19 F. Supp. 254 (Fed. Cl. 1937)

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Goodenough v. United States, (1937)

United States Court of Federal Claims

May 3, 1937

19 F. Supp. 254 (Fed. Cl. 1937)

Opinion

Nos. 42825-42827.

May 3, 1937.

John W. Davis, of New York City (Montgomery B. Angell, Allen A. Dobey, and Davis, Polk, Wardwell, Gardiner Reed, all of New York City, on the brief), for plaintiffs.

George H. Foster, 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.

Three suits by Luman W. Goodenough, testamentary trustee under the will of Philip H. Gray, deceased, by Luman W. Goodenough and another, testamentary trustees under the will of David Gray, deceased, and by Luman W. Goodenough, testamentary trustee under the will of Paul R. Gray, deceased, against the United States.

Judgments for plaintiffs in each case.

These cases having been heard by the Court of Claims, the court, upon the evidence adduced, makes the following:

Special Findings of Fact in No. 42825.

1. The plaintiff is the duly qualified and acting testamentary trustee of the estate of Philip H. Gray, a citizen of Michigan, who died November 25, 1922, and whose last will and testament was duly admitted to probate.

2. March 16, 1920, the plaintiff's testator filed his individual income tax return for the calendar year 1919, showing a total net income subject to normal tax of $1,183,952.65, a total net income subject to surtax of $1,404,160.20, and a total amount of income tax due of $940,578.34. The return reported a profit of $1,580,596.50 (determined as shown below), resulting from the sale in the year 1919 of 525 shares of the capital stock of the Ford Motor Company, a Michigan corporation. The stock had been acquired by the decedent a long time prior to March 1, 1913, and its fair market value on March 1, 1913, exceeded its cost. Prior to the sale the Commissioner of Internal Revenue was requested to place a fair market value on the stock as of March 1, 1913, and as a result, after investigation, the Commissioner delivered a letter in reply dated May 19, 1919, reading as follows:

"This office is in receipt of your letter of the 29th ultimo, requesting, on behalf of the Old Colony Trust Company of Boston, which proposed to buy all of the 41% of the stock of the Ford Motor Company of Detroit not held by the Ford interests, what valuation the Bureau places upon the stock of the Ford Motor Company as of March 1st, 1913, in order that the parties at interest may have some definite idea as to the amount of taxes they will be required to pay upon the profits made through such sale.

"You state that it is believed that the purchase, if consummated, will tend to promote the interests of one of the largest concerns in the country, and that the purchase cannot be effected unless it is possible first to ascertain the judgment of the Bureau of Internal Revenue as to the value of the stock on March 1st, 1913.

"In reply, you are advised that while ordinarily it is not the practice of the Bureau to determine such questions in advance of actual transaction, in view of all of the particular circumstances surrounding this case, the Bureau feels justified in departing from that practice and you are accordingly informed that upon consideration of the figures shown by the books and returns of the company, it is disposed to regard $9,489.34 as a fair valuation of the stock on March 1st, 1913, and one which should be used in computing any profits made by the sale."

Thereafter the decedent sold his 525 shares of the Ford Motor Company stock and reported in his return the profit on the sale on the basis of the fair market value on March 1, 1913, for the stock of $9,489.34 per share. All of the other stockholders of the Ford Motor Company who sold their stock in 1919 likewise used the figure of $9,489.34 per share as the March 1, 1913, value of stock in their income tax returns and determined their taxable profit upon that basis.

3. On or about May 1, 1920, the plaintiff's testator filed an amended individual income tax return for the calendar year 1919, showing an amount of net income subject to normal tax of $1,093,121.18 (additional deductions from gross income for charitable contributions being taken), but reporting as subject to surtax an additional sum of $505,978.88, the latter sum being a distribution made to the deceased by the Ford Motor Company pursuant to a judgment made and entered in a certain action wherein John F. Dodge and Horace E. Dodge were plaintiffs and the Ford Motor Company et al., defendants, the judgment or decree being entered December 5, 1917, by the circuit court for the county of Wayne, State of Michigan, and affirmed on appeal by the Supreme Court of the State of Michigan February 7, 1919 (reported in Dodge v. Ford Motor Co., 204 Mich. 459, 170 N.W. 668, 3 A.L.R. 413). As a consequence of the inclusion of this distribution the amended return disclosed additional income tax for 1919 of $262,099.30.

4. On or about June 8, 1920, there were assessed by the Commissioner the several amounts of tax respectively disclosed upon the original and amended returns, and payment of such tax was made on the dates and in the amounts shown below:

March 16, 1920 ................ $235,044.59 June 3, 1920 .................. 65,524.83 June 15, 1920 ................. 300,769.41 September 15, 1920 ............ 300,669.41 December 15, 1920 ............. 300,669.40 ____________ Total ................ $1,202,677.64

5. January 10, 1921, the plaintiff's testator filed a formal claim for refund of income tax for 1919 of $214,248.29. As the reasons for the allowance of the claim the decedent set forth that the dividend of $505,978.88 received from the Ford Motor Company in 1919 was paid to the decedent pursuant to a decree of the circuit court of Wayne county entered during the year 1917, which decree was affirmed on appeal by the Supreme Court of Michigan in 1919, and that the dividend was due and should have been paid to the decedent in 1917 out of 1916 earnings, and the income taxed according to the rates then in force. This claim was rejected.

6. February 9, 1922, another formal claim for refund executed on behalf of the plaintiff's testator was filed. The claim for refund was for the same amount and for the same reasons as those set forth in the claim for refund referred to in finding 5.

March 2, 1923, in response to a letter of inquiry, the Commissioner's office replied that the Committee on Appeals and Review had determined that the Ford Motor Company dividend paid in 1919 was taxable income for that year and that the Commissioner's prior rejection of the claim for refund was correct.

7. February 2, 1923, additional assessments were made against the estate of the decedent on account of matters unrelated to any of the issues herein involved. These assessments together with interest thereon were paid and satisfied.

8. On or about March 12, 1925, the Commissioner made a jeopardy assessment on account of additional income and profits tax of the decedent for 1919 of $2,627,309.05. About March 16, 1925, a letter was received at the office of the testator in Detroit giving notice that an additional income and profits tax amounting to $2,627,309.05 for the taxable year 1919 had been assessed against him and that he had the right to file with the collector within ten days after notice and demand for payment a claim for abatement thereof. This letter was accompanied by a statement as follows:

"Statement "In re: Mr. Philip H. Gray, "116 Longfellow Avenue, "Detroit, Michigan.

1919 Deficiency in tax ....... $2,627,309.05

"A reexamination of your 1919 individual income tax return in connection with information furnished this office discloses the above deficiency, which is computed as follows:

Block D as reported — 525 shares Ford Motor Company Stock: Sale Price ................................ $6,562,500.00 March 1, 1913, value ...................... 4,981,903.50 ____________ Profit reported ........................ 1,580,596.50 ============ March 1, 1913, value reported ............. 4,981,903.50 March 1, 1913, value corrected ............ 1,382,850.00 ____________ Profit understated ..................... 3,599,053.50 Normal and surtax at 73% — Additional tax ..................................... 2,627,309.05

"This assessment is in addition to all other outstanding and unpaid assessments appearing upon the collector's lists.

"Payment should not be made until a bill is received from the collector of internal revenue for your district and remittance should then be made to him."

9. On and before March 12, 1925, the Commissioner had before him under consideration the question of the fair market value on March 1, 1913, of the Ford Motor Company stock, as such value affected the income taxes of former Ford Motor Company stockholders. As a result of such consideration the jeopardy assessment was made, the letter of March 12, 1925, issued, and the demand and notice delivered.

10. The jeopardy assessment made on or about March 12, 1925, was made without any prior notice having been given by the Treasury Department to the decedent or his representatives of the contemplated action. Among other former Ford Motor Company stockholders affected by the Commissioner's action were Senator James Couzens, John Dodge, Horace Dodge, and Rosetta V. Hauss. In the case of Senator James Couzens the Commissioner and the Acting Commissioner personally requested that a waiver be executed, and in the cases of John Dodge, Horace Dodge, and Rosetta V. Hauss, sixty-day letters under section 274(a) of the Revenue Act of 1924 ( 43 Stat. 297) were issued.

