Opinion
Docket No. 38126.
1957-09-30
HEADLINE PUBLICATIONS, INC. (FORMERLY AMERICAN BOYS' COMICS, INC.), Petitioner,v.COMMISSIONER OF INTERNAL REVENUE, Respondent.
Sidney Gelfand , for the petitioner. Arthur N. Mindling, Esq. , for the respondent.
Petitioner filed a timely refund claim under section 722, I. R. C. 1939, for the fiscal year 1945. The abbreviated claim made no mention of carryover or carryback credits. Petitioner filed an amended claim after the statute of limitations had run asking for an unused excess profits credit carryover from the fiscal year 1944 and carryback from the fiscal year 1946 based on requested section 722 determinations for those years. The amended claim, held, barred by the statute of limitations. Sidney Gelfand, for the petitioner. Arthur N. Mindling, Esq., for the respondent.
For the fiscal year ended November 30, 1945, respondent determined a deficiency in income tax in the amount of $2,124.27 and an overassessment in excess profits tax in the amount of $6,726.89. In making such determination, the respondent refused to allow an unsued excess profits credit carryover and carryback based on a constructive average base period net income for the years ended November 30, 1944, and November 30, 1946. The parties have stipulated that the sole issue for determination is whether or not the applicable statute of limitations bars the allowance of petitioner's claim to an unused excess profits credit carryover and carryback from the fiscal years 1944 and 1946 to the fiscal year 1945.
FINDINGS OF FACT.
Some of the facts are stipulated. The stipulation, supplemental stipulation, and the exhibits attached thereto are incorporated herein by this reference.
Headline Publications, Inc. (formerly American Boys' Comics, Inc.), hereinafter referred to as petitioner, was incorporated on December 1, 1942, under the laws of the State of New York and adopted a fiscal year ending November 30. The petitioner has its principal office in New York City and at all times relevant herein was engaged in the publication of a comic magazine.
Petitioner timely filed its corporation income, declared value excess-profits, and corporation excess profits tax returns for each of the fiscal years 1944, 1945, and 1946 (taking into consideration extensions of time previously granted) with the then collector of internal revenue for the third district of New York.
The excess profits net income, excess profits credit (on the invested capital credit method), specific exemption, and adjusted excess profits net income shown on petitioner's excess profits tax return for each of the fiscal years ended November 30, 1943, 1944, 1945, and 1946, were as follows:
+-----------------------------------------------------------------+ ¦ ¦ ¦Excess ¦ ¦ ¦ +----------------------+-----------+--------+---------+-----------¦ ¦ ¦ ¦profits ¦ ¦ ¦ +----------------------+-----------+--------+---------+-----------¦ ¦ ¦Excess ¦credit ¦ ¦Adjusted ¦ +----------------------+-----------+--------+---------+-----------¦ ¦Year ended November 30¦profits net¦(on the ¦Specific ¦excess ¦ +----------------------+-----------+--------+---------+-----------¦ ¦ ¦income ¦invested¦exemption¦profits net¦ +----------------------+-----------+--------+---------+-----------¦ ¦ ¦ ¦capital ¦ ¦income ¦ +----------------------+-----------+--------+---------+-----------¦ ¦ ¦ ¦credit ¦ ¦ ¦ +----------------------+-----------+--------+---------+-----------¦ ¦ ¦ ¦method) ¦ ¦ ¦ +----------------------+-----------+--------+---------+-----------¦ ¦1943 ¦$10,110.13 ¦$600.00 ¦$5,000 ¦$4,510.13 ¦ +----------------------+-----------+--------+---------+-----------¦ ¦1944 1 ¦8,198.62 ¦1.003.59¦5,000 ¦2,195.03 ¦ +----------------------+-----------+--------+---------+-----------¦ ¦1944 2 ¦8,198.62 ¦1,003.59¦10,000 ¦0 ¦ +----------------------+-----------+--------+---------+-----------¦ ¦1945 ¦40,812.31 ¦1,632.30¦10,000 ¦29,180.01 ¦ +----------------------+-----------+--------+---------+-----------¦ ¦1946 ¦1,596.18 ¦2,662.87¦10,000 ¦0 ¦ +-----------------------------------------------------------------+
1 For purpose of computation under 1943 rates.3. After allowance of unused excess profits credit of $1,066.69 arising in the fiscal year ended November 30, 1946, as an unused excess profits credit carryback adjustment in the fiscal year ended November 30, 1944.In 1948 an additional $525.53 was paid, making a total of $25,474.44.
