Memphis & Charleston R. Co. v. United States
108 U.S. 228 (1883)

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U.S. Supreme Court

Memphis & Charleston R. Co. v. United States, 108 U.S. 228 (1883)

Memphis and Charleston Railroad Company v. United States

Decided April 2, 1883

108 U.S. 228

Syllabus

1. A railroad company whose railroad was in the military possession of the United States during the civil war, and whose rolling stock was in the possession of the company within the Confederate lines, and which earned or distributed dividends during the war by the use of its rolling stock, which dividends were paid in Confederate notes, is held liable to pay an income tax on the dividends so earned and paid.

2. A railroad company which, after the close of the civil war, with the consent of its stockholders, applied its surplus earnings to the restoration of its property and distributed to its stockholders bonds at a discount in lieu of money, with option, however, to take money, is held not liable to an income tax on the income so applied.

3. On the facts in this case, the Court finds no error in the instruction to the jury respecting the exclusion of evidence in regard to the understanding of the defendants below about an alleged compromise.

Suit to recover income tax. The principal facts appear in the opinion of the Court. The questions argued were:

1st. Whether the railroad company was liable for a tax upon its income during the war, earned from the use of its rolling stock within the Confederate lines, and divided, its road being at the time the dividends were earned in the military possession of the United States?

2d. Whether it was liable for an income tax on income earned after the war and applied to construction and repair of the road with consent of the stockholders, who received mortgage bonds at a discount for their dividends, having the option to receive cash?

3d. Whether a compromise effected between the parties was a bar to the suit, and whether the evidence of the understanding of that compromise by the company was improperly excluded at the trial? It appeared that the United States made claim against the company for 5 percent tax on coupons of

Page 108 U. S. 229

the company's mortgage bonds, amounting to $438,550. The tax amounted to $21,927.50. There was also a claim for a penalty and an assessed penalty, aggregating $25,940.25. The company offered $24,940.25, which was paid, and the following receipt taken:

"UNITED STATES INTERNAL REVENUE"

"COLLECTOR'S OFFICE, 8TH DISTRICT, TENN."

"Received of M. J. Wicks, president Memphis and Charleston Railroad Company, twelve thousand dollars, being balance due on twenty-four thousand thirty-eight and 25/100 dollars for penalty of neglect to make returns of interest on its bonds maturing from May, 1866, to July, 1869, aggree'bly to instructions from commissioner under date of August 27th, 1870, accepting proposition in compromise made to him by Memphis & Charleston Railroad Company."

"$12,000.00] R. F. PATTERSON, Collector"

Page 108 U. S. 231

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