Opinion
No. H-228.
October 20, 1930.
Suit by Kingan Co., Inc., successor to the American business of Kingan Co., Limited, against the United States.
Judgment for plaintiff.
This suit is for the recovery of $28,693.91 as additional interest of $9,154.15, at 6 per cent. per annum, from March 10, 1924, to January 16, 1926, alleged to be due on an overpayment of tax of $82,593.90 for the fiscal year ended October 31, 1917, which amount was first applied as a credit against an additional assessment for 1918 and later, when it was determined that there had been an overpayment for 1918, was applied as a credit against a portion of an additional assessment for 1919, and additional interest of $19,539.76, at 6 per cent. per annum, computed from January 15, 1920, to January 16, 1926, alleged to be due on an overpayment of $54,277.13 for the fiscal year ended October 31, 1918, credited against an additional assessment of tax for the fiscal year ended October 31, 1919.
Special Findings of Fact.1. The plaintiff is a domestic corporation, organized October 8, 1920, under the laws of New Jersey, with its principal office at Indianapolis, Ind. It was authorized to issue 550,000 shares of capital stock, of which 50,000 were preferred shares of the par value of $100 each, and 500,000 were common shares, without any nominal or par value. Its purpose, as disclosed by its certificate of incorporation, was "to purchase or otherwise acquire, take over, hold, and operate the properties, business, and shares of Kingan Co., Ltd., a corporation organized under the laws of the United Kingdom of Great Britain and Ireland, or any part thereof," hereinafter sometimes referred to as the old company, and to engage in the packing business generally.
2. On November 1, 1920, in accordance with the plans previously agreed upon, the American company acquired all of the common stock of the old company from the latter's stockholders on the basis of an exchange of 1½ shares of preferred and 14 shares of common of its own stock for 1 share of the common stock of the old company. The outstanding preference stock of the old company was thereupon retired. Thereupon, the stockholders of the old company became the stockholders of the American company, the plaintiff, and held the stock of the American company in the same proportion to the stockholdings in the old company. The American company, being the owner of all of the outstanding stock of the old company, thereafter, on December 9, 1920(a) took over the operation under its own name of the plant in the United States formerly operated by the old company, and, on December 21, 1921, by formal transfer made effective as of December 9, 1920, caused all of the assets of Kingan Co., Limited, located in the United States of America, both tangible and intangible, to be transferred to itself, and became the owner of all the business, properties, and assets within the United States of America of Kingan Co., Limited, of Great Britain, including bills, accounts, notes receivable, contracts, leases, and leasehold interests, patents, copyrights, trade-marks, trade-names, brands, rights, privileges, franchises, rights of action, choses in action, stocks of other corporations, and all other properties and rights of every description of the old company within the United States of America, and (b) caused all of the assets of the old company, located elsewhere, that is, in the United Kingdom, to be transferred to a new British company, which plaintiff caused to be organized under the laws of the United Kingdom of Great Britain and Ireland, in exchange for all of the stock of the new British company, and (c) at the same time the American company assumed all of the liabilities of the old company in the United States and other parts of the world.
3. Liquidators were caused to be appointed under the laws of the United Kingdom by the American company finally to wind up the affairs of the old company and they did so wind up the affairs of that company on September 19, 1924. The liquidators of the old company on December 21, 1921, and effective as of December 9, 1920, formally transferred to the American company all other assets of the old company, together with any rights it had to take, receive, prosecute, and collect any overpayment of United States federal taxes, and the American company agreed to assume the liability for any additional taxes that might be duly payable to the United States government on account of federal taxes, and did pay such federal taxes.
