Comm'r of Internal Revenue

Tax Court of the United States.Dec 31, 1954
23 T.C. 565 (U.S.T.C. 1954)

Docket Nos. 36103 36104.



William M. Goza, Jr., Esq., for the petitioners. James R. Harper, Jr., Esq., for the respondent.

William M. Goza, Jr., Esq., for the petitioners. James R. Harper, Jr., Esq., for the respondent.

1. By reason of a net operating loss deduction from a loss incurred in 1948, the respective petitioners received tentative abatements of their income taxes assessed for the taxable year 1946, before the renegotiation tax credit under section 3806 applicable to 1946 was applied. Because the abatements were in excess of the amounts properly allowable, the respondent determined deficiencies which petitioners allege are contrary to the definition of a deficiency contained in section 271 of the Internal Revenue Code of 1939.

Held, the method used by the respondent in his determination of the respective deficiencies is approved. Morris Kurtzon, 17 T.C. 1542, followed.

2. The respondent filed tax liens for the unpaid income taxes assessed for 1946. On the abatement of such taxes certificates of discharge of tax liens were issued. Petitioners allege that by reason of the issuance of such certificates the respondent is estopped from thereafter determining a deficiency.

Held, on the facts, that petitioners have not established a basic for an estoppel.

These consolidated proceedings involve income tax deficiencies for 1946 as follows:

+-----------------------------+ ¦Joseph T. Miller ¦$26,023.42¦ +------------------+----------¦ ¦Crystal V. Miller ¦25,814.42 ¦ +-----------------------------+

In the deficiency notices the respondent computed the respective deficiencies as follows:

+----------------------------------------------------------------------------+ ¦ ¦Joseph T. ¦Crystal V. ¦ +---------------------------------------------------+-----------+------------¦ ¦ ¦Miller ¦Miller ¦ +---------------------------------------------------+-----------+------------¦ ¦Tax assessed per original return ¦$57,532.60 ¦$57,945.85 ¦ +---------------------------------------------------+-----------+------------¦ ¦Less: Contract renegotiation tax credit under sec. ¦ ¦ ¦ +---------------------------------------------------+-----------+------------¦ ¦3806 (b), I.R.C. ¦48,041.09 ¦48,174.09 ¦ +---------------------------------------------------+-----------+------------¦ ¦ ¦ ¦ ¦ +---------------------------------------------------+-----------+------------¦ ¦ ¦9,491.51 ¦9,771.76 ¦ +---------------------------------------------------+-----------+------------¦ ¦Less: Refund allowable due to operating loss carry-¦ ¦ ¦ +---------------------------------------------------+-----------+------------¦ ¦back ¦9,491.51 ¦9,771.76 ¦ +---------------------------------------------------+-----------+------------¦ ¦ ¦ ¦ ¦ +---------------------------------------------------+-----------+------------¦ ¦Net tax assessed ¦ ¦ ¦ +---------------------------------------------------+-----------+------------¦ ¦Refund allowed on tentative allowance ¦35,514.93 ¦35,586.18 ¦ +---------------------------------------------------+-----------+------------¦ ¦Allowed as set out above ¦9,491.51 ¦9,771.76 ¦ +---------------------------------------------------+-----------+------------¦ ¦ ¦ ¦ ¦ +---------------------------------------------------+-----------+------------¦ ¦Deficiency ¦$26,023.42 ¦$25,814.42 ¦ +----------------------------------------------------------------------------+

The issues presented are (1) whether the respondent properly computed the deficiencies, and (2) whether the respondent should be estopped from asserting deficiencies.


Petitioners are husband and wife. Their individual income tax returns for 1946 were filed with the collector of internal revenue for the district of Florida, at Jacksonville.

During the years 1946, 1947, and 1948, petitioners were partners in the construction business. In their respective returns each petitioner reported taxable net income in the amount of $93,230.61. Petitioner Joseph T. Miller's return discloses a tax liability of $57,532.60, and Crystal V. Miller's return shows a liability of $57,945.83. Each return claimed a payment of $10,000 as the result of a joint declaration of estimated tax and a payment of $20,000. No additional payment having been made at the time of filing the respective returns, the respondent filed tax liens as follows:

+------------------------------------------------+ ¦Petitioner ¦Tax ¦Interest¦Total ¦ +-----------------+----------+--------+----------¦ ¦Joseph T. Miller ¦$47,532.60¦$907.87 ¦$48,440.47¦ +-----------------+----------+--------+----------¦ ¦Crystal V. Miller¦47,945.85 ¦915.77 ¦48,861.62 ¦ +------------------------------------------------+

By subsequent payments Joseph T. Miller reduced his liability for 1946 by the amount of $14,176.91, and Crystal V. Miller by the amount of $14,176.90. As of December 30, 1948, the taxes and interest assessed and unpaid against Joseph T. Miller were in the amount of $34,263.56, and against Crystal V. Miller, in the amount of $34,684.74.

