Opinion
No. 42617.
June 1, 1937.
M. Manning Marcus, of Washington, D.C., for plaintiff.
John W. Hussey, of Washington, D.C., and James W. Morris, Asst. Atty. Gen. (Robert N. Anderson and Fred K. Dyar, Sp. Assts. to the Atty. Gen., on the brief), for defendant.
Before BOOTH, Chief Justice, and GREEN, LITTLETON, WILLIAMS, and WHALEY, Judges.
Suit by the American Paper Goods Company against the United States.
Petition dismissed.
This suit was instituted to recover $12,046.43, with interest, alleged to have been illegally collected for 1920 by credit of an overpayment of income tax for 1918. After the suit was instituted the Commissioner of Internal Revenue refunded $2,912.32 on other grounds. The amount now sought to be recovered as an illegal collection for 1920 is therefore $9,134.11.
Plaintiff contends that, inasmuch as the Commissioner prior to the assessment and collection of the tax here in controversy for 1920 made a determination of a deficiency for 1920, which determination was taken by the taxpayer to the United States Board of Tax Appeals, and the decision of the Board with respect to the year 1920 became final under the statute prior to assessment and collection by credit of the further additional tax for 1920 involved in this suit, the amount so assessed and collected by credit was barred.
Special Findings of Fact.
1. Plaintiff, a New Jersey corporation, with its principal place of business in Kensington, Conn., duly filed consolidated income and profits tax returns for itself and two subsidiaries for the calendar years 1918, 1919, and 1920. Plaintiff owned all the stock of the two subsidiaries. All the tax shown due on the consolidated returns was duly paid by plaintiff.
Subsequent to certain events hereinafter enumerated, the plaintiff and its subsidiaries on July 16, 1928, filed an agreement, wherein it was specified that the total income and profits taxes computed upon the basis of the consolidated returns for 1918, 1919, and 1920, might be assessed against plaintiff and the corrected tax liability allocated to plaintiff.
The consolidated returns for 1918 and 1920 were filed June 13, 1919, and May 14, 1921, respectively.
2. March 30, 1926, the Commissioner of Internal Revenue mailed to plaintiff a sixty-day letter showing his determination of a deficiency of $1,113.39 for 1920. May 28, 1926, plaintiff filed a petition with the United States Board of Tax Appeals asking for a redetermination of the deficiency as determined by the Commissioner. After appropriate answer by the Commissioner the parties entered into a stipulation on the basis of which the Board, on December 21, 1927, entered its final order of redetermination to the effect that there was an overassessment of tax for 1920 of $1,898.27 instead of a deficiency as determined by the Commissioner. The overassessment having been found to be an overpayment, it was subsequently refunded or credited to plaintiff with interest, the certificate of overassessment on account thereof being issued February 27, 1928.
The six months' statutory period within which a motion for rehearing, or for vacation of the Board's order or a petition for review of its decision, might have been filed expired June 21, 1928. Neither during that period nor subsequent thereto was any such motion or petition filed with the Board by either party.
3. Prior to the determination by the Commissioner of the deficiency for 1920 and prior to the action of the Board thereon, the Commissioner duly assessed an additional tax of $34,272.06 against plaintiff for 1918 on his September, 1925, assessment list, and that amount was paid shortly thereafter by plaintiff. January 9, 1928, plaintiff filed claims for refund for 1918 and 1919 in the respective amounts of $26,253.82 and $3,832.02. One of the principal points raised by plaintiff in these claims is stated in one of the claims as follows: "The Commissioner has failed to deduct from claimant's income for the year 1919 the amount of $25,254.55, representing additional compensation paid to its officers during the year 1920, but applicable to the year 1919. Conversely the Commissioner did not disallow as a deduction from 1919 income a similar compensation of $23,775.00 paid during the year, but applicable to 1918, nor reflect the latter amount as a liability at January 1, 1919."