4. April 1, 1918, Kingan Co., Limited, the predecessor company, filed with the collector of internal revenue for the district of Indiana income and profits tax returns for the fiscal year ended October 31, 1917, showing an income and profits tax of $465,328.37, which was paid June 19, 1918. January 29, 1919, the same company filed with the collector an income and profits tax return for the fiscal year ended October 31, 1918, showing a tax of $495,715.48, which was assessed. March 15, 1919, a tentative income and profits tax return for this fiscal year was filed showing an estimated tax of $268,750. No assessment was made on this return. June 19, 1919, a final income and profits tax return was filed showing a total tax of $1,077,596.04 and interest of $9.74. May 29, 1919, a claim for abatement of $495,715.48, the amount of tax shown on the said original income and profits tax return of January 29, 1919, was filed. The tax of $1,077,596.04 shown on the completed return filed June 19, 1919, was assessed and was paid in four installments of $268,750 on March 15, 1919, $270,057.76 on June 15, 1919, $269,399.01 each on September 15 and December 15, 1919.
5. January 15, 1920, the old company filed with the collector an income and profits tax return for the fiscal year ended October 31, 1919, showing a tax for that year of $236,689.09, which was paid in four installments of $59,172.28 on January 15, and three equal installments of $59,172.27 on April 15, July 15, and October 30, 1920.
6. On April 14, 1920, the tax of $495,715.48 shown on the income and profits tax return filed January 29, 1919, referred to in finding 5, for the fiscal year ended October 31, 1918, was abated in accordance with the abatement claim hereinbefore referred to.
7. March 5, 1923, the Commissioner of Internal Revenue by letter of that date advised Kingan Co., Limited, plaintiff's predecessor, that an examination of the income and excess profits tax returns for the fiscal year ended October 31, 1917, disclosed an additional tax of $148,510.83 for that year, which was assessed. March 22, 1923, Kingan Co., Limited, filed a claim for abatement of this amount.
8. February 2, 1924, the Commissioner by letter of that date advised Kingan Co., Limited, of his determination of an additional tax of $94,533.17 for the fiscal year ended October 31, 1918, which was duly assessed. On March 27, 1924, that company filed a claim for abatement of that amount.
9. March 10, 1925, the Commissioner, after final audit of the returns of Kingan Co., Limited, for the fiscal year 1917, approved a schedule of overassessments designated schedule IT:A:13736, form 7805, embracing an overassessment in favor of Kingan Company, Ltd., of $231,104.73. This schedule was transmitted to the collector of internal revenue of Indiana for his action in accordance with the directions appearing thereon. The collector complied, and on April 3, 1925, certified and returned the schedule to the commissioner, together with schedule IT:R: 13736, form 7805 — A, which was also duly certified by the collector on April 3, 1925. The collector, in accordance with the instructions of the Commissioner, examined the accounts of the taxpayer upon his records and made entries in the appropriate columns of the schedule of overassessments, form 7805, showing $148,510.83 to be abated and $82,593.90 as an overpayment, which latter amount was shown by the collector to be a proper credit against the additional assessment for 1918. The amount of the overpayment to be credited was entered by the collector upon the schedule of refunds and credits prepared and certified to him by the commissioner. Upon receipt by the Commissioner of these schedules from the collector, the Income Tax Unit of the Bureau of Internal Revenue checked the same and made entries upon the schedule of refunds and credits, form 7805 — A, showing the date of the overpayment, and the amount of accrued interest thereon of $28,339.88 to be paid. On May 8, 1925, J.G. Bright, Deputy Commissioner of Internal Revenue, signed the following certificate on this schedule: "Commissioner of Internal Revenue: The items listed in column 4 hereof have been found to be the refundable portions of overassessments heretofore determined and the accrued interest, if any, listed in column 6 has been found due." The "authorization of the commissioner to the disbursing clerk of the Treasury Department" directing him to pay any amount shown on the schedule as refundable and the amount of interest due was dated May 8, 1925, but was not signed.
10. Of the overassessment of $231,104.73 referred to above, the additional assessment of $148,510.83, referred to in finding 8, was abated, and the balance of $82,593.90 was credited against the additional assessment of $94,533.17, referred to in finding 9, for the fiscal year ended October 31, 1918. A check for $28,339.88, interest on the overpayment for 1917 credited to 1918, was issued by the Treasury Department, which, together with a certificate of overassessment, was sent to the collector for the district of Indiana for mailing to the taxpayer. May 21, 1925, the collector mailed to Kingan Co., Limited, the certificate of overassessment for the fiscal year ended October 31, 1917, of $231,104.73, together with Treasury check payable to Kingan Co., Limited, in the amount of $28,339.88 for interest due on the amount of the overpayment.
