Opinion
Suit by Selma L. Schering against the United States to recover an overpayment of income tax for 1935.
Petition dismissed.
Plaintiff sues to recover $739.18 with interest from December 8, 1986, overpayment of income tax for 1935.
The defendant refused to 1940 to refund the overpayment when demanded September 19 and 24, 1940, on the ground that it was barred by the statute of limitation on refunds. The suit is based on an alleged implied agreement arising from an alleged account stated, and the defendant contends that there was no account stated which gave rise to an agreement implied in fact to pay the overpayment within the statutory period of limitation.
Special Findings of Fact.
1. The plaintiff and E.J.B. Schubring, her husband, were at all times hereinafter referred to, citizens of the United States of America, residing in Madison, Wisconsin.
2. March 13, 1928, the Northwestern Mutual Life Insurance Company of Milwaukee, Wisconsin, issued to E.J.B. Schubring five $10,000 single payment ten-year endowment policies, numbered respectively 1823333 to 1823337, both inclusive. All of these policies were identical as to form, substance, and maturity. A copy of one of the policies is in evidence as Exhibit A, and made a part hereof by reference.
3. The policies had a cost basis to Mr. Schubring of 436,797.85. At the time the policies were issued a provision reading as follows was written into each policy: "By request of the insured, settlement of the full proceeds of this policy shall be made with Selma L. Schubring, the beneficiary, in accordance with the provisions of Option C, 120 stipulated monthly installments, without the privilege of commutation. The stipulated installments beginning with the second will be increased by such dividends as may be apportioned by the Company."
March 28, 1935, Mr. Schubring elected to have payment of the proceeds of the policies paid in accordance with the provisions of Option C, and designated himself and his wife as beneficiaries, share and share alike, or to the survivor. The following settlement clause was endorsed upon each policy: "May 15, 1935. Edward J. B. Schubring, the insured, has survived the endowment period and on his nomination is designated beneficiary together with Selma L. Schubring, wife, share and share alike, or the survivor. Settlement of the respective shares of the herein designated beneficiaries in the aggregate proceeds of this policy and policies Nos. 1823333, 1823334, 1823336 and 1823337, collectively, $50,000, shall be made in accordance with the provisions of Option C, 120 stipulated monthly installments, without privilege of commutation, the first of such installments being due May 15, 1935. In event of the death of either beneficiary settlement of the share of such deceased shall be continued with the survivor under Option C in accordance with its terms as to the stipulated installments remaining unpaid, if any, without privilege of commutation. The second and subsequent stipulated installments under Option C will be subject to increase by such dividends as may be apportioned by the Company. Edward J. B. Schubring waives the right to change or revoke the foregoing."
4. March 13, 1936, the plaintiff filed with the Collector of Internal Revenue at Milwaukee, Wisconsin, her individual income tax return for 1935, disclosing a tax liability of $1,217.11. The tax liability disclosed thereon was paid in installments in 1936, as follows: $304.28 March 16, 1936; $304.28 June 3, 1936; $304.28 September 10, 1936, and $304.27 December 10, 1936.
5. E.J.B. Schubring filed an individual income tax return for 1935, with the Collector of Internal Revenue at Milwaukee, Wisconsin, March 13, 1936.
6. Plaintiff included in income under Item 6 of her return the sum of $6,601.08, representing one-half of the difference between the cost and the face value of the above-mentioned endowment policies. Mr. Schubring included in income under Item 7 of his return the sum of $6,601.07, representing the other half of the difference between the cost and the face value of the policies.
7. The above-mentioned endowment policies matured May 15, 1935. In 1935, plaintiff received installment payments aggregating $1,122.00 under these policies and received various sums from annuity policies. Plaintiff included in gross income under Item 11 of her return the sum of $2,307.07, representing 3% of the cost of the various endowment and annuity policies. Included in this amount was the sum of $421.87, representing 3% for six and three fourth months of one-half of the face value of the endowment policies.
8. By letter of February 10, 1938, plaintiff was notified of a proposed deficiency in income tax for the year 1935 in the amount of $3,672.73. This letter was as follows:
"A review of the report submitted by the internal revenue agent in charge, Milwaukee, Wisconsin, covering your income tax liability for the taxable year ended december 31, 1935, discloses a deficiency of $3,672.73, as set forth in the statement attached. "If you agree to the determination of your tax liability, you are requested to execute the enclosed form and forward it to the Commissioner of Internal Revenue, Washington, D.C., for the attention of IT:D1:MFB. The signing of this form will permit a prompt assessment of the deficiency and thus prevent the accumulation thirty days after filing the from, or on the date assessment is made, whichever is earlier."
The proposed deficiency resulted from increasing to $25,000.00 plaintiff's profit in connection with the maturity of the above-mentioned policies.
