b) That the Class C stock fecei ved-ts7- laintifi from the a og... New Orleans. Bank for Cooperatives as patronage Uividends - for the fiscal years ending June. 30, 1958 through June 30, 1961, © inclusive, as heisinatiove set, forth, ‘should not be includéd i in _ plaintiff's income siiice such Class C stock had no market value; . that-at the time of such’ purchase, the. Class ,£ stock was not « . _—~ actually corporate stock at all and was entirely wofthless; that | i no certifidates of any nature were issued therefor; that no divi- i’ Pa - dends were or could. be payable’ thereon ; that no voting rights : were ineident thereto; that there was no possibility of aesaae *. tion in value; that such Class C stock could not-be sold or trans- ferred and the issuer thereof refused to consider it as collateral _ efor loans; and that as a result said so-called Class C stock-had ‘norfair market value. , — . : oo | . rs a result of the heen described adjustments to plaintiff's taxabl¢ income for fiscal year ending June 30, 1961, and the *‘ adju ments: to plaintiff's. net operating loss. carry forward, . pla intiff paid additional income taxes of $231 .60 plus applicable _* : iterest of $63.34 thereon: for its fiscal year ending June.30, . ~ F 1961. The aforesaid determination by. defendant of a deficiency . in plaintiff’s income ‘tax of $231.00 was erroneous, and the aforesaid reduction of plaintiff's net operating Toss for the fiscal - years ending June 30, 1958 through June. 30, 1961, inchitive, . was ane ; - - — $60,541.52-as the alleged value of Class C stock of the New # Orleans Bank for Cooperstives, which Class C stock had been received pita fyoi ‘the New Orleans Bank for Coopera- -_ tives as patronage dividends ir accordance with Section 1134 " M(b) oFitle. 12, United States Code. ees Aer we ay | BEB en The said Revenue Agent’ s report reduced plaintiff ’s net oper- NS "ating loss deduction: by- disallowing as deductions amounts ce ar paid to the New Orleans Bank for Cooperatives tinder: the pro- o- - visions of Section 1134d(a) (3) of Title,12, United States Code | (as described in. paragraph II (a) above), and by including in |. : _ plaintiff's income the face.amount of Class C stock. received - as patronage dividends from tre New Orleans Bank for ‘Co-. operatives (as described in. paragraph IT( b) above), f for the following fiscal years inthe amount stated, to-wit: ca | te (a) Fiscal year engled June 30;:1958: « . | (1) Disallowed deduction of $11;670.19. in cennec- : - tion with payment ion” to New" Orleans. Bank for, — j ne oo hG Cooperatives. -under ection 1134d(a) vad of Title 12, i - = SeeL My 7. 205th ct, . (b). Fiseal year enided June 30, 1959:: oe ff eed (1)* Disallowed. deduction of $33,474.20 in. eosnection nie with payment of interest to New:Orleans Bank for Co-, | +) + operatives under Section 1134d(a) (3) of Title 12; USC. Pers (2) Included as income $14,345.04 received as patron- - ‘. age dividend-in Class C stock of ‘the Seated Orleans Bank ~ for Cooperatives. , erre (c) Fiseal year ended June 30, i960:. |. _ ot (1) Disallowed deduction of $46,172:23 in connection’ © | | with payment of interest to New Orleans Bank for Co-,-. ‘operatives under Section 1134d(a) (3) of Title 12, USC.. ade (2)- Included as income $47,361.32 received as patron- : +. age dividend in Class C stock of the Néw Orleans Bank Po. - for Cooperatives: dee | a ae : (d) -Fiscal year ended June 30, 1961: Ww , : (1) Disallowed deduction of $40,779.88 in connection . ; *. . with: ayment of interest toNew Orleans. Bank for, ~ ~~” dends in the amount stated above: The dividend » ’ ; was ‘not included i in income—as having no ) value. - x» ——~ 9 | 4 1961 should be increased to allow for claimant’s position with ‘Wespect ‘to “Interest” and “Patronage Dividends” for prior 7 The New Orleans Bank, in its notification. of patronage refund: to its shareholders, recommends ° that the amount be reflected at face velue anda = _credit.to operating income. The “C” stock is assigned as collateral antral and/or foreclosure of a loan, the.stock is utilized in the face amount—the = as any other -. dividend above, . _,.is therefore includable in income under section 61 _ collateral having