Opinion
Action by Ferdinand A. Straus and others, executors of the estate of Lionel F. Straus, deceased, against the United States to recover the amount of an excess collection of individual income tax for 1917, with interest.
Petition dismissed.
Special Findings of Fact
1. During the calendar year 1917 the plaintiff, a resident of New York, was a member of a partnership known as F.A. Straus & Company; he and Sidney Weinburg were the sole members of the partnership and shared its profits in an unequal proportion of 65 and 35 percent, respectively.
Pursuant to an extension granted by the Collector the partnership filed its income and profits tax returns for the calendar year 1917 on April 29, 1918, reporting thereon an invested capital of $1,406,428.13; a taxable net income of $302,124.69; a partnership excess profits tax of $40,551.16; and a balance of $261,573.53, distributable to the plaintiff and his partner in the respective amounts of $178,132.81 and $83,440.72. That return also reported salaries of $37,500 and $22,500 paid to the plaintiff and to Mr. Weinburg, respectively. The excess profits tax so reported was timely assessed and paid and is not in controversy herein.
"Amended" income and profits tax returns for 1917 were filed during March 1923 reporting revised figures as follows: An invested capital of $1,419,744.73; a taxable net income of $280,484.33; an excess profits tax of $32,717.60; and a balance of $247,766.73 distributable as profits to the plaintiff and Mr. Weinburg in the respective amounts of $169,158.39 and $78,608.34.
A recapitulation of the figures reported upon the original and amended returns as aforesaid, showing in detail differences between the respective items is as follows:
On the face and first page of the amended profits tax return and immediately below the line in which the item of tax of $32,717.60 appeared were certain additional entries. That line and those entries were as follows:
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Returns
Changes
----------------------------------------------------
Original
Amended
Increases
Decreases
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Invested capital
$1,406,428.13
$1,419,744.73
$13,316.60
Taxable net income
302,124.69
280,484.33
$21,640.36
Profits tax
40,551,16
32,717.60
7,833.56
Profit distributable
261,573.53
247,766.73
13,806.80
Plaintiff's share
178,132.81
169,158.39
8,974.42
Mr. Weinbrug's share
83,440.72
78,608.34
4,832.38
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Tax due * * *
$32,717.60
Tax paid
40,551.16
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Overpayment
7,833.56
Overpayment to be credited:
Lionel F. Straus--
65%
$5,091.81
Sidney Weinburg
35%
2,741.75
Attached to that return was a letter dated March 2, 1923, signed by the partnership and its two members as follows:
"A refund is due to the Partnership of F.A. Straus & Co. of $7,833.56 in accordance with amended returned filed on appeal IT:PA:FR--DA--709, and Claim of credit herewith.
"The undersigned, being the only members of the partnership, and the only parties in interest, request that such refund be credited to their respective accounts in the proportion of 65% to Lionel F. Straus and 35% to Sidney Weinburg, to apply against additional assessment to each of them on amended individual returns for the calendar year 1917."
2. The commissioner accepted the amended partnership return and determined each of the following items thereon to be correct:
Taxable net income
$280,484.33
Profits tax
32,717.60
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Profit distributable
247,766.73
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Plaintiff's share
169,158.39
Mr. Weinburg's share
78,608.34
The Commissioner did not, however, accept or approve an overpayment of $7,833.56 as shown upon the return and as stated in the letter of March 2, 1923, quoted in the preceding finding, for the reason that the original tax of $40,551.16 assessed and paid for 1917, as hereinbefore stated, had in part been refunded and repaid (Schedules of Overassessments No. 5059 signed March 14, 1923, and No. 5560 signed March 31, 1923, in the respective amounts of $2,500.66 and $1,551.54, a total of $4,052.20), leaving a net tax assessed and paid of $36,498.96, for that year.
