Opinion
Suit by the Mutual Chemical Company of America against the United States.
Judgment for plaintiff.
In this case plaintiff seeks to recover a tax overpayment of $29,505.93 for 1919, with interest. This overpayment is admitted by the defendant, but it is claimed that the refund thereof was and is barred because a sufficient claim for refund was not filed, and that this suit cannot, therefore, be maintained under section 3226 of the Revised Statutes as amended (26 USCA § 156).
Special findings of fact:
1. March 15, 1920, plaintiff filed its income and profits tax return for 1919 showing a total tax of $655,436.43, which was paid in four equal installments of $163,859.11 on March 19, June 15, September 15, and December 15, 1920.
2. Although the overpayment claimed in this case was for 1919, inasmuch as it resulted from the failure of the Commissioner of Internal Revenue to include in invested capital for 1919 the proper amount of earned surplus on account of the correct tax for 1917 and 1918, it will be necessary at this point to set forth certain facts with reference to what occurred with respect to the taxable years 1917 and 1918, because these facts have an important bearing upon the sufficiency of plaintiff's claim for refund for 1919 and upon its right to maintain this suit.
3. Plaintiff duly filed income and profits tax returns for 1917 and 1918 in accordance with the statutes without any benefit of the computation of its profits tax for those years under the special relief provisions of section 210 of the 1917 act (40 Stat. 307) and sections 327 and 328 of the 1918 act (40 Stat. 1093).
In filing its 1919 return, plaintiff computed its earned surplus to be included in its invested capital for that year, as it was required by the statute to do, by excluding therefrom the amount of tax shown and paid on the returns for 1917 and 1918. In the latter part of 1923 and in January, 1924, the Treasury Department investigated and audited plaintiff's returns for 1917 and 1918, the Treasury Department investigated and audited plaintiff's returns for 1917 and 1918, and on January 19, 1924, the Commissioner mailed plaintiff a notice proposing an additional tax of $43,297.18 for 1917 and of $665,274.10 for 1918. Because of the approaching expiration of the statute of limitation, the Commissioner made a jeopardy assessment thereof and invited plaintiff to file a claim for abatement in order that further consideration might be given to the matter and a more careful examination made as to the correct tax for those years after a hearing. Claims for abatement of the amounts proposed and assessed were duly filed. The Commissioner gave further consideration to the matter, and on July 26, 1924, advised plaintiff by letter that such further consideration disclosed that the additional tax assessed was excessive and that the correct additional tax for 1917 was $13,189.29 and for 1918 $423,083.78. This letter was not the final determination by the Commissioner, and in it he did not consider or pass upon the matter of determination of the profits tax under the special assessment provisions of the acts of 1917 and 1918, but advised the taxpayer that it would be given ten days thereafter within which to submit a brief with reference to any objections it might desire to make to the proposed additional tax.
Shortly thereafter plaintiff filed a protest against the proposed deficiencies and a brief in support thereof based upon the claim that its profit tax for 1917 and 1918 should be determined under section 210 of the Revenue Act of 1917 and sections 327 and 328 of the Revenue Act of 1918. At the same time plaintiff filed separate claims for refund for 1917 and 1918, based upon the ground that the profits tax for 1917 and 1918 should be determined under the special assessment provisions of the statutes and that such determination would show an overpayment of $1,626,686.04 for 1917 and $689,606.72 for 1918. All the facts relied upon to sustain the claim for special assessment and a computation of what plaintiff claimed was the correct tax for 1917 and 1918 under the special assessments sections were set forth in detail in these claims.
4. For 1917 plaintiff paid an income and profits tax of $3,042,256.29, and the claim for refund filed for that year stated as follows: "Deponent is filing with the Commissioner of Internal Revenue a claim for special assessment under the provisions of section 210 of the Revenue Act of 1917. Said claim is based on an average excess-profits tax for the industry of 20 percent and at this rate the recomputed tax on the income reported on the amended return, $5,707,944.57, is:
Excess-profits tax ....
$1,141,588.91
Income tax ...............
273,981.34
---------------
$1,415,570.25
Tax paid
3,042,256.29
---------------
Refund claimed
$1,626,686.04"
The claim for refund for 1918 referred to the claim filed for special assessment under section 327 and 328 of the Revenue Act of 1918 and stated that "Said claim is based on an average war profits and excess profits tax for the industry of 20 percent, and at this rate the recomputed tax on the income reported on the original return, $2,363,594.62, is:
War and excess profits tax ....
