Opinion
No. J-555.
November 3, 1930.
Suit by American Hide Leather Company against the United States.
Petition dismissed.
This suit is for the recovery of $556,754.72, alleged to represent an overpayment of income and profits tax for the fiscal year ended June 30, 1920, with interest.
Plaintiff filed calendar-year returns for 1918, 1919, and 1920 when it should have filed returns for a fiscal year ending June 30, and in auditing these returns and adjusting plaintiff's tax liability the Commissioner of Internal Revenue treated the tax paid and assessed on the calendar-year returns as a tax paid for the fiscal year ending within the calendar year and applied such tax in satisfaction of the tax finally determined to be due for such fiscal year. In so doing the commissioner determined certain overassessments and overpayments. It developed that a refund of $443,367.61 paid on the calendar year 1918 return was barred by the statute of limitation.
Plaintiff claims that when the commissioner came to audit its returns, which were filed on an erroneous basis, he should have treated the tax paid on each of the calendar-year returns as a payment on account of the tax for the periods falling within the fiscal year ending June 30 in proportion to the number of months falling within such fiscal year. Upon the basis of this contention the plaintiff claims that when it filed an erroneous calendar year 1919 return, six-twelfths, or $556,754.72, of the tax paid thereon was a tax paid for the first six months of the fiscal year ending June 30, 1920, and that when it was found that plaintiff had a loss for the fiscal year ended June 30, 1920, this amount represented an overpayment for that year, which should have been refunded.
Special Findings of Fact.1. Plaintiff, a New Jersey corporation with principal place of business at New York, filed with the collector for the Second District of New York on July 15, 1919, an income and profits tax return for the calendar year 1918 showing a taxable net income of $3,265,682.29 and a total tax of $1,151,436.08, which was assessed and was paid in four installments of $275,000 on March 20, 1919, and June 20, 1919, $25,718.04 on July 15, 1919, and $287,859.02 on September 16 and December 15, 1919.
2. May 15, 1920, it filed with the collector an income and profits tax return for the calendar year 1919 showing a net income of $5,193,011.16 and a total tax of $1,187,444.67, which was duly assessed.
December 15, 1920, plaintiff filed with the collector an amended income and profits tax return for the calendar year 1919 showing a net taxable income of $5,032,282.33 and a total tax of $1,113,509.41.
On the same date it filed with the collector a claim for abatement of $73,935.26, being the difference between the total tax shown on the original return and that shown on the amended return. The grounds upon which the abatement was claimed was a reduction in the inventory of December 31, 1919, due to an alleged loss by thefts and a decrease in market value. $1,113,509.41 of the total tax for the calendar year 1919 was paid in four installments of $300,000 on March 18, 1920, $293,722.34 on June 26, 1920, $296,861.16 on September 15, 1920, and $222,925.91 on December 24, 1920.
3. May 12, 1921, plaintiff filed an income and profits tax return for the calendar year 1920 showing a net loss of $7,982,322.34 and no tax due for said year.
4. April 30, 1920, a Deputy Commissioner of Internal Revenue notified plaintiff by letter that an examination of its income and profits tax returns for the calendar years 1917 and 1918 supported by a field audit resulted in an additional tax due of $331,886.56 for 1917 and $301,183.38 for 1918. The additional tax for 1918 was assessed on the August, 1920, list and represented the difference between the amount of $1,452,619.46 determined as the correct tax for the calendar year 1918 and the amount previously assessed, as hereinbefore set forth. November 3, 1926, plaintiff filed a claim for the abatement of the entire additional assessment of $301,183.38 for 1918. October 30, 1922, the Deputy Commissioner of Internal Revenue notified plaintiff by letter that a consideration of the facts submitted by it in support of its claim for abatement of the additional tax determined and assessed for 1918 resulted in a further additional tax of $178,840.51 for 1917 and $425,643.35 for 1918. This additional tax of $425,643.35 for 1918 was not assessed.
5. September 15, 1923, plaintiff filed with the collector a claim for refund of $100,000, or such greater amount as might be legally refundable of income and profits tax paid for the period from January 1, 1918, to December 31, 1918. October 5, 1923, the plaintiff filed a claim for refund of $1,113,509.41 for the calendar year 1919.
