Opinion
No. 42131.
June 25, 1934.
John W. Townsend, of Washington, D.C. (Claude E. Koss, of New York City, and James Craig Peacock, on the brief), for plaintiff.
John T. Koehler, Sp. Asst. to Atty. Gen., and Frank J. Wideman, Asst. Atty. Gen. (James A. Cosgrove, of Washington, D.C., on the brief), for the United States.
Before BOOTH, Chief Justice, and GREEN, LITTLETON, WILLIAMS, and WHALEY, Judges.
Suit by the Shipley Construction Supply Company against the United States.
Judgment in favor of the plaintiff.
This case having been heard by the Court of Claims, the court, upon the evidence adduced, makes the following special findings of fact:
1. Plaintiff at all times hereinafter mentioned was and now is a domestic corporation organized under the laws of the state of New York and having its principal office and place of business in that state.
2. On January 14, 1921, plaintiff filed its complete income and profits tax return for its fiscal year ending September 30, 1920, disclosing a total tax liability of $571,291.33, all of which was paid on or before September 20, 1921. An additional assessment of income and profits taxes for that year in the amount of $28,389.01 was paid on May 4, 1923. On or about December 27, 1923, and as a result of the filing by plaintiff on May 1, 1923, of a claim for refund asking the allowance of additional depreciation on small tools, there was refunded to plaintiff $1,150.29 of the taxes which had been so paid for that year. The balance of $598,530.05 paid as above set forth is held and retained by the United States.
3. On March 21, 1924, plaintiff filed a claim for refund of $1 or such greater amount as was legally refundable for its fiscal year ending September 30, 1920, which was attached to, and incorporated by reference, a single joint application for special assessment for all three of its fiscal years ending September 30, 1918, 1919, and 1920, respectively, under the provisions of sections 327 and 328 of the Revenue Act of 1918 ( 40 Stat. 1093). The grounds and reasons of said claim were set forth therein as follows:
"See appeal attached hereto. For the attention of Special Assessment IT:SA:SM. In connection with this claim and appeal a conference is requested in Washington before the Special Assessment Section."
The single joint appeal for all of said years was addressed to the Commissioner of Internal Revenue and began as follows:
"We hereby make application for assessment for the fiscal years ending Sept. 30th, 1918, Sept. 30th, 1919, Sept. 30th, 1920, and Sept. 30th, 1921, under section 328 of the Revenue Acts of 1918 and 1921 [ 40 Stat. 1093, 42 Stat. 258], and accordingly have filed with this application and appeal claims for refund with the collector of internal revenue for the first district of New York.
"To conform with the requirements of the unit, we agree to the net income for the years involved in this application, said figures of net income having been determined by the Bureau upon the result of a field audit."
After which it set forth certain abnormal conditions affecting income and invested capital as reasons why such special assessment should be allowed as provided in section 327(d) of the Revenue Act of 1918.
4. On December 3, 1925, plaintiff filed a second claim for refund of $1 or such greater amount as was legally refundable for its fiscal year 1920, the grounds of which were as follows: "That the Bureau is not justified under the statute in reducing the invested capital for the year in question by the amount of income and profits tax due for the preceding year; further that so far as article 845 of reg. 45 and 62 requires such reduction of invested capital, such regulations are without statutory warrant and are invalid. See case — Guaranty Construction Co. to Board of Tax Appeals, Docket Nos. 1828 and 1848."
5. On December 2, 1925, plaintiff filed a waiver for its fiscal year 1920 extending the statutory period of limitation for assessment to December 31, 1926.
6. On December 27, 1926, the Commissioner of Internal Revenue notified plaintiff by letter that for its fiscal year 1920 the application for special assessment had been denied due to the fact that the evidence submitted did not disclose an abnormal condition in invested capital, but that an audit of the income tax return, based upon a field examination, disclosed an overassessment of $8,654.13 as shown by computation contained in the letter. The overassessment resulted entirely from invested capital increase due to the allowance of the application for special assessment for the next two preceding years referred to in finding 3 which resulted in federal tax adjustments. No certificate of overassessment was issued, and no overassessment was scheduled. Plaintiff was also advised in said letter that its claim for refund for $1 would be rejected in full. The claim for special assessment filed March 21, 1924, is the claim referred to. Said claim was rejected in full on Schedule No. 10008, dated August 3, 1927. The said letter of December 27, 1926, from the Commissioner concluded as follows:
"Invested capital has been adjusted for the correct amount of prior years' taxes as required by article 845, regulations 45.
"In accordance with the above conclusions your claim for refund of $1.00 will be rejected in full.
"The collector of internal revenue for your district will be officially notified of the rejection.
"The overassessment shown above will be made the subject of a certificate of overassessment which will reach you in due course through the office of the collector of internal revenue for your district and will be applied by that official in accordance with section 284(a) of the Revenue Act of 1926."