face value. of the 1954 Code. w - outstanding loans, and in the event of default ._. As the result of the Agent's ; adjnstinerits an income tax of 7 $231.00 was paid on April 7, 1966 together with $63.34 interest; this was included in a check for $83,211.24 which included the payment of other iterns related to the next fiscal year ended _ June 30, 1962. The small amount of income tax for the year ended June 30, 1961 is due to the application of a net operating loss deduction, all as set out in the Ageht’s report _ referred to above. , It is claimant’s position , that the interest reprbeented by (a) was deductible and further that the Class C stock referred to ' in (b) was not worth $100.00 per share during the fiscal year ended June 30, 1961. It is also claimant’s position that the net - operating loss deduction. allowed by the Revenue Agent in his report and calculations for the fiscal year ended June 30, “C2fiscal years as follows as shown by the Agent’s report: Fiscal year ended June 30, 1960: (Schedule =, . “(b) Interest |g IF 8 (c) Patronoge Dividend - 47,361.32 © Fiscal year ended June 30, 1959: (Schedule 3) | (e) Interest ~ . "os $88,474.20 . (f) Patronage Dividend : - | 14,345.04 - Fecal year ended June 301968: (Schedule 2) (d) Interest? 7 —_ $11,670.19 On the basis of the foregoing bhcea: would be no income tax 7) payable for the — year — June 30, 1961, and this claim sty > fod "ig simply for the amount paid, namely $281.00. See ren e “3 °@ ATTACHMENT TO AND Mabe A Parr oF -CuaIM (Form 843) . , ‘Submitted by: Coastal Chemical Corporation, Box 388, Yasoo City, Mississippi | ; For fiscal year ended June 30, 962. - : - In. Revenue Agent's re dated Jeicainy” 10, 1966, ‘ib- mitted to the gbove named taxpayer | under date of March 14, _ 1966, said report covering the saiten set out more, exceptions : bapbaceeteln aie o ! ; aie | “) Interest. = "Be $34,116. 6@° * .« ' The above adjustment is the same as for e. years* and represents the costs of acquiring di. tional “C” stock in the New Orleans’ Bank for ~ peratives and which was claimed as an interest. deduction. ; pores OP aed ae ° Og New Orieane Bank for Cooperatives ($100 par value) in order * to obtain-4oans from “the Bank. Each borrower must also a purchase additional “C” stock :in an amount equal to 15 per~_ o ‘cent of interest paid.on its loati The taxpayer claimed the — cache Rees Bo epaal NO” niech 60 Sapepeet: ty, ie . amount shown above. ‘Cont incired in purchasing clase C stock is not deductible. See Rev. Rul. 65-241, . ". (e) Patronage Dividend “c* Block $60,541.58 ‘The above adjustment ‘is also the same as for 3 prior yours and 35 the clas C stock received from: - @.«- the Ney Oia Cooperative Bank during the year, as & patronage dividend. - : | ' The taxpayer received class C stock from the New Orleans 5 4g Cooperative Bank as patronage dividends in the amount stated “1 9 _* ‘above. Fan eovidens sha set! Gers tm inactno--ap Raving 0 f The New. Orleans Bank, in its notification of. patronage refund to its. shareholders, rgcommends | _.. that the amoynt-be reflected at face value and a Posed '.¢redit to operating income. : _ ‘t The “C” stock is assigned as collateral egainat a outstanding loshs, and _in the event. of default ‘FF and/or foreclosure-of a loan, thie ptock is utilized in .: the face amount—the same as any other collateral ‘ | £ shaving face value. The dividend above, is therefore — ‘includable in income under section 61 of the 1954 ~ . “ Code. . ; 9. . ~ Ibi is edaimeait's pos ition that the’ i heiat represented by. (b) . “oy Wes deductible and further that the Class C'stock referred to. | in (c} was not worth $100.00 per share during the fiscal y etrded June 30,.1962. In line with the foregoing, clairfant tak bre 8s the position that the net operating loss deduction eliminated = ““* _, . by the Revenue Agent. in. his report should be recomputed as -. shown by the attached Exhibit A, which ives effect to the ‘Position of claimant with respect to "“Interes ’and-“Patronage . * Dividends” in prior years, and thus restores a net operating loss - deduction. to the extent shown in Exhibit A#The recomputed * Net Operating Loss Deduction is simply the amount claimed by taxpayer