The claims were thereafter referred by the Commissioner to a revenue agent for examination and the revenue agent submitted a report dated April 13, 1928, showing overassessments for 1918 and 1919 in the respective amounts of $25,476.76 and $3,759.63. In submitting that report the revenue agent recommended the allowance of plaintiff's contention with respect to the deduction for compensation paid to its officers, as well as certain other contentions. At the same time the revenue agent submitted a report for 1920 which showed an additional tax for that year of $13,444.73. In that report the revenue agent recommended that adjustments on account of the additional compensation be made in 1920 in a manner corresponding to those made for 1918 and 1919, the following paragraph appearing in his report. "Reference is made to taxpayer's claims on the years 1918 and 1919 filed in connection with Revenue Agent's reports and Bureau letters dated June 30, 1925. Of the principal contentions of these claims is one on an item of accrued compensation. This accrual is adjusted on 1918 and 1919 net incomes, and is then treated correctly by the taxpayer for the year 1920, leaving the 1919 compensation as being deducted in 1920 and also the December 31, 1920 accrual as being deducted."
In addition the revenue agent referred to the fact that this report was being submitted after a decision by the Board of Tax Appeals for the same year. The contents of the reports were discussed with plaintiff's representative during the course of their preparation, and copies thereof were furnished plaintiff May 10, 1928.
No issue relating to a deduction for additional compensation had been raised in the petition to the Board of Tax Appeals for 1920 nor by the Commissioner in answer thereto. A request for a deduction on account of additional compensation was first made in the claims for refund for 1918 and 1919 which were filed January 9, 1928, but no reference was made therein to adjustments on that account for 1920.
4. At or about the time of completion of the revenue agent's report referred to in finding 3, namely, April 12, 1928, plaintiff executed a "Waiver of right to file a petition with the U.S. Board of Tax Appeals and acceptance of overassessment," which reads as follows:
"The undersigned taxpayer hereby waives the right to file a petition with the U.S. Board of Tax Appeals under section 274(a) of the Revenue Act of 1926 [ 44 Stat. 55] and consents to the assessment and collection of a deficiency in tax for the year 1920 aggregating $13,444.73 and accepts as correct the overassessment for the years 1918 and 1919 aggregating $29,236.39, as indicated in the statement from the Internal Revenue Agent in Charge at New Haven, Conn., dated Apr. 12, 1926.
"Note. — This waiver does not extend the statute of limitations for refund or assessment of tax, and is not an agreement as provided under section 1106 of the Revenue Act of 1926 [ 44 Stat. 113], but its execution and filing at the address shown in the accompanying letter will expedite the adjustment of your income tax liability as indicated above."
April 28, 1928, plaintiff filed a waiver of the statute of limitations (executed April 21, 1928) applicable to 1920 which reads as follows:
"In pursuance of the provisions of existing Internal Revenue Laws, The American Paper Goods Company, a taxpayer of Kensington, Conn., and the Commissioner of Internal Revenue hereby consent and agree as follows:
"That the amount of any income, excess-profits, or war-profits taxes due under any return made by or on behalf of the above-named taxpayer for the year 1920, under existing acts, or under prior revenue acts, may be assessed at any time on or before December 31, 1928, except that, if a notice of a deficiency in tax is sent to said taxpayer by registered mail on or before said date, then the time for making any assessment as aforesaid shall be extended beyond the said date by the number of days during which the Commissioner is prohibited from making an assessment and for sixty days thereafter."
5. In August, 1928, the Commissioner assessed the deficiency of $13,444.73 for 1920 as recommended by the revenue agent. In August or September, 1928, the Commissioner allowed the overassessments as recommended by the revenue agent of $25,476.76 and $3,759.63 for 1918 and 1919, respectively. About or during the same months, the determination having been made that the overassessments were overpayments, the Commissioner applied a sufficient amount of the overpayment for 1918, namely, $13,444.73 to satisfy the additional assessment in that amount for 1920. The balance of the overpayment for 1918, $12,432.03, and the overpayment for 1919, were thereafter duly refunded to plaintiff with interest.
6. October 2, 1928, the Commissioner delivered to plaintiff a certificate of overassessment showing the overassessment referred to above for 1918 in the amount of $25,476.76, and how it was being disposed of as shown in finding 5.
7. November 14, 1928, an additional overpayment of $1,398.30 was allowed for 1920 and thereafter the overpayment was refunded to plaintiff with interest. A certificate of overassessment showing the foregoing amount was duly delivered to plaintiff on or about December 17, 1928. This overpayment resulted from adjustments to invested capital on account of changes in income and income tax liability for prior years.