9. Plaintiff, through her attorney, Arnold R. Petersen, filed a timely protest against the proposed deficiency. Thereafter, a conference was held at the office of the Internal Revenue Agent in Charge at Milwaukee, August 11, 1938. August 17, 1938, plaintiff's attorney filed a supplemental protest against the proposed deficiency, asserting that the deficiency should be canceled and that the tax paid in respect of the sum of $6,601.08 should be refunded. A copy of the supplemental protest is in evidence as Exhibit E, and made a part hereof by reference. This protest was in part as follows:
"The present law, as well as the law in force at the time the policies in question matured, expressly provides that there shall be no tax until the cost of the insurance or annuity has been returned, Sec. 22(b)(2), 26 U.S.C.A. Int.Rev.Code § 22(b)(2); see also C.C.C. Tax Service Vol. I, paragraph 95, Art. 22(b)(2)-2 (Reg.94), and the beneficiary as well as the insured is entitled to deductions until the cost has been returned. See C.C.C. Tax Service 94.03.
"I therefore submit that under the law neither Mr. Schubring nor Mrs. Schubring is liable for any tax on these annuity payments until they have received back the cost of the insurance. I can find nothing in any of the authorities which would justify your interpretation of taxing the whole of Mrs. Schubring's interest in a lump sum. Under the law as it exists, the deficiency against Mrs. Schubring should be canceled. Not only that, but Mrs. Schubring should have a refund for the amount of the tax she has paid on her 1935 returns on the sum of $6,601.08; likewise Mr. Schubring should have a refund of the tax on the sum of $6,601.07 that he included in his 1935 returns, although we may have to file a claim for this."
10. By letter of November 2, 1938, E.J.B. Schurbring was notified of a proposed deficiency in income tax for the year 1935 in the amount of $1,981.47. A copy of this letter is in evidence as Exhibit F, and made a part hereof by reference. This deficiency was based upon a determination that Mr. Schubring was taxable on the sum of $13,202.15, representing the entire difference between the cost and face value of the above-mentioned insurance policies, and that no taxable profit was realized by Mrs. Schubring in connection with the maturity of the policies.
11. By letter of November 2, 1938, plaintiff was informed that the sum of $6,601.08 reported in her return had been eliminated, resulting in an overassessment of $739.18, and that a certificate of overassessment would reach her in due course.
This letter from the Commissioner and the statement thereto attached were as follows:
"Further reference is made to a review of your individual income tax liability for the taxable year ended December 31, 1935, in connection with a report of the internal revenue agent in charge at Milwaukee, Wisconsin, as set forth in Bureau letter dated February 10, 1938, in which it was disclosed that there was a deficiency in tax in the amount of $3,672.73.
"The tax in question resulted from increasing the profit reported of $6,601.08 to $25,000.00 in connection with the maturity proceeds of certain endowment policies.
"After careful consideration of the information shown in your protest dated August 16, 1938, and the facts as presented at a conference held in the office of the internal revenue agent in charge, August 11, 1938, your contention that no profit was realized by you in connection with the maturity of endowment policies has been allowed. Accordingly, the amount of $6,601.08 reported in your return as originally filed, as profit realized from the maturity of the above-mentioned insurance policies, has been eliminated. This adjustment results in the overassessment of $739.18 as shown in the attached statement.
"The overassessment indicated above will be made the subject of a certificate of overassessment which will reach you in due course through the office of the collector f internal revenue for your district and will be applied by that official in accordance with section 322 of the Revenue Act of 1934, 26 U.S.C.A. Int.Rev.Acts, page 755."
Statement
Net income reported in return ............
$14,665.84
Less: Profit reported from maturity of insurancepolicies ........................
6,601.08
----------
Total ...................................
8,064.76
Plus: Annuity income increase .................
78.01
----------
Net income adjusted ........................
8,142.77
Less: Earned income credit ...................
300.00
----------
Income subject to normal tax ...............
7,842.77
Normal tax at 4% on $7,842.77 ................
313.71
Surtax on $8,142.77 ..........................
188.57
----------
Total .....................................
502.28
Less: Income tax paid at source ...............
24.35
----------
Tax liability ................................
477.93
Tax assessed: Account #200838 ..............
1,217.11
----------
Overassessment ...............................
739.18
12. November 20, 1938, Mr. Schubring, through his attorney Arnold R. Petersen filed a timely protest against the proposed deficiency of $1,981.47, in which it was asserted that the deficiency should be canceled and that Mr. Schubring should have a refund of the tax paid in respect of the above-mentioned item of $6,601.07.
13. By letter of December 2, 1938, Mr. Schubring was notified that the period within which any refund might be made would soon elapse, and it was suggested that he protest his rights in the matter of any overassessment by filing a claim for refund. A copy of this letter is in evidence and states as follows:
"This office has under consideration your individual income tax liability for the taxable year ended December 31, 1935, in connection with a report submitted by the internal-revenue agent in charge at Milwaukee, Wisconsin.
