Opinion
No. L-27.
January 8, 1934.
William J. Hughes, Jr., and William E. Leahy, both of Washington, D.C., for plaintiff.
Frank J. Wideman, Asst. Atty. Gen. (Joseph H. Sheppard and Elizabeth B. Davis, both of Washington, D.C., on the brief), for the United States.
Before BOOTH, Chief Justice, and GREEN, LITTLETON, WILLIAMS, and WHALEY, Judges.
Action by the Madeira Embroidery Company against United States.
Petition dismissed.
This case having been heard by the Court of Claims, the court, upon the report of a Commissioner and the evidence, makes the following
Special Findings of Fact
1. Plaintiff, throughout the period here in controversy, was a New York corporation with its principal office in New York City. It was voluntarily dissolved upon application of its stockholders on or about March 20, 1929, and this action was commenced in its behalf by its statutory liquidating trustees.
2. Throughout the period referred to above the entire capital stock of plaintiff was owned by the partnership of Campbell, Metzger Jacobson, which firm was composed of David Metzger, Arthur Metzger, Charles A. Jacobson, and Isaac E. Sternberg. The aforementioned partnership and individual copartners are plaintiffs in the companion suit also pending in this court under an alternative theory respecting the same disputed exaction of tax and such suit is docketed as No. L — 28. By agreement between the parties, the evidence as adduced in this suit was received as applicable to the companion suit (No. L — 28). (Unless otherwise indicated, reference hereinafter will be to "plaintiff" or "corporation" as representing the Madeira Embroidery Company and to "partnership" as representing Campbell, Metzger, and Jacobson in their partnership capacity.)
3. The partnership filed its income and excess profits tax returns for the fiscal year ended November 30, 1917, on April 1, 1918, and duly paid the tax shown due thereon, $36,748.98.
4. Plaintiff filed its income and profits tax returns for the fiscal year ended November 30, 1917, on April 27, 1918, and paid the tax shown due thereon, $49,314.22, on June 15, 1918.
5. February 12, 1923, the partnership executed a waiver of the statutory limitations for the determination, assessment, and collection of the tax under its return for 1917 and such waiver was duly signed by the Commissioner of Internal Revenue. The waiver provided that it should remain in effect for one year from the date it was signed by the partnership.
6. February 14, 1923, the partnership executed an unlimited waiver for the fiscal year ended November 30, 1917, and such waiver was duly signed by the Commissioner of Internal Revenue.
7. March 2, 1923, pursuant to advice from the Commissioner of Internal Revenue that an examination of its returns for the fiscal year ended November 30, 1917, indicated an overassessment of $19,691.73, but that no credit or refund could be allowed unless claim therefor was filed prior to the expiration of the applicable statutory period, plaintiff filed claim for the refund of the aforementioned amount (or such greater amount as was legally refundable).
8. December 1, 1923, the Commissioner of Internal Revenue sent a letter to the partnership, setting out a determination of its tax liability and that of plaintiff on a consolidated basis. An additional tax was shown against the partnership of $23,844.48 and an overassessment in favor of plaintiff of $35,498.54, that is, a net overassessment for the affiliated group of $11,654.06. The letter stated that immediate assessment would be made of the additional tax indicated, but that payment should not be made until a bill was received from the Collector, and that the overassessment would be made the subject of a certificate of overassessment which would be issued through the Collector and would be applied by that official in accordance with section 252 of the Revenue Act of 1921 ( 42 Stat. 268).
9. An additional assessment of $23,844.48 for the fiscal year ended November 30, 1917, was made against the partnership on the January 1924 assessment list, and such assessment list was certified to the appropriate Collector January 12, 1924.
10. January 21, 1924, the Collector issued notice and demand upon the partnership for the payment of the aforementioned additional assessment by January 31, 1924.
11. January 5, 1924, the Commissioner of Internal Revenue certified a schedule of overassessments to the Collector, among which was one in favor of plaintiff of $35,498.54 for the fiscal year ended November 30, 1917, and January 19, 1924, the Collector, after having checked plaintiff's account, made the appropriate certification to the Commissioner of Internal Revenue that the entire overassessment of $35,498.54 was refundable as a net overpayment by plaintiff.
12. February 2, 1924, the Commissioner of Internal Revenue, after certification by the Deputy Commissioner, signed a schedule of refunds and credits in which authorization was given to the disbursing clerk of the Treasury Department for payment to plaintiff of the aforementioned overpayment.
13. In the meantime, after receipt by the partnership January 21, 1924, of notice and demand from the Collector for the payment of the additional assessment, the partnership, on January 24, 1994, sent the following telegram to the Commissioner of Internal Revenue:
"Collector of Internal Revenue has made a demand for additional tax stop Our subsidiary Madeira Embroidery Company has large credit to more than offset it please see our letter to you dated January twenty-fourth stop Cannot you authorize using this credit instead of requiring us to pay this large amount when the Government is in our debt for a larger amount?"