The aforementioned interest on the credit of $82,593.90 was computed by the Commissioner from the date of payment of the amount on June 19, 1918, to March 10, 1925, the date on which he signed the schedule of overassessment, form 7805, this being the date on which the defendant claims the credit was allowed. Plaintiff claims that when the Commissioner determined that the additional assessment for 1918 was erroneous, and that there was an overpayment for that year of $163,755.38 in excess of the 1917 credit, interest on the amount of the 1917 overpayment previously credited to 1918, and later credited as a part of the 1918 overpayment against an additional assessment for 1919, should have been computed under section 1019 of the Revenue Act of 1924 ( 26 USCA § 153 note) from the date paid to January 16, 1926, the date of the additional assessment for 1919, or $9,154.15 in excess of that allowed and paid by the Commissioner.
11. After a final audit by the Commissioner of the income and profits tax returns of the said Kingan Co., Limited, for the fiscal years ended October 31, 1918, and October 31, 1919, the Commissioner notified that company by letter of January 4, 1926, that the audit disclosed an overassessment for the fiscal year 1918 of $258,288.55, and an underpayment or additional tax for the fiscal year 1919 of $136,871.03.
12. January 15, 1926, the Commissioner made an additional assessment of the deficiency of $136,871.03 for 1919, instructing the collector to withhold demand pending comparison of the 1918 overassessment. On January 27, 1926, the Commissioner approved a schedule of overassessment designated IT:A:17922, form 7805, which schedule embraced the overassessment of $258,288.55 in favor of Kingan Co., Limited, for the fiscal year 1918. This schedule was transmitted to the collector for the district of Indiana for his action in accordance with directions appearing thereon. Upon receipt of the schedule of overassessment the collector examined the account of Kingan Co., Limited, upon his records and made entries in the appropriate columns of the schedule of the distribution that should be made of the total overassessment of $258,288.55, showing that $246,349.28 represented an overpayment, that $11,939.27 should be abated, that $136,871.03 should be credited against the additional assessment for 1919, and that $109,478.25 should be refunded. On the schedule of refunds and credits, form 7805 — A, the collector entered the amount refundable and the amount of the credit. The collector, in accordance with instructions, certified this schedule on February 12, 1926, and returned it to the Commissioner together with schedule of refunds and credits, IT:R:17922, form 7805 — A, prepared by him and certified February 16, 1926. Upon receipt of these schedules by the Commissioner they were checked in the Income Tax Unit of the Bureau of Internal Revenue, and certain entries were made in the appropriate columns of the schedule of refunds and credits, form 7805 — A showing the amount of $40,446.84 as interest accrued on the overpayment, exclusive of the 1917 overpayment theretofore credited to 1918, and showing $149,925.09 as the amount to be paid to the taxpayer, representing the amount refundable plus interest on the total overpayment. On March 23, 1926, the Commissioner approved the schedule of refunds and credits, form 7805 — A, certified to him by the collector and signed the authorization printed thereon to the disbursing clerk of the Treasury.
13. Of the overassessment of $258,288.55 for the fiscal year 1918, $11,939.27, the difference between the additional assessment of $94,533.17, referred to in finding 8, and $82,593.90, the overpayment for 1917 credited against the additional tax assessed for 1918, set forth in finding 10, was abated; $136,871.03, consisting of the 1917 overpayment of $82,593.90 first credited to 1918, and $54,277.13 of the overpayment of the tax finally determined for 1918, was credited against the additional assessment of tax for the fiscal year 1919 referred to in finding 12, and the balance of $109,478.25 was approved for refund.
A check for $149,925.09 was issued by the Treasury Department, which, together with a certificate of overassessment of $258,288.55, was sent to the collector for the district of Indiana. The collector mailed the check and certificate of overassessment to the taxpayer on April 23, 1926.