6. January 12, 1924, the Deputy Commissioner of Internal Revenue notified the plaintiff that a re-examination of its returns for the calendar years 1909 to 1918, inclusive, had been made and that an overassessment of $206,348.22 had been determined for the calendar year 1918, computed as follows:
Total tax .................................. $1,246,271 24 Previously assessed: Original return ........... $1,151,436 08 Additional, June, 1920 .... 301,183 38 _____________ 1,452,619 46 _____________ Overassessment ............................. $ 206,348 22
7. February 18, 1924, the Commissioner of Internal Revenue issued a certificate of overassessment of $206,348.22 for 1918. With the issuance of this certificate the claim for abatement of $301,183.38, referred to in finding 4, was allowed for the amount of the overassessment and rejected for the balance of $94,835.16. Plaintiff paid the last-mentioned amount to the collector under protest on March 1, 1924.
8. September 25, 1924, the plaintiff and the commissioner consented in writing to a determination, assessment, and collection of the tax due under any return made for the year 1919 until September 25, 1925. July 28, 1925, plaintiff and the commissioner signed a written consent in which plaintiff waived the time for making any assessment of the tax due under any return made for the year 1919 until December 31, 1926. This consent also provided for a further extension of the period in the event of an appeal to the United States Board of Tax Appeals. December 15, 1926, plaintiff and the commissioner signed a consent whereby plaintiff waived the time for making assessment of the tax due under any return made for the years 1919 and 1920 until December 31, 1927.
9. June 24, 1926, plaintiff executed and filed with the collector of internal revenue a waiver consenting to collection by distraint or proceedings in court of the tax assessed against it for the year 1919 until December 31, 1926. Plaintiff also executed and filed with the collector an undated waiver consenting to collection by distraint or proceedings in court of the tax in the amount of $73,955.26 for 1919 assessed in March, 1920.
10. On June 5, 1928, plaintiff filed with the collector at New York a consent dated June 1, 1928, whereby it agreed to the assessment of any tax due under any return made for the year and period 1918 until December 31, 1918. This consent also provided for a further extension by the mailing of a notice of deficiency and an appeal to the United States Board of Tax Appeals. This consent was signed by the plaintiff and the commissioner.
11. September 10, 1924, plaintiff filed with the collector a claim for refund of $226,064.74 of the tax paid for the calendar year 1919.
12. September 15, 1925, plaintiff filed claim for refund of $519,787.07, or such greater amount as might be legally refundable, of the tax claimed to have been paid for the period June 30, 1919, to June 30, 1920.
13. January 22, 1926, plaintiff filed an amended income and profits tax return for the fiscal year ended June 30, 1919, reporting thereon a net income of $3,452,009.96 and showing a total tax of $858,205.88. Upon this return plaintiff computed a refund due of $321,684.45 by allocating one-half of the tax assessed on the 1918 calendar-year return and one-half of the tax assessed on the calendar year 1919 return, and one-half of the amount of the outstanding claim for abatement to the fiscal year beginning July 1, 1918, and ending June 30, 1919, as follows:
Total tax ....................................... $ 858,205 88 Assessed 1918, $1,246,271.24 for six months ......................... $623,135 62 Assessed for 1919, $1,187,444.67 for six months ..................... 593,722 34 ___________ 1,216,857 96 _____________ Overassessment .................................. $ 358,652 08 Claim for abatement outstanding .... $ 73,935 26 Six months ................................... 36,967 63 _____________ Refund due ................................. $ 321,684 45
14. On the same date, January 22, 1926, plaintiff filed an amended return for the fiscal year ended June 30, 1920, reporting thereon a net loss of $1,739,036.96. Upon this return plaintiff computed a refund due of $556,754.72 by allocating one-half of the tax reported and assessed for the fiscal year 1919 to the fiscal year beginning July 1, 1919, and ending June 30, 1920, as follows:
Total tax due ......................... None. Previously assessed: ½ tax assessed 1919 at $1,187,444.69 ..... $593,722 35 ½ tax assessed 1920 ................ None. ___________ Overassessment ........................... $593,722 35 ½ claim for abatement outstanding, $73,935.26 ............................ 36,967 63 ___________ Refund due ............................... $556,754 72
15. January 22, 1926, plaintiff filed claims for refund of $321,684.45 for the fiscal year ended June 30, 1919, and $556,754.72 for the fiscal year ended June 30, 1920, based upon the aforementioned amended returns for these fiscal years.
