Opinion
No. F-334.
November 3, 1930.
Suit by the Royal Bank of Canada against the United States.
Judgment for plaintiff.
This suit was instituted to recover an alleged overpayment of $70,262.45 for 1918 with interest thereon at 6 per cent. from March 15, 1919. A new trial was granted on motion of the defendant.
Special Findings of Fact.1. Plaintiff is a Canadian corporation, and was and is duly authorized and does a banking business in the state of New York with principal office and place of business at New York.
2. March 15, 1919, plaintiff filed with the collector of internal revenue for the Second district of New York a tentative return and a request for an extension of time, upon which it estimated its income and profits tax for the fiscal year ended November 30, 1918, at $448,000. No assessment was ever made of the estimated tax shown on this return. On the day that this tentative return was filed, plaintiff paid to the collector $112,000, being one-fourth of the estimated tax. The commissioner on February 13, 1919, in a memorandum to the collectors of internal revenue and others concerned, authorized the use of a tentative return and an extension of time of forty-five days for the filing of a completed return. February 24, 1919, after the passage of the revenue act of 1918, the commissioner by public notice granted a general extension of time to all taxpayers, upon the filing of a tentative return of forty-five days in which to file a completed return for 1918. On the same date the commissioner sent plaintiff a telegram giving it an extension of time, and on June 13, 1919, he granted a further extension of time for filing a completed return for 1918 to July 1, 1919, in a telegram as follows:
"Replying to your communication June twelve extension to July one granted for completion nineteen eighteen return the Royal Bank of Canada. Second installment tax required to be paid June fifteenth. Any deficiency in installments plus interest thereon from respective due dates at rate one-half one per cent. per month required to be paid at time filing return and an amount which combined with previous payments exclusive of interest equals three-fourths tax disclosed by completed return required to be paid on or before September fifteenth. Copy this telegram should accompany payment June fifteenth."
3. June 16, 1919, plaintiff filed the completed income and profits tax return, Form 1120, for the fiscal year ended November 30, 1918, showing the amount of $21,001.62 as the total tax due for that year. The tax shown on this return was assessed. Inasmuch as plaintiff had made a payment to the collector on the estimated tax for this year shown on the tentative return of an amount in excess of the total tax shown due on the completed return, no further payment was made thereon.
4. December 22, 1920, plaintiff filed with the collector a claim for refund of $84,617.10 of the tax paid for the fiscal year ended November 30, 1918. The basis of this claim was stated therein as follows:
"On March 15, 1919, The Royal Bank of Canada, pursuant to regulation, filed a tentative income and excess profits tax return on Form 1031 T and paid one-quarter of the estimated tax, $112,000. Thereafter a final return was filed wherein the total income and excess profits tax for the fiscal year ending November 30, 1918, was shown to be $21,764.27. This return has now been audited by a Government inspector who has assessed an additional tax of $5,618.63 upon the bank for said period, making the correct amount of tax therefor $27,382.90."
5. January 4, 1924, the commissioner notified plaintiff that he had determined its tax liability for the fiscal year ended November 30, 1917, to be $47,540.74, of which $6,043.50 had been assessed, leaving an additional tax of $41,497.24, which was assessed on the February, 1924, special list.
6. March 18, 1924, the commissioner by letter of that date notified plaintiff that he had determined its tax liability for the fiscal year ended November 30, 1918, to be $41,737.55, of which amount $21,001.62 had been assessed on the original return, leaving the amount of $20,735.93 to be assessed. An additional assessment of this amount was made May 12, 1924, leaving an overpayment of $70,262.45 for the fiscal year 1918.
At the same time the commissioner notified plaintiff that its claim for refund of $84,617.10 was rejected. The reason for the statement in the letter of the commissioner that the claim for refund of $84,617.10 was rejected was, not because there had not been an overpayment for 1918, but because there had been no assessment of the amount which had been overpaid.
