Opinion
No. K-80.
May 2, 1932.
Suit by Fulton Bag Cotton Mills against the United States.
Petition dismissed.
The plaintiff in this case seeks to recover interest, in addition to that already allowed and paid by the Commissioner of Internal Revenue, on an overpayment of its 1917 income and excess profits taxes which were refunded and credited in 1923.
The sole issue in the case is whether or not the plaintiff paid the taxes in question under a specific protest within the requirements of section 1324(a) of the Revenue Act of 1921 ( 42 Stat. 316).
This case having been heard by the Court of Claims, the court, upon a stipulation of the facts, the report of a commissioner, and the evidence, makes the following special findings of fact:
1. The plaintiff, the Fulton Bag Cotton Mills, was and still is a corporation organized and existing under the laws of the state of Georgia, with its principal office at Atlanta, Ga.
2. The plaintiff owned throughout the year 1917 all of the stock of the Fulton Bag Cotton Mills of Brooklyn, N.Y., a corporation organized under the laws of the state of New York.
3. The Fulton Bag Cotton Mills of Brooklyn, N.Y., was dissolved on January 10, 1918, and all of the assets and liabilities of the corporation were taken over by the plaintiff, though in form a number of the affairs of that corporation were handled through liquidating trustees, some of whom were officers of the plaintiff.
4. On March 27, 1918, the plaintiff filed with the United States collector of internal revenue at Brooklyn, N.Y., an income tax return on behalf of said dissolved New York subsidiary, and on the same day also filed with the United States collector of internal revenue at Brooklyn an excess profits tax return on behalf of said dissolved New York subsidiary.
5. The corporation income tax return of said dissolved New York subsidiary showed an income tax of $13,109.10, which together with the $209,000 shown on the excess profits return filed with the collector at Brooklyn, N.Y., which it was agreed would be paid to the collector at Brooklyn, on account of the consolidated group, make a total of income and excess profits taxes to be paid by the New York branch amounting to $222,109.10. This amount was paid to the collector of internal revenue at Brooklyn, N.Y., on June 13, 1918.
6. The $222,109.10 paid to the United States collector of internal revenue at Brooklyn, N.Y., was actually paid by the Fulton Bag Cotton Mills of Atlanta, Ga., on behalf of the consolidated group.
7. The plaintiff on March 29, 1918, filed with the collector of internal revenue at Atlanta, Ga., its income tax return and excess profits tax return for the year 1917, and paid to the collector of internal revenue at Atlanta, Ga., on June 15, 1918, on said income tax return the sum of $91,660.94, and on said excess profits tax return the sum of $478,231.46, making a total of $569,892.40.
8. At the time of the payment of the tax to the collector at Atlanta, Ga., the plaintiff, through its legal representative, had a conversation with the collector in which oral protest was made against the amount of tax being collected. The plaintiff's representative said the invested capital shown on plaintiff's books and on the return was largely understated because of the failure of plaintiff to make proper adjustments of its invested capital in prior years, and that because of this fact the plaintiff was paying taxes largely in excess of the amount it should pay, and largely disproportionate to the amount of tax paid by other similar concerns whose invested capital was properly shown.
Prior to this interview, the plaintiff had prepared a written protest which was delivered to the collector at the time of payment of the tax. The written protest reads:
"Fulton Bag Cotton Mills, "Atlanta Ga., 6-10-18.
"In replying refer to file LJE-6.
"Hon. A.O. Blalock, Collector, Internal Revenue, Federal Building, Atlanta, Ga.
"Dear Sir: The undersigned in making the above payment of tax pursuant to assessment based upon the regulations and form prescribed, make such payment under protest, especially as the same relates to the excess-profits tax embraced in the above payment, on the ground that it is erroneous and illegal, and payment is made solely to prevent the imposition of penalties.
"Yours very truly, "Fulton Bag Cotton Mills, "O.E., Prest."
9. The Commissioner of Internal Revenue in 1919 claimed from the plaintiff an additional sum of $18,211.45, made up of an increase of $20,775.89 in excess profits taxes and a reduction of $2,564.44 in income taxes of the consolidated group, all of which net additional amount was charged against the plaintiff, and the plaintiff paid $16,825.13 of said amount to the collector of internal revenue at Atlanta, Ga., on October 13, 1919, and filed a claim in abatement for the balance of $1,386.32.