16. February 1, 1927, plaintiff filed a claim for refund of $78,719.76, or such greater amount as might be legally refundable, for the fiscal period January 1, 1918, to June 30, 1918. Attached to this claim were various schedules designated by plaintiff as an "Amended Return, Fiscal Period January 1, 1918, to June 30, 1918." Upon this claim and the schedules thereto attached plaintiff computed a refund due of $78,719.76 by allocating six-twelfths of the original tax returned, assessed, and paid, and the additional assessment, to the fiscal year ended June 30, 1918, as follows:
Total tax due .......................................... $544,415 86 Previously assessed: Original return $1,151,438.08 × 6/12 .... $575,719 04 Add'l tax assessed $94,833.16 × 6/12 .... 47,416 58 ___________ 623,135 62 ___________ Refund due .......................................... $ 78,719 76
17. The Commissioner of Internal Revenue, having determined that plaintiff's books were kept on the fiscal year basis and that its returns should have been filed on the basis of a fiscal year ending June 30, applied the total tax assessed for the calendar year 1919 in satisfaction of the tax of plaintiff for the fiscal year ended June 30, 1919, and determined that no overpayment had been made for the fiscal year ended June 30, 1920. He, therefore, on August 10, 1927, rejected plaintiff's claims for refund of $556,754.72 and $519,787.07 for the fiscal year July 1, 1919, to June 30, 1920.
18. June 19, 1928, plaintiff filed a claim for refund of $538,202.77, alleged to have been overpaid for the period January 1, 1918, to June 30, 1918.
19. In his final decision in respect of plaintiff's tax liability for the taxable periods January 1, 1918, to June 30, 1918, and July 1, 1918, to June 30, 1919, the commissioner applied the total tax assessed on the calendar year 1918 return in satisfaction of the correct tax liability determined by him for the period beginning January 1, 1918, and ending June 30, 1918, and the total tax assessed on the calendar year 1919 return in satisfaction of the correct tax for the fiscal year beginning July 1, 1918, and ending June 30, 1919. The Commissioner of Internal Revenue issued a certificate of overassessment setting forth the details of the computation of his final decision, as follows:
Previously assessed: Original return (406540) ............... $1,151,436 08 Additional, August, 1920, p. 95, L. 1 .. 301,183 38 _____________ Total assessed ........................ $1,452,619 46 Reduced, February, 1924 ................... 206,348 22 _____________ Net assessment ........................ $1,246,271 24 Correct tax liability ..................... 708,068 47 _____________ Total overassessment .................. $ 538,202 77 Amount barred by stat. of limitations ..... 443,367 61 _____________ Amount subject to refund .................. $ 94,835 16
20. No refund was made of any portion of the overassessment of $443,367.61 because that amount was barred by the statute of limitations, but on August 17, 1928, the commissioner refunded $94,835.16, together with interest thereon, of $25,302.80, being the difference between the total overassessment determined by him for the fiscal period January 1, 1918, to June 30, 1918, and the amount barred by the statute of limitations.
The commissioner issued a certificate of overassessment for the fiscal year ended June 30, 1919, showing the details of his computation by which he arrived at his final decision, as follows:
Tax assessed, calendar year 1919: Account #408089 (tentative) 300,000 00 Account #40809 (tentative) 300,000 00 __________ Total assessment ..................... $1,187,444 67 Correct tax liability ................. 896,314 83 _____________ Overassessment ........................ 291,129 84 Credited to abatement claim ........... 73,935 26 _____________ Refunded ............................. 217,194 58
21. May 17, 1928, the commissioner refunded the amount of $217,194.58, together with interest thereon of $86,877.83.
For the fiscal year ended June 30, 1920, the commissioner followed the same method and made the same adjustment for that year as is shown above in respect to the fiscal years ending June 30, 1918 and 1919.
