Opinion
No. 42909.
May 29, 1939.
Frederick L. Pearce, of Washington, D.C. (Morris, KixMiller Baar, of Washington, D.C., on the brief), for plaintiffs.
Daniel F. Hickey, of Washington, D.C., and James W. Morris, Asst. Atty. Gen. (Robert N. Anderson and Fred K. Dyar, on the brief), for the United States.
Before BOOTH, Chief Justice, and GREEN, LITTLETON, WILLIAMS, and WHALEY, Judges.
Proceeding by the Blue Jay Lumber Company and another against the United States to recover overpayment of income taxes for 1922.
Judgment for plaintiffs.
The Blue Jay Lumber Company overpaid its income tax for 1922 in the amount of $6,628.65, and interest of $26.28, of which amount $3,315.74 was credited January 26, 1929, against the tax of that company for 1920 and the balance of the overpayment of $3,312.91 and interest of $26.28 has not been refunded or credited. The return of this balance of the overpayment was denied to the Blue Jay Lumber Company on the erroneous ground that the refund thereof was barred by the statute of limitation for the asserted reason that a timely claim for refund had not been filed by the Del Rio Lumber Company in whose name the tax had been erroneously assessed.
Special Findings of Fact
1. The Blue Jay Lumber Company, hereinafter referred to as "Blue Jay," is a West Virginia corporation with principal office at Blue Jay, and the Del Rio Lumber Company, hereinafter referred to as "Del Rio," is a West Virginia corporation with principal office at Greensburg, Pennsylvania.
Blue Jay filed a tentative consolidated income tax return for 1922 with the collector at Parkersburg, West Virginia, on March 15, 1923, and at the same time delivered to the collector its check for $1,562.50, being one-fourth of the estimated tax shown on the tentative return. This tentative return included the income or losses of plaintiffs and three other affiliated corporations known as Lynwin Coal Company, Boswell Lumber Company, and Raleigh Pocahontas Railroad Company. This return showed Blue Jay as the parent corporation. The business of all the corporations prior to and during the taxable year 1922 was that of lumbering and coal mining. Under an extension of time properly secured, Blue Jay filed a final consolidated return for 1922 for itself and affiliated corporations with the collector on June 15, 1923, showing a total tax of $6,628.65. With the return Blue Jay delivered to the collector its check for $1,751.83, of which $1,750.41 was applied by the collector as payment on the tax disclosed by the return and $1.42 was applied as interest on such portion of the first installment of tax for 1922 as was then found by him to have been unpaid since March 15. At or before the time of filing the final return on June 15, 1923, an information return on Form 1122 designating Blue Jay as parent company of the consolidated group was filed for each of the affiliated corporations with the collector within whose district the principal office of each affiliated corporation was located. The information return for Del Rio was filed with the collector at Pittsburgh, Pa. These returns were all sent by the collectors to the Commissioner.
In preparing the final consolidated return for 1922, the name of Del Rio was inadvertently typed above that of Blue Jay on the list of names of the affiliated corporations appearing at the top of page 1 of the final consolidated return executed by Blue Jay.
2. Upon the filing of this return by Blue Jay and the payment of tax by it, the collector at Parkersburg prepared an erroneous assessment list of the tax shown on the final consolidated return for 1922 in the amount of $6,628.65 in the name of "Del Rio Lumber Company and Subsidiaries, Blue Jay, W. Va." This was a careless mistake. The collector knew, first, that Del Rio was not located at Blue Jay, W. Va.; that the return showed that it had no net income; that the return had been executed by Blue Jay; and, second, that the return had been filed and the tax paid by Blue Jay. Thereafter the Commissioner signed this erroneous assessment list. But such erroneous list did not thereafter preclude the collector and the Commissioner from applying the payments made by Blue Jay on its tax nor from refunding to Blue Jay any overpayment made by it, since an assessment is not necessary to a valid collection, refund, or credit. The tax paid by Blue Jay was credited to it at the time paid, but later transferred to the erroneous assessment list, and an overpayment subsequently determined by the Commissioner was credited January 26, 1929, to a tax due by Blue Jay for 1920. But the refund of an overpayment subsequently determined in September, 1929 by the Commissioner to have been made for 1922 by Blue Jay was erroneously and illegally refused under a refund claim timely filed by Blue Jay, and first rejected because the tax paid by Blue Jay had been assessed in the name of Del Rio. This claim had been reopened in January, 1929.