April 4, 1924, the plaintiff filed with the collector a claim asking that $41,497.24 of the overpayment for the fiscal year 1918 be credited against the additional assessment in that amount for the fiscal year 1917 and that $28,765.21 of the overpayment for the fiscal year 1918 be refunded with interest. Before this claim was filed plaintiff's counsel had taken up the matter of the overpayment for 1918 with the commissioner's office at Washington and, in the claim filed with the collector, plaintiff stated: "It is our information from the department in Washington that this claim can be adjusted as above stated through the collector's office, where there should be a record of the payment of the $112,000.00." At the time this claim was filed plaintiff's counsel went to the collector's office and had a talk with him about the matter and the collector made a memorandum on this claim with reference to the 1917 additional assessment on the February, 1924, list and also indorsed on the claim, as follows: "Do not forward to Washington. See me. Tax to be adjusted in New York. Excessive."
7. May 8, 1924, plaintiff filed an amended claim for credit with the collector requesting that the overpayment of $70,262.45 for the year 1918 be credited against the additional assessment for the fiscal year ended November 30, 1917, in the amount of $41,497.27 and against the unpaid assessment of tax for the fiscal year ended November 30, 1923, in the amount of $28,765.21. Plaintiff also asked in this claim that it be paid interest on the overpayment of $70,262.45 for 1918 from June 23, 1921, a date six months after the filing of the claim for refund, to the date of the allowance of the credit.
On May 23, 1924, the collector of internal revenue for the Second collection district of New York transferred the overpayment of $70,262.45 for 1918, made on March 15, 1919, and applied $41,497.24 thereof against and in satisfaction of the additional assessment of tax in that amount for the fiscal year ended November 30, 1917, and applied the balance of $28,765.21 against and in satisfaction of the outstanding tax assessed and due for the fiscal year ended November 30, 1923, as requested by the plaintiff in the claim for credit. The collector thereupon transmitted the claim to the Commissioner of Internal Revenue at Washington. Thereafter, on September 29, 1924, the commissioner wrote the collector at New York requesting that he advise him with reference to the plaintiff's tax for 1918. October 3, 1924, the collector advised the commissioner that an investigation of the records in his office showed that plaintiff had paid a tax of $112,000 for the fiscal year 1918; that the amount determined and assessed by the commissioner as the tax for that year in the amount of $41,737.55 had been satisfied out of the aforesaid payment; and that the remainder of the payment for the fiscal year 1918 had been transferred and applied in satisfaction of the additional assessment of $41,497.24 for 1917 and the outstanding assessment of tax due for the fiscal year 1923 in the amount of $28,765.21. On November 1, 1924, the commissioner wrote plaintiff as follows:
"Reference is made to your claim for credit of $70,262.45, income and profits taxes for the fiscal year ended November 30, 1918.
"You are advised that the records of this office as well as those of the collector of internal revenue for your district, show only an original assessment on account No. 40669 of $21,001.62 and an additional assessment May, 1924, list, page 46, line 3, of $20,735.93, aggregating $41,737.55, which is the correct tax liability for the fiscal year 1918.
"Therefore, your claim will be rejected.
"For your information a copy of a letter dated October 3, 1924, from the collector of internal revenue is inclosed, wherein he advises that a payment of $112,000.00 was made and shows that the excess of this payment over the amount of tax assessed for the fiscal year 1918 has been applied against assessments for the fiscal years 1917 and 1923."
The letter of October 3 mentioned in the commissioner's letter was the letter of the collector above referred to with reference to the credit. The Commissioner of Internal Revenue took no action other than above mentioned with reference to the matter of refund or credit of the overpayment for the year 1918. Neither did the commissioner allow or pay any interest upon the overpayment for 1918.
On February 9, 1926, the commissioner wrote plaintiff as follows:
"Reference is made to your inquiry relative to interest upon an amount of $70,262.46 overpaid for the fiscal year November 30, 1918, and transferred by the collector of internal revenue to taxes outstanding for other years.
"In reply, you are advised that section 1324(a) of the Revenue Act of 1921 ( 42 Stat. 316) and section 1019 of the Revenue Act of 1924 apply only to refunds and credits when approved by the Commissioner. Inasmuch as this office has no record that this transaction was affirmed by documentary approval of the commissioner, interest is not payable thereon."