in the fiscal years ended:June:30, 1962 and June 30, - : . "1963, ‘adjusted for all changes made by Revenue Agent-other , than those called “Interest” and “Patronage Dividends”. The _ carry-over loss originally claimed by taxpayer for the fiscal year ‘ended Jurie 30, 1963 is eliminated entirely. : In Exhibit B the net income basic to this claim is diinpiited, along with the related income tax, income taxes paid, and the | resulting amount of this claim. _ @:: eo. - An expeditious handling of this claim is seein a confer- Q: - ence with: claimant’s lorney ,js requested, qnd will be ar- ranged for promptly o uest,'in which event, John C. Sat- terfield, Attorney-at-Law,. Box. 466, Yazoo City, _—. ; Should — notified. . to” ie nih Cs - 14 : | _ . | | . - Similar claims are being filed wale claimant for the — seat | 1961 and 1963. ¢. : + ee | : * . * * ? = ATTACHMENT TO AND Mabe A Part or Cram (Form 843) ‘Submitted by :. Coastal Chemical poem, Box = Yazoo 7: City, Mississippi . For Fiscal Year ended June 30, "1963 , In Revenue Agent’s report dated January 10, 1966, sub- mitted to.thé above named taxpayer under-date of March 14, | 1966, said report covering:the period set. out chin exceptions 4 were.taken as follows: . . 7) | - (b)eInterest $41 207.02 - - . Whe above adjustenent is the same as for prior: -years* and represents the cost of acquiring addi- _ | tional “C” stock in the New Orleans Bank for Coop- eratives and which: \ was’ claimed as an, interest de- con 7 . e taxpayer acquired one share of claas C stock in the, _ New Orleans Bank for Cooperatives ($100. par value) in order. to obtain loans from the Bank. Each borrower must also - _ ,purchase additional “C” stock in an amount equal to 15 percent of interest paid on its loan. The taxpayer claimed the cost of ‘ acquiring the additional “C” stotk as “interest in the amount shown above. . : zs Cost incurred in purchasing class c ‘&tock is not deductible. - 3 - See Rev. Rul. 65-241. (c). Patronage Dividend “C” Stock $58 $06, 05 The above adjustment is also the same as for prior years* and is the class C stock received from the | New Orleans Cooperative Bank during the year. . or *The taxpayer received class C stock from the New Orleans Cooperative Bank as patronage dividends in the amount stated. above. The dividend was not included in incéme—as having : oi . no value. The New Orleans Bank, in its notification of pa- = | tronage refund to its shareholders, recommends that the :- amount be feflected at face value and a credit, to operating $ . income. The “C” stock is assigned as collateral against out- | _ 3 ‘standing loans, and in the event of default and/or foreclosure of a loan, the stock is utilized in the face amount—the same . as’any other collateral having face value. The dividend above, . is therefore includable in income under section 61 of the 1: - Code. a oN * —_ 3 ; | s 2 £ ; | = 3 >: It is ‘claimant’s position thatthe interest sbesenind by (b) : was deductible and further that the Class C: Stock referred 75 | to in (c) was not worth $100.00 per share during the fiscal year - ended June 30, 1963;: , ; 3 -On the basis of claimant’s position, the corrected taxable in- income tax, income taxgs paid and amount of refund. An expeditious hand \ ferénce with claimant’s attorney is requested, and will be arranged for promptly on request, in which event, John C. _ Satterfield, Attorney-at-Law, Box 466, Yazoo City, Mississippi, ~ Should be accordingly notified... * 2.4% _ Similar claims are being filed by claimant for the fiscal years 1961 and 1962. | . s come is shown by. Exhibit A, which also shows the corrected Exhibit A. | Taxable Income, Related Income ‘Tazes, Income Tazes. Paid and Refund Claimed, Coastal Chemical: Corporation, Yazoo City, Mississippi, for -the : fiscal year ended June 30, 1963 . . > Ll: ing of this claim is requested; a con- - Income px lun. : * were wale As determined Changes sgt pe t by appellate this claim claim — Taxable income . ie per original =~ . . return... _ 2 __ $250, 493.81 $250,493.81... $250, 493. 81 Changes by Revenue Agent: > (a) Cost of . decrease. $14,522.94 $14,522.94... . $14, 522. 94 (b) Interest_.... 41, 207.027 © 41,207.02 ($41,207.02)... (c) Patronage ~ , Dividend_ 52, 305.05 52, 305.05 (59, 305. 