11. March 18, 1925, Luman W. Goodenough, as the duly authorized attorney in fact and agent of the deceased, accompanied by his law partner, Russell A. McNair, counsel for the deceased, went to Washington, D.C., to confer with Commissioner Blair for the purpose of executing a waiver of the statute of limitations on behalf of Paul Gray, David Gray, and the estate of Philip Gray and thereby procure a withdrawal of the jeopardy assessments that had been made. They went to the Commissioner's office but were advised that Commissioner Blair was not in and they were referred to Deputy Commissioner C.R. Nash, who at that time was Acting Commissioner of Internal Revenue. They discussed with Acting Commissioner Nash newspaper accounts to the effect that Senator James Couzens had been requested to execute a waiver of the benefit of the statute of limitations extending the period for the assessment of additional 1919 income taxes, and they informed the Acting Commissioner that they had come to Washington for the express purpose of executing such waivers. They also informed Acting Commissioner Nash of the jeopardy assessments made against the three Gray brothers, of the fact that the Grays considered the jeopardy assessments as a reflection on their integrity and of the fact that they had ascertained that it would cost about $55,000 a year in each case to file the usual surety bond accompanying claims in abatement, and that the surety companies would require the deposit of collateral. They commented upon the fact that Senator Couzens had been requested to execute a waiver and that the Grays had not been offered the opportunity to do so. They further advised Acting Commissioner Nash that Mr. Goodenough was executor of the estate of Philip H. Gray and held unrevoked general powers of attorney from Paul R. Gray and David Gray and that he was in a position to execute a waiver of the statute of limitations on behalf of each of them. The powers of attorney were sufficiently broad to authorize him to execute waivers. Acting Commissioner Nash advised them that the Treasury Department took the position that an executor could not waive the benefit of the statute of limitations and therefore a waiver on behalf of the estate of Philip H. Gray would not be accepted. He further advised them that once an assessment had been made and entered on the collector's books it could not be withdrawn, and that accordingly the Treasury Department would not accept waivers of the benefit of the statute of limitations on behalf of Paul R. Gray and David Gray. He advised them, however, that the Department was then taking steps to arrange for the filing of personal bonds without sureties. With reference to these bonds Acting Commissioner Nash stated: "You can file your claim in abatement and accompany it by these bonds and that will operate just as a waiver and you would (will) accomplish the same purpose as you would if you filed waivers here."

12. Subsequently a controversy arose over the form of the bond, the collector having refused to accept the bond prepared by the attorneys for the estate.

13. On or about March 23, 1925, a claim for abatement of the tax so assessed in the sum of $2,627,309.05 was filed by the representatives of the estate of the decedent and at the same time a personal bond in the form prescribed by the collector of internal revenue at Detroit in support of the claim. This claim for abatement set forth a number of reasons for its allowance, among others that the value of $9,489.34 a share fixed by the Treasury Department as the March 1, 1913, value of the Ford Motor Company stock "was not excessive but was less than the fair and actual value of said stock on that date." The bond was on the form prescribed by the collector's office and read as follows:

"Know All Men by These Presents, That I, Luman W. Goodenough, Executor of the Estate of Philip H. Gray, Deceased, of Detroit, Michigan (hereinafter called the Principal), am held and firmly bound unto Fred L. Woodworth, as Collector of Internal Revenue for the First Collection District of Michigan (hereinafter called the Obligee), in the penal sum of Two Million Six Hundred Twenty-Seven Thousand Three Hundred Nine and 05/100 Dollars ($2,627,309.05) lawful money of the United States of America, for the payment, well and truly to be made, I bind myself, my successors and assigns, firmly by these presents.

"Witness, my hand and seal at Detroit, Michigan, this 21st day of March, nineteen hundred and twenty-five.

"Whereas, the above bounded Principal has claimed or is about to claim an abatement in taxes erroneously or illegally assessed against said estate, and has asked or is about to ask for an abatement thereof, and

"Whereas, the said Principal has agreed to pay to the said Obligee such sum or sums as shall be ultimately determined to be due and owing by said Principal, together with all penalties and interest that may lawfully accrue, it being the claim of the said Obligee that the sum of Two Million Six Hundred Twenty-Seven Thousand Three Hundred Nine and 05/100 Dollars ($2,627,309.05) is now due, and the Principal contending that said estate is not now indebted to the United States of America in such sum, as taxes, or otherwise.

"Now, therefore, the condition of this obligation is such: That if the said Principal does not secure or is not allowed an abatement of the tax assessed, and shall pay to the said Obligee, the sum of Two Million Six Hundred Twenty-Seven Thousand Three Hundred Nine and 05/100 Dollars ($2,627,309.05), in payment of the taxes due from said Principal, together with the penalties and interest that may have lawfully accrued thereon, or such other sum or sums as shall be ultimately found to be due, then this obligation shall be void; otherwise to remain in full force and effect.

"Luman W. Goodenough. "Executor of the Estate of Philip H. Gray, Deceased.

"Signed, Sealed, and Delivered In Presence of —

"A.L. Hill, "Thos. M. Lewis.

"O.K. for acceptance in connection with filing of Abt. Cl. $2,627,309.05.

"Fred L. Woodworth."

The notation, "For acceptance in connection with filing of Abt. Cl. $2,627,309.05," was indorsed on the bond by an agent of the collector. The notation, "O.K. Fred L. Woodworth," was indorsed thereon by Fred L. Woodworth, who was the then collector of internal revenue at Detroit, Mich.

14. In preparing a form of bond to be used in this and similar cases, it was the intent of the government officials to draft the bond in such form and in such language that the taxpayer (the principal in the bond) should be liable to the collector for the entire amount of tax which might ultimately be determined to be due and owing, notwithstanding the amount of the jeopardy assessment and notwithstanding the statement of the penal sum that might be named in the bond, and appropriate language for that purpose was used in paragraphs 4 and 5 of the bond.

The bonds accompanying the claims in abatement filed by Paul R. Gray, David Gray, and the estate of Philip H. Gray against the additional assessments for the taxable year 1919 followed the same form in this respect.

15. After the filing of the claim in abatement and bond, the duly authorized representatives of the deceased were accorded hearings upon said abatement claim by the Bureau of Internal Revenue, and on November 19, 1925, the plaintiff's testator was notified by the Bureau that of the assessment of $2,627,309.05 there would be abated the sum of $350,229.17, and that the claim would be rejected in the amount of $2,277,079.88; and, in accordance with the provisions of section 279(b) of the Revenue Act of 1924 ( 43 Stat. 300), he was allowed sixty days from that date within which to file an appeal to the Board of Tax Appeals contesting in whole or in part the correctness of the determination.

16. January 16, 1926, the representatives of the deceased filed with the United States Board of Tax Appeals a petition for a redetermination of his income and profits tax for 1919. Among other assignments of error, the petition alleged that the Commissioner erred in determining that the March 1, 1913, value per share of the Ford Motor Company stock "was not $9,489.34 or in excess thereof," and in "failing to find that the value of said stock on that date was at least $9,489.34 per share." June 28, 1928, the decision of the Board was promulgated (Goodenough v. Commissioner, 12 B.T.A. 935), in which it was determined that the March 1, 1913, value of the Ford Motor Company stock was $10,000 per share. November 16, 1928, the Board entered its final order or judgment determining that there was an overpayment of income and profits tax by the deceased for 1919 of $197,723.11. No appeal was taken by either party from the order of redetermination and the order has become final.

17. January 28, 1929, Luman W. Goodenough, as executor of the estate of the deceased, filed with the collector of internal revenue a letter inclosing an amended claim for refund of taxes alleged to be illegally collected for 1919. It asked for the refund of an overpayment of 1919 income tax of Philip H. Gray, in the amount of $197,723.11. The claim for refund was executed under oath by Luman W. Goodenough, executor and trustee under the will of Philip H. Gray, and a certified copy of an order of the probate court for the county of Wayne, Mich., appointing Mr. Goodenough as executor, was attached. As the reasons for the allowance of the refund, the executor stated that the claims for refund of 1919 tax filed on or about January 10, 1921, and March 23, 1922, were amended by adding an additional paragraph, as set forth in the claim. This additional paragraph stated that in his return for 1919 the deceased computed his profit upon the sale of 525 shares of Ford Motor Company stock upon the basis of a March 1, 1913, value of $9,489.34 a share, but that upon petition to the Board of Tax Appeals the Board determined such value to have been $10,000 per share, and on November 16, 1928, entered an order of redetermination that the deceased had overpaid his 1919 income tax in the amount of $197,723.11. At the same time counsel representing the deceased wrote letters to the Commissioner of Internal Revenue, the General Counsel for the Bureau of Internal Revenue, and the Assistant Secretary of the Treasury, making application for the reopening and reconsideration of the earlier claims.