7. Plaintiff protested the denial of its application for special assessment under the provisions of section 328, Revenue Act of 1918, by letter dated January 13, 1927, and later submitted a brief executed March 4, 1927, and a supplemental brief executed April 16, 1927, in support of its request for reconsideration of the special assessment application. Conferences were held in the Audit Division of the Bureau of Internal Revenue, Washington, D.C., on March 18, 1927, and May 18, 1927. On July 13, 1927, plaintiff was notified by letter that the application for special assessment had been properly denied, and the conclusions set forth in audit letter dated December 27, 1926, as previously mentioned (finding 6), were sustained.
8. Thereafter, by letter dated October 8, 1927, the Commissioner of Internal Revenue further advised plaintiff as follows:
"Reference is made to your income and profits tax return for the calendar year 1920 and to the determination of your tax liability as disclosed by Bureau letter dated December 27, 1926.
"The records of this office indicate that your return was filed on January 14, 1921; the last payment of income and profits taxes for this year was made on May 5, 1923, and that a waiver of the statute of limitations signed by you on December 2, 1925, extended the period within which an assessment of income and profits taxes for the year 1920 could be made to December 31, 1926.
"There is no record of a waiver extending the period within which an assessment could be made beyond December 31, 1926.
"Section 284(g) of the Revenue Act of 1926 [26 USCA § 1065(g)] reads as follows:
"`If the taxpayer has on or before June 15, 1926, filed such a waiver in respect of the taxes due for the taxable year 1920 or 1921, then such credit or refund relating to the taxes for the taxable year 1920 or 1921 shall be allowed or made if claim therefor is filed either on or before April 1, 1927, or within four years from the time the tax was paid. If any such waiver so filed has, before the expiration of the period thereof, been extended either by the filing of a new waiver or by the extension of the original waiver, then such credit or refund relating to the taxes for the year in respect of which the waiver was filed shall be allowed or made if claim therefor is filed either (1) within four years from the time the tax was paid, or (2) * * * on or before April 1, 1928, in the case of credits or refunds relating to the taxes for the taxable years 1920 and 1921.'
"Inasmuch as a claim for refund was not filed prior to April 1, 1927, or within four years from the date the tax was paid, the overassessment of $8,654.13 of which you were advised in Bureau letters dated December 27, 1926, and July 13, 1927, cannot be allowed.
"That part of Bureau letters dated December 27, 1926, and July 13, 1927, pertaining to the overassessment of $8,654.13 is, therefore, annulled."
9. Thereafter by letter dated December 15, 1927, the Commissioner of Internal Revenue further advised plaintiff as follows:
"Reference is made to your letter of recent date relative to your claim for refund of $1,150.28 for the year ended September 30, 1920, filed under date of May 1, 1923, and the conclusions of the Bureau as disclosed by Bureau letter dated October 8, 1927.
"Your claim for refund of $1,150.28 is based on an exception taken to the assessment of additional taxes for the years ending September 30, 1917, to 1920, inclusive, and consists of the following statements:
"`Exception to the findings of the Income Tax Unit was taken only in respect of depreciation allowed on small tools. At a conference held January 18, 1923, the representatives of the unit agreed upon an allowance of 50% on the balance of the asset account as at the beginning of the year and 33 1/3 % on additions during the year, and the taxpayer accepted such allowance in compromise.
"`A revised assessment letter was issued February 16, 1923, reference IT:CA:MS-2500-RLC, and the additional tax shown therein was assessed at once. Details of the computation of the additional tax were furnished under date of March 20, 1923. An examination of the computation indicates that depreciation on small tools has been computed upon the agreed basis for the years 1917, 1918, and 1919 but that for the year 1920 the allowance additional to that made in the letter of December 7, is understated by $1,590.00 and that taxable income is overstated by that amount. * * *
"`It is noted that in the supplemental report dated January 24, 1922, additional depreciation on shop machinery was allowed in the amount of $1,600.00 which may have been confused with the allowance of small tools and thus account for the difference except for $10.00.
"`It is submitted whether the difference is due to the shop machinery item or not, that the correct allowance on small tools is $15,672.60, that the aggregate amount deducted from income for the year in the Bureau's computation dated March 20, 1923, in respect of depreciation on small tools is but $14,082.60 and that a further deduction of $1,590.00 is required. The allowance of this item is requested particularly in view of the fact that the basis of computation agreed upon with the representatives of the unit represented a compromise of the allowance indisputably shown to be necessary in the appeal filed by the taxpayer.'
"Careful consideration of the above-quoted statements indicates that your claim for refund of $1,150.28 was based solely on the ground that net income was overstated due to the allowance of an inadequate deduction for depreciation sustained. An overassessment based on this ground in the amount of $1,150.28 was allowed in certificate of overassessment number of 522480.
"The overassessment of $8,654.13 disclosed by Bureau letter dated December 27, 1926, was caused by an addition to invested capital due to adjustments for prior year taxes, a ground not mentioned in your claim for refund of $1,150.28.
"Inasmuch as a claim for refund based on adjustments to capital was not filed within the period of limitation prescribed by section 284 of the Revenue Act of 1926 [26 USCA § 1065], the overassessment of $8,654.13 is not allowable.
