Opinion
No. F-152.
June 16, 1930.
Suit by the Revolution Cotton Mills against the United States.
Judgment for plaintiff.
This suit is for the recovery of $33,470 alleged to be due as additional interest on an overpayment of $217,635.57, income and profits tax for the calendar year 1920, applied as a credit against additional assessments for the calendar years 1917, 1918, and 1919.
The issue is whether the credit of the 1920 overpayment against the additional assessments for prior years was allowed on April 9, 1924, when section 1324(a) of the Revenue Act of 1921 ( 42 Stat. 316) was in force, or subsequent to June 2, 1924, when section 1019 of the Revenue Act of 1924 ( 26 USCA § 153 note) governed the allowance of interest.
Special Findings of Fact.(1) Plaintiff is a North Carolina corporation, engaged in the manufacture of cotton flannels, with office at Greensboro.
(2) March 29, 1918, it filed its income and profits tax return for the calendar year 1917 showing a taxable net income of $363,509.06 and a tax of $103,727.48. This tax was paid June 13, 1918.
(3) June 16, 1919, it filed its income and profits tax return for the calendar year 1918 showing a net income of $1,178,522.57 and a tax of $659,732.64, which was paid in four installments of $200,000 on March 22, 1919; $129,866.32 on June 16, 1919; $164,933.16 each on September 16 and December 17, 1919.
(4) April 28, 1920, it filed its income and profits tax return for the calendar year 1919 showing a net income of $944,546.82 and a tax of $318,839.60, which was paid in five installments of $75,000 on March 17, 1920; $4,709.90 on April 30, 1920; and $79,709.90 on June 14, September 15, and December 15, 1920.
(5) March 15, 1921, plaintiff filed its income and profits tax return for the calendar year 1920, showing a net income of $2,240,186.95 and a tax of $901,070.42, which was paid in four equal installments on the 15th of March, June, September, and December, 1921.
(6) November 11, 1922, plaintiff and the Commissioner of Internal Revenue entered into a written consent waiving the statute of limitations relating to the determination, assessment, and collection of tax for 1917.
(7) Upon additional facts and information by him received, the Commissioner of Internal Revenue caused a reaudit of plaintiff's returns for the years 1917 to 1920, inclusive, to be made, with the result that the net taxable income, deficiency in tax, and overassessments were found and determined to be as follows:
============================================================ Year | Income | Deficiency | Overassessment | | in tax | ------------|---------------|---------------|--------------- 1917 ...... | $ 519,437.97 | $ 49,994.99 | .............. 1918 ...... | 1,286,158.25 | 132,804.35 | .............. 1919 ...... | 1,200,801.18 | 60,361.14 | .............. 1920 ...... | 1,820,963.73 | ............. | $217,635.57 ------------------------------------------------------------
(8) March 31, 1924, the Commissioner made additional assessments against plaintiff of $49,994.99 for 1917, $132,804.35 for 1918, and $60,351.14 for 1919, and scheduled these assessments to the collector of internal revenue.
(9) April 9, 1924, the Commissioner approved a schedule of overassessments on Form 7805, which embraced the overassessment in favor of plaintiff of $217,635.57 for 1920. This schedule of overassessments was transmitted to the collector for the district of North Carolina for his action in accordance with the directions appearing thereon. At the time of signing the schedule of overassessments on April 9, 1924, the Commissioner of Internal Revenue had no records to show whether the assessments made on the assessment list of March 31, 1924, had been paid to the collector, and he did not know whether the overassessment of $217,635.57 for 1920 would result in a refund, credit, or abatement.
(10) The schedule of overassessments approved by the Commissioner on April 9, 1924, contained the following directions to the collector of internal revenue:
"The amounts listed in column 4 as overassessments (or reductions of tax liability, are hereby approved, and the related claims, if any, allowed in the respective amounts indicated by the `Certificates of Overassessment' or `Notices of Adjustment of Refund' attached thereto.
"You will immediately check such items against the accounts of the several taxpayers, and determine whether the amounts in which the tax liabilities have been reduced should be respectively abated, in whole or in part, and make such abatements as may be warranted by the condition of the taxpayers' accounts for the years involved.
