Opinion
No. 42415.
November 5, 1934.
William P. Smith, of Washington, D.C., for plaintiff.
George H. Foster, of Washington, D.C., and Frank J. Wideman, Asst. Atty. Gen., for the United States.
Before BOOTH, Chief Justice, and GREEN, LITTLETON, WILLIAMS, and WHALEY, Judges.
Suit by Stern Brothers against the United States.
Petition dismissed.
This case having been heard by the Court of Claims, the court, upon a stipulation of the facts and the evidence, makes the following special findings of fact:
1. The plaintiff, at all times hereinafter mentioned, was, and is now, a domestic corporation organized and existing under the laws of the state of New York, engaged in the department store business, with its principal office and place of business at 41 West Forty-Second Street, New York, N Y
2. On April 14, 1930, plaintiff filed with the collector of internal revenue for the Third Collection District of New York a tentative corporation income tax return for the fiscal year ended January 31, 1930. On August 14, 1930, plaintiff filed with the said collector of internal revenue its complete corporation income tax return for the fiscal year ended January 31, 1930, disclosing a taxable net income of $584,871.87, and a total tax liability of $64,823.30.
3. The original tax of $64,823.30 was assessed on the August, 1930, list, account No. 404401. Such tax, together with interest of $74.50, or a total of $64,897.80, was paid as follows:
April 14, 1930 ................. $17,500.00 August 14, 1930 ................ 14,986.20 October 14, 1930 ............... 16,205.80 January 21, 1931 ............... 16,205.80 __________ $64,897.80
4. On January 25, 1932, plaintiff filed with the collector of internal revenue a claim for the refund of $22,159.83 for the fiscal year ended January 31, 1930, based upon the allegation that the closing inventory as of January 31, 1930, was overstated. The claim for refund was supplemented by letter dated September 24, 1932, in which an additional amount of $8,277.10 was claimed as a refund, based in part upon the contention that an additional month's rent over that claimed in the return in the amount of $15,460.84 constituted an allowable deduction for the fiscal year ended January 31, 1930.
5. The Commissioner of Internal Revenue caused an examination to be made of plaintiff's books of account and records on December 20, 1930, and July 21, 1932, in connection with an audit of the return and with consideration of the refund claim, which resulted in the allowance of overassessments in the amounts of $31.88 and of $6,474.76 approved on schedules No. 42918, dated June 2, 1931, and No. 48528, dated December 9, 1932. The overassessments resulted from audit adjustments other than for the particular items presented in plaintiff's petition, viz., inventory and rent. No adjustments have been made for the inventory and rent items as claimed. Plaintiff was notified of the partial rejection of the refund claim by letter dated November 20, 1932. The claim was disallowed in part on a schedule dated December 9, 1932.
6. Plaintiff deducted on its income tax return for the next preceding year (fiscal year ending January 31, 1929) the amount of $470,839.78 for rent on business property. Included in such amount was the sum of $15,460.84 representing rent for the month of February, 1929, which, in fact, did not accrue until the first day of said month. Plaintiff did not include this item as a deduction in its return for the fiscal year ended January 31, 1930, but did include such month's rent in the surplus reconciliation and explained the surplus adjustment as "rent for February 1929, charged in prior year, credited surplus on books $15,460.84." A deduction for thirteen months' rent was therefore taken as a deduction on the return for the fiscal year ended January 31, 1929, and eleven months' rent was deducted on the return for the following year (fiscal year ended January 31, 1930). Plaintiff's books of account were kept and its income tax returns prepared on the accrual basis.
7. If the rent for the month of February, 1929, which plaintiff took as a deduction from income for the fiscal year ending January 31, 1929, had not been deducted from the income for that fiscal year, plaintiff would have paid additional income taxes for that year in the sum of $1,842.41. If the rent for the month of February, 1929, should be deducted from plaintiff's gross income for the fiscal year ending January 31, 1930, plaintiff's income taxes for the fiscal year ending January 31, 1930, would be reduced by the sum of $1,713.57.
8. Plaintiff has withdrawn its contention as to the inventory adjustment. The only issue, therefore, now before the court is the deductibility from taxable net income for the fiscal year ended January 31, 1930, of the one month's rent for February, 1929, deducted and allowed for the preceding taxable year as heretofore explained.
The plaintiff's books of account were kept and its income tax returns prepared on the accrual basis of accounting. In its corporation income tax return for the fiscal year ended January 31, 1930, plaintiff took a deduction for rent on business property for only eleven months of the year, omitting the month of February, 1929, which was a part of the fiscal year. The rent for the month of February amounted to $15,460.84. By reason of plaintiff's failure to take a deduction of this amount an overassessment and an overpayment of taxes in the sum of $1,713.57 resulted. The suit is for the recovery of the amount of this overpayment.
Plaintiff relies upon the statutory provision (Revenue Act 1926 § 200 ( 26 USCA § 931) that "the deductions and credits * * * shall be taken for the taxable year in which `paid or accrued' or `paid or incurred,' dependent upon the method of accounting upon the basis of which the net income is computed. * * *"
If what has been said in respect to the year 1930 presented a complete picture of the case, plaintiff, under the statute and regulations, is clearly entitled to recover; but such is not the case. For the preceding fiscal year ended January 31, 1929, plaintiff took a deduction for rent on business property for thirteen months, in which was improperly included the month of February, 1929, a month not within the fiscal year. By reason of the erroneous deduction of $15,460.84 rent for February, plaintiff underpaid its taxes for the year 1929 in the sum of $1,842.41. Recognizing that it had underpaid its 1929 taxes by taking an erroneous deduction for rent for the month of February, plaintiff sought to correct the error in its return for the year 1930 by taking a deduction for rent for only eleven months of the year and restoring to surplus account on its books the $15,460.84 erroneously deducted in the preceding year. That it was the plaintiff's intention and desire to correct the errors in respect to deductions in the two returns and have its tax liabilities for the two years adjusted in this manner cannot be doubted. That the Commissioner so understood the matter, and that he acquiesced in the method of adjustment proposed by plaintiff, is also free from doubt. Otherwise it must be assumed he would have made a deficiency assessment for the amount of the underpayment in the year 1929 and refunded the amount of the overpayment for the year 1930, the usual and proper method in such cases. There is only a few dollars difference between the amount of taxes plaintiff would have paid for the two-year period had the returns been corrected to conform to the facts as to allowable deductions for rent and the amount actually paid by it on the erroneous returns, and that difference is to the advantage of the plaintiff. The government has no money belonging to plaintiff. Its 1930 tax liability has been adjusted on the basis of the suggestion set forth in its tax return for that year, a suggestion that is, under all the facts and circumstances of the case, tantamount to request and consent. The correctness of the adjustment was in no way questioned by plaintiff until after the statute of limitations had run against the Commissioner's right to make additional assessments for the year 1929. In these circumstances plaintiff is estopped from now asserting a claim for the overpayment claimed for the year 1930. R.H. Stearns Co. v. United States, 291 U.S. 54, 54 S. Ct. 325, 78 L. Ed. 647; Commissioner v. Liberty Bank Trust Co. (C.C.A.) 59 F.2d 320; Askin Marine Co. v. Commissioner (C.C.A.) 66 F.2d 776; Moran v. Commissioner (C.C.A.) 67 F.2d 601; Crane v. Commissioner (C.C.A.) 68 F.2d 640.
Plaintiff's petition is dismissed.
It is so ordered.