05)_....._- a (ad) Patronage , . deduction. 209, 223. 44 139, 482. 29 ~--7------+-. 139, 482 29 (e) Net operat- t+ - sO : . . ing loss — ; . ee _ deduction. 22, 777. 21. 22, 777.21 _____ adem, , me eee, ae $340, 035.66 $270,294.51 $176,782. 44 * “$590, 529. 47 $520, 788 32 __________._ $427, 276 25 76 Exhibit,A—Continued , Taxable Income, Related Income Taxes, Income Taxes Paid and Refund Clasmed, Coastal Chemical Corporation, Yasoo City, er: for the fecal year ended June 30, 1968—Cortinued - . son fot As determined “Omens is aera sport > * dy appellate this claim ~ daim (f) Depreciae 2 - . = ; tion.._-... $2, 687. 90 $2, 687.90 ...._-- 22... $2, 687. 90 _ Unused . oe : . . “. Contribu- e tions car- | ’ vied over . from f.y. ; - 6-30-61.-....-...---- eee oy 3,193.68 . 3193.68 ~. log — $2, 687. 90 $2; 687.90 _....._._---- $5, 881. 58 Corrected tax- . ° able i income...“ $587, 841. 57 as18, 100. 42 -_._..--- ,--- $421, 394. 67 3 : Tax on $421,394.67: Taxable Income________.._.__-.--.-------- WOR, POE GE x osccccnsones Less: Long term > NN NN nas ao eects 172, 584. a7 - Wieeesewnseee pieemaeedeneneadeesanaeees , CP68, SIC SO... cckngens Tax on $248,810.50 bs ies eect ti nae mn aoa akon anin ewe $123, 881. 46 25% of tax on s $172,584. OF cee ee ane ene ence eee 43, 146. 04 Total Tax wate haem kan buenee “ueeveeseaaneseee $167, 027. 50 Less: Investment ® Credit— ' : _ Per Re eee a ee 24, 546. 48 Balance________.____-_ pe Bee ee sr ieee eaten ae _ $142, 481. 02 Taxes paid: . : . With return_________------ pel mere keene aes $63, 722. 34 __.._.-:----- 7 April 4, 1966____. _.____.__2--__2- L_-- eee *12, 750. 94 _____ eoreeeee April 7, 1966__-____._..__-_..------2------ *21, 105.48 ~.....--.---- July 18, 1967. cig dina ees eden oats 86, 324-36 183, 903 12 Refend.. . , : claimed... _...- eeuwiadeuwaaeneucenawseuwenached a (94, 422 ie): “Per copies of letters attached. " , Vw = Mr. J. G. Marrin, Jr. Catal Chemical Cucetie weaken 14—Y/E 6/30/68—Computation. of Investment Credit « ° “. ® 7 . Qualified Property: * ax . NEW— a , | | 4to 6 years... $94,966.54 6. 291 5,974.35 1,991.45 - *. + OB... 22. ae 7, 588. 68 6. 291 e 474 26 316. 18 Pa - 8 or more...._-_ 5, 488,073.22 6.201 345,254 69 345, 254 69 —— ote ere 347, 562. 32 USED— a . . _. * . _8 or more a , ® . 98.609 X 50,000. $49,304.50. 6. 291 3, 101. 75 3, 101.75 - a ore a $350,664. 07 Investment ee a Credit 7%--.------- Ui yeeemeeereetvacetanseaeeies 24, 546. 48 “Taxable in- | come— , * | amended. -._....-...--- 2-2 eet 421, 394. 67 6. 291% Patronage re- fund—- 4, amended---_____.---_-----.------.-- 6, 277, 028 10 _:._-.-----.- aiencGneeeene baw aes 6, 698, 422.77 __....--.-:- e ; a CoastaL CHEMICAL CORPORATION _ . - Post Office Box 388. | ue 7 Yusoo City, Mississippi 39194 ‘ : | April 4, 1966 District Director ns ‘Internal R::.- ne Service US. Treemey:? -epartment 3801 North Lamar Street ; Jackson, Mississippi 89202 - - Re: Your File For, L-191B—430: VBH:mnm, “Coastal Chem- ical Corporation, Yazoo City, Mississippi | Dear Sir: We have received copy of an examination report explaining proposed adjustnients in tlie tax ane of Coastal cs . y, 78 Chemical Giperalion, letter of transmittal being dated 5 March 14, 1966. This includes page 5 showing “Computation - -of Income. Tax for Partial Agreement” which has been com- __. puted in accordance with Form870 executed by Coastal: Chem- ical Corporation on December 14, 1965, showing the amount of tax for the fiscal ‘years detailed below, wo we — calculated the interest as follows: Additional tax and interest on 7 items: go Fiscal year 6/30/62 : Dt i i ~ e Interest —__.._.-.-_----------- aoe eee: = 4, 496. 24 Fiscal year 6/30/68 . Tax 2 1_-_---- Beda caseunesaueswenusseesscetuunuad 12, 750. 94 Interest _.... eee 1, 936. 75 Total spawisies awauetuanaeadepesiasdeeew paasesnenucee $40, 408. 58 - We therefore encloue herein check of Coastal Chemical Cor- — - . poration in the sum-of $40,403.58 covering the principal and interest on the deficiencies thus agreed. - Yours very truly, CoasTAL CHEMICAL CORPORATION SZ - By JoHn C. SATTERFIELD . General Counsel ExHIsIT [| | : US. TREASURY: DEPARTMENT . - INTERNAL REVENUE SERVICE _ District Director, 301 North Lamar Street Jackson, Mi ississippr 39208, - to “Certified Mail Iu reply refer to ' CoastaL CHEMICAL CorPqRation — | Box 388 , : Yazoo ‘City, Mississippi ~~ “ In Re: Claim for refund of $41, 422. 