The opinion of the court was delivered by: PORT
Memorandum-Decision and Order
EDMUND PORT, District Judge:
The plaintiffs, husband and wife, have brought this action against the defendant to recover income taxes in the total sum of $6,164.20 claimed to have been erroneously collected for the years 1954 through 1957 inclusive. The plaintiffs duly and timely filed joint income tax returns for the years in question showing total liability in the amount now claimed. Claims for refund were duly and timely filed; the claims for 1954 and 1955 were disallowed on or about January 1, 1960; more than six months passed between the date of filing of claims for refund for the years 1956 and 1957 without either allowance or disallowance; and the suit herein was instituted timely. The court has jurisdiction over the action.
The claims for refund are based upon an alleged net operating loss in the taxable year ended December 31, 1952, in an amount sufficient to wipe out the taxes for the years in question. The net operating loss was not cited in 1952 or on subsequent returns. It was first alleged when the claims for refund were filed, and was said to have resulted from a 1952 confiscation of the plaintiffs' interest in four parcels of realty in the city of Budapest by the Hungarian government.
It has been stipulated that any property interest owned by the plaintiffs on February 17, 1952, would have been confiscated by the Hungarian State on that date pursuant to the Hungarian Nationalization Decree of February 17, 1952 (Decree of Legal Force No. 4/1952 of the Praesidium of the Hungarian People's Republic on the Nationalization of Certain Real Property).
The defendant claims that the plaintiffs' interest had been confiscated as abandoned property on August 27, 1948, the effective date of Law No. XXVIII of 1948.
Both sides offered expert testimony concerning the relevant Hungarian Laws, Decrees, Land Records, and their construction and effect as they related to the plaintiffs' property. The plaintiffs owned fractional interests in the four properties ranging from 2 1/2% to 50%. All of the properties were commercial or rental apartments.
In view of the decision herein, it is not necessary to trace the manner in which plaintiffs acquired an interest in the properties.
Mr. and Mrs. Gulden left Hungary for Switzerland on December 9, 1944. They never returned. They immigrated to the United States from Switzerland in 1948 and respectively became naturalized citizens of the United States in 1953 and 1954.
The most pertinent decrees and Hungarian laws, the construction of which gave rise to this dispute, commence with decree No. 10490/1945. (This was a decree issued by the Hungarian government pursuant to authorization of the Provisional Diet which was in effect between the Nazi occupation of Hungary and the subsequent Communist takeover of the government.) The 1945 decree created a Commissioner of Abandoned Properties whose function, among others, was to establish whether particular property was to be regarded as abandoned, locate and preserve it, supervise the curators appointed for the owners of the abandoned property, manage abandoned real and personal property, put the abandoned property to use, aid persons who lost property as a consequence of war conditions, and adjudicate claims for reinstatement of persons claiming ownership of abandoned properties.
The purpose of this law was to conserve for the benefit of the true owners properties which were deemed abandoned under the law. Decree No. 10490/1945 defined "abandoned property" to include "all assets which as a consequence of the conditions of the war got out of the possession or control of their owner or lawful Possessor * * *," unless an ancestor, descendant or spouse of the owner remained in Hungary with a written power of disposition of the property. The 1945 decree prevented the alienation or encumbering of abandoned properties without the permission of the Commissioner.
The plaintiff Jules Gulden testified that their property was declared abandoned under the 1945 law. His testimony indicating abandonment of all of their property is buttressed by a decree made by the Commission for the Liquidation of Abandoned Assets on April 22, 1948, declaring them to be abandoned under the 1945 law.
After the 1945 decree the government moved steadily toward the nationalization of virtually all property. In pursuance of this policy the Hungarian Parliament enacted Law No. XXVIII of 1948 on the Settlement of the Problem of Abandoned Properties. The rights of the plaintiffs to an operating loss in 1952 largely depend upon a construction of this law.
Title to property regarded as abandoned under this law devolved to the State without compensation on August 27, 1948. If the property involved in this case was confiscated then, the plaintiffs did not sustain a loss in the calendar year of 1952 which could be carried ...