Opinion
No. 41862.
May 29, 1933.
Harry J. Gerrity, of Washington, D.C. (Henry W. Clark and Reid L. Carr, both of New York City, on the brief), for plaintiffs.
John W. Hussy and W.W. Scott, both of Washington, D.C., for the United States.
Before GREEN, LITTLETON, WILLIAMS, and WHALEY, Judges.
Action by the Columbian Carbon Company and others against the United States.
Judgment in favor of the defendant dismissing the petition.
Plaintiffs sue to recover $105,826.75, income and profits tax and interest assessed and collected from the Southern Carbon Company for 1918 and 1919 and the other plaintiffs herein for 1919, together with interest from the dates of payment.
They allege that the assessment of the tax of $97,970.01 and interest of $7,856.74 thereon was barred by the statute of limitation when the amounts were assessed by the Commissioner of Internal Revenue April 28, 1928. The question whether assessment was barred at the time made depends upon whether a document executed by plaintiffs February 7, 1928, constituted a notice in writing to the Commissioner within the meaning of section 274(d) of the Revenue Act of 1926 (26 USCA § 1048b), waiving the restrictions upon assessment provided in sections 274(a) and 277 (b) of the Revenue Act of 1926 (26 USCA §§ 1048, 1057 note), which sections prohibited the Commissioner from assessing the deficiencies, except in cases of jeopardy, for sixty days after mailing of the deficiency notices December 21, 1927, but allowed him sixty days thereafter within which to assess.
The defendant contends that the written notice signed by plaintiffs was conditional, was not effective from the date it was signed, and that the assessment was therefore made in time.
Special Findings of Fact.
1. September 12, 1919, in accordance with an extension of time, plaintiffs filed a consolidated income and profits tax return for 1918 with the Columbian Carbon Company as the parent corporation of the affiliated group. The tax shown to be due by this return was duly paid.
July 13, 1920, they similarly filed a consolidated return for 1919 and paid the tax shown thereon to be due.
2. Prior to the expiration of the statutory period for assessment and collection of additional tax for 1918 and 1919, plaintiffs filed with the Commissioner waivers extending the period and by successive waivers, prior to the expiration of the period as extended, the statute of limitation was extended to December 31, 1927. The last waivers provided that "if a notice of a deficiency in tax is sent to said taxpayer by registered mail before said date [December 31, 1927] and (1) no appeal is filed therefrom with the United States Board of Tax Appeals then said date shall be extended sixty days, or (2) if an appeal is filed with said Board then said date shall be extended by the number of days between the date of mailing of said notice of deficiency and the date of final decision by said Board."
3. December 21, 1927, the Commissioner mailed each of the plaintiffs a notice of a deficiency of $38,755.65 for 1918 in respect of the tax of the Southern Carbon Company; $19,162.83 for 1919 in respect of the Columbian Carbon Company; $30,600.27 for 1919 in respect of the Southern Carbon Company; and $15,950.14 for 1919 in respect of the Midland Carbon Company.
4. February 7, 1928, after conferences with the Commissioner relative to the proposed tax, plaintiffs filed with the Commissioner a waiver of their right to file a petition with the United States Board of Tax Appeals, which waiver, by its terms, although consenting to the assessment and collection of the deficiencies for the years 1918 and 1919 under section 274(a) of the Revenue Act of 1926, was conditioned upon certain adjustments to be approved by the Commissioner. The notice was as follows:
"The undersigned taxpayer hereby waives the right to file a petition with the United States Board of Tax Appeals under section 274(a) of the Revenue Act of 1926, and consents to the assessment and collection of a deficiency in tax for the years 1918 and 1919 aggregating $____.
"Subject to the approval of the Commissioner of Internal Revenue, the following adjustments (together with such other adjustments as arise as a proper and necessary incident thereto) are agreed to as a basis for closing the case:
"Bureau letter (sixty-day) dated December 21, 1927, to be revised as follows:
1918 Income
Midland Carbon Company: Net income reduced as follows: Amortization allowable .................... $118,099.81 Amount allowed (60-day letter) ............ 118,009.81 ___________ Additional deduction ................... $ 90.00
"L. Martin Company:
"Net income reduced, $898.81, representing adjustment for British income and profits tax due to change in exchange rate of $4.86 as used by the Revenue Agent to $4.7655.
"1918 allocation of tax previously assessed:
"Of the total tax previously assessed against The L. Martin Company ($170,801.19), allocation to be made for the consolidated period (May 16 to Dec. 31, 1918) an amount sufficient to cover the corrected tax liability as may be determined to be due for that period, the balance considered applicable to the period Jan. 1 to May 15, 1918.
"1919 income — Occidental Oil and Gas Co.:
"Net loss to be increased by excessive depreciation disallowed on additional amortization allowed for pipe lines, amounting to $5,963.39 on which depreciation was computed at 20% instead of 15%. Net loss increase $298.17.
"Wyoming Dehydrating Co.:
"The operating loss of this company for the consolidated period October 15 to December 31, 1919, to be taken into consideration in the determination of the consolidated net income, schedule 31, and consolidated invested capital, schedule 32.
"1919 invested capital:
"Adjustments to invested capital for prior year's tax to be revised on the basis of the prior year's tax as corrected.
"1919 credit for foreign taxes:
"Credit for $30,098.38 foreign taxes paid to be allowed against the total consolidated tax liability instead of being limited to the amount of consolidated tax allocated to The L. Martin Co., $28,617.65, schedule 36."