"It is noted that it is your contention that the income as reported in the return should be decreased by the amount of income included as taxable in connection with the maturity of certain insurance policies.
"Relative to any overassessment which might be due, your attention is invited to section 322(b)(1) of the Revenue Act of 1934 which limits the making of a refund or credit to within three years from the time the return was filed by the taxpayer or within two years from the time the tax was paid. Inasmuch as this limitation will shortly expire, it is suggested that you protect your rights in the matter of any overassessment by preparing and filing a claim upon the enclosed form 843. The claim should set forth in detail the grounds or basis of the apparent overassessment. The claim should be property signed and sworn to by a duly authorized person under a notary public (or other officer authorized to administer oaths for general purposes), and be filed immediately with the collector of internal revenue for the district in which the tax was paid."
14. By letter of December 2, 1938, plaintiff was advised that final determination of her tax liability and that of Mr. Schubring in connection with the maturity of the above-mentioned insurance policies might result in a deficiency in her tax for the year 1935, and that for this reason it was not practicable to close the case by the issuance of a certificate of overassessment. Plaintiff was further notified that the period of limitation for assessment for the year 1935 would expire shortly, and was requested to execute a consent extending the period of limitation upon assessment for the year 1935 to June 30, 1940. A copy of this letter is in evidence and reads as follows:
"This office has under consideration your income-tax return for the taxable year ended December 31, 1935, in connection with a report submitted by the internal-revenue agent in charge at Milwaukee, Wisconsin.
"You are advised that pending final determination of the taxability of income reported by you and your husband as being received in connection with the maturity of certain insurance policies for the year under consideration, it is possible that your income would be adjusted to disclose a deficiency in tax.
"It is desired to bring to your attention the fact that the statutory period within which a final notice of deficiency may be issued for the taxable year ended December 31, 1935, will expire at an early date.
"You are advised, however, that a taxpayer has the right under the provisions of the revenue acts to make application for the execution of a consent extending the period of limitation for assessment. There is a possibility that the case cannot be adequately considered by the Bureau before the expiration of a statutory period and for that reason it is not practicable to close the case by the issuance of a certificate of overassessment as shown in Bureau letter dated November 2, 1938, in view of the fact that the final adjustment might result in a deficiency for the year in question.
"If, therefore, you elect to execute the consent form enclosed, please forward in triplicate, properly signed to the Commissioner of Internal Revenue, Washington, D.C. Otherwise, it will be necessary to prepare and issue a final notice of deficiency.
"Please reply within ten days from the date of this letter making reference to the symbols IT:D:1--MFB."
15. By letter of December 6, 1938, plaintiff's attorney replied to the letter addressed to Mrs. Schubring under date of December 2, 1938, by calling attention to the determination made by the Deputy Commissioner in his letter addressed to the plaintiff under date of November 2, 1938. A copy of this letter is in evidence and states as follows:
"I am returning herewith in triplicate form # 872, executed by me as attorney for Mrs. Selma L. Schubring. The protest was filed in this matter some time ago, together with a power of attorney in which I was given specific authority to sign extensions.
"I was rather surprised to get your letter of December 2, 1938, in the above matter, in view of your report of November 2, 1938. In your letter of December 2, 1938, you speak of the final determination of Mrs. Schubring's 1935 tax liability under her 1935 tax report, as pending. We call your attention to your report of November 2, 1938, in which you state: 'After careful consideration of the information shown in your protest dated August 16, 1938, and the facts as presented at a conference held in the office of the internal revenue agent in charge, August 11, 1938, your contention that no profit was realized by you in connection with the maturity of endowment policies has been allowed. Accordingly, the amount of $6,601.08 reported in your return as originally filed, as profit realized from the maturity of the above-mentioned insurance policies, has been eliminated. This adjustment results in an overassessment of $739.18 as shown in the attached statement.'
"The last paragraph of this letter states that a certificate of overassessment will reach Mrs. Schubring in due course. That seems very final to me. About the same time that you mailed to Mrs. Schubring your letter and report of November 2, 1938, you also mailed to Mr. Schubring a letter and report bearing the same numbers as above, and in this letter, addressed to Mr. Schubring, you assessed the $6,601.08 that you dropped from Mrs. Schubring's tax report, to Mr. Schubring, and notified him of a deficiency of $1,981.47. We filed a protest on this deficiency, and the same is now pending.
