Opinion
No. 43409.
November 14, 1938.
Action by the Mohawk Rubber Company against the United States to recover an overpayment of income taxes.
Petition dismissed.
This case having been heard by the Court of Claims, the court, upon the stipulated facts, makes the following special findings of fact:
1. The plaintiff is a corporation duly organized and existing under the laws of the State of Ohio, with its principal office at 1235 Second Avenue, Akron, Ohio.
2. The plaintiff duly filed its Federal income-tax return for the calendar year 1928, on March 15, 1929. That return was a consolidated return, including the plaintiff and its affiliated corporation, the Mohawk Rubber Company of New York, Inc., and disclosed a net income for each corporation, but the entire tax of $82,313.14 shown thereon was by agreement (filed with the Commissioner of Internal Revenue) allocated and assessed against the plaintiff. That sum was duly paid by the plaintiff in four installments, three each of $20,578.28 on March 20, June 17, and September 16, 1929, and a fourth installment of $20,578.30 on December 16, 1929.
3. The plaintiff was affiliated with the same corporation for the calendar years 1926 and 1927, and also for those years duly filed consolidated returns including both corporations. The return for 1926 showed a consolidated net loss for that year (in excess of the net income of the New York Company) all attributable to the plaintiff. In the 1927 return each corporation showed a net income and the net loss for 1926 was deducted from the total net income, showing no tax due on the return for 1927. A relatively small balance of the 1926 net loss was deducted in the return for 1928 as filed.
4. The income-tax returns for 1926, 1927, and 1928 were examined by a revenue agent and he rendered a report on September 6, 1930, in which report some adjustments were made reducing the 1926 net loss (but leaving it all attributable to the plaintiff), and increasing the net income for 1927 and 1928; and further the 1926 net loss was allowed as a deduction up to the amount of plaintiff's net income for 1927, and the balance thereof against plaintiff's net income for 1928 (in a larger sum than was deducted in 1928 return). Based upon these adjustments, the agent's report proposed an income-tax liability and deficiency of $43,433.46 for 1927 and an income-tax liability of $48,059.80 and an overassessment of $34,253.34 for 1928, all allocated to the plaintiff. It is agreed that the income-tax liabilities are the correct income-tax liabilities for the years 1927 and 1928. The summary page of the revenue agent's report referred to above showed the following summary of plaintiff's tax liability:
SummaryYears: Additional Tax Overassessment
1927 $43,433.46 1928 .......... $34,253.34 ---------- Net Additional Tax $9,180.12
5. A copy of the revenue agent's report was furnished plaintiff, and on December 10, 1930, the plaintiff's agent filed with the Revenue Agent in Charge at Cleveland, Ohio, a document dated December 9, 1930. That document accompanied the revenue agent's report to the Bureau of Internal Revenue, where it was received December 26, 1930. The document was duly subscribed and sworn to by plaintiff's agent and reads as follows:
"Herewith protest against additional tax for the years 1927 and 1928 of The Mohawk Rubber Company of Akron, Ohio, together with power of attorney of Albert Titmas.
"A The Mohawk Rubber Company, 1235 Second Ave., Akron, O.
"B Ohio Corporation.
"C Field Examiner J. F. Schillinger. Date of Report September 6, 1930.
"D Years 1927 and 1928, Additional Tax $9,180.12.
"E Bad Debts, reserves and losses brought forward, etc.
"F That I can prove the error in bad debts and the difference in loss brought forward.
"G A hearing is requested at the Cleveland office to submit the items in question at an early date.
"H That I, Albert Titmas, of Akron, Ohio, has knowledge that the above statements are true. His certificate to practice before the Treasury Department is on file."
6. On March 3, 1931, the Commissioner of Internal Revenue mailed to plaintiff a deficiency notice for 1927, which incorporated the same adjustments that appeared in the revenue agent's report and determined the same income-tax liability and deficiency for 1927. That letter showed the same income-tax liability and overpayment for 1928 as shown in the revenue agent's report, and accompanying the letter was a blank form of claim for refund which the letter suggested be prepared and filed for 1928.
