Mills
v.
Comm'r of Internal Revenue

Tax Court of the United States.Nov 13, 1944
4 T.C. 303 (U.S.T.C. 1944)
4 T.C. 303T.C.

Docket No. 112562.

1944-11-13

ATHENS ROLLER MILLS, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

George E. H. Goodner, Esq., for the petitioner. R. E. Maiden, Jr., Esq., for the respondent.


Pursuant to a mandate from the Circuit Court of Appeals, this Court entered a final order determining that petitioner had no income for 1935, but had sustained a net loss. Respondent determined a deficiency in petitioner's unjust enrichment tax liability for the same year. Held, under the restrictive provision of section 501(a)(1), Revenue Act of 1936, petitioner is not liable for such unjust enrichment tax. George E. H. Goodner, Esq., for the petitioner. R. E. Maiden, Jr., Esq., for the respondent.

The respondent determined an unjust enrichment tax liability of $3,662.38 against the petitioner for the year 1935. In his amended answer the respondent claimed an additional deficiency of $2,000.47, or a total of $5,622.85.

The primary issue is the statutory liability for unjust enrichment tax for the year 1935. Subordinate to this issue are the following controverted questions:

1. Whether there is any liability in view of section 501(a)(1).

2. Should the liability be increased by the amount of processing taxes now being determined in cases pending before this Court (Docket Nos. 436 P.T. and 437 P.T.) and should a decision in this case be deferred until decisions are handed down in those cases?

3. Should the unjust enrichment income be increased by $1,085.62 representing income tax which the respondent considered as a factor in determining the deficiency in the unjust enrichment tax?

FINDINGS OF FACT.

The petitioner is a corporation, organized in December 1932. Its principal office and place of business is in Athens, Tennessee. It filed its income and unjust enrichment tax returns for the year 1935 with the collector of internal revenue for the district of Tennessee.

Ever since its organization the petitioner has been engaged exclusively in the processing of corn and wheat and the sale of corn and wheat products. It kept its books and filed its tax returns on the accrual basis.

The petitioner's selling price of corn and wheat products was determined by the rise and fall of the market. When the processing tax became effective on the processing of corn and wheat the petitioner treated the tax as a part of the cost of the commodities. At that time other costs of production, such as labor, rose.

On December 15, 1936, the petitioner filed with the collector of internal revenue for the district of Tennessee a tentative unjust enrichment tax return, and on February 15, 1937, it filed a final or ‘complete return.‘ Both returns disclosed no unjust enrichment income and hence no tax due from the petitioner.

On April 28, 1942, the Board of Tax Appeals promulgated its findings of fact and opinion in Athens Roller Mills, Inc. v. Commissioner, Docket 99055 (46 B.T.A. 1012), involving the petitioner's income tax liability for 1935, and on June 23, 1942, the respondent filed with the Board his ‘computation for entry of decision‘ under the said findings and opinion. In the computation the respondent showed the taxable net income to be $5,885. This computation was agreed to by the petitioner and approved by the Board in decision entered July 1, 1942.

On June 25, 1942, after the respondent had filed his ‘Computation for entry of decision‘ in the petitioner's 1935 income tax case, as aforesaid, he mailed the deficiency notice in the instant case. In this notice he used the same net income for computing the unjust enrichment tax as he set forth, and as the Board used, in the 1935 income tax case, namely, $5,885. (See deficiency notice in instant case.) On this amount of income the respondent determined an unjust enrichment tax of $3,622.38. In arriving at the tax of $3,622.38 the respondent took 80 percent of $5,885 (the income tax net income for 1935), or $4,708, and deducted therefrom the amount of $1,085.62 representing the 1935 income tax as determined by him and approved by the Board in its first decision of July 1, 1942.

In arriving at the 1935 income tax net income (Title I net income) of $5,885, the Board allowed as a deduction the processing taxes, penalties, and interest which accrued against the petitioner in 1935 and which were paid in that year in the amount of $4,861.58, but denied as a deduction the processing taxes which accrued, but which were not paid, in the amount of $7,092.70.

The record discloses that the petitioner's entire gross income for the year 1935 was derived from its sales from the processing and subsequent disposition of corn or wheat products and from revenue incidental to that business. Its deductions likewise were sums paid and losses suffered in connection with that business.

The petitioner appealed to the United States Circuit Court of Appeals, Sixth Circuit, from the decision of the Board of Tax Appear entered July 1, 1942, and in decision entered June 1, 1943, the Circuit Court reversed the Board and held that the processing taxes accrued by the petitioner in 1935, but not paid, in the amount of $7,092.70 were deductible in computing income tax net income (Title I net income).