10. On or about August 3, 1922, the plaintiff was allowed a credit against taxes for other years of $37,347.14 on account of overpayment by it, for the account of the consolidated group of which it was the parent corporation, of income and excess profits taxes for the year 1917.
11. On September 22, 1922, the plaintiff filed with the Commissioner of Internal Revenue a claim dated September 5, 1922, requesting to be allowed the benefit of special assessment under the terms of section 210 of the Revenue Act of 1917 ( 40 Stat. 307), and the regulations promulgated in pursuance thereof. This claim was duly verified by the president of the plaintiff corporation. The grounds upon which said claim for special assessment was based were:
"1. Fixed assets are entered on the books of the company at a figure very much less than their actual value at the beginning of the taxable year in question and in fact in many cases less than actual cost.
"2. Intangible values, for example, good will, processes, etc., of tremendous value in this business are not carried on the books at any value."
12. On January 20, 1923, the plaintiff filed with the collector of internal revenue at Atlanta, Ga., a claim for refund on the regular printed form provided by the Treasury Department for claims for refund, which claim was duly verified. The grounds stated in the claim for refund were: "The income and excess-profits tax assessed against the Fulton Bag Cotton Mills for the taxable year 1917 is excessive as compared to that of representative concerns. Consequently claim for the assessment of the 1917 excess-profits tax of this company was filed with the bureau, full details of which were set forth in the brief dated September 5, 1922, claiming assessment of the 1917 tax under section 210 of the Revenue Act of 1917."
This claim for refund was allowed by the Commissioner of Internal Revenue.
13. Upon the allowance of the claim for refund, a certificate of overassessment in the sum of $106,933.92 was issued to the plaintiff at Atlanta, Ga., and another certificate in the sum of $48,801.75 was issued to the plaintiff at 330 Wythe avenue, Brooklyn, N.Y., which was the New York address of the plaintiff.
14. The schedule of the allowance of the refund addressed to the plaintiff in New York was signed by the Commissioner of Internal Revenue on April 30, 1923. The schedule of the allowance of the refund of $88,524.88 of the $106,933.92 overassessment addressed to the plaintiff at Atlanta, Ga., was signed by the Commissioner of Internal Revenue on July 9, 1923. The remaining $18,409.04 of the overassessment of $106,933.92 was allowed to the plaintiff by the Commissioner of Internal Revenue as a credit against the taxes for the year 1922.
15. The plaintiff claimed interest on the sum of $48,801.75 and the sum of $88,524.88 from June 15, 1918, to the date of the allowance of said refunds, and on the sum of $18,409.04 from June 15, 1918, to the date of the allowance of said credit. With reference to the credit of $18,409.04, interest was originally allowed to plaintiff only on $16,825.13 of said amount. The said sum of $16,825.13 was the amount of a portion of an additional assessment of tax paid on October 13, 1919, and the interest allowed thereon was computed from the date of payment to March 15, 1923, the date of the schedule of overassessments. Interest thus computed amounted to $3,454.68.
16. Interest was subsequently allowed to plaintiff on the refund of $88,524.88 from six months after the claim referred to in finding 11 above was filed, to wit, March 22, 1923, to July 9, 1923, the date of allowance of the refund. The interest thus computed amounted to $1,575.26.
17. Interest was finally allowed on said overassessment of $48,801.75 from six months after the claim referred to in finding 11 above was filed, to wit, March 22, 1923, to April 30, 1923, the date of allowance of said refund. The interest thus computed amounted to $308.18, as shown by the notice of interest allowance, a copy of which is attached to the petition, marked Exhibit 5, and made a part hereof by reference.
18. The Commissioner of Internal Revenue has refused to allow interest from the date of the overpayment of said taxes in June, 1918, for the reason that the tax was not paid under a specific protest setting forth in detail the basis and reason for such protest, within the meaning of section 1324(a) of the Revenue Act of 1921.
W.A. Sutherland, of Atlanta, Ga. (Joseph B. Brennan, of Atlanta, Ga., on the brief), for plaintiff.