"As I interpret the proceedings so far in this matter, it looks to me as though the Commission of Internal Revenue has determined that there is a liability, but cannot decide where the liability should rest. Certainly it cannot be possible that this is the first time that this question has been raised before the Commissioner of Internal Revenue. In view of the uncertainty indicated in the action taken by the Commissioner, in both Mr. and Mrs. Schubring's 1935 returns, it seems to us that the case is one which properly should go before the Board of Tax Appeals. In this connection I might say that we are sending in today to the Milwaukee office, on behalf of Mr. Schubring, a claim for refund of $1,766.42, arising out of the inclusion of a similar item of $6,601.07 in Mr. Schubring's 1935 return. Under the decisions involving the question here involved, I am satisfied that there is no question as to Mr. Schubring's right to a refund and there is no question but what the determination contained in the report of the Treasury Department of November 2, 1938, to Mrs. Schubring, is correct, and it might be well to have a definite precedent from the Board of Tax Appeals.
"As we have stated in our protest, heretofore filed with the Commissioner, the insurance policies involved in this case come squarely within the rule laid down that no part of the proceeds of a policy, other than the annual 3% of the cost, is taxable until after the total cost of the policy has been returned. There are cases in favor of the taxability of the proceeds but if you will examine those cases, you will find in each instance that they relate to cases where the full amount of the policy was payable at the end of the endowment period, and instead of taking the lump sum payment, the beneficiaries elected to leave the money with the insurance company and receive payment in monthly installments; in other words, in those cases the beneficiary constructively received the proceeds of the policy and turned around and purchased an annuity. That is not our case. If you will look through the policy, you will find that from the time these policies were issued, the policies were payable in 120 monthly installments, and the election of the settlement provision by the insured even goes so far as to provide that the monthly payments provision is without right of commutation. In other words, the beneficiary could not settle on a lump-sum basis when the policy matured.
"In March of 1935, Mr. Schubring exercised his reserved right to change the beneficiary, by making himself a co-beneficiary, but the terms of settlement were not changed. The mode of settlement still remained the payment of 120 monthly installments without the right of commutation. This mode of settlement has existed from the time the contract was originally entered into, and for the Commissioner to hold that in this case there was a constructive receipt of the proceeds of the endowment policies and a purchase of an annuity, is finding something contrary to the express terms of the contract and contrary to the facts as they exist."
16. Plaintiff, through her attorney, executed in triplicate a consent extending the period of limitation for assessment for 1935 to July 30, 1940. This consent was accepted in behalf of the Commissioner on December 17, 1938.
17. December 8, 1938, Mr. Schubring filed with the Collector of Internal revenue at Milwaukee a formal claim for refund for 1935 in the amount of $1,766.42, asserting that he had erroneously included in income the above-mentioned item of $6,601.07.
18. May 10, 1939, the Internal Revenue Agent in Charge at Milwaukee addressed a letter to Mr. and Mrs. Schubring's attorney enclosing corrected agreement forms for both Mr. and Mrs. Schubring, which set forth a deficiency of $1,981.47 against Mr. Schubring and an overassessment of $739.18 in favor of the plaintiff.
"Mr. A.R. Petersen,
"The Power & Light Building,
"Madison, Wisconsin.
"In re: Mr. E.J.B. Schubring, Mrs.
Selma L. Schubring, 410 North
Pinckney Street, Madison,
Wisconsin.
"Dear Sir:
"In my letters of February 10, 193, to the above-named, it was stated that the protests of November 18, 1938, had been carefully considered but appeared to furnish no grounds for a modification of the proposed adjustment. Enclosed with said letters were agreement forms indicating a deficiency against Mr. E.J.B. Schubring for the year 1935 of $1,981.47 and against Mrs. Selma L. Schubring a deficiency of $3,672.73. You are advised that the agreement prepared in the case of Mrs. Schubring and attached letter of February 10, 1939, was in error. The recommendation which this office submited to the Bureau at Washington was for the assertion of a deficiency of $1,981.47 against Mr. Schubring and an overassessment of $739.18 in the case of Mrs. Schubring.
"In view of the foregoing, I enclose herewith corrected agreement forms for both Mr. and Mrs. Schubring and in the event it is decided to acquiesce in the adjustments proposed, please have the same properly executed and returned to this office.
"Should you desire to have this matter referred to the Technical Staff of the Bureau of Internal Revenue, 733 Wells Building, Milwaukee, Wisconsin, for hearing by that office prior to the issuance of the final notice of deficiency, arrangement will be made accordingly upon your written request. Otherwise, unless the taxpayers should either pay the deficiency in tax to the Collector of Internal Revenue or execute and file with this office the forms of agreement enclosed with this letter, final determination of tax liability will be made and a notice of deficiency will be set in accordance with the provisions of law applicable to the assessment and collection of tax deficiencies.
"In case you request a hearing by the Technical Staff, your request will be referred to that office which will communicate with you regarding the matter. You are advised, however, that the Technical Staff will not consider substantial issues or important evidence unless previously presented to this office.