$590,898.66
Income tax .....................
208,690.85
-----------
$ 799,589.51
Tax paid
1,489,196.23
-------------
Refund claimed
$ 689,606.72"
5. In connection with these claims for refund, and as a part thereof, plaintiff prepared and filed with the Commissioner a list of eighteen corporations, which it claimed were engaged in a like or similar trade or business, for use as comparatives in determining the average rate of excess profits tax paid by representative corporations. The Commissioner requested plaintiff to file a brief on the subject of special assessment in connection with its claims. This the plaintiff did. The brief covered the whole subject in detail and discussed the income, invested capital, and business of the plaintiff, and the business, and business of the corporations similarly engaged. Hearings were subsequently held.
6. At this point it appears that, on September 6, 1924, the supervising internal revenue agent filed with the Commissioner a report of a field investigation and audit of plaintiff's tax liability for the calendar year 1919, which report recommended an allowance of an overassessment of about $200,000. But the report of the revenue agent and the matter of the tax liability for 1919 had not been full considered and audited by the Commissioner. Accordingly, on January 21, 1925, the Commissioner wrote plaintiff the following letter:
"The correct tax liability for the year 1918 has not yet been determined on account of your request for consideration under sections 327 and 328 of the Revenue Act of 1918. "As the evidence submitted by you does not show the cash value of the intangible assets as at date of acquisition, the total amount claimed as invested capital [for 1919] on account thereof has been disallowed. However, due consideration will be given any evidence you care to submit tending to show that the asset did have a value as at that date. The amount of such refund [for 1919], if any be found due, is indeterminate, and it is recommended that claim be filed in the amount assessed against you on the return. "The limitation imposed by law is about to expire as to one or more of the years involved, after which a refund or credit cannot be made of any amount ultimately found to have been overpaid unless a claim is filed before the expiration of such limitation. It is therefore suggested that you prepare a claim upon the enclosed form 843, specifically setting forth in such claim the grounds or basis of the apparent overpayment [for 1919] as above indicated. The claim should be properly signed by a duly authorized person and sworn to before a notary public (or other officer authorized to administer oaths for general purposes) and should be filed immediately with the Collector of Internal Revenue for the district in which the tax was assessed or paid. The accompanying copy of this letter should be attached to the claim when filed."
7. Accordingly the plaintiff on February 18, 1925, duly executed and filed a claim for refund of the entire tax of $655,436.43 paid for 1919 and, in said claim, stated as follows: "Deponent verily believes that this application should be allowed for the following reasons: That since the filing of the original return for the year ended December 31, 1919, an examination thereof has been made and an overassessment recommended in the amount of $200,847.45. That such overassessment has not been approved by the Commissioner, and that the returns for the taxable years 1917 and 1918 are now the subject of special assessment. That in view of the undetermined final liability for the taxable year 1919, the entire amount of tax assessed on the original return is claimed in refund, in accordance with the recommendations of the Treasury Department in its letter of January 21, 1925, (symbols IT:CR:D-AHB), copy of which is attached."
The Commissioner did not fully take up the tax liability of plaintiff for 1919 for examination and audit until after he had concluded his consideration of the years 1917 and 1918 and the appeal by plaintiff to the Board of Tax Appeals contesting the correctness of the Commissioner's conclusions for those years.
8. On October 19, 1925, the Commissioner mailed plaintiff a final notice of his conclusions with reference to its tax liability for 1917 and 1918 in which he denied its claim for special assessment for those years and advised it that its claim for abatement and claims for refund for those years and advised it that its claim for abatement and claims for refund for those years would be rejected. Thereafter, on December 18, 1925, plaintiff duly instituted a proceeding before the Board of Tax Appeals contesting the decision of the Commissioner denying special assessment for 1917 and 1918 and his determination of deficiencies of $13,189.29 and $423,083.78, respectively. In this proceeding plaintiff assigned as error the refusal of the Commissioner to compute the profits tax for these years under the special assessment provisions of the statutes and prayed judgment of the Board allowing special assessment and the computation of its tax liability under the relief provisions of the statutes. Thereafter the Commissioner proceeded with a consideration and an audit of the matter of plaintiff's tax liability for the calendar year 1919.