None of the net income shown on the consolidated return was earned by Del Rio; this company had a net loss for 1922 which was stated in the return and no tax was paid by Del Rio for 1922. After the Commissioner had signed the erroneous assessment list in the name of Del Rio and returned it to the collector, the latter proceeded to credit the total tax of $6,628.65 and interest of $26.28 paid by Blue Jay in the amounts of $1,562.50 on March 15, 1923, and $1,751.83 on June 15, 1923, and $3,340.60 on December 24, 1923, to the assessment list so signed by the Commissioner for 1922 in the name of Del Rio.
3. The Commissioner made a preliminary audit March 14, 1927, of the consolidated return for 1922 filed by Blue Jay and wrote a letter to Blue Jay advising it of an overassessment of $3,805.91 and stating that "This overassessment, however, is tentative and is subject to revision upon final audit of your case." In this letter the Commissioner advised Blue Jay of the statute of limitation with reference to refunds and credits, and suggested the filing, by Blue Jay, of a claim for refund. On April 13, 1927, Blue Jay, as the parent corporation of the affiliated group, filed a claim for refund on the basis of the Commissioner's letter for $3,805.91, or such greater amount as might be legally refundable for 1922. The record does not specifically disclose the details of the Commissioner's preliminary audit on the basis of which he determined the proposed overassessment of $3,805.91, but the letter which he mailed to Blue Jay on March 14 was attached to the claim filed by that company. The Commissioner thereafter proceeded with his audit of the tax liability or losses of plaintiff and its affiliated groups and on July 1, 1927, the Commissioner, although the Bureau of Internal Revenue then knew that plaintiff was the parent corporation of the affiliated group, perpetuated the error previously made of listing for assessment the tax due and paid by Blue Jay as the parent corporation of the affiliated group for 1922 in the name of Del Rio and advised Blue Jay in a letter addressed to it, of that date, as follows:
"Your claim for refund of $3,805.91, income tax for 1922, has been examined. The claim is based on Bureau letter dated March 14, 1927, directing your attention to an apparent overassessment for the consolidated group of which your company was designated the parent or principal company. It is found, however, that the assessment was made against the Del Rio Lumber Company and subsidiaries and the overassessment will be made the subject of a certificate of overassessment addressed to that company. The claim will, therefore, be rejected. The rejection of this claim will officially appear on the next schedule to be approved by the Commissioner." [Italics ours.]
This letter was the first information received by plaintiffs that the tax due and paid by Blue Jay had been assessed in the name of "Del Rio Lumber Company and Subsidiaries." Thereafter the claim of April 13, 1927, was listed on rejection schedule 9832 signed by the Commissioner July 14, 1927.
4. Thereafter on October 4, 1927, the Commissioner determined an overassessment of $3,315.74 and prepared and signed a schedule of overassessment and prepared a certificate of overassessment in the name of "Del Rio Lumber Company and Subsidiaries, % Blue Jay Lumber Co., Parkersburg, W. Va.", in the amount of $3,314.32, which was sent to the collector at Parkersburg, W. Va., for action by that official in accordance with instructions upon the schedule. On December 13, 1927, the Commissioner discovered that the amount of $1.42 also paid by Blue Jay had not been included in the overassessment schedule signed October 4, 1927, and, on that date, prepared and signed another overassessment schedule and another certificate of overassessment in the name of Del Rio for that amount. These overassessments were scheduled under the provisions of section 284(a), (b)(1) and (2), of the Revenue Act of 1926, 44 Stat. 66, after a preliminary audit of the tax liability of Blue Jay and subsidiaries for 1922.
5. In July, 1927, Blue Jay and its affiliated corporations changed tax counsel. The successor counsel and attorney in fact was not informed until 1931 of the refund claim filed by Blue Jay April 13, 1927. In the meantime, on November 3, 1927, under his direction, a claim for refund, exhibit H, which is made a part hereof by reference, was prepared and filed for Blue Jay and the affiliated corporations for 1922 for refund of $6,877.23, being the total tax and interest paid for that year by Blue Jay.