18. On or about December 28, 1928, the Commissioner prepared a certificate of overassessment in favor of the deceased, showing an overassessment of tax in the amount of $2,823,019.50. Of this amount $2,627,309.05 had been assessed but not paid, and that amount was abated. There was an indicated overpayment of tax of $195,710.45, of which amount the Commissioner held that $177,569.08 was barred from refund and $18,141.37 refundable. In addition, interest in the amount of $2,012.66 had been assessed and collected.

About January 17, 1929, the Commissioner addressed a letter to the plaintiff, among other things, advising him with reference to the certificate of overassessment and requesting that he file a certificate showing his appointment as executor or administrator.

Plaintiff complied with the request contained in the letter, and about March 22, 1929, the defendant, acting through the Commissioner, delivered to the plaintiff and the plaintiff accepted the certificate of overassessment referred to above, which read as follows:

"Treasury Department, "Office of the Commissioner of Internal Revenue, "Washington. "Certificate of overassessment. "IT:C:CC. Number, 776872. "Allowed, $2,647,463.08. "Schedule No. 33004. "Mr. Luman W. Goodenough, "Executor, Estate of Philip H. Gray, "915 Hammond Building, "Detroit, Michigan.

"Sir: An audit of your income tax return, Form 1040, and a consideration of all the claims (if any) filed by you for the year 1919 indicates that the tax assessed for this year was in excess of the amount due:

------------------------------------------------------------- | Tax | Interest -----------------------------------|--------------|---------- Original assessment, Account | | #305719 ....................... | $940,578.34 | ......... Assessment (amended return) | | Acct. #305719 ................. | 262,099.30 | ......... Additional assessment January | | 1923, P. 26, L.O. ............. | 108,970.73 | ......... Additional assessment March | | 1925, P.O.L. 3, Spl. #5 ....... | 2,627,309.05 | ......... Assessment Mar. 1924-Mar. | | 530003 ........................ | ............ | $1,046.15 Assessment June 1925 June | | 530333 ........................ | ............ | 197.51 Assessment June 1927 June | | 530045 ........................ | ............ | 769.00 |______________|__________ Total ........................ | 3,938,957.42 | 2,012.66 Overassessment allowed (I.T. | | A. 8405) ....................... | 90,829.36 | ......... |______________|__________ Net ........................... | 3,848,128.06 | 2,012.66 Correct tax and interest liability | 1,025,108.56 | None |______________|__________ Overassessment tax and interest | 2,823,019.50 | 2,012.66 Amount barred from allowance | 177,569.08 | ......... |______________|__________ Overassessment allowable ..... | 2,645,450.42 | 2,012.66 Total overassessment ......... | 2,647,463.08 | ......... -------------------------------------------------------------

"The overassessment shown herein is in accordance with the order of redetermination issued by the United States Board of Tax Appeals November 16, 1928, Docket #11009 and is allowable under section 284(e) of the Revenue Act of 1926 [ 44 Stat. 66, 67].

"The amount of $177,569.08 is barred from allowance inasmuch as no claim has been filed within the statutory period requesting refund of tax on the basis of a revised March 1, 1913, value of the Ford Motor Company stock sold.

"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, "By Charles P. Suman, "Head of Division.

"Abated: $2,627,309.05 Abt. '25 — Mar. 03 #5 (19).

"Credited: $ ......... To Tax. Year. "Credited: $ ......... To Tax. Year. "Refunded: $20,154.03. "Interest: $5,049.47."

On or about March 22, 1929, the collector of internal revenue at Detroit, Mich., delivered to plaintiff, in his representative capacity, a check for $25,203.50, being a refund of 1919 taxes in the amount of $20,154.03, with interest of $5,049.47. The plaintiff refused to accept that amount in complete settlement of the refund claimed, and immediately thereafter called to the attention of the Commissioner the insufficiency of the refund allowed. Thereafter several hearings were had, as well as numerous informal conferences, and various documents and briefs were filed with the accredited officials of the Bureau of Internal Revenue and consideration of the matter by such officials was given.

19. In the course of these proceedings hearings were had on the amended claims of the three Grays at which counsel for the taxpayers and the Government appeared. A letter on behalf of the taxpayers stating their claims with reference to waivers was sent to the Department and accepted by the representative of the defendant who stated in substance that he would carefully go over the papers and consider the claims. On March 20, 1929, another hearing was held before the Commissioner at which all parties were represented. Shortly after, on the Commissioner's request, counsel for the taxpayers submitted a statement in writing in support of their position and arguments as to why the claims for refund should be allowed. Thereafter, counsel for the taxpayers wrote the Commissioner calling attention to recent court decisions, and June 12, 1929, they submitted a supplemental statement for consideration. Early in 1930 they conferred with the Assistant Secretary of the Treasury on the merits of the claims and a little later submitted a supplemental statement calling attention to additional decisions. March 23, 1931, the Commissioner wrote counsel for the taxpayers a letter in which he stated that after long and careful consideration he was constrained to deny their request that the refund claims be opened and reconsidered, but shortly after counsel for the taxpayers submitted another argument which called attention to recent decisions of the Supreme Court and requested that the Commissioner reconsider his letter of March 23, 1931. When the communication was delivered to the Commissioner on May 27, 1931, there was a conference and the Commissioner stated that at the time he signed the letter of March 23, 1931, he did not have knowledge of the facts stated in the communication and that he would see that its contents were given immediate consideration. He also indicated that he would reconsider the rejection in his earlier letter.

Thereafter there were several more hearings and conferences between the representatives of the taxpayers and the Government in which, among other things, the form of the bond filed by the taxpayers was considered and it was suggested on behalf of the defendant that some data be submitted showing how bonding companies would construe the bonds filed. Such data having been filed by the taxpayers in the form of affidavits, the Undersecretary of the Treasury wrote counsel for the taxpayers that the documents would be carefully considered. Finally, on June 28, 1933, the Treasury Department in a letter to the representatives of the taxpayers referred to their letter of March 22, 1933, requesting a final reconsideration of the refund claims of the three Grays. This letter stated that the decisions of the Supreme Court which were made the principal basis at counsel's request had been examined and that the other points referred to in the letter having been made the subject of consideration and reconsideration, the request was denied.

20. Upon all of the evidence the court finds as an ultimate conclusion of fact that the plaintiff's claim was reconsidered.

Special Findings of Fact in No. 42826.

This is a companion case to No. 42825. Certain of the findings in the above-entitled case are the same as in No. 42825 and will be incorporated herein by reference. With this explanation the court makes the following findings:

1. The plaintiffs are the duly qualified and acting testamentary trustees of the estate of David Gray, a citizen of Michigan, who died May 9, 1928, and whose last will and testament was duly admitted to probate.

2. March 15, 1920, the plaintiffs' testator filed his individual income tax return for the calendar year 1919, showing a total net income subject to normal tax of $1,397,750.55, a total net income subject to surtax of $1,617,258.51, and a total amount of income tax due of $1,096,212.07. The return reported a profit of $1,580,596.50 (determined as shown below), resulting from the sale in 1919 of 525 shares of the capital stock of the Ford Motor Company, a Michigan corporation. The stock had been acquired by the decedent a long time prior to March 1, 1913, and its fair market value on March 1, 1913, exceeded its cost. Prior to the sale the Commissioner of Internal Revenue was requested to place a fair market value on the stock as of March 1, 1913, and, as a result, after investigation, the Commissioner delivered a letter in reply, dated May 19, 1919, reading as follows:

"This office is in receipt of your letter of the 29th ultimo, requesting on behalf of the Old Colony Trust Company of Boston, which proposed to buy all of the 41% of the stock of the Ford Motor Company of Detroit not held by the Ford interests, what valuation the Bureau places upon the stock of the Ford Motor Company as of March 1st, 1913, in order that the parties at interest may have some definite idea as to the amount of taxes they will be required to pay upon the profits made through such sale.

Thereafter the decedent sold his 525 shares of the Ford Motor Company stock and reported in his return the profit on the sale on the basis of the fair market value on March 1, 1913, for such stock of $9,489.34 per share. All of the other stockholders of the Ford Motor Company who sold their stock in 1919 likewise used the figure of $9,489.34 per share as the March 1, 1913, value of stock in their income tax returns and determined their taxable profit upon that basis.

3. On or about May 1, 1920, the plaintiffs' testator filed an amended individual income tax return for the calendar year 1919, showing the same amount of net income subject to normal tax as that reported on his original return, but reporting an additional sum of $505,978.88 as subject to surtax, the latter amount being a distribution made to the deceased by the Ford Motor Company pursuant to a judgment made and entered in a certain action wherein John F. Dodge and Horace E. Dodge were plaintiffs and the Ford Motor Company, et al., defendants, the judgment or decree being entered December 5, 1917, by the circuit court for the county of Wayne, Mich., and affirmed on appeal by the Supreme Court of the State of Michigan February 7, 1919 (reported in Dodge v. Ford Motor Co., 204 Mich. 459, 170 N.W. 668, 3 A.L.R. 413). As a consequence of the inclusion of this distribution the amended, return disclosed additional income tax for 1919 of $328,887.67.

