Summary
In Weinburg v. United States, 25 F. Supp. 83, the question here presented was decided by the Court of Claims and the Court held that the claimant was limited to that portion of the tax paid within four years of the filing of the claim.
Summary of this case from A.S. Kreider Co. v. United StatesOpinion
No. 42788.
November 14, 1938.
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.
Action by Sidney Weinburg against the United States to recover the amount of an excess collection of individual income tax, with interest.
Petition dismissed.
Plaintiff seeks to recover $1,885.51 with interest as an excess collection of individual income tax for 1917. The controlling question in the case is whether a claim for refund filed March 29, 1928, was timely under section 284 of the Revenue Act of 1926, 44 Stat. 66, as to the amount of tax herein sought to be recovered which was paid June 15, 1918.
Special Findings of Fact
1. During the calendar year 1917 the plaintiff, a citizen of New York, was a member of a partnership known as F.A. Straus Company; he and Lionel F. Straus were the sole members of the partnership and shared its profits in an unequal proportion of 35 and 65 percent, respectively.
Pursuant to an extension granted by the Collector, the partnership filed its income and profits tax returns for 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 $83,440.72 and $178,132.81. That return also reported salaries of $37,500 and $22,500 paid to Mr. Straus and to the plaintiff, respectively. The excess profits tax so reported was timely assessed and paid and is not in controversy here.
"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 Mr. Straus and to the plaintiff 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:
--------------------------------------------------------------------------------------- | Returns | Changes |-------------------------------|--------------------------- | Original | Amended | Increases | Decreases ---------------------------|---------------|---------------|-------------|------------- 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 Mr. Straus' share ........ | 178,132.81 | 169,158.39 | ........... | 8,974.42 Plaintiff's share ........ | 83,440.72 | 78,608.34 | ........... | 4,832.38 --------------------------------------------------------------------------------------- On the face and first page of the amended profits tax return and immediately below the line in which the item of tax in the sum of $32,717.60 appeared were certain additional entries. That line and those entries were as follows:
Tax due * * * ................ $32,717.60 Tax paid ..................... 40,551.16 __________ 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 of March 2, 1923, signed by the partnership and its two members, reading as follows:
"A refund is due to the Partnership of F.A. Straus Co. of $7,833.56 in accordance with amended return 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 filed as aforesaid and determined each of the following items thereon to be correct:
Taxable net income ............ $280,484.33 Profits tax ................... 32,717.60 ___________ Profit distributable .......... 247,766.73 =========== Mr. Straus' share ............. 169,158.39 Plaintiff'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, 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 _________ 4,052.20 __________ Net assessment .................... 36,498.96 Correct tax liability ............. 32,717.60 __________ 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 $293.41 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 duly filed his individual income tax return for 1917 on April 29, 1918, reporting thereon a total gross income of $106,156.88; a total net income of $102,833.56; and a tax of $18,364.92, which was paid June 15, 1918. A portion of this payment is the amount sought to be recovered in the instant suit.
The gross income of $106,156.88, reported as aforesaid, included $83,440.72 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 taxable 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 $83,440.72. He reported this exact amount.
During March 1923 plaintiff filed an amended return for the calendar year 1917 reporting revised figures as follows: a total gross income of $109,307.15 including $78,608.34 as his distributive share of the partnership profits; a total taxable net income of $105,423.83 and a tax thereon of $19,727.91 with a further statement that since his original tax was only $18,364.92 there was an additional and a further tax due of $1,362.99. 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 as hereinbefore stated.
In determining his taxable net income and the tax due thereon and in reporting the same upon the returns filed, 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 taxable 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, as added by Act Oct. 3, 1917, § 1211, 40 Stat. 336.
By registered letter of March 13, 1923, the Commissioner advised plaintiff of a proposed deficiency for 1917 of $1,069.58. This sum was assessed on a list signed March 16, 1923, and notice and demand was issued March 26, 1923.
