Opinion
No. L-506.
June 6, 1932.
Suit by the Ralston Purina Company against the United States.
Petition dismissed.
Plaintiff seeks to recover $23,846.88, with interest, income and profits tax overpaid for the fiscal year ending September 30, 1919, credited March 7, 1925, to an additional tax assessed for the fiscal year 1918 after the expiration of the limitation period of five years within which the additional tax for 1918 could legally be collected.
Special Findings of Fact.1. November 30, 1918, prior to the enactment of the Revenue Act of 1918, approved February 24, 1919, plaintiff filed corporation income and excess profits tax returns under the Revenue Act of 1917 for the fiscal year beginning October 1, 1917, and ending September 30, 1918. These returns disclosed a net income of $599,486.36 and a tax of $98,350.18, which was paid March 15, 1919.
March 15, 1919, after the Revenue Act of 1918, effective January 1, 1918, was approved, plaintiff filed a tentative corporation income and profits tax return under the Revenue Act of 1918 for the fiscal year ending September 30, 1918, showing an estimated tax of $150,000. June 16, 1919, it filed its completed consolidated corporation income and profits tax return under the Revenue Act of 1918 for said fiscal year, on the form prescribed by the Treasury Department, showing a total tax of $16,162.19, being $82,187.99 less than the tax paid under the return previously filed under the Revenue Act of 1917.
2. December 15, 1919, plaintiff filed its consolidated return for the fiscal year ending September 30, 1919, disclosing a tax of $161,916.92, which was paid in four equal installments of $40,479.23 on December 15, 1919, March 15, June 16, and September 15, 1920.
3. During 1923 the commissioner made an examination of the returns and the books and records of plaintiff for the fiscal years 1918 and 1919 and determined a deficiency of $23,846.88 for 1918 and an overassessment of $68,724.90 for the fiscal year 1919. He mailed the plaintiff a notice of the deficiency for the fiscal year 1918 on February 1, 1924, and the deficiency was duly assessed March 6, 1924. This assessment was made without full compliance with the provisions of section 250(d) of the Revenue Act of 1921, and in a letter to the plaintiff notifying it of the assessment of the deficiency the commissioner advised the plaintiff of its privilege of filing a claim in abatement. March 10, 1924, the collector mailed to plaintiff a notice of a deficiency of $23,846.88 and made demand for payment thereof. The plaintiff made no protest against the deficiency and no claim in abatement was filed, but on March 14, 1924, the plaintiff sent the following telegram to the Commissioner of Internal Revenue: "November third, St. Louis division transmitted results of field audit Ralston Purina Company, St. Louis, showing additional tax for eighteen approx. twenty-four thousand [$24,000], and nineteen overpayment eighty-one thousand [$81,000]. Under March 19 special number two St. Louis collector wants to collect twenty-three eight forty-six eighty-eight [$23,846.88] is due on field audit showing nineteen overpaid. Please authorize St. Louis suspend efforts to collect eighteen until nineteen is adjusted."
The commissioner acceded to plaintiff's request and authorized the collector to withhold collection until receipt of the schedule of overassessment for 1919. The collector therefore made no further effort to collect the deficiency assessment of $23,846.88 for the fiscal year 1918 after the first notice and demand of March 10, 1924, until receipt of the schedule of overassessment for the fiscal year 1919 when a portion of the 1919 overpayment was applied as a credit against the deficiency as hereinafter mentioned.
4. November 3, 1924, the commissioner notified plaintiff that an audit of its consolidated return for the fiscal year 1919 disclosed an overassessment and advised it that the limitation imposed by law for the allowance thereof was about to expire, and suggested that plaintiff file a claim for refund to protect its interest. A refund claim for the full amount of tax assessed and paid for the fiscal year 1919 was accordingly filed November 7, 1924.
January 14, 1925, the commissioner signed schedule, Form 7805, showing an overassessment of $68,724.90 in favor of plaintiff for the fiscal year 1919. On this schedule he instructed the collector that "if any part of any such item is found to be an overpayment, you will examine all accounts of the taxpayer for other periods and apply the overpayment as a credit against the taxes due, if any, making the appropriate entries in your accounts. * * * Such credits will be entered in column 9 and placed in column 5 of a subsidiary schedule of refunds and credits (Form 7805-A)."