March 15, 1920 ............ $274,053.02 June 3, 1920 .............. 82,221.90 June 15, 1920 ............. 356,274.91 September 15, 1920 ........ 356,274.91 December 15, 1920 ......... 356,274.90 ____________ Total .................. 1,425,099.64

5. January 10, 1921, the plaintiffs' testator filed a formal claim for refund of income tax for 1919 of $280,927.74. As the reasons for the allowance of the claim the decedent set forth that the dividend of $505,978.88 received from the Ford Motor Company in 1919 was paid to the decedent pursuant to a decree of the circuit court of Wayne county entered during the year 1917, which decree was affirmed on appeal by the Supreme Court of Michigan in 1919, and that the dividend was due and should have been paid to the decedent in 1917 out of 1916 earnings, and the income taxed according to the rates then in force. This claim was rejected.

6. Finding 6 in No. 42825 is by reference made a part hereof.

7. November 19, 1923, additional assessments were made against the estate of the decedent on account of matters unrelated to any of the issues herein involved. These assessments together with interest thereon were paid and satisfied.

8. On or about March 12, 1925, the Commissioner made a jeopardy assessment on account of additional income and profits tax of the decedent for 1919 of $2,627,309.05. About March 26, 1925, a letter was received at the office of the testator in Detroit giving notice that an additional income and profits tax amounting to $2,627,309.05 for the taxable year 1919 had been assessed against him and that he had the right to file with the collector within ten days after notice and demand for payment a claim for abatement thereof. This letter was accompanied by a statement as follows:

"Statement

"IT: PA-5 "IIP "In re Mr. David Gray, 25, McKinley Place, Grosse Pointe, Michigan. "1919 deficiency in tax, $2,627,309.05.

"A reexamination of your 1919 individual income tax return in connection with information furnished this office discloses the above deficiency, which is computed as follows:

Block D as reported — 525 shares Ford Motor Company stock: Sale price ................................... $6,562,500.00 March 1, 1913, value ......................... 4,981,903.50 _____________ Profit ..................................... 1,580,596.50

March 1, 1913, value reported ................ 4,981,903.50 March 1, 1913, value corrected ............... 1,382,850.00 _____________ Profit understated ........................... 3,599,053.50 Normal and surtax at 73% — additional tax ........................................ 2,627,309.05

"This assessment is in addition to all other outstanding and unpaid assessments appearing upon the collector's lists.

"Payment should not be made until a bill is received from the collector of internal revenue for your district and remittance should then be made to him."

9. Finding 9 in No. 42825 is by reference made a part hereof.

10. Finding 10 in No. 42825 is by reference made a part hereof.

11. Finding 11 in No. 42825 is by reference made a part hereof.

12. Finding 12 in No. 42825 is by reference made a part hereof.

13. On or about March 21, 1925, a claim for abatement of the tax so assessed in the sum of $2,627,309.05 was filed by the representatives of the decedent and at the same time a personal bond in the form prescribed by the collector of internal revenue at Detroit in support of the claim. This claim for abatement set forth a number of reasons for its allowance, among others that the value of $9,489.34 a share fixed by the Treasury Department as the March 1, 1913, value of the Ford Motor Company stock "was not excessive but was less than the fair and actual value of said stock on that date." The bond was on the form prescribed by the collector's office and read as follows:

"Know All Men by These Presents, That I, David Gray, of Grosse Pointe Farms, Michigan (hereinafter called the Principal), am held and firmly bound unto Fred L. Woodworth, as Collector of Internal Revenue for the First Collection District of Michigan (hereinafter called the Obligee), in the penal sum of Two Million Six Hundred Twenty-Seven Thousand Three Hundred Nine and 05/100 Dollars ($2,627,309.05) lawful money of the United States of Michigan [America] for the payment, well and truly to be made, I bind myself, my heirs, executors, and administrators, successors and assigns, firmly by these presents.

"Witness, my hand and seal at Detroit, Michigan, this 21st day of March, nineteen hundred and twenty-five.

"Whereas the above-bounded Principal has claimed or is about to claim an abatement in taxes erroneously or illegally assessed against him, and has asked or is about to ask for an abatement thereof, and

"Whereas the said Principal has agreed to pay to the said Obligee such sum or sums as shall be ultimately determined to be due and owing by said Principal, together with all penalties and interest that may lawfully accrue, it being the claim of the said Obligee that the sum of Two Million Six Hundred Twenty-Seven Thousand Three Hundred Nine and 05/100 Dollars ($2,627,309.05) is now due, and the Principal contending that he is not now indebted to the United States of America in such sum, as taxes, or otherwise.

"Now therefore, the condition of this obligation is such: That if the said Principal does not secure or is not allowed an abatement of his taxes, and shall pay to the said Obligee, the sum of Two Million Six Hundred Twenty-Seven Thousand Three Hundred Nine and 05/100 Dollars ($2,627,309.05), in payment of the taxes due from said Principal, together with the penalties and interest that may have lawfully accrued thereon, or such other sum or sums as shall be ultimately found to be due, then this obligation shall be void; otherwise to remain in full force and effect.

"David Gray, "By Luman W. Goodenough, "Attorney-in-Fact.

"Signed, sealed, and delivered in presence of —

"A.L. Hill. "Thos. M. Lewis.

"O.K. For acceptance with filing of abt. cl. $2,627,309.05.

"Fred L. Woodworth."

The notation, "For acceptance with filing of abt. cl. $2,627,309.05," was indorsed on the bond by an agent of the collector. The notation, "O.K. Fred L. Woodworth," was indorsed thereon by Fred L. Woodworth, who was the then collector of internal revenue at Detroit, Mich.

14. Finding 14 in No. 42825 is by reference made a part hereof.

15. Finding 15 in No. 42825 is by reference made a part hereof.

16. January 16, 1926, the decedent filed with the United States Board of Tax Appeals a petition for a redetermination of his income and profits tax for 1919. Among other assignments of error the petition alleged that the Commissioner erred in determining that the March 1, 1913, value per share of the Ford Motor Company stock "was not $9,489.34 or in excess thereof," and in "failing to find that the value of said stock on that date was at least $9,489.34 per share." June 28, 1928, the decision of the Board was promulgated (Gray v. Commissioner, 12 B.T.A. 956), in which it was determined that the March 1, 1913, value of the Ford Motor Company stock was $10,000 per share. November 16, 1928, the Board entered its final order or judgment determining that there was an overpayment of income and profits tax by the decedent for 1919 of $196,180.38. No appeal was taken by either party from the order of redetermination and the order has become final.

17. January 28, 1929, Luman W. Goodenough, as executor of the estate of the deceased, filed with the collector of internal revenue a letter inclosing an amended claim for refund of taxes alleged to be illegally collected for 1919. It asked for the refund of an overpayment of 1919 income tax of David Gray in the amount of $196,180.38. The claim for refund was executed under oath by Luman W. Goodenough, executor of the estate of David Gray, and a certified copy of an order of the probate court for Oakland county, Mich., appointing Mr. Goodenough as executor, was attached. As the reasons for the allowance of the refund the executor stated that the claims for refund of 1919 tax filed on or about January 10, 1921, and March 23, 1922, were amended by adding a paragraph as set forth in this claim. This additional paragraph stated that in his return for 1919 the decedent computed his profit upon the sale of 525 shares of Ford Motor Company stock upon the basis of a March 1, 1913, value of $9,489.34 a share, but that upon petition to the Board of Tax Appeals, the Board determined such value to have been $10,000 a share, and November 16, 1928, entered an order of redetermination that the decedent had overpaid his 1919 income tax in the amount of $196,180.38. At the same time counsel representing the decedent wrote letters to the Commissioner of Internal Revenue, the General Counsel for the Bureau of Internal Revenue, and the Assistant Secretary of the Treasury, making application for the reopening and reconsideration of the earlier claims.

18. On or about March 26, 1929, the Commissioner prepared a certificate of overassessment in favor of the decedent, showing an overassessment of taxes in the amount of $2,823,019.49. Of this amount $2,627,309.05 had been assessed but not paid, and that amount was abated. There was an indicated overpayment of tax of $195,710.44, of which amount the Commissioner held that $177,646.84 was barred from refund and $18,063.60 refundable. In addition, interest in the amount of $469.94 had been assessed and collected.