8. January 12, 1931, plaintiff wrote the Commissioner calling to his attention the fact that the order of the Board of Tax Appeals for 1920 (referred to in finding 2) had become final on June 21, 1928, and urging that the assessment of $13,444.73 (referred to in finding 5) which was made in August, 1928, after the Board's order had become final, was neither timely assessed nor collected. A paragraph in that letter reads as follows:
"The taxpayer and the Treasury Department alike seem not to have realized that assessment and/or collection of any additional tax for 1920 was barred in this case by section 274(f) of the Revenue Act of 1926 [ 44 Stat. 56], which reads as follows:
"`If after the enactment of this Act the Commissioner has mailed to the taxpayer notice of a deficiency as provided in subdivision (a), and the taxpayer files a petition with the Board within the time prescribed in such subdivision, the Commissioner shall have no right to determine any additional deficiency in respect of the same taxable year, except in the case of fraud, and except as provided in subdivision (e) of this section or in subdivision (c) of section 279. If the taxpayer is notified that, on account of a mathematical error appearing upon the face of the return, an amount of tax in excess of that shown upon the return is due, and that an assessment of the tax has been or will be made on the basis of what would have been the correct amount of tax but for the mathematical error, such notice shall not be considered, for the purposes of this subdivision or of subdivision (a) of this section, or of subdivision (d) of section 284, as a notice of a deficiency, and the taxpayer shall have no right to file a petition with the Board based on such notice, nor shall such assessment or collection be prohibited by the provisions of subdivision (a) of this section.'"
Plaintiff accordingly requested the refund of $12,046.43, that is, the amount of the August, 1928, assessment of $13,444.73 less $1,398.30, the overpayment allowed in November, 1928, and subsequently refunded to plaintiff.
May 28, 1931, the Commissioner replied to plaintiff's letter and, after setting out various events which had theretofore occurred in connection with the determination of the assessment of the additional tax for 1920, and the adjustment of the tax liability for 1918 and 1919, advised plaintiff in part as follows:
"In the report for the year 1920 it appears that the examining officer clearly indicated that the tax liability based on the decision of the Board of Tax Appeals was taken into consideration in determining the additional tax of $13,444.73. With knowledge of this fact, you signed an agreement waiving the right to file a petition with the Board of Tax Appeals and consenting to the immediate assessment of the deficiency for the year 1920, and accepted as correct the overassessments for the years 1918 and 1919. In addition you signed a waiver dated April 21, 1928, consenting to assessment of the additional tax for the year 1920 on or before December 31, 1928. * * *
"It is to be noted that the adjustment for the years 1918, 1919, and 1920, based on an accrual of salaries, resulted in a net refund of $17,189.96. It is also noted that at the time the revenue agent's reports were received in this office, the Bureau could have filed a motion for a rehearing before the Board of Tax Appeals for the year 1920 for the reason that the decision of that body did not become final until six months after December 21, 1927, in accordance with the provisions of sections 1001 and 1005 of the Revenue Act of 1926 [ 44 Stat. 109, 110]. * * *
"It is the position of the Bureau that when the case was forwarded to this office for consideration, the Commissioner of Internal Revenue could have claimed the additional tax in question at a rehearing before the Board of Tax Appeals in accordance with the provisions of section 274(e) [ 44 Stat. 56] supra.
"In order to avoid a circuity of action, the Bureau relied upon the agreement and the waiver signed by you with a full knowledge of the facts and circumstances in the case.
"In view of the foregoing, it is held that the net additional tax of $12,046.43 was legally assessed and collected, and you are advised that this office considers the matter closed."
9. August 22, 1931, plaintiff replied to the Commissioner's letter of May 28, 1931, requesting a reconsideration of the Commissioner's position. December 15, 1931, plaintiff filed a formal claim for refund of $12,046.43, and assigned the following basis therefor:
"Under date of December 21, 1927, the United States Board of Tax Appeals entered its final order of redetermination of the 1920 tax liability of the American Paper Goods Company, Docket No. 16523, which set forth liability of $152,940.42.
"The assessment and/or collection of any additional tax was barred in this case by section 274(f) of the Revenue Act of 1926 [ 44 Stat. 56] and section 272(f) of the Revenue Act of 1928 [ 26 U.S.C.A. § 272(f) and note], from and after June 21, 1928.
"It is requested that the barred deficiency of $13,444.73, less the amount subsequently refunded, $1,398.30, balance $12,046.43, be refunded.
"Section 322(c)(2), Revenue Act of 1928 [26 U.S.C.A. § 322(c) (2) and note], and section 284(d)(2) of the Revenue Act of 1926 [ 44 Stat. 67].
