Summary
holding that filing a claim for a tax refund within the statutory survival period commenced the proceeding for jurisdictional purposes
Summary of this case from L.V. Castle Inv. Group, Inc. v. C.I.ROpinion
Nos. 103-105, Dockets 23574-23576.
Argued January 11, 1956.
Decided February 7, 1956.
These are consolidated appeals of two taxpayers from orders of the Tax Court. The material record facts are as follows: Taxpayers are American Standard Watch Company, Inc. (hereinafter referred to as American Standard) and American Standard Watch Case Company, Inc. (hereinafter referred to as Watch Case). Both taxpayers paid excess profits taxes for the fiscal years ended March 31, 1944, 1945 and 1946. Each was incorporated under the laws of Rhode Island.
On June 14 and 15, 1945, taxpayers filed with the Commissioner claims under Section 722 of the Internal Revenue Code of 1939 for refund of the excess profits taxes which they had paid for the fiscal year ended March 31, 1944. Thereafter, American Standard was dissolved on March 17, 1947, and Watch Case was dissolved on November 12, 1947; and the Commissioner was notified of these dissolutions respectively on April 9, 1947, and November 28, 1947. Subsequently, on August 11, 1948, claims for refunds, under Section 722, on behalf of these dissolved corporations were filed with the Commissioner as to the excess profits taxes paid for the fiscal years ended March 31, 1945 and 1946.
On November 20, 1953, the Commissioner disallowed American Standard's claim for the periods ended March 31, 1945, and 1946; and a petition for redetermination with respect to these periods was filed in the Tax Court on behalf of American Standard on February 17, 1954. On February 2, 1954, the Commissioner disallowed all of Watch Case's claims for refund; and a petition for redetermination with respect thereto was filed in the Tax Court on behalf of the Watch Case on April 30, 1954. On February 11, 1954, the Commissioner disallowed American Standard's claim for refund for the period ended March 31, 1944 and a petition for redetermination with respect thereto was filed in the Tax Court on May 10, 1954.
On motion of the Commissioner the Tax Court, without opinion, entered orders dismissing the petitions for want of jurisdiction. From these orders the taxpayers have appealed.
The following are pertinent provisions of the Internal Revenue Code of 1939, as amended: Sec. 722, as added by Sec. 201 of the Second Revenue Act of 1940, c. 757, 54 Stat. 974, and amended by Sec. 222(a) of the Revenue Act of 1942, c. 619, 56 Stat. 798, 26 U.S.C.A. Excess Profits Taxes, page 175. "General relief — Constructive average base period net income
"(a) General rule. In any case in which the taxpayer establishes that the tax computed under this subchapter (without the benefit of this section) results in an excessive and discriminatory tax and establishes what would be a fair and just amount representing normal earnings to be used as a constructive average base period net income for the purposes of an excess profits tax based upon a comparison of normal earnings and earnings during an excess profits tax period, the tax shall be determined by using such constructive average base period net income in lieu of the average base period net income otherwise determined under this subchapter. * * *
"(d) Application for relief under this section. The taxpayer shall compute its tax, file its return, and pay the tax shown on its return under this subchapter without the application of this section, except as provided in section 710(a)(5). The benefits of this section shall not be allowed unless the taxpayer within the period of time prescribed by section 322 and subject to the limitation as to amount of credit or refund prescribed in such section makes application therefor in accordance with regulations prescribed by the Commissioner with the approval of the Secretary. If a constructive average base period net income has been determined under the provisions of this section for any taxable year, the Commissioner may, by regulations approved by the Secretary, prescribe the extent to which the limitations prescribed by this subsection may be waived for the purpose of determining the tax under this subchapter for a subsequent taxable year. * * *"
Sec. 732, as added by Sec. 9 of the Excess Profits Amendments of 1941, c. 10, 55 Stat. 17, 26 U.S.C.A. Excess Profits Taxes, page 202. Review of abnormalities by The Tax Court of the United States.
(a) (As amended by Sec. 203(a) of the Act of December 29, 1945, c. 652, 59 Stat. 669) Petition to the Tax Court. "If a claim for refund of tax under this subchapter for any taxable year is disallowed in whole or in part by the Commissioner, and the disallowance relates to the application of * * * section 722, relating to abnormalities, the Commissioner shall send notice of such disallowance to the taxpayer by registered mail. Within ninety days after such notice is mailed (not counting Saturday, Sunday, or a legal holiday in the District of Columbia as the ninetieth day) the taxpayer may file a petition with The Tax Court of the United States for a redetermination of the tax under this subchapter. If such petition is so filed, such notice of disallowance shall be deemed to be a notice of deficiency for all purposes relating to the assessment and collection of taxes or the refund or credit of overpayments.
