Opinion
No. 42625.
May 4, 1936.
Frank L. Warfield, of Washington, D.C. (Stanley Worth, of Washington, D.C., on the brief), for plaintiff.
J.W. Hussey, of Washington, D.C., and Frank J. Wideman, Asst. Atty. Gen., for the United States.
Before BOOTH, Chief Justice, and GREEN, LITTLETON, WILLIAMS, and WHALEY, Judges.
Action by Frank H. Gage, surviving partner of Rousmaniere, Williams Company, against the United States.
Judgment for the plaintiff.
Plaintiff sues to recover $8,316.34 with interest, representing the balance of an overpayment for 1917 in respect of the profits tax of Rousmaniere, Williams Co., a partnership, for 1917. The Commissioner of Internal Revenue refunded $20,650.85 of an overpayment of $28,967.19 determined and allowed for 1917 but declined to pay the balance of $8,316.34 on the grounds (1) that this portion of the overpayment was made after the refund claimed by the partnership was filed, and (2) that a claim for refund could not be made before a tax was paid. In this the Commissioner erred for the partnership had made written claim for refund on the ground on which the overpayment was determined after the entire tax had been paid and also after the Commissioner had allowed the overpayment. Plaintiff alleges a statement of account showing a balance due and brought this suit within six years after receipt of notice of the amount of the overpayment for which the claim was allowed. The defendant denies that there was any statement of account in favor of the partnership and contends that this suit was barred at the time it was instituted.
Special Findings of Fact.
1. Rousmaniere, Williams Co. was a partnership formed March 31, 1915, with its principal office and place of business at Boston, Mass. During the year 1917 this partnership was composed of Frank H. Gage, George C. Allen, George A. Lapham, Zenas Sears, and Richard A. Harrington. It was voluntarily dissolved December 31, 1928. Sears died in 1927, Allen died about two years after the dissolution of the partnership, Harrington died November 20, 1934, and Lapham died after this suit was instituted, and Gage is the sole surviving partner.
2. In April, 1918, the partnership filed its profits tax return for the fiscal year ended September 30, 1917. The profits tax liability shown due in the amount of $98,638.15 was immediately assessed and was paid June 15, 1918. Upon audit of the partnership return the Commissioner of Internal Revenue in September, 1919, assessed an additional profits tax of $2,627.49 which was paid September 28, 1919.
3. A revenue agent made an investigation of the books and records of the partnership and its return for 1917 and as a result of certain adjustments recommended an additional profits tax. The record does not disclose whether the Commissioner sent to the partnership a proposed deficiency notice or whether any hearings were had on the revenue agent's report prior to December 9, 1919. However, the partnership was furnished with a copy of the revenue agent's report and on December 9, 1919, the partnership prepared and filed with the Commissioner a brief in which it discussed all of the items of income, deductions, and invested capital entering into its tax liability for 1917 and claimed that its tax should be reduced. In this brief the partnership also made an informal claim for refund on the ground that it was entitled to have its profits tax for 1917 computed under the relief provision of section 210 of the Revenue Act of 1917 ( 40 Stat. 307) and made application to the Commissioner that the profits tax be so determined and computed and that it be given the benefit of whatever relief might be afforded thereby. Before the Commissioner considered or acted upon the application for special assessment he determined and assessed an additional profits tax of $11,400.59 under section 201 of the act of 1917
( 40 Stat. 303), which additional tax, upon demand, was paid April 26, 1921. Also, before he considered and acted upon the application for special assessment he made a further audit of the return and determined and allowed on November 24, 1922, an overassessment of $3,084.25 which was credited against an additional tax found to be due by the partners for 1918.
4. March 9, 1928, the partnership filed a claim for refund of $25,000, or such greater amount as might be legally refundable, for the fiscal year ended September 30, 1917, and in support thereof gave the following reasons:
"This formal claim is filed to complete the claim made in the year 1920 [Dec. 9, 1919] for a determination of the excess-profits tax under the provisions of section 210 of the Revenue Act of 1917.
"In reference to this original claim attention is invited to brief filed by George H. Inston, attorney for the taxpayer.
"A brief will be filed in support of this claim and a conference with the Bureau is requested."
5. April 30, 1929, the partnership filed another formal claim for refund of $25,000, or such greater amount as might be legally refundable, for the fiscal year ended September 30, 1917, and in support thereof gave the following reasons:
"This claim for refund is filed in accordance with Treasury Decisions 4265 and 4266.
"Claims were filed within the regular statutory period requesting that the excess-profits tax be determined under section 210 of the Revenue Act of 1917."
6. September 15, 1928, the Commissioner mailed to the partnership a letter setting forth, among other things, the result of his examination of the partnership's claims for refund, and his determination of an overassessment of $28,967.19. The last two paragraphs of this letter stated as follows:
"In accordance with the foregoing your claim for the year 1917 will be allowed for $28,967.19.