4. 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 of Internal Revenue as follows:
"Herewith will be found bill for additional assessment levied against me as follows: 1917 — 3440359 N.C. 250 D OA 8/24/22 Mar 64 SPL NO 20, 1923 List for $1,069.58; also Claim for credit for $2,741.75, being 35% 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, letter dated 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 as stated in finding 1 above, and asked that plaintiff's share (35 per cent. of $7,833.56) or $2,741.75 of that overpayment be treated as follows: $1,069.58 thereof applied as a credit to the additional tax assessed March 16, 1923, as stated as paragraph 5 above and the balance of $1,672.17 be refunded to the plaintiff.
By registered letter of June 4, 1923, the Commissioner advised plaintiff of a further deficiency of $293.41 for 1917 and this sum was assessed on a list signed July 26, 1923.
6. April 14, 1924, the Commissioner approved and applied as a statutory credit the sum of $293.41 from the determined overpayment by the partnership of F.A. Straus Co., as stated in finding 2, against and in satisfaction of the additional assessment against the plaintiff, made in the same amount, as stated in finding 5. May 14, 1924, plaintiff paid in full the additional assessment of $1,069.58, made as stated in finding 3 above.
7. March 29, 1928, plaintiff filed with the Collector a claim for refund of $19,727.91, 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 for 1917 redetermined to be $16,479.41, calculated upon a net income which included $78,608.34 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 $11,451.16, or 35 per cent. of $32,717.60.
August 20, 1928, the Commissioner signed a schedule of overassessments including an overassessment of $1,362.99, for the calendar year 1917, in favor of the plaintiff and subsequently delivered to the plaintiff a certificate of overassessment, together with a Treasury check for $1,743.41. This repaid $1,362.99 determined to be an overpayment for 1917, with statutory interest thereon of $380.42. 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 .................... $18,364.92 Additional assessment March 1923 ......................... 1,069.58 Additional assessment July 1923 293.41 __________ 19,727.91 Correct tax liability ........... 16,479.41 __________ 3,248.50 Less amount barred by the Statute of Limitations ................ 1,885.51 __________ Overassessment ................. 1,362.99
"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 $1,362.99."
No part of the item of $1,885.51, shown upon the certificate of overassessment as barred by the Statute of Limitations, has ever been refunded or repaid to the plaintiff.
Plaintiff paid certain income taxes as shown in the findings for 1917 and on March 29, 1928, filed a claim for refund of $19,727.91 on the ground that the Commissioner of Internal Revenue had erred in failing to credit his net income with the proportionate part of the excess profits tax of the partnership for 1917. The Commissioner considered the claim and allowed plaintiff a proper credit for the excess profits tax paid by the partnership, of which he was a member, for 1917.
A computation of plaintiff's tax liability for 1917, after allowing such credit, showed that plaintiff's correct tax liability for that year was $3,248.58 less than the total tax of $19,727.91 theretofore assessed and paid. On August 28, 1928, the Commissioner signed a schedule of overassessment of $1,362.99 in favor of plaintiff for 1917 on account of the action which he had taken, as above stated, on plaintiff's claim for refund, and shortly thereafter prepared and delivered to plaintiff a certificate of overassessment together with a Treasury check for $1,362.99 and $380.42 interest thereon totaling $1,743.41. The amount so refunded by the Commissioner represented the tax paid by plaintiff for 1917 within four years prior to the filing of the refund claim on March 29, 1928. The Commissioner refused to refund $1,885.51, the amount here in controversy, of the excess tax paid for 1917, after allowing the credit above-mentioned, on the ground that this portion of the tax in excess of the correct tax liability for the year was paid on June 15, 1918, more than four years prior to the filing of the claim and was therefore barred by the provisions of section 284 of the Revenue Act of 1926. The amount of the tax which the Commissioner refunded represented payments on account of the 1917 tax which plaintiff had made in April and May of 1924, within four years of the filing of the claim in March 1928. This suit was instituted August 16, 1934, within six years after the delivery of the certificate of overassessment set forth in finding 7, and plaintiff bases his right to recover the amount claimed upon an account stated. In order to sustain his claim that there was an account stated, plaintiff must, under the rules stated by this court in Wood v. United States, 17 F. Supp. 521, 84 Ct.Cl. 367, and Clifton Manufacturing Co. v. United States, 19 F. Supp. 723, 85 Ct.Cl. 525, show that the refund claim filed March 29, 1928, was timely under the provisions of section 284 of the Revenue Act of 1926. This the plaintiff endeavors to do, and whether such claim was timely is the controlling question in the case. It is clear that there can be no account stated in this case unless the claim was timely filed with respect to the tax of $1,885.51 paid June 15, 1918.