9. Before the Commissioner had made any decision as to 1919 plaintiff, on October 29, 1925, in order fully to protect its rights to obtain the refund of the overassessment theretofore recommended in the revenue agent's report of September 6, 1924, a copy of which had been furnished to it, filed a further claim for refund for 1919 of $200,847.45 based specifically on the grounds set forth in the revenue agent's report. This claim stated as follows:
"A field examination made by a revenue agent for the taxable year 1919 corrects the tax originally paid by the deponent, and upon the basis of the revenue agent's report, a letter dated October 16, 1924, and signed by C.M. Justice, supervising internal revenue agent, Customhouse, New York, N.Y., was sent to the taxpayer showing an overassessment as follows:"This claim for refund is therefore made upon the basis of the findings shown in the revenue agent's report as above, and supersedes a general claim previously filed for the refund of the entire tax paid. Deponent also claims such further amount n refund as it may be found entitled to upon final examination of the return in Washington."
Amount of tax per return as filed .........
$655,436.43
Amount of tax per revenue agent's report...
454,588.98
Amount of overassessment...................
200,847.45
The agent's report of September 6, 1924, of necessity showed an invested capital for 1919 computed on the basis of the amount of tax paid for 1917 and 1918, and the claim for refund, based specifically upon the revenue agent's report, was based upon grounds in addition to the ground of special assessment set forth in the claim for refund filed February 18, 1925, which had not been rejected.
The Commissioner returned the 1919 case to the supervising internal revenue agent at New York for further examination and investigation. A further examination and investigation were made and a supplemental report was prepared and submitted to the Commissioner by the internal revenue agent in charge computing plaintiff's tax liability for 1919 on a fiscal year basis and computing the tax for the periods January 1 to June 30, 1919, and july 1 to December 31, 1919. This report made certain adjustments in the previous report and recommended the allowance of an overassessment of $220,392.86. In arriving at this overassessment, plaintiff's invested capital for 1919 was computed on the basis of the tax paid for 1917 and 1918 and the additional tax proposed by the Commissioner for those years, which was then pending before the Board of Tax Appeals, and without regard to plaintiff's right to have its profits tax for prior years determined under section 210 and 328 of the Revenue Acts of 1917 and 1918.
On February 6, 1926, the Commissioner mailed to plaintiff a letter setting forth the details of his audit for the fiscal periods ending June 30 and December 31, 1919, showing proposed overassessments of $111,162.79 for the period ending June 30, 1919, and $109,230.07 for the period ending December 31, 1919, totaling $220,392.86, as set forth in the revenue agent's report. In this letter to plaintiff, who had theretofore received a copy of the revenue agent's report, the Commissioner stated that, as the limitation imposed by law was about to expire as to the year involved, after which a refund or credit could not be made of any amount ultimately found to have been overpaid, on the grounds specified in the agent's report and in the letter, unless a claim was filed before the expiration of such limitation, "It is, therefore, suggested that you prepare a claim upon the enclosed form 843, specifically setting forth in such claim the grounds or basis of the apparent overpayment as above indicated. * * * The accompanying copy of this letter should be attached to the claim when filed." On February 23, 1926, plaintiff filed a further claim for refund for 1919, indorsed "Revised Claim," for $220,392.86, being the overassessment shown in said agent's report and the letter of the Commissioner, which letter was attached to and made a part of the claim. This claim also stated as follows:
"A field examination made by a revenue agent for the taxable year 1919 corrected the tax originally paid by the deponent and showed an overassessment of $200,847.45, for which a claim for refund was filed. The agent's report has been corrected by the Treasury Department and a letter dated February 6, 1926, copy of which is attached, shows an overassessment as follows:"This claim for refund is therefore made upon the basis of the findings shown in the attached letter and supersedes the claim based on the agent's report for $200,847.45."
Amount of tax per return as filed................
$655,436.43
Amount of tax per letter attached:
Mutual Chemical Co. of
America, January 1 to June 30, 1919..........................
$216,555.43
Mutual Chemical Co. of
America and affiliated
company, July 1 to December 31, 1919...............................
218,488.14
-----------
Total corrected tax.........................
435,043.57
-----------
Amount of overassessment...................
$220,392.86
This claim was filed by plaintiff in order to protect its right to obtain the refund of the overpayment in the amount proposed in the revenue agent's report and the Commissioner's letter in addition to the grounds specified in the claims theretofore filed.
