Opinion
Proceeding by the Arthur C. Harvey Company against the United States to recover $74,648.39 with interest, an alleged overpayment of income tax.
Petition dismissed.
In this case plaintiff seeks to recover $74,648.39 with interest, alleged overpayment of income tax for the fiscal taxable period of six months beginning January 1 and ending June 30, 1918, which alleged overpayment it is claimed the Commissioner of Internal Revenue duly allowed but has failed to refund the same to plaintiff after having canceled the credit of that amount to barred deficiencies for the calendar years 1915, 1916, and 1917.
Plaintiff contends that the original certificate of overassessment issued and mailed to it some time after May 16 and prior to September 30, 1924, showing the original credits against additional taxes for 1915 to 1917, inclusive, and four additional certificates of overassessment issued by the Commissioner to the collector of internal revenue at Boston, Massachusetts, constituted an account stated in favor of plaintiff for an overpayment of $74,648.39 originally allowed by the Commissioner February 18, 1924.
Defendant insists that the suit instituted July 11, 1933, if viewed as a proceeding upon a rejected claim for refund, is barred because not instituted within two years following the denial of any claim or within four years after the payment of the tax for 1918, or within six years after the original action of the Commissioner in 1924 with reference to the overassessment for 1918 and the credits to 1915 to 1917, inclusive, hereinbefore mentioned, upon which plaintiff relies as the basis for the claimed account stated in its favor. It is further insisted that plaintiff did not in fact overpay its tax for 1918 and that in any event the question whether plaintiff is entitled to recover with respect to any tax paid for the six-months' period ending June 30, 1918, is res adjudicata by the decisions of the District Court for Massachusetts, Arthur C. Harvey Co. v. Malley, 52 F.2d 885, the Circuit Court of Appeals for the First Circuit, 60 F.2d 97 and 61 F.2d 365, and the Supreme Court of the United States in Arthur C. Harvey Co. v. Malley et al., 288 U.S. 415, 53 S.Ct. 426, 77 L.Ed. 866. Special Findings of Fact.
1. Plaintiff is a Massachusetts corporation and has always kept its accounts on a fiscal-year basis ending June 30. For taxable years prior to the calendar year 1918, plaintiff reported its net income on a calendar year basis pursuant to and in accordance with the statutes then in force. Upon the passage of the Revenue Act of 1918, 40 Stat. 1057, which provided that taxpayers should report their income in accordance with the method of accounting employed, plaintiff began reporting on a fiscal-year basis in accordance with its method of accounting as will hereinafter appear.
2. For the calendar year 1915 plaintiff filed a return March 1, 1916, on which a tax of $601.45 was assessed in March, 1916 and paid June 30, 1916. This return indicated a net income of $60,144.80. December 22, 1917, plaintiff filed another return for 1915 changing the income to $65,113.54 and in January, 1918, the Commissioner assessed thereon $49.69 which was paid March 29, 1918--a total assessment and collection of $651.14.
October 16, 1920, plaintiff filed a second amended return for 1915 indicating a net income of $142,677.60, one percent of which was $1,426.78, an indicated increase in tax liability of $775.64.
3. February 26, 1917, plaintiff filed its return for 1916 reporting a net income of $259,554.66 and a tax of $5,191.09 which was assessed in February, 1917, and paid June 15, 1917. Thereafter, on December 22, 1917, plaintiff filed another return for 1916 indicating an increase in net income to $268,461.43, and in January, 1918, the Commissioner assessed an additional tax of $178.14 which was paid March 29, 1918--a total assessment and collection for 1916 of $5,369.23.
October 16, 1920, plaintiff filed a second amended return for 1916 indicating a net income of $536,541.04 and a tax of $10,730.82, an indicated increase in tax of $5,361.59.
4. For the calendar year 1917, plaintiff filed its return April 1, 1918, showing a net income of $555,610.62 and a tax of $296,677.89 which was assessed in April, 1918. June 10, 1918, plaintiff was advised by the Commissioner that a preliminary examination indicated the tax would not be less than $270,592.89, the amount certain to be later determined; that payment thereof should be made, and, if desired, a claim for abatement of the difference of $26,085 might be filed at the time of payment. The amount of $270,592.89 was paid June 19, 1918. Claim for abatement of the difference of $26,085 was filed July 18, 1918, and allowed January 27, 1919, in order, as the Commissioner stated, "to clear the assessment list of an amount which at the time it was assessed was not properly assessable," and not to preclude further assessment. The amount of $26,085 was reassessed by the Commissioner April 11, 1919, bringing the total assessment on the original return to the original amount of $296,677.89, leaving $26,085 uncollected.