"(b) Deficiency found by Tax Court in case of claim. If the Tax Court finds that there is no overpayment of tax in respect of any taxable year in respect of which the Commissioner has disallowed, in whole or in part, a claim for refund described in subsection (a) and the Tax Court further finds that there is a deficiency for such year, the Tax Court shall have jurisdiction to determine the amount of such deficiency and such amount shall, when the decision of the Tax Court becomes final, be assessed and shall be paid upon notice and demand from the collector."
Rhode Island General Laws Annotated 1938, c. 116, Art. II reads in part as follows:
"§ 57. Whenever any domestic corporation of the class to which this article applies * * * is insolvent * * * or whenever the holders of one-half or more of all the outstanding capital stock of any such corporation shall have voted to dissolve said corporation, the superior court may, upon the petition of any stockholder or creditor of such corporation, and upon such reasonable notice as the court may prescribe, decree a dissolution of such corporation and appoint a receiver of its estate and effects, or may decree such dissolution without appointing a receiver, or may appoint such receiver without decreeing a dissolution. * * *
"§ 58. Such receiver shall take charge of any such corporation's estate and effects of which he has been appointed receiver, and he shall collect the debts and property belonging to it. He shall have power to prosecute and defend suits in its name or otherwise, to intervene in any action, suit, or proceeding relating to such estate or effects, and to appoint agents under him. * * *
"§ 63. Every corporation whose corporate existence expires by any limitation or is terminated by dissolution or otherwise shall nevertheless be continued as a body corporate for 3 years after the date of such expiration or termination for the purpose of prosecuting and defending actions, suits or proceedings by or against it, and of enabling it to settle and close its affairs, to dispose of its property and to distribute its assets, but not for the purpose of continuing the business for which it was established: Provided, however, that no action, suit or proceeding begun by or against any such corporation before the expiration of said 3 years shall abate because of the termination of said period."
Bernard Weiss, New York City (Prew Savoy, Washington, D.C., of counsel), for petitioner.
H. Brian Holland, Ellis N. Slack and Grant W. Wiprud, Washington, D.C., for respondent.
Before CLARK, Chief Judge, and FRANK and LUMBARD, Circuit Judges.
Sec. 722(a) provides an equitable adjustment in the excess profits taxes of a corporate taxpayer which makes a showing of a designated kind of facts. There may be three steps in obtaining such relief: (1) under Sec. 722(d) the taxpayer must file a claim for refund within a designated period; (2) if the Commissioner disallows the claim, he must so notify the taxpayer; (3) within ninety days thereafter, the taxpayer must file a petition with the Tax Court for a redetermination of the tax.
The Commissioner concedes that here each taxpayer took the first step in time. The second step, the Commissioner's disallowances which taxpayers could not control, he delayed from some five to nine years. The third step, the filing of Tax Court petitions, each taxpayer took in 1954, within ninety days of the second step. This third step would therefore clearly have been timely taken, had the taxpayer not been dissolved in 1947. But the Commissioner contends that, because of the dissolutions in 1947, taxpayers no longer existed in 1954 when they took the third step, because, under the Rhode Island statute, they had died in 1950 (i.e., three years after their dissolutions). He argues that the filing of the Tax Court petition constituted the commencement of a new proceeding distinct from the previous filing of the refund claims.
We reject this argument. The obvious purpose of the remedial or "equitable" provision of the Code would be frustrated by an interpretation which would thus separate the filing of a refund claim from the filing of the Tax Court petition. We regard them both as but parts of the same "proceeding," which began when, admittedly, each of these corporations still lived. Moreover, the Rhode Island statute provides that a "proceeding" begun within three years of dissolution shall not "abate because of the termination of said period"; the word "proceeding" is broader than "action" and "suit" which are also used in that statute. Thus, whether we turn to the federal or the state statute we reach the same conclusion.
Were the Commissioner's contention accepted, he could, by his own act of delaying his determination, destroy a taxpayer's right to the relief which Congress granted. His position, adopted