In the letter of February 6, 1926, the Commissioner computed invested capital of the two taxable periods in 1919 by excluding from earned surplus the entire tax paid by plaintiff for 1917 and 1918 and the deficiencies proposed by him for those years. The matter of the correct tax liability for 1917 and 1918, based on plaintiff's claim, which the Commissioner had declined to allow, that not only were there no deficiencies for 1917 and 1918, but that there had been large overpayments for those years for the reason that it was entitled to have its profits tax for both years determined under sections 210 and 328, was then pending before the Board of Tax Appeals.
On April 6, 1926, the Commissioner signed a schedule of overassessment in respect of plaintiff's tax for the two fiscal periods ending June 30 and December 31, 1919, thereby allowing an overpayment in favor of plaintiff of $220,392.86 which was credited against the deficiencies for 1917 and 1918 which had been proposed by the Commissioner and were then pending before the Board of Tax Appeals. At the time this schedule was signed by the Commissioner or after it had been returned to him by the collector, it was indorsed in the "Remarks" column "Unadjusted." May 14, 1926, the Commissioner issued and thereafter delivered to plaintiff certificates of overassessment for $111,162.79 for the six months' period ending June 30, 1919, and $109,230.07 for the six months' period ending December 31, 1919, totaling $220,392.86, showing this amount to have been credited against the proposed additional taxes for 1917 and 1918 of which a jeopardy assessment had been made in January, 1924. Both certificates of overassessment contained the statement that "An audit of your income-tax return, form 1120, and a consideration of all the claims (if any) filed by you for the period of 6 months ended June 30, 1919 [and December 31, 1919] indicate that the tax assessed for this year was in excess of the amount due. * * * The disclosing this overassessment of $111,162.79 [for the first 6 months] and $109,230.07 [for the second 6 months] have been made upon the basis of facts and data now before the Unit, in connection with a revenue agent's report dated September 6, 1924."
The certificate of overassessment for the six month's period ending December 31, 1919, contained this additional statement not contained in the certificate of overassessment for the first six months of that year: "In the determination of this overassessment, the statements made in your claims for the refund of $107,449.95 and $655,436.43 have been given careful consideration." The claim for $107,449.95 was a claim which plaintiff had filed in June, 1924, on the ground that the taxation of profits derived from the exportation of merchandise to foreign countries was unconstitutional, and the claim for $655,436.43 was a claim filed by plaintiff February 18, 1925, on the ground, as hereinbefore stated, that the invested capital for 1919 should be greater than that shown in the return and that determined by the Commissioner because the taxpayer was entitled to special assessment for 1917 and 1918 and the amount of tax for those years by which the Commissioner reduced earned surplus for 1919 was excessive. Final decision as to the question raised by the last-mentioned claim had not been made at the time the Commissioner issued and delivered the certificates of overassessment, and the same were then pending before the board of Tax Appeals.
10. Plaintiff filed a waiver for 1919, as a result of which, under section 284(g) of the Revenue Act of 1926 (26 USCA § 1065(g), the period of limitation within which plaintiff could file an original claim for refund expired April 1, 1926.
11. Nothing further occurred with reference to plaintiff's taxes for 1917, 1918, or 1919 after the issuance by the Commissioner of certificates of overassessment for 1919 until June 13, 1928, when the Board of Tax Appeals rendered an opinion in which it was decided that plaintiff was entitled to have its profits tax for 1917 and 1918 determined under sections 210 and 328 and directed that further proceedings as to the proper computation and the amount of tax be had under rule 62(c). On November 15, 1928, plaintiff filed a claim on form 843 for a "further amount to be refunded; to be computed, $216,555.43"; this amount being the amount of tax for 1919, as stated in the Commissioner's letter of February 6, 1926. In this claim plaintiff further stated that "invested capital should be increased by the proration of taxes finally determined by the Board of Tax Appeals (Docket 10083) to have been overassessed for calendar years 1917 and 1918. The case should be reopened, in order to apply to this period the relief allowed by the Board for the two preceding years (see: Gen. Counsel's Mem. 941, VI-1, C. B. 205). A conference is hereby respectfully requested."
At the time this claim was filed, the Board of Tax Appeals had not rendered a decision fixing the correct tax on plaintiff's claim for 1917 and 1918, and it did not decide this matter until February 5, 1929. On the last-mentioned date, the Board entered a judgment for an overpayment of $469,950 for 1917 and $180,050 for 1918, and further ordered that $140,068.38 of the unpaid assessment for 1918 be abated. By reason of this judgment of the Board, plaintiff's earned surplus to be included in invested capital for the two taxable periods in 1919 was increased above that which the Commissioner had allowed, with the result that there was an overpayment for 1919 of $29,505.93 on the ground set forth in the claim for refund filed February 18, 1925, namely, special assessment for 1917 and 1918.