Charles R. Pollard, of Washington, D.C., and Charles B. Rugg, Asst. Atty. Gen. (D. Louis Bergeron, of Washington, D.C., on the brief), for the United States.
Before BOOTH, Chief Justice, and GREEN, LITTLETON, and WILLIAMS, Judges.
The plaintiff, a Georgia corporation, during the year 1917, owned all the capital stock of the Fulton Bag Cotton Mills of Brooklyn, N.Y., a New York corporation. The latter corporation was dissolved in January, 1918, and all its assets and liabilities were taken over by the plaintiff.
On March 27, 1918, the plaintiff filed with the collector of internal revenue at Brooklyn, N.Y., the income and excess profits tax return for its subsidiary corporation for the year 1917, and on June 13, 1918, paid the collector the tax shown to be due thereon. On March 29, 1918, plaintiff filed its own income and excess profits tax return for the year 1917, with the collector of internal revenue at Atlanta, Ga., and on June 15, 1918, paid the collector the tax shown to be due thereon.
The Commissioner of Internal Revenue, in 1923, granted the plaintiff the benefit special assessment under section 210 of the Revenue Act of 1917, which it had theretofore, on a claim dated September 5, 1922, requested. The Commissioner determined that the plaintiff had overpaid its income and excess profits taxes for the year 1917 in the sum of $106,933.92, and that it had overpaid the taxes of its dissolved subsidiary in the sum of $48,801.75, making a total overpayment for the year, of $155,735.67. Of this amount $137,326.63 was refunded to the plaintiff, and the balance, $18,409.04, was credited against taxes due the government for the year 1922.
There is no controversy between the parties as to the correctness of the Commissioner's determination of the amount of the overpayment, or the manner in which it was refunded and credited. The controversy relates wholly to the amount of interest the plaintiff is entitled to receive on the overpayment.
The Commissioner allowed interest on the amount refunded, from six months after the filing of the claim for refund, to the date of the allowance of the refunds.
The plaintiff claims it paid the tax in question under specific protest within the requirements of clause (1), of section 1324(a) of the Revenue Act of 1921, 42 Stat. 316, and that interest was allowable from the date of payment of the tax. The act provides:
"(a). That upon the allowance of a claim for the refund of or credit for internal revenue taxes paid, interest shall be allowed and paid upon the total amount of such refund or credit at the rate of one-half of 1 per centum per month to the date of such allowance, as follows:
"(1) If such amount was paid under a specific protest setting forth in detail the basis of and reasons for such protest, from the time when such tax was paid."
At the time of the payment of its 1917 taxes, June 15, 1918, plaintiff filed with the collector of internal revenue at Atlanta, a letter protesting the payment on the ground that the tax was erroneous and illegal; especially that part of the tax relating to excess profits. The plaintiff concedes this letter was not a specific protest within the meaning of section 1324(a), and relies wholly upon certain oral representations made to the collector by plaintiff's legal adviser, at the time of the payment of the tax, as constituting a specific protest.
It appears plaintiff is an old and conservatively managed corporation, the capital stock of which is closely held, being practically a one-family concern. Prior to 1917, proper adjustments in invested capital had not been made and the net earnings of the company for 1917, as shown by its books, on which it was required to pay taxes, were, in the opinion of officers of the company, excessive and placed plaintiff in the position of paying more taxes proportionately than other companies similarly situated whose books reflected the true invested capital. On the day the taxes were paid, plaintiff's vice president, accompanied by his legal adviser, called upon the collector and had a conversation with him about this situation of the plaintiff company. The collector was informed that the company's invested capital, as shown on its books, was largely understated, and that the taxes being collected were out of all proportion to the taxes paid by competitive corporations less conservatively capitalized. The conversation between plaintiff's representative and the collector, which was characterized by plaintiff's witness as being "fussing and fuming," was somewhat extended, but the only protest made against the tax was that it was excessive because of the plaintiff's failure, in prior years, to make proper adjustments of its invested capital. These oral representations were not reported to the Commissioner of Internal Revenue by the collector.