On or about April 5, 1929, the Commissioner delivered to plaintiffs, and plaintiffs accepted, the certificate of overassessment referred to above, which read as follows:

"Income Tax Unit "IT: C: CC "Treasury Department, "Office of Commissioner of Internal Revenue, "Washington. "Certificate of overassessment "Number: 780738. "Allowed: $2,645,842.59. "Schedule No. 33004. "Mr. David Gray, "% Luman W. Goodenough, "915 Hammond Building, Detroit, Michigan.

"Sir: An audit of your income tax return, Form 1040, and a consideration of all the claims (if any) filed by you for the year 1919 indicates that the tax assessed for that year was in excess of the amount due:

------------------------------------------------------------------ | Tax | Interest --------------------------------------|---------------|----------- Original assessment, #305725 ........ | $1,096,212.07 | ......... Assessment (amended return) | | #305725 ........................... | 328,887.57 | ......... Add'l assessment, Nov. 1923, P. | | 8, L. 8 ........................... | 18,063.60 | ......... Add'l assessment, Mar. 1925, P. | | O.L. 1, Spl. 5 .................... | 2,627,309.05 | ......... Interest assessed, July 1926, | | #530338 ........................... | ............. | $469.94 |_______________|__________ Total ............................ | 4,070,472.29 | 469.94 Correct tax liability and interest | | liability ...................... | 1,247,452.80 | None |---------------|---------- Overassessment tax and interest .. | 2,823,019.49 | 469.94 Amount barred from allowance ..... | 177,646.84 | ......... |_______________|__________ Overassessment allowable ......... | 2,645,372.65 | 469.94 Total overassessment ............. | 2,645,842.59 | ......... -----------------------------------------------------------------

"The overassessment shown herein is in accordance with the order of redetermination issued by the United States Board of Tax Appeals, Docket #11008, November 16, 1928, and is allowable under section 284(e) of the Revenue Act of 1926 [ 44 Stat. 66, 67].

"The amount of $177,646.84 is barred from allowance inasmuch as no claim has been filed within the statutory period requesting refund of the tax on the basis of a revised March 1, 1913, value of the Ford Motor Company stock sold in 1919.

"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.

"By direction of the Deputy Commissioner:

"Respectfully, "Charles P. Suman, "Head of Division.

"Abated: $2,627,309.05. "Credited: $ ........... to tax. year. "Credited: $ ........... to tax. year. "Refunded: $18,533.54. "Interest: $5,229.85. "Check mailed April 4, 1929."

On or about April 5, 1929, the Commissioner caused to be credited against the federal estate tax due from plaintiffs as executors of the estate of the deceased the sum of $23,763.39, being a refund of 1919 taxes in the amount of $18,533.54, with interest of $5,229.85. The plaintiffs refused to accept the credit in complete settlement of the refunds claimed, and immediately thereafter called to the attention of the Commissioner the insufficiency of the refund allowed. Thereafter several hearings were had, as well as numerous informal conferences, and various documents and briefs were filed with the accredited officials of the Bureau of Internal Revenue and consideration of the matter by such officials was given.

19. Finding 19 in No. 42825 is by reference made a part hereof.

20. Upon all of the evidence the court finds as an ultimate conclusion of fact that the plaintiffs' claim was reconsidered.

Special Findings of Fact in No. 42827.

1. The plaintiff is the duly qualified and acting testamentary trustee of the estate of Paul R. Gray, a citizen of Michigan, who died September 27, 1929, and whose last will and testament was duly admitted to probate.

2. March 16, 1920, the plaintiff's testator filed his individual income tax return for the calendar year 1919, showing a total net income subject to normal tax of $1,369,987.47, a total net income subject to surtax of $1,590,413.27, and a total amount of income tax due of $1,076,525.63. The return reported a profit of $1,580,596.50 (determined as shown below), resulting from the sale in the year 1919 of 525 shares of the capital stock of the Ford Motor Company, a Michigan corporation. The stock had been acquired by the decedent a long time prior to March 1, 1913, and its fair market value on March 1, 1913, exceeded its cost. Prior to the sale the Commissioner of Internal Revenue was requested to place a fair market value on the stock as of March 1, 1913, and as a result, after investigation, the Commissioner delivered a letter, dated May 19, 1919, in reply, reading as follows:

3. On or about May 1, 1920, the plaintiff's testator filed an amended individual income tax return for the calendar year 1919, showing the same amount of net income subject to normal tax as was shown in his original return, but reporting as subject to surtax an additional sum of $505,978.88, the latter sum being a distribution made to the deceased by the Ford Motor Company pursuant to a judgment made and entered in a certain action wherein John F. Dodge and Horace E. Dodge were plaintiffs and the Ford Motor Company et al., defendants, the judgment or decree being entered December 5, 1917, by the circuit court for Wayne county, Mich., and affirmed on appeal by the Supreme Court of the State of Michigan February 7, 1919 (reported in Dodge v. Ford Motor Co., 204 Mich. 459, 170 N.W. 668, 3 A.L.R. 413). As a consequence of the inclusion of this distribution, the amended return disclosed additional income tax for 1919 of $328,886.27.

March 16, 1920 ................ $269,131.41 June 3, 1920 .................. 82,221.58 June 15, 1920 ................. 351,352.98 September 15, 1920 ............ 351,352.98 December 15, 1920 ............. 351,352.95 ____________ Total ..................... 1,405,411.90

5. January 10, 1921, the plaintiff's testator filed a formal claim for refund of income tax for 1919 of $280,832.63. As the reasons for the allowance of the claim the decedent set forth that the dividend of $505,978.88 received from the Ford Motor Company in 1919 was paid to the decedent pursuant to a decree of the circuit court of Wayne county entered during the year 1917, which decree was affirmed on appeal by the Supreme Court of Michigan in 1919, and that the dividend was due and should have been paid to the decedent in 1917 out of 1916 earnings, and the income taxed according to the rates then in force. This claim was rejected.

6. Finding 6 of No. 42825 is by reference made a part hereof.

"Statement

"IT: PA-5 "IIP "In re: Mr. Paul R. Gray, 336 Seminole Avenue, Detroit, Michigan. "1919 deficiency in tax, $2,627,309.05.

"A reexamination of your 1919 individual income tax return in connection with information furnished this office discloses the above deficiency, which is computed as follows:

Block D as Reported

525 shares Ford Motor Company stock: Sale price ............................ $6,562,500.00 March 1, 1913, value .................. 4,981,903.50 _____________ Profit ............................. 1,580,596.50 ============= March 1, 1913, value reported ............. 4,981,903.50 March 1, 1913, value corrected ............ 1,382,850.00 _____________ Profit understated ..................... 3,599,053.50 Normal and surtax at 73% — additional tax ..................................... 2,627,309.05

"This assessment is in addition to all other outstanding and unpaid assessments appearing upon the collector's lists.

"Payment should not be made until a bill is received from the collector of internal revenue for your district and remittance should then be made to him."

9. Finding 9 in No. 42825 is by reference made a part hereof.

10. Finding 10 in No. 42825 is by reference made a part hereof.

11. Finding 11 in No. 42825 is by reference made a part hereof.

12. Finding 12 in No. 42825 is by reference made a part hereof.

13. On or about March 23, 1925, a claim for abatement of the tax so assessed in the sum of $2,627,309.05 was filed by the representatives of the decedent and at the same time a personal bond in the form prescribed by the collector of internal revenue at Detroit in support of the claim. This claim for abatement set forth a number of reasons for its allowance, among others that the value of $9,489.34 a share fixed by the Treasury Department as the March 1, 1913, value of the Ford Motor Company stock "was not excessive but was less than the fair and actual value of said stock on that date." The bond was on the form prescribed by the collector's office and read as follows:

"Know All Men by These Presents, that I, Paul R. Gray, of Detroit, Michigan (hereinafter called the Principal), am held and firmly bound unto Fred L. Woodworth, as Collector of Internal Revenue for the First Collection District of Michigan (hereinafter called the Obligee), in the penal sum of Two Million Six Hundred Twenty-Seven Thousand Three Hundred Nine and 05/100 Dollars ($2,627,309.05) lawful money of the United States of America, for the payment, well and truly to be made, I bind myself, my heirs, executors, and administrators, successors, and assigns, firmly by these presents.

"Witness my hand and seal at Detroit, Michigan, this 21st day of March nineteen hundred and twenty-five.

