Opinion
No. 47181.
February 2, 1948.
Dean P. Kimball, of Washington, D.C. (Paul E. Shorb and M.P. Wormhoudt, both of Washington, D.C., David A. Mitchell, of New York City, and Covington, Burling, Rublee, Acheson Shorb, of Washington, D.C., on the brief), for plaintiff.
H.S. Fessenden, of Washington, D.C., and Theron Lamar Caudle, Asst. Atty. Gen. (Helen R. Carloss and Andrew D. Sharpe, both of Washington, D.C., on the brief), for defendant.
Before JONES, Chief Justice, and HOWELL, MADDEN, WHITAKER, and LITTLETON, Judges.
Claim by the Ethyl Corporation, formerly Ethyl Gasoline Corporation, as transferee in complete liquidation of Ethyl Export Corporation, against the United States for refund of federal income and excess profits taxes.
Judgment for the plaintiff.
This case having been heard by the Court of Claims, the court, upon the evidence and the report of a commissioner, makes the following special findings of fact:
1. The plaintiff is and was at all times hereinafter mentioned a corporation organized and existing under the laws of the State of Delaware, with its office and principal place of business at New York, New York. On July 20, 1942, the plaintiff's name was changed from Ethyl Gasoline Corporation to Ethyl Corporation, which is the plaintiff's present name.
2. Ethyl Export Corporation was incorporated under the laws of the State of Delaware on October 10, 1930, with its office at 405 Lexington Ave., New York, New York. On April 28, 1939, Ethyl Export Corporation was dissolved as a corporation, and all its property and assets of every kind were on that date distributed to, and all its outstanding liabilities and obligations assumed by, its sole stockholder, Ethyl Corporation.
3. Ethyl Export Corporation, on September 14, 1940, after an allowed extension of time, duly filed with the Collector of Internal Revenue for the Third District of New York its Federal income and excess-profits tax return covering the period January 1, 1939, through April 28, 1939 (the date of liquidation of Ethyl Export Corporation). The return reported adjusted net income from all sources of $293,994.71 and total United States income tax due thereon of $55,858.99. The amount of this tax, together with interest of $178.41, was paid by the plaintiff on behalf of its dissolved subsidiary, Ethyl Export Corporation, as follows: $10,000 on March 15, 1940; $10,000 on June 15, 1940; $21,894.25 on September 17, 1940; and $14,143.15 on December 13, 1940. Ethyl Export Corporation kept its books of account and made its Federal income and excess-profits tax return on an accrual basis of accounting.
4. On August 19, 1942, plaintiff, as transferee of the assets and successor in interest to Ethyl Export Corporation, filed with the Collector of Internal Revenue for the Third District of New York a claim for the refund of $25,332.61 of the taxes paid for the period January 1, 1939, to April 29, 1939.
The claim for refund was based upon the following statement:
"In the preparation of the 1939 `Corporation Income and Excess-Profits Tax Return' no deduction or Claim for Credit was taken for Foreign Taxes Paid to the United Kingdom applicable to this period. In view of this fact we attach hereto photostatic copies of tax receipts, Form 1118 — `Statement in Support of Credit Claimed on Corporation Income Tax Return for Taxes Paid or Accrued to a Foreign Country or a Possession of the United States'; and information in support of Schedule A, Item 4, reflecting the amount of foreign taxes paid.
"On April 29, 1939, Ethyl Export Corporation, which did a considerable part of its business in Great Britain, was dissolved. Due to the dissolution of this corporation, it was necessary to make final settlement of all United Kingdom Income and other tax liabilities.
"In view of the method employed by the United Kingdom of assessing taxes on dissolving corporations, we were unable to determine the exact amount of our tax liability applicable to the year of 1939. Therefore, it was impossible for us to consider them as either a deduction from income or a Claim for Credit for Foreign Taxes paid for that year. In view of the foregoing, and in order to substantiate our Claim for Refund, we submit herewith Form 1118 — `Statement in Support of Credit Claimed on Corporation Income Tax Return for Taxes Paid or Accrued to a Foreign Country or a possession of the United States'; which reflects that portion of the United Kingdom tax applicable to the year of 1939 and also photostatic copies of tax receipts in payment of the British tax."
5. After consideration of the aforementioned claim for refund for the period January 1, 1939, to April 29, 1939, the Commissioner of Internal Revenue issued a certificate of overassessment to plaintiff in the amount of $4,924.99. This overassessment resulted from the allowance of $25,921.02 foreign taxes accrued and paid to Great Britain as a deduction from income in computing the tax liability of the Ethyl Export Corporation for the period January 1 to April 29, 1939, as set out in finding 8. This overassessment of $4,924.99 was subsequently refunded to plaintiff, together with interest thereon of $1,564.32. On June 13, 1946, the Commissioner of Internal Revenue notified plaintiff by registered mail that its claim for refund of $25,332.61 for the period January 1, 1939, to April 29, 1939, was disallowed to the extent not previously allowed by the aforementioned certificate of overassessment.
