Opinion
No. 42585.
May 29, 1939.
Clarence F. Rothenburg, of Washington, D.C. (Charles D. Hamel, John Enrietto, and Hamel, Park Saunders, all of Washington, D.C., on the brief), for plaintiff.
J.H. Sheppard, of Washington, D.C., and James W. Morris, Asst. Atty. Gen. (Robert N. Anderson and Fred K. Dyar, both of Washington, D.C., on the brief), for the United States.
Before BOOTH, Chief Justice, and GREEN, LITTLETON, WILLIAMS, and WHALEY, Judges.
Action by Bohemian Breweries, Incorporated, formerly Inland Products Company, against the United States to recover alleged overpayment of income and profit taxes.
Judgment for defendant.
Plaintiff seeks to recover alleged overpayments of income and profits taxes of $5,017.63 for 1919, and $1,159.50 for 1920, totalling $6,177.13, with interest on the first-mentioned amount from August 27, 1929, and on the second amount from August 28, 1929.
Special Findings of Fact.
1. Plaintiff is a corporation of the State of Washington. It was originally organized under the name of Inland Products Company, but in 1933 its name was changed by appropriate amendment to Bohemian Breweries, Inc. During 1919 and 1920 the Inland Products Company was engaged in the manufacture and sale, among other products, of sweet apple cider.
2. March 15, 1920, the company filed its income and profits tax return for 1919 with the collector for the District of Washington, at Tacoma, Washington, in which it disclosed a tax of $8,699.25, which was paid to the collector in installments of $2,174.81 each on March 15, June 17, and September 18, 1920, and of $2,174.82 on December 18, 1920.
3. March 15, 1921, the company filed its income and profits tax return for 1920 with the collector at Tacoma, Washington, disclosing a tax of $614.01, which was paid in the amounts of $153.51 on March 15, 1921, and of $153.50 each on June 15, September 15, and December 15, 1921.
4. During 1919 and 1920 the Inland Products Company paid to the collector for the District of Washington excise taxes upon the manufacture and sale of sweet apple cider in the respective amounts of $14,841.12 and $9,604.79. These payments were made voluntarily without protest, without separate notice and demand, threat, or duress by the collector.
5. In its income and profits tax returns for 1919 and 1920 the company deducted from its gross income the excise taxes paid during those years on the manufacture and sale of sweet apple cider, as aforesaid. Subsequently, in 1923, it was decided by the courts that the revenue acts involved did not impose a tax upon the manufacture and sale of sweet apple cider. Monroe Cider Vinegar Fruit Company v. Riordan, 2 Cir., 280 F. 624; Casey v. Sterling Cider Co., 1 Cir., 294 F. 426.
6. December 31, 1923, plaintiff set up an account as part of its general ledger accounts entitled "Tax Refund Due," to which it charged $24,826.73, estimated to cover the cider-tax refund due to it, less 15% commission, and credited an account set up and entitled "Undivided Profit" with the amount of $24,826.73.
7. The latter account, "Undivided Profit," was then closed into the profit and loss account of plaintiff for 1923. The plaintiff sustained an operating loss, per books, of $13,370.73 for the calender year 1923 after including the $24,826.73 in gross income. The aforesaid amount of $24,826.73 was included as part of plaintiff's gross income in its corporate income tax return for the calendar year 1923 which showed an excess of deductions over gross income of $13,434.80, and therefore a loss of that amount.
8. The total amounts of beverage taxes paid in 1919 and 1920 and deducted from income in those years were refunded to the company in 1924.
9. Upon receipt of the refund on August 26, 1924, plaintiff charged its cash account with $28,031.44 and credited the "Tax Refund Due" account with $28,031.44, described as "Refund by Govt." After minor adjustments, the account was closed at December 31, 1924.
10. Plaintiff's books show losses and gains for years subsequent to 1923 as follows:
1924 (loss) ........................ $15,230.13 1925 (gain) ........................ 8,921.29 1926 (loss) ........................ 4,904.32
Inasmuch as plaintiff's income-tax returns for 1923 and 1924 showed losses and no taxable net income, no adjustment thereto was made by the Commissioner of Internal Revenue.
11. December 9, 1925, Inland Products Company filed a waiver extending to December 31, 1926, the time for assessment and collection of any additional income and profits taxes for 1919.
June 22, 1925, the Commissioner advised the Inland Products Company by a 60-day notice of certain adjustments in its tax for 1919 and 1920. The only adjustment material to this action was the disallowance by the Commissioner of the deduction theretofore taken on its returns for excise taxes paid on the manufacture and sale of sweet apple cider, which taxes had been subsequently refunded as aforesaid. This letter proposed deficiencies for 1919 and 1920 in the amounts of $5,364.86 and $1,016.19, respectively.
12. August 17, 1925, the Inland Products Company filed a petition in the United States Board of Tax Appeals for a redetermination of the deficiencies proposed by the Commissioner for 1919 and 1920, and the petition was heard June 22, 1927. On February 17, 1928, the Board entered its order of final determination sustaining the Commissioner's decision and approving the deficiencies.