"Whereas the above bounded Principal has claimed or is about to claim an abatement in taxes erroneously or illegally assessed against him, and has asked or is about to ask for an abatement thereof, and

"Now, therefore, the condition of this obligation is such: That if the said Principal does not secure or is not allowed an abatement of his taxes, and shall pay to the said Obligee, the sum of Two Million Six Hundred Twenty-Seven Thousand Three Hundred Nine and 05/100 Dollars ($2,627,309.05), in payment of the taxes due from said Principal, together with the penalties and interest that may have lawfully accrued thereon, or such other sum or sums as shall be ultimately found to be due, then this obligation shall be void; otherwise to remain in full force and effect.

"Paul R. Gray, "By Luman W. Goodenough, "Attorney-in-Fact.

"Signed, sealed, and delivered in presence of ____

"A.L. Hill. "Thos. M. Lewis.

"O.K. For acceptance with filing of Cl. for abt. $2,627,309.05.

"Fred L. Woodworth."

The notation, "For acceptance with filing of Cl. for abt. $2,627,309.05," was indorsed on the bond by an agent of the collector. The notation, "O.K. Fred L. Woodworth," was indorsed thereon by Fred L. Woodworth, who was the then collector of internal revenue at Detroit, Mich.

14. Finding 14 in No. 42825 is by reference made a part hereof.

15. Finding 15 in No. 42825 is by reference made a part hereof.

16. January 16, 1926, the representatives of the deceased filed with the United States Board of Tax Appeals a petition for a redetermination of his income and profits tax for 1919. Among other assignments of error the petition alleged that the Commissioner erred in determining that the March 1, 1913, value per share of the Ford Motor Company stock "was not $9,489.34 or in excess thereof," and in "failing to find that the value of said stock on that date was at least $9,489.34 per share." June 28, 1928, the decision of the Board was promulgated (Gray v. Commissioner, 12 B.T.A. 916), in which it was determined that the March 1, 1913, value of the Ford Motor Company stock was $10,000 per share. November 16, 1928, the Board entered its final order or judgment determining that there was an overpayment of income and profits tax by the deceased for 1919 of $196,023.48. No appeal was taken by either party from the order of redetermination and the order has become final.

17. January 28, 1929, counsel for Paul R. Gray filed with the collector of internal revenue a letter inclosing an amended claim for refund of taxes alleged to be illegally collected for 1919. It asked for the refund of an overpayment of 1919 income taxes of Paul R. Gray in the amount of $196,023.48. The claim was executed under oath by Paul R. Gray. As the reasons for the allowance of the refund the claim stated that the claims for refund of 1919 tax filed on or about January 10, 1921, and March 23, 1922, were amended by adding a paragraph, as set forth in the claim. This additional paragraph stated that in his return for 1919 the deceased computed his profit upon the sale of 525 shares of Ford Motor Company stock upon the basis of a March 1, 1913, value of $9,489.34 a share, but that upon petition to the Board of Tax Appeals, the Board determined such value to have been $10,000 per share, and November 16, 1928, entered an order of redetermination that the deceased had overpaid his 1919 income tax in the amount of $196,023.48. At the same time counsel representing the deceased wrote letters to the Commissioner of Internal Revenue, the General Counsel for the Bureau of Internal Revenue, and the Assistant Secretary of the Treasury, making application for the reopening and reconsideration of the earlier claims.

18. On or about December 28, 1928, the Commissioner prepared a certificate of overassessment in favor of the decedent, showing an overassessment of tax in the amount of $2,823,019.49. Of this amount $2,627,309.05 had been assessed but not paid, and that amount was abated. There was an indicated overpayment of tax of $195,710.44, of which amount the Commissioner held that $185,236.05 was barred from refund and $10,474.39 refundable. In addition, interest in the amount of $313.04 had been assessed and collected. On or about April 9, 1929, the Commissioner delivered to the plaintiff and plaintiff accepted the certificate of overassessment referred to above, which read as follows:

"Income Tax Unit "IT: C: PrA "RR "Treasury Department, "Office of Commissioner of Internal Revenue, "Washington. "Certificate of Overassessment "Number: 780737. "Allowed: $2,638,096.43. "Schedule No. 33004. "Mr. Paul R. Gray, "% Luman W. Goodenough, Atty., "915 Hammond Building, Detroit, Michigan.

"Sir: An audit of your income-tax return, form 1040, and a consideration of all the claims (if any) filed by you for the year 1919 indicates that the tax assessed for this year was in excess of the amount due:

----------------------------------------------------------------- | Tax | Interest --------------------------------------|---------------|---------- Original assessment account | | #305724 ............................ | $1,076,525.63 | ......... Assessment (amended return) | | account #305724 .................... | 328,886.27 | ......... Additional assessment Nov. | | 1923, P. 9, L. 1 ................... | 10,474.39 | ......... Additional assessment interest | | Aug. 1925, Aug. — 531052 ........... | ............. | $313.04 Additional assessment Mar | | 1925, P.O.L. 2 Spl. #5 ............. | 2,627,309.05 | ......... |_______________|__________ Total ............................ | 4,043,195.34 | 313.04 Correct tax and interest liability .. | 1,220,175.85 | None |---------------|---------- Overassessment tax and interest .. | 2,823,019.49 | 313.04 Barred from allowance ............... | 185,236.05 | ......... |_______________|__________ Overassessment allowable ......... | 2,637,783.44 | 313.04 Total overassessment ............. | 2,638,096.48 | ......... -----------------------------------------------------------------

"The overassessment shown herein is in accordance with the order of redetermination issued by the United States Board of Tax Appeals November 16, 1928, docket No. 11007 and is allowable under section 284(e) of the Revenue Act of 1926 [ 44 Stat. 66, 67].

"The amount of $185,236.05 is barred from allowance inasmuch as no claim has been filed within the statutory period requesting refund of tax on the basis of a revised March 1, 1913, value of the Ford Motor Company stock sold.

"Included in the accompanying check is interest in the amount stated below, allowed on the refund or credit.

"Respectfully, "C.B. Allen, "Deputy Commissioner. "By Charles P. Suman, "Head of Division. "Abated: $2,627,309.05, 25-Mar. 02, Spl. #5 (19). "Credited: $ ............. to tax. year. "Refunded: $10,787.43. "Interest: $2,939.64."

On or about April 9, 1929, the collector of internal revenue at Detroit, Mich., delivered to plaintiff a check for $13,727.07, being a refund of 1919 taxes in the amount of $10,787.43 with interest of $2,939.64. Plaintiff refused to accept the credit in complete settlement of the refund claimed, and immediately thereafter called to the attention of the Commissioner the insufficiency of the refund allowed. Thereafter several hearings were had, as well as numerous informal conferences, and various documents and briefs were filed with the accredited officials of the Bureau of Internal Revenue and consideration of the matter by such officials was given.

19. Finding 19 in No. 42825 is by reference made a part hereof.

20. Upon all of the evidence the court finds as an ultimate conclusion of fact that the plaintiff's claim was reconsidered.

GREEN, Judge.

The three cases named in the separate findings of fact preceding have been submitted to the court together by counsel for the respective parties, having each filed but one brief. While the computation of the tax will involve the consideration of some details that are not the same in each case, the views expressed in this opinion on matters controlling the decision, and the ultimate conclusion stated herein, will apply equally to all of the cases and in connection with the separate findings of fact enable judgments to be rendered in each of them.

In each case the suit is brought to recover income taxes alleged to have been overpaid for the year 1919 by Philip H. Gray, David Gray, and Paul R. Gray, respectively. These parties were deceased when the actions were commenced and Luman W. Goodenough is the testamentary trustee under the will of Philip H. Gray, and also under the will of Paul R. Gray. Luman W. Goodenough and Martha Platt Gray are trustees in the case of David Gray. The parties named were living in 1920 and each filed during the month of March his income tax return. About May 1, 1920, each taxpayer filed an amended return and the amount of the tax as disclosed in the original return together with the increase shown in the amended return in each case was paid in installments during the year 1920. In the following year a claim for refund was filed in each case alleging that the additional income reported in the amended return was in reality income for 1917 and not for 1919. This claim was ultimately rejected and there is now no controversy in relation to it.

In each case an additional tax was assessed in 1923 and later paid. The amount of this additional assessment was later refunded with interest (see finding 18) and is not now in controversy.

On March 12, 1925, the Commissioner made a jeopardy assessment against each of these three taxpayers of $2,627,309.05. Notice was given of this assessment and demand made for payment.