6. Under date of May 12, 1944, the Collector of Internal Revenue for the Third District of New York received a corporation income and excess-profits tax return for 1939, which was designated as an amended return for Ethyl Export Corporation, which had liquidated April 30, 1939. This return was signed by officers designated as Vice President and Secretary of the Ethyl Corporation, and this corporation's seal was affixed.
7. The only changes in the figures set forth in the return of the Ethyl Export Corporation filed September 14, 1940, and the alleged amended return filed May 12, 1944, are in Item 34, page 1, which provides for a "credit for income taxes paid to a foreign country or United States possession allowed a domestic corporation" and the resulting change in lines 35 and 37. In Item 34 on the return filed September 14, 1940, the word "none" was typed in, whereas in the alleged amended return the figure of $25,332.61 was inserted, which resulted in a change in the amount of taxes shown to be due from $55,858.99 to $30,526.38, in lines 35 and 37 on page 1.
8. Ethyl Export Corporation did a part of its business in Great Britain, and of the aforementioned $293,994.71 net income for the period January 1, 1939 through April 28, 1939, $133,332.59 represented income earned in the United Kingdom, and the balance of $160,662.12 was income earned within the United States. Great Britain asserted taxes against Ethyl Export Corporation upon this income earned within the United Kingdom under the National Defense Contribution imposed by Part III of the Finance Act of 1937, Excess-Profits tax imposed by Part III of the Finance Act (No. 2) of 1939 and United Kingdom Income Tax by the Income Tax Act of 1918, as amended. The amount of the taxes in £ Sterling, dates of payment, rate of exchange, and conversion into dollars, is as follows:
------------------------------------------------------------------------------------ | | Date | Rate of | | | paid | exchange | Total -------------------------------|-------------|-------------|-----------|------------ National defense contributions | £ 1,066-8-6 | 8/ 6/40 | @ $3.82 | $4,073.74 Excess-profits tax ........... | £ 3,131-8-0 | 8/ 6/40 | @ 3.82 | 11,961.95 United Kingdom income tax .... | £ 875-0-0 | 2/20/40 | @ 4.68 | 4,095.00 | £ 1,237-5-0 | 5/ 2/41 | @ 4.68 | 5,790.33 | | | | --------- | | | | 25,921.02 ------------------------------------------------------------------------------------ 9. The Ethyl Export Corporation in its corporate income and excess-profits tax returns for the years 1932 through 1938, set forth in the appropriate item on page 1 of such returns the amount of taxes paid to Great Britain upon income earned within the United Kingdom which it claimed as a credit against taxes due the United States.10. The printed instructions issued by the Bureau of Internal Revenue, for the preparation of corporation income and excess-profits tax return for the year 1939 provides in Item 37 that: "If, in accordance with section 131(a), a credit is claimed by a domestic corporation in item 34, page 1, on account of income, war-profits, and excess-profits taxes paid or accrued to a foreign country or a possession of the United States, Form 1118 should be submitted with the return, together with the receipt for each such tax payment. In case credit is sought for taxes accrued but not paid, the form must have attached to it a certified copy of the return on which each such accrued tax was based, and the Commissioner may require a bond on Form 1119 as a condition precedent to the allowance of a credit for such accrued taxes. * * *"
The corporation income and excess-profits tax return for the period January 1, 1939, through April 28, 1939, filed September 14, 1940, by the Ethyl Export Corporation did not have attached thereto, nor was there filed therewith, Form 1118 which is a "statement in support of credit claimed on corporation income tax return for taxes paid or accrued to a foreign country or a possession of the United States."
11. The claim for refund filed August 19, 1942, by plaintiff as transferee of the assets of Ethyl Export Corporation had attached thereto Form 1118 which disclosed that taxes amounting to $25,921.02 were paid or had accrued to the United Kingdom for the period January 1, 1939, to April 29, 1939, but that under Section 131(b)(1) of the Internal Revenue Code, 26 U.S.C.A. Int.Rev. Code, § 131, the credit applicable against United States taxes was limited to $25,332.61. Attached to this Form 1118 were receipts showing the dates and payment of United Kingdom taxes for the period ended April 30, 1939, as follows:
Excess-profits tax ............... 8/6/40 £ 3,131.8.0 Income tax and land tax .......... 5/2/41 £ 1,237.5.0 National defense contribution .... 8/6/40 £ 1,066.8.6
The receipt dated February 20, 1940, for £ 875 in payment of United Kingdom income tax for the period April 6, 1939, to April 29, 1939, was attached to Form 1118 included in the alleged amended return filed May 12, 1944.
