Opinion
No. H-63.
June 1, 1931.
Suit by the New York Lubricating Oil Company against the United States.
Petition dismissed.
This is a suit to recover an alleged overpayment of income and excess profits taxes for the year 1918. The plaintiff claims the Commissioner of Internal Revenue erred in the computation of its invested capital for the year, in refusing to include therein certain sums for good will.
Two issues are presented for determination: (1) The correctness of the Commissioner's action in excluding from plaintiff's invested capital the amount claimed for good will, and, (2) whether the plaintiff has filed a claim for refund within the requirements of the statutes and regulations upon which its suit may be maintained.
The case having been heard by the Court of Claims, the court, upon the report of a Commissioner and the evidence, makes the following special findings of fact:
1. At all times herein mentioned the plaintiff has been and now is a corporation duly organized and existing under and by virtue of the laws of the state of New York, with its principal place of business at 116 Broad street, New York City, N Y
2. Plaintiff duly filed with the United States collector of internal revenue for the Second district of New York its income and profits tax return for the calendar year 1918, and duly paid the taxes therein shown to be due, in the sum of $56,095.94, in four installments during the year 1919, as follows:
March 14, 1919 ............. $14,000.00 June 16, 1919 .............. 14,047.97 September 15, 1919 ......... 14,023.99 December 1, 1919 ........... 14,023.98
On June 24, 1926, plaintiff paid additional income and profits taxes for said year in the sum of $5,895.20, together with interest thereon in the sum of $81.24. Said additional tax was claimed by defendant as the result of an audit, as set forth in a letter from the Commissioner of Internal Revenue to plaintiff, dated February 16, 1925.
3. Thereafter, within five years from the time said return was filed, to wit, on March 14, 1924, plaintiff duly filed its claim for refund of $25,000, or such greater amount as was legally refundable, stating, as reasons why said claim should be allowed, the following:
"Claimant has heretofore made application for the redetermination of its profits tax for the above period, under the special relief sections of the law. This application is now pending before the bureau and this claim is therefore filed so that any refund found to be legally due may be made subsequent to the effective date of the Statute of Limitations."
No claim for refund was filed by plaintiff claiming a right to include in its invested capital any sum representing good will.
4. Said claim for refund referred to the application filed with the Commissioner of Internal Revenue on July 5, 1923, claiming a reduction in income and profits taxes for 1918, and particularly requesting assessment under the provisions of sections 327 and 328 of the Revenue Act of 1918 ( 40 Stat. 1093). Said application stated facts in support of its claim for tax reduction, and, among them that in 1908 plaintiff was organized and is sued stock for the stock of the former corporation of the same name and of the Columbia Lubricants Company; that said corporations had valuable trade-marks and good will, which plaintiff did not set up on its books, mentioning the trade-mark "NYLO" and the trade-mark "Monogram," and stating that said trade-marks and good will constituted plaintiff's most valuable and most effectual income-producing asset in 1918; also that plaintiff had, prior to 1918, expended over $500,000 in developing trade-marks and good will by advertising, which it charged to expense and failed to capitalize. On September 11, 1924, the Commissioner of Internal Revenue advised plaintiff as follows:
"New York Lubricating Oil Company, 116 Broad Street, New York, N Y
"Sirs: Reference is made to your income and profits-tax return for the calendar year 1918 and to your application under the provisions of section 327 for assessment, as prescribed by section 328 of the Revenue Act of 1918.
"After careful consideration and review, your application under the provisions of section 327 for assessment, as prescribed by section 328, has been denied, in view of the fact that it is found that your profits taxes as computed under the provisions of section 301 are not in excess of the average profits tax paid by a group of representative concerns which in the aggregate are engaged in a like or similar trade or business to that of your company.
"Based upon the foregoing, your claim for refund of $25,000 will be rejected."