The defendant insists that under the facts in this case section 284, subdivisions (a) and (b), (1) and (2), and (g) of the Revenue Act of 1926, limits the amount of refund of income tax to the portion of the tax paid during the four years immediately preceding the filing of the claim, as specifically provided in subdivision (b). We agree with the defendant that this is the proper construction of the provisions of section 284 of the Revenue Act of 1926, 44 Stat. 66, which, so far as material here, are as follows:
"(a) Where there has been an overpayment of any income, war-profits, or excess-profits tax imposed * * * the amount of such overpayment shall * * be refunded immediately to the taxpayer.
"(b) Except as provided in subdivisions * * * (g) of this section —
"(1) No such * * * refund shall be * * * made * * * after four years from the time the tax was paid in the case of a tax imposed by any prior Act, unless before the expiration of such period a claim therefor is filed by the taxpayer; and
"(2) The amount of the * * * refund shall not exceed the portion of the tax paid during the * * * four years * * * immediately preceding the filing of the claim * * *.
"(g) If the taxpayer has, within five years from the time the return for the taxable year 1917 was due, filed a waiver of his right to have the taxes due for such taxable year determined and assessed within five years after the return was filed, * * * then such * * * refund relating to the taxes for the year in respect of which the waiver was filed shall be * * * made if claim therefor is filed either on or before April 1, 1925, or within four years from the time the tax was paid. * * *" [Italics ours.]
Plaintiff contends that the limitation upon the amount of the overpayment refundable, as provided in subdivision (b)(2) of section 284, is inapplicable to cases within the provisions of subdivision (g); that subdivision (g) limits only the time within which a claim might be filed but does not limit the amount of the overpayment refundable; that the term "the tax" in section 284(g) means the whole tax for the entire year and not a portion of the tax, and that Congress did not intend that the provisions of subdivision (b)(2) limiting the amount of the overpayment to the portion of the tax paid within four years preceding the filing of the claim to apply to the cases coming within subdivision (g).
The only exception which subdivision (g) made to the general rule stated in (b)(1) and (2) with reference to the filing of claims and the making of refunds was that a taxpayer who had filed a waiver of the statute of limitation could obtain a refund of an overpayment for 1917 even though paid more than four years prior to the filing of the claim, if the claim was filed on or before April 1, 1925. Plaintiff's claim was not filed on or before April 1, 1925. He was therefore limited to the amount of tax paid within four years prior to the filing of the claim on March 29, 1928. If he had filed his claim on or before April 1, 1925, he could have secured the refund of the entire overpayment, notwithstanding part of it was paid more than four years prior to that date. It seems obvious to us from a reading of section 284 and the report of the Senate Committee which inserted in the Revenue Act of 1924, as a new provision, the language of paragraph 2 of subdivision (b) of section 284, Revenue Act of 1926, that such provision was intended to apply to all cases of refunds or credits of income and profits taxes arising after the enactment of the Revenue Act of 1924, whether claims for refund or credit were filed under the provisions of paragraph 1 of subdivision (b) or subdivision (g), except when the claim was filed on or before April 1, 1925. The statement of the Senate Finance Committee in its Report No. 398 on the Revenue Act of 1924 with reference to section 281(b)(2) of that act, which section, so far as material here, was the same as section 284 of the Revenue Act of 1926, was as follows: "In order that a late payment of a small portion of the tax due may not extend the time for filing a claim for refund of the entire tax, a limitation has been inserted by the committee restricting the amount of a credit or refund to the portion of the tax paid during the four years immediately preceding the filing of the claim."
In view of the foregoing we think there can be no doubt as to the applicability of the provisions of paragraph 2 of subdivision (b) limiting the refund to the portion of the tax paid during the four years preceding the filing of the claim to the claim filed in this case. Under this construction the Commissioner was correct in holding that the amount of $1,885.51 here sought to be recovered was barred at the time plaintiff's refund claim was filed on March 29, 1928, and plaintiff is not entitled to recover. The petition is therefore dismissed, and it is so ordered.