Opinion
Dockets Nos. 40929 40930.
1954-06-14
ATLAS OIL AND REFINING CORPORATION, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
Floyd F. Toomey, Esq., Vincent H. Molony, Esq., John P. Lipscomb, Jr., Esq., Waymon G. Peavy, C. P. A. , and Thomas J. Green, C. P. A. , for the petitioner. John J. O'Toole, Esq. , and William G. O'Neill, Esq. , for the respondent.
1. Although petitioner kept books on a calendar year basis it filed returns for the fiscal years ended November 30, 1942, 1943, and 1944. Held, such returns were sufficient to start the running of the statute of limitations against assessment with respect to the 2 calendar years (1942 and 1943) which were full embraced within those fiscal years. Mabel Elevator Co., 2 B. T. A. 517; Paso Robles Mercantile Co., 12 B. T. A. 750,affirmed33 F. 2d 653 (C. A. 9), certiorari denied280 U. S. 595.
2. The Commissioner determined deficiencies for the fiscal years ended November 30, 1942 and 1943, which petitioner contested in this Court, where it was held that by reason of petitioner's method of accounting deficiencies could not be determined on a fiscal year basis; orders of no deficiency were therefore entered for those fiscal years. 17 T. C. 733. Held, since the Court had no jurisdiction to approve any deficiencies for the calendar years in question, the mailing of the deficiency notices and the commencement of the prior proceedings did not suspend the running of the statute of limitations with respect to the calendar years 1942 and 1943.
3. Prior to the running of the period of limitations petitioner had taken the firm position, opposed by the Commissioner, that it had erroneously filed its returns on a fiscal year basis. In these circumstances, held, that petitioner is not precluded from relying upon the statute of limitations either by estoppel or some cognate principle such as was applied in R. H. Stearns Co. v. United States, 291 U. S. 54.
4. Held, the particular consents executed by the parties extending the period of limitations were not sufficient to render timely the notices of deficiency upon which the present proceedings are based. Floyd F. Toomey, Esq., Vincent H. Molony, Esq., John P. Lipscomb, Jr., Esq., Waymon G. Peavy, C. P. A., and Thomas J. Green, C. P. A., for the petitioner. John J. O'Toole, Esq., and William G. O'Neill, Esq., for the respondent.
The Commissioner determined deficiencies in tax for the calendar years 1942 and 1943 as follows:
+-------------------------------------------------------+ ¦ ¦1948 ¦1948 ¦ +---------------------------------+----------+----------¦ ¦Income tax ¦$45,372.69¦$1,017.78 ¦ +---------------------------------+----------+----------¦ ¦Excess profits tax ¦648,433.81¦334,422.28¦ +---------------------------------+----------+----------¦ ¦Declared value excess-profits tax¦13,504.56 ¦64,667.95 ¦ +-------------------------------------------------------+
The initial question presented is whether the statute of limitations bars the assessment of the asserted deficiencies. The answer to this question makes unnecessary the resolution of other issues presented.
FINDINGS OF FACT.
Some of the facts have been stipulated. The stipulation and the exhibits appended thereto are incorporated herein by this reference.
Petitioner was incorporated under the laws of Delaware on November 29, 1941. At all times material to the issues presented here, petitioner maintained its principal office in Shreveport, Louisiana. Its principal office is now located in Cleveland, Ohio.
On December 2, 1941, the incorporators of petitioner, at their first meeting, adopted by laws for the regulation of corporate affairs. Such bylaws provided for the conducting of financial affairs of the corporation on the basis of a fiscal year beginning on December 1 and ending on November 30 of the following calendar year. On the following day, at the first meeting of the board of directors of petitioner, the bylaws were approved and a resolution was adopted authorizing the employment of the firm of Barrow, Wade, Guthrie & Company to conduct audits of the financial affairs of the corporation and report thereon as promptly as practicable after the close of each fiscal year.