On March 18, 1925, duly authorized representatives of the taxpayers came to Washington and told Mr. Nash, then Acting Commissioner of Internal Revenue, to whom they were referred, that they desired to file waivers of the statute of limitation in each case in order to secure the withdrawal of the additional assessment. Philip H. Gray was then deceased and the Acting Commissioner stated that an executor could not waive the benefit of the statute of limitations. As to the other two, the Acting Commissioner stated that an assessment having been made and entered on a collector's books, it could not be withdrawn, and accordingly the Treasury Department would not accept waivers of the statute of limitations made by them. The Acting Commissioner further stated that the Treasury Department was then making arrangements for the filing of personal bonds without sureties in the three cases and said: "You can file your claim in abatement and accompany it by these bonds and that will operate just as a waiver and you would (will) accomplish the same purpose as you would if you filed waivers here."

After some controversy with reference to the form of the bonds, about March 23, 1925, claims for abatement of the several jeopardy assessments against the Grays were filed with the collector at Detroit and personal bonds without sureties were filed in each case in the form prescribed by the collector. Each of these bonds bound the obligee to pay all taxes found to be due from the principal together with penalties and interest lawfully accrued.

Following the filing of the claims for abatement and after hearings thereon, the Commissioner, on November 19, 1925, allowed the claims in part and rejected them in part. This had the effect to reduce the additional assessment in each case by approximately $350,000.

On January 16, 1926, David Gray, Paul R. Gray, and the estate of Philip H. Gray each took an appeal with the Board of Tax Appeals and filed a petition asking for a determination of their respective income tax liability for 1919. Among other things, the petitions alleged that the Commissioner erred in determining the March 1, 1913, value of the Ford Motor Company stock which was alleged to be at least $9,489.34 per share — the figure fixed by Commissioner Roper and employed by the Grays in their returns for 1919. On June 28, 1928, the Board announced a decision that the value March 1, 1913, of the Ford Motor Company stock was $10,000 per share, and on November 16, 1928, the Board entered its final order determining that there was an overpayment of 1919 income taxes by David Gray in the amount of $196,180.38, by Paul R. Gray in the amount of $196,023.48, and by Philip H. Gray in the amount of $197,723.11. No appeals were taken from these orders for redetermination and they have now become final.

About December 28, 1928, a certificate of overassessment was issued in favor of Paul R. Gray which indicated an overpayment of tax of $195,710.44, of which amount the Commissioner held that $185,236.05 was barred from refund and $10,474.39 refundable together with some interest that had been collected. In the case of Philip H. Gray, a certificate of overassessment was issued indicating an overpayment of taxes of $195,710.45 of which the Commissioner held that $177,569.08 was barred from refund and $18,141.37 refundable together with interest in the amount of $2,012.66 which had been collected. In the case of David Gray, the certificate of overassessment indicated an overpayment of tax in the amount of $195,710.44, of which amount the Commissioner held that $177,646.84 was barred from refund and $18,063.60 refundable together with interest in the amount of $469.94 which had been collected. The basis of the holding that part of the overpayment was barred was stated by the Commissioner to be that "no claim has been filed within the statutory period requesting refund of tax on the basis of a revised March 1, 1913, value of the Ford Motor Company stock sold." The amounts stated by the Commissioner to be refundable in the several certificates of overassessment were subsequently paid with interest by the defendant, but the Grays refused to accept this payment in complete settlement of the refunds claimed. The suits now pending are brought for the purpose of recovering the balance of the overpayment determined by the Board which the Commissioner refused to refund.

In the meantime and prior to the delivery of the certificates of overassessment, about January 28, 1929, the representatives of the Grays filed three letters with the collector at Detroit each inclosing an amended claim for refund of 1919 income taxes on behalf of the respective taxpayers and containing a request that the earlier claims be reopened and reconsidered. The new claims were the same as those previously filed with the addition of a paragraph stating in substance on behalf of each taxpayer that in his return for 1919 he had computed his profits upon the sale of 525 shares of the Ford Motor Company stock upon the basis of a March 1, 1913, value of $9,489.34 a share, but that upon petition to the Board of Tax Appeals the Board had determined such value to have been $10,000 per share and had redetermined the tax due and fixed an overpayment accordingly. These claims were afterwards considered and rejected.

The plaintiffs complain because the findings do not set out proceedings instituted by Senator Couzens before the Board of Tax Appeals whereby he procured a refund of approximately $997,000 as an overassessment on the sale of stock of the Ford Motor Company. But while the facts in relation to this matter appear in the testimony, we think they merely show that the Board of Tax Appeals' decisions were harmonious and add nothing to plaintiffs' case.

It is conceded that in each case the tax of the plaintiff's testator has been overpaid, but the defendant contends that no proper claim for refund was filed within the time prescribed by the statute and that plaintiffs' cause of action is barred.

The statutory provisions with reference to the time when refund claims must be filed and suits thereon instituted are so familiar that we do not need to set them out. The evidence shows that the only claims which were filed within four years of the payment of the tax or within five years of the filing of the returns were filed January 10, 1921, and in practically identical form March 23, 1922. These claims related solely to the question of whether the dividends received in 1919 were income for that year, and it is now conceded that no refund is due any of the plaintiffs on that ground. But it is argued on behalf of the plaintiffs that the cases now before us come under an exception to the general rule for the following reasons:

(1) That any defect in the claims for refund filed January 10, 1921, and March 23, 1922, was waived by the Commissioner, and that in any event they were amended by the claims for refund filed January 28, 1929, which, by reason of the original claims having been reconsidered, were filed in time and related back to the date when the former claims were filed.

(2) That the filing of bonds on the part of the plaintiffs for the payment of any amount which should be found due upon the tax operated as a waiver of all limitations pertaining to the enforcement of the tax and extended the period of limitations within which claims might be presented, with the result that the petitions filed by plaintiffs with the Board of Tax Appeals were filed within the period required by the statute in order that the overpayment adjudged might be refunded.

(3) That the certificates of overassessment following the decision of the Board of Tax Appeals amounted to an account stated which was accepted by plaintiffs and suit brought within six years thereafter.

On the part of the defendant it is contended that none of the propositions presented are well founded and we will consider the issues so raised in the order above stated.

We think that the claims of plaintiffs were reconsidered, and have accordingly so found. The evidence shows that for some time prior to March 12, 1925, the Commissioner had before him under consideration the question of the fair market value March 1, 1913, of the Ford Motor Company stock, and about January 17, 1929, the Commissioner advised each plaintiff that a certificate of overassessment had been scheduled. In each case this certificate of overassessment was received by the plaintiff shortly after and showed that part of the overassessment was to be refunded and stated that the remainder was barred from allowance "inasmuch as no claim has been filed within the statutory period requesting refund of tax on the basis of a revised March 1, 1913, value of the Ford Motor Company stock sold."

January 28, 1929, additional claims were filed based on an alleged error in fixing the value of the Ford Motor Company stock and the decision of the Board of Tax Appeals. In each case the claim was designated as an "amended claim for refund of taxes illegally collected" and application was made for the reopening and consideration of the claims as amended. The General Counsel of the Bureau acknowledged receipt of the letter of January 28, 1929, and advised counsel that a date would be assigned for a hearing in connection with the claims. Thereafter a number of hearings were had, and it was repeatedly stated to the representatives of the plaintiffs in substance that the matter of plaintiffs' claims would be carefully considered. Briefs were also filed and examined. March 23, 1931, the Commissioner wrote counsel for the three Grays that long and careful consideration had been given to their contentions and that he was compelled to deny their request. Thereupon counsel for the three Grays presented a communication to the Commissioner which reiterated some of the previous arguments and in addition called attention to recent decisions of the Supreme Court. Replying to this letter the Commissioner indicated that its contents would be given consideration and that he would reconsider the rejections which he had made. Thereafter, there were more hearings and conferences, affidavits were filed, and the Undersecretary of the Treasury on March 22, 1932, wrote the Grays that the letters and affidavits filed by them bearing on the interpretation of the bonds would be carefully considered and counsel would be advised further. Finally on June 28, 1933, the Treasury Department sent the representatives of the plaintiffs a letter in which it was said that the cases submitted had been examined, that the other points had been made the subject of consideration and reconsideration, and in substance that the request for allowance of the claims could not be granted.

If, when the request for reconsideration was made, the Commissioner had announced that he would reconsider the claims, hear all arguments, and receive any other matter which the plaintiffs wished to submit, we do not know what more could have been done. The evidence justifies the conclusion as an ultimate fact that a reconsideration was had. We think that this conclusion does not dispose of the question of whether the claim filed January 28, 1929, which was later rejected, could be considered in law as an amendment to the earlier claims and relating back to the date when they were filed, but the views which we take of the issue next considered make it unnecessary for us to pass on this point or to otherwise determine the effect of the reconsideration.

Taking up next the question of whether the proceedings before the Board of Tax Appeals and its decision were such as to require the overpayment to be refunded without any further claim being filed, it becomes necessary to examine the statutes applicable to the facts in the case as shown by the evidence.