Before any refund or credit, as hereinafter mentioned, had been made with respect to the above-mentioned overassessments for 1922, the Commissioner's office proceeded with a further audit and investigation of the tax liability of Blue Jay and its affiliated corporations for 1922 and on December 22, 1928, wrote a letter addressed to Blue Jay and its affiliated corporations and mailed the same to Blue Jay advising it of a further overpayment of $658.12 for 1922 but stating that refund thereof was barred for the asserted reason that the claim of November 3, 1927, for $6,877.23 was filed more than four years after the payment of the first two installments of the tax for 1922 and that, inasmuch as the last two installments of $3,315.74 paid December 24, 1923, had previously been scheduled as an overassessment the claim of November 3, 1927, would be rejected. It was rejected on a schedule signed January 18, 1929. At that time Blue Jay's refund claim of April 13, 1927, had not been reopened.
6. At the time the above-mentioned letter of December 22, 1928, was written and mailed to Blue Jay, no part of the tax paid by it for 1922 had been refunded or credited although the overassessments hereinbefore mentioned, totalling $3,315.74, the amount of tax paid by Blue Jay on December 24, 1923, had been scheduled in the name of Del Rio. After such overassessment schedules and certificates of overassessment had been returned by the collector, but before refund checks drawn in the name of Del Rio had been mailed or delivered to Del Rio, the collector and the Commissioner discovered that Blue Jay owed an additional tax for 1920. Thereupon the checks for the $3,315.74 were returned to the Commissioner's office by the collector and the same were canceled by the Treasurer and the amounts thereof were covered into the appropriation out of which they had been drawn. Thereafter the schedules of overassessment and the certificates of overassessment theretofore, in October and December, 1927, prepared in the name of Del Rio were canceled and the overpayment was re-listed on supplemental schedules bearing the original schedule numbers, which new schedules and allowance for $3,314.32 and $1.42 were signed by the Commissioner January 26 and February 8, 1929, respectively, and mailed to the collector with instructions to credit the total of $3,315.74 shown thereon, against the additional tax due by Blue Jay for 1920. The collector did so and on January 30 and February 12, 1929, respectively, returned the new schedules to the Bureau of Internal Revenue. No interest was allowed or paid upon any portion of the total amount of $3,315.74 so allowed by the Commissioner as a credit on January 26 and February 8, 1929. No part of the amount of $3,312.91, tax paid for 1922 by Blue Jay on March 15 and June 15, 1923, has ever been refunded or credited to Blue Jay or any of the affiliated corporations.
7. On September 28, 1929, the Commissioner made a complete audit and determination of the returns and the tax liability of the Blue Jay Lumber Company and its affiliated corporations for the years 1921, 1922, and 1923. This was a detailed audit showing in various schedules the income and the tax liability of Blue Jay as the parent corporation and of its affiliated corporations. Preceding the various detailed schedules, this audit and determination stated in part as follows: "The bases of this audit are returns filed, revenue agents' reports on the Blue Jay Lumber Company and Lynwin Coal Company and information on file in this office. In the determination of the correct tax liability due consideration has been given the statements set forth in your claims for refund of $6,877.23 plus for the year 1922, filed November 3, 1927, and for the refund of $10,070.20 plus for the year 1923, filed November 3, 1927." In this audit and determination the Commissioner gave consideration and made a final determination and tax computation for 1922 for which year no tax liability was disclosed, but, instead, an overassessment of the total tax of $6,628.65; of this amount of overassessment the refund of $3,312.91 tax was shown in Schedule 14-A as being barred by the statute of limitation on the ground that no claim was filed within four years after payment of the tax. The statement of the account with reference to the tax liability of Blue Jay and its affiliated corporations and the total tax paid by Blue Jay for 1922 was stated in Schedules 14 and 14-A of this audit and determination for 1922, as follows:
Blue Jay Lumber Company, year ended December 31, 1922
SCHEDULE 14 — CONSOLIDATED NET INCOME
Blue Jay Lumber Company (Schedule 8).... $48,672.95 Lynwin Coal Company (Schedule 10) ...... 5,411.47 __________ Total income ......................... 54,084.42 Losses: Boswell Lumber Company (Schedule 12) ............. $5,466.20 Del Rio Lumber Company (Schedule 13) ............. 2,769.68 _________ Total losses ...................... 8,235.88 __________ Consolidated net operating income ...... 45,848.54 Loss 1921, Schedule 7 .................. 127,293.06 __________ Unabsorbed loss of 1921 ................ 81,444.52 Taxable net income ..................... None
SCHEDULE 14A — COMPUTATION OF TAX
Taxable net income (Schedule 14) ........ None Correct tax ............................. None Tax previously assessed: June 40155 ........................... $ 6,628.65 __________ Overassessment .......................... 6,628.65 Previously allowed: September 24, 1927 ........ $3,314.32 December 5, 1927 .......... 1.42 _________ 3,315.74 __________ Net overassessment ...................... 3,312.91 Barred by Statute of Limitations. Claim not filed within four years after payment of the tax.