"The overassessment shown above will be made the subject of a certificate of overassessment which will reach you in due course through the office of the collector of internal revenue for your district, and will be applied by that official in accordance with section 284 of the Revenue Act of 1926 ( 44 Stat. 66) unless within thirty days from the date of this letter you advise the Bureau that you desire a conference or wish to file a protest."
The partnership was satisfied with this determination and acquiesced therein. No protest of any kind was made. Following the mailing of this letter the Commissioner, on October 9, 1928, allowed an overpayment of $28,967.19 for 1917 in favor of the partnership and scheduled the same to the collector at Boston with instructions to that official to check his records and report the condition of the taxpayer's account. This the collector did and made appropriate entries on the schedule showing the entire amount to be refundable with interest. This action was taken by the collector on October 30, 1928. The schedule containing the information above mentioned from the collector reached the Commissioner on or before November 19, 1928. The original certificate of overassessment prepared October 9, 1928, for delivery to the partnership showed the entire overassessment of $28,967.19 as allowed. This certificate of overassessment was not delivered to the taxpayer for the reasons hereinafter stated. But a new certificate of overassessment was later prepared on June 1, 1929, and delivered June 9, 1929, as hereinafter set forth.
Upon receipt by the Commissioner of information from the collector that the entire amount of $28,967.19 was refundable, the Commissioner on or about November 19, 1928, entered in columns 8 and 9, respectively, of the schedule approved October 9, 1928, (1) interest of $16,428.16 due and payable on the overpayment of $28,967.19, and (2) the total amount of $45,395.35, tax and interest to be paid to the partnership by the disbursing clerk, and the disbursing clerk was instructed to make payment accordingly. However, before the overpayment and interest totaling $45,395.35 was actually paid to the partnership some one in the Commissioner's office raised the question whether the entire overpayment of $28,967.19 for 1917 was legally refundable in view of the fact that the original informal claim for refund filed by the partnership was filed December 9, 1919, which was prior to the payment on April 26, 1921, of the second additional assessment of $11,400.59. As a result the refund of the allowed overpayment of $28,967.19 with interest theretofore computed in the amount of $16,428.16 was held up and the Commissioner submitted to the General Counsel of the Bureau of Internal Revenue the question whether the entire overpayment of $28,967.19 with interest was legally refundable. Prior to June 9, 1929, the General Counsel of the Bureau submitted a decision to the Commissioner in which he ruled that inasmuch as the partnership paid only $101,265.64 prior to December 9, 1919, which was the date on which the informal claim for refund on the ground of special assessment was filed, only $20,650.85 representing that portion of the total overpayment which had been paid prior to December 9, 1919, could be refunded. The ground upon which the General Counsel based its decision that $8,316.34 of the total overpayment of $28,967.19 was barred by the statute of limitation was that the partnership had made no claim for refund of that portion of the overpayment amounting to $8,316.34 subsequent to payment of that amount on April 26, 1921, and inasmuch as the partnership's original claim for refund was filed December 9, 1919, only that portion of the total overpayment which was paid prior to December 9, 1919, could be legally refunded. On the basis of this ruling the Commissioner on June 1, 1929, prepared and mailed to the partnership a new certificate of overassessment as follows:
"An audit of your income-tax return, forms 1065 and 1102 and a consideration of all the claims (if any) filed by you for the fiscal year ended September 30, 1917, indicates that the tax assessed for this year was in excess of the amount due:
Tax previously assessed: Account #1801544 $98,638.15 Additional tax, Sept. 1919 list, page 5000, line 0 .................................. 2,627.49 Additional tax, Jan. 1921 list, page 39, line 34 ................................. 11,400.59 __________ Total assessed ........................ 112,666.23 Tax liability ............................. 80,614.79 __________ 32,051.44 Previously allowed, IT-A-3553 ............. 3,084.25 __________ Overassessment ........................ 28,967.19 Barred by statute ......................... 8,316.34 __________ Amount allowable ...................... 20,650.85
"The amount of the overassessment will be abated, credited, or refunded as indicated below. (You will be relieved from the payment of any amount abated; if an overpayment has been made and other taxes are due, credit will be made accordingly, and any amount refundable is covered by a Treasury check transmitted herewith.)
"Included in the accompanying check is interest in the amount stated below, allowed on the refund or credit.
"Respectfully, C.B. Allen, "Deputy Commissioner.
"Abated: $ "Credited: $ "To tax. Year "Credited: "To tax. Year "Refunded: $20,650.85. "Interest: $13,357.40."
On the margin of this certificate appeared this notation in pen and ink: "Sec. 284(b) and (h)(1) Rev. Act of 1926. Claim for refund filed Dec. 9, 1919."