October 16, 1920, plaintiff filed an ameded return for 1917 showing a total net income of &4$720,984.84 and a tax of $360,739.30, an indicated increase in tax of $90,146.41 over the decreased first assessment of $270,592.89 above mentioned.
5. March 15, 1919, plaintiff filed a tentative return for the fiscal year ended June 30, 1918, indicating an estimated tax of $240,000, and on March 19, mentioned.
June 16, 1919, plaintiff filed a completed return for the fiscal period begun January 1, 1918, and ended June 30, 1918, showing a net income of $420,189.20 and a tax of $302,438.83 which was assessed, as well as $85.84 interest thereon, a total assessment of $302,524.67. Thereon the plaintiff made payment of $94,466.78 July 1, 1919, and of $72,596.50 September 17, 1919, a total payment for the six-months' period ending June 30, 1918, of $227,063.28. The interest of $85.84 was later refunded to plaintiff (finding 10).
November 4, 1919, plaintiff filed with the collector a claim for abatement of $68,350.33 of the assessment for the period ended June 30, 1918, and therewith filed an amended return for the period indicating a net income of $666,282.48 for the period of 12 months from July 1, 1917, to June 30, 1918, and a tax thereon of $234,088.50, being less by $68,350.33 than the tax of $302,438.83 shown on the original return for the fiscal taxable period January 1 to June 30, 1918.
In the claim for abatement, plaintiff stated, referring to the original return: "At the time this return was filed, through a misunderstanding of the law and regulations, it was made on the basis of the actual figures for the six-months' period, rather than for the twelve-months' period beginning July 1, 1917 and ending June 30, 1918, and then taking the proportionate part of the tax belonging to the 1918 period, as provided in Article 1622 of Regulations 45. This amended return is not submitted with Article 1622 of Regulations 45, and the tax computed accordingly."
December 15, 1919, plaintiff filed a claim for abatement of an additional amount of $7,025.22 of the tax shown on the original return for the period January 1 to June 30, 1918. These two abatement claims, aggregating $75,375.33, covered the difference between the tax of $302,438.83, originally returned and assessed, and the total paid of $227,063.28. On the same day plaintiff filed a claim for refund of $40,674.18 for 1918. In the two abatement claims filed December 15, 1919, the taxpayer requested relief and recomputation of its profits tax under sections 327 and 328 of the Revenue Act of 1918, 40 Stat. 1093. These claims were rejected by the Commissioner May 13, 1921, on the grounds that the invested capital was determinable and that no abnormalities were disclosed by the facts submitted.
6. By its amended returns for 1915, 1916, and 1917, plaintiff had indicated increases in tax of $775.64 for 1915, $5,361.59 for 1916, and $90,146.41 for 1917, a total of $96,283.64.
Against these additional taxes returned for 1915, 1916, and 1917, plaintiff on October 16, 1920, filed a claim for credit thereto of $99,412.20 setting forth in the claim that amount as a decrease in its tax liability for the six months ended June 30, 1918, from $227,063.28 to $127,651.08, the excess of $3,128.56 being claimed as a credit to an unpaid assessment for the taxable year ended June 30, 1920.
On the same day, to-wit, October 16, 1920, plaintiff filed with the collector a second amended return for the six months ended June 30, 1918, indicating for the entire fiscal year July 1, 1917, to June 30, 1918, a net income of $465,015.60 and a tax for such twelve-months' period of $255,302.16, and a tax for the six months ended June 30, 1918, one-half thereof or $127,651.08.
7. In November and December of 1921 the Bureau of Internal Revenue made an audit of the taxpayer's accounts and its tax liability for the taxable years 1915 to 1921, inclusive. As to the six-months' taxable period ended June 30, 1918, this audit was based on the last amended return, that is to say, the return filed October 16, 1920, indicating a tax of $127,651.08.
As a result of and on the basis of this audit, the Income Tax Unit of the Bureau of Internal Revenue notified the taxpayer on August 16, 1922, of a proposed overassessment of $156,390 for the fiscal year ended June 30, 1918, together with additional taxes for other years, as follows:
1915 .............................
$ 358.74
1916 ...............................
4,953.44
1917 ..............................