22. At all times during the periods involved in this suit plaintiff kept its books on the basis of a fiscal year ending June 30 and kept its books of account and made its tax returns on an accrual basis.
William E. Hayes, of Washington, D.C. (Hayes Hayes, of Washington, D.C., on the brief), for plaintiff.
H.A. Cox, of Washington, D.C., Charles B. Rugg, Asst. Atty. Gen., and C.J. Mattson, of Washington, D.C. (Charles F. Kincheloe, of Washington, D.C., on the brief), for the United States.
Before BOOTH, Chief Justice, and GREEN, LITTLETON, WILLIAMS, and WHALEY, Judges.
Plaintiff brings this suit to recover $556,754.72, alleged to represent an overpayment of income and profits tax for the last six months of the calendar year 1919, being the first six months of the fiscal taxable year beginning July 1, 1919, and ending June 30, 1920.
As shown by the facts, the commissioner held that the erroneous calendar-year returns were returns under the statute for the fiscal year ending within such calendar year and treated the tax assessed and paid on such calendar-year returns as having been paid on a return for such fiscal year. As a result, the Commissioner of Internal Revenue held that there had been no overpayment for the period claimed by plaintiff. The result of the commissioner's determination upon audit of the returns for 1918, 1919, and 1920 was to show an overassessment of $538,202.77 for the six-month period ending June 30, 1918. Of this amount the refund of $443,367.61 was barred by the statute of limitation and the balance of $94,835.16 was duly refunded by the commissioner with interest.
Plaintiff contends that one-half of the tax paid under each of the erroneous calendar-year returns must be regarded as having been paid for each of the two fiscal years involved in such erroneous return. It therefore claims that six-twelfths of the tax paid under the erroneous calendar year 1918 return should be treated as having been paid for the fiscal period ending June 30, 1918, and six-twelfths should be treated as a tax paid for the fiscal year ending June 30, 1919, and that the tax collected on the erroneous calendar year 1919 return should be similarly applied.
Defendant contends that the tax paid under any such erroneous return must be treated as a tax paid for the correct taxable period or year for which the return should have been filed and the tax paid, and that any overpayment should be refunded or credited against any tax due for another taxable period in the usual and ordinary manner expressly provided by statute in respect of overpayments.
The question for decision, therefore, is whether a taxpayer having erroneously filed a return or returns and paid the tax thereunder for a period other than that required by law is entitled to have the tax so paid apportioned between the two taxable years involved upon the basis of the respective number of months concerned which fall within each of the correct taxable years.
This question has been fully considered and discussed by the court in P.L. Mann v. United States (Ct.Cl.) 44 F.2d 1005, this date decided. For the reasons therein set forth, we are of opinion that plaintiff is not entitled to recover any amount as an overpayment of tax for the fiscal year ending June 30, 1920.
The petition must therefore be dismissed. It is so ordered.
BOOTH, Chief Justice, and WILLIAMS and GREEN, Judges, concur.
WHALEY, Judge, did not hear this case and took no part in the decision thereof.
On Motion for New Trial.
Plaintiff's petition was dismissed by opinion rendered November 3, 1930. Thereafter plaintiff filed a motion for a new trial and brief in support thereof.
It is insisted, first, that "the court erred in treating the calendar year 1919 statement of income as a statutory return for the fiscal year ended June 30, 1919," and, secondly, that "the court erred in treating the tax paid on income of the twelve months' period ending December 31, 1919, which period was not the taxable period, as if it were a payment made for a taxable year ending in such calendar year."
With respect to the first point the court held that when a taxpayer files a calendar-year return, when it should have filed a return for the fiscal year ending during such calendar year, such return, although on an erroneous basis, must be treated as a return under the statute, and it can only be treated as a return for a taxable period or year that has ended during the period covered by it.
On the second point the court decided that a tax assessed and paid on a return for a calendar year, when the true accounting period of the plaintiff was a fiscal year ending within that calendar year, must be regarded as having been assessed and paid for the fiscal taxable year ending within the year for which the return was filed, even although the taxpayer filed his return on the wrong basis.
