Opinion
No. L — III.
May 7, 1934.
Wallick Shorb, of Washington, D.C., for plaintiff.
Joseph H. Sheppard and Elizabeth B. Davis, both 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 Gustava D. Anderson against the United States. Judgment in favor of the defendant.
This case having been heard by the Court of Claims, the court upon the report of a Commissioner and the evidence, makes the following
SPECIAL FINDINGS OF FACT
1. Plaintiff is, and at all times hereinafter mentioned was, a citizen of the United States and a resident of Michigan.
2. March 15, 1920, plaintiff filed her income tax return for 1919, which showed a tax due thereon of $64,352.27. She paid the foregoing tax, without protest, as follows:
March 15, 1920 ................ $20,000.00 April 26, 1920 ................ 16,000.00 June 15, 1920 ................. 28,352.27 ___________ Total ................... 64,352.27
3. January 31, 1921, the Commissioner of Internal Revenue (hereinafter referred to as the "Commissioner") sent a letter to plaintiff which read in part as follows:
"It is stated on your return that in January 1917 you received as a gift, 325 shares of stock of the Ford Motor Company, which stock on date of receipt was valued by you at $12,500.00 a share.
"Inasmuch as the 325 shares of Ford Motor stock held by you was sold in 1919 at a price of $12,500.00 a share, the office desires to be informed as to the basis used in arriving at the valuation of this stock when received by you in January 1917."
4. March 7, 1921, plaintiff replied that the information would be forthcoming, but when he had failed to receive the same, the Commissioner wrote plaintiff again April 19, 1921, asking that the information requested in letter of January 31, 1921, be submitted. April 27, 1921, plaintiff sent a letter to the Commissioner which read as follows:
"Replying to your letter of April 19th, your file No. I.T:G:P-8, W.H.B.-D.U.-801, I beg to advise that I have on file an affidavit by Stuart W. Webb, formerly vice president Old Colony Trust Company, Boston, Mass., who had made a thorough and most comprehensive examination of Ford Motor Company financial affairs, wherein he stated that in January 1917 the stock of the Ford Motor Company was worth `at least $12,500 per share.'
"Second: I have a copy of an affidavit letter from your Bureau dated March 19, 1917, signed by Deputy Commissioner G.E. Fletcher, stating that the capital stock of the Ford Motor Company was worth $14,420 per share.
"Third: I have a signed report by a certified public accountant, who, after computing earnings, book value, etc., using value fixed by your Bureau as of March 1, 1913, as a basis, reports that said stock was worth over $14,000 per share on January 31, 1917.
"I would prefer to keep the above in my possession, but will be glad to furnish you with copies of whichever of them you desire to have in case you decide it necessary."
The foregoing letter was sworn to by plaintiff.
5. After an examination and an audit, based upon a revenue agent's report dated May 8, 1921, the Commissioner, in a letter dated May 27, 1921, notified plaintiff of his determination of a further tax due for 1919 of $192,276.48. In arriving at his determination, the Commissioner included in income, subject to surtax at 1919 rates, a dividend of $313,225.02 which had been previously reported in plaintiff's amended return for 1917.
6. June 11, 1921, plaintiff replied to the foregoing communication from the Commissioner in a letter which read, in so far as here material, as follows:
"In reply, I beg to say I note I have been assessed a further tax of $139,461.85 on my income-tax return for the year ending December 31, 1919, because of a dividend paid me in 1919 by the Ford Motor Company amounting to $313,225.02 as a result of certain litigation brought by John F. Dodge et al. against the company, was not included in my 1919 return but was included in amended 1917 return, wherein the surtax was based on 1916 accrual basis.
"The reason of my filing an amended 1917 return wherein the surtax on the dividend in question was calculated on 1916 surtax rates, was because of an adjudication of the Circuit Court of the County Wayne, Michigan, subsequently affirmed by the Supreme Court of the State of Michigan (Dodge v. Ford Motor Co., 204 Mich. 459, 170 N.W. 668, 3 A.L.R. 413), to the effect that the moneys representing said dividend were ordered paid out of the cash surplus of the company on hand at the close of its fiscal year, July 31, 1916.