On May 2, 1931, the plaintiff filed a petition with the United States Board of Tax Appeals which was entered as Docket No. 57783. On December 12, 1931, the plaintiff filed with the Commissioner, on Form 843, a claim for refund of $34,253.34 of income taxes for the year 1928.
7. On April 8, 1933, the Board of Tax Appeals, on respondent's motion, dismissed the appeal for nonprosecution.
On May 13, 1933, the Commissioner assessed the deficiency for 1927 in amount of $43,433.46 plus interest of $13,447.12.
On June 20, 1933, plaintiff filed a motion with the Board of Tax Appeals to vacate the dismissal, which motion was denied June 20, 1933. On July 7, 1933, the plaintiff filed (the Commissioner consenting as to venue) a petition for review of the dismissal of the appeal to the Board by the Court of Appeals of the District of Columbia.
On July 13, 1933, the Commissioner, in accordance with section 3226, Revised Statutes, as amended by section 1103(a) of the Revenue Act of 1932, 26 U.S.C.A. §§ 1672-1673, advised the plaintiff that to the extent indicated in certificate of overassessment No. 2209067 the claim for refund for the year 1928 in the amount of $34,253.34 was disallowed on a schedule dated June 9, 1933. A copy of the certificate of overassessment for 1928, showing allowance of $20,578.30, was mailed to the plaintiff on June 21, 1933.
On June 9, 1933, on schedule IT-50196, the allowed amount for 1928, plus interest of $4,206.99, was credited against the 1927 additional assessment of May 13, 1933.
On August 21, 1933, the plaintiff executed and filed with the Commissioner a letter inclosing a petition dated August 18, 1933. The Commissioner responded to plaintiff's letter of August 21, 1933, by letter dated October 7, 1933.
On December 8, 1933, the Commissioner abated the assessment of May 13, 1933 (the 1927 deficiency), as having been assessed prematurely, and the credit from 1928 was eliminated. Refund or credit of the allowed overpayment for 1928 was withheld pending the result of the petition for review of the decision of the Board in the 1927 case. On December 2, 1933, the deficiency for 1927 was reassessed, notwithstanding the petition for review, the plaintiff not having filed a bond.
After the receipt of the letter from the Commissioner dated October 7, 1933, the plaintiff, on January 26, 1934, wrote the General Counsel of the Bureau of Internal Revenue requesting that the 1927 case on appeal to the Circuit Court of Appeals of the District of Columbia and the case for the year 1928 be consolidated in the office of the General Counsel in an effort to dispose of both cases.
In order to have the 1928 case referred to the General Counsel, the plaintiff, on August 4, 1934, agreed to dismiss the 1927 appeal if the Commissioner would refer the 1928 case to the General Counsel. The Commissioner on August 8, 1934, referred the files for 1928 to the General Counsel for an opinion as to whether the balance of $13,675.04 of the overpayment for the year 1928 should be allowed based on the contention that a seasonable claim for refund or credit had been filed.
On August 11, 1934, the petition for review of the Board decision in the 1927 case was dismissed on plaintiff's motion. On August 23, 1934, the allowed overassessment for 1928 of $20,578.30, together with interest thereon to December 2, 1933, in the sum of $4,890.02 was scheduled to the collector and thereafter was credited against the 1927 additional assessment. The certificate of overassessment was mailed by the collector to the plaintiff on August 28, 1934, and was received by the plaintiff the next day.
On November 26, 1934, the General Counsel advised the Commissioner that it was the opinion of that office that no seasonable claim for refund or credit had been filed for the year 1928 except as to the last installment, and that the action of the Bureau in refusing to allow in full was correct. The files were then returned to the Commissioner's office. On January 10, 1935, the Commissioner advised plaintiff by letter of that action. The balance of $13,675.04 of the overpayment of income taxes for 1928 has not been credited or refunded to plaintiff or its affiliated company.