"An additional period of ten days from the date of this letter will be allowed for such action as you may wish to take prior to the issuance of the statutory notice.
"Respectfully,
"D.W. Reynolds (Signed),
"Internal Revenue Agent in Charge."
19. May 11, 1939, plaintiff's attorney executed the agreement Form 873 in behalf of Mrs. Schubring, accepting the proposed over assessment of $739.18. This form was received in the Internal Revenue Agent's office on May 12, 1939.
This executed Form 873 is set forth below:
"Collection District: Wisconsin
"Mrs. Selma L. Schubring,
"Madison, Wisconsin.
"Form 873.
"Treasury Department,
"Internal Revenue Service
"Revised February 1938.
"Acceptance of Proposed Overassessment
* * * * * *
"The following overassessment or overassessments of tax are hereby accepted as correct:
taxable year ended Dec. 31, 1935 income tax in the sumof ...........
$739.18
taxable year ended.......income tax in the sum of.................
. $......
taxable year ended.......excess-profits tax in the sumof .......
$ XX
----------
taxable year ended.......in the sum of.............................
$......
amounting to the total sum of ........
$739.18
as indicated in the statement furnished the undersignedtaxpayer(s) under date of......
"Mrs. Selma L. Schubring,
"410 North Pinckney St., Madison, Wis.
"By Arnold R. Petersen,
"The Power & Light Bldg.,
"Madison, Wis., her attorney in fact.
"Date: May 11, 1939.
"Note--The execution and filing of this acceptance at the address shown in the accompanying letter will expedite the indicated adjustment of your tax liability. This acceptance is subject to the approval of the Commission and is not an agreement as provided under Section 606 of the Revenue Act of 1928.'
This Form 873 was never approved by the Commissioner of Internal Revenue.
20. Mr. Schubring did not execute Form 870 for the waiver of restrictions on assessment and collection of a deficiency in tax for 1935 in the amount of $1,981.47, which was enclosed in the letter of May 10, 1939.
21. By letter of December 27, 1939, Mr. Schubring was notified of a deficiency in income tax for the year 1935 in the amount of $1,981.47, based upon a determination that he was taxable on the total difference between the cost and the face value of the above-mentioned insurance policies. A copy of the deficiency notice is in evidence as Exhibit O, and made a part hereof by reference.
22. March 22, 1940, Mr. Schubring filed with the United States Board of Tax Appeals a petition for a redetermination of his income tax liability for 1935.
23. Mr. Schubring's appeal to the Board of Tax Appeals was settled upon stipulation of the parties that there was an overassessment of $1,766.42. November 22, 1940, the Board of Tax Appeals entered its order finding an overpayment in income tax for the year 1935 in the amount of $1,766.42.
24. September 19, 1940, plaintiff's attorney addressed a letter to the Collector of Internal Revenue inquiring as to the cause of the delay in paying to the plaintiff the refund of $739.18. This letter was as follows:
"Collector of Internal Revenue,
"547 Federal Bldg., Milwaukee, Wisconsin.
"Attention--Mr. D.W. Reynolds.
"In re: Your File No. RA:C:JJS. Mr. E.J.B. Schubring, Mrs. Selma L. Schubring, 410 N. Pinckney St., Madison, Wisconsin.
"Dear Sir:
"Your letter to me dated May 10, 1939, confirmed the decision of the Commissioner as to overassessment against Mrs. E.J.B. Schubring of $739.18, and I executed a stipulation agreeing as to the amount of the overassessment. Considerable more than a year has now elapsed, and Mrs. Schubring has never received this refund. I was wondering what is now causing the delay in this matter.
"There is pending an appeal by Mr. E.J.B. Schubring, husband of Mrs. Selma L. Schubring, from a deficiency assessment in the amount of $1,981.47, and there is also pending a claim for refund by Mr. Schubring in the amount of $1,766.42, all of which arises out of the 1935 income return of Mr. Schubring. These matters will be heard by the Board of tax Appeals in Milwaukee this coming November, but we can see no reason why this should hold up disposition of the overassessment against Mrs. Schubring.
"I would appreciate your advising me of the cause of this delay.
"Yours very truly,
"Arnold R. Petersen
"Attorney-in-fact."
25. September 21, 1940, the Revenue Agent in Charge addressed a letter to plaintiff's attorney stating that any refund was barred by the statute of limitations.
This letter was as follows:
"Mr. Arnold R. Petersen,
"The Power & Light Building,
"Madison, Wisconsin.
"In Re: Mr. E.J.B. Schubring and Mrs. Selma L. Schubring, Madison, Wisconsin.
