Opinion
No. 5334.
November 7, 1929.
S. Leo Ruslander and Samuel Kaufman, both of Pittsburgh, Pa., for plaintiff.
John D. Meyer, U.S. Atty., and John A. McCann, Sp. Asst. to U.S. Atty., both of Pittsburgh, Pa., and C.M. Charest, Gen. Counsel, Bureau of Internal Revenue, and Ralph E. Smith, Sp. Atty., Bureau of Internal Revenue, both of Washington, D.C.
At Law. Action by the Pittsburgh Bridge Iron Works against the United States.
Judgment for plaintiff.
This is an action to recover the sum of $9,082.77 interest alleged to be due on an overpayment of income and profits taxes for the five months period ending May 31, 1918, credited to an underpayment of income and profits taxes for the fiscal year ended May 31, 1919. It is the contention of the plaintiff that the credit was allowed by the Commissioner of Internal Revenue and taken by the plaintiff prior to the passage of the Revenue Act of 1926, and that therefore section 1019 of the Revenue Act of 1924 ( 26 USCA § 153, note), is applicable.
It is the contention of the defendant that the credit was allowed prior to the passage of the Revenue Act of 1926, but that the credit was not taken by the plaintiff until after its passage, and that therefore the computation of interest is to be governed by section 1116 of that Act ( 26 USCA § 153, note).
The court finds the facts as follows:
(1) Plaintiff, Pittsburgh Bridge and Iron Works, is and at all times hereinafter mentioned was a corporation organized under and existing by virtue of the laws of the state of Pennsylvania, with its principal office and place of business located in the city of Pittsburgh, in the county of Allegheny, in the state of Pennsylvania.
(2) On March 15, 1919, plaintiff filed with the collector of internal revenue for the twenty-third district of Pennsylvania, a tentative income and profits tax return for the year 1918, in which the income and profits tax was estimated at $80,000, which was neither assessed nor paid.
On June 16, 1919, plaintiff filed with the collector an income profits tax return for the said year 1918, from which it appeared that the income and profits tax due thereon was $58,036.07, which tax was paid as follows:
March 17, 1919 .............. $20,000.00 June 16, 1919 ............... 9,018.04 September 15, 1919 .......... 14,509.01 December 15, 1919 ........... 14,509.02 __________ $58,036.07
(3) On March 17, 1920, plaintiff filed with the collector of internal revenue an income and profits tax return for the year 1919, from which it appeared that the income and profits tax due thereon was $6,052.11, which tax was paid as follows:
March 17, 1920 .............. $1,513.03 June 16, 1920 ............... 1,513.03 September 15, 1920 .......... 1,513.03 December 15, 1920 ........... 1,513.02 _________ Total $6,052.11
(4) On March 15, 1920, plaintiff filed with the collector an income and profits tax return for the year 1920, from which it appeared that the income and profits tax due thereon was $16,004.34, which tax was paid as follows:
March 15, 1921 .............. $ 4,001.09 June 16, 1921 ............... 4,001.09 September 19, 1921 .......... 4,001.08 December 15, 1921 ........... 4,001.08 ___________ Total $16,004.34
(5) On February 28, 1924, plaintiff filed with the collector a claim for the refund of $26,382.40, income and profits tax for the year 1918.
(6) After an examination and audit of the income and profits tax returns for the years 1918 to 1920, inclusive, the Commissioner of Internal Revenue, in a letter dated October 28, 1925, notified claimant of his determination as to the tax liability for the fiscal years and periods as follows:
Underpayment Overassessments
5 months' period ended May 31, 1918 ........ $26,382.40 Fiscal year ended May 31, 1919 ............ $31,519.87 11-months' period ended April 30, 1920 ...... None 8-months' period ended December 31, 1920 ... 1,884.00 __________________________ Total ................. $31,519.87 $28,266.40
(7) On December 11, 1925, the Commissioner made an additional assessment of income and profits tax for the year 1919 in the amount of $31,519.87. Copies of the assessment certificate and assessment lists, in so far as they relate to plaintiff's taxes, are attached to the agreed statement of facts, marked Exhibits 1 and 2.
