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United States v. McDonald & Eide Inc.

filed amended january 23 1989.: January 13, 1989.

UNITED STATES OF AMERICA, APPELLANT
v.
MCDONALD & EIDE, INC., FRANK A. GUNNIP, RECEIVER OF MCDONALD & EIDE, INC., AND FRANK A. GUNNIP, LIQUIDATING TRUSTEE FOR THE BENEFIT OF THE SHARE EQUIVALENT UNIT HOLDERS OF THE RECEIVERSHIP ESTATE OF MCDONALD & EIDE, INC., APPELLEES



On Appeal from the United States District Court for the District of Delaware, D.C. Civil Action No. 86-351.

Sloviter, Hutchinson, Circuit Judges, and Gerry, Chief District Judge*fn*

Author: Hutchinson

Opinion OF THE COURT

HUTCHINSON, Circuit Judge.

This case involves an attempt by the United States of America (government) to recover corporate income tax refunds it contends were erroneously issued for the years 1982 and 1983 to McDonald & Eide, Inc. (M&E). M&E's receiver, Frank Gunnip, counterclaimed, alleging he was entitled to a refund of corporate taxes paid for the years 1979-81 as well. Gunnip argued that M&E was not in existence for federal income tax purposes during the years in question. The United States District Court for the District of Delaware granted M&E's motion for summary judgment, denied the government's cross-motion, and awarded M&E refunds for taxes paid in 1979-81, as well as statutory interest. The government appeals.

We have appellate jurisdiction under 28 U.S.C.A. ยง 1291 (West Supp. 1988). The district court correctly found that M&E was not in existence for federal income tax purposes during the relevant period. Therefore, we will affirm.

I.

"[T]he parties do not dispute any material issues of fact." United States v. McDonald & Eide, Inc., 670 F. Supp. 1226, 1227 (D. Del. 1987). M&E was incorporated in 1953 under the laws of Delaware and engaged in the business of oil and gas exploration in Montana. In 1954, the company invested nearly all its capital in a single well which proved to be dry. In 1955, M&E ceased all business operations. Acting under state law, Delaware's governor revoked M&E's corporate charter in January 1958 for failure to pay franchise taxes. The shareholders were informed that the company had no assets and was defunct.

Between 1958 and 1961, title to all of M&E's assets, including part interests in various mineral rights and oil and gas leases, was transferred from the corporation to a group of former officers. In February 1965, ten years after M&E ceased all business operations and seven years after it lost its corporate charter, some former M&E shareholders filed a legal action in the Delaware Court of Chancery against the former corporate officers and directors for fraud, embezzlement, and misappropriation of corporate assets and sought the appointment of a receiver. Granting that request, the state court appointed Frank Gunnip.*fn1

As receiver, Gunnip brought two suits against former M&E officers and shareholders. In an action filed in Minnesota, he sought surrender of capital stock for which they had not paid valuable consideration. In another action filed in Montana, he sought recovery of misappropriated mineral rights and lease interests. Judgment for Gunnip was entered in the Montana action in 1970. The Minnesota case settled favorably to Gunnip and M&E in 1972.

The Montana mineral rights and lease interests Gunnip recovered at first seemed worthless. In 1979, however, they began producing royalties which were paid to Gunnip as receiver. Since then, Gunnip has sought to identify all former M&E shareholders entitled to a distributive share of these royalties.

Except for the Montana and Minnesota suits and his attempts to identify former shareholders entitled to royalty distributions, Gunnip's activities have been minimal. He did, however, institute suits in 1979 to determine the amount M&E was owed pursuant to a lease and in 1985 to quiet a leasehold interest title. All his activities have been conducted under the supervision of the Delaware Court of Chancery.

In January 1981, Gunnip requested a letter ruling from the Internal Revenue Service (IRS) whether he was required to file corporate income tax returns for M&E reporting the royalty income from the lease interests. The IRS ruled that M&E was still in existence for income tax purposes and therefore that Gunnip, as receiver, was required to file returns for M&E. Although he did so for the years 1979 to 1983, he paid the taxes due under protest, asserting that M&E was not then in existence. The government took no action on ...


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