12. On August 28, 1929, the Commissioner wrote plaintiff as follows: "Reference is made to your application for reconsideration of you income and profits tax liability for the periods ended June 30, 1919, and December 31, 1919, as contained in form 843 filed November 15, 1928, with the Collector of Internal Revenue, Second District of New York. The form filed cannot be considered as formal claim for refund in view of the provisions of section 284 of the Revenue Act of 1926 (26 USCA § 1065 and note) limiting the time within which such claims may be filed. Careful consideration of the information submitted indicates that the issues involving adjustment to invested capital for 1919 on account of 1917 and 1918 income and profits taxes and the relief provided by sections 327 and 328 of the Revenue Act of 1918 were presented for the first time in the form filed on November 15, 1928. Inasmuch as the limitation period for filing claims for the year 1919 had expired prior to the submission of these issues, no refund or credit based thereon can be made at this time." Upon receipt of this letter, plaintiff requested of the Commissioner a further conference on the matter, which was granted, and, on January 30, 1930, the Commissioner wrote plaintiff as follows: "In accordance with hour request, the question as to the validity of refund claim filed November 15, 1928, was referred to the office of the general counsel for a ruling, as a result of which a conference was held in that office on November 4, 1929. The opinion of the general counsel is that a refund based on the claim filed November 15, 1928, is barred by the statute of limitations. The action of this office, as expressed in Bureau letter dated August 28, 1929, is accordingly reaffirmed." H. Maurice Fridlund, of New York city (Charles T. Cowenhoven, Jr., and Kirlin, Campbell, Hickox, Keating & McGrann, all of New York City, on the brief), for plaintiff.
James A. Cosgrove, of Washington, D.C., and Frank J. Wideman, Asst. Atty. Gen. (William W. Scott, of Washington, D.C., on the brief), for the United States.
Before BOOTH, Chief Justice, and GREEN, LITTLETON, WILLIAMS, and WHALEY, Judges.
LITTLETON, Judge.
This case presents two questions, namely, whether the claim for refund filed February 18, 1925, was sufficient in law to entitle plaintiff to a refund for 1919 based upon a proration to invested capital for that year of the correct tax for 1917 and 1918 after special assessment for those years had been allowed and the tax theretofore paid on the return and the additional tax collected by credit were found to be greatly in excess of the tax due, and whether there was such a disallowance or rejection of this claim by the Commissioner on May 14, 1926, as would result in this suit, which was instituted January 2, 1931, being barred.
Plaintiff contends that the claim was sufficient and that it has not finally or specifically rejected the Commissioner until his letter of August 28, 1929, in which he refused to allow the refund. The defendant, on the other hand, insists that this claim was insufficient in that it was in general terms and contained no statement of facts showing that the tax for 1919 had been overpaid, and that, while it was susceptible of amendment before rejection, it was disallowed and rejected by the Commissioner by the issuance of certificates of overassessment allowing a separate claim filed by plaintiff on other grounds, and that that last claim of November 15, 1928, was therefore an original claim filed after the statute of limitation had expired.
In the circumstance of this case, we are of opinion that the claim of February 18, 1925, was sufficient under the statute and the regulations and that it was not finally disallowed and rejected by the Commissioner within the meaning of that term as used in section 3226 of the Revised Statutes (as amended 26 USCA § 156) until the action taken by him in his letter of August 28, 1929. The case is in principle similar to that of Arthur K. Bourne et al., Executors, v. United States, 2 F.Supp. 228, 76 Ct.Cl. 680, in which the Commissioner made certain allowances of overpayments from time to time on a claim timely filed, and within two years from the institution of the suit definitely and finally disallowed a portion of the overpayment claimed. The facts and circumstances in the instant case distinguish it from the cases of Maxson v. United States, 50 F. (2d) 276, 72 Ct.Cl. 335, and Moses et al. v. United States (D.C.) 43 F. (2d) 653, upon which the defendant relies. In those cases the courts held upon the facts there disclosed that an allowance of a claim for refund in part amounted to a rejection of the balance. But, even in a case where there is only one claim, there may be extenuating facts and circumstances showing a lack of intention to reject the claim as to the balance, and we have come to the conclusion that there are such facts and circumstances in the instant case.