(8) On December 15, 1925, the Commissioner approved a schedule of overassessments, known and designated as "Schedule IT:A:17597," on form 7805, a copy of which, in so far as it relates to plaintiff's taxes, is attached to the agreed statement of facts, marked Exhibit 3. Said schedule of overassessments embraced, among other overassessments, overassessments in favor of the plaintiff in the amount of $26,382.40 for the five-months' period ended May 31, 1918, and $1,884 for the eight-months' period ended December 31, 1920. Said schedule of overassessments was transmitted to the collector for the twenty-third district of Pennsylvania for his action in accordance with the directions appearing thereon.
(9) The collector complied with the directions appearing thereon, and, on January 7, 1926, signed and returned said schedule to the Commissioner, together with a schedule of refunds and credits, known and designated as "Schedule IT:R:17597" on form 7805A, a copy of which is attached to the agreed statement of facts, marked Exhibit 4.
The overassessment of $26,382.40 for the five-months' period ended May 31, 1918, and the overassessment of $1,884 for the eight-months' period ended December 31, 1920, were credited to underpayment of income and profits taxes for the fiscal year ended May 31, 1919, in the amount of $31,519.87.
(10) On February 6, 1929, the Commissioner signed the schedule of refunds and credits, authorizing the disbursing clerk of the Treasury Department to issue checks for the amounts found by him to be refundable to the several taxpayers whose names appeared on the said schedule of refunds and credits.
(11) On February 10, 1926, the collector mailed to the plaintiff notice and demand for the net balance of the underpayment of the income and profits tax for the year 1919 in the amount of $3,253.47, which was determined as follows:
Underpayment for the fiscal year ended May 31, 1919 ....... $31,519.87 Less: Overassessment for the fiscal period ended May 31, 1918 ....... $26,382.40 Overassessment for the fiscal period ended December 31, 1920 ............... 1,884.00 28,266.40 __________ __________ Net balance of the underpayment for the year 1919 .......... $ 3,253.47
(12) On February 20, 1926, plaintiff paid to the collector the net balance of the underpayment of income and profits tax for the fiscal year ended May 31, 1919, in the amount of $3,253.47.
(13) On April 8, 1926, certificates of overassessments, in the amount of $26,382.40 for the five-months' period ended May 31, 1918, and in the amount of $1,884 for the eight-months' period ended December 31, 1920, were mailed to the plaintiff, together with a treasury check for the interest thereon in the amount of $1,024.63, $573.84 for the five-months' period ended May 31, 1918, and $450.79 for the eight-months' period ended December 31, 1920.
(13a) The Commissioner of Internal Revenue, prior to February 26, 1926, the effective date of the Revenue Act of 1926, had done every essential act with respect to the overassessment, the crediting thereof, and the fixing of the amount of interest due plaintiff under the act of 1924. The only acts not done by him were the mailing of the certificate of overassessment and the check for interest to the plaintiff. The only reason that these acts were not done was that there were no available funds to pay the interest from December 1, 1925, and the date of the passage of the Deficiency Act of March 3, 1926 ( 44 Stat. 161).
(14) The only question involved in this action is the computation and allowance of interest on the overassessment in the amount of $26,382.40 for the five-months' period ended May 31, 1918.
(15) Interest has been computed and allowed on the overassessment for the five-months' period ended May 31, 1918, as follows:
Amount of Amount Interest Overassessment Credited Interest Allowed From To $26,382.40 $14,509.02 Dec. 15, 1919, Mar. 15, 1920, $217.64 11,873.38 Sept. 15, 1919, Mar. 15, 1920, 356.20 _______ Total interest allowed for the 5-months' period ended May 31, 1918, $573.84 (16) Interest has been computed and allowed in accordance with the Commissioner's construction of section 1116 of the Revenue Act of 1926 ( 26 USCA § 153, note).(17) Plaintiff, through its Washington attorney, George R. Beneman, has requested on various occasions, including letters dated April 20, 1926, and August 31, 1926, copies of which are attached to the agreed statement of facts, marked Exhibits 5 and 6, for the computation and allowance of additional interest on the overassessment for the five-months' period ended May 31, 1918.