10 for the period June 30, 1968 “Genrtemen: In aonordancs with the provisions of existing internal revenue laws, this notice of disallowance i in full of your’ claim or ‘claims i is s hereby given. . . ° . Pe ded et Then eT tt Sic ice DO: MO ETL LSA LAS MA NOT aE LSS AW TNs - . me No suit or proceeding i in any court for the recovery of any internal revenv® tax, penalty, or other sum which is a part of . _ the claim for which this notice of disallowance i is issued, may - be begun after the expiration of two years from the date of mailing of this letter. - Very truly yours, . - DISTRICT DIRECTOR . a « +. * . * . In the United States District Court for the See of Mississippi, Western Diyision— ee Civil Aetion No. 1214 _ CoasTaL CHEMICAL Corporation, APPELLEE yy. . " a) a Unrrep Sates or AMERICA, APPELLANT | _ ANSWER. ~ Comes now the defendant, the United States of America, by. its attorney, Robert E. Hauberg, United States Attorney for _ the Southern District of Mississippi, and for its answer to the _ plaintiff's complaint. herein, _ admits, Genet; and aii as follows: 4 eo. te. Count I For answer to Count I of the complaint, the defendant says: ' Admits the allegations contained in paragraph I. -. Denies the allegations contained in paragraph II for the reason that the complaint attacks the validity of a. determina- tion of-an officer of the United States, and thus, pursuant, to ‘ Rule 4(d)(4) of the Federal Rules of Civil Procedure, a copy + — of the summons and of the complaint must be sent by — or certified mail to such officer. ITT.. Admits the @llegations contained‘. _paragraph TII, ‘except denies that the i income taxes and interest sought to He recov- ‘ "420-618 os / ee @.° 80 . ered by the plaintiff were ercneily | or illegally assessed and wrongfully collected. IV. _ Denies the allegations contained in paragraph IV for the rea- ~ son that the defendant is presently without information or _@v~---knowledge sufficient-to-form-a-belief-as-to- dhie-truth thereof _ except admits that plaintiff is organized under the general cor- . porate laws of the otal of Mississippi. : ; _V. oo ( a) With respect to the allegations Py in waoaeasl (a) of paragraph V, the defendant answers as follows: . Admits the allegations contained in the first sentence. _ Denies the allegations ‘eontained in the second sentence. for the reason that the income tax return and the statute referred to therein speak for themselves... Denies the allegations contained in the third sentence, exoept admits that on or about March 14, 1966, an Internal Revenue Agent’s report (dated January 10, 1966) was submitted to | the: plaintiff. (b) Denies the allegations contained i in | subparagraph (b) , of paragraph Y, except admits that in said Revenue Agent’s report (dated January 10, 1966), the Revenue Agent included in the plaintiff's income for the fiscal year ended June 30, - 1961, the sum of $51,689.59 as the value of Class C’stock of the New Orleans Bank for Cooperatives, which Class C stock had been received by the plaintiff from the New Orleans ~ Bank for Cooperatives .as patronage dividends. ne - ME. Mi With. respect to the allegations containéd i in vaaegtaaih VI, the defendant answers as follows: Denies the allegations contained in the first sentence for the reason that: the Revenue Agent’s report and the statute . ' referred to therein speak for themselves. . Denies the allegations contained in the second sentence for.. the n that the adjustments referred to therein speak for th Ives and for the further reason that the defendant is presently without information or knowledge sufficient to form ; _ a . 