"Desiring to have the question or decision that I am or am not liable for the additional assessment formally passed upon by the Income Tax Unit, I am writing this letter asking that it be treated as an appeal to the Income Tax Unit on the point involved, to the end that, in event of a decision, sustaining the conclusion reached in your letter, I may be placed in a position to at once perfect my appeal to the committee on appeals and review, the same as, I understand, other stockholders in like situation as I am have already done."
7. August 15, 1921, plaintiff requested a conference for the purpose of considering two items on which there was disagreement for 1919, namely, "the allocation of a Ford dividend, paid as the result of a lawsuit, in 1919" and "the value of Ford Motor Co. stock at the time it was received by me [plaintiff] as a gift in 1917." As to the second item it was stated that "Very conclusive evidence can be presented that the value was very much in excess of that shown by your examining officer."
8. December 19, 1922, the Commissioner notified plaintiff of his affirmation of the previous determination of the additional tax due for 1919, as well as of certain adjustments for 1917 and 1918, and gave plaintiff 30 days in which exception might be taken to the proposed action.
9. January 10, 1923, plaintiff replied by letter, sworn to by her in which, after various recitations as to what had previously occurred, it was stated:
"Under the foregoing circumstances it is my understanding that, were this the only issue involved in connection with this additional assessment, there would be nothing left for me to do but pay the assessment under protest, file a claim for refund and, upon this being denied, bring suit for its recovery.
"Permit me, however, to kindly call your attention to the fact that in my own particular case (unlike that of other stockholders) there is another issue involved affecting the amount of this 1919 tax which is not touched upon in your letter and to which I wish to draw your attention.
"It is the question of the loss sustained by me in the sale of this stock in July 1919 as compared with its fair market value when acquired by me, by gift, in January 1917. * * *
"By reference to the report of the agents who audited my return for 1919, you will note they furnish the basis which I had presented to them to prove that the value of the stock in January 1917 was at least $14,455.78 per share and I am advised that the agents themselves, in computing this value, at the time of their audit, on the lowest possible basis arrived at a value, in January 1917, considerably in excess of my selling price in July 1919, but felt the question was one which should preferably be passed on by your auditors in Washington.
"I ask your kind consideration in regard to this item because, whereas I am taxed, as income, the amount of dividend received by me as the result of the court decision in the Dodge-Ford suit, this has not been offset in any way by the great shrinkage in value in 1919, which was the direct result of this suit."
10. February 12, 1923, the Commissioner replied in part as follows:
"It is desired of this office that the adjustments indicated for the years 1917 and 1918 be withheld until your contentions relative to the loss on the sale of stock in 1919 have been given proper consideration by the agency designated by the Commissioner to consider the case.
"In order that your interests may be protected for 1917, your are requested to file immediately on the enclosed form 843, a claim for the amount of overassessment indicated for this year in office letter of December 19, 1922."
In reply, March 7, 1923, counsel for plaintiff submitted various computations and data purporting to show that the Ford Motor Company stock had a value February 1, 1917, when received by plaintiff as a gift, of $14,455.78.
11. January 22, 1924, the Commissioner approved a schedule of overassessments on which was shown an overassessment in favor of plaintiff for 1919 in the amount of $64,352.27, the total amount of tax which had been assessed and paid by plaintiff for 1919. At the same time the schedule was transmitted to the Collector for appropriate verification. It showed the letters "O.A." in the remarks column for the purpose of indicating to the Collector that the refund in favor of plaintiff was being made on the basis of an office audit instead of a claim filed by her.
12. February 9, 1924, the Collector certified that of the overassessment, $182.40 and $149.14 should be credited against outstanding assessments due for 1918 and that the balance, $64,020.73, was refundable to plaintiff. At the same time the Collector certified on a "Schedule of refunds and credits" that the foregoing amount ($64,020.73) was refundable. April 9, 1924, the Commissioner signed a "Schedule of refunds and credits," authorizing the disbursing clerk of the Treasury Department to issue check to plaintiff for the amount shown thereon as refundable, namely, $64,020.73.
13. A certificate of overassessment in the amount of $64,352.27 for 1919, together with check for $64,020.73, was mailed to plaintiff April 25, 1924. The following explanation was given on the certificate of overassessment:
"A reaudit of your return in connection with the report of the internal revenue agent in charge at Detroit, Michigan, dated May 18, 1921, a conference held in this office February 21, 1923, and evidence subsequently submitted discloses an overassessment of $64,352.27.