"The conclusions set forth in Bureau letter dated October 8, 1927, are, therefore, sustained."
This is a suit to recover an overpayment of $8,654.13 income and profits taxes for the fiscal year 1920.
The plaintiff alleges that the Commissioner admitted in writing the overpayment upon which suit is brought and promised to pay the same, by reason of which an account stated was created and the suit was brought in time. On behalf of the defendant it is insisted that no such promise was made, that no timely or proper claims for refund have been filed, and that plaintiff's action is barred by the statute of limitations.
While two claims for refund were filed, we do not need to consider them. They were not filed within the time required by the statute, and it is doubtful whether they were sufficient in form. On the other hand, if there was a valid promise to pay an amount admitted to be due, a claim for refund was not necessary.
There is no dispute as to the facts. On December 27, 1926, the Commissioner of Internal Revenue advised the plaintiff by letter that its application for a special assessment was denied, but that an audit of its income tax return disclosed an overassessment of $8,654.13. Further in the letter the Commissioner stated: "The overassessment shown above will be made the subject of a certificate of overassessment which will reach you in due course through the office of the Collector of Internal Revenue for your district and will be applied by that official in accordance with section 284(a) of the Revenue Act of 1926."
Plaintiff protested the denial of its application for a special assessment by letter and later submitted a brief in support of a request for reconsideration of the special assessment application. Some conferences were held, and on July 13, 1927, plaintiff was notified by letter that the application for special assessment was properly denied and that the conclusions set forth in the letter dated December 27, 1926, as above set out, "were sustained." This action of the Commissioner constitutes the promise upon which plaintiff relies.
The Commissioner did not later issue a certificate of overassessment, nor did he apply the overpayment in accordance with section 284(a) of the Revenue Act of 1926 (26 USCA § 1065(a). Had this been done, the overpayment would have been refunded. On October 8, 1927, the Commissioner further advised the plaintiff that, "as a claim for refund was not filed prior to April 1, 1927, or within four years from the date the tax was paid, the overassessment of $8,654.13 of which you were advised in Bureau letters dated December 27, 1926, and July 13, 1927, cannot be allowed."
It should be observed in this connection that the word "overassessment," as used by the Commissioner, was manifestly used as synonymous with "overpayment."
The suit is in effect one based upon an account stated. The defendant, contending that there was no account stated, calls attention to the fact that no certificate of overassessment was issued. But this was not necessary. In the case of David Daube v. United States, 59 F.2d 842, 1 F. Supp. 771, 75 Ct. Cl. 633, at pages 643-645, affirmed 289 U.S. 367, 53 S. Ct. 597, 77 L. Ed. 1261, the opinion recited the nature of transactions which have been held to constitute an account stated. Among other matters, it is held that, where a fixed sum is admitted by one party to be due the other, and there is a promise express or implied for the payment of this amount, an account stated is rendered. To this statement the other party must assent, but it is not necessary in such cases that the assent be given in writing or by any kind of direct communication. It may be inferred from all of the circumstances of the case. Cf. United States v. Kaufman, 96 U.S. 567, 24 L. Ed. 792; United States v. Real Estate Savings Bank, 104 U.S. 728, 26 L. Ed. 908, in which there was no evidence of assent except as it would be naturally inferred under the circumstances. We think that portion of the Commissioner's letter which is above set out contained an admission of a precise amount due the plaintiff, and, if the further statements as to what would be done with reference to the amount so due did not constitute an express promise to pay it, it can at least be said that the promise would be implied therefrom. It appears to us clear that a person in the situation of plaintiff would understand from the Commissioner's letter, not only that the amount of the overassessment was admitted to be due, but also that this amount would be refunded in the ordinary course of proceedings at the Commissioner's office.
It is contended on behalf of the defendant that plaintiff did not assent to the statement so made by the Commissioner, but, on the contrary, protested against it. But the protest was made only against the refusal of the Commissioner to allow a special assessment, and we think that it cannot properly be construed to mean that, if the plaintiff could not get the special assessment, it would accept nothing. On the contrary, it seems to us that the fact that plaintiff replied to the Commissioner's letter and in its reply objected only to the refusal to grant the special assessment justifies the inference that it assented to the statement of the overassessment made by the Commissioner. It will be observed that the letter of the Commissioner did not claim that there were taxes for any other year which were or might be due or become due, upon which the overassessment might be applied. In fact, there were none. It should also be noted that, after plaintiff's letter had been received, the Commissioner, on July 13, 1927, wrote plaintiff that the application for a special assessment had been properly denied, and again stated that the conclusions in his former letter "were sustained." To this the plaintiff made no reply and took no further action, all of which seems to us to strengthen the conclusion that plaintiff assented to the determination of the Commissioner.
If our conclusions from the evidence in the case are correct, the plaintiff is entitled to recover the amount of the overpayment with interest, and judgment will be rendered in its favor accordingly.
WHALEY and LITTLETON, Judges, concur.
BOOTH, Chief Justice, and WILLIAMS, Judge, dissent.