The Commissioner did sign a Schedule of Overassessments, No. 8166, on January 21, 1924, showing an overassessment for 1917 in favor of the partnership of $3,781.36, computed as follows:
Original assessment
$40,551.16
Refunds:
Schedule No. 5059
$1,551.54
Schedule No. 5560
2,500.66
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4,052.20
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Net assessment
36,498.96
Correct tax liability
32,717.60
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Overassessment
3,781.36
This overassessment of $3,781.36 was determined to be an overpayment and $2,937.88 was refunded by Treasury check April 4, 1924. The balance was lawfully applied as statutory credits with written consent of the taxpayer. Statutory interest of $78.65 was allowed and paid in August 1924. One such credit of $703.84 was applied in plaintiff's favor, as will more fully appear in a subsequent finding.
3. Pursuant to an extension granted by the collector plaintiff filed his individual income tax return for 1917 on April 29, 1918, reporting thereon a total gross income of $229,514.08; a total net income of $213,201.82; and a tax of $57,096.44, of which $56,896.44 was paid June 15, 1918. A portion of this payment is sought to be recovered in the instant suit.
The gross income of $229,514.08 reported included $178,132.81 as plaintiff's distributive share of the net profits of the partnership of F.A. Straus & Co. As stated in finding 1, that partnership had originally reported net income of $302,124.69, a partnership profits tax of$40,551.16 and a balance of $261,573.53 as distributable net income of which plaintiff's share was shown to be $178,132.81. He reported this exact amount.
During March 1923 plaintiff filed an amended return for 1917 reporting revised figures as follows: A total gross income of $233,605.16 including $169,158.39 as his distributive share of the partnership profits; a total net income of $216,252.90 and a tax of $59,311.88 with a further statement that since his original tax was only $57,096.44 there was an additional and a further tax due of $2,215.44. His share of the partnership profits as reported on this revised return was the same as reported on a similar revised return filed by the partnership.
In determining his net income and the tax and in reporting the same upon the returns filed as stated in this finding, plaintiff did not take as a credit against his net income his proportionate share of the partnership's excess profits tax although, as already stated, that tax had been deducted from partnership net income in determining the partnership profits distributable and taxable to him. Treasury Department form 1040, on which the plaintiff reported his income and tax liability for 1917, did not contain any marked space or instructions for the taking of the credit provided for by section 29 of the Revenue Act of 1916.
4. By registered letter March 13, 1923, the Commissioner advised plaintiff of a proposed deficiency for 1917 of $2,005.01. This sum was assessed on a list signed March 16, 1923, and notice and demand issued March 26, 1923.
A statutory consent in writing and waiver of both assessment and collection for 1917 was signed by plaintiff March 30, 1923, and filed with and accepted in writing by the Commissioner April 2, 1923. It extended the statutory period to March 30, 1924.
5. April 4, 1923, plaintiff addressed a letter to the office of the Collector as follows:
"Herewith will be found bill for additional assessment levied against me as follows: 1917--1049 NC 250 D OA 3/9/23 MAR 60 SPL NO 18--1923 List for $2,005.01; also Claim for credit for $5,091.81, being 65% of overassessment against the firm of F.A. Straus & Co. as per letter and claim for credit filed with Amended return of March 2, 1923.
"It is requested that the amount of the enclosed bill be charged against the credit referred to."
The claim for credit mentioned in this letter and the letter itself were received by the Collector April 5, 1923. That claim referred to the amended returns, the letter of March 2, 1923, attached to one of those returns and to the claim for credit of the overpayment of $7,833.56, all filed by the partnership, and asked that plaintiff's share (65 per cent of $7,833.56) or $5,091.81 of that overpayment be treated as follows: $2,005.01 thereof applied as a credit to the additional tax assessed March 16, 1923, and the balance of $3,086.80 be refunded to the plaintiff.
By registered letter dated June 3, 1923, the Commissioner advised plaintiff of a further deficiency and additional tax of $7230.70, for the calendar year 1917, and this sum was assessed on a list signed July 26, 1923.
