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EBERLE TANNING CO. v. UNITED STATES

May 19, 1972

EBERLE TANNING COMPANY, Plaintiff,
v.
The UNITED STATES of America, Defendant


Herman, District Judge.


The opinion of the court was delivered by: HERMAN

HERMAN, District Judge.

 The matter before the court is the defendant's "Motion for Judgment Notwithstanding the Verdict and a New Trial, or in the Alternative for a New Trial on all Issues." The motion will be denied.

 Plaintiff, Eberle Tanning Company, paid under protest an accumulated earnings tax for the fiscal years ending on October 31st 1964 and October 31st, 1965, in the amounts of $120,656.93 and $80,915.48, respectively and then sought in this suit a refund of the tax so paid, plus interest. The applicable provisions of the Internal Revenue Code of 1954 are Sections 531, 532, 533 and 537 which provide, in pertinent part:

 
Section 531: "In addition to other taxes imposed by this chapter there is hereby imposed for each taxable year on the accumulated taxable income (as defined in section 535) of every corporation described in section 532, an accumulated earnings tax equal . . . "
 
Section 532: "The accumulated earnings tax imposed by section 531 shall apply to every corporation . . . formed or availed of for the purpose of avoiding the income tax with respect to its shareholders or the shareholders of any other corporation, by permitting earnings and profits to accumulate instead of being divided or distributed."
 
Section 533: "[The] fact that the earnings and profits of a corporation are permitted to accumulate beyond the reasonable needs of the business shall be determinative of the purpose to avoid the income tax with respect to shareholders, unless the corporation by the preponderance of the evidence shall prove to the contrary."
 
Section 537: "For purposes of this part, the term 'reasonable needs of the business' includes the reasonably anticipated needs of the business."

 The case was tried before a jury and by agreement of counsel the amount of the verdict if favorable to the plaintiff would be agreed upon, and the jury was asked to return a general verdict by answering the following questions:

 
1. Did the plaintiff, Eberle Tanning Company, permit its earnings and profits to accumulate beyond the reasonable present and future needs of the business?
 
(a) During 1964, yes , no .
 
(b) During 1965, yes , no .
 
(Answer the above questions for each year by placing an "X" after the word "yes" or "no" for each of the two years.)
 
2. If your answer to either part of question 1 above is "yes" then with respect to such year or years only, answer the following question either "yes" or "no" by placing an "X" after the appropriate word: Was one of the purposes for the accumulation the avoiding of income tax upon the shareholders of the plaintiff corporation?
 
(a) During 1964, yes , no .
 
(b) During 1965, yes , no .

 The jury answered 1 (a) "no" and 1 (b) "no" and then, of course, did not answer "2".

 In its motion now before the court the defendant complains only that the court should not have given plaintiff's suggested instruction No. 12 *fn1" to the jury, and should have given defendant's suggested instruction ...


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