Summary
In Pioneer Coal Coke Co. v. U.S., 14 F. Supp. 661 (Court of Claims), where the facts were similar to those in the Meyersdale Fuel Case, the court concluded that, as the result of various credits and offsets, the plaintiff had in fact been reimbursed by the other corporations for their proper proportions of the tax, so that each corporation had paid not more than its own share of the tax.
Summary of this case from American Newspapers v. United StatesOpinion
No. K-483.
May 4, 1936.
Action by the Pioneer Coal Coke Company against the United States.
Petition dismissed.
Plaintiff seeks to recover $94,013.91 with interest, alleged overpayment of income and profits tax for 1920, in respect of the total tax assessed and paid on a consolidated return filed for that year in which the incomes of plaintiff, National Transportation Company, Tidewater Coal Company, and Consolidated Coke Company were included.
The claim that the tax shown on this consolidated return was overpaid arises as a result of the elimination of the Consolidated Coke Company from the affiliated group and the contention of plaintiff, on behalf of itself, the National Transportation Company, and the Tidewater Coal Company, that the total tax which they paid was $514,770.17 and that the correct tax on the consolidated net income of plaintiff, National and Tidewater Companies, which were held to be affiliated for the taxable year, was $420,756.26. Plaintiff also seeks to recover $7,029.66 for 1917 and $9,755.27 for 1918 with interest, overpayments applied as credits against the tax shown by and assessed upon the consolidated return for 1920.
The defendant contends that there was no overpayment by plaintiff or by any of the other corporations which joined in the consolidated return for 1920 and that the overpayments for 1917 and 1918, credited in partial satisfaction of the assessment made on the consolidated return for 1920, cannot be recovered for the reason that no claim for refund was filed and that the certificates of overassessments showing the credits stated the account exactly as it was settled.
Special Findings of Fact.1. March 15, 1921, plaintiff, a Pennsylvania corporation, executed and filed a consolidated income and profits tax return for 1920, in which was included the income and invested capital of the National Transportation Company, the Tidewater Coal Company, and the Consolidated Coke Company, hereinafter sometimes referred to as the National, Tidewater, and Coke Companies. The plaintiff herein was exclusively a selling agency. It owned no property, coal, or coke mines. The National Transportation Company owned and operated steamboats and barges for transporting coal and coke on rivers; it owned no mines. The Tidewater Coal Company was engaged entirely in the business of selling coal produced by other operating companies; it owned no coal-mining properties. The plaintiff and the Tidewater Company were the exclusive selling agencies for the Consolidated Coke Company and others. The Consolidated Coke Company owned large coal and coke properties and was strictly an operator. All of the stock of the Pioneer, the National, and the Tidewater companies was held by four individuals who were the officers and directors of all four of the corporations. These individuals also owned a considerable portion of the stock of the Consolidated Coke Company, but the Coke Company had a number of other stockholders who were not stockholders in any of the other corporations. In the consolidated return for 1920 plaintiff was shown as the parent corporation. At the time this return was filed the National, Tidewater, and Coke Companies filed information returns showing that their income and invested capital had been included in the consolidated return in which plaintiff was shown as the parent corporation, and under item 7 of the information returns the inquiry, "If apportionment is made, state the amount of income and profits taxes for the taxable period to be assessed against the subsidiary or affiliated corporation making this return," was left unanswered. At the time this consolidated return was prepared it was agreed among the four corporations, as hereinafter disclosed in more detail, that each corporation would be responsible for and would pay its portion, as nearly as could be estimated, of the total tax shown by the consolidated return to be due on the basis of the net income of each corporation and that such tax would be paid through the plaintiff as the parent corporation.