6. By reason of a revenue agent's report and as a result of conferences held in Washington during the summer of 1923, the Commissioner included upon a Schedule of Overassessments, No. 8180, signed January21, 1924, an overassessment of $310.27 in favor of the plaintiff for the year 1917. A certificate of overassessment was thereafter delivered to the plaintiff showing upon its face the following calculation of his tax liability:
Inasmuch as neither of the additional assessments had then been paid, the overassessment of $310.27 was applied January 21, 1924, in partial abatement of the assessment of $2,005.01 made in March 1923.
Original tax
$56,896.44
Additional assessment March 1923
2,005.01
Additional assessment July 1923
720.70
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59,622.15
Correct tax liability
59,311.88
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Overassessment
310.27
7. April 14, 1924, the Commissioner approved and applied as a statutory credit $703.84 from the determined overpayment by the partnership of F.A. Straus & Co. against and in partial satisfaction of the additional assessment of $720.70 against the plaintiff. The balance of that assessment, $16.86, was paid by the plaintiff May 14, 1924, and at the same time plaintiff paid the balance of the additional assessment of $2,005.01, of which $310.27 had theretofore been abated.
8. March 29, 1928, plaintiff filed with the Collector a claim for refund of $59,622.15, stating the following grounds: "That the tax liability for the year 1917 was incorrectly computed by the Commissioner. It is contended by the taxpayer that the net income should be credited with the proportionate part of the excess profits tax of the partnership notwithstanding the fact that his distributable share of the partnership net income has been reduced by the partnership profits tax." This claim was considered by the office of the Commissioner and plaintiff's tax liability for 1917 redetermined to be $47,415.05, calculated upon a net income which included $169,158.39 as plaintiff's distributive share of the profits of the partnership of F.A. Straus & Co., determined as shown in finding 2, further reduced by a credit for plaintiff's proportionate share of the excess profits tax paid by that partnership. That credit was $21,266.44, or 65 per cent of $32,717.60.
August 20, 1928, the Commissioner signed a schedule of overassessment of $2,415.44, for 1917, in favor of the plaintiff and subsequently delivered to the plaintiff a certificate of overassessment, together with a Treasury check for $3,055.35. This repaid $2,415.44 determined to be an overpayment for 1917 with statutory interest thereon of $639.91. that certificate of overassessment read in part as follows:
"An Audit of your income tax return, Form 1040, and a consideration of all the claims (if any) filed by you for the calendar year 1917 indicates that the tax assessed for this year was in excess of the amount due:
Original tax
$56,896.44
Additional assessment March 1923
2,005.01
Additional assessment July 1923
720.70
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59,622.15
Less amount previously abated
310.27
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59,311.88
Correct tax liability
47,415.05
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11,896.83
Less amount barred by the Statute of Limitations
9,481.39
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Overassessment
2,415.44
"The basis of the claim is the statement that you should be allowed a deduction for your proportionate share of the excess profits tax paid by the partnership of F.A. Straus and Company.
"The adjustment of this item results in an overassessment of $2,415.44."
No part of the item of $9,481.39, shown upon the certificate of overassessment as barred by the Statute of Limitations, has ever been refunded or repaid to the plaintiff.
Francis R. Lash, of Washington, D.C. (C. Leo DeOrsey, of Washington, D.C., on the brief), for plaintiff.
John A. Rees, of Washington, D.C., and James W. Morris, Asst. Atty. Gen. (Robert N. Anderson and Fred K. Dyar, both of Washington, D.C., on the brief), for the United States.
Before BOOTH, Chief Justice, and GREEN, LITTLETON, WILLIAMS, and WHALEY, Judges.
PER CURIAM.
The question presented in this case is the same as that involved in Weinburg v. United States, 25 F.supp. 83, decided by this court this date. Upon authority of that case plaintiffs are not entitled to recover and the petition is dismissed. It is so ordered.