With reference to the sufficiency of the claim of February 18, 1925, the facts disclose that prior to the filing thereof the Commissioner had under consideration and audit plaintiff's taxable year 1917 and 1918, and the question whether its profit tax for those years should be computed under the special provisions of sections 210 and 328 of the Revenue Acts of 1917 and 1918 was involved. Plaintiff thereupon filed a claim for refund for each of the years based on this ground. These claims were definite and specific in their statement of facts, the claimed rate of profits tax, the amount of overpayments, and the corporate taxpayers engaged in a like or similar trade or business which it was believed should be used as comparatives. It was well known to the Commissioner and to the plaintiff that the amount of tax due for the previous year; the greater the tax for the previous year the less the invested capital and the greater the profits tax for the subsequent year.
While the matter of the tax liability for 1917 and 1918 was under consideration by the Commissioner in connection with plaintiff's claims for refund based on special assessment and before he had proceeded very far with his consideration of the year 1919, for which a revenue agent had made a report recommending overassessment, the Commissioner wrote plaintiff a letter, on January 21, 1925, suggesting that, inasmuch as the correct tax liability for the prior year for which plaintiff had filed claims for refund, was indeterminate, a claim for refund be filed for 1919 in order that a refund of any overpayment that might ultimately be found to have been made for that year might not become barred. Accordingly the claim of February 18, 1925, was filed and this letter of the Commissioner was attached to and made a part of the claim. It seems evident that this letter of the Commissioner had reference to two grounds upon which overpayment for 1919 might result when a final decision with respect thereto was made, namely, special assessment for 1917 and 1918 which, if allowed, would reduce the tax paid for those years and thereby increase invested capital for 1919, and the adjustments made by the internal agent in charge in his report recommending the allowance of an overassessment on other grounds.
At the time this letter was written, the Commissioner had under consideration the plaintiff's claims for refund for 1917 and 1918 based on special assessments, and there was therefore no indefiniteness in the claim of February 18, 1925, or lack of understanding of the ground thereof and the facts disclosed and relied upon by plaintiff, as plaintiff pointed out that it was entitled to an overpayment for 1919 because of its claims for refund based on special assessment for 1917 and 1918. The claim appears to have been as definite and as specific as the circumstances required or permitted. It definitely stated a ground, namely, that special assessment for 1917 and 1918 would result in an overpayment for 1919. The overpayment, for which this suit is brought, resulted from that cause. The claim was sufficient to advise the Commissioner of the reasons the plaintiff put forward then and now for its allowance. The Commissioner was not misled by plaintiff's failure to set forth at greater length and in more detail the reasons why where would be an overpayment for 1919 if special assessment should ultimately be allowed for 1917 and 1918. Such overpayment would result as a matter of course if the reason advanced by plaintiff in its claim should prevail. The amount of the overpayment was only a matter of computation of the invested capital and the tax in accordance with the statute and the regulations. The specific facts from which an overpayment for 1919 would result were impliedly, at least, contained in the Commissioner's letter to the plaintiff of January 21, 1915, which was made a part of the claim. The refund claim of February 18, 1925, in addition to the ground based on special assessment, included a claim in broad and general terms that "an examination thereof [1919] has been made and an overassessment recommended in the amount of $200,847.45." Therefore the second claim filed October 29, 1925, which was timely, was a claim intended specifically and definitely to state the facts and ground relied upon by the taxpayer which had been included in general terms in the earlier claim of February 18. The last-mentioned claim was based wholly and specifically upon the revenue agent's report recommending an overassessment of $200,847.45, which did not involved the ground stated in the earlier claim that there was also an overpayment for 1919 because the tax for 1917 and 1918 had been overpaid. In these circumstances we think the claim of October 29, 1925, was not an abandonment by the taxpayer of the earlier claim for an overpayment for 1919 based on special assessment for 1917 and 1918. The same is true with reference to the third claim for refund filed February 23, 1926, based specifically upon a supplemental report of the revenue agent and the Commissioner's letter of February 6 increasing the overassessment shown in a previous report upon which the claim of October 29, was based.
In addition to the foregoing, we are of opinion, for the reasons hereinafter stated, that the claim of February 18, 1925, was not specifically and finally disallowed until August 28, 1929, and that the claim, in two parts, filed November 15, 1928, based on the segregation of the year 1919 into two taxable periods of six months each, was a proper amendment and amplification of the earlier claim of February 18, 1925. There is and can be no question as to the sufficiency of the claim of November 15, 1928, as an amendment of the previous claim of February 18, 1925.