Section 507 of the 1928 act ( 45 Stat. 871) reads as follows: Section 284(e) of the Revenue Act of 1926 is amended to read as follows: "(e) If the Board finds that there is no deficiency and further finds that the taxpayer has made an overpayment of tax in respect of the taxable year in respect of which the Commissioner determined the deficiency, the Board shall have jurisdiction to determine the amount of such overpayment, and such amount shall, when the decision of the Board has become final, be credited or refunded to the taxpayer as provided in subdivision (a). Unless claim for credit or refund, or the petition, was filed within the time prescribed in subdivision (g) for filing claims, no such credit or refund shall be made of any portion of the tax paid more than four years (or, in the case of a tax imposed by this title, more than three years) before the filing of the claim or the filing of the petition, whichever is earlier."

In the report on the bill the Ways and Means Committee, among other things, said: "In order, however, to give the taxpayer the full benefits of the provisions of section 284(g), it is provided that this limitation on the amount of the credit or refund shall not be applicable where either the claim or the petition was filed within the time prescribed in section 284(g) for filing a claim."

Keeping in mind that section 507 is an amendment of section 284 of the 1926 act ( 44 Stat. 66), we find that subdivision (a) of the section last referred to provides for the immediate refund of overpayments under certain conditions, that the amendment contained in the 1928 act changes the original wording of 284(e) and provides that the refund shall not be made unless claim for the refund "or the petition" was filed within the time prescribed by subdivision (g) for filing claims, and that subdivision (g) provides with reference to taxes for 1919 that if a waiver of the limitation on assessment has been filed the refund of any overpayment shall be made if claim therefor is filed on or before April 1, 1926. The Supreme Court in construing section 507 of the 1928 act said in Bonwit Teller Co. v. United States, 283 U.S. 258, 263, 51 S.Ct. 395, 397, 75 L. Ed. 1018: "The section is a part of a tax law giving to taxpayers opportunity to secure refund of overpayments that had become barred. Manifestly it is to be construed liberally in favor of the taxpayers to give the relief it was intended to provide."

Section 507 of the act of 1928 pertains to proceedings before the Board of Tax Appeals as both the heading of the section and its language show. It provided that if either the claim or the petition was filed in time the refund must be made. Manifestly the word "petition" used therein refers to the petition filed before the Board. Evidently Congress in view of the fact that the Board had jurisdiction to determine overpayments and the petitioner was obliged to submit all of his claims for the year in question in his petition, considered it unnecessary and a mere duplication to present a claim for refund if the petition had been filed within the time allowed for filing a claim. Whether this was done in the case before us, we will next consider.

It has been shown in the statement of the case that the plaintiffs filed in each case a bond for the payment of any tax that might be found to be due. They were assured by the Acting Commissioner that this taken with the claim in abatement would have the same effect as the filing of a waiver which he refused to permit, but independently of this the authorities are so numerous and definite that the bond operated as a waiver even more extensive than the waiver usually filed that we do not think it necessary to refer to the cases on this point.

Having found that a waiver of the time within which assessment could be made was filed, we will next determine the effect of this waiver in connection with the proceedings before the Board of Tax Appeals.

The taxes having been paid more than four years before the filing of the petition, section 507 of the 1928 act made it necessary for the plaintiffs to show that it (the petition) was filed within the time prescribed for filing claims in subdivision (g) of section 284 of the 1926 act ( 44 Stat. 67). This subdivision, so far as material here, provided: "If the taxpayer has, on or before June 15, 1925, filed such a waiver in respect of the taxes due for the taxable year 1919, then such credit or refund relating to the taxes for the taxable year 1919 shall be allowed or made if claim therefor is filed either on or before April 1, 1926." In the cases before us the bonds which operated as a waiver were filed on or about March 23, 1925. The petition was filed with the Board of Tax Appeals January 16, 1926. The plaintiffs were therefore acting in time with respect to both of these matters and the statute requiring the refund to be made was mandatory. No appeal having been taken, the decision of the Board of Tax Appeals became final and was in effect a court adjudication upon which suit could be brought within six years. Its final order determining the overpayment for 1919 was made November 16, 1928, and in all three cases the action was begun within the period of limitations. As the plaintiffs have complied with the statute, we hold that their claim is not barred and they are entitled to recover the amount unpaid on their respective overpayments as determined by the Board together with interest.

The views we have expressed above are sustained by the opinion in the case of Western Wheeled Scraper Co. v. United States (C.C.A.) 72 F.2d 487, 489, in which the court said: "In fact, Congress, when it amended section 284(e) of the Revenue Act of 1926 * * * showed a clear intention that the filing of the petition with the Board of Tax Appeals under section 507 of the Act of 1928 * * * was to have the same effect as the filing of a claim for credit or refund if filed within the time prescribed by subsection (g) * * * for filing claims."

The case of the National Fire Ins. Co. v. United States 52 F.2d 1011, 1013, 72 Ct.Cl. 663, is called to our attention by counsel for defendant. We think it is in entire accord with our construction of the statute as set out above. In the case last cited it was said: "In Ohio Steel Foundry Co. v. United States, 38 F.2d 144, 69 Ct.Cl. 158, and Arthur Curtiss James v. United States, 38 F.2d 140, 69 Ct.Cl. 215, this court pointed out that in cases where the Board of Tax Appeals determines an overpayment and no question of credits is involved, and the refund of the overpayment was not barred by the statute of limitation at the time of the decision by the board, suit might be brought within six years from the date the right to the overpayment accrued as for a claim against the United States in the event the commissioner refused to refund the overpayment determined by the board." In the National Fire Ins. Co. Case, however, the facts showed that the plaintiff had not filed its petition before the Board of Tax Appeals, or a claim for refund, within the time required by section 284(g) of the act of 1926 and the refund of the overpayment was barred by the statute of limitations at the time of the decision by the board. In the instant case we have shown that the refund was not barred but refundable under the statute.

While it is not necessary to proceed further with the case, we think it may be well to consider another branch of it. As before stated, the plaintiff in each case claims that the certificate of overassessment constituted an account stated in his favor. The defendant, however, contends that the refusal of the Commissioner to pay part of the overpayment prevents the certificate from being an account stated as to the balance unpaid. With this contention, we do not agree. In the case now before us, when the Commissioner presented the certificate of overassessment, he was stating in effect: "Here is the account of your taxes. It shows that the Government owes you a certain amount but I will pay only part of it as the remainder is barred by the statute of limitations." It will be observed there was no dispute as to the account. In fact the parties were in agreement in relation to it but the Commissioner expressed his opinion that the law did not require him to pay all that it showed was due the taxpayer. Herein is the difference between the case now before us and the case of Daube v. United States, 289 U.S. 367, 53 S.Ct. 597, 77 L. Ed. 1261, and other cases of the same nature, wherein the certificate stated items of debit and credit and this court held that the plaintiff could not pick out of the account the items of credit and bring suit thereon rejecting the items of debit.

We think the basic principle involved as stated by the authorities is that a certain fixed sum must be admitted to be due, and it is this acknowledgment of indebtedness in a certain sum that gives rise to the implied promise to pay the same. Recovery on this implied promise may be barred by lapse of time and the Commissioner incorrectly asserted that it was in this case, but this does not prevent the certificate from becoming an account stated. The rule above stated has been applied by us in the following cases: Shipley Construction Supply Co. v. United States, 7 F. Supp. 492, 79 Ct.Cl. 736, Frank H. Gage v. United States, 14 F. Supp. 500, 83 Ct.Cl. ___, certiorari denied 57 S.Ct. 35, 81 L.Ed. ___, and Wood v. United States (Ct. Cl.) 17 F. Supp. 521. In the early case of Toland v. Sprague, 12 Pet. 300, 335, 9 L.Ed. 1093, the Supreme Court said: "* * * the question between them is not about the account, or any item in it; but as to the right of the defendant to retain the admitted balance, to repay the advances made to Pettit." And it was held there was an account stated although the right to recover thereon was disputed. Following the rule laid down in these cases, we hold that an account was stated showing the full amount of the overpayment to be due and owing, and that in each of the cases the plaintiff is entitled to recover on an account stated the amount of the unpaid balance with interest. The amount of plaintiffs' recovery will be the same whether it is based upon the decision of the Board of Tax Appeals or upon an account stated.

Judgment will be rendered accordingly, and it is so ordered.

Goodenough v. United States, (1937)

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Goodenough v. United States, (1937)

Goodenough v. United States, (1937)

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Goodenough v. United States, (1937)

Opinion

"Statement

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Goodenough v. United States, (1937)

Goodenough v. United States, (1937)

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