13. Thereafter, on April 11, 1928, attorneys for Inland Products Company and the General Counsel of the Bureau of Internal Revenue as attorney for respondent entered into a written agreement as follows:
"AGREEMENT FOR REVIEW BY THE UNITED STATES CIRCUIT COURT OF APPEALS FOR THE FOURTH CIRCUIT "UNITED STATES BOARD OF TAX APPEALS "(Docket No. 6330) "INLAND PRODUCTS COMPANY, PETITIONER v. DAVID H. BLAIR, COMMISSIONER OF INTERNAL REVENUE, RESPONDENT"It is hereby stipulated and agreed, by and between the parties to the above-entitled cause, by their respective attorneys, that the decision of the United States Board of Tax Appeals in said cause, dated February 17, 1928, redetermining a deficiency in income and profits taxes against the above-named petitioner for the calender years 1919 and 1920, in the amounts of $5,364.86 and $1,016.19, respectively, may be reviewed by the United States Circuit Court of Appeals for the Fourth Circuit.
"This agreement is made under and pursuant to the provisions of Section 1002(d) of the Revenue Act of 1926.
"Charles D. Hamel, "R.S. Doyle, "John Enrietto, "Attorneys for Petitioner. "C.M. Charest, "Attorney for Respondent."
This agreement was filed with the Clerk of the United States Board of Tax Appeals on August 14, 1928.
Thereafter, on the same date, August 14, 1928, Inland Products Company filed a petition for review of the decision of the Board of Tax Appeals by the United States Circuit Court of Appeals for the Fourth Circuit. A copy of the record filed with the petition for review is attached to the stipulation as Exhibit A and by reference made a part hereof.
14. The United States Circuit Court of Appeals for the Fourth Circuit on April 9, 1929, Inland Products Co. v. Blair, 31 F.2d 867, affirmed the decision of the Board. No petition for a writ of certiorari was filed with the Supreme Court of the United States to review the decision of the Circuit Court of Appeals.
15. Deficiencies for 1919 and 1920 were assessed on August 10, 1929, in the amounts of $5,364.86 and $1,016.19, respectively, and pursuant to notice and demand were paid, together with interest thereon, by the company as follows:
---------------------------------------------------------------- Year | Deficiency | Interest | Date paid ------------------------|------------|-----------|-------------- 1919 .................. | $5,364.86 | $1,113.02 | Aug. 27, 1929 1920 .................. | 1,016.19 | 210.82 | Aug. 28, 1929 ----------------------------------------------------------------
16. February 19, 1931, plaintiff filed two claims for refund with the appropriate collector. Copies of these claims are in evidence as exhibits B and C, respectively, and by reference are made a part hereof.
December 3, 1931, the Commissioner advised the Inland Products Company as follows:
"Reference is made to your claim for refund of income taxes paid for the years 1919 and 1920.
"It is observed that the determination of a deficiency in the sums of $5,364.86 and $1,016.19, for the respective years 1919 and 1920, as shown in Bureau letter of June 22, 1925, was sustained by the United States Board of Tax Appeals, as reported in 10 B.T.A. 235, Docket 6330, January 26, 1928, and that the action of the Board was affirmed by the United States Circuit Court of Appeals for the Fourth Circuit, May 17, 1929. No petition for writ of certiorari to the United States Supreme Court was filed.
"In view of section 1003(a) of the Revenue Act of 1926, [ 26 U.S.C.A. § 641(a)] which provides as follows: `The Circuit Courts of Appeals and the Court of Appeals of the District of Columbia shall have exclusive jurisdiction to review the decisions of the Board (except as provided in section 239 of the Judicial Code, as amended); and the judgment of any such court shall be final, except that it shall be subject to review by the Supreme Court of the United States upon certiorari, in the manner provided in section 240 of the Judicial Code, as amended,' the decision of the United States Circuit Court of Appeals in this case has become final, which precludes the refund or credit of any portion of the taxes paid pursuant to the judgment of that court.
"Accordingly, your claims for refund will be rejected on the next schedule to be approved by the Commissioner."
The refund claims were rejected on a schedule dated January 15, 1932.
17. If plaintiff is lawfully entitled to a refund of income tax paid for 1919 and 1920 resulting from the exclusion as a deduction for those years of federal excise tax then paid and later held to have been illegally collected and refunded, the recovery in this proceeding would be $5,017.63 for 1919, and $1,159.50 for 1920 with interest as provided by law from August 27 and 28, 1929, respectively.
