Opinion
No. M-50.
November 6, 1933.
J. Marvin Haynes, of Washington, D.C. (Robert H. Montgomery, of Washington, D.C., and Thomas G. Haight, of Jersey City, N.J., on the brief), for plaintiffs.
John W. Hussey, of Washington, D.C., and Charles B. Rugg, Asst. Atty. Gen. (Moe Neufeld, Atty., Bureau of Internal Revenue, of Washington, D.C., on the brief, for the United States.
Before BOOTH, Chief Justice, and GREEN, LITTLETON, WILLIAMS, and WHALEY, Judges.
Action by John W. Kieckhefer and Rae F. Bell, as liquidators of the Kieckhefer Paper Company, against the United States.
Judgment for plaintiff.
The plaintiffs, as liquidators of a dissolved Wisconsin corporation, sue to recover $21,035.56, with interest, being overpayments of income and profits tax for 1918 and 1920 duly allowed by the Commissioner of Internal Revenue which were later applied against a deficiency assessed for 1919.
It is claimed by plaintiffs that this credit was illegal and void, in that collection of the deficiency for 1919 was barred by the statute of limitation, inasmuch as a waiver signed by John W. Kieckhefer, as a former director of the Kieckhefer Paper Company, more than three years after the corporation was dissolved, was invalid, and did not extend the time for assessment against the dissolved corporation.
The position of the defendant is that this was a valid waiver by the Kieckhefer Paper Company, dissolved, and that the assessment of the deficiency for 1919 and collection by credit were therefore timely.
Special Findings of Fact.
1. The Kieckhefer Paper Company, a Wisconsin corporation, was duly dissolved by a resolution of its stockholders December 15, 1920, and a certified copy of such resolution was filed with the Secretary of State December 24, 1920. The entire capital stock of the corporation was owned in the amount of 642 shares by John W. Kieckhefer, 152 shares by E.L. Walker, 77 shares by William H. Kieckhefer, and 129 shares by Rae F. Bell.
2. The corporation duly filed tax returns for 1918, 1919, and 1920 and paid the taxes shown thereon to be due, except $218.93 for 1920, for which a claim for abatement was filed.
Extension of time for filing the 1919 calendar year return was obtained, and on May 14, 1920, the completed return for that year was filed.
3. The Commissioner audited the returns for 1918 and 1919, and on December 22, 1923, mailed the corporation a preliminary notice disclosing an overassessment of $6,120.28 for 1918 and a deficiency of $19,500.26 for 1919. January 10, 1924, the liquidators of the corporation requested the Commissioner to have an investigation and audit made of its books by a revenue agent; and thereafter, on January 21, 1924, they made application for the computation of the profits tax for 1918 under sections 327 and 328 of the Revenue Act of 1918 ( 40 Stat. 1093). A field investigation and audit of the corporation's books and records were made; and on January 24, 1924, the report of the revenue agent was filed with the Commissioner. The Commissioner of Internal Revenue was duly advised that the corporation had been dissolved.
March 4, 1924, within five years after the return for 1918 was filed, a claim for refund of $88,568.93 by the liquidators on behalf of the corporation was filed for 1918 and 1919.
4. At the request of the Commissioner, a waiver for 1919 was executed by John W. Kieckhefer December 12, 1924, effective for one year after the expiration of the statutory period of limitation for 1919. This waiver was signed "J.W. Kieckhefer, as one of the directors of Kieckhefer Paper Company, dissolved, taxpayer, by J.W. Kieckhefer, ex. dir."
Section 181.02, Wisconsin Statutes, provides for the continuance of corporations after dissolution, as follows: "All corporations * * * which shall be dissolved, shall nevertheless continue to be bodies corporate for three years thereafter for the purpose of prosecuting and defending actions, and of enabling them to settle and close up their business, dispose of and convey their property and divide their assets and for no other purpose; and when any corporation shall become so dissolved the directors or managers of the affairs of such corporation at the time of its dissolution shall, subject to the power of courts to make a different provision, continue to act as such during said term, and shall be deemed the legal administrators of such corporation with full power to settle its affairs, dispose of and convey all its property, collect the outstanding credits, pay the debts owing by such corporation and the costs of such administration and divide the residue of the money and other property among the stockholders or members thereof."