62,105.62
Fiscal year ended June 30, 1920 ....
1,582.75
----------
Total ........................
$69,000.55
October 3, 1922, plaintiff appealed to the Commissioner (section 250(d) of the Revenue Act of 1921, 42 Stat. 264) against assessment of the proposed additional tax of $62,105.62 for the calendar year 1917 and with regard thereto requested relief under section 210 of the Revenue Act of 1917, 40 Stat. 307.
The Commissioner redetermined the audit which had been made by the Income Tax Unit in 1921 (whereof the taxpayer had been advised August 16, 1922) and on February 2, 1923, advised the taxpayer of the revised additional taxes for 1915, 1916, and 1917 as follows:
1915 .......
$ 348.74
1916 .........
4,751.03
1917 ........
43,463.62
----------
Total ..
$48,563.39
This amount of additional tax did not include the uncollected assessment of $26,085 for 1917 then outstanding (see finding 4).
The Commissioner arrived at the additional tax of $43,463.62 for 1917 by calculating the assessment for that year under special relief section 210 of the Revenue Act of 1917, thus granting plaintiff's application. The several additional sums for 1915, 1916, and 1917, aggregating $48,563.39, were placed on the assessment list which was signed by the Commissioner in March 1923.
April 10, 1923, plaintiff filed a claim for credit for $48,5653.39 of the proposed overassessment of $156,390 for the fiscal year ended June 30, 1918, against the additional taxes for 1915 to 1917, inclusive, stated in the notification of February 2, 1923, and a claim for refund of the balance, $107,826.61.
The Commissioner in the determinations set forth in the communications of August 16, 1922, and February 3, 1923, calculated the overassessment for the six months ended June 30, 1918, by first computing a tax for the entire fiscal year July 1, 1917, to June 30, 1918, and then taking half of the result as the tax assessable for the six months ended June 30, 1918, which was the method employed by the taxpayer in its amended return filed October 16, 1920, whereby it had arrived at a total tax for such six-months' period of $127,651.08. By this method the Commissioner found the tax for the six-months' period to be $146,098 with an indicated overassessment on the original return of $156,340.83 and so notified plaintiff May 7, 1923, setting forth, as well, an additional tax of $635.43 for the fiscal year ended June 30, 1920, which was assessed. In this calculation the Commissioner did not apply the relief sections of the Revenue Act of 1918 as had been requested by the taxpayer December 15, 1919.
8. October 22, 1923, the collector made demand on plaintiff for payment of $26,085 unpaid on the original assessment for the calendar year 1917. See finding 4. Thereupon, on November 3, 1923, plaintiff filed a claim for credit of this sum against its claim for refund of $107,826.61 of the tax for the six months ended June 30, 1918. See finding 7. May 16, 1924, the Commissioner advised plaintiff with reference to this claim that "before being refunded" it would "be used partly to satisfy any outstanding unpaid obligation for income and profits taxes in favor of the Government."
9. December 20, 1923, the Commissioner in regular course determined and certified an overassessment of $156,340.83 for the six months ended June 30, 1918, to be abated, credited, or refunded, according to the condition of plaintiff's account. This reduced the assessment duly made on plaintiff's original return for the taxable period January 1 to June 30, 1918, from $302,438.83 to $146,098, in accordance with his notification to the taxpayer May 7, 1923 (finding 7). The collector distributed the overassessment of $156,340.83 as follows:
Credits against unpaid assessments:
1915 ........
$ 348.74
1916 ..........
4,751.03
1917 .........
43,463.62
1917 .........
26,085.00
-----------
$74,648.39
1920 ............
635.43
1920 ..........
3,128.56
-----------
3,763.99
-----------
$ 78,412.38
Abatement ..............................
75,461.39
Refund ..................................
2,467.06
-----------
$156,340.83
And with the addition of interest amounting to $6,194.99 this distribution and application by the collector was approved by the Commissioner February 18, 1924, and thereupon plaintiff was refunded the balance shown totaling $8,662.05 comprised of the balance of $2,467.06 after abatements and credits and $6,194.99 interest.
Between May 16 and September 30, 1924, in due course, a certificate of overassessment was sent to the plaintiff stating for the period from January 1 to June 30, 1918, an assessment of $302,438.83, a tax liability of $146,098, and an overassessment of $156,340.83, and the manner of arriving at the overassessment was conveyed to the taxpayer in a separate communication. With the certificate of overassessment there was transmitted to plaintiff the above-mentioned refund check for $8,662.05. This certificate of overassessment is attached to the petition as exhibit "C" and is made a part hereof by reference.