"Dear Sir:
"Receipt is acknowledged of your several letters of September 19, 1940, and September 20, 1940, regarding the cases of the above named. Your letters requesting certified or photostatic copies of the returns filed by Mr. Schubring and the 1935 return of Mrs. Schubring have been referred to the Technical Staff, Chicago, Illinois, for appropriate reply. Any further correspondence with respect to these returns of claims should be addressed to Mr. Milton E. Carter, Head, Technical Staff, 1300 Board of Trade Building, Chicago, Illinois.
"In one of your letters of September 19, 1940, you request information regarding the disposition of the claim for refund of Mrs. Selma L. Schubring for the year 1935 in the amount of $739.18. In this connection you are informed that while this office recommended an overassessment of $739.18, upon reference of the files to the Technical Staff the recommendation was overruled in view of the fact that Mrs. Schubring had failed to file a claim for refund within the statutory time. Section 322(b)(1) of the 1934 Revenue Act provides that no credit or refund of taxes shall be allowed unless a claim therefor is filed within three years from the time the return was filed or two years from the time the tax was paid, whichever period expires the later. Mrs. Schubring's return for 1935 was filed on March 13, 1936, and even if the tax was paid in quarterly installments the last payment was apparently made not later than December 15, 1936.
"At the time of its consideration of the case in December 1939, the Technical Staff found that no claim had been filed by Mrs. Schubring, and accordingly it was concluded that any refund of tax for the year 1935 was barred by the Statute of Limitation in accordance with the provisions of Section 322(b)(1) of the Revenue Act of 1934.
"Respectfully,
"D.W. Reynolds (Signed),
"Internal Revenue Agent in Charge."
26. September 24, 1940, plaintiff's attorney replied to the letter of September 21, 1940, as follows:
"Collector of Internal Revenue,
"547 Federal Building,
"Milwaukee, Wisconsin.
"Attention of Mr. R.W. Reynolds.
"Dear Sir:
"I received your letter of the 21st inst. in re above matter.
"I believe you have overlooked some material facts. It is true that after we had filed a supplemental protest in Mrs. Schubring's behalf, and under date of September 1, 1938, you wrote to Mrs. Schubring a letter stating that 'after thorough consideration, this office cannot agree with your contentions. Accordingly, your case is being transmitted to the Bureau for further and final review.'
"Under date of November 2, 1938, two months after your letter to Mrs. Schubring, Mrs. Schubring received a letter and report direct from Washington and signed by L.M. Simpson in which it is stated 'After careful consideration of the information shown in your protest dated August 16, 1938, and the facts as presented as a conference held in the office of the internal revenue agent in charge, August 11, 1938, your contention that no profit was realized by you in connection with the maturity of endowment policies has been allowed. Accordingly, the amount of $6,601.08 reported in your return as originally filed, as profit realized from the maturity of the above-mentioned insurance policies, has been eliminated. This adjustment results in an overassessment of $739.18 as shown in the attached statement. The overassessment indicated above will be made the subject of a certificate of overassessment which will reach you in due course through the office of the collector of internal revenue for your district and will be applied by that official in accordance with section 322 of the Revenue Act of 1934.'
"I call your attention to the fact that this letter and the accompanying report finding the overassessment was two months after you had submitted the matter to Washington. Your letter of the 21st inst. does not take into consideration the fact that the Commissioner at Washington had expressly informed Mrs. Schubring that the amount of $6,601.08 had been eliminated, and that the certificate of overassessment would reach us in due course. We have relied upon the letter from Washington of November 2, 1938; and in view of the information contained in that letter, there was no sense in our filing any claim for a refund, because the filing of a claim for a refund could accomplish nothing more than the Commissioner had already allowed in his letter of November 2, 1938.
"I call your attention to the fact the letter of November 2, 1938, was still well within the three year period in which we could have filed a claim for a refund, and would have filed a claim for a refund, except for the letter of November 2, 1938.
"I did file a claim for a refund in Mr. Schubring's case because in his case the Commissioner never conceded that he was entitled to a refund.
"I trust that you will check your files again on this matter and let us know in the very near future, because we relied upon the letter from Washington dated November 2, 1938, and for that reason filed no claim for a refund. I do not believe that the Commissioner of Internal Revenue intended to mislead us, and I still believe that your letter of the 21st inst. was written without having in mind the letter of the Commissioner at Washington dated November 2, 1938.
"Yours truly,
"Arnold R. Petersen."
27. By letter, September 30, 1940, the Internal Revenue Agent in Charge advised plaintiff as follows:
"Mr. Arnold R. Petersen,
"Attorney-at-Law,
"The Power & Light Building,
"Madison, Wisconsin.
"In Re: Mr. E.J.B. Schubring, Mrs. Selma L. Schubring, Madison, Wisconsin.
"Dear Sir:
"Receipt is acknowledged of your letter of September 24, 1940, in further reference to the cases of the above-named.
