Opinion
Nos. 11675, 12166.
December 29, 1928.
Wm. C. Dorsey, of Omaha, Neb., and Kerr, McCord Ivey and Chadwick, McMicken, Ramsey Rupp, all of Seattle, Wash., for plaintiffs.
Anthony Savage, U.S. Dist. Atty., and Jeffrey Heiman, Asst. U.S. Dist. Atty., both of Seattle, Wash., and George G. Witter, Sp. Atty., Bureau of Internal Revenue, of Los Angeles, Cal.
At Law. Actions by the National Bank of Commerce of Seattle, Wash., and the First National Bank of Seattle, Wash., against the United States. Demurrer to each complaint sustained.
The identical issue is in both cases.
The National Bank of Commerce, in count 1, alleges that, in compliance with section 301, Revenue Act 1918 ( 40 Stat. 1088), March 15, 1919, it filed return showing invested capital and income and paid the tax; that on June 4, 1924, it filed its claim for refund of excess profits from 1918 "* * * due to exceptional and abnormal conditions affecting our income and invested capital so far greater proportionately than the tax paid by other representative banks as to impose an extreme hardship on this bank, * * *" and asks refund of $120,000 under sections 327 and 328, Revenue Act, supra ( 40 Stat. 1093). In count 2 the same allegation is made, except the return was filed with the collector of internal revenue March 15, 1920, for 1919 tax, and on February 25, 1925, claim for refund for $15,000 was made.
The First National Bank says return was filed with the collector of internal revenue March 15, 1919, for the 1918 tax, and on June 11, 1924, filed claim for refund of excess profits for 1918 "that our tax for the year 1918 as determined under Sec. 301 is due to exceptional and abnormal conditions affecting our income and invested capital so far greater proportionately than the tax paid by other representative banks as to impose an extreme hardship on this bank, * * *" and prays refund of $56,000.
The complaints are practically identical, except as to allegations distinctive to the individual plaintiffs. The causes of action, in substance, allege that during the years in issue the deposits of the plaintiffs were "* * * so excessive in comparison with other representative banks as to constitute an abnormal condition affecting its profits or income, * * *" and that the "* * * Commissioner wrongfully and fraudulently failed and neglected to compare said bank with representative corporations, as defined in Sec. 328. * * *"
It is also alleged that the Commissioner arbitrarily refused to consider and include the deposits as borrowed capital in arriving at his determination "thereby unlawfully and fraudulently denying and depriving the said bank of consideration of its application and claim upon the merits of the same and upon the facts in the possession and knowledge of the said Commissioner."
The defendant has demurred to each cause of action (1) that this court has no jurisdiction of the subject-matter of this case, for the reason that such issue is expressly committed to the judgment and discretion of the Commissioner of Internal Revenue, and that the court has no right to review the exercise of discretionary power; (2) that under section 3167, Rev. St. ( 26 USCA § 62) and subdivision (a), § 257, Revenue Act 1926 ( 26 USCA § 1024), the court has no authority to compel the production of returns of taxpayers not parties to the action, for the purpose of comparison by the court.
The Supreme Court in Williamsport Wire Rope Co. v. United States, 277 U.S. 551, 48 S. Ct. 587, 590, 72 L. Ed. 985, said: "We conclude that the determination whether the taxpayer is entitled to the special assessment was confided by Congress to the Commissioner, and could not, under the Revenue Act of 1918, be challenged in the courts — at least in the absence of fraud or other irregularities."
These actions were commenced prior to June 4, 1928, and amended complaints were filed September 4, 1928, to bring the cases within the "fraud or irregularities" suggestion in the Williamsport, supra, decision.
Fraud is never presumed, and must be directly charged — omission or concealment in breach of duty, trust or confidence justly reposed by which undue or unconscientious advantage is taken of another, or corruption. The reply brief of the plaintiff, concisely stating its claim upon fraud, says: "The specific acts of the Commissioner alleged to constitute fraud or irregularity, is that he threw out the entire deposits of the bank and arbitrarily refused to include them in borrowed capital, when in fact they were borrowed capital."
Each plaintiff names ten banks said to be representative corporations suitable for comparison, but there is no charge that deposits in these banks were considered in any other way or any fact stated that a comparison with these banks would have revealed discrimination against the plaintiffs.
To succeed, each plaintiff must bring itself under sections 327 and 328, and it must appear that the assessment works an exceptional hardship evidenced by gross disproportion between the tax computed without benefit of these sections and the tax computed by reference to the representative corporations specified in section 328: "The tax shall be the amount which bears the same ratio to the net income of the taxpayer * * * for the taxable year, as the average tax of representative corporations engaged in a like or similar trade or business, bears to their average net income * * * for such year." (Italics supplied.)
There is no allegation showing that the plaintiffs were discriminated against and not taxed in the same ratio to the net income as the average of representative corporations engaged in a like or similar trade or business. There is no allegation or statement which distinguishes these cases from the Williamsport Case, supra.
The demurrer to each complaint is sustained.