At all times material herein, petitioner maintained its books of account on the basis of the calendar year and used the accrual method of accounting. Petitioner filed the following Federal tax returns:
+-----------------------------------------------------------------------------+ ¦Returns ¦Period covered ¦Date filed¦ +------------------------------------------+-----------------------+----------¦ ¦Income and declared value excess-profits ¦Fiscal year ended Nov. ¦Apr. 27, ¦ ¦tax (Form 1120). ¦30, 1942 ¦1943 ¦ +------------------------------------------+-----------------------+----------¦ ¦Consolidated excess profits tax (Form ¦Fiscal year ended Nov. ¦Apr. 27, ¦ ¦1121). ¦30, 1942 ¦1943 ¦ +------------------------------------------+-----------------------+----------¦ ¦Income and declared value excess-profits ¦Fiscal year ended Nov. ¦Apr. 14, ¦ ¦tax (Form 1120). ¦30, 1943 ¦1944 ¦ +------------------------------------------+-----------------------+----------¦ ¦Excess profits tax (Form 1121). ¦Fiscal year ended Nov. ¦Apr. 14, ¦ ¦ ¦30, 1943 ¦1944 ¦ +------------------------------------------+-----------------------+----------¦ ¦Income and declared value excess-profits ¦Fiscal year ended Nov. ¦Apr. 16, ¦ ¦tax (Form 1120). ¦30, 1944 ¦1945 ¦ +------------------------------------------+-----------------------+----------¦ ¦Excess profits tax (Form 1121). ¦Fiscal year ended Nov. ¦Apr. 16, ¦ ¦ ¦30, 1944 ¦1945 ¦ +-----------------------------------------------------------------------------+ All of such returns were filed with the collector of internal revenue at New Orleans, Louisiana. The subsidiary corporations joining with petitioner in the consolidated excess profits tax return for the fiscal year ended November 30, 1942, were the Atlas Oil Corporation and the Sparco Gasoline Company, Inc., both Louisiana corporations. Petitioner filed no income tax return, excess profits tax return, or consolidated excess profits tax return for the period ended November 30, 1941. Petitioner did not file any Federal tax returns whatsoever for the calendar years 1942 and 1943.
The petitioner and the Commissioner of Internal Revenue executed documents (Treasury Department Form 872 captioned ‘Consent Fixing Period of Limitations upon Assessment of Income and Profits Tax’) as follows:
+-------------------------------------------------+ ¦Year ended November 30, 1942 ¦ +-------------------------------------------------¦ ¦Date of execution by Commissioner¦Expiration date¦ +---------------------------------+---------------¦ ¦January 4, 1946 ¦June 30, 1947 ¦ +---------------------------------+---------------¦ ¦January 3, 1947 ¦June 30, 1948 ¦ +---------------------------------+---------------¦ ¦March 29, 1948 ¦June 30, 1949 ¦ +-------------------------------------------------+
Year ended November 30, 1943 Date of execution by Commissioner Expiration date January 3, 1947 June 30, 1948 March 29, 1948 June 30, 1949
Year ended November 30, 1944 Date of execution by Commissioner Expiration date November 4, 1947 June 30, 1949 January 3, 1949 June 30, 1950 March 9, 1950 June 30, 1951 May 1, 1951 June 30, 1952 January 14, 1952 June 30, 1953 January 2, 1953 June 30, 1954 No other forms 872 were executed by the parties with respect to the fiscal years ended November 30, 1942, November 30, 1943, and November 30, 1944. No such forms were executed which in terms dealt specifically with the year ended December 31, 1942, or December 31, 1943.