14. Interest on $54,277.13 of the overpayment of tax for 1918 credited against the additional tax assessed for 1919, and on $109,478.25 of the 1918 overpayment refunded, was computed, allowed, and paid under the provisions of section 1116 of the Revenue Act of 1926 ( 26 USCA § 153 note) as follows:
1917 credit.
1918 tax originally assessed.
15. Plaintiff has paid no interest on the underpayment of tax of $136,871.03 for the fiscal year 1919.
16. February 24, 1926, the collector, upon inquiry of plaintiff, mailed it a letter as follows:
"In reference to your inquiry regarding the assessments made by the Commissioner of Internal Revenue for the years 1917, 1918, and 1919, please be informed that I find that all outstanding assessments have been paid and the records further disclose that Schedule IT:A:17922 was forwarded to Washington on February 16, 1926, certifying a refund to you in the amount of $109,478.25.
"There are no other outstanding unpaid assessments against you on my books at this time with the exception of the tax due on your fiscal year ending October 31, 1925."
Paul F. Myers, of Washington, D.C., for plaintiff.
Charles R. Pollard, of Washington, D.C., and Charles B. Rugg, Asst. Atty. Gen. (Ralph E. Smith, of Washington, D.C., on the brief), for the United States.
Before BOOTH, Chief Justice, and LITTLETON, WHALEY, WILLIAMS, and GREEN, Judges.
Upon the first issue we are of opinion that the plaintiff is entitled to maintain this suit. Section 3477, Revised Statutes, now section 203, title 31, U.S.C. (31 USCA § 203) makes null and void all transfers and assignments made of any claim upon the United States, whether absolute or conditional, unless they are properly made and executed in the presence of at least two attesting witnesses, after the allowance of such a claim, the ascertainment of the amount due, and the issuing of a warrant for the payment thereof. It has been held that the intent of Congress, as expressed in this section, was that a voluntary assignment of naked claims against the government, for the purpose of suit or in view of litigation or otherwise, should not be countenanced, and that the statute embraced every claim or right to demand money from the United States, however, arising, of whatsoever nature and whenever and wherever prosecuted. United States v. Gillis, 95 U.S. 407, 24 L. Ed. 503. Spofford v. Kirk, 97 U.S. 484, 24 L. Ed. 1032.
It has frequently been held that the section in question does not include transfers by operation of law, or by will, in bankruptcy, or insolvency. Butler v. Goreley, 146 U.S. 303, 13 S. Ct. 84, 36 L. Ed. 981. The mischiefs designed to be remedied by this provision were declared in Goodman v. Niblack, 102 U.S. 556, 26 L. Ed. 229, to be mainly two: First, the danger that the rights of the government might be embarrassed by having to deal with several persons instead of one, and by the introduction of a party who was a stranger to the original transaction; secondly, that by a transfer of such a claim against the government to one or more persons not originally interested in it, the way might be conveniently opened to such improper influences in prosecuting the claim before the departments, the courts, or the Congress, as desperate cases, where the award is contingent on success, so often suggest.
And in Seaboard Airline Ry. v. United States, 256 U.S. 655, 41 S. Ct. 611, 612, 65 L. Ed. 1149, in which the facts disclosed that the plaintiff, by authorized union with other companies, became a consolidated corporation, and by reason of such consolidation fell heir to a claim against the United States for certain transportation services originally payable to one of the companies entering into the consolidation, the government contended that the plaintiff could not maintain the action because of section 3477, Revised Statutes (31 USCA § 203). The Supreme Court, stating that this section of the statutes was intended to prevent frauds upon the Treasury, reiterated the mischiefs designed to be remedied stated in the previous cases, and said: "We cannot believe that Congress intended to discourage, hinder or obstruct the orderly merger or consolidation of corporations as the various states might authorize for the public interest. There is no probability that the United States could suffer injury in respect of outstanding claims from such union of interests and certainly the result would not be more deleterious than would follow their passing to heirs, devisees, assignees in bankruptcy, or receivers, all of which changes of ownership have been declared without the ambit of the statute. The same principle which required the exceptions heretofore approved applies here."