12. By letter dated February 15, 1940, the taxpayer's agent in London, England, The Associated Ethyl Company, Ltd., advised that it had on that day paid to the Inland Revenue authorities £ 875, representing income tax at 7 shillings to the pound for the taxable year 1939/1940, based on the taxpayer's estimated profit for the period ended April 30, 1939, of £ 2,500. The United Kingdom income tax year is April 6 to April 5.
13. The taxpayer was advised by letter dated July 4, 1940, from its agent in London, England, that it had received notices of assessment from Tax Authorities of National Defense Contribution for the period January 1 to March 31, 1939, and Excess-Profits Tax from April 1 to April 30, 1939, totaling £ 4,197.16.6d. On July 23, 1940, the taxpayer cabled its bank in London, England, to transfer to the account of its agent, The Associated Ethyl Company, Ltd., £ 4,197.16.6d to pay the National Defense Contribution and Excess-Profits Tax asserted against the taxpayer by the Tax Authorities in Great Britain. This amount of the taxpayer's tax liability was paid to the Government of Great Britain on August 6, 1940.
14. The taxpayer's agent enclosed with its letter of July 4, 1940, copy of letter dated June 18, 1940, from His Majesty's Inspector of Taxes showing the determination of the taxpayer's taxable income for the period January 1 to April 30, 1939, and the computation of National Defense Contribution of £ 1,066.8.6d and Excess-Profits Tax of £ 3,131.8.0, or the total of £ 4,197.16.6d. The taxpayer's income determined by the Tax Authorities in Great Britain for the four months January 1 to April 30, 1939, was £ 24,288, of which £ 6,072 less £ 37 for wear and tear was attributable to the taxable period April 6 to April 30, 1939. Since taxable income of £ 2,500 had previously been reported, the balance £ 3,572 minus £ 37 or £ 3,535, was determined as the additional taxable income. The taxpayer was further advised by letter dated August 1, 1940, from its agent in London, England, which was received on or before August 5, 1940, in its office in New York City, that further income tax of £ 1,237.5 was due the Government of Great Britain on the Ethyl Export Corporation's additional income of £ 3,535 at 7 shillings to the pound. This additional income tax of £ 1,237.5 was paid to the Government of Great Britain on May 2, 1941.
15. The original Federal income and excess-profits tax return of Ethyl Export Corporation for its taxable year 1939 was prepared by R.H. Hill, duly authorized by said company for that purpose, he being an employee of both Ethyl Corporation and Ethyl Export Corporation and in charge of the department that prepared all tax returns for said corporations.
16. At the time of filing the original return of Ethyl Export Corporation for 1939, the proof indicates that Mr. Hill was aware that there would be liability for British income tax on its income tax return for that year.
17. At the time of preparation of the original 1939 return Mr. Hill had before him letters from the company's British office (findings 12, 13 and 14) showing an amount of taxes paid to Great Britain for plaintiff. Mr. Hill made certain calculations of his own and was unable to reconcile the amount of taxes shown in those letters with his view of what such taxes should have been. At the time Mr. Hill noted his inability to make such reconciliation by writing figures of his own calculation in the letter to plaintiff dated August 1, 1940. This letter is in evidence as stipulation exhibit K and is made part hereof by reference. The formal receipts for the taxes paid were received later.
18. Plaintiff contends, and its proof so indicates, that Ethyl Export Corporation did intend to claim the British or United Kingdom income taxes as a foreign tax credit, and not as a deduction in filing its original 1939 Federal income tax return, and that it manifested its intention to claim such taxes as a foreign tax credit in its original 1939 return by including the amount of $17,722.76 in schedule P (relating to reconciliation of net income and analysis of earned surplus) of that return, under the heading, "Income Taxes of United States possessions or foreign countries if claimed as a credit in whole or in part in item 34, page 1." The proof is that the amount of $17,722.76 represented partial estimate of applicable British income taxes.
19. At the time the taxpayer, on September 14, 1940, filed with the Collector of Internal Revenue at New York City its corporation income and excess-profits tax return for the period January 1 to April 29, 1939, it had knowledge of the amount of taxes that had been paid for plaintiff or accrued to the Government of Great Britain. There is no proof that any additional taxes were thereafter ever asserted or imposed by the taxing authorities of such government.
Conclusion of Law
Upon the foregoing special findings of fact, which are made a part of the judgment herein, the court concludes that as a matter of law the plaintiff is entitled to recover $20,407.62 with interest as provided by law.
It is therefore ordered and adjudged that plaintiff recover of and from the United States twenty thousand four hundred seven dollars and sixty-two cents ($20,407.62) with interest as provided by law.