By way of answer to question 6 on the second page of such form, claim was made for a constructive average base period net income of $22,540. The only statement purporting to deal with the factual basis for the claim being asserted was a reference to petitioner's prior application for the fiscal year 1943 which read as follows: ‘History, basis of claim and details of reconstruction of base period earnings included in data filed with claim for relief from excess profits tax for the fiscal year ended November 30, 1943.’
The original application was referred to the Section 722 Field Committee and was disallowed by that Committee in a report dated January 31, 1949. This determination was then certified, under established procedure, to the chairman of the Excess Profits Tax Council in Washington, D. C. On February 23, 1950, the Council held a conference in connection with its consideration of the claim, at which the petitioner was represented. This was the only conference attended by a representative of petitioner.
In a report covering the Council's determination, dated March 30, 1950, a constructive average base period net income with respect to the fiscal year 1945 was allowed in the amount of $10,000. This determination was approved by the Executive Committee of the Council on April 17, 1950, and the case was returned to the New York field office on April 19, 1950. On the same date, a member of the Council notified petitioner's representative by mail that the Executive Committee of the Council had approved the allowance of a constructive average base period net income in the amount of $10,000 for each of the fiscal years 1943 and 1945. Thereafter, petitioner was notified by a so-called 30-day letter dated November 17, 1950, that its income and excess profits tax liability for the fiscal year 1945 had been adjusted to the same amounts which were subsequently reflected in the statutory notice of deficiency dated October 5, 1951.
On March 11, 1950, petitioner filed another Form 991 with respect to the fiscal year 1945 on which form the printed heading was altered to read: ‘Amendment To Application For Relief Under Section 722 of The Internal Revenue Code.’ This document (hereinafter referred to as the amended claim) was made up of the first two pages of the printed form and a single typewritten sheet which was executed by the petitioner's officers. By way of answers to the questions set forth on the first page of the form, claim was made for the refund of $25,474.44 which corresponded to the total amount of excess profits tax which had been paid with respect to the fiscal year 1945. The complete text of the statement (exclusive of verification matter) was as follows:
Further to the application of American Boys' Comics, Inc. for relief from excessive excess profits tax pursuant to the provisions of Section 722 of the Internal Revenue Code, for the fiscal year ended November 30, 1945, claim is hereby made, in the event the excess profits credit determined pursuant to the provisions of Section 722 is an amount not sufficient to eliminate all the excess profits tax for the fiscal year ended November 30, 1945, for an unused excess profits credit carry-over from the fiscal year ended November 30, 1944 and an unused excess profits credit carry-back from the fiscal year ended November 30, 1946.
The taxpayer originally claimed a reconstructed excess profits credit in an amount sufficient to eliminate the entire excess profits tax for the fiscal year ended November 30, 1945 without the benefit of unused excess profits credit carry-over and carry-back. To date no final determination of the reconstructed excess profits credit which the taxpayer is entitled to has been made.
On March 13, 1950, petitioner's representative sent a copy of the amended claim to the respondent for the attention of a representative of the Excess Profits Tax Council. His letter of transmittal contained the following paragraph:
[I]t is noted that the form EPC–1 submitted to me at the conclusion of our conference in Washington on February 23rd only provides for a constructive average base period net income for the taxable years ended November 30, 1943 and November 30, 1945. In order to obtain the benefits of unused excess profits credit carry-overs and carry-backs, it is requested that a constructive average base period net income for 1944 and 1946 be set out on form EPC–1. No applications for relief on form 991 were filed for 1944 and 1946 in view of the fact that the excess profits net income in each of those years was less than $10,000.00—the specific exemption. Therefore, no application was necessary, and in fact would have been out of order. The letter then continued to ask that there be sent to petitioner's representative ‘a revised EPC–1 showing constructive average base period net income for the taxable years ended November 30, 1943, November 30, 1944, November 30, 1945, and November 30, 1946.’