At the time of the receipt by the collector of this schedule he had on his books the deficiency assessment of $23,846.88 against the plaintiff for the fiscal year 1918 which had not been collected, awaiting the adjustment of the tax of plaintiff for the fiscal year 1919. Pursuant to the commissioner's instructions, the collector made appropriate entries on the schedule of overassessments, signed the certificate thereon February 12, 1925, and returned the same to the commissioner. The entries made on this schedule by the collector credited $23,846.88 of the overpayment for the fiscal year 1919 against the additional assessment of that amount for the fiscal year 1918. The collector also prepared and transmitted to the commissioner a schedule of refunds and credits, Form 7805-A, showing the overassessment for 1919 to be an overpayment, the amount thereof credited against the additional assessment for 1918, and the amount refundable. The commissioner signed the schedule of refunds and credits March 7, 1925. The excess of the overpayment for the fiscal year 1919, amounting to $44,878.02 over the additional assessment for 1918, was refunded to plaintiff by Treasury check March 20, 1925, together with interest thereon of $17,051.26.
The commissioner issued a certificate of overassessment showing the overpayment for the fiscal year 1919, which was mailed to the plaintiff.
5. May 19, 1930, plaintiff filed a claim for refund of $23,846.88 for the fiscal year ending September 30, 1919, on the grounds that: "(1) At the time the credit of $23,846.88 was applied from the taxable year 1919 to the alleged tax liability for the year 1918, both the assessment and the collection were barred by the statute of limitations and the attempted application of the credit to the alleged tax liability for the year 1918 was void and the amount attempted to be credited should be refunded, under section 609, Revenue Act of 1928; (2) the alleged assessment for the taxable year 1918 was not a legal and a lawful assessment for the reason that (upon information and belief) the Commissioner of Internal Revenue did not sign the assessment list, but it was signed by some other person."
6. This refund claim was disallowed by the commissioner upon rejection schedule signed December 12, 1930.
This suit was instituted December 8, 1930.
John E. Hughes, of Chicago, Ill. (William Cogger, of Washington, D.C., on the brief), for plaintiff.
John W. Hussey, of Washington, D.C., and Charles B. Rugg, Asst. Atty. Gen. (H.S. Fessenden, of Washington, D.C., on the brief), for the United States.
Before BOOTH, Chief Justice, and GREEN, LITTLETON, WILLIAMS, and WHALEY, Judges.
Plaintiff first contends that the deficiency for the fiscal year 1918 was not timely assessed. The return for that fiscal year, to be used in computing the statute of limitation within which the commissioner could make an assessment for such fiscal year, was the completed consolidated return filed by plaintiff June 16, 1919, under and pursuant to the provisions of the Revenue Act of 1918, approved February 24, 1919, which was retroactive to January 1, 1918 ( 40 Stat. 1057). Davis Feed Co., 2 B.T.A. 616; Covert Gear Co., 4 B.T.A. 1025; Fred T. Ley Co. v. Comm., 9 B.T.A. 749; A. Cellers et al. v. Comm., 16 B.T.A. 411; National Paper Products Co., 26 B.T.A. ___, decided May 17, 1932; United States v. Updike (D.C.) 1 F.2d 550, affirmed (C.C.A.) 8 F.2d 913; United States v. Updike (D.C.) 25 F.2d 746, affirmed (C.C.A.) 32 F.2d 1; Id., 281 U.S. 489, 50 S. Ct. 367, 74 L. Ed. 984; Whitney Bodden Shipping Co. v. United States, 52 F.2d 1003, 72 Ct. Cl. 653; IT: 1875, II-2 C.B. 238. The additional assessment of $23,846.88, March 6, 1924, for the fiscal year 1918 was therefore timely.