This certificate of overassessment and a check for $20,650.85 of the total overpayment of $28,967.19, together with interest of $13,357.40 totaling $34,008.25, were received by the partnership June 9, 1929.
7. The partnership submitted to its counsel the matter of securing the payment by the government of $8,316.34, representing the balance of the overpayment for 1917 which the Commissioner had on September 15, 1928, advised the partnership would be allowed and refunded, but which he deducted from the refund check on the ground that payment was barred because no claim for refund had been made therefor. Accordingly the partnership through its counsel filed with the Commissioner on October 22, 1929, a written application and brief requesting payment of $8,316.34 representing the unrefunded balance of the overpayment for 1917. October 31, 1929, the Commissioner denied this application and refused to pay the balance claimed. Thereafter the partnership filed with the Commissioner a written application requesting that he reconsider his action in declining to refund the balance of $8,316.34 of the overpayment for 1917 and this application was finally denied by the Commissioner January 25, 1934. This suit was instituted March 27, 1934.
The partnership of Rousmaniere, Williams Co. filed an excess profits tax return for 1917 upon which a profits tax of $98,638.15 was computed and paid June 15, 1918, and thereafter in September, 1919, the Commissioner made an additional assessment of $2,627.49 which was paid September 28, 1919. A revenue agent had made an audit and investigation of the books and records of the partnership in connection with its return filed for that year and recommended an additional excess profits tax assessment against the partnership, and also found and recommended certain overassessments of individual income taxes in respect of the income tax liability of the five partners. On December 9, 1919, the partnership filed with the Commissioner a brief of ten pages in which all the items of income and deductions entering into the income and profits tax liability of the partnership for 1917 were discussed, and in this brief an informal claim for refund was made on the ground that the partnership was entitled to special assessment under section 210 of the Revenue Act of 1917 ( 40 Stat. 307), and an application was made to the Commissioner in the brief to grant special assessment and to give the partnership the benefit of any relief in respect of its profits tax liability to which it was entitled under section 210. This brief was not made in the usual form of a claim for refund and was not sworn to. However, on March 9, 1928, before the Commissioner had acted upon the application for special assessment, but after he had finally determined the net income of the partnership and the profits tax liabilities under section 201, the partnership filed a formal claim for refund of $25,000, or such greater amount as might be legally refundable, on the ground that it was entitled to special assessment under section 210. This formal claim was filed to perfect and complete the informal claim theretofore filed on December 9, 1919. At the time this refund claim was filed all taxes determined and assessed for 1917 had been paid. This claim was promptly transmitted to the Commissioner by the collector and was received in the Commissioner's office March 17, 1928. Thereafter the Commissioner, before he had completed his audit of the return of the partnership for 1917 in connection with its claim for special assessment and before he had acted upon the foregoing refund claims, published Treasury Decision 4266. This Treasury Decision provided that in order for an informal claim for refund to be allowable it would be necessary for a taxpayer who had filed an informal or imperfect refund claim to perfect the same by a formal claim for refund filed on or before May 1, 1929. After the promulgation of this Treasury Decision the partnership on April 29, 1929, executed a formal claim for refund for 1917 for $25,000 on the ground of special assessment, which claim was filed April 30, 1929, formally to perfect any informality or imperfections in the previous claims filed on December 9, 1919, and March 9, 1928.
In this suit plaintiff seeks to recover the amount of $8,316.34 with interest, representing the unrefunded portion of the overpayment of $28,967.19 finally determined and allowed by the Commissioner. There is no controversy concerning the overpayment.
Plaintiff contends that there was an account stated for $28,967.19 for 1917 and that this suit, which was instituted within six years after the statement of such account, was timely.
Counsel for the defendant insists that there was no statement rendered by the Commissioner showing a balance due in favor of the partnership for 1917 and that this suit was barred by section 3226 of the Revised Statutes, as amended (26 U.S.C.A. §§ 1672-1673), at the time it was instituted.