"There has been allowed as a deduction against your net income $624,000.00 representing your losses on the sale of 325 shares of Ford Motor Company stock. The adjustment of this item results in an overassessment of $64,352.27."
14. April 7, 1928, plaintiff filed a claim for the refund of $9,421.85 (interest on the overpayment for 1919), and set out as the basis thereof the following:
"This claim is made for the purpose of having the Commissioner certify the proper amount of interest refundable to the taxpayer on account of an overpayment of income tax for the calendar year 1919, which overpayment was allowed in the amount of $64,352.27 and a refund of $64,021.63 received on May 12, 1924.
"The original assessment (account number 304896) was $64,352.27 and it was found that no liability for income taxes for 1919 existed.
"A report dated May 18, 1921, of an examination for the year 1919 was submitted to the taxpayer wherein an additional assessment of $192,309.88, or thereabout, was proposed.
"On or about May 5, 1921, this proposed assessment was protested and a claim for the refunding of $64,352.27 was made, the ground set up for refund being that a loss of $624,000.00 had been incurred in the sale of 325 shares of Ford Motor Co. stock.
"Full information was given as to the reason for claiming the loss upon the sale of these shares, and the various letters and conferences furnished all data necessary for the determination and allowance of the claim.
"The making of this protest is considered a compliance with the statutes providing for the filing of a claim and interest is computed on the refund from 6 months after the filing of this claim, viz., from November 5, 1921, to date of scheduling the overassessment for refund, tentatively considered as April 15, 1924.
"Interest on $64,021.63 from November 5, 1921, to April 15, 1924, at 6% — $9,421.85."
15. July 2, 1928, the Commissioner requested plaintiff to furnish a copy of the original claim for the refund of $64,352.27 on which the claim for interest was based. August 2, 1928, plaintiff replied that the basis had been set forth in the letters which are referred to in these findings, and she attached copies of her letters dated April 27, 1921, and August 15, 1921, both of which are referred to above. August 10, 1928, the Commissioner advised plaintiff that the letters referred to were insufficient as informal claims upon which interest is payable. September 17, 1928, plaintiff replied again urging the aforementioned letters as sufficient basis for an informal claim. October 2, 1928, the Commissioner reiterated his former position.
16. By letter dated November 27, 1928, plaintiff transmitted to the Commissioner copy of a formal claim for refund in the amount of $64,352.27, the original tax assessed and paid for 1919, and in such letter it was stated that plaintiff was inclosing "copy of a formal claim for refund of overpayment made covering the income tax paid for the year 1919 which formal claim has been prepared for the purpose of completing informal claims previously filed for the refunding of these same taxes. * * *" The original of such claim was filed with the Collector November 24, 1928, and forwarded to the Commissioner November 30, 1928, by whom it was received December 3, 1928. The said claim had attached thereto copies of the correspondence heretofore referred to as having passed between the Commissioner and plaintiff.
17. December 18, 1928, the Commissioner advised plaintiff that it was the view of his office that "a claim for refund filed to cover an amount previously refunded cannot have a retroactive effect so as to create rights to interest which did not exist at the time the refund was allowed," and the Commissioner has adhered to that decision, thus refusing to allow or pay interest on the said overpayment for 1919. No claims for refund other than heretofore referred to were filed for 1919.
18. Plaintiff is the owner of the claim involved in this suit and has made no assignment of all or any part thereof. Plaintiff has at all times borne true faith and allegiance to the government of the United States and has not in any way aided, abetted, or given encouragement to rebellion against the said government.
The Commissioner of Internal Revenue refunded to plaintiff in 1924 the income taxes paid by her for 1919 after certain deficiencies for the years 1917 and 1918 were deducted and this suit is brought to recover interest on the amount so refunded, alleging an informal claim for refund was made by the plaintiff through certain correspondence filed with the Commissioner in the years 1921 and 1923. The refund having been made before the passage of the Revenue Act of 1924 ( 43 Stat. 253) and that act not being retroactive, United States v. Magnolia Petroleum Co., 276 U.S. 160, 48 S. Ct. 236, 72 L. Ed. 509, section 1324(a) of the Revenue Act of 1921 ( 42 Stat. 227, 316) is the applicable statute.