"If any part of any such item is found to be an overpayment, you will examine all accounts of the taxpayer for other periods and apply the overpayment as a credit against the taxes due, if any, making the appropriate entries in your accounts. (This applies only to income, war profits, and excess profits taxes.) Such credits will be entered in column 9, and placed in column 5 of a subsidiary Schedule of Refunds and Credits (Form 7805-A).
"The balance, if any, of the overpayment will be entered in column 12, and placed in column 4 of the subsidiary schedule (Form 7805-A) referred to above, and an appropriate memorandum made upon the taxpayer's account.
"You will thereupon complete and certify this schedule upon Form 7805-A, and return the necessary copies of each to the Commissioner of Internal Revenue."
(11) The collector of internal revenue complied with these directions, made appropriate entries on his records, and, upon the schedule of overassessments showing the application of the overpayment of $217,635.57 for 1920 against the additional tax assessed for 1917, 1918, and 1919 in the amount of $243,160.48, and on June 19, 1924, signed and certified this schedule to the Commissioner of Internal Revenue as follows:
"The items in this schedule have been checked against the accounts of the respective taxpayers concerned and the amounts indicated have been applied as abatements and credits on their accounts.
"The amounts of overpayment and the net amounts refundable have been determined to be as indicated herein."
(12) On the same date, to wit, June 19, 1924, the collector prepared, signed, and forwarded to the Commissioner a schedule of refunds and credits on Form 7805-A showing the application of the overpayment for 1920 to the additional tax for prior years; the certificate of the collector on this schedule being as follows:
"The items hereon are relisted as they appeared for refund or credit on an original schedule (bearing the same number) of overassessments and related claims, if any, heretofore approved and allowed by the Commissioner of Internal Revenue. An examination of the accounts of the several taxpayers named disclosed such items to be the portions of such previously allowed overassessments or reductions of tax liability subject to refund or credit."
(13) The Commissioner had no knowledge that the schedule of overassessments issued on behalf of plaintiff would result in a credit instead of a refund or abatement until after he had received from the collector the schedule showing the records in his office as to payments made or assessments entered on such records. When a schedule of overassessment in 1924 was certified to the collector by the Commissioner, and the collector returns the schedule, together with the subsidiary schedule of refunds and credits on Form 7805-A prepared by the collector, the same are checked with the records in the Income Tax Unit of the Bureau of Internal Revenue. The schedules are then forwarded to the office of the Deputy Commissioner for the approval of the action of the Income Tax Unit. These schedules were so examined and checked, and the certificate set forth on the schedule of refunds and credits on Form 7805-A, setting forth the application of the overpayment for 1920 as a credit against the additional taxes for prior years, was approved and signed by the Deputy Commissioner of Internal Revenue on June 30, 1924.
(14) Where the schedules of overassessments and refunds and credits returned by the collector disclose that there are no refunds to be made to the taxpayer, the schedule of refunds and credits is approved by the Deputy Commissioner of Internal Revenue, and filed as a matter of record in the proper office of the Bureau of Internal Revenue. Since the additional assessments for prior years exceeded the overpayment for 1920, which was applied as a credit against the additional assessments, there was no overpayment to be refunded, and the Commissioner of Internal Revenue did not sign the schedule of refunds and credits authorizing the disbursing clerk of the Treasury Department to make payment.
(15) On June 19, 1924, notice and demand for the payment of $25,524.91 was made by the collector upon the plaintiff, and on July 8, 1924, plaintiff paid to the collector that sum which represented the difference between the tax due and payable for 1917, 1918, and 1919, of $243,160.48, and the amount of the overpayment for 1920, of $217,635.57.
(16) No interest was allowed by the Commissioner of Internal Revenue or paid to the plaintiff on the overpayment of $217,635.57 for 1920.
Ferdinand Tannenbaum, of New York City (Mark Eisner, of New York City, on the brief), for plaintiff.