Under the facts and circumstances in this case, we are of opinion that the Commissioner stated the account for 1917 showing a balance in favor of the partnership, and that inasmuch as this suit was instituted within six years thereafter it is not barred. The Commissioner on September 15, 1928, after the partnership had filed informal and formal claims for refund, advised the partnership that he had determined an overassessment of $28,967.19 for 1917, and that its claim for refund for that amount would be allowed and that such amount would be credited or refunded unless the partnership within thirty days from that date advised the Bureau that it desired a conference or wished to file a protest in respect of the amount for which the claim had been allowed. The overassessment disclosed resulted from the allowance of special assessment. It was acceptable to the partnership, and no protest of any kind was made. Accordingly, the Commissioner on October 9, 1928, in accordance with section 1116 of the Revenue Act of 1926 (26 U.S.C.A. § 1671 note), allowed the overpayment of $28,967.19, and the collector on October 30, 1928, reported to the Commissioner that the entire amount was refundable. However, the Commissioner when he came to pay the refund of $28,967.19 and interest made a mistake of fact in holding with respect to $8,316.34 of the overpayment that the partnership had not claimed a refund after payment and that only that portion of the total allowed overpayment of $28,967.19, which had been paid prior to December 9, 1919, when the informal claim for refund was filed, was refundable. When the Commissioner made this mistake of fact he had already advised the partnership on September 15, 1928, that $28,967.19 was due it and, in addition, he had already, on October 9, 1928, allowed an overpayment in favor of plaintiff for $28,967.19 in accordance with his letter of September 15, 1928, and knew that the entire overpayment was refundable. There was no support in fact or in law for the position taken by the General Counsel of the Bureau that the amount of $8,316.34 of the overpayment could not be refunded because no claim for refund had been made after that portion of the overpayment had been paid on April 26, 1921. The partnership did on March 29, 1928, make a formal demand and claim for refund of $25,000, or such greater amount as might be found to be legally refundable, on the ground of special assessment, and on April 30, 1929, made a further formal demand and claim for refund of $25,000, or such greater amount as might be legally refundable, on the ground of special assessment in accordance with Treasury Decision 4266 promulgated by the Commissioner. This last claim for refund was filed and received by the Commissioner six months after he had allowed the overpayment of $28,967.19, although he had not advised the partnership thereof. Notwithstanding this the Commissioner on June 1, 1929, prepared and delivered to the partnership a certificate of overassessment for 1917 which stated a total overassessment and overpayment in favor of the partnership of $28,967.19 but erroneously advised the partnership that payment of $8,316.34 of the balance due was barred. The certificate stated in the footnote thereof the amount of the overpayment refunded plus interest, totaling $34,008.25, for which check was inclosed. No credits whatever were involved, and no claim was made by the government, and no advice was given the partnership that the government was entitled to retain the amount of $8,316.34 of the overpayment allowed except on the ground that payment thereof was barred by the statute of limitation, which was not the fact.
In Shipley Construction Supply Co. v. United States, 7 F. Supp. 492, 79 Ct. Cl. 736, it appeared that the Commissioner on December 27, 1926, determined an overassessment for 1920 which he advised the taxpayer would be allowed, but thereafter, on July 13, 1927, he advised the taxpayer that the amount could not be refunded because barred by the statute of limitation. Counsel for the defendant contended in the Shipley Case, as it contends in the case at bar, that there had been no statement of account and no promise, express or implied, to pay the overpayment determined, and that the suit was barred. We held that there had been a statement of overpayment of $8,654.13 in favor of plaintiff for the taxable year 1920 and that the suit, having been instituted within six years thereafter, was not barred, and judgment was rendered in favor of plaintiff. The case at bar is, we think, even stronger in favor of plaintiff than in the Shipley Case; for here the taxpayer made a demand for a refund on the ground on which the overpayment was determined after payment and also after the Commissioner had formally allowed the overpayment and before he made the mistake of fact in concluding that payment of a portion of it was barred by the statute of limitation. The fact in the case at bar that he mailed a certificate of overassessment showing a computation of the overpayment, a portion of which was refunded, and in the Shipley Case wrote a letter explaining the details of the matter, and concluded that no portion of the overpayment could be refunded because of the statute of limitation, does not change the situation.
In Toland v. Sprague, 12 Pet. 300, 335, 9 L.Ed. 1093, the court said that: "The nature of the account is not changed by there being a controversy as to a balance stated, which the defendant does not ask to diminish, or the plaintiff to increase; * * * the question between them [the parties] is not about the account, or any item in it; but as to the right of the defendant to retain the admitted balance."
In the case at bar there was no controversy as to the amount due the plaintiff. The Commissioner did not decrease the amount of $28,967.19 allowed and the plaintiff did not ask to have it increased. The only controversy was with reference to whether the whole of the balance due could be refunded. As to this plaintiff was right and the defendant was wrong.
The case of Stearns Co. v. United States, 291 U.S. 54, 54 S.Ct. 325, 78 L.Ed. 647; Leisenring et al., Ex'rs, v. United States, 3 F. Supp. 853, 4 F. Supp. 993, 78 Ct.Cl. 171; First National Bank of Beaver Falls v. United States, 8 F. Supp. 484, 9 F. Supp. 424, 79 Ct.Cl. 744, and Pratt Whitney Co. v. United States, 10 F. Supp. 148, 80 Ct.Cl. 676, on which counsel for defendant relies, are clearly distinguishable. In those cases no balance was stated in favor of the taxpayer and the certificates of overassessment mailed in each case showed that either the entire overpayment had been credited to taxes for other years or that a portion thereof had been credited and the balance refunded.
Plaintiff is entitled to recover $8,316.34 with interest as provided by law, for which judgment will be entered. It is so ordered.