14. January 25, 1924, Deputy Commissioner Bright wrote Deputy Commissioner Mires, who was in charge of the Accounts and Collection Unit of the Internal Revenue Bureau, in regard to the request in the telegram from the partnership, and January 30, 1924, Mires authorized the Collector to comply with the partnership's request, stating, in part, as follows:
"Reference is made to a memorandum from the Income Tax Unit of the bureau, under date of January 26, a copy of which is inclosed, relative to a telegram from Campbell, Metzger, and Jacobson, 923 Broadway, New York City, in which request is made that the bureau authorize a credit of an overassessment of the Madeira Embroidery Company, a subsidiary, to additional tax assessed against Campbell, Metzger, and Jacobson. While the proposed procedure is somewhat unusual, no objection will be interposed by the bureau in this instance."
In substance, the procedure outlined provided, after stating that the overpayment of $35,498.54 previously certified would not be made, that the Collector should credit a sufficient amount of the overpayment due plaintiff to offset the additional assessment against the partnership and certify the excess of such overpayment to the Commissioner of Internal Revenue to be refunded to plaintiff.
15. January 31, 1924, prior to the receipt of answer to the telegram of January 24, 1924, the following telegram, signed by both the partnership and plaintiff, was sent to the Commissioner of Internal Revenue:
"Awaiting reply our telegram and letter of January twenty-fourth, please wire immediate reply our expense; time limit expires to-day."
A letter confirming the telegram was sent on the same day, one paragraph of which read as follows:
"We have understood for sometime that a credit was being held up in the New York office, and why the Government should insist on getting paid promptly, or penalize us, when they are withholding a much larger amount that is due us, we fail to understand."
Likewise on the same day the partnership was advised by Deputy Commissioner Mires that the Collector had been instructed to adjust the matter in accordance with its suggestion.
16. Prior to receipt of the telegram from Mires, the partnership paid the entire additional assessment January 31, 1924, but upon receipt of the telegram secured the return of its check and February 1, 1924, wrote the Commissioner of Internal Revenue in part as follows:
"Yesterday we paid by check the bill of January 21st, but on receipt of your telegram this morning we were able to get this check returned, as the collector at the custom house had received instructions from you to credit this amount as an offset against the Government's indebtedness to us."
17. April 11, 1924, plaintiff advised the Commissioner of Internal Revenue by letter that it had not received check for $11,654.06, the balance remaining from the overpayment heretofore referred to as due it after credit of a sufficient amount to offset the additional assessment due from the partnership. A telegram to a similar effect was sent by plaintiff May 7, 1924. Deputy Commissioner Bright replied May 13, 1924, to the foregoing letter and telegram, confirming plaintiff's understanding as to the credit which had been made at its request of a part of the overpayment and stating that the balance was apparently refundable, but that the matter had been referred to the Collector, from whom a reply might be expected.
18. In the meantime, the Collector, acting in pursuance of the instructions of Deputy Commissioner Mires of January 30, 1924 (finding 14 above), prepared a "Notice of Refund" addressed to plaintiff for the taxable year 1917, in which the amount refundable was shown as $11,654.06, together with interest of $4,197.38. Such notice set out by way of explanation of the amount of the refund "that you were overassessed $35,498.54, of which $23,844.48 was credited to Washington Jan. 1924 List." The foregoing "Notice of Refund" was submitted by the Collector to the Commissioner of Internal Revenue April 30, 1924, in the nature of a supplemental or substituted refund and credit schedule, and such statement bore the appropriate certification from the collector that the amount stated thereon was properly refundable.
19. June 2, 1924, further inquiry was made by plaintiff as to the refund of $11,654.06 and June 4, 1924, Deputy Commissioner Bright advised, after reciting the previous credit which had been made, that the balance of the overassessment was listed on a schedule which was being forwarded to the disbursing clerk of the Treasury Department and that a check should issue in a short time.
20. June 15, 1924, the Commissioner of Internal Revenue approved a "Schedule of Refunds" in which there was shown as refundable to plaintiff $11,654.06 plus accrued interest of $4,197.38, and at the same time certified these amounts to the disbursing clerk of the Treasury Department for payment.
21. July 8, 1924, check was issued to plaintiff in payment of the foregoing amounts, and the delivery of the check was accompanied by "Notice of Refund" (referred to in finding 18 above), which explained the basis of the allowance.
22. This suit was instituted February 1, 1930.
The entire capital stock of the plaintiff corporation during the fiscal period involved was owned by the partnership of Campbell, Metzger Jacobson. The plaintiff and the partnership each filed an income tax return for the fiscal year ending November 30, 1917, and paid the amount of taxes shown thereon. By proper waiver the statutory period for the assessment and collection of the partnership tax for the year 1917 was extended to April 1, 1924.
On December 1, 1923, the Commissioner notified the partnership that on the basis of a consolidated return there was an overpayment of $35,498.54 in favor of the plaintiff, and an additional tax of $23,844.48 due from the partnership. The additional tax due from the partnership was assessed on the January, 1924, assessment list, and notice and demand was issued by the Collector on January 21, 1924, for the amount of the assessment.