The audit and determination of the Commissioner for the years 1921, 1922, and 1923, including the statement of the tax account of Blue Jay for 1922, as above, was mailed by the Commissioner to and received by Blue Jay, through its counsel and attorney in fact, September 28, 1929. This suit was instituted within six years thereafter.
The statement following the above-mentioned statement of account for 1922 that the overpayment of $3,312.91 was barred by the statute of limitation because no claim had been filed within four years after payment was, in part, erroneous. As a matter of fact and law, the decisions and actions of the Commissioner on January 26 and February 8, 1929, in recalling and canceling the schedules of overassessments in the name of Del Rio of an overpayment of $3,315.74 for 1922 and the issuance of new schedules therefor on those dates and the crediting of that amount to the tax of Blue Jay for 1920 constituted a reopening and reconsideration by the Commissioner of the refund claims theretofore filed by Blue Jay for 1922 on April 13 and November 3, 1927.
8. Subsequent to the rendition and delivery to plaintiff of the statement of account with respect to the tax liability for 1922, as set forth in finding 7, plaintiff's counsel wrote the Commissioner certain letters acquiescing in and accepting the account stated on September 28, 1929, and requesting him to refund the overpayment of $3,312.91 and interest of $26.28 under the claims for refund theretofore filed and also filed a petition for reconsideration of the action in holding that the refund could not be made because of the statute of limitation, which request the Commissioner refused on September 25, 1931, January 31, 1933, and on November 2, 1934.
The controlling facts in this case are simple, but a detailed explanation of all that occurred between the Commissioner of Internal Revenue and the Blue Jay Lumber Company is somewhat confusing by reason of the fact that the Commissioner in June, 1923, erroneously assessed the tax due and paid by Blue Jay in the name of a subsidiary corporation known as the Del Rio Lumber Company, which had no taxable income and paid no tax for 1922.
The pertinent facts are that on March 15, 1923, Blue Jay, the parent corporation of an affiliated group, filed a tentative consolidated return for 1922, at which time it paid an estimated first installment of tax of $1,562.50. The Del Rio Company, one of the plaintiffs herein, and three other affiliated corporations were included in this return as subsidiaries of Blue Jay. Under an extension of time duly obtained, Blue Jay Lumber Company on June 15, 1923, filed a complete and final consolidated return for 1922 showing a total tax of $6,628.65 and, on that date, Blue Jay, by its check, paid the collector $1,750.42, plus interest of $1.42 on a portion of the amount of the first installment which had not been paid on March 15, 1923. The balance of $3,315.74, plus interest of $24.86 overdue on the third and fourth installments, was paid by Blue Jay December 24, 1923. Inadvertently the name of Del Rio was entered on the final consolidated return ahead of the name of Blue Jay, the parent corporation. Although the collector knew that Blue Jay was the parent corporation and that it had paid the total tax, he prepared an erroneous assessment list which he sent to the Commissioner listing the entire tax due and paid by Blue Jay in the name of Del Rio, a subsidiary, which had a loss rather than a net income and had paid no tax. This assessment list erroneously prepared by the collector in the name of Del Rio was thereafter signed by the Commissioner. But the Bureau of Internal Revenue knew, as shown by the letter of March 14, 1927, that Blue Jay was the parent corporation.