2. The consolidated return as filed showed a total tax liability for the four corporations of $686,222.58. This return was made in the name of plaintiff as the parent corporation. Upon receipt of the return by the Commissioner of Internal Revenue through the collector's office, the tax shown to be due on the return was, in accordance with the usual practice of the Commissioner, assessed in the name of the Pioneer Coal Coke Company, plaintiff herein. The net income of each of the four corporations and the total thereof, as the consolidated net income, were set forth in the return as follows:
Plaintiff .............................. $483,975.45 National Company ....................... 76,852.97 Tidewater Company ...................... 517,606.22 Consolidated Company ................... 519,018.65 --------------- Consolidated income ................... $1,597,453.29
During 1920 and at the time of the filing of this return, the four corporations had identical officers and boards of directors. Before the consolidated return was prepared and filed, the officers and directors of the four corporations had a number of conferences during February and March, 1921, with reference to the making of returns for the four corporations for 1920 and for the purpose of arriving at an understanding or agreement as to the manner in which the tax liabilities of the several corporations should be paid. These conferences consisted of informal gatherings at which no minutes were kept and no resolutions were adopted. As a result of these conferences, the officers concluded the four corporations were affiliated for 1920 and that a consolidated income and profits tax return should be filed. It was also agreed that each of the four corporations included in the consolidated return should be responsible for and pay its proportion of the total tax shown thereon. The amount to be paid by each corporation was arrived at on the basis which the ratio of tax that each corporation would have been required to pay, had it filed a separate return, bore to the total tax computed on the consolidated net income shown in the consolidated return, as nearly as could be determined. It was further agreed that such payment should be made through the plaintiff, as agent, in settling the consolidated tax liability for 1920 except that, as the Consolidated Coke Company had a claim for refund for $170,000 pending for 1918, that company would execute and file with the collector a claim for credit of the alleged overpayment of $170,000 against the first installment of $171,555.66 of the consolidated tax of $686,222.58 shown on the consolidated return; that in addition to the claim for credit the Consolidated Coke Company would give plaintiff, as the parent corporation and paying agent, its check for $1,452.41. The amount of the claim for credit and this check equaled the amount of $171,452.41 which had been estimated to be the liability of the Coke Company for its portion of the tax of $686,222.58 shown on the consolidated return. It was agreed that plaintiff, National, and Tidewater Companies would, upon the filing of the return and claim for credit, pay to the Consolidated Coke Company in cash the amount which each would be required to pay in cash upon the first installment of the total tax shown on the consolidated return if the Consolidated Company's claim for credit in the amount of $170,000 was not filed to apply against the first installment of one-fourth of the consolidated tax of $686,222.58. No cash payment except $1,555.66 was ever made on the first installment, and the claim for credit was subsequently rejected. The difference between the first installment of $171,555.66 of the consolidated tax and the amount of the Consolidated Coke Company's claim for credit and check for $1,452.41, or $103.25, was paid by plaintiff. There was no agreement among the four corporations that plaintiff would assume the tax liability of any of the other corporations. The Commissioner of Internal Revenue was never advised of any agreement among the four corporations that he should look solely to plaintiff for the amount of tax due for 1920, nor was he advised, prior to the filing of the claim for refund in 1929, as to any arrangement between the corporations as to how the tax shown to be due on the consolidated return would be paid.
At the above-mentioned conferences between the officers and directors of the corporations it was further agreed that the total consolidated tax liability of $686,222.-58 computed for 1920 would be paid by the four individual corporations in the amounts of $230,953.18 by plaintiff, $36,815.40 by the National Company, $247,001.59 by the Tidewater Company, and $171,452.41 by the Consolidated Coke Company.
When the consolidated return was filed, the first installment of $171,555.66 was not paid to the collector in cash because of the filing of a claim for credit by the Consolidated Company asking that the amount of $170,000, alleged overpayment for 1918, be credited against that amount of the first installment shown on the consolidated return for 1920. The balance of the first installment of $1,555.66 was paid as hereinbefore mentioned. Upon the filing of the claim for credit the collector in accordance with the usual practice made no effort during the pendency of the claim for credit to collect the amount of $170,-000 of the first installment of the 1920 tax. At the time the claim for credit was filed, the Commissioner had not acted upon the Consolidated Coke Company's claim for refund for 1918. The refund claim and claim for credit were subsequently denied, as will be hereinafter referred to in more detail in finding 9.
Following the filing of the claim for credit against the first installment of the consolidated taxes for 1920 and in accordance with the understanding between the corporations before the consolidated return was filed, the plaintiff, National, and Tidewater Companies on May 2, 1921, paid to the Consolidated Coke Company $127,136.90 consisting of payments in the amounts of $56,182.65 by plaintiff, $9,203.85 by National, and $61,750.40 by the Tidewater Companies, which were the amounts these three corporations would have had to pay to the collector as their proportion of the first installment of the total tax shown on the consolidated return had the Coke Company not filed its claim for credit.
3. The total cash paid by checks to the collector in respect of the total consolidated tax liability of $686,222.58 for 1920 amounted to $516,222.58, which the plaintiff on behalf of itself and as the agent of the other three corporations transmitted to the collector in the amounts of $1,555.66, $171,55.65, $171,555.64, and $171,555.63 on March 15, June 14, September 14, and December 15, 1921, respectively.