10. March 15, 1924, plaintiff filed a claim for refund of $60,000 for the six months ended June 30, 1918, based on the ground that is profits tax for that period should be determined under sections 327 and 328 of the Revenue Act of 1918, which it contended should be applied. This claim was rejected February 25, 1925.
June 25, 1924, plaintiff received a refund of $85.84, being interest theretofore collected (finding 5) for delay in filing the return for 1918 together with interest on that amount of $28.44.
11. July 27, 1929, plaintiff filed a claim for refund of $74,648.39 applied by the Commissioner in accordance with plaintiff's claims for credit filed October 16, 1920, and April 10, 1923, against unpaid assessments in that amount for 1915, 1916, and 1917, as hereinabove described, on the ground that the assessment and collection of the amounts against which the credits had been made were barred on February 18, 1924, by section 250(d) of the Revenue Act of 1921, and sections 607 and 609 of the Revenue Act of 1928, 26 U.S.C.A. §§ 1670(a)(2), 1675.
December 17, 1929, the Commissioner advised plaintiff that the claim for refund of $74,648.39 would be rejected on the ground that the proper method for computing the income for the first six months of 1918 under section 226 of the revenue Act of 1918, 40 Stat. 1075, was in accordance with the original return, and that the overassessment, which included the amount sought to be refunded, had been erroneously allowed. This letter is attached to the petition as exhibit "E" and is made a part hereof by reference.
12. Prior to the date of the letter of December 17, 1929, mentioned in the preceding finding, the Commissioner had taken the following action: On September 28, 1929, the Commissioner advised the collector to reverse the credits made to the years 1915, 1916, and 1917, and to file collector's abatement claims for those years to credit his accounts of the additional assessments for the three years mentioned. The collector filed abatement claims as directed, including an abatement claim for the additional assessment of $26,085 for 1917 made April 11, 1919 (finding 4). Thereupon the Commissioner allowed the collector's abatement claims and issued to the collector certificates of overassessment for the three years.
February 26, 1930, the Commissioner advised plaintiff of the rejection on January 7, 1930, of its claim for refund, enclosing with this notice of rejection a copy of letter of December 17, 1929, showing the basis of rejection of the claim.
13. March 26, 1930, plaintiff filed suit upon a rejected refund claim in the District Court of the United States for the District of Massachusetts, against appropriate collectors of internal revenue seeking to recover the identical sum here sued for, viz., $74,648.39. The case was decided against it, Arthur C. Harvey Co. v. Malley, 52 F.2d 885, whereupon appeal was taken to the Circuit Court of Appeals, 1 Cir., 60 F.2d 97; 1 Cir., 61 F.2d 365. The Circuit Court affirmed the judgment of the District Court June 27, 1932. Thereafter, on writ of certiorari, 287 U.S. 596, 53 S.Ct. 314, 77 L.Ed. 519, the case was reviewed by the Supreme Court of the United States and the Circuit Court of Appeals affirmed. 288 U.S. 415, 53 S.Ct. 426, 77 L.Ed. 866. [Copyrighted Material Omitted] [Copyrighted Material Omitted] O. Walker Taylor, of Boston, Mass., for plaintiff.
George H. Foster, of Chicago, Ill., and James W. Morris, Asst. Atty. Gen. (Robert N. Anderson and Fred K. Dyar, both of Washington, D.C., on the brief), for the United States.
Before BOTH, Chief Justice, and GREEN, LITTLETON, WILLIAMS, and WHALEY, Judges.
LITTLETON, Judge.
Upon the facts disclosed by the record as set forth in the findings, we are of opinion that plaintiff is not entitled to recover for the reasons (1) that the suit was not instituted within two years after the rejection of any refund claim; (2) that there was no account stated by the Commissioner in 1924 or at any time subsequent thereto upon which plaintiff was entitled to maintain a suit under section 145 of the Judicial Code, 28 U.S.C.A. § 250, upon an implied promise to pay; and (3) that the Commissioner of Internal Revenue in his final decision and action with reference to plaintiff's tax liability for the six-months' period ending June 30, 1918, decided and held that plaintiff had not overpaid its tax for that period and applied the amount of the previously allowed overpayment which had not been refunded in satisfaction of the tax liability of plaintiff for such six-months' period, and the evidence in this case does not show that the tax due by plaintiff for the period June 1 to June 30, 1918, has been overpaid.