The deficiency of $23,846.88 for 1918 was timely assessed. At the time the collector mailed plaintiff a notice of the deficiency and made demand for payment thereof, he had three months within which to make collection. Plaintiff was advised by the commissioner at the time the assessment was made that inasmuch as the deficiency had been assessed without giving plaintiff an opportunity to appeal, as provided in section 250(d) of the Revenue Act of 1921 ( 42 Stat. 266), it had the privilege of filing a claim in abatement with respect to the deficiency. No protest of the deficiency was made and no claim in abatement was filed. The plaintiff appears to have agreed to the correctness of the deficiency for 1918. In order to be relieved of the burden of having to pay the additional tax of $23,846.88 due for 1918, plaintiff communicated with the commissioner by telegram in which it asked that collection of the additional tax due for 1918 be withheld until the overpayment for 1919 was adjusted. In our opinion this telegram to the commissioner was an agreement on the part of the plaintiff that if the government would relieve it of the burden of paying the additional tax for 1918 prior to the allowance of the refund for 1919 the government might retain a sufficient amount of the 1919 overpayment to satisfy the deficiency for 1918. In consideration thereof the commissioner advised the collector to take no steps to collect the deficiency until receipt of the schedule of overassessment for 1919. But for the plaintiff's telegram to the commissioner the additional tax for the fiscal year 1918 would have been collected or a distraint proceeding for the collection thereof would have been begun prior to the expiration of the limitation period of five years after the return for 1918 was filed on June 16, 1919. When the overpayment of $68,724.90 for the fiscal year 1918 was determined on November 3, 1924, and formally allowed on March 3, 1925, the government retained $23,846.88 thereof, as the plaintiff had requested and agreed should be done, and the balance of $44,878.02 was duly refunded to plaintiff, together with interest of $17,051.26. Plaintiff was duly notified of the action taken. It made no objection thereto and for more than five years thereafter acquiesced in the action which had been taken. In these circumstances it is our opinion that plaintiff is estopped to assert that the government had no right to retain that portion of the 1919 overpayment equal to the additional tax due for 1918. In Dickerson v. Colgrove, 100 U.S. 578, 580, 25 L. Ed. 618, the court said: "The estoppel here relied upon is known as an equitable estoppel, or estoppel in pais. The law upon the subject is well settled. The vital principle is that he who by his language or conduct leads another to do what he would not otherwise have done, shall not subject such person to loss or injury by disappointing the expectations upon which he acted. Such a change of position is sternly forbidden. * * * There is no rule more necessary to enforce good faith than that which compels a person to abstain from asserting claims which he has induced others to suppose he would not rely on. The rule does not rest on the assumption that he has obtained any personal gain or advantage, but on the fact that he has induced others to act in such a manner that they will be seriously prejudiced if he is allowed to fail in carrying out what he has encouraged them to expect."
The relief of equitable estoppel is administered in favor of one who has been induced to alter his line of conduct with respect to the subject matter in controversy so as to have foregone some right or remedy which he otherwise would have taken. Under the doctrine of equitable estoppel, a person is held to a representation made or a position assumed, where otherwise inequitable consequences would result to another, who, having the right to do so under all the circumstances of the case, has, in good faith, relied thereon. Cf. Lucas v. J.C. Hunt (C.C.A.) 45 F.2d 781; Louis Werner Sawmill Co., 26 B.T.A. ___, decided May 24, 1932. Although this case is not a suit in equity but is one at law in assumpsit, however, an assumpsit of this kind is of an equitable nature, New York Life Insurance Co. v. Anderson (C.C.A.) 263 F. 527, and the defendant may rely upon any defense which shows that the plaintiff in equity and good conscience is not entitled to recover in whole or in part. Myers v. Hurley Motor Co., 273 U.S. 18, 47 S. Ct. 277, 71 L. Ed. 515, 50 A.L.R. 1181; section 274b, of the Judicial Code, section 398, USCA tit. 28.
The facts and circumstances in this case distinguish it from the ordinary case where the taxpayer files the usual claim for credit. A claim for credit is directed primarily to the year in which there is an overpayment and operates to protect the rights of the person making it with respect to the statute of limitation for the year of the overpayment. That the plaintiff's telegram in this case was construed by the commissioner as its agreement to the collection of the 1918 tax out of the 1919 overpayment, as and when allowed, is evidenced by the fact that the commissioner on November 3, 1924, prior to the allowance of the overpayment for 1919, advised the plaintiff to file a claim for refund for 1919 to protect its interest against the statute of limitation for that year. The telegram in this case was not a claim for credit but it was directed primarily to the collection of the additional tax for 1918. By its terms the plaintiff represented to the commissioner that if he would instruct the collector not to collect the 1918 tax, it would consent to a satisfaction thereof out of the 1919 overpayment when allowed. The telegram was therefore more than a mere request for delay. It was a promise that the 1918 deficiency would be paid out of the 1919 overpayment.
It is urged by counsel for plaintiff that the commissioner's reason for not collecting the tax for 1918 earlier than he did was due to the fact that he misunderstood the law and considered that there was no limitation on his right to collect by distraint. Assuming that the commissioner so construed the statute, this does not help the plaintiff inasmuch as the facts in this case show that had it not been for the representation made by plaintiff to the commissioner the tax for 1918, in the amount sought to be recovered, would have been timely collected.
The petition is dismissed. It is so ordered.