On February 16, 1925, the Commissioner of Internal Revenue again wrote to plaintiff, sustaining the conclusion stated in the letter of September 11, 1924, and saying:
"Your application for assessment of your profits tax under the provisions of section 328 of the Revenue Act of 1918 has been carefully reconsidered, together with the additional information submitted. You are advised that the denial of assessment under the provisions of section 328 as shown in bureau letter dated September 11, 1924, has been sustained. * * *
"In accordance with the above conclusions, your claims for refund of $25,000 and credit of $4,026.91 will be rejected."
The claim for refund was rejected within two years next preceding the commencement of this action.
5. Plaintiff, upon organization in 1908, issued its total authorized capital stock of 3,000 shares, all common, to the stockholders of the New York Lubricating Oil Company and to the stockholders of the Columbia Lubricants Company of New York, in exchange for their entire stock in both of said corporations. The stock thus issued was apportioned among the stockholders of said corporations in proportion approximately to the relative total amounts of the assets of said corporation, including their estimated good will and earning capacity. By virtue of said issuance of stock, plaintiff became possessed of all the capital stock of both said corporations. The stock thus acquired was all in exchange for stock issued, and there were no cash sales by which to determine its fair market value.
The New York Lubricating Company (former company) did not carry as assets any intangibles. Whatever good will, if any, acquired by plaintiff from the former company was not taken up on the books of the plaintiff as an asset, and no stock was issued for good will as such.
6. In 1908 plaintiff issued capital stock for all the assets of the Bayway Refining Company, and thereupon acquired said assets. Among said assets thus acquired were good will and other intangible assets. The good will as shown by the books of the Bayway Refining Company was in excess of $192,000. No good will was taken up on the books of plaintiff as having been acquired from the Bayway Company, and no stock or shares in plaintiff company were issued specifically for good will as such.
7. During the years 1908 to 1917, inclusive, plaintiff expended large sums in general advertising and development of its trade-marks and good will, which plaintiff charged to expense and did not capitalize. Many items of such expenditures cannot be identified on the books, but those that can be identified total $139,409.67, and consist of automobile show expense, circular advertising, journal advertising, no-charge shipments, and placard advertising.
8. Plaintiff has at all times borne true allegiance to the government of the United States and has not in any way aided, abetted, or given encouragement to its enemies, or aided in rebellion against the government; plaintiff is the sole owner of the claim set forth in the petition herein, and has not assigned the same or any part thereof.
Donald Horne, of Washington, D.C., for plaintiff.
Geo. H. Foster, of Washington, D.C., and Chas. B. Rugg, Asst. Atty. Gen., for the United States.
Before BOOTH, Chief Justice, and WHALEY, LITTLETON, GREEN, and WILLIAMS, Judges.
The plaintiff brings this suit to recover an alleged overpayment of income and excess profit taxes for the year 1918, with interest thereon as provided by law.
The basis of plaintiff's claim is that it is entitled to have its invested capital for the year in question increased from the amount computed by the Commissioner of Internal Revenue by the inclusion therein of certain amounts for good will.
Two defenses are interposed by the government to the plaintiff's right to recover: (1) That no claim for refund was filed by the plaintiff which asserts a right to include in invested capital any sum for good will, and (2) that no good will of any value was acquired by the plaintiff for stock or shares, as required by section 326(a)(4) of the Revenue Act of 1918 ( 40 Stat. 1092).
Conceding, without deciding, that the claim for refund filed by plaintiff on March 14, 1924, was timely under the statute, it is precluded from recovering under the first defense interposed by the defendant.
The issue with reference to the sufficiency of the claim for refund and the facts relative thereto is identical with a similar issue and the facts presented in Lewis A. Crossett Co. v. United States (Ct.Cl.) 50 F.2d 292, this date decided. The claim for refund in this case contained no claim of the right to include any amount in invested capital on account of good will, and presented no facts that would support such a claim. For the reasons stated in the Crossett Case, supra, and upon the authorities cited therein, the petition in this case must be dismissed. It is so ordered.