10. March 7, 1932, the Commissioner advised plaintiff that the claim for refund referred to in the preceding finding would be rejected on the next schedule to be approved by the Commissioner, and it was rejected on a schedule dated March 18, 1932.
11. August 7, 1932, plaintiff filed another claim for refund for 1920 in the amount of $11,109.94, such claim being based on alleged errors in determining income and invested capital. That claim was allowed by the Commissioner in April, 1933, to the extent of $2,912.32. A certificate of overassessment in that amount was thereafter duly delivered to plaintiff and the amount of the overpayment with interest was duly refunded to plaintiff.
Plaintiff bases its claimed right to recover $9,134.11, additional tax for 1920 assessed in August and collected in September, 1928, by credit of a portion of an overpayment allowed for 1918, on certain provisions of the Revenue Act of 1926 ( 44 Stat. 9) to the effect that the United States Board of Tax Appeals, in addition to the determination of the correctness of a deficiency asserted by the Commissioner, shall determine whether any additional amount or addition to the tax should be assessed if claim therefor is asserted by the Commissioner at or before a hearing, or a rehearing, before the Board; that if the Commissioner mails to a taxpayer a notice of a deficiency and a petition is filed with the Board, the Commissioner shall have no right to determine any additional deficiency in respect of the same taxable year, except in certain circumstances not material here; that the decision of the Board shall become final upon expiration of the time allowed for the filing of a petition for review (six months after the date of entry of the Board's decision) if no such petition for review has been filed; and that a jeopardy assessment may not be made after the decision of the Board has become final.
If this case were one falling within the provisions of the Revenue Act of 1926 just mentioned, the plaintiff would be entitled to maintain this suit and to recover the amount collected in excess of the tax for 1920 computed in accordance with the decision of the Board (section 284(d)(2) of the Revenue Act of 1926 [ 44 Stat. 67]). However, there is nothing in any of the statutory provisions relied upon by plaintiff which prohibits the Commissioner from assessing and collecting an additional tax for any year with respect to which the Board of Tax Appeals has made a determination, either before or after the decision of the Board has become final, when the taxpayer consents to the assessment and collection of such additional or second deficiency. This is such a case. In a decision entered December 21, 1927, the Board of Tax Appeals determined an overpayment of $1,898.27 for 1920 on the issues raised in the proceeding before the Board instituted May 28, 1926, as a result of a deficiency of $1,113,39 theretofore determined by the Commissioner for that year. Thereafter before the decision of the Board of Tax Appeals, which had been entered upon a stipulation of the amount of the overpayment, became final under the statute, an investigation with respect to plaintiff's correct tax liability for the years 1918, 1919, and 1920 was made in connection with the consideration of plaintiff's claims for refund for 1918 and 1919. As a result, an additional tax of $13,444.73 was found to be due for 1920. On April 12, 1928, about four months before the date on which the decision of the Board entered December 21, 1927, became final, plaintiff agreed to the correctness of the additional tax found to be due for 1920 and executed and delivered to the Commissioner a written consent to assessment and collection of this further deficiency of $13,444.73. By reason of this written consent of plaintiff to the assessment and collection of the additional tax, a portion of which is here sought to be recovered, it is clear that the Commissioner could legally assess and collect the same by credit or otherwise within the statutory period of limitation as extended by the waiver without making claim therefor before the Board of Tax Appeals in the proceeding instituted by plaintiff contesting the correctness of the first deficiency of $1,113.39 theretofore determined by the Commissioner for the same year. And the decision of the Board in the proceeding instituted May 28, 1926, with reference to the Commissioner's first determination of a deficiency for 1920 was not, in the circumstances, a bar to assessment and collection. There is nothing in the Revenue Act of 1926 or any subsequent revenue acts which prohibits a taxpayer from paying a tax for any year in excess of the amount computed in accordance with the decision of the Board with respect to such year, nor was it intended by any of the provisions of section 274, Revenue Act of 1926 ( 44 Stat. 55), that the Commissioner should be prohibited from assessing and collecting a tax for any year in excess of an amount computed in accordance with the final decision of the Board for such year where the taxpayer expressly consents to such assessment and collection. C.F. Horuff v. United States, 9 F. Supp. 1016, 80 Ct.Cl. 761.
For these reasons plaintiff is not entitled to recover and the petition is dismissed. It is so ordered.