Charles R. Pollard, of Washington, D.C., and Herman J. Galloway, Asst. Atty. Gen. (Ralph E. Smith, of Washington, D.C., on the brief), for the United States.
Argued before BOOTH, Chief Justice, and WILLIAMS, GREEN, and LITTLETON, Judges.
The question in this case is whether the allowance of interest upon the overpayment for 1920, applied as a credit against the additional assessments for 1917, 1918, and 1919, is governed by the provisions of section 1324 of the Revenue Act of 1921 or by section 1019 of the Revenue Act of 1924, and this issue turns upon the question whether a credit is allowed within the meaning of these acts when the Commissioner signs the schedule of overassessments for transmission to the collector or when the collector returns the schedule of overassessments and the schedule of refunds and credits and the same are approved by the Bureau of Internal Revenue.
The Commissioner held, and the defendant here contends, that the credit here involved was allowed on April 9, 1924, when the Commissioner first signed the schedule of overassessments for transmission to the collector, and that, since no claim for credit was filed by the plaintiff or allowed by the Commissioner, it is not entitled to interest under section 1324(a) of the Revenue Act of 1921.
Plaintiff contends that a credit, like a refund, is allowed when the proper executive officer of the Bureau of Internal Revenue approves the certificate of the collector showing the amount of the credit; that a credit cannot be allowed until after the collector checks his list and certifies the amount of the credit to the Commissioner of Internal Revenue.
We are of opinion that plaintiff is correct, and that it is entitled to recover the interest claimed computed under the provisions of section 1019 of the Revenue Act of 1924. This question has been before this and other courts a number of times, and it has been consistently held that a credit is not allowed when the Commissioner signs the schedule of overassessments for transmission to the collector. Swift Co. v. United States, 68 Ct. Cl. 97; West Leechburg Steel Co. v. United States, 40 F.2d 131; Atlas Powder Co. v. United States, 40 F.2d 136, and Pottstown Iron Co. v. United States, 40 F.2d 142, 145, decided by this court April 7, 1930, and United States v. Boston Buick Co. (C.C.A.) 35 F.2d 560.
Some point is made by the defendant in this case of the fact that the Commissioner of Internal Revenue did not sign the schedule of refunds and credits certified by the collector on June 19, 1924, but we think this is unimportant. It is shown that, under the practice of the Bureau of Internal Revenue in respect of refunds and credits, the collector is required to certify the schedules to the Commissioner, and they are examined and checked by the Bureau and approved by the Deputy Commissioner of Internal Revenue, who acts for the Commissioner in this respect, and, if there appears to be no amount to be refunded, as was true in the case of this taxpayer, the schedules are not signed by the Commissioner, but are filed in the appropriate place as a part of the permanent records of the Bureau. In Pottstown Iron Co. v. United States, decided by this court April 7, 1930, this court said:
"Upon the receipt of these documents [schedule of overassessments and certificates of refunds and credits] from the collector the Commissioner, if he finds that any interest is payable upon the credit, has a check issued for the amount thereof which is forwarded to the collector, together with the certificates of overassessment to be mailed to the taxpayer. If the Commissioner determines that an overpayment to be credited is one that bears no interest under the statute, he forwards the certificates of overassessment to the collector with instructions that he mail them to the taxpayer. Whether the Commissioner, in such a case, signs the schedule certified to him by the collector or not, the credit is taken and made effective by whatever action the Commissioner takes in approving the report of the collector. It is stipulated that in cases of this kind the certificates of overassessment received from the collector with his reports are returned by the Commissioner to the collector for mailing to the taxpayer. The date on which this is done, if the Commissioner does not formally sign the schedule, would constitute the Commissioner's approval of the report of the collector and would make effective the credit of the overpayment against the additional assessment."
In this case the facts establish that the credit was finally allowed on June 30, 1924. The plaintiff is entitled to recover the amount of $33,470 as interest on the overpayment for 1920 computed under the provisions of section 1019 of the Revenue Act of 1924, and judgment in its favor will be entered for that amount. It is so ordered.
This case was tried before the appointment of WHALEY, Judge. He therefore took no part in its decision.