With respect to the second, third, and fourth installments, plaintiff paid on its own account and each of the three other corporations contributed to plaintiff for delivery to the collector its proportionate share as follows:
-------------------------------------------------------------------------------- Name 2d 3rd 4th Total -------------------------------------------------------------------------------- Plaintiff ............ $57,738.30 $57,738.29 $57,738.29 173,214.88 National Company ..... 9,203.85 9,203.85 9,203.85 27,611.55 Tidewater Company .... 61,750.40 61,750.40 61,750.40 185,251.19 Consolidated Company . 42,863.10 42,863.10 42,863.10 128,589.30 -------------------------------------------------------------------------------- The checks issued to the Consolidated Coke Company May 2, 1921, as hereinbefore stated, by plaintiff, National, and Tidewater Companies for the amounts which they would have been required to pay to the collector, except for the filing by the Coke Company of its claim for credit, each stated on its face the purpose for which given. The check of plaintiff for $56,182.64 stated that it was for the "First quarterly payment on account 1920 income tax, less amount paid by our check #2763, $1,555.66." The check of the National Company for $9,203.85 stated that it was for "First quarterly payment account 1920 income tax." The check of Tidewater Company for $61,750.40 stated that it was for "First quarterly payment account 1920 income tax." The checks subsequently delivered by the National and the Tidewater Companies to plaintiff for their portions of the second, third, and fourth installments of the tax shown due on the consolidated return stated the purposes thereof in a similar manner. The three checks issued by the Consolidated Coke Company of $42,863.10, each payable to plaintiff, who was the agent for all of the corporations, for payment to the collector of the tax shown due on the consolidated return, stated on the face thereof, in each instance, that the amount of the check was for "payment in full for second [third and fourth] installment of 1920 income taxes as per report filed." The second installment of the tax shown on the consolidated return was satisfied by delivery to the collector by plaintiff of its check for $171,555.65, payable to the collector, which check stated on its face that it was in payment of the second installment of income tax for 1920. The third installment was satisfied on September 14, 1921, by delivery to the collector by plaintiff of its check for $171,555.64 which showed on its face that it was in payment of the third installment of the 1920 income tax. The fourth installment was paid by delivery to the collector on December 15, 1921, by plaintiff of its check for $113,692.53, payable to the collector, bearing the notation "Part payment of fourth installment 1920 income tax" and plaintiff's check dated December 16, 1921, for $15,000 payable to the collector and bearing the notation "Balance account 1920 income tax" and, also, the check of the Coke Company dated December 2, 1921, payable to Pioneer Coal Coke Company, the plaintiff herein, for $42,863.10 bearing the notation on the face thereof that it was the "Fourth and final payment of 1920 Federal taxes as per reports filed." The check of the Coke Company was delivered by plaintiff to the collector after having been indorsed as follows — "Pay to the order of D. B. Heiner, Collector of Internal Revenue."4. Subsequent to the payments having been made as above stated, the Commissioner in February, 1925, prepared and sent to the collector at Pittsburgh a schedule of overassessments in favor of the Pioneer Coal Coke Company, plaintiff herein, in the amounts of $7,029.66 for 1917 and $9,755.27 for 1918. Consolidated returns were not filed for 1917 and 1918. These overassessments were found to be overpayments by the collector and were credited, upon approval by the Commissioner, in partial satisfaction of the unpaid portion amounting to $170,000 of the total assessment of $686,222.58 made in the name of plaintiff on the consolidated return for 1920. The unpaid portion of the assessment for 1920 to which these overpayments were credited represented that portion of the first installment of the tax assessed on the 1920 consolidated return in respect of which the Consolidated Coke Company's claim for credit had been filed. The collection of the unpaid portion of the 1920 tax, to which these overpayments were credited, was not barred at the time the credit was allowed and made on April 27, 1925. May 4, 1925, the Commissioner notified the plaintiff of these two credits, by delivering to it certificates of overassessment showing the details and the manner in which the credits had been made.
5. Waivers of the statute of limitation for assessment and collection of any tax due for 1920 were filed. After an investigation of the books, records, and the stock ownership of the four corporations, the Commissioner decided on June 15, 1927, that the Consolidated Coke Company was not affiliated by stock ownership or otherwise with the plaintiff, National, and Tidewater Companies for 1920 so as to permit the computation of the tax liabilities of the four corporations on the basis of a consolidated return. At the same time the Commissioner decided that the plaintiff, National, and Tidewater Companies were affiliated for 1920 by stock ownership under the provisions of section 240 of the Revenue Act of 1918, 40 Stat. 1081, and entitled to have their tax liabilities determined on the basis of a consolidated return. The four corporations involved accepted this decision as correct and no protest thereto was filed. September 12, 1927, the Commissioner mailed to plaintiff, the National and the Tidewater Companies, a notice of his preliminary determination based on the elimination of the Coke Company from the affiliated group, in which he advised that "of the total tax assessed [$686,222.58] a sufficient amount [$491,739.94] has been allocated to you to meet the revised tax liability shown herein. The remainder of the tax paid [assessed] for 1920 has been allocated to the Consolidated Coke Company." No additional tax was proposed against any of the companies in this letter. What the Commissioner actually did, as disclosed by the computation set forth in this letter, was to accept without change the net taxable income for 1920 of the plaintiff, the National, and the Tidewater Companies as reported in the