5. After examination and audit of the revenue agent's report, the Commissioner allowed the application for special assessment and, on June 9, 1925, mailed to the dissolved corporation a notice of his determination of an overassessment of $14,929.83 for 1918; and on November 15, 1925, he mailed a notice of his determination of a deficiency of $26,036.56 for 1919 and an overassessment of $1,401.38 for 1920. The deficiency for 1919 was not assessed by the Commissioner until January, 1926, as hereinafter mentioned.
6. August 12, 1925, the Commissioner approved and mailed to the collector a schedule of overassessment for 1918 in the amount above mentioned. The collector reported to the Commissioner on a schedule of refunds and credits that $14,710.90 of the total overassessment constituted an overpayment, and that it was refundable. The balance of $218.93 was shown as a credit against the unpaid original tax for 1920. The Commissioner approved the schedule of refunds and credits October 6, 1925, authorizing the disbursing clerk to issue a refund check of $14,710.90. As was customary, the disbursing clerk sent this schedule of refunds and credits to the Comptroller General for examination pursuant to the Comptroller's instructions, and, on October 10, 1925, the Comptroller General returned the schedule of overpayments, and requested that the same, in so far as it covered the refund to the Kieckhefer Paper Company, be sent to him for direct settlement on the ground that the Kieckhefer Paper Company was otherwise indebted to the United States for $195.58. The schedule of the refund allowed by the Commissioner in favor of the Kieckhefer Paper Company and the certificate of overassessment showing the refund of $14,710.90 tax, plus interest of $4,634.73, were sent to the Comptroller General October 23, 1925, for direct settlement.
7. December 1, 1925, the Commissioner approved and sent to the collector a schedule of overassessment of $1,401.38 for 1920 which the collector reported as being an overpayment and refundable on a schedule of refunds and credits December 17, 1925. The Commissioner approved the last-mentioned schedule February 4, 1926, authorizing the disbursing clerk to make refund of the overpayment shown.
8. During the month of January, 1926, the Commissioner assessed the deficiency of $26,036.56 determined for 1919 against the Kieckhefer Paper Company. The collector gave notice and made demand for the payment of the deficiency on January 27, 1926. February 26, 1926, the liquidators of the Kieckhefer Paper Company sent to the collector a claim for abatement of the deficiency for 1919, but the collector refused to accept and file the abatement claim because it was not accompanied by a bond, and the same was returned by the collector May 20, 1926.
9. May 9, 1926, the collector returned the refund check and requested the Commissioner to authorize him to apply the overpayment of $1,401.38 as a credit against the additional assessment of $26,036.56 made against the corporation in January, 1926, for 1919, as stated in finding 8. The collector apparently retained the certificate of overassessment issued by the Commissioner in favor of the corporation showing a balance due the corporation of $1,401.38 as a refund and $288.52 as interest, and did not deliver it to the corporation until after he had heard from the Commissioner with respect to his request for authority to make a credit. The Commissioner by letter authorized the collector to credit the refund theretofore allowed for 1920 against the additional assessment for 1919 and the collector made the credit entry May 29, 1926. The certificate of overassessment of $1,401.38 for 1920, which had been prepared and issued by the Commissioner in favor of the Kieckhefer Paper Company, was delivered by the collector to the liquidators of that corporation June 4, 1926, but it appears that before delivery the collector erased the entry made at the bottom of the certificate of overassessment by the Commissioner when he issued it, as follows: "Refunded $1,401.38; interest $288.52," and entered thereon the following: "Credited $1,401.38, year 1919 add'l., Account No. 02C-Jan. 1926 List, Special #7."
10. January 4, 1927, the Comptroller General issued a certificate of settlement showing a balance of $19,345.63 to be due the Kieckhefer Paper Company from the United States for overpayment of tax of $14,710.90 for 1918, plus interest of $4,634.73, which certificate of settlement was mailed to, and received by, plaintiff. Subsequent to February 26, 1927, the Commissioner made entries on his books applying the total amount of $19,345.63 shown in the Comptroller's certificate of settlement as being due from the United States to the Kieckhefer Paper Company as a credit against the outstanding additional assessment for 1919, which was barred by the statute of limitation, leaving an unpaid balance of $5,289.60, which, on March 31, 1930, was abated by the collector as uncollectible.