Viewed as a suit upon a rejected claim for refund, it is clear that this proceeding cannot be maintained on that ground for the reason that the rejection of the claim for refund occurred not later than February 26, 1930. Viewed as a suit on an implied promise to pay arising from an account stated, it is also clear that the suit cannot be maintained for the reasons (1) that there was no account stated of such character as would give rise to an implied promise to pay for the reason that the certificate of overassessment issued and mailed to plaintiff between May 16 and September 30, 1924, stated no balance in favor of plaintiff other than the small amount which was refunded. Leisenring et al. v. United States, 3 F.Supp. 853, 4 F.Supp. 993, 78 Ct.Cl. 171; First National Bank of Beaver Falls v. United States, 8 F.Supp. 484, 9 F.Supp. 424, 79 Ct.Cl. 744; Pratt & Whitney Co. v. United States, 6 F.Supp. 574, 10 F.Supp. 148, 80 Ct.Cl. 676. Moreover, this suit was not instituted until more than six years after delivery of that certificate of overassessment. Plaintiff, however, seems to argue that even if the suit was not brought within six years after the delivery of the certificate of overassessment for 1918 subsequent to the first allowance of the Commissioner February 18, 1924, which certificate showed credits against taxes for 1915 to 1917, inclusive, the suit was nevertheless timely instituted for the reason that the Commissioner in September and October, 1929, reversed his action as to the credits to 1915 to 1917, inclusive, abated the additional assessments for those years, and on February 26, 1930, advised plaintiff that he had decided there had been on overpayment for 1918 and rejected the claim for refund filed July 27, 1929. It is obvious that the action of the Commissioner reversing the credits and refusing to refund the previously allowed overpayment for 1918 on the ground that the original return filed by plaintiff for the six-months' period ending June 30, 1918, was correct and that there was, therefore, no overpayment in fact, could not give rise to an account stated showing a balance due plaintiff. Lewis v. Reynolds, 284 U.S. 281, 52 S.Ct. 145, 76 L.Ed. 293. On the contrary, the effect of this action of the Commissioner was that there was a balance due the Government by plaintiff in respect of its tax liability for the period mentioned. The Commissioner possessed authority to reverse the credits. Daube v. United States, 289 U.S. 367, 372, 53 S.Ct. 597, 599, 77 L.Ed. 1261; American Woolen Company v. United States, on rehearing, 21 F.Supp. 1021, 85 Ct.Cl. 101. The evidence does not show that there was an overpayment of tax for the six-months' period ending June 30, 1918, when computed in accordance with the provisions of section 226 of the Revenue Act of 1918, 40 Stat. 1057, 1075. Cf. American Hide & Leather Co. v. United States, 58 F.2d 1080, 75 Ct.Cl. 393; Appeal of Weed, 2 B.T.A. 84. Even if the Commissioner was wrong in his final decision that there had been no overpayment, suit upon that ground was barred at the time this proceeding was instituted and, in any event, that question is res adjudicata by the decision in Arthur C. Harvey Co. v. Malley et al., D.C., 52 F.2d 885; Id., 1 Cir., 60 F.2d 97; Id., 288 U.S. 415, 53 S.Ct. 426, 77 L.Ed. 866. Moreover, we can find no equity in plaintiff's claim. The credits made by the Commissioner February 18, 1924, of a portion of the overpayment first determined by him in respect of the taxable period January 1 to June 30, 1918, to taxes admittedly due for 1915, 1916, and 1917, were in every respect valid and legal for the reason that these credits were in pursuance of and in accordance with plaintiff's requests and claims for credit. R.H. Stearns Co. v. United States, 291 U.S. 54, 54 S.Ct. 325, 78 L.Ed. 647; Naumkeag Steam Cotton Co. v. United States, 2 F.Supp. 126; 76 Ct.Cl. 687. The requests for credit were effective. Horuff v. United States, 9 F.Supp. 1016, 80 Ct.Cl. 761. By reversal of those credits plaintiff escaped the payment of taxes admittedly owing for 1915, 1916, and 1917 in the exact amount here sought to be recovered. In addition to this, the record here shows that under the Commissioner's final decision with respect to the tax due for the period January 1 to June 30, 1918, plaintiff paid $77,928.45 less tax than it owed for that period. The petition is therefore dismissed. It is so ordered.