On March 24, 1950, a member of the Excess Profits Tax Council wrote petitioner's representative informing him that the amended claims had been forwarded to the Section 722 Field Committee in New York for action because they were ‘not properly before the Excess Profits Tax Council as they do not involve any issues under the provisions of section 722 of the Internal Revenue Code but relate only to standard issues.’ The letter further stated:
The only applications for relief for the two years which are properly before the Council relate to the question of the determination as to whether the taxpayer's excess profits credit for these years, as computed under the invested capital method, is an inadequate standard for determining excess profits by reason of the contention that the taxpayer qualifies for relief under the provisions of section 722(b)(4), I. R. C. The amended claims relate to the question of a credit carry-back and a credit carry-forward and any action with respect to this question must be initiated by the Section 722 Field Committee, Upper New York Division, before the Excess Profits Tax Council can take jurisdiction.
Upon consideration by the Field Committee, it was determined that the amended claims were untimely. Accordingly, they were transmitted along with the section 722 file to the standard issue examining officer for rejection.
Petitioner filed a protest dated December 8, 1950, which was duly considered by the Appellate Division (then the Technical Staff, New York Division) which sustained the examining officer.
On June 21, 1951, in a letter to a representative of respondent, petitioner's representative correctly, but for the first time, stated to respondent that the computations by which he arrived at the sum requested as refund in the original application, which was equal to the total amount of tax paid, included and must have included unused excess profits credit carryovers and/or carrybacks. He went on to say:
It is the taxpayer's contention that the Bureau of Internal Revenue in acting upon the taxpayer's original claim and the computation of the amount of refund had to be on notice of the claim for unused excess profits credit carry-overs and carry-backs even though such claim was not expressed in specific words. In this letter he enclosed the computations referred to therein which made use of an excess profits credit carryover from 1944 of $13,214.38 and a carryback from 1946 of $19,816.92.
The statutory notice of deficiency dated October 5, 1951, discloses respondent's refusal to allow any unused excess profits credit adjustment in the computation of petitioner's excess profits tax liability for the fiscal year 1945. The refusal to make this allowance was explained as follows:
It is held that the amended Form 991 filed with the Excess Profits Tax Council on March 15, 1950, in which you claim the benefits of unused excess profits credit carry-forward and carry-back from the fiscal years ended November 30, 1944 and 1946 to November 30, 1945, an issue not contained in the original form 991 covering the fiscal year ended November 30, 1945, is not a timely amendment in respect of such new issue. Shortly before the trial of this case, and solely for the purpose of stipulating all the necessary factors for its determination, respondent's representatives conferred with petitioner's representatives for the purpose of determining the constructive average base period net income of petitioner for the fiscal years ended November 30, 1944 and 1946.
Upon determining that conditions prevalent during the fiscal years 1943 and 1945 were not different from those in the fiscal years 1944 and 1946, respondent's representatives prepared a Council determination of a constructive average base period net income in the amount of $10,000 for each of the fiscal years 1944 and 1946. This Council determination, dated October 17, 1956, was reviewed and approved by the Excess Profits Tax Council Coordinator on October 22, 1956.
The report of the Council determination contained the following paragraphs:
Subsequent to the issuance of the statutory notice, taxpayer filed a timely petition with the Tax Court on December 24, 1951. A hearing before the Tax Court has been set for the Calendar beginning October 22, 1956 in New York, N. Y. It is being contemplated that the case will be submitted to the Tax Court under Rule 30 of its Rules of Practice. The sole issue to be decided by the Court is whether or not the applicable statute of limitations bars the allowance of the taxpayer's claims to unused excess profits credit adjustments in the fiscal year ended November 30, 1945 by reason of an unused excess profits credit carry-over from the fiscal year ended November 30, 1944 and an unused excess profits credit carry-back from the fiscal year ended November 30, 1946.
It is further to be stipulated that should the Court find in favor of the taxpayer with respect to the above issue the CABPNI to be used for the fiscal years ended November 30, 1944 and November 30, 1946 for carry-over and carry-back purposes shall be in the amount of $10,000. As a result, a Council determination of a CABPNI for such years is required.
It is therefore determined that a CABPNI of $10,000 be allowed for carry-over and carry-back purposes only for the fiscal years ended November 30, 1944 and November 30, 1946. An investigation discloses no changes with respect to the existence of the qualifying factor for such years. The petitioner was operating in the same manner during these two years as it was in the years for which relief had previously been allowed.