J. Robert Sherrod, of Washington, D.C. (Miller Chevalier, Zabriskie, Sage, Gray Todd, and William E. Sims, all of New York City, on the brief), 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 GREEN, LITTLETON, and WILLIAMS, Judges.
Upon motion of defendant a new trial was granted in this case and the original findings of fact and opinion published June 3, 1929, were vacated and set aside.
Plaintiff contends that it is entitled to recover the entire overpayment of $70,262.45 for the fiscal year 1918 plus interest because the commissioner rejected its claim for refund and claim for credit, although the amount of the overpayment was used to satisfy and discharge its liability for the additional assessment of $41,497.24 for the fiscal year 1917 and $28,765.21 of its tax assessed and due for the fiscal year 1923. It argues in support of its contention that the collector may yet make demand for and require it to pay the tax for 1917 and 1923.
The position of the defendant seems to be that where there has been an overpayment of tax which has never been formally assessed the Commissioner of Internal Revenue cannot allow a claim for refund or credit thereof, and that since the overpayment here in question was not assessed by the commissioner and that since he did not formally allow a claim, no interest is payable upon the overpayment for 1918.
The contention of plaintiff that it is entitled to refund of the entire overpayment on the ground that it may yet be called upon to pay the tax for 1917 and 1923 is without merit, but its claim that it is entitled to interest on the overpayment is correct. Even if collection of the tax for 1917 and 1923, which was satisfied by the application of the overpayment for 1918, was not barred by the statute of limitation, there is no justification upon the facts for assuming that the collector of internal revenue will ever undertake to collect the tax for those years a second time. His records show no liability and the plaintiff has written evidence under the signature of the collector and the commissioner that those taxes had been satisfied.
There is no merit in the contention of the defendant that the commissioner cannot allow a claim for refund or a claim for credit unless there has been a formal assessment of the overpayment. It has been admitted from the beginning that plaintiff overpaid its tax for 1918. The statute requires that when there has been an overpayment of tax, the amount thereof shall be refunded or credited and the fact that overpayment came about under circumstances out of the ordinary routine procedure of the bureau with respect to the allowance of refunds and credits would not prevent the commissioner from allowing a claim in respect thereof.
We are of opinion from the facts in this case that the plaintiff's claim was allowed within the meaning of the statute. The only justification for the position that the claim was not allowed is the sentence, "Therefore, your claim will be rejected," appearing in the third paragraph of the letter of November 1, 1924, of the commissioner to the plaintiff set forth in Finding 7; but we think it is of no significance in view of the other facts showing that the commissioner upon receipt of the claim from the collector wrote the collector for information with reference to the tax for 1918, and the reply of the collector setting forth in detail the amount of assessments for 1918, the amounts of payments, and the indorsement on his books applying the overpayment for 1918 against the additional tax for 1917 and the tax for 1923, and the last paragraph of the aforementioned letter of the commissioner of November 1, 1924, which informs plaintiff of what had been done with respect to the payment of the $112,000 for 1918. The statement that the claim would be rejected is inconsistent with what was done and was doubtless inserted by the writer of the letter because there had been no assessment of the amount of the overpayment and because the steps usually taken by the bureau in determining that there had been an overassessment and the preparation and the signing of a schedule thereof, etc., had not been taken.
Upon the facts we are of opinion that the credit of the overpayment for 1918 against the additional assessment for 1917 and the tax due for 1923 was allowed within the meaning of section 1019 of the revenue act of 1924 ( 26 USCA § 153 note) on November 1, 1924; that plaintiff is entitled to recover interest upon that portion of the overpayment in the amount of $41,497.24 credited against an additional assessment in that amount for 1917 from the date of the overpayment on March 15, 1919, to the date of the additional assessment; and that it is entitled to recover interest upon $28,765.21 of the overpayment credited against the original tax for 1923 from March 15, 1919, to the due date of such tax.
Inasmuch as the facts do not show the exact date on which the additional tax for 1917 was assessed nor the exact date on which the tax for 1923 satisfied by credit was due, judgment will be withheld and the parties will file a stipulation showing these dates and the amount of interest to which the plaintiff is entitled computed from March 15, 1919, to the dates mentioned. It is so ordered.