It is not necessary to pass upon the plaintiff's contention that an oral protest, if otherwise satisfactory, meets the requirements of the statute, as, in our opinion, the oral statements made to the collector, even if they had been made in writing, were not sufficient to constitute a specific protest. The legality of the tax is not challenged, and the right of the taxing officials to exact payment of the taxes shown to be due on the return is not questioned in any way. In this respect the oral protest is lacking in the essential requirements of a specific protest. Girard Trust Company v. United States, 270 U.S. 163, 46 S. Ct. 229, 70 L. Ed. 524; United States v. Magnolia Petroleum Co., 276 U.S. 160, 48 S. Ct. 236, 72 L. Ed. 509.
A protest is for the purpose of inviting attention of the taxing officers to the illegality of the collection, so that they may take remedial measures at once. Girard Trust Company v. United States, supra.
The oral statements, relied upon as constituting a specific protest to the payment of the tax amount, at most, to an argument justifying special assessment under section 210 of the Revenue Act of 1917. If, as has been held, a request for special assessment under section 210 is not a specific protest within the meaning of section 1324(a), Maas Waldstein Co. v. United States, 283 U.S. 583, 51 S. Ct. 606, 607, 75 L. Ed. 1285, and Chestnut Smith v. United States (Ct.Cl.) 55 F.2d 1012, decided February 8, 1932, certainly an argument by a taxpayer supporting the right to special assessment cannot be held to be a specific protest.
In Maas Waldstein, supra, the taxpayer filed his income and excess profits tax returns for the year 1917 in the same manner as did the plaintiff in the instant case. With the return the taxpayer sent a written communication stating: "Our tax is proportionately larger than that of other representative concerns in the same line of business," and "under paragraph 4, article 52 our invested capital, when compared in the manner specified in the regulations, is manifestly seriously disproportionate to the taxable income." On the payment of the taxes the taxpayer again wrote the Commissioner stating: "We filed a request dated March 28, for assessment in the manner provided for in article 52, referring also to articles 18 and 24, regulations 41." The taxpayer contended these two letters were sufficient to meet the requirements of section 1324(a) as to "a specific protest setting forth in detail the basis of and reasons for such protest." The Supreme Court, overruling the taxpayer's contention, through Mr. Justice McReynolds, said:
"The general purpose of the petitioner's communications to the commissioner was to induce the latter to set on foot an investigation of the company's affairs to the end that, after ascertaining the circumstances and in the exercise of a proper discretion, he might make an assessment duly proportioned to those imposed upon others engaged in like business. There was no challenge of the commissioner's right then to demand payment according to the general rule — no claim that in view of the facts then before him this would amount to an unlawful imposition. * * *
"We are unable to conclude that the petitioner's action amounted to a precise objection to an unauthorized exaction within the fair intendment of the statute. Meticulous compliance by the taxpayer with the prescribed conditions must appear before he can recover. Lucas v. Pilliod Lumber Company, 281 U.S. 245, 249, 50 S. Ct. 297, 74 L. Ed. 829, 67 A.L.R. 1350."
The facts in the case at bar are in all essential respects similar to the facts in the case cited, except that the alleged specific protest in the instant case was made orally to the collector, while the protest in the former case was made in writing, and addressed to the Commissioner. Conceding, without deciding, that a specific protest within the requirements of section 1324(a) of the Revenue Act of 1921 can been made orally, the plaintiff in this case cannot recover, as the statements relied upon are not sufficient to constitute a specific protest within the meaning of the section. There is no claim that in view of the facts then before the taxing officials the amount of tax shown to be due on the plaintiff's return amounted to an unlawful imposition. The return upon which the tax was based was made out in the manner provided by law, and the amount of tax shown to be due was based on plaintiff's net earnings for the year, as reflected by its books. Plaintiff's right to be relieved from the general application of the law, and to have its tax liability determined under the provisions of section 210, of the Revenue Act of 1917, was dependent entirely upon its ability to make the showing required in that section, and the granting of that privilege to the plaintiff, as the Commissioner subsequently did, does not make the original tax computed under the strict application of the law illegal, or its collection an unauthorized exaction.
The petition will therefore be dismissed. It is so ordered.
WHALEY, Judge, took no part in the decision of this case.