+------------------------------------------------------+ ¦ ¦ ¦Excess ¦ ¦ ¦ +----------+-----------+--------+---------+------------¦ ¦ ¦ ¦profits ¦ ¦ ¦ +----------+-----------+--------+---------+------------¦ ¦ ¦Excess ¦credit ¦ ¦Adjusted ¦ +----------+-----------+--------+---------+------------¦ ¦Year ended¦profits net¦(on the ¦Specific ¦excess ¦ +----------+-----------+--------+---------+------------¦ ¦November ¦income ¦invested¦exemption¦profits net ¦ +----------+-----------+--------+---------+------------¦ ¦30 ¦ ¦capital ¦ ¦income ¦ +----------+-----------+--------+---------+------------¦ ¦ ¦ ¦credit ¦ ¦ ¦ +----------+-----------+--------+---------+------------¦ ¦ ¦ ¦method) ¦ ¦ ¦ +----------+-----------+--------+---------+------------¦ ¦1943 ¦$10,110.13 ¦$600.00 ¦$5,000 ¦$4,510.13 ¦ +----------+-----------+--------+---------+------------¦ ¦1944 1 ¦8,198.62 ¦1,003.59¦5,000 ¦2 1,128.34¦ +----------+-----------+--------+---------+------------¦ ¦1944 3 ¦8,198.62 ¦1,003.59¦10,000 ¦0 ¦ +----------+-----------+--------+---------+------------¦ ¦1945 ¦41,386.39 ¦1,632.30¦10,000 ¦29,754.09 ¦ +----------+-----------+--------+---------+------------¦ ¦1946 ¦1,596.18 ¦2,662.87¦10,000 ¦0 ¦ +------------------------------------------------------+ FN1 For purpose of computation under 1943 rates.FN2 After allowance of unused excess profits credit of $1,066.69 arising in the fiscal year ended November 30, 1946, as an unused excess profits credit carryback adjustment in the fiscal year ended November 30, 1944.FN3 For purpose of computation under 1944 rates.
On October 7, 1947, petitioner filed a timely application on Form 991 for excess profits tax relief under section 722 of the 1939 Code for the fiscal year ended November 30, 1945 (sometimes hereinafter referred to as the original application). This original application was in abbreviated form. By way of answer to the questions set forth on the first page of the printed form, the amount of refund for which the application constituted a claim was asserted to be $24,948.91 which corresponded to the total excess profits tax paid (on an excess profits net income of $40,812.31) prior to the filing of the application.
OPINION.
KERN, Judge:
The sole issue for our decision is whether or not, under the circumstances here present, the statute of limitations bars the allowance of petitioner's claim to an unused excess profits credit carryover and carryback from the fiscal years 1944 and 1946, respectively, to the fiscal year 1945.
There is no doubt that the amended claim was filed after the statute of limitations had run and thus cannot possibly be considered independently as a timely claim for the benefit of a constructive unused excess profits credit carryover and carryback from the fiscal years 1944 and 1946. Petitioner alleges, however, that its original application inferentially but effectively included a claim for its benefit of an excess profits credit carryover and carryback, since the figure used in the original application as to the amount of refund claimed could not have been arrived at without the inclusion in its computation of claims for a carryover and carryback. Thus, petitioner argues that the amended claim merely sets forth in specific words what was inherent in the original application. Packer Publishing Co., 17 T. C. 882, remanded on other issues 211 F. 2d 612.
In the alternative, petitioner argues that the amended claim may be properly considered since it involved no new research on the part of the respondent, and the facts necessary to dispose of the amended claim must, of necessity, have been considered in conjunction with the original application for a refund. In support of its position, petitioner cites Bemis Bros. Bag Co. v. United States, 289 U. S. 28; United States v. Memphis Cotton Oil Co., 288 U. S. 62; Pink v. United States, 105 F. 2d 183, and the cases decided thereunder. We are unable to agree with petitioner on either theory.
The statutory law, as found in sections 322(b)(1) and (6), and 722(d), may be summarized as follows: Section 322(b)(1) provides that a claim for a credit or refund must be filed within 3 years from the time the return was filed or within 2 years from the time the tax was paid, whichever is the longer period; section 322(b)(6) provides, in the case of an unused excess profits credit carryback, a special period or limitation which ‘ends with the expiration of the fifteenth day of the thirty-ninth month following the end of the taxable year of * * * the unused excess profits credit which results in such carryback * * *’; section 722(d) denies a taxpayer the benefits of section 722, unless within the period of time described by section 322 it makes application for such benefits. The pertinent provisions of Regulations 112, as amended, are set forth in the margin.