On August 28, 1943, the respondent filed with the Tax Court (which succeeded the Board on October 22, 1942) a recomputation of petitioner's 1935 income tax income and tax liability pursuant to the Circuit Court's decision and mandate. The recomputation (concurred in by petitioner) disclosed a net loss for the year of $1,207.70, after deducting from the net income of $5,885, as formerly determined, the processing taxes accrued in 1935, but no paid, in the amount of $7,092.70.

The Tax Court approved such recomputation made under the Circuit Court's decision and on September 9, 1943, entered its decision holding that there were overpayments in income and excess profits taxes for 1935 in the respective amounts of $809.19 and $276.43, a total of $1,085.62. The decision of this Court entered on September 9, 1943, is now final, no appeal therefrom having been taken by either party thereto.

In computing taxable net income for 1935 (for income tax purposes) the petitioner was allowed a deduction of $4,861.58 for processing taxes, penalties, and interest thereon, accrued and paid for that year. The petitioner filed claims for refund of the processing taxes and interest so accrued and paid. Its claims were rejected by the respondent and appeals therefrom are now pending before this Court at Docket Nos. 436 P.T. and 437 P.T.

OPINION.

VAN FOSSAN, Judge:

Section 501(a)(1) of the Revenue Act of 1936 furnishes the authority under which the respondent has determined the unjust enrichment tax liability of the petitioner. The petitioner builds its case on the following restrictive provision of that section: ‘Which does not exceed such person's net income for the entire taxable year from the sale of articles with respect to which such Federal excise tax was imposed.‘

SEC. 501. TAX ON NET INCOME FROM CERTAIN SOURCES.(a) The following taxes shall be levied, collected, and paid for each taxable year (in addition to any other tax on net income), upon the net income of every person which arises from the sources specified below:(1) A tax equal to 80 per centum of that portion of the net income from the sale of articles with respect to which a Federal excise tax was imposed on such person but not paid which is attributable to shifting to others to any extent the burden of such Federal excise tax and which does not exceed such person's net income for the entire taxable year from the sale of articles with respect to which such Federal excise tax was imposed.

The facts show that the petitioner's exclusive business was the processing of corn and wheat products and the sale of such products. Thus the petitioner's income comes within the provisions of section 501(c), and hence none of its income can be attributed to any other business or activity. Therefore, section 501(a)(1) applies precisely to the imposition of the unjust enrichment tax on the petitioner for the year 1935.

(c) The net income from the sales specified in subsection (a)(1) shall be computed as follows:(1) From the gross income from such sales there shall be deducted the allocable portion of the deductions from gross income for the taxable year which are allowable under the applicable Revenue Act; or(2) If the taxpayer so elects by filing his return on such basis, the total net income for the taxable year from the sale of all articles with respect to which each Federal excise tax was imposed (computed by deducting from the gross income from such sales the allocable portion of the deductions from gross income which are allowable Revenue Act, but without deduction of the amount of such Federal excise tax which was paid or of the amount of reimbursement to purchasers with respect to such Federal excise tax) shall be divided by the total quantity of such articles sold during the taxable year and the quotient shall be multiplied by the quantity of such articles involved in the sales specified in subsection(a)(1). Such quantities shall be expressed in terms of the unit on the basis of which the Federal excise tax was imposed.

It is also a matter of record that the Board passed on the petitioner's income for the year 1935 and refused to allow the deduction of $7,092.70 representing the processing taxes on processed corn and wheat accrued but not paid in 1935. The Circuit Court of Appeals for the Sixth Circuit reversed that decision, allowed the deduction, and determined that the petitioner had a net loss of $1,207.70. No appeal was taken by the respondent, and under the mandate of the Circuit Court of Appeals a final decision was entered by this Court on September 9, 1943, showing that the agreed computations of tax, pursuant to the mandate, set forth a net loss of $1,207.70 for the year 1935 and deciding that certain overpayments of income and excess profits taxes had been made by the petitioner.

The decisions and orders relating to the petitioner's income and its income tax for the year 1935 are now final and bring the situation precisely within the language of the statute. Since there is no income, there can be no tax on unjust enrichment imposed on the petitioner. It follows that the respondent's position can not be sustained.

Since the decision in the underlying issue is in favor of the petitioner, the secondary issues fall with it.

The respondent's brief is devoted largely to a discussion of the impropriety of allowing a deduction of the $7,092.70 item described heretofore. He argues that such a conclusion is not within the spirit of the law. That question can not be considered by us. It has already been settled by the decision of the Circuit Court of Appeals. We must take the record as we find it.

The respondent further argues that our decision in the case at bar should await the determination of the petitioner's claims, pending before us, for the refund of certain processing taxes arising out of the same transaction. There is no justification for deferring our action. Under our view of the case, the petitioner's income and its income taxes have been determined finally and, even assuming that it will be successful in securing the refunds, their disposition by way of income is a problem which must be solved if and when presented.

Decision will be entered under Rule 50.