This statute provides:
"That upon the allowance of a claim for the refund of or credit for internal revenue taxes paid, interest shall be allowed and paid upon the total amount of such refund or credit at the rate of one-half of 1 per centum per month to the date of such allowance, as follows: (1) if such amount was paid under a specific protest setting forth in detail the basis of and reasons for such protest, from the time when such tax was paid, or (2) if such amount was not paid under protest but pursuant to an additional assessment, from the time such additional assessment was paid, or (3) if no protest was made and the tax was not paid pursuant to an additional assessment, from six months after the date of filing of such claim for refund or credit. The term `additional assessment' as used in this section means a further assessment for a tax of the same character previously paid in part."
The plaintiff had a gift made to her in 1917 of 325 shares of Ford Motor Company stock. In 1919 she sold this stock for $12,500 a share. In making her 1919 income tax return she valued the stock at the time of the gift at $12,500 a share; this being the same amount as that received by her when it was sold, there was neither gain nor loss to be taken on her return of income. When this item of value of the stock for 1917 came to the attention of the Commissioner, he wrote to plaintiff on January 31, 1921, requesting data to support the value of the stock in 1917 when it was received by her as a gift. Not receiving a substantive reply to this inquiry, the Commissioner again wrote to plaintiff on April 19, 1921, requesting prompt attention to his previous letter. In reply to this letter, on April 27, 1921, plaintiff stated to the Commissioner that she had in her possession affidavits fixing the value of this stock at $12,500, $14,420, and $14,000 per share. There is no claim in this letter of any refund which the plaintiff expected, but simply an affirmation of the value, at least of the amount, placed by her on this stock for the year 1917. It appears that in 1919 a decree of court was made requiring the payment of dividends by the Ford Motor Company which resulted in the plaintiff receiving during 1919 on her 325 shares of stock, $313,225.02. Instead of including this amount in her taxable income for the year 1919, the plaintiff amended her 1917 return and included this amount in that year's income. On May 27, 1921, the Commissioner wrote to the plaintiff stating this amount, having been received in 1919, was taxable in that year and not in 1917. In this letter the Commissioner sets out an audit of her taxes for 1919 which resulted in a proposed additional assessment for the year 1919 of $192,276.48. Upon the receipt of this audit made by the Commissioner showing a proposed deficiency of $192,276.48, the plaintiff replied affirming her position that the dividend was correctly placed in the year 1917 because of the adjudication of the case in the court of the state of Michigan and expressing the desire to have the income tax unit give further consideration as to the year in which the additional dividend should be taken for tax purposes. There is no semblance of a claim for refund in this letter but simply a desire to have a final decision by the tax unit of the bureau as to the year in which the dividend should be taken. In August, 1921, the plaintiff again wrote to the Commissioner requesting a conference before any supplemental assessment was made by the Commissioner, and in this letter raised not only the question of the year in which the dividend should be included, but requested that the issue originally raised by the Commissioner as to the value of the Ford Motor Company stock in 1917 be given consideration, and asserted: "Very conclusive evidence can be presented that the value was very much in excess of that shown by your examining officer." This is the first intimation on the part of the plaintiff that the value of this stock as fixed by her in her 1919 return, was more than the amount taken by her. On December 19, 1922, the Commissioner furnished the plaintiff an audit of her income tax returns for the years 1917, 1918, and 1919, which showed an overassessment for 1917 of $54,624.63 and additional assessments for 1918 and 1919, respectively, of $149.14 and $192,309.88, that is, a proposed net additional tax of $137,834.39. Upon receipt of this notice of additional assessment, the plaintiff on January 10, 1923, wrote to the Commissioner, in seeking a delay of payment, stating: "Permit me, however, to kindly call your attention to the fact that in my own particular case (unlike that of other stockholders) there is another issue involved affecting the amount of this 1919 tax which is not touched upon in your letter and to which I wish to draw your attention.
"It is the question of the loss sustained by me in the sale of this stock in July 1919, as compared with its fair market value when acquired by me, by gift, in January 1917."
The plaintiff requested that the 1919 income tax be audited for the purpose of having the value of the Ford stock in 1917 ascertained and furnished the Commissioner information as to its value which showed it exceeded the amount fixed by her in the 1919 return. She again asserts:
"I ask your kind consideration in regard to this item because, whereas I am taxed, as income, the amount of dividend received by me as the result of the Court decision in the Dodge-Ford suit, this has not been offset in any way by the great shrinkage in value in 1919, which was the direct result of this suit."