8. Against the assessment for 1927 made December 2, 1933, of $43,433.46 with interest of $14,888,75, a total of $58,322.21, there has been credited and paid a total of $33,314.52, leaving a balance of $25,007.69 yet due for 1927, as per the collector's records up to August 23, 1937.
Notice and demand for the payment of the assessment of $58,322.21 was made by the collector on December 7, 1933, with a second notice and demand on December 26, 1933.
In view of the fact that payments are being made by plaintiff company from time to time, and that credits are being made against plaintiff's tax liability for 1927 from time to time, the amount shown above as the balance due for 1927 is subject to verification with the Collector's records after decision on the 1928 issue here involved.
Frederick L. Pearce, of Washington, D.C. (Morris, Kix-Miller Baar, of Washington, D.C. on the brief), for plaintiff.
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.
The plaintiff is suing to recover an admitted overpayment of income tax for the year 1928. The material facts are set out in the findings. The plaintiff alleges a timely claim for credit was filed for the year in question. It is only necessary to repeat the facts bearing upon this issue to show that the position of the plaintiff is untenable.
The stipulated facts show that plaintiff, with an affiliated corporation, duly filed consolidated income tax returns for 1926, 1927, and 1928. The entire tax shown on the return for 1928 was, by appropriate agreement of the parties, allocated to, assessed against, and paid by plaintiff in quarterly installments. After the return for 1928 had been made, a revenue agent audited the returns for the three years and recommended an additional tax for 1927 of $43,433.46 and reported an overassessment for 1928 of $34,253.34. The application of the overassessment of 1928 against additional tax for 1927 resulted in the plaintiff apparently being liable for a net additional tax for the two years of $9,180.12. The plaintiff was furnished a copy of the report dated September 6, 1930, and on December 10, 1930, the taxpayer filed a protest against the report with the internal revenue agent in charge. The protest was duly forwarded to the Bureau of Internal Revenue by the agent in charge. It is this document which plaintiff contends constitutes a timely claim for credit which would permit recovery in this proceeding.
Although we do not regard them as material, certain proceedings were taken thereafter, among which were the issuance by the Commissioner of a deficiency notice incorporating the same deficiency and overassessment as shown by the report of the revenue agent; the filing by plaintiff of a petition for review by the Board of Tax Appeals; the dismissal of the petition by the Board; an appeal to the Court of Appeals of the District of Columbia; and other actions in reference to the assessment, collection, refund, credit, or abatement of the amounts appearing in the report of the revenue agent. Through all these proceedings no change was made in the amounts of the additional tax and overassessment, as shown by the report of the revenue agent. The correctness of these amounts is confirmed by the stipulation of the parties in this proceeding.
When the Commissioner mailed his deficiency notice for 1927 on March 3, 1931, which included not only the determination of the deficiency but also the overassessment for 1928, he enclosed a blank form of claim for refund and suggested that it be filled out and filed by plaintiff in order to protect it against the running of the statute of limitations for any amount which might ultimately be found to have been overpaid for 1928. However, the plaintiff delayed in following this suggestion and did not file the claim for refund for 1928 until December 12, 1931, over nine months after the refund claim had been sent to it. The claim, as filed, asked for the refunding of $34,253.34, the exact amount shown in the Commissioner's determination. Section 322 of the Revenue Act of 1928, 26 U.S.C.A. § 322, allowed two years after the payment of the tax in which to file a refund claim. Only the last installment of the tax paid came within that period. The three other installments had been paid more than two years prior to the filing of the claim. The Commissioner refused to recognize the claim for refund as effective for the three installments but did grant the claim for the last quarterly payment for 1928 in the full amount of $20,578.30. In his action on the claim for refund, the Commissioner issued a certificate of overassessment for 1928 in which he showed an overassessment in the amount set out in the revenue agent's report, $34,253.34, and the application of the last quarterly payment of $20,578.30 as a credit and the disallowed balance of $13,675.04 on the ground that this balance was barred by the statute of limitations, the first three quarterly payments for 1928 having been paid more than two years prior to the date of the filing of the claim for refund.