consolidated return and as disclosed in the revenue agent's report in August, 1924, and reduce the consolidated invested capital as shown in the consolidated return by the amount of $1,064,492.11 because of the elimination of the Consolidated Company from the affiliated group, all of which resulted in the computation of a total income and excess profits tax liability of $491,739.94 for the affiliated group consisting of plaintiff, National, and Tidewater Companies. In the computations disclosed in this letter, the total tax liability of the new affiliated group of $491,739.94 was deducted from the total tax of $686,222.58 assessed on the consolidated return, and the balance of $194,482.64 of the assessment made on the return was allocated to the tax liability of the Consolidated Coke Company. As a result, no additional amount to be assessed was shown. In this computation and allocation the Commissioner gave no consideration to any payments that had been made in respect of the tax shown on the consolidated return because, first, he was not advised of the payments that had been made, and, second, he was concerned only with the matter of assessment which had been made and with the correct tax liability of the several corporations. Thirty days were granted for protest, which, upon application by plaintiff, was extended to November 26, 1927. On that date plaintiff on behalf of the three corporations constituting the new affiliated group filed a written protest to the Commissioner's allocation of tax assessed, asking that the profits tax of the new affiliated group for 1920 be determined and computed under the relief provisions of sections 327 and 328 of the Revenue Act of 1918 ( 40 Stat. 1093) and alleging that certain abnormalities existed with regard to the income and invested capital of the three corporations constituting the affiliated group which entitled them to have their profits tax determined in the manner requested. The Commissioner upon consideration allowed this application for computation of the profits tax liability of the new affiliated group under the relief provisions. On June 6, 1928, he mailed to plaintiff, National, and Tidewater Companies a letter which set forth at length and in great detail in eleven separate schedules the results of his audit of the consolidated return and the correct tax liability of each of the three corporations constituting the new affiliated group, as well as the tax liability for 1920 of the Consolidated Coke Company. This was the Commissioner's final determination for 1920. In Schedule 8 of this letter the income as reported by the four corporations included in the consolidated return originally filed was accepted without change and the total assessment of $686,222.58 made on that return was allocated in accordance with section 240, Revenue Act of 1918, to the four corporations based on the ratio which the net income of each company of the group bore to the consolidated net income as shown in the return, as follows:
-------------------------------------------------------------------- Name Income Tax Percentage — -------------------- --------------- ------------- ---------- Plaintiff ............ $483,975.45 $207,902.80 30.2967 National Company ..... 76,852.97 33,014.17 4.8110 Tidewater Company .... 517,606.22 222,349.84 32.4020 Consolidated Company . 519,018.65 222,955.77 32.4903 --------------- ------------- ---------- $1,597,453.29 $686,222.58 100.0000 -------------------------------------------------------------------- In the foregoing allocation by the Commissioner, the new affiliated group consisting of plaintiff, National, and Tidewater Companies was charged with $463,266.81 of the total assessment of $686,222.58 which had been made on the original consolidated return. The correct tax liability of the new consolidated group of three corporations, after the computation of their profits tax liability under section 328, was determined by the Commissioner and shown in Schedule 9 of this letter to be $420,756.26, or $42,510.55 less than the portion of the total tax assessed on the consolidated return and allocated to the consolidated group consisting of plaintiff, National, and Tidewater Companies. This amount of $42,510.55 of the original assessment so allocated was applied against the amount of $207,902.80 originally allocated to plaintiff individually, thereby reducing the portion of the original assessment allocated to plaintiff to $165,392.25. The portion of the original assessment on the consolidated return which had been allocated to the National and the Tidewater Companies remained the same with the result that $420,756.26 of the total assessment made on the consolidated return was allocated to the total tax liability in that amount of the three corporations constituting the new affiliated group, as follows: Plaintiff, $165,392.25; National Company, $33,014.17; Tidewater Company, $222,349.84. The difference of $42,510.55 between the amount of $463,266.81 allocated to these three corporations from the total assessment made on the return and their correct tax liability of $420,756.26 was scheduled by the Commissioner for abatement and was applied by the collector in reduction of the outstanding and unpaid portion of the first installment of $170,000 disclosed and assessed on the consolidated return filed, which amount of $170,000 had previously, in 1925, been reduced to $153,215.07 by the two credits totaling $16,784.93 for 1917 and 1918 overpayments, as hereinbefore mentioned. The balance of $222,955.77 of the total assessment made on the consolidated return as filed was allocated to the tax liability of the Consolidated Coke Company, which had been separated from the affiliated group, for 1920. As a result of the computations and allocations of the original assessment, no additional tax was shown in this letter to be assessed against any of the corporations. However, the Commissioner later determined and assessed an additional tax against the Consolidated Coke Company, as hereinafter set forth.6. January 5, 1929, plaintiff filed a claim for refund of $94,013.91. This amount represented the difference between the tax of $514,770.17 alleged to have been paid by plaintiff, National, and Tidewater Companies, as taxpayers, in respect of their tax liability as shown on the consolidated return filed in 1921 and the correct tax liability of these three corporations for 1920 as finally determined by the Commissioner in the amount of $420,756.26.