The following is a copy of the pertinent portion of the consent with respect to the year ended November 30, 1942, entered into by petitioner and respondent, and executed by respondent on January 4, 1946:
In pursuance of the provisions of existing Internal Revenue Laws Atlas Oil & Refining Corporation, a taxpayer (or taxpayers) of Shreveport, Louisiana, and the Commissioner of Internal Revenue hereby consent and agree as follows:
That the amount of any income, excess-profits, or war-profits taxes due under any return (or returns) made by or on behalf of the above-named taxpayer (or taxpayers) for the taxable year ended November 30, 1942, under existing acts, or under prior revenue acts, may be assessed at any time on or before June 30, 1947, except that, if a notice of a deficiency in tax is sent to said taxpayer (or taxpayers) by registered mail on or before said date, then the time for making any assessment as aforesaid shall be extended beyond the said date by the number of days during which the Commissioner is prohibited from making an assessment and for sixty days thereafter. All of the other consents referred to above contained the same language and differed only in dates and the years to which they were stated to be applicable.
In 1945, internal revenue agents were conducting an audit of petitioner's tax returns. It was then that petitioner took the position, which was opposed by the Commissioner, that its returns had been incorrectly filed on a fiscal year basis. This position was taken by petitioner in an endeavor to secure the benefits of section 112(b)(10), Internal Revenue Code, which was not applicable to taxable years beginning before January 1, 1, 1943. The calendar year-fiscal year issue was the subject of considerable discussion between petitioner's representatives and representatives of the Commissioner.
Pursuant to section 272 of the Internal Revenue Code, on June 7, 1949, the Commissioner of Internal Revenue sent to petitioner a notice of deficiency with respect to the excess profits tax liability of itself and its two subsidiaries for the fiscal year ended November 30, 1942. Another notice of deficiency was also sent to petitioner, under the same date, with respect to its income and declared value excess-profits tax liabilities for the fiscal years ended November 30, 1942, and November 30, 1943, and excess profits tax liability for the fiscal year ended November 30, 1943. The Commissioner made no determinations of petitioner's tax liabilities for the calendar years 1942 and 1943 in such notices. On August 31, 1949, petitioner filed petitions with this Court seeking a redetermination of the deficiencies asserted in those deficiency notices. The proceedings were docketed as Docket Numbers 24764 and 24765 and were consolidated for hearing.
On October 31, 1951, the Court promulgated its Opinion (17 T. C. 733) in such proceedings and on the same date decisions were entered to the effect that there were no deficiencies in tax for the fiscal year ended November 30, 1942, or November 30, 1943. The basis for such decisions as stated in the Opinion was that ‘* * * the deficiencies were incorrectly determined on a fiscal year basis.’ (17 T. C. at 740.) No appeal was taken by either party from either of the decisions and such decisions became final on January 31, 1952.
The Commissioner of Internal Revenue, under the date, March 28, 1952, sent to petitioner the notices of deficiency in tax liability for the calendar years 1942 and 1943 involved in the instant proceedings. In such notices the respondent determined that the tax liability of petitioner should have been computed on the basis of calendar years rather than fiscal years.
OPINION.
RAUM, Judge:
1. The petitioner kept its books on the basis of the calendar year but filed its tax returns on the basis of a fiscal year ended November 30. In a prior proceeding before this Court, it was decided, in petitioner's favor, that the deficiencies there proposed for fiscal years ended November 30, 1942, and November 30, 1943, were incorrectly determined on a fiscal year basis. Atlas Oil & Refining Corporation, 17 T. C. 733. The deficiencies involved here were determined by respondent for the calendar years 1942 and 1943 and he is now confronted with the argument that the assessment of such deficiencies is barred by the statute of limitations.
In support of its contention, petitioner relies on cases such as Mabel Elevator Co., 2 B. T. A. 517 (see also United States v. Mabel Elevator Co., 17 F. 2d 109 (D. Minn.)), and Paso Robles Mercantile Co., 12 B. T. A. 750, affirmed 33 F. 2d 653 (C. A. 9), certiorari denied 280 U. S. 595. In the Mabel Elevator Co. case, the taxpayer kept its books on a calendar year basis but filed its tax returns on a fiscal year basis. The asserted deficiency there was for the period July 31, 1917, through December 31, 1917. No return was filed specifically for that period, but a return was filed for the fiscal year August 1, 1917, through July 31, 1918. The contention of the Commissioner there was that since a calendar year return was required by law, and since the return filed did not comply with the law, the filed return, although it covered the period in issue, could not operate to start the running of the statute of limitations. Contrary to that position, it was held that the statute of limitations had run. The Board explained its conclusion as follows (p. 519):
The return filed purported to and did include the income of the taxpayer for the period in question. In the absence of any evidence or claim that such return was false or fraudulent with intent to evade tax, it became the duty of the Commissioner to determine, within the time provided by law, whether or not the return was erroneous in any respect.