The certificate of overassessment prepared by the Commissioner showing the overpayment of $14,710.90 for 1918 and interest thereon as being due the Kieckhefer Paper Company was not mailed to plaintiff, but, together with the refund schedule denying the overpayment, was sent to the Comptroller General pursuant to his instructions that settlement of the account for 1918 be made by his office. In lieu of the Commissioner's certificate of overassessment, the Comptroller General issued his certificate of settlement showing the principal of $14,710.90, overpayment for 1918, allowed by the Commissioner and interest thereon of $4,634.73 as being due the Kieckhefer Paper Company from the United States, and mailed the same to the Kieckhefer Paper Company, dissolved, on or about January 4, 1927, and the same was received by the liquidators of that corporation. This certificate was as follows:
"Certificate of Settlement "Certificate #0141465, Treas. settlements and claims, Claim #050801 "Washington, D.C., January 4, 1927.
"I certify that I have examined and settled the claim of the Kieckhefer Paper Company, care of Kieckhefer Container Co., Milwaukee, Wisconsin, against the United States for refund of income tax erroneously or illegally assessed for the year 1918, together with interest thereon as shown on schedule 15231, certificate of overassessment #590457. — Tax, $14,710.90; interest, $4,634.73 — and find that the sum of nineteen thousand three hundred forty-five dollars and sixty-three cents ($19,345.63) is due from the United States to said claimant payable from the appropriation #27422, refunding tax illegally collected, 1927 and prior years, to be paid to the Treasurer of the United States for deposit as an internal revenue collection to the credit of the collection account of A.H. Wilkinson, collector of internal revenue for the district of Wisconsin, for personal credit, as a partial offset against claimant's indebtedness of $24,634.23 to the United States on account of unpaid income tax for the year 1918 [1919].
"Issue warrant and send same as above. "$19,345.63.
"J.R. McCarl, "Comptroller General."
11. October 5, 1926, the Commissioner mailed to John W. Kieckhefer, Milwaukee, Wis., a sixty-day notice, under the Revenue Act of 1926, proposing to assess against and collect from him the amount of $26,036.56 as a transferee of the assets of the Kieckhefer Paper Company, dissolved, under section 280 of the Revenue Act of 1926 (26 USCA § 1069 and note). This amount represented the additional tax theretofore assessed against the Kieckhefer Paper Company for 1919. November 26, 1926, J.W. Kieckhefer filed a petition with the United States Board of Tax Appeals contesting his liability as a transferee. Thereafter on December 4, 1929, the Commissioner and J.W. Kieckhefer filed the following stipulation with the Board of Tax Appeals:
"It is hereby stipulated and agreed by and between the parties hereto, by and through their respective attorneys of record, that the assessment and/or the collection of the additional Federal income and profits tax for the taxable year 1919 proposed in the sixty-day deficiency letter from which this appeal is taken, or any part of such additional tax, is barred by the statute of limitation against this petitioner under section 280 of the Revenue Act of 1926, as transferee of the assets of the Kieckhefer Paper Co., a dissolved Wisconsin corporation.
"It is further stipulated that the Board of Tax Appeals may enter an order in accordance with the above without notice to either party."
December 19, 1929, the Board of Tax Appeals entered its decision, ordering and deciding "that the assessment and/or collection of the proposed deficiency having been barred by the statute of limitations there is no liability at law or in equity of the petitioner pursuant to the provisions of section 280 of the Revenue Act of 1926 in respect of the tax of the Kieckhefer Paper Company, a dissolved Wisconsin corporation, for the year 1919."
12. September 29, 1930, plaintiffs, as liquidators, made demand upon the Commissioner of Internal Revenue for payment to them of the overpayments by the Kieckhefer Paper Company for 1918 and 1920, totaling $21,035.56, together with interest. On November 19, 1930, the Commissioner rejected the claim and refused to make payment of these overpayments on the ground that the period for bringing suit therefor had expired.
In this case plaintiffs, as liquidators of the Kieckhefer Paper Company, dissolved, seek to recover overpayments of income and profits tax duly allowed by the Commissioner of Internal Revenue in the amount of $14,710.90 for 1918 and $1,401.38 for 1920, with interest. These overpayments were applied as credits against an additional assessment of $26,036.56 against the dissolved corporation for 1919. The deficiency for 1919 was assessed against the corporation during January, 1926, more than five years after the return for 1919 was due and was filed.