Plaintiff seeks to recover the alleged overpayments of $5,017.63 for 1919 and $1,159.50 for 1920 on the ground that the Commissioner of Internal Revenue erroneously and illegally excluded as deductions in those years the amounts of $14,841.12 and $9,604.79, respectively, representing Federal excise tax paid in those years on sales by it of sweet apple cider which the Commissioner at that time had ruled was subject to the excise tax. Before the plaintiff's returns and its tax liability for the years 1919 and 1920 were finally audited and determined by the Commissioner and before the expiration of the statute of limitation under waivers that had been filed, the Circuit Courts of Appeals for the First Circuit and the Second Circuit, as shown in finding 5, had decided in 1923 that sweet apple cider was not subject to the excise tax and the Commissioner of Internal Revenue proceeded in 1924 to refund the excise taxes which had been paid by plaintiff in 1919 and 1920. After these decisions holding that the excise tax was not legally collectible, the Commissioner in his final audit and determination of plaintiff's returns and its income tax liabilities for 1919 and 1920 on June 22, 1925, eliminated the deductions which had been taken for the excise tax paid. The United States Board of Tax Appeals on appeal by plaintiff as Inland Products Co. v. Commissioner of Internal Revenue, 10 B.T.A. 235, 236, sustained the action of the Commissioner in excluding the excise tax as a deduction from gross income for 1919 and 1920. The parties stipulated for review of the decision of the Board of Tax Appeals by the U.S. Circuit Court of Appeals for the Fourth Circuit and, after hearing and consideration on the merits, that court affirmed the decision of the Board on April 9, 1929, Inland Products Co. v. Blair, 31 F.2d 867.
Plaintiff contends that under the decision in Nash-Breyer Motor Company v. Burnet, 283 U.S. 483, 51 S.Ct. 549, 75 L.Ed. 1180, the decision of the Circuit Court of Appeals for the Fourth Circuit was void for the reason that it did not have jurisdiction of the case since, under the decision in the Motor Company case, the Circuit Court of Appeals for the Ninth Circuit was the court to which the plaintiff should have taken its appeal and, therefore, this court has jurisdiction because the petition was filed with the Board of Tax Appeals under the Revenue Act of 1924, 43 Stat. 253.
The defendant contends, first, that plaintiff's cause of action is res adjudicata for the reason that the Circuit Court of Appeals for the Fourth Circuit had jurisdiction of the subject matter and that by stipulation the parties submitted to the jurisdiction of that court with the court's consent; and, second, that in any event plaintiff is not entitled to recover on the merits for the reason that the decision and action of the Commissioner excluding in 1925 the excise tax as a deduction from gross income for 1919 and 1920 and the decisions of the Board of Tax Appeals and the Circuit Court of Appeals, affirming that action, were correct.
This court has jurisdiction of the subject matter and the parties. We need not discuss the question of whether plaintiff's cause of action is res adjudicata for we are of opinion, in any event, that the decisions of the Commissioner, the Board of Tax Appeals, and the Circuit Court of Appeals upon the question presented were correct and that plaintiff is not entitled to recover on the merits. The cases cited and relied upon by plaintiff are distinguishable upon the facts or upon principle. So long as a case involving the audit and determination of the correct tax liability of a taxpayer is open and under consideration by the Commissioner of Internal Revenue, it is his duty correctly to determine the income of the taxpayer and deductions to which the taxpayer is entitled. Lewis v. Reynolds, 284 U.S. 281, 52 S.Ct. 145, 76 L.Ed. 293; Illinois Terminal Co. v. United States, 53 F.2d 904, 73 Ct.Cl. 263. In 1919 and 1920 plaintiff paid certain Federal excise taxes on sweet apple cider pursuant to the regulations and the decisions of the Bureau of Internal Revenue then in effect. But before the plaintiff's tax liability for 1919 and 1920 was finally determined by the Commissioner it had been judicially determined that the excise tax paid in 1919 and 1920 and deducted by plaintiff from gross income in its income-tax returns for those years had not been imposed by the Revenue Act of 1918 ( 40 Stat. 1057) and was illegally collected. Under these decisions plaintiff was not liable for the excise tax and the same was refunded. Accordingly, the Commissioner held in his final determination of plaintiff's income-tax liability for 1919 and 1920 that since the excise tax paid was not due and since it had been refunded, the deductions which had been taken in the returns for 1919 and 1920 should not be allowed. The tax here sought to be recovered resulted entirely from the exclusion of the deductions of such excise tax for 1919 and 1920. This conclusion that plaintiff cannot recover because of the exclusion of these deductions is not inconsistent with the rule that an amount deducted and allowed from income in a certain year must be included in income when collected or recovered in a subsequent year when the correction of the return and the tax liability in a prior year is barred by the statute of limitation. That rule is justified by the fact that actually and for tax purposes the taxpayer has received a definite advantage and has actually received in the subsequent year income which was not included and subjected to tax in the prior year. Wherever it is possible to do so, the taxing statutes require that the items of income subject to tax and the deductions to which the taxpayer is legally entitled for the years under consideration be correctly and legally determined by the Commissioner in his final decision, notwithstanding such decision may be made several years after the returns for the particular years involved were filed. Lewis v. Reynolds, supra. The petition is dismissed. It is so ordered.