In the Paso Robles case, the taxpayer kept its books on a fiscal year basis and filed its tax returns on a calendar year basis. It was there held that the statute of limitations had not run on the fiscal year ended January 31, 1919. The Board stated (12 B. T. A. at 753):
In our opinion the statute of limitations does not begin to run until a return or returns have been filed which at least purport to cover or include the period involved. Where there are two returns which must be considered, each of which includes a part of the taxable year, the period of limitation must be considered as to both and the statute does not run until it expires as to both these returns.
The analogy between the Paso Robles case and the instant case is immediately apparent. Applying the principle of that case here we must conclude that the statute of limitations for the calendar years 1942 and 1943 began to run on the filing of the returns for the fiscal years ended November 30, 1943, and November 30, 1944, respectively, for at those times the Commissioner was in possession of facts, required by tax returns, for the entire 12 months of each of the respective calendar years. The respondent does not deny that such is the effect of application of the Paso Robles case and that if the principle of that case is applied here the statute of limitations has run.
Respondent, however, seeks to distinguish the Paso Robles case from the one at bar by contending that its theory here is one of ‘no return’ and that theory was not pressed in Paso Robles. Respondent fails to recognize however that a ‘no return’ argument was made in Mabel Elevator Co. and rejected by the Board. Indeed, the rationale of those cases and of others following them (cf. National Shirt Shops v. United States, 57 F. 2d 925 (Ct. Cl.); Lowenstein Brothers Garment Co., 13 B. T. A. 446; United States v. National Tank & Export Co., 45 F. 2d 1005 (C. A. 5); see also Zellerbach Paper Co. v. Helvering, 293 U. S. 172) is that when the Commissioner is given information in properly executed form covering all of the period in issue the statute of limitations begins to run, even though the taxpayer may have mistakenly filed returns for improper periods. The cases are decided on the theory that the improper returns pieced together provide the Commissioner with the information necessary to determine the true tax liability of the taxpayer within the period provided by law. That rationale is incompatible with an argument such as the one advanced by respondent that since the return was not the one required by law, ‘no return’ was filed and the statute of limitations never began to run.
E. D. Gensinger, 18 T. C. 122, affirmed 208 F. 2d 576 (C. A. 9), relied on by respondent is distinguishable. There the return filed was for the period January 1, 1943, to July 7, 1943. It was agreed that the correct taxable period was the calendar year 1943. We held that the return filed was ‘not the return required by law and did not serve to start the running of the statutory period for assessment and collection of any tax for the calendar year 1943.’ 18 T. C. at 133. However, no return was filed by the corporation that covered the remaining months in 1943. In the case at bar, returns were filed which covered all of the period before us.
2. The Commissioner contends, alternatively, that even if the returns are ‘pieced together’ in such a manner as to have caused the statute of limitations to begin to run, as the taxpayer contends, we should now hold that by reason of the prior proceedings (17 T. C. 733) the statutory notices of deficiency were mailed prior to the expiration of the period of limitations as extended by such proceedings. The Commissioner argues that pursuant to section 272(f) of the Internal Revenue Code,
the mailing of the notices of deficiency for the fiscal years 1942 and 1943 and the commencement of the prior action before this Court involving the liability of this taxpayer for those fiscal years prohibited the determination of deficiencies for the calendar years here involved, and that therefore, in accordance with section 277,
SEC. 272. PROCEDURE IN GENERAL.(f) FURTHER DEFICIENCY LETTERS RESTRICTED.—If the Commissioner has mailed to the taxpayer notice of a deficiency as provided in subsection (a) of this section, and the taxpayer files a petition with the Board within the time prescribed in such subsection, the Commissioner shall have no right to determine any additional deficiency in respect of the same taxable year, * * *
the running of the statute of limitations was suspended while the prior proceedings were pending and for 60 days thereafter. We do not agree.
