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March 20, 1957

Harry DICKSTEIN, Plaintiff,
Joseph T. McDONALD, Defendant. Samuel DICKSTEIN, Plaintiff, v. Joseph T. McDONALD, Defendant

The opinion of the court was delivered by: WATSON

These actions were brought to recover refunds of income taxes which, plaintiffs allege, were collected from plaintiffs contrary to law for the years 1944, 1945 and 1946. The four cases were tried together by the Court without a jury.

From the stipulations of fact and the legal evidence, the Court makes the following

 Findings of Fact

 1. Plaintiffs Harry Dickstein and Samuel Dickstein are citizens of the United States of America and residents of the City of Scranton, Commonwealth of Pennsylvania, and were such in the years 1944, 1945 and 1946. Each plaintiff filed federal income tax returns for each of the above-mentioned years, upon the cash and calendar year basis, with defendant, who was the duly commissioned, qualified and acting United States Collector of Internal Revenue for the Twelfth (12th) Collection District of Pennsylvania with his offices in the City of Scranton, Pennsylvania, and was such at the time these suits were instituted.

 2. In 1913, plaintiff Samuel Dickstein organized a business of manufacturing pants and overalls under the name of Anthracite Overall Manufacturing Co. in the City of Scranton, Pennsylvania. In 1916, plaintiff Harry Dickstein was admitted as a partner; in 1920, Joseph M. Harris was admitted as a partner and, in 1941, Herbert Dickstein, a son of plaintiff Harry Dickstein, was admitted as a partner.

 3. In 1924 plaintiffs and Joseph M. Harris formed a partnership with Theodore Koppelman to manufacture pants and trousers under the firm name of Lackawanna Pants Manufacturing Company, in which plaintiffs and Joseph M. Harris had a two-thirds (2/3) capital interest and Theodore Koppelman had a one-third (1/3) capital interest.

 4. On January 3, 1927, plaintiffs entered into a new written agreement of partnership with Joseph M. Harris and Theodore Koppelman for the business of Lackawanna Pants Manufacturing Company. Under this agreement, each plaintiff owned a capital interest in the business equal to sixteen and two-thirds (16 2/3) per cent of the total.

 5. Theodore Koppelman was the only partner who devoted his full-time services to the business and only he received a salary in addition to the return on his capital investment in the business.

 6. The practice among the partners was to allow portions of the profits, derived from the operation of the business, to remain in the partnership to provide capital needed for the development of the company.

 7. In 1942 Koppelman and plaintiffs discussed a plan under which trusts would be established for the benefit of various members of their families.

 8. Koppelman and plaintiffs agreed to the creation of the trusts and, after discussing the plan with Joseph M. Harris, agreed with Harris' suggestion that members of their families, rather than an outside institution, act as trustees.

 9. On March 20, 1942, as of February 2, 1942, each plaintiff, as a grantor, executed certain trust indentures. Each agreement established separate trust funds for the beneficiaries and trustees were also designated in the indentures. Under the trust indentures executed by plaintiff Harry Dickstein, he and Eva Dickstein, his wife, were named as trustees. Eva Dickstein was also a beneficiary as were Herbert L. Dickstein, a son, Miriam Raker, a married daughter, and Shirley E. Dickstein, a daughter. Plaintiff Samuel Dickstein and Howard Dickstein, his son, were co-trustees of the trusts established by Samuel Dickstein. Howard was also a beneficiary with George and Stanley Dickstein, his brothers. Each grantor assigned to the trusts a share of his capital interest in the Lackawanna Pants Manufacturing Company in the amount of $ 52,000, which sum was to be divided equally among the various beneficiaries.

 10. The trustees were obligated, under the terms contained in the indentures, to manage the trust property without in any way limiting the rights and privileges of the general partners to operate and conduct the business as they had done theretofore.

 11. The trustees were vested with almost complete discretion in the administration of the trust estates. They had the power to continue to hold the trust estates in the partnership; to sell or to dispose of the trust estates; to join in and become a party to any reorganization, consolidation or capital readjustment of any firm or corporation in which the trust funds were invested, or to participate in any protective plan or agreement for the trust estates; and they had the power to do any and all things necessary, in the exercise of their duties as trustees, for the proper management of the trusts.

 12. The trust agreements prescribed the method of distribution of the income of the trusts to the beneficiaries and the trustees were permitted, in their discretion, to pay to the beneficiaries such sums as they should determine out of the corpus of each trust estate.

 13. The purpose which motivated the creation of the trusts was a desire, on the part of the grantors, to establish independent estates for the designated beneficiaries and to provide for their financial security.

 14. In order to aid the development of the business, the partners had allowed a portion of the profits each year to remain in the partnership. To ensure against a change of this policy, the trust agreements provided that the trustees could not demand the distribution of all profits.

 15. On March 20, 1943, new written agreements of partnership were entered into by the partners. The new agreement reduced to writing the oral agreement of February 2, 1942.

 16. The new partnership consisted of plaintiffs, Koppelman and Harris, individually, and Harry Dickstein and his wife Eva as co-trustees for the benefit of Eva, Herbert and Shirley Dickstein and Miriam Raker, and Samuel Dickstein and Howard Dickstein as cotrustees for the benefit of Howard, George and Stanley Dickstein. Koppelman was to devote his full time to the operation of the business. The management of the business was specifically restricted to plaintiffs. Harris and Koppelman, individually and not as trustees. 17. The percentage interests of the plaintiffs and of the trusts established by them under the terms of the new partnership agreement were as follows: Samuel Dickstein 2-3/ 9% Howard Dickstein Trust 4-7/ 9% George Dickstein Trust 4-7/ 9% Stanley Dickstein Trust 4-7/ 9% Harry Dickstein 2-4/12% Eva Dickstein Trust 3-7/12% Herbert Dickstein Trust 3-7/12% Miriam Raker Trust 3-7/12% Shirley Dickstein Trust 3-7/12%


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