81 | i & belief as to the truth of the allegation that the income taxes . and interest referred to therein have'been paid.: - , Denies the allegations contained in the third sentence. With respect to the allegations conggined in paragraph VII, ~~... .. the defendant dnswers as follows: “= , 4 Denies the allegations contained in the first sentence for the ' réason that the statute referred to therein speaks for itself. —_ . . Denies the allegations contained in the second and third sentences for the reason that the defendant is presently with- out information and knowledge sufficient to form a belief as to the truth thereof. — oe : Denies the allegations contained in the fourth sentence for: the reason that the statute referred to therein speaks for itself. = _. Denies the allegations contained in the fifth sentence. - a . - VIII. With respect to the allegations contained in paragraph VIII, the defendant answers as follows: Pr ee Denies the allegations contained in the first sentence for the. reason that the statute referred to therein speaks for itself. Admits the allegations contained in the second sentence. _* Denies the. allegations contained in the third and fourth ’ sentences. _ .. Denies the allegations contained in paragraph IX. - a : 2 x a : | With respect to the allegations contained in paragraph x, the defendant answers as follows: -. . . _ Denies the allegations contained in the first sentence for the _ reason that the defendant is presently without information or knowledge sufficient to form a belief as to the truth thereof. _ -Denies the allegations contained in the second sentence. iz ) . XL aaa With respect to the allegations contained in paragraph XI, the defendant answers as follows:. ) be = 4 . ' 82 . Denies the allegations.contained in the first sentence for the reason that the claim for refund referred to therein speaks for itself, except admits that on October 16, 1967, the plaintiff © filed a claim for refund of income taxes in the amount of $231, plus applicable interest; allegedly paid on April 7, 1966, for . its fiscal year ended June 30, 1961. - - Admits the allegations contained in the soccer = except denies each and every allegation contained in ef , . ; With respect to the allegations conthined in paragraph IV, the defendant answers asfollows: a ~ Denies the allegations contained in thé first:sentence for the - information or knowledge sufficient to form a belief as to the truth thereof. ! : | _ Denies the allegations contained in the second:sentence for © the reason that the adjustments referred to therein speak for” Ey . -Feason.that the statute referred to therein speaks for itself. _. . . .; Denies the allegations contained,in the second and third sen- “ . “* fences for-the reason that the defendant is ‘presently. without Denies the allegations contained. in the fourth sentence for > “Denies the allegations containedin the fifth sentence. With respect to the allegations contained in paragraph’ V, - the defendant answersasfollows: : Denies the allegations contained in the first sentence for the ' Yeason that the statute referred to therein. spedks for itself. Admits the allegations contained in the second sentence... _ Denies the allegations contained ‘inthe third and fourth sentences. UgSo a a eee | % “MI. Denies the allegations contained in paragraph VI. ° te ‘ @ he i VIL a A : the defendant answers asfollows: ne o, the reasorr that the statute referred to therein speaks for itself. a) e' eae With respect to the allegations contained in paragraph VII, ‘ t 86 - Denies the allegations contained in the first sentence for the reason that the defendant is presently without information or _ knowledge sufficient to form a belief as to the truth thereof. Denies the allegations contained: in the second sentence. \ _ Admits the allegations contained in the third sentence, except — | denies that the plaintiff is entitled to the refund claimed. ~ VITr. - x With respect to the slingaton contained i in paragraph VIII, ’ the defendant answers as follows: - Denies the allegations contained in the first sentence, except admits that on October 16, 1967, the plaintiff filed a claim -. *. for refund of income taxes in the amount of $41,422.10, plus \ _ applicable interest, allegedly paid on September 10, 1963. (with \ return), April 4, 1966, April 7; 1966, and July 18, 1967, for its | ie fiscal year ended June 30,,1963. ~ Admits the allegations Boateined 1 in the second sentence, ex- \\ cept denies each and every, allegation contained in the elaim for . “refund referred to therein unless specifically