SEC. 277. SUSPENSION OF RUNNING OF STATUTE.The running of the statute of limitations provided in section 275 or 276 on the making of assessments and the beginning of distraint or a proceeding in court for collection, in respect of any deficiency, shall (after the mailing of a notice under section 272(a)) be suspended for the period during which the Commissioner is prohibited from making the assessment or beginning distraint or a proceeding in court (and in any event, if a proceeding in respect of the deficiency is placed on the docket of the Board, until the decision of the Board becomes final), and for sixty days thereafter.
The essence of the holding in the prior case is that this Court was without authority to consider the correctness or incorrectness of any proposed deficiency with respect to the fiscal years because deficiencies could be determined only on a calendar year basis. And since the deficiency notices were predicated on a fiscal year basis, this Court had no power to consider any possible deficiencies for the calendar years which overlapped or were comprehended within the fiscal years. The jurisdiction of this Court is limited by statute to consideration of the taxable years covered by the notice of deficiency, section 272(g), Internal Revenue Code, and we have made it plain that such jurisdiction does not embrace any periods other than the precise ones for which the Commissioner determined deficiencies. Estate of Cyrus H. K. Curtis, 36 B. T. A. 899, 903; cf. Linen Thread Co., Ltd., 14 T. C. 725, 731. Accordingly, this Court was without authority in the prior proceedings to approve deficiencies either for the fiscal years or for the calendar years.
It is basic, however, that the statute of limitations was suspended by section 277 only for such taxable years as were properly before the Court in the prior proceedings. Similarly the Commissioner was prohibited by section 272(f) only from mailing further notices of deficiency ‘in respect of the same taxable year[s]’ that were involved in the prior action. There can be no question that a taxable year ended November 30 is different from a taxable year ended December 31. The Code itself provides that the taxable year of a taxpayer shall be either a fiscal year or a calendar year, thus distinguishing between them. Secs. 41 and 48, I. R. C. In the circumstances of such clear statutory distinctions between fiscal years and calendar years we can only conclude that the statute of limitations for the calendar years 1942 and 1943 was not tolled by the filing of the petitions to this Court contesting deficiencies determined for the fiscal years ended November 30, 1942, and November 30, 1943. And similarly we think that the Commissioner was not prevented by section 272(f) from asserting deficiencies in taxes against this taxpayer for the calendar years 1942 and 1943.
3. The Commissioner contends further that petitioner is precluded from relying upon the statute of limitations by reason of a principle akin to estoppel. His argument, in large part, is based upon the opinion in R. H. Stearns Co. v. United States, 291 U. S. 54.
The taxpayer in the Stearns Co. case requested the Commissioner to refrain from collecting what appears to have been an admitted deficiency until certain claimed overpayments for other years had been ruled upon. Consents to extend the limitations period were executed by the taxpayer and the deficiency was later collected by crediting part of a refund due the taxpayer against the amount owed, as was contemplated by the taxpayer's request. It was discovered some time thereafter that one of the consents had not been timely signed by the Commissioner and the period of limitations had expired prior to the collection of the deficiency. The taxpayer then brought an action for a refund of the deficiency which it alleged had been unlawfully collected. The Supreme Court held that no refund was due. The language of the opinion on which the Commissioner here relies is as follows (291 U.S. at pp. 61–62):
The applicable principle is fundamental and unquestioned. ‘He who prevents a thing from being done may not avail himself of the nonperformance which he has himself occasioned, for the law says to him, in effect: ‘This is your own act, and therefore you are not damnified’' * * * Sometimes the resulting disability has been characterized as an estoppel, sometimes as a waiver. The label counts for little. Enough for present purposes that the disability has its roots in a principle more nearly ultimate than either waiver or estoppel, the principle that no one shall be permitted to found any claim upon its own inequity or take advantage of his own wrong. * * * A suit may not be built on an omission induced by him who sues. * * * The Court there considered that, since the taxpayer had brought the situation into being by requesting delay in the collection of the deficiency, it could not take unfair advantage of the Government because of a situation created by itself.