(18) The Commissioner has refused and still refuses to allow any interest in addition to the interest previously computed and allowed, as shown by Bureau letter dated January 12, 1927, a copy of which is attached to the agreed statement of facts, marked Exhibit 7.
The sole question is whether this case is governed by section 1019 of the Revenue Act of 1924 ( 26 USCA § 153, note), or section 1116 of the Revenue Act of 1926 ( 26 USCA § 153, note).
Statutes Involved. Revenue Act of 1924 ( 43 Stat. 253). Interest on Refunds and Credits.
"Sec. 1019. Upon the allowance of a credit or refund of any internal-revenue tax erroneously or illegally assessed or collected, or of any penalty collected without authority, or of any sum which was excessive or in any manner wrongfully collected, interest shall be allowed and paid on the amount of such credit or refund at the rate of 6 per centum per annum from the date such tax, penalty, or sum was paid to the date of the allowance of the refund, or in case of a credit, to the due date of the amount against which the credit is taken, but if the amount against which the credit is taken is an additional assessment, then to the date of the assessment of that amount. The term `additional assessment' as used in this section means a further assessment for a tax of the same character previously paid in part."
Revenue Act of 1926 ( 44 Stat. 9).
Interest on Refunds and Credits.
"Sec. 1116. (a) Upon the allowance of a credit or refund of any internal-revenue tax erroneously or illegally assessed or collected, or of any penalty collected without authority, or of any sum which was excessive or in any manner wrongfully collected, interest shall be allowed and paid on the amount of such credit or refund at the rate of 6 per centum per annum from the date such tax, penalty, or sum was paid to the date of the allowance of the refund, or in the case of a credit, to the due date of the amount against which the credit is taken, but if the amount against which the credit is taken is an additional assessment made under the Revenue Act of 1921, the Revenue Act of 1924, or this Act, then to the date of the assessment of that amount.
"(b) As used in this section —
"(1) The term `additional assessment' means a further assessment for a tax of the same character previously paid in part, and includes the assessment of a deficiency under Title II or Title III of the Revenue Act of 1924 or of this Act;
"(2) The term `date of the allowance of the refund' means, in the case of any income, war-profits, or excess-profits tax, the first date on which the Commissioner signs the schedule of overassessments in respect thereof.
"(c) This section shall be applicable to any refund paid, and to any credit taken, on or after the date of the enactment of this Act, even though such refund or credit was allowed prior to such date."
The question whether the act of 1924, or the act of 1926 controls depends upon when the credit was taken in this case. December 11, 1925, the Commissioner made the additional assessment against the plaintiff for the year 1919, in the sum of $31,519.87. December 15, 1925, the Commissioner approved the schedule of overassessments against the plaintiff in the sum of $28,266.40 for the years 1918 and 1920, and transmitted this schedule to the collector of internal revenue at Pittsburgh, with directions as to credits. January 7, 1926, the collector at Pittsburgh returned the schedule, having credited plaintiff with the overpayments against the additional assessment. February 6, 1926, the Commissioner signed the schedule of revenues and credits and authorized the disbursing clerk of the Treasury Department to issue checks for the amounts to be refunded the taxpayers named thereon. February 10, 1926, the collector at Pittsburgh, made a demand on the plaintiff for the balance due after crediting the overpayments, in the sum of $3,253.47. February 20, 1926, plaintiff paid the sum demanded to the collector at Pittsburgh.
The Commissioner had performed every act for payment of interest due the plaintiff under the act of 1924, except the actual mailing of the check and certificate of overassessment. These acts would have been done prior to February 26, 1926, if there had been available funds in the treasury. The credit was not only allowed by the government, but it was also taken by it in so far as it was within its power prior to the passage of the Act of February 26, 1926. If any act was required of the plaintiff in the taking of the credit, it was done by it February 20, 1926, when it paid the collector at Pittsburgh the balance due from the plaintiff after crediting the overpayments against the additional assessment. This case is ruled by Penn Smokeless Coal Co. v. United States (D.C.) 34 F.2d 205, wherein an opinion was written by Judge Gibson of this court.
I conclude that this case is governed by the act of 1924. Let an order be prepared directing the entry of judgment in favor of the plaintiff in accordance with the findings and this opinion.