The plaintiff contends that it is entitled to recover this balance of $13,675.04 on the basis that the document filed December 10, 1930, in which it makes a protest to the revenue agent's report, and which was within the two year period after the payment of the taxes, was in reality an informal claim for credit and therefore recovery should be had. An examination of the document shows on its face that the plaintiff was questioning the amounts of the items of bad debts disallowed by the revenue agent and the application of these losses as brought forward by the agent's method of application. There was no claim for credit. The document starts off with the words "Herewith protest against additional tax for the years 1927 and 1928 * * *." The agent's report shows the application of the overassessment to the deficiency of $43,433.46 for 1927 and the balance due of $9,180.12 after this application. The ground of the protest was "I can prove the error in bad debts and the difference in loss brought forward." The plain reading of these words is that plaintiff desired to prove the agent had not allowed enough for bad debts and to show that the agent had not correctly brought forward its losses. Naturally, if more bad debts were allowed, it would affect the balance and also make a difference in the "loss brought forward." The increasing of the item of allowable bad debts could affect both the overassessment and the deficiency. A greater allowance could increase the overassessment and diminish the deficiency. Therefore, it is apparent in the document of December 10, 1930, that plaintiff was objecting to the items of bad debts which the revenue agent had not seen proper to allow and his method of bringing forward the losses. The instrument is entirely lacking in the essential elements of a claim for credit. It is well settled that a claim for refund or credit need not be made in any exact form, nevertheless, it also has been held essential that the taxpayer claiming a refund or demanding a credit make known his contention in such a manner that the Commissioner would be appraised of what he desired. Cf. Gustava D. Anderson v. United States, 6 F. Supp. 851, 79 Ct.Cl. 417. A claim for credit in ordinary, plain language simply means that the taxpayer desires the amount due him to be applied to the amount which he owes. In other words, that he has made an overpayment and an underpayment and he desires that the overpayment be applied and credited to the underpayment, and a balance struck. Applying this test to the document of December 10, 1930, it is plainly apparent that no request or demand is indicated that any amount be credited. On the contrary, its plain meaning is what is plainly and clearly set forth in the words "error in bad debts and the difference in loss brought forward." It is an expression of dissatisfaction with the method of determination of bad debts by the revenue agent and the way the loss was carried over. The report showed that the overpayment had been applied to the underpayment which resulted in a balance due by the taxpayer. Without a request, under the usual Bureau procedure, had the taxpayer accepted the Commissioner's determination, the overpayment would have been credited to the deficiency, provided a timely claim was filed. The action of the plaintiff, in filing a petition with the Board of Tax Appeals and including both the 1928 overpayment and the 1927 deficiency, definitely shows the plaintiff was not seeking a credit but a review of its tax liability on items for both years. There is not the slightest indication of satisfaction with the determination made by the Commissioner but, on the contrary, a protest as to the method of arriving at amounts of bad debts and loss brought forward.
There is a further contention by plaintiff that recovery can be had for the 1928 balance withheld on the ground of equitable credit or recoupment as held in Bull v. United States, 295 U.S. 247, 55 S. Ct. 695, 79 L.Ed. 1421, and followed in Dunigan v. United States, 23 F. Supp. 467, 87 Ct.Cl. ___. There is no analogy between those cases and the instant case. Later decisions hold that the granting of refunds and credits is confined to the limits set by Congress. Specific statutory provisions must be adhered to. No matter how great the equity may be, if the claim does not come within the statutory limits, it cannot be maintained. Andrews v. United States, 17 F. Supp. 980, 84 Ct.Cl. 460; United States v. Andrews, 302 U.S. 517, 58 S.Ct. 315, 82 L.Ed. 398; Garbutt Oil Co. v. United States, 9 Cir., 89 F.2d 749, and McEachern v. Rose, 5 Cir., 86 F.2d 231; Id., 302 U.S. 56, 58 S.Ct. 84, 82 L.Ed. 46.
The action of the Commissioner confining his allowance of credit to the last installment of the tax is sustained. The petition is dismissed. It is so ordered.