The difficulty with the Commissioner's argument here is that we can find no error or wrong committed by the taxpayer which can form the basis for the application of estoppel or of a kindred doctrine. Admittedly, the taxpayer was in error in filing fiscal year returns rather than calendar year returns. In the course of its conferences with the Commissioner, however, it contended that it was wrong and that its tax liability should be computed on the basis of calendar years. This the Government steadfastly refused to do and the matter was litigated before this Court; the taxpayer's position was sustained.
It appears then that the taxpayer attempted to correct the situation in its dealings with the Government, and that it was the Government which prevented the calendar year-fiscal year issue from being resolved earlier. It is difficult, in these circumstances, to say that the present situation was created by the taxpayer and that it is therefore precluded from relying upon limitations provisions which are otherwise applicable. And it becomes increasingly difficult to support such position in the light of the fact that the Commissioner, having full knowledge, could have prevented the expiration of the limitations period by issuing statutory notices of deficiency for both calendar years and fiscal years.
We think then that the case at bar does not present a situation for the application of the Stearns Co. doctrine.
4. The Government argues, finally, that the limitations periods have not expired by reason of consents executed by the parties extending such periods. As shown by our findings, consents were executed (1) for the fiscal year ended November 30, 1942, the last consent to expire June 30, 1949; (2) for the fiscal year ended November 30, 1943, the last consent to expire June 30, 1949; and (3) for the fiscal year ended November 30, 1944, the last consent to expire June 30, 1954.
In the first place, all of these consents were executed on a fiscal year basis. None of them purported to extend the period of limitations with respect to either of the 2 calendar years here involved. True, certain testimony of petitioner's representatives indicates that no thought was given at the time as to whether the limitations periods were being extended for fiscal or calendar years, the objective being to extend the periods for the purpose of finally settling petitioner's tax liability. However, the difficulty with making inquiry into such intent is that the consents were clear and unambiguous. They undertook to extend the periods of limitation for ‘the taxable year ended November 30 * * *.’ And since the consents were unamibiguous, we must take them as we find them. As was said in Constitution Publishing Co., 22 B. T. A. 426, 428:
We are without power of a court of equity and we can not substitute another consent for that expressed by the parties. We can not reform the instrument, although both parties intended something else. * * * Cf. A. L. Wilson Co., 24 B. T. A. 1056; Commissioner v. Leasing & Building Co., 46 F. 2d 2 (C. A. 6).
In the second place, the consents with respect to the fiscal years ended November 30, 1942, and November 30, 1943, expired on June 30, 1949, prior to the mailing of the deficiency notices herein. The only unexpired consents outstanding at the time of the mailing of the deficiency notices related to the fiscal year ended November 30, 1944—a fiscal year that embraced only 1 month of the second of the 2 calendar years now before the Court. There were thus no unexpired consents which, on any theory, could affect the calendar year 1942; and consents affecting the first 11 months of the calendar year 1943 had already expired. Accordingly, even if the various consents be ‘pieced together,’ it would not be open to the Commissioner to determine deficiencies for either of the 2 calendar years involved.
It may appear to be harsh to the Government to hold that the statute of limitations bars the assessment of the deficiencies here asserted; but the expiration of the period of limitations often works hardships on one party or the other. Whatever harshness that is present here could have been avoided had the Government protected its interests by issuing timely notices of deficiency covering both the calendar years and the fiscal years.
We hold then that the statute of limitations bars the assessment of the deficiencies asserted herein. It therefore is unnecessary to make findings of fact concerning, or enter into a discussion of, other questions presented.
Decisions will be entered for the petitioner.