The defendant relies upon United States v. Gillis, supra; Hager v. Swayne, 149 U.S. 242, 13 S. Ct. 841, 37 L. Ed. 719; John Shillito Co. v. McClung (C.C.A.) 51 F. 868; Emmons v. United States (C.C.) 189 F. 414. A consideration of these cases discloses, however, that in each one of them there was a voluntary assignment of the claim against the government to a third party who was a complete stranger to the record. The facts in this case are strikingly analogous to those which gave rise to the case of the Seaboard Airline Railway v. United States, supra. After the reorganization in this case, the same stockholders were in control of the plaintiff as were in control of Kingan Co., Limited, and their stockholdings in the two companies were in the same proportion. In substance therefore there was really no transfer of the subject-matter of the claim in question, for, although the bare legal title to the claim might have passed from Kingan Co., Limited, to the plaintiff under the deeds referred to in the facts, the equitable ownership of the claim at all times reposed in the same individuals, that is, in the hands of the same stockholders. Clearly, no fraud could be perpetrated upon the Treasury in a transaction of this kind. All of the reasons advanced in Seaboard Airline Railway v. United States, supra, are alike applicable here, for certainly Congress did not intend to discourage or obstruct an orderly reorganization under the laws of the various states any more than it intended to discourage and obstruct orderly merger or consolidation of corporations under these laws. There is also no probability that the United States could suffer injury in respect of outstanding claims from such a reorganization as is brought about by the facts in this case, and the result would not be more deleterious than would follow the claim passing to heirs, devisees, assignees in bankruptcy, or receivers. Accordingly, we are of opinion that the plaintiff is entitled to maintain this suit.
Concerning the question of interest on the claims, we are of opinion that the credit of the overpayment of $82,593.90 for the fiscal year 1917 against the additional assessment for the fiscal year 1918 was allowed under section 1019 of the Revenue Act of 1924 ( 26 USCA § 153 note) on May 8, 1925, the date on which the Commissioner of Internal Revenue approved the schedule of refunds and credits certified to him by the collector of internal revenue. Interest should, therefore, have been paid upon this credit to May 8, 1925, instead of to March 10, 1925, the date on which the Commissioner signed the schedule of overassessments for transmittal to the collector. Revolution Cotton Mills v. United States (Ct.Cl.) 41 F.2d 898.
As to the credit of $136,871.03, consisting of the 1917 overpayment of $82,593.90, and $54,277.13 of the overpayment of $163,755.38 determined for the fiscal year 1918 against the additional assessment for the fiscal year 1919, we are of opinion that this credit was taken within the meaning of section 1116 of the Revenue Act of 1926 ( 26 USCA § 153 note) on March 23, 1926, when the Commissioner signed and approved the schedule of refunds and credits certified to him by the collector of internal revenue. Pottstown Iron Co. v. United States (Ct.Cl.) 40 F.2d 142; Atlas Powder Co. v. United States (Ct.Cl.) 40 F.2d 136; West Leechburg Steel Co. v. United States (Ct.Cl.) 40 F.2d 131. Interest was therefore payable on this credit under section 1116 of the Revenue Act of 1926 from the date of the overpayment to January 15, 1920, the date on which the tax for the fiscal year 1919 was due. Riverside Dan River Cotton Mills, Inc., v. United States (Ct.Cl.) 37 F.2d 965.
On the amount of $54,277.13, representing a portion of the overpayment of the original tax for 1918 so credited, the Commissioner of Internal Revenue correctly computed and paid interest. See finding 14. On the amount of $82,593.90, representing the 1917 overpayment first credited against the 1918 tax and later credited to 1919, no further interest was payable under section 1116 of the 1926 act inasmuch as interest on this amount had already been allowed and paid from the date of the overpayment thereof to May 8, 1925, under section 1019 of the Revenue Act of 1924, a date subsequent to the due date of the 1919 tax against which it was last credited. The purpose of section 1116 of the act of 1926 was to allow interest to the taxpayer on overpayments only during the time that the taxpayer was not indebted to the government for a like amount.
Plaintiff is entitled to judgment for $798.31, representing interest upon $82,593.90 from March 10, 1925, to May 8, 1925, for which judgment will be entered. It is so ordered.