April 13, 1927, Blue Jay, which had paid the tax, filed a claim for refund on the ground indicated in a letter from the Commissioner of Internal Revenue showing an overassessment of $3,805.91 for 1922. The claim so filed on the basis of the Commissioner's letter of March 14, 1927, was for $3,805.91 and "such greater amount as might be legally refundable." Thereafter, on July 1, 1927, the Commissioner, by the assistant to the Commissioner, notwithstanding the fact that Blue Jay had paid the tax and that it was then known to be the parent corporation of the consolidated group, rejected this claim filed by Blue Jay on the erroneous ground that, the assessment having been made in the name of Del Rio, the overassessment and refund would have to be made to Del Rio; this, of course, was not correct, since Del Rio was not a taxpayer and had paid no tax. But the Commissioner's office proceeded, and on October 4, 1927, it prepared and sent to the collector a schedule of overassessment for 1922 in the amount of $3,315.74 in the name of Del Rio. On November 3, 1927, Blue Jay filed a second claim for refund for 1922 for $6,877.23, the total tax and interest paid, on the ground that losses for 1921 exceeded the net income for 1922. In the meantime the Commissioner had transmitted to the collector the schedule of overassessment in the name of Del Rio for $3,315.74 of the tax due and paid by Blue Jay for 1922. The collector appears to have returned the schedule showing the overassessment as an overpayment. About December 22, 1928, before a refund check for $3,315.74 and a certificate of overassessment prepared in the name of Del Rio were delivered, the collector and the Commissioner discovered that the Blue Jay Lumber Company, who had paid the entire tax of $6,628.65 and interest of $26.28 for 1922, owed an additional tax for 1920. Thereupon, the collector returned the Treasury check to the Commissioner and the amount thereof was returned to the Treasurer and covered into the appropriation in the Treasury out of which it had been drawn. Thereafter, on January 26 and February 8, 1929, the overpayment theretofore scheduled to Del Rio was relisted on a supplemental schedule to the collector and credited, by that official under instructions, to the outstanding unpaid tax of Blue Jay for 1920. The collector on January 30 and February 12, 1929, returned to the Commissioner his certificates that he had credited such overpayment for 1922 against the tax of Blue Jay for 1920. By this action the Commissioner in fact and in law reopened and reconsidered the claim for refund filed by Blue Jay on April 13, 1927, and the credit of the overpayment against the tax of the Blue Jay Lumber Company for 1920 at that time was made and authorized for the reason that Blue Jay was the taxpayer, had actually paid the tax for 1922, and had filed a timely refund claim. The credit of the $3,315.74 of the tax overpaid by Blue Jay for 1922 against the tax due by that company for 1920 was made more than five years after the amount had been paid, and the only authority by which the Commissioner could make the credit was to reopen the refund claim theretofore filed by Blue Jay on April 13, 1927. This reopening also rendered effective the second claim filed by that company on November 3, 1927. This action of January 26, 1929, also operated to reverse and vacate the previous conclusion of the Commissioner in his letter of December 22, 1928, finding 5, and his rejection on January 18, 1929, pursuant to that letter, of the refund claim of November 3, 1927.
In his audit and determination thereafter made on September 28, 1929, which was mailed to and received by Blue Jay through its attorney in fact, the Commissioner rendered an account stated with respect to the tax of Blue Jay for 1922 showing a balance of tax due, against which there were no offsets or credits, of $3,312.91. On January 26, 1929, prior to the determination and rendition of this statement of account to plaintiff, the claim for refund previously filed by Blue Jay had been reopened by the Commissioner and was still open at the time the account was stated and rendered on September 28, 1929. This suit was instituted within six years thereafter. But plaintiff can recover only $1,776.69 of the total balance shown to be due by the statement of account for the reason that the remainder of the balance shown due was paid on March 15, 1923, more than four years prior to the filing of the claim for refund on April 13, 1927. Plaintiff is therefore entitled to recover. Toland v. Sprague, 12 Pet. 300, 335, 9 L.Ed. 1093; Shipley Construction Supply Co. v. United States, 7 F. Supp. 492, 79 Ct.Cl. 736-743; Goodenough v. United States, 19 F. Supp. 254, 85 Ct.Cl. 258; Clifton Mfg. Co. v. United States, 19 F. Supp. 723, 85 Ct.Cl. 525.
Judgment will be entered in favor of plaintiff, the Blue Jay Lumber Company, for $1,776.69 with interest as provided by law. It is so ordered.