The corporations above mentioned were subsidiary corporations and were affiliated with plaintiffs in this case.
No proceedings were had before the Board of Tax Appeals.
5. March 15, 1928, in accordance with the terms of the consent to the assessment of deficiencies determined by the Commissioner, the Commissioner advised plaintiffs of the confirmation of and agreement to the proposed changes required by plaintiffs and furnished them with his computation of revised deficiencies.
6. In accordance with the conditioned agreement of plaintiffs and the Commissioner's letter of March 15, 1928, agreeing thereto, the Commissioner, on April 28, 1928, assessed against plaintiffs deficiencies in tax and interest thereon to March 8, 1928, as follows:
Southern Carbon Company: 1918 tax ..................... $35,667.90 Interest ..................... 4,344.64 __________ $ 40,012.54 Columbian Carbon Company: 1919 tax ..................... 33,469.04 33,469.04 Southern Carbon Company: 1919 tax ..................... 19,273.17 Interest ..................... 2,347.63 __________ 21,620.80 Midland Carbon Company: 1919 tax ..................... 9,559.90 Interest ..................... 1,164.47 __________ 10,724.37 ___________ Total ............................... $105,826.75
7. May 11, 1928, the Southern Carbon Company paid the deficiencies assessed against it for 1918 and 1919 and the Midland Carbon Company paid the deficiency against it for 1919. The assessment of $33,469.04 against the Columbian Carbon Company for 1919 was paid by means of a credit of a portion of an overpayment for 1918, such credit being allowed by the Commissioner October 1, 1928.
8. March 4, 1929, plaintiffs filed claims for refund of the additional tax and interest paid for 1919 on the ground that the assessments thereof on April 28, 1928, were made after the statute of limitation had barred the same. These claims were disallowed by the Commissioner May 29, 1930. June 25, 1930, the Southern Carbon Company filed a claim for refund of tax and interest collected for 1918 on the same ground, which claim was likewise disallowed by the Commissioner.
The sixty-day deficiency notices from which plaintiffs had a right to institute a proceeding before the United States Board of Tax Appeals were mailed December 21, 1927, and the sixty-day period for taking the case to the Board expired February 19, 1928. No proceeding was instituted before the Board, but on February 7, 1928, plaintiffs signed and filed with the Commissioner's office a waiver of their right to take the case before the Board of Tax Appeals. This waiver was made subject to the approval by the Commissioner of certain adjustments agreed upon between plaintiffs and the Commissioner's representative. Plaintiffs contend that the execution and filing of this waiver operated to remove the restriction upon the authority of the Commissioner to assess until the expiration of sixty days after the mailing of the deficiency notices and started the running of the statute of limitation of sixty days allowed the Commissioner to assess by section 277 of the Revenue Act of 1926 ( 26 USCA § 1057 and note) and the waivers of the statute of limitation theretofore filed, and that the sixty days allowed the Commissioner to assess the deficiencies, after the filing of the waiver of the right of appeal to the Board of Tax Appeals, expired on April 8, 1928. Plaintiffs insist therefore that the deficiencies were barred at the time they were assessed on April 28, 1928.
The waiver of the right to take the cases to the Board of Tax Appeals was conditional upon the approval by the Commissioner of certain adjustments in the deficiencies specified in the waiver. The Commissioner approved the adjustments demanded by plaintiffs on March 15, 1928, and notified them of such approval on that date. The deficiencies were assessed forty-four days after the approval of the adjustments on March 15, 1928.
The question for decision is whether the sixty days allowed the Commissioner within which to assess deficiencies, after the removal of the restriction upon assessment for sixty days after mailing of the deficiency notice, should be computed from February 7, 1928, when the waiver of the right to take the case to the Board of Tax Appeals was filed, or from March 15, 1928, when the Commissioner approved the adjustments specified in such waiver. It is not necessary in this case to decide whether an unconditional waiver of the right to file the petition with the Board with respect of a specified portion of a deficiency would start the running of the statute of limitations so as to require the Commissioner to assess such portion within sixty days after the filing of the waiver. The fact that the waiver by plaintiffs in this case was conditional upon the approval of certain adjustments reducing the deficiencies asserted, rendered it ineffective as a waiver contemplated by section 274(d) of the Revenue Act of 1926 (26 USCA § 1048b) as to any portion of the deficiencies until the adjustments were approved by the Commissioner. Under the terms of the waiver the plaintiffs reserved the right to take the entire deficiencies before the Board of Tax Appeals if the adjustments agreed upon between them and the Commissioner's representative should not be approved by the Commissioner. This, we think, is sufficient to dispose of the present controversy inasmuch as the tax and interest sought to be recovered were assessed within sixty days after the Commissioner approved the adjustments on March 15, 1928. The waiver in the present cases did not unequivocally confer upon the Commissioner authority immediately to assess the whole or a specific portion of the deficiencies, or any other right not otherwise given by the statute, until he had approved the adjustments requested. Had he declined to approve the adjustments specified, the plaintiffs would have been free to contest the entire deficiencies before the Board of Tax Appeals.
We are of opinion that the deficiencies and interest were duly assessed, and the petition must be dismissed. It is so ordered.
BOOTH, Chief Justice, did not hear this case on account of illness and took no part in its decision.