The primary question in this case is whether the taxpayer in filing its Federal income tax return for the period January 1, 1939 through April 28, 1939, signified its desire to claim a credit for taxes paid to a foreign country, in compliance with the requirements of Section 131(a) of the Internal Revenue Code. The applicable section of the Internal Revenue Code in effect for the taxable year 1939 reads as follows:
53 Stat.Pt. 1, p. 56, 26 U.S.C.A. Int. Rev. Code, § 131.
"Sec. 131(a) Allowance of credit. If the taxpayer signifies in his return his desire to have the benefits of this section, the tax imposed by this chapter shall be credited with:
"(1) Citizen and domestic corporation. In the case of a citizen of the United States and of a domestic corporation, the amount of any income, war-profits, and excess-profits taxes paid or accrued during the taxable year to any foreign country or to any possession of the United States; * * *"
The taxpayer was the Ethyl Export Corporation.
On April 28, 1939 the Ethyl Export Corporation was dissolved and its assets and liabilities were taken over by its sole stockholder, Ethyl Corporation.
After being allowed an extension of time Ethyl Export Corporation on September 14, 1940, duly filed with the Collector of Internal Revenue in New York its Federal Income and Excess Profits tax return covering the period January 1, 1939 through April 28, 1939. The amount of the income tax for the period, $55,858.99, plus interest, was paid by the plaintiff on behalf of its dissolved subsidiary.
For the same period the plaintiff or the taxpayer paid or became liable to the British Government for foreign taxes in the sum of $25,921.02.
The payment of these foreign taxes is conceded; that plaintiff was entitled to have a credit of this amount on the taxes paid for the same period in this country is also conceded, provided the taxpayer in filing its return signified its desire to claim such a credit. The plaintiff contends that such intention was signified in the return, and the defendant contends that the return does not signify a desire for such credit.
The taxpayer kept its books and made its Federal income tax returns on an accrual basis. It did part of its business for the period involved in Great Britain.
In the original return the taxpayer inserted the word "none" in Item 34, page 1 of the return, but included the amount of $17,722.76 (the estimated amount of the British taxes) in Schedule P of the return under the item including claims of credit for income taxes paid a foreign country.
The reason assigned by plaintiff for using an estimate rather than the exact amount of the claim was that its representative, Mr. Hill, who prepared the original return, had made certain calculations of his own and was unable to reconcile the amount of taxes shown in letters which he had received from the company's British office with his view of what the British taxes should have been.
An amended return was filed on behalf of Ethyl Export Corporation on May 12, 1944, in which the figure of $25,332.61 was included in Item 34, page 1, under the heading of income taxes paid to a foreign country for which credit is claimed.
Plaintiff as successor to Ethyl Export Corporation filed a timely claim for refund in the sum of $25,332.61.
The Commissioner of Internal Revenue treated the British taxes as a deduction and made allowance on that basis. On June 13, 1946, the Commissioner of Internal Revenue notified plaintiff by registered mail that its claim for refund of $25,332.61 was disallowed to the extent not previously allowed. The difference between treating the taxes as a deduction and as a credit is the sum of $20,407.62, which plaintiff claims was erroneously collected.
When the entire return is construed together we have no doubt that it was the intention to claim the British taxes as a credit. If the word "none" had not been written in Item 34, there would have been no question; in fact, no lawsuit, as the adjustment would have been automatically allowed under the statute. But since it was specifically claimed under Schedule P under the heading of claim for foreign taxes, we are constrained to construe the word "none" as an oversight. Unless this view is taken, then no claim was made for foreign taxes paid, either as a credit or as a deduction. It is inconceivable that the taxpayer did not mean to include any claim whatever on the basis of foreign taxes paid. We find that Ethyl Export Corporation signified in its return its intention to claim the British or United Kingdom income taxes as a credit and not as a deduction in filing its original 1939 Federal income tax return. Buckley, Inc. v. Commissioner, 2 Cir., 158 F.2d 158, 161. This conclusion is strengthened by the fact that in prior years income taxes paid to Great Britain had been taken by the taxpayer as a credit rather than as a deduction.
This finding makes it unnecessary to pass upon whether the plaintiff is entitled to the benefit of its claim under the amended return which was filed at a later date.
There is no doubt that plaintiff had a right to claim and secure allowance as a credit for the foreign taxes paid. When the original return is construed as a whole, and when the other circumstances as set out in our findings and as disclosed by the record are considered, we are not left in any doubt that the taxpayer intended to claim such credit.
Judgment is entered in favor of plaintiff in the sum of $20,407.62, with interest thereon as provided by law.
HOWELL, MADDEN, WHITAKER, and LITTLETON, Judges, concur.