April 6, 1929, a letter signed by the plaintiff, the National, the Tidewater, and Consolidated Coke Companies was filed with the Commissioner in connection with the claim for refund in which they sought to have the Commissioner change the allocation of the original assessment made on the consolidated return, as set forth in his final notice of June 6, 1928, and to allocate to and allow as an overassessment in favor of plaintiff, National, and Tidewater Companies an amount of $51,503.36 in addition to the overassessment of $42,510.55 previously allowed on special assessment. The basis on which it was claimed that this additional overassessment of $51,503.36 should be allowed and scheduled in favor of the plaintiff, the National, and the Tidewater Companies was that all of the tax, amounting to $516,222.58, paid in cash on the consolidated return except $1,452.41 had been paid by plaintiff, the National, and the Tidewater Companies and that an overassessment and overpayment of the total of $42,510.55 previously allowed plaintiff and the additional overassessment of $51,503.36 claimed, or $94,013.91, should be allowed and refunded with interest. On November 14, 1929, the Commissioner rejected the claim for refund on the ground that the original assessment made against the four corporations included in the consolidated return and the correct tax liability, as finally determined by him, had been allocated in accordance with the net income properly assignable to each, in accordance with the provisions of section 240 of the Revenue Act of 1918, and that there was no merit in the claim advanced by the plaintiff, the National, and the Tidewater Companies in support of the claimed refund that the tax liability had not been assessed in accordance with an agreement alleged to have existed among the various corporations comprising the group at the time of filing of the consolidated return for 1920, of which he, the Commissioner had no notice.
7. The amount paid by plaintiff, as a taxpayer, to the collector at Pittsburgh in respect of the tax shown on the consolidated return filed for 1920 was $173,318.13; the amount paid by the National Transportation Company, as a taxpayer, in respect of its tax liability as shown on such consolidated return was $27,611.55; and the amount paid by the Tidewater Coal Company, as a taxpayer, in respect of its tax liability as disclosed on such return was $185,251.19; or a total payment of $386,180.87 by these three corporations, which were finally held to be affiliated for 1920. The total consolidated tax liability of these three corporations for 1920 was $420,756.26, or $34,575.39 in excess of the total amount paid by these three corporations. The amount paid by the Consolidated Coke Company, as a taxpayer, in respect of its tax liability as disclosed on the consolidated return filed for 1920 was $130,041.71. The amounts paid by the National, Tidewater, and Consolidated Companies in respect of the tax liabilities shown and assessed upon the consolidated return were contributed to the Pioneer Coal Coke Company, plaintiff herein, which, in turn, paid these amounts either by its own check or by indorsing the checks of the other companies to the collector. There is still an outstanding and unpaid assessment in the name of plaintiff on the books of the collector at Pittsburgh.
8. March 2, 1928, the Commissioner made his final determination in respect of the correct tax liability of the Consolidated Coke Company for 1920 after it had been eliminated from the consolidated group, and fixed the same at $238,891.51. Of this amount $222,955.57 was shown as previously assessed by allocation to this taxpayer of a portion in that amount of the total assessment made on the consolidated return in which the Consolidated Coke Company had been originally included, leaving an additional tax to be assessed of $15,935.74. This additional amount, together with interest of $2,352.59, totaling $18,288.33, was duly assessed by the Commissioner in August, 1928, no portion of which has been paid. The outstanding and unpaid tax due by the Consolidated Coke Company for 1920 is $108,849.80.
9. For 1918 the Consolidated Coke Company made a return showing a tax of $170,000, which was assessed and paid in two installments of $85,000 each in March and June, 1919. In March, 1926, the Commissioner determined and assessed an additional tax of $1112,918.12 for 1918 for which a claim in abatement was filed and subsequently denied. This assessment has not been paid. In 1929, the Commissioner determined an additional tax to be due in the amount of $13,704.46 in excess of the amount of $170,000 assessed on the return and the additional assessment of $112,918.12 made in March, 1926, and notified the Consolidated Coke Company thereof, from which it took an appeal to the U.S. Board of Tax Appeals, as hereinafter stated. This deficiency of $13,704.46, together with interest of $3,202.84, was assessed by the Commissioner in January, 1930. No portion of the outstanding assessments totaling $129,825.42 has been paid. In its return for 1919 the Consolidated Coke Company claimed a net loss which it sought to have applied against its net income for 1918 and filed a claim for refund of $170,000 paid on the return for 1918. This was the $170,000 in respect of which a claim for credit to 1920 was filed in March, 1921, when the consolidated return hereinbefore mentioned for 1920 was filed with the collector at Pittsburgh. February 23, 1929, the Commissioner rejected these claims for abatement, refund, and credit of the Consolidated Coke Company for 1918, and determined a deficiency of $13,704.46 for 1918 in excess of the tax of $282,918.12 theretofore assessed for that year. The Consolidated Coke Company appealed from this determination to the United States Board of Tax Appeals and prayed the board to disallow the deficiency determined by the Commissioner, and to find that $282,918.12 assessed for 1918 was not due and also to find an overpayment of $170,000 for that year. The board denied the taxpayer's contentions and approved the determination of the Commissioner, Consolidated Coke Co. v. Commissioner of Internal Revenue, 25 B.T.A. 345, and entered its decision that the outstanding assessed and unpaid portion of the correct tax liability for 1918 was $126,622.58. This decision of the board was affirmed on appeal (C.C.A.) 70 F.2d 446.