"The record discloses that the Bureau at Washington issued a preliminary notice to Mrs. Selma L. Schubring under date of November 2, 1938, wherein she was advised that there was an apparent overassessment of 4739.18 for the year 1935. In its letter, the bureau states 'The overassessment indicated above will be made the subject of a certificate of overassessment which will reach you in due course through the office of the collector of internal revenue for your district, and will be applied by that official in accordance with section 322 of the Revenue Act of 1934.'
"The certificate of overassessment referred to in the Bureau letter was not issued. Apparently, further action on the case of Mrs. Schubring was withheld pending settlement of the case of Mr. E.J.B. Schubring. Both of these cases involved the issue relating to the maturity proceeds of certain endowment insurance policies, and the closing effected in one case might result in adjustments in the other case. Generally, it has been the Bureau's policy in related cases of this nature, to withhold issuance of a certificate of overassessment until such time as a definite determination has been made of the deficiency in the other case.
"It has been held that where the Commissioner advises a taxpayer of an overpayment of taxes, but later changes his opinion and does not issue a Certificate of overassessment, it is not an 'account stated' and the Government is not bound. See Corinne Griffith Marshall v. United States, [Ct.Cl.], 26 F.Supp. 474, Certiorari denied. [308 U.S. 597, 60 S.Ct. 128, 84 L.Ed. 500]. It has also been held in several decisions that on delivery to taxpayer of a certificate of overassessment there arises a cause of action pleaded in account for money due on 'account stated' which is not barred by Revised Statutes, Sec. 3226, as amended, 26 U.S.C.A.Int.Rev.Code § 3772, although begun after period of limitation therein specified. Bonwit Teller and Company v. United States, 283 U.S. 258 [51 S.Ct. 395, 75 L.Ed. 1018]; United States v. Kaufman, 96 U.S. 567 .
"In view of the foregoing, and in accordance with the provisions of section 322 of the Revenue Act of 1934, the Commissioner is without authority in law to issue a certificate of overassessment at this time, inasmuch as a claim for refund was not filed by Mrs. Schubring within the statutory period.
"Respectfully,
"D.W. Reynolds,
"Internal Revenue Agent in Charge."
28. The Commissioner of Internal Revenue has never allowed any overassessment or overpayment in respect of plaintiff's tax for 1935, as the term "allowed" is used in the taxing statute, and the only action which the Commissioner has ever taken with respect to plaintiff's tax liability for 1935 is that set forth in the letters of November 2, 1938, (finding 12), and December 2, 1938 (finding 14). [Copyrighted Material Omitted] [Copyrighted Material Omitted] [Copyrighted Material Omitted] [Copyrighted Material Omitted] [Copyrighted Material Omitted] [Copyrighted Material Omitted] [Copyrighted Material Omitted] Arnold R. Petersen, of Madison, Wis., for plaintiff.
John A. Rees, of Washington, D.C., and Samuel O. Clark, Jr., Asst. Atty. Gen. (Robert N. Anderson and Fred K. Dyar, both of Washington, D.C., on the brief), for defendant.
Before WHALEY, Chief Justice, and LITTLETON, WHITAKER, JONES, and MADDEN, Judges.
LITTLETON, Judge.
The facts essential to the decision as to plaintiff's right to recover show that, in March 1928, plaintiff's husband purchased five $10,000 single payment ten-year endowment policies, all of which matured May 15, 1935. At the time the policies were issued, each of them was by a special endorsement made payable to plaintiff in monthly installments. The policies were issued with reservation to plaintiff's husband, as the insured, to change the beneficiary. He exercised this right on March 28, 1935, and in conformity therewith, designated himself and his wife, the plaintiff, as the beneficiaries thereunder, share and share alike. Said policies totaling $50,000, were to be paid in monthly installments. The difference between the face amount of the policies of $50,000 and the cost thereof, was $13,202.15.
Plaintiff and her husband filed separate returns for 1935, in March 1936, each reporting $6,601.08, representing one-half of the difference between the face value of the policies and the cost thereof. February 10, 1938, the Commissioner of Internal Revenue notified plaintiff of a proposed deficiency for 1935 of $3,672.73, which was arrived at by considering as taxable income to her the full one-half of the face of the insurance policies, namely $25,000, from which was deducted the $6,601.08 reported. This increased plaintiff's income by $18,398.92. The plaintiff, through her attorney-in-fact, protested against the proposed deficiency and later on, August 17, 1938, filed a supplemental protest against the proposed deficiency, asserting that it should be canceled, and stating "I can find nothing in any of the authorities which would justify your interpretation of taxing the whole of Mrs. Schubring's interest in a lump sum. Under the law, as it exists, the deficiency against Mrs. Schubring should be cancelled. Not only that, but Mrs. Schubring should have a refund for the amount of the tax she has paid on her 1935 returns on the sum of $6,601.08; likewise, Mrs. Schubring should have a refund of the tax on the sum of $6,601.07 that he included in his 1935 returns, although we may have to file a claim for this." No claim for refund was ever filed by or on behalf of plaintiff, but a formal claim for refund was filed by her husband and a refund was subsequently made to him.