The income tax return for each petitioner filed for the year 1948 reflected a net loss of $47,278.06. On January 3, 1949, each petitioner filed an application on Form 1045 for a tentative carry-back adjustment. On March 18, 1949, the unpaid assessments of income taxes for 1946 were abated on the records of the collector of internal revenue for the district, and each petitioner received a notice of allowance of such abatement. On March 21, 1949, a ‘Certificate of Discharge of Tax Lien(s) Under Internal Revenue Laws,’ Form 669, was issued to each of the petitioners, and the liens were removed. The applications on Form 1045 for the tentative carry-back adjustments were filed to get prompt action upon the release of the liens.

On June 24, 1948, the War Contracts Price Adjustment Board determined unilaterally that the partnership of petitioners had excessive profits of $135,000.

In December 1949, Joseph T. Miller and Crystal V. Miller received renegotiation credits under section 3806(b), Internal Revenue Code of 1939, in the respective amounts of $48,041.09 and $48,174.09.

An appeal was taken to this Court for a redetermination of the excessive profits applicable to the taxable year 1946. These proceedings were dismissed on September 4, 1952, on the motion of the petitioners.

After the renegotiation credit was determined, a proceeding was instituted in the United States District Court for the Southern District of Florida by the United States against these petitioners for a summary judgment to recover excessive profits in the total amount of $38,784.82, and judgment was entered in that suit. The petitioners appealed to the Court of Appeals for the Fifth Circuit from such judgment. On August 12, 1952, the suit was compromised and settled for the sum of $18,000, which was paid. A satisfaction of the judgment was executed and recorded. The appeals then pending in this Court and the Court of Appeals were thereupon dismissed.


LeMIRE, Judge:

The petitioners challenge the deficiencies involved herein on two grounds, i.e., that the respondent has improperly computed them and that the respondent is estopped from determining any deficiency for the taxable year 1946. The basic figures involved are not in dispute.

In the case of Morris Kurtzon, 17 T.C. 1542, which involved a similar issue under comparable facts, we set forth the formula for computing a statutory deficiency under section 271 of the Internal Revenue Code of 1939, as follows:

Deficiency equals correct tax— (tax on return plus prior assessments—rebates) =correct tax— tax on return— prior assessments plus rebates

The respondent has computed the deficiencies in question by the use of the above formula, and under the rationale of the Kurtzon case, supra, his method of computation is approved.

The respondent, on brief, concedes error in computing the amounts of the taxes abated as a result of the tentative allowances of net operating loss carry-backs to the taxable year 1946 from the year 1948. With respect to petitioner Joseph T. Miller, the amount used in computing the deficiency is $35,514.93, which includes an interest credit of $1,251.37. With respect to petitioner Crystal V. Miller, the amount used is $35,586.18, which includes an interest credit of $901.44. Therefore, the correct amounts of the taxes abated, as disclosed by the certificates of assessments and payments, are $34,263.56 in the case of Joseph T. Miller, and $34,684.74 in the case of Crystal V. Miller.

Effect will be given to these concessions in the computations of the deficiencies under Rule 50.

The petitioners argue that the action of the respondent in abating the income tax liability assessed as a result of the allowances of the operating loss carry-backs from 1948 to 1946 was final. We do not agree. The notices given to the petitioners stated that the adjustment was tentative and that a final final adjustment of the tax liability would be made at a later date. It is well established that within the period of limitations, and in the absence of a binding settlement, the respondent may correct an erroneous refund or credit by way of a deficiency. Oilbelt Motor Co., 16 B.T.A. 831; Joseph P. Levy et al., Executors, 18 B.T.A. 337; Henry C. Warren, 13 T.C. 205.

We next consider the contention of the petitioners with respect to the plea of estoppel in pais. It is argued that the petitioners, relying on the certificates of discharge of tax liens under internal revenue laws, Form 669, as a representation that their income tax liability for 1946 was discharged, compromised and settled the judgment entered against them in the suit by the United States to recover the excessive profits determined by the War Contracts Price Adjustment Board, dismissed their appeal to the Court of Appeals from the judgment, and dismissed their appeal to this Court for a redetermination of their excessive profits for the year 1946 to their prejudice.

Section 3675 of the Internal Revenue Code of 1939 provides:

A certificate of release or of partial discharge issued under this subchapter shall be held conclusive that the lien upon the property covered by the certificate is extinguished.

A mere reading of that statute makes it clear that the certificate is conclusive that the lien is extinguished. It is not conclusive that the tax liability has been paid. A similar statute contained in a prior revenue act has been so interpreted. Commissioner v. Angier Corporation, 50 F.2d 887, certiorari denied 284 U.S. 673.

If the petitioners in fact relied upon such certificates as a discharge of their total tax liability, they did so because of a mistake as to the effect of section 3675. The Government may not be estopped by a mistake made by a taxpayer. Blackhawk-Perry Corp. v. Commissioner, 182 F.2d 319, certiorari denied 340 U.S. 875.

We hold, on the facts disclosed by this record, that petitioners have not established a basis for the application of an estoppel.

Decisions will be entered under Rule 50.