10. Some time prior to 1928 the Consolidated Coke Company acquired and thereafter owned all the stock of the Pioneer Coal Coke Company, plaintiff herein. Prior to November 1, 1928, the Consolidated Coke Company failed and the Bank of Pittsburgh National Association was appointed a receiver; while acting as such receiver the Bank of Pittsburgh went into the hands of a receiver prior to 1932. The Pioneer Coal Coke Company ceased business prior to 1931 and its affairs were liquidated, but it continued in existence as a corporation.
Thomas Watson, of Pittsburgh, Pa., for plaintiff.
J. W. Hussey, of Washington, D.C. and Frank J. Wideman, Asst. Atty. Gen., for defendant.
Before BOOTH, Chief Justice, and GREEN, LITTLETON, WILLIAMS, and WHALEY, JJ.
With reference to the amounts of $7,029.66 and $9,755.27, overpayments allowed by the Commissioner of Internal Revenue for 1917 and 1918 and credited April 27, 1925, to the unpaid portion of the tax shown and assessed on the consolidated return filed for 1920, the plaintiff, in paragraphs 2 and 19 of its petition filed in this court, seeks to recover these amounts as overpayments for 1917 and 1918, and in the original brief the court was asked to enter judgment for these amounts as overpayments for 1917 and 1918. In the reply brief plaintiff contends that these amounts, totaling $16,784.93, are recoverable in this proceeding as an overpayment for 1920 under the printed language "or such greater amount as is legally refundable," contained in the claim for refund filed for 1920 for $94,013.91, or as overpayments for 1917 and 1918 on the theory of an account stated. We are unable to agree with either position. No cause of action is stated in the petition for the recovery of these amounts as a collection or overpayment for 1920, but, on the contrary, such amounts were set up in the petition and sought to be recovered as overpayments for 1917 and 1918. Moreover, such credits were not included or in any way mentioned in the claim for refund filed for 1920. The refund claim as filed related wholly to the Commissioner's determination and allocation with respect to the tax assessed on the original return and to the resulting claimed overpayment of $94,013.91, hereinafter discussed. The amounts cannot be recovered as overpayments for 1917 and 1918 for the reason that no refund claims for those years were filed and the certificates of overassessment delivered on May 4, 1925, showed the credits. There was no statement of account showing a balance in favor of plaintiff. Leisenring et al., Executors, v. United States, 3 F. Supp. 853, 4 F. Supp. 993, 78 Ct.Cl. 171; First National Bank of Beaver Falls, Administrator, v. United States, 8 F. Supp. 484, 9 F. Supp. 424, 79 Ct.Cl. 744; Pratt Whitney Co. v. United States, 10 F. Supp. 148, 80 Ct.Cl. 676.
Plaintiff contends on behalf of itself, the National, and the Tidewater Companies in support of its right to recover the claimed overpayment of $94,013.91 for 1920(1) that the Commissioner was bound under the statute to assess the tax shown to be due on the consolidated return separately against the four corporations whose income and invested capital were included therein in the proportion of their respective net incomes to the total consolidated net income as shown by the affiliated return, and that the assessment of the entire amount of $686,222.58 shown to be due by the consolidated return against plaintiff alone was erroneous; (2) that under the agreement made between the four corporations, parties to the affiliated return, to the effect that each corporation was to pay its own tax upon the net income properly assignable to it, the tax liability of the Consolidated Coke Company was to be assessed against and paid by it and that an assessment of the tax liability of that company, in the name of plaintiff, was illegal; and (3) that the Commissioner, when he found and decided that the Consolidated Company was not affiliated with the other corporations, should have corrected his original assessment of the entire tax liability of $686,222.58 upon the affiliated return against plaintiff by abating $42,510.55 thereof, representing the reduction in the tax liability of plaintiff, National, and Tidewater Companies resulting from the computation of the profits tax under section 328, act of 1918, 40 Stat. 1093, and by abating $222,955.77, representing that portion of the total assessment allocated to the Consolidated Coke Company, so that the corrected assessment against plaintiff for itself and the two affiliated corporations would have been only $420,756.26.
Upon the record in this case we fail to find anything in what the Commissioner did that would give the plaintiff, the National, or the Tidewater Companies, parties to the affiliated group for 1920, the right to recover any amount unless they actually overpaid their tax. This they did not do with respect to the tax paid upon the consolidated return, as we shall hereinafter endeavor to show. In so far as the credits of the overpayments for 1917 and 1918 made against the portion of tax shown on the consolidated return for 1920 are concerned, no recovery can be had in respect thereto for the reasons hereinbefore mentioned.