The Commissioner, upon an audit of the plaintiff's return, decided that the loss sustained by the plaintiff on the value of the stock when sold, more than overcame the proposed additional tax and also resulted in the plaintiff not being liable for any tax in 1919. The amount paid by her for that year was accordingly returned to her as an overpayment after certain adjustments for previous years were made. This refund of the entire tax paid by the plaintiff in 1919 was due to the loss sustained by her on the sale of the stock.
The Commissioner duly paid the plaintiff the sum of $64,352.27. On April 25, 1928, a formal claim for refund of interest on the amount refunded was filed by the plaintiff in the sum of $9,421.85. This claim was rejected by the Commissioner because no claim for refund for any part of the tax for 1919 had been filed prior to the allowance of the overpayment.
The plaintiff contends that the letter of January 10, 1923, sworn to by the plaintiff, was sufficient compliance with the requirements of the statute to constitute an informal claim for refund to which the formal claim could be attached as an amendment.
Under the applicable provisions of section 1324(a) of the Revenue Act of 1921, a claim for refund must be filed before interest can be allowed. The first intimation that the value of the stock received by the plaintiff as a gift in 1917 was in question, was raised by the Internal Revenue Bureau in a letter to the plaintiff. The entire correspondence with the Commissioner showed an endeavor on plaintiff's part to avoid the payment of the proposed additional assessment caused by the additional dividend received by the plaintiff being placed in the year 1919, the year in which it was received, and not in the year 1917 as insisted upon by her and in which year she had placed it in her supplemental return for that year. The plaintiff's whole object and aim were to avoid the payment of the additional tax caused by the receipt of this extra dividend. After exhausting all of the remedies provided by the bureau without success, and after the Commissioner had notified her of the additional tax for the year 1919, plaintiff then resorted to and claimed a loss on the sale of the stock and offered this alleged shrinkage in value as an offset or the equivalent of the amount of additional taxes which the Commissioner asserted was due. The evidence fails to show that at any time did the plaintiff expect to get a refund of taxes for 1919, but, on the contrary, it shows an effort on her part for a reduction or counterbalance of the proposed additional tax. There was never any assertion of a claim for refund or an intimation that, if the difference in values of the stock in 1917 and 1919 were taken into consideration, a shrinkage or loss would result in a refund to the plaintiff. This issue as to the value in 1917 was revived by plaintiff when all other efforts had failed to avoid the payment of the additional tax caused by the inclusion of the additional dividend in the 1919 return. There is nothing in any of plaintiff's letters which shows any basis on which she expected the return of any portion of the taxes paid by her on her original return for 1919. In order to constitute a claim for refund there must be brought to the attention of the Commissioner facts sufficient in themselves which, when followed by the Commissioner, would result in an excess payment by the taxpayer of taxes for the year in question. In other words, the taxpayer must take the initiative and supply facts to the Commissioner with the claim that, if these facts are taken into consideration, it will be found that the taxpayer has overpaid the amount of taxes properly due the government for the year in question.
This court in the case of Lasher v. United States, 65 Ct. Cl. 295, upheld the plaintiff's contention of an informal claim for refund but, in that case, the letter on which the claim was founded set out the facts to the Commissioner on which he acted and claimed that if the facts were taken into consideration there would be an excess payment and therefore a refund due to the plaintiff.
This was also true in the case of McKenny et al. v. United States, 49 F.2d 667, 52 F.2d 1063, 72 Ct. Cl. 195. In that case the plaintiff made an application for special assessment and stated in the application that, if it were granted, it would result in showing that the plaintiff had overpaid its tax.
The instant case is more analogous to the case of Philipsborn v. United States, 53 F.2d 133, 72 Ct. Cl. 545. In the latter case, as in this case, the plaintiff has attempted to amend by a formal claim for refund an alleged informal claim for refund. Without an informal claim, the formal claim is barred by the statute of limitations. We can find nothing in the record, either by inference or implication, which shows an assertion of a claim for refund of any part of plaintiff's taxes for the year 1919 to which the formal claim for refund can attach.
The petition is dismissed. It is so ordered.