November 2, 1938, the Commissioner of Internal Revenue wrote plaintiff a letter, which is set forth in finding 11. This letter, in order to bring about an allowance of an overassessment, overpayment, or refund was to be followed by a schedule of overassessment or overpayment. Following the mailing of the above-mentioned letter of November 2, and before anything else was done, the Commissioner on December 2, 1938, mailed plaintiff another letter, which is set forth in finding 14, in which the Commissioner stated, among other things, the following:
"You are advised that pending final determination of the taxability of income reported by you and your husband as being received in connection with the maturity of certain insurance policies for the year under consideration, it is possible that your income would be adjusted to disclose a deficiency in tax.
"It is desired to bring to your attention the fact that the statutory period within which a final notice of deficiency may be issued for the taxable year ended December 31, 1935, will expire at an early date.
"You are advised, however, that a taxpayer has the right under the provisions of the revenue acts to make application for the execution of a consent extending the period of limitation for assessment. There is a possibility that the case cannot be adequately considered by the Bureau before the expiration of a statutory period and for that reason it is not practicable to close the case by the issuance of a certificate of overassessment as shown in Bureau letter dated November 2, 1938, in view of the fact that the final adjustment might result in a deficiency for the year in question."
Plaintiff, on December 6, 1938, executed a consent extending the period of limitation within which assessment of any deficiency which might be determined with respect to her tax liability might be assessed, but she did not, then or later, file a claim for refund. Her husband filed a claim for refund for 1935 on December 8, 1938.
The matter of the tax liability of plaintiff and her husband was thereafter kept under consideration by the Commissioner and on December 27, 1939, the Commissioner notified plaintiff's husband of a deficiency in respect of his tax for 1935 of $1,981.47 based on the determination that he was taxable on the total of $13,202.15, representing the difference between the fact of the insurance policies and the cost thereof, $6,601.,07 of which he had reported in his original return. Pending the final outcome of affirmance or reversal of that determination the Commissioner held plaintiff's tax liability in abeyance.
March 22, 1940, plaintiff's husband filed a petition for redetermination with the United States Board of Tax Appeals in respect to this deficiency. The proceeding before the Board was settled upon a stipulation filed by the parties that there was an overassessment of $1,766.42 in respect of the tax liability of plaintiff's husband. Upon this stipulation the Board entered a decision November 22, 1940, finding an overpayment by plaintiff's husband of $1,766.42.
September 19, 1040, plaintiff, through her attorney in fact wrote a letter to the collector inquiring as to the cause of the delay in paying plaintiff the overassessment of $739.18. Plaintiff was advised on September 21, 24, and 30 that any refund in respect of the tax paid by her for 1935 was barred by the statute of limitation.
Plaintiff in her brief states that "It is the plaintiff's position that the letter of the Commissioner of November 2, 1938, constituted an account stated, agreed to and accepted by the plaintiff, and that under such circumstances the filing of a claim for refund was not necessary." This contention cannot be sustained. All that the Commissioner said in this letter of November 2, was that the allowance of plaintiff's contention that no profit was realized by her in connection with the maturity of the endowment policies resulted in an overassessment. Subsequently, on December 2, 1938, the Commissioner wrote plaintiff concerning her tax liability for 1935, referred to his letter of November 2, 1938, and advised plaintiff in writing that her case was still under consideration and that, pending final determination, it was possible that her income for 1935 would be adjusted so as to disclose a deficiency in tax. (Finding 14.) By this letter of December 2, which was written well within the statutory period of limitation for filing a claim for 1935, the Commissioner clearly told plaintiff that he was not making and could not make at that time a final decision as to an overassessment or overpayment by her for 1935 and that his decision on the matter was being held in abeyance. Plaintiff's letter of December 6, 1938, in reply (Finding 15), shows that she so understood this letter of the Commissioner. Plaintiff should then have protected her right to receive any refund to which she though herself entitled by filing a claim for refund on or before March 13, 1939. This she did not do. The matter of plaintiff's tax liability was kept open and under consideration by the Commissioner until his determination in respect of the tax liability of plaintiff's husband in connection with the same insurance policies was made and finally decided by the Board of November 22, 1940. In the meantime the Commissioner made no final decision in respect of plaintiff's case. When the decision of the Board was rendered any payment of a refund to plaintiff was barred by the statute of limitation, inasmuch as no claim for refund had been timely filed. There was clearly no account stated such as would give rise to an implied agreement to pay the $739.18. Braun v. United States, Ct.Cl., 46 F.Supp. 993, decided this day.
Plaintiff's petition is dismissed. It is so ordered.