admitted herein. \ | IX. Admits the iewalnas contained i in hiregrisl IX. WHEREFORE, the defendant prays for ‘judgment in its . . . favor, for disinissal of the complaint with prejudice, for costs . ~ and such other and | further relief as this Court may deem just | | e VEIN TLE PON OT STEM PMS BITTY = I) BURG Boe Oy TEE and proper, My ™ /s/ Rosert E. HAUBERG Se ~,. United States Attorney . a oe * * a v7 In the United. States District Court. ee District _ yf . of ‘Mississippi, Western Division 3 : Civil Action No. 1213 MississrPrt CHEMICAL CORPORATION, PLAINTIFF : wv THE UniTtp STATES OF AmmRICA; DEFENDANT oe 7. ANSWER (Filed. Feb. 19 1968), Contes 1 now the defendant, the. United States. of America, cf its satforney, Robert E. . Hauberg, United States Attorney for the Southern District -of Mississippi, and-for its answer to the plaintiff's complaint herein, admits, denies and alleges as follows: oO + « ; Count I. For answer to Count I 53 the coiniplaint, the defendant Says: Admits the allegations contained in paragraph I. 1 : ‘Denies the allegations contained in paragraph II for the rea- - son that the complaint attacks the validity of a determination of an officer of the United States and, thus, pursuant to Rule 4(d) (4) of the Federal Rules of Civil ‘Procedure, a copy of the surhmons and of the complaint must be sent by registered © or certified mail to = officer. | Ill. Admits the allegations hata in “paragraph ITI,. except denies that the income taxes and interest sought to be re- covered by the plaintiff were rac oan or illegally aapeesed and wrongfully callgcted. IV... Denies the- allegations contained jx paragraph: IV for the — reason that the defendant is presently without information or ‘knowledge sufficient to form a bell as to the truth thereof. except admits that plaintiff is organized under the general cor- porate laws of the State of — i's (a) With vamp to the allegations contained in sandieas _ ‘ graph (a) of paragraph V, the defendant answers as follows: Admits the. allegations contained in the first’ sentence. . _ Denies the allegations contained in the second sentence for ~ the reason that the income tax return and the statute referred - to therein speak for themeelves. - / 88 Denies the allegations contained in the third sentence, except admits that on or about March 14, 1966, an Internal Revenue Agent’s report (dated January 10, ies) was submitted to the plaintiff. | , With veacek to the allegations contained in paragraph VI, ' the defendant answers as follows: - Denies the allegations contained in the first sentence for the reason that the statute referred to therein speaks for itself. Denies the allegations contained in the second and third sentences for the reason that the defendant is presently with- out information and knowledge sufficient to form a belief as to the truth thereof. — Denies the allegations sestainns in the fourth sentence for. the reason that the statute referred to therein speaks for itself. ‘Denies the allegations contained .in 1 the fifth sentence. VII. - With respect to the allegations sontnined? in | Paragraph Vil, the defendant answers as follows: Denies the allegations contained in the first. sentence for the | reason that the statute referred to therein speaks for itself. Admits the allegations contained inthe second sentence. Denies the allegations contained in the third and fourth — VII. - Denies the allegations contained in paragraph VIII. _ | Ix. With respect. to the allegations contained i in paragraph IX, the defendant answers as follows: Denies the allegations contained in the first-sentence for the reason. that the defendant is presently without inf ne tion or knowledge sufficient to form a belief as to the truth | thereof. Y _ Denies the dele contained i in the second sentence. x. With respect to the allegations contained in (a X, ‘the defendant answers asfollows: — - : , POAT Wray 80 Denies the allegatiohs confained in ‘the first sentence for the reason that the claim for refund referred to therein speaks for . itself, except admits that om October 13, 1967, the plaintiff filed 4 claim [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386413_0367%3A01. Public record. Not legal advice.