Was the statement made by the Commissioner in the certificate of overassessment of May 14, 1926, for the last six months of 1919, that "in the determination of this overassessment, the statements made in your claims for the refund of * * * $655,436.43 have been given careful consideration," a definite disallowance and rejection of the claim of February 18, 1925? This statement in the certificate of overassessment must be interpreted in the light of conditions existing at the time it was made and also in connection with other statements contained in both certificates of overassessment showing the subject-matter or grounds upon which the overassessments disclosed therein had been based. It should be noted at this point that no such statement was contained in the certificate of overassessment for the taxable period consisting of the first six months of 1919, and $12,592.01 of the overpayment here claimed was for this period. The Commissioner may give consideration to statement contained in a claim for refund without definitely rejecting the claim or intending to do so.
The question whether there was an overpayment for 1919 on account of the tax for 1917 and 1918 being less than that determined and collected was not before the Commissioner for decision at the time he audited certificates of overassessment allowing an overpayment on grounds entirely different from those stated by plaintiff in the claim of February 18, 1925, and such question had not been before him for decision since his determination of October 19,1925, which was appealed to the Board of Tax Appeals December 18, 1925.
The question whether plaintiff's tax for 1917 and 1918 should be computed under sections 210 and 328, and consequently whether there was an overpayment for 1919 on the ground stated by plaintiff in the claim of February 18, 1925, had passed out of the hands of the Commissioner and was pending before the Board of Tax Appeals, undecided, when the certificates of overassessment for 1919 were prepared and issued by the Commissioner. In these circumstances we think a proper interpretation of the statute requires the conclusion that the Commissioner was not in a position legally to reject a timely and sufficient claim for refund so as completely to deprive a taxpayer who had filed such claim from receiving the benefit thereof when he succeeded in establishing the overpayment on the ground specified. This view finds support in the provision of the statute to the effect that, if a taxpayer files a timely claim for refund for a particular year and the Commissioner, instead of allowing it in whole or in part, determines a deficiency for that year, any overpayment resulting from a final decision by the Board shall be refunded, although the claim may have been definitely and specifically rejected at the time the Commissioner proposed the deficiency.
In both certificates of overassessment for 1919, quoted in finding 9, the Commissioner pointed out in the first statement contained in these certificates that "An audit of your income tax return and a consideration of all the claims filed by you indicate that the tax assessed for this year was in excess of the amount due. The adjustments shown in the accompanying schedules [attached to the certificates] disclosing this overassessment have been made on the basis of facts and data now before the Unit, in connection with a revenue agent's report dated September 6, 1924." These were clear statements by the Commissioner that, although he had not overlooked the claim of February 18, 1925, he was not deciding the question presented by that claim, and that the overassessments allowed and disclosed in the certificates were based upon the facts and information before the Unit as disclosed in the revenue agent's report, which report, as hereinbefore pointed out, in no way involved any facts, information, or recommendation with reference t± the ground stated in the claim of February 18. These facts, when considered in connection with the further statement inserted in the certificate of overassessment for the last six months of 1919 that "in the determination of this overassessment, the statements made in your claims for the refund of * * * $655,436.43 have been given careful consideration," and other pertinent facts and circumstances in connection with the case, show, we think, that the last-mentioned statement was not a disallowance or rejection of the claim of February 18, 1925. This conclusion is further supported by the letter of August 28, 1929, in which the Commissioner, instead of holding that the claim of February 18, 1925, had been decided and disallowed, took the position that the claim of November 15, 1928, based on the same ground and facts as the earlier claim, presented "the issues involving adjustment to invested capital for 1919 on account of 1917 and 1918 income and profits taxes and the relief provided in sections 327 and 328 of the Revenue Act of 1918 * * * for the first time," and that, inasmuch as the limitation period for filing claims for 1919 had expired prior to the submission of these issues in the claim of November 15, no refund or credit could be made. The Commissioner's letter of January 30, 1930, simply reaffirmed this position.
It is our opinion that this suit was not barred at the time it was instituted January 2, 1931, and that plaintiff is entitled to judgment for the amount of the overpayment of $29,505.93, with interest, as provided by law. Judgment will be entered accordingly. It is so ordered. BOOTH, Chief Justice, and WILLIAMS, Judge, concur.
WHALEY and GREEN, Judges, concur in the result.