In oral argument upon the motion for a new trial and in the brief in support thereof, counsel for plaintiff contend that the calendar-year returns filed cannot be regarded as returns under the statute for any purpose, since in neither form nor substance did they purport to contain the income for a fiscal year which was the taxpayer's annual accounting period and for which it was required by the statute to file returns. We cannot concur in this contention. Except for the fact that plaintiff did not file sufficient and timely claims for refund with respect to the tax paid on the calendar year 1918 return, there would be no basis whatever for the claimed overpayment for the fiscal year beginning July 1, 1919, and ending June 30, 1920, for the reason that had the commissioner not been prevented by the statute of limitation from refunding the entire overpayment determined for 1918, the plaintiff would have received the refund of all of the tax paid in excess of its correct tax liability for each of the fiscal years ended June 30, 1918, 1919, and 1920. The overpayment claimed by the plaintiff to have been made for the first six months of the fiscal year ended June 30, 1920, can only be supported by completely disregarding for all purposes the calendar-year returns filed and by treating each of them merely as a statement of income and deductions of the tax paid thereon as a tax for the first half and the second half of plaintiff's fiscal taxable year. In other words, in order to bring the claimed overpayment within a period covered by a sufficient and timely claim for refund, one-half of the tax paid on each of the calendar-year returns must be treated as an advance payment for the first six months of the fiscal year ending on June 30. We are of opinion, as pointed out in P.L. Mann v. United States (Ct. Cl.) 44 F.2d 1005, that the calendar-year returns must be treated as statutory returns for the fiscal year ending within the calendar year for which such returns were filed. The Commissioner of Internal Revenue correctly so held and adjusted the income, deductions, and the tax paid accordingly. Returns are not fatally defective merely because they do not include all of the income for the correct taxable period for which the returns should have been filed, or because they may include income which properly belongs in some other taxable period, or because the returns were made upon an erroneous basis. The treatment by the defendant of the calendar-year returns as statutory returns for the taxable fiscal years ending within the calendar years for which such returns were improperly made for the purpose of assessment, collection, refunds, credits, and the statute of limitations was, in our opinion, a correct administration of the taxing act. The calendar-year returns purported to and did cover a period recognized by the statute as a taxable year. The taxable year covered by each calendar year return did not include the entire taxable year of the plaintiff, because its books were kept on a fiscal year basis. Each return was therefore made on an erroneous basis and included income and deductions of a portion of two of plaintiff's correct taxable years. When the commissioner came to audit the calendar-year returns, he discovered that the plaintiff was on a fiscal year basis and it was necessary for him to adjust the income returned, the deductions taken, and the tax paid to conform to the plaintiff's fiscal year. He did this by adjusting the income, deductions, and tax liability of the correct fiscal taxable year to the calendar-year returns covering the period in which the fiscal year ended. The commissioner would not have been justified in completely ignoring the calendar-year returns filed and in treating the taxpayer as if it had never filed a return for any of the taxable years 1918 to 1920, inclusive. This conclusion is not inconsistent with Lucas v. Pilliod Lumber Co., 281 U.S. 245, 50 S. Ct. 297, 74 L. Ed. 829, 67 A.L.R. 1350, where the taxpayer failed to sign and swear to a return. Nor is the case of Florsheim Brothers Drygoods Co., Ltd., v. United States, 280 U.S. 453, 50 S. Ct. 215, 74 L. Ed. 542, authority for the contention of the plaintiff that calendar-year returns filed by a taxpayer keeping its books on the fiscal-year basis are without legal significance whatever and must be completely ignored. The Florsheim Case involved the question whether a request for extension of time within which to file a return accompanied by an estimate of the total tax due for the year was a sufficient return to set in motion the statute of limitations. The holding of the court that such a document could not be considered a return under the statute cannot be extended to include a complete calendar-year return filed by a taxpayer employing the fiscal-year basis of accounting.
We find no reason justifying a modification of the decision heretofore rendered. The motion for a new trial is therefore denied.
BOOTH, Chief Justice, and WHALEY, WILLIAMS, and GREEN, Judges, concur.