The defendant contends that the credit was legal and proper under a waiver by the dissolved corporation by J.W. Kieckhefer, ex-director, on December 12, 1924.
The Commissioner proposed to assess and collect the deficiency in respect of the tax of the dissolved corporation from J.W. Kieckhefer as a transferee under section 280 of the Revenue Act of 1926. Kieckhefer instituted a proceeding before the Board of Tax Appeals contesting the right of the Commissioner to collect the deficiency from him as a transferee and, upon a stipulation of the parties, the Board entered its decision that the assessment and collection of the amount proposed against Kieckhefer was barred by the statute of limitation and that he was not liable at law or in equity under section 280 of the Revenue Act of 1926 in respect of any tax of the Kieckhefer Paper Company, dissolved.
The question whether the waiver of the dissolved corporation, executed in this case more than three years after the time allowed by the Wisconsin statutes within which the corporation could act after dissolution, is the same as the question presented and decided by this court in A.J. Bates Co. et al. v. United States, 3 F. Supp. 245, 248, decided May 8, 1933. In that case we held that a dissolved corporation, "being without authority to execute a waiver in its own behalf, it necessarily follows that no agent could act for it in that regard. The waiver was therefore void, and did not operate to extend the time within which the Commissioner could make the additional assessment." The assessment was made more than five years after the date on which the return of the corporation was due and filed, and assessment and collection of the deficiency was therefore barred by the statute of limitation. Our decision in the Bates Company Case is controlling here.
With reference to the year 1920, we are of opinion that plaintiffs are not entitled to recover the overpayment of $1,401.38 allowed for that year and subsequently credited against the 1919 additional assessment, notwithstanding the collection of this additional assessment was barred at the time the credit was made. Although the collector reported to the Commissioner on the schedule of refunds and credits that this overassessment for 1920 constituted an overpayment and was refundable, and the Commissioner approved this schedule allowing the overpayment, and authorized the disbursing clerk to issue a check to the corporation for said amount, together with interest thereon, and such check, together with a certificate of overassessment showing the amount as a refund, was issued and sent to the collector for delivery, the check was returned to the Commissioner by the collector with a request that the Commissioner authorize the overpayment to be credited against the additional assessment which had been made for 1919. The certificate of overassessment showing the overpayment as a balance in favor of the Corporation was not delivered by the collector until after the Commissioner had given the collector authority to make a credit of the overpayment. The collector, accordingly, made the credit entry, and the check which had been issued was never delivered to the corporation. At this point it appears that the collector, before delivering the certificate of overassessment which the Commissioner had issued in favor of the corporation, erased the entry made thereon by the Commissioner's office showing the amount of $1,401.38 as a refund due the corporation, and made an entry on the certificate showing that the entire overpayment had been credited against the additional assessment for 1919. Thereupon the certificate of overassessment was delivered to the liquidators of the corporation, and was received by them June 4, 1926. (See Finding 9.)
These facts bring the case, in so far as it relates to 1920, within the rule announced by this court in Leisenring et al. v. United States, decided by this court June 5, 1933, 3 F. Supp. 853. Plaintiffs, therefore, are not entitled to recover the amount of $1,401.38 for 1920.
With reference, however, to the overpayment of $14,710.90 and interest allowed and claimed for 1918, the situation is different. The facts in this case distinguish it from the decision of the court in Leisenring et al. v. United States, supra. In the case at bar the account as stated for 1918 showed a balance in favor of the corporation, and the attempted credit thereof against the barred tax assessed for 1919 occurred afterward. (See Finding 10.)
Judgment, therefore, will be entered in favor of plaintiffs for $14,710.90, with interest at 6 per cent. per annum from the dates on which payments making up this total were made during 1919 to such date as the Commissioner of Internal Revenue may determine in accordance with section 177(b) of the Judicial Code, as amended, being a part of the Revenue Act of 1928 (28 USCA § 284(b). See Bonwit Teller Co. v. United States, 52 F.2d 904, 72 Ct. Cl. 559.