When the consolidated return was filed, each of the four corporations whose income and invested capital were included therein was to be responsible for payment through plaintiff, as agent, of its portion of the tax shown to be due on the consolidated return on the basis of the ratio which its tax, if computed on a separate return, bore to the total net consolidated income as disclosed in the return, as nearly as could be determined. This was done so far as the payments made to the government were concerned. The evidence does not show that there was any definite agreement as to the manner in which the Commissioner should assess the tax or that any particular amount should be separately assessed by the Commissioner against any one or more of the corporations included in the affiliated group. The Commissioner was not advised of any understanding or agreement among the four corporations joining in the affiliated return until April 6, 1929, when the plaintiff, National, and Tidewater Companies constituting the new affiliated group endeavored to have the Commissioner change his determination and allocation of the tax shown and assessed upon the original consolidated return so as to show an overassessment of at least $94,013.91 for 1920 in favor of plaintiff. We think the Commissioner was correct in refusing to do this and we are also of the opinion that the Commissioner's allocation of the assessment of $686,222.58 made on the return to the correct tax liability of plaintiff, National, and Tidewater Companies as the new affiliated group and to the Consolidated Coke Company, the income of which was included in the assessment mentioned, was in compliance with the statute, and in substantial accordance with the understanding between the four corporations when the consolidated return was filed. This was on the basis of the ratio which the net income of each separate company bore to the total net income as shown in the original return. If the Consolidated Coke Company had not been eliminated from the affiliated group, the Commissioner in his final determination would have made the same sort of allocation. The fact that the total tax shown on the affiliated return was assessed in the name of plaintiff rather than against the four corporations in separate amounts was of no controlling importance when the Commissioner came to allocate the total assessment made on the return to the separate corporations on the basis of the net income and invested capital properly assignable to each in accordance with its final determination. The assessment of the tax shown to be due on the consolidated return against plaintiff who made the return, even if not strictly in accordance with the statute, was not illegal. Nor did the manner in which the assessment was made render the tax collected for 1920 illegal or refundable. For the purpose of allocation of the assessments to the several corporations, no new assessments were necessary and the question whether any of the corporations were entitled to a refund depends upon whether it had overpaid its tax rather than upon the manner in which the original assessment was made. Appeal of Mather Paper Co., 3 B.T.A. 1; Meyersdale Fuel Co. v. United States, 44 F.2d 437, 70 Ct.C1. 765; Mahoning Investment Co. v. United States, 3 F. Supp. 622, 78 Ct.Cl. 221. Compare Lewis et al. v. Reynolds, 284 U.S. 281, 52 S.Ct. 145, 76 L.Ed. 293. A direct and separate assessment against a taxpayer is not necessary to a valid payment or collection of a tax due. Meyersdale Fuel Co. v. United States, supra. John Muir v. United States, 3 F. Supp. 619, 78 Ct.Cl. 150.
Following the usual practice, the Commissioner prior to examination and audit of the consolidated return filed for 1920 assessed the tax shown to be due thereon in the name of the company making the return. Assessments of taxes shown to be due upon returns filed with the collectors are made by the Commissioner on assessment lists prepared by the collector and forwarded to the Commissioner with the returns listed therein. These assessments, whether made on lists prepared by the collector or the Commissioner, are made without investigation or examination of returns and of necessity the tax shown on the return is listed and assessed in the name of the person or corporation making the return, and this is true in the case of consolidated returns, unless there is filed with the return a definite statement setting forth the names of taxpayers to be assessed and the amount to be assessed against each. The procedure just mentioned was followed in this case. If it be assumed that the assessment in the name of the plaintiff of the total taxes shown on the consolidated return was erroneous, this error was corrected when the Commissioner allocated the assessment to the several corporations in the ratio which the net income of each separate company of the group bore to the total net income as shown by the original return. The division and allocation of the original assessment relieved plaintiff, National, and Tidewater Companies from further payment in respect of the portion of the assessment allocated to the Coke Company.
This brings us to the question whether the tax for 1920 was overpaid in connection with the payments made in respect of the tax shown on the consolidated return. As hereinafter explained in more detail, the alleged overpayment is based on the claim that the total tax paid to the government by the plaintiff, the National, and the Tidewater Companies in respect of the tax disclosed to be due by the consolidated return for 1920 before the Consolidated Company was eliminated from the affiliated group was $514,770.17, and that the correct tax liability of these three corporations as finally determined by the Commissioner was $420,756.26. It is obvious that the only ground upon which this claimed overpayment of $94,013.91 can be supported is by proof that the tax paid to the government, or contributed and used for that purpose, by the plaintiff, the National, and the Tidewater Companies, as the taxpayers, was $514,770.17. In an attempt to establish this fact, it is contended that the Consolidated Coke Company, which was included in the consolidated group when the return was made but afterwards eliminated by the Commissioner, paid, as a "taxpayer," only $1,452.41 which was the amount of cash delivered by the Coke Company to the plaintiff to be paid to the collector with an additional amount of $103.25 to be contributed by plaintiff to take care of the excess of the first installment of $171,555.66 of the tax shown to be due on the consolidated return over and above the Consolidated Coke Company's claim for