On January 5, 1924, the Commissioner certified a schedule of overassessments to the Collector, showing an overassessment in favor of the plaintiff of $35,498.54 for the fiscal year ended November 30, 1917. This was certified back to the Commissioner by the Collector January 19, 1924, showing that the entire amount was an overpayment and refundable to the plaintiff. The schedule of refunds and credits was signed on February 2, 1924, authorizing the disbursing clerk to make the refund to the plaintiff. In the meantime, after the receipt of notice and demand on January 21, 1924, for the payment of the additional assessment against the partnership, the said partnership on January 24, and again on January 31, 1924, by letter and telegram, requested the Commissioner to credit the tax due from it against the overpayment of the plaintiff corporation and thus relieve the partnership from paying the tax. Before receiving any reply from the Commissioner, the partnership on January 31, 1924, paid the entire additional assessment by check.
The Commissioner had, however, on January 30th, authorized the collector to comply with the plaintiff's request, and upon being advised by telegram of the Commissioner's action, the partnership secured the return of its check.
The Collector prepared a notice of refund, addressed to the plaintiff, in which the amount refundable was shown to be $11,654.06, together with interest thereon, with the explanation that "you were overassessed $35,498.54, of which $23,844.48 was credited to Washington, January 1924, list." The said notice of refund was in the nature of a supplemental or substituted refund and credit schedule. This was submitted to the Commissioner on April 30, 1924, and on June 15, the Commissioner approved a "Schedule of Refunds," including this amount. On July 8th a check was issued to the plaintiff in payment, accompanied by the "Notice of Refund" above referred to.
The plaintiff in a letter of April 11, 1924, a telegram of May 7, 1924, and a letter of June 2, 1924, referred to the credit which had been made at its request and made inquiries concerning the payment of the remaining $11,654.06.
The plaintiff bases its right to recover on the contention that the credit of $23,844.48 made against the additional taxes of the partnership was either (1) never made, or (2), if such credit was made, it was made subsequent to the running of the statute of limitations and was void. It is argued that the authorization of the plaintiff that the additional tax due from the partnership be credited against an overpayment of the plaintiff was conditional upon such credit being made within the statutory period for the collection of the taxes and that, if the credit was never made, or not made within the time in which the additional tax was legally collectible, plaintiff is entitled to recover the full amount of the overassessment.
This court, upon substantially the same facts as those of the instant case, has decided adversely to plaintiff's contentions. Ralston Purina Co. v. United States, 75 Ct. Cl. 525, 58 F.2d 1065; John Muir v. United States (Ct.Cl.) 3 F. Supp. 619; David Daube v. United States, 75 Ct. Cl. 633, 59 F.2d 842, 1 F. Supp. 771, affirmed 289 U.S. 367, 53 S. Ct. 597, 77 L. Ed. 1261. The taxes involved were assessed by the Commissioner within the statutory period, and notice and demand was issued to the partnership more than two months before the expiration of the statute on their collection. But for the action of the plaintiff, the taxes would have been paid within the period in which they were legally collectible and this controversy would not have arisen. Upon receipt of notice and demand for payment of the taxes the partnership, on January 24, 1924, wired the Commissioner: "Collector of internal revenue has made a demand for additional tax. Our subsidiary Madeira Embroidery Company, has large credit to more than offset it. Please see our letter to you dated January twenty-fourth. Cannot you authorize using this credit instead of requiring us to pay this large amount when the Government is in our debt for a larger amount." On January 31, 1924, plaintiff and the partnership wired the Commissioner jointly, saying: "Awaiting reply our telegram and letter of January twenty-four, please wire immediate reply our expense; time limit expires today." On January 30, 1924, the Deputy Commissioner wired the Collector to comply with the partnership's request. Upon receipt of this wire the Collector returned to the partnership its check which had been paid before the Commissioner's assent to plaintiff's request had been received. The Commissioner thereafter, as set out in the findings, deducted the amount of the additional assessment against the partnership, $23,844.48, from the plaintiff's overassessment and refunded the balance, $11,654.06 to plaintiff. This action was in strict accordance with the specific request of the plaintiff.
It is entirely immaterial so far as the plaintiff is concerned whether the credit of $23,844.48 was made within the period in which the additional taxes against the partnership were legally collectible or whether it was made after the running of the statute. The credit was made in accordance with plaintiff's agreement (Daube v. United States, supra), entered into within the period in which the additional taxes were legally collectible. There is no merit in the contention that plaintiff's authorization for the credit was conditioned on the credit being made, in a legal sense, within the time in which the additional taxes could be legally collected. The plaintiff was not then interested in that matter. What it wanted to know was, "Can you authorize using this credit instead of requiring us to pay this large amount when the Government is in our debt for a larger amount?" The Commissioner apparently regarded the request as a reasonable one, as he granted it, and the plaintiff was relieved from paying the "large amount" of the additional tax it admittedly owed the government, and which the government, at the time the request was made, had the legal right to collect and would have collected had not the request for credit been granted by the Commissioner. In these circumstances the plaintiff, under the authorities cited, is estopped from asserting a claim for the amount of the credit.
The petition will be dismissed. It is so ordered.