credit of an alleged overpayment for 1918 of $170,000. In answer to this the defendant points to the fact that the Consolidated Coke Company on June 13, September 12, and December 2, 1921, issued and delivered to plaintiff its three checks, each in the amount of $42,863.10, the exact amount of the Coke Company's proportionate part of the second, third, and fourth installments of the total tax of $686,222.58 shown on the consolidated return. Each of these checks bore on its face the indorsement that it was in full payment of the Coke Company's portion of the tax installment for 1920 to which it related. These checks were payable to and were cashed by plaintiff and the amounts thereof, except the third check, were retained and used by plaintiff, so far as the record shows, to reimburse it for equal amounts transmitted by plaintiff to the collector as the agent of the other three corporations. The third check of the Coke Company for $42,863.10, dated December 2, 1921, was indorsed by plaintiff and delivered to the collector in partial payment of the fourth installment. In answer to this, plaintiff contends that the three amounts of $42,863.10 each, totaling $128,589.30, were not contributions by the Consolidated Coke Company as a "taxpayer" toward the payment of any portion of the second, third, and fourth installments of tax shown on the consolidated return, but were returns of loans made to the Consolidated Coke Company on May 2, 1921, of $56,182.64 by plaintiff, $9,203.85 by the National Company, and $61,750.40 by the Tidewater Company, totaling $127,136.89, which loans, it is contended, were made to the Coke Company by plaintiff, National, and Tidewater Companies in the exact amounts of their proportionate liabilities on the first installment of tax shown on the consolidated return because the Consolidated Company had taken care of such liability by the filing of its claim for credit. These circumstances, however, will not support plaintiff's claim for an overpayment. The fact remains that the total amount of cash contributed and paid to the government by the plaintiff, National, and Tidewater Companies as taxpayers in connection with the tax shown to be due and assessed upon the consolidated return for 1920 was only $386,180.87 made up of direct payments or contributions of $173,318.13 by plaintiff, $27,611.55 by National, and $185,251.19 by Tidewater; the balance of the amount of $514,770.17, which was remitted to the collector by plaintiff as the paying agent, was directly paid by the Coke Company out of its funds by its three checks, each in the amount of $42,863.10, the exact amount of the Coke Company's proportionate part of the second, third, and fourth installments. The fact that plaintiff, National, and Tidewater Companies in May, 1921, loaned, as they claim, to the Consolidated Company amounts totaling $127,136.90 which they might have paid to the collector in March, 1921, if the plaintiff had not filed a claim for credit against the first installment, does not make the amount of $128,589.30 subsequently contributed by the Coke Company by its checks drawn against its funds in June, September, and December, 1921, when the second, third, and fourth installments fell due, a payment to the government of a tax by plaintiff, National, and Tidewater Companies.
The filing of the claim for credit against the first installment of tax reported for 1920 paid nothing. This claim was without merit and was subsequently rejected. What the situation would now be if the 1918 overpayment claimed had been allowed and credited, as requested, we need not decide. The fact here is that by filing this claim for credit the Coke Company paid nothing to the government on its own behalf or on behalf of any other corporation. The amounts totaling $127,136.90 paid to the Coke Company on May 2, 1921, by plaintiff, National, and Tidewater Companies (finding 2) at most only created the relationship of debtor and creditor between the Coke Company and such corporations. If the amounts totaling the sum mentioned were loans, as claimed, the Coke Company is still indebted to these companies for such amounts if repayment has not been made. If they were paid to the Coke Company by the plaintiff, National, and Tidewater Companies on the belief that the claim for credit was valid for an overpayment of $170,000 for 1918 and therefore the equivalent of a cash payment, as strongly appears to have been the case from the manner in which the matter was handled, these companies simply purchased an interest in a claim, which, as matters turned out, was valueless. These facts and circumstances compel the conclusions, first, that upon the filing of the claim for credit, the only effect of which was to postpone collection of the first installment by the collector, none of the four corporations, parties to the consolidated return, paid anything on the first installment, except $1,452.41 by the Coke Company and $103.25 by plaintiff; second, that the liability of each of the corporations in connection with the second, third, and fourth tax installments shown and assessed upon the return was the amount set forth in the tabulation in finding 3, and these were the amounts paid by each corporation; third, that the Coke Company's proportionate liability on each of these three installments was $42,863.10 and that amount it contributed out of its funds by three checks payable to plaintiff; fourth, that plaintiff, National, and Tidewater Companies each paid from its own funds its proportionate part of the second, third, and fourth installments of tax determined to be due by each on the basis of its net income for 1920, just as the Coke Company did. It is clear, therefore, that the Coke Company paid no tax on the first installment for plaintiff, National, or Tidewater Companies for which they reimbursed it, and the three amounts of $42,863.10, each paid by the Coke Company in connection with the second, third, and fourth installments, were not payments by plaintiff, National, and Tidewater Companies on account of their tax liabilities for 1920.
No money belonging to plaintiff, National, or Tidewater Companies is now in the hands of the government in excess of what they properly owed as taxes for 1920. No overpayment has been made by plaintiff or by any other corporation which joined in the consolidated return for 1920. In fact the total amount of $386,180.87 directly paid on this return to the government out of the funds of the plaintiff, National, and Tidewater Companies, as taxpayers, for 1920, was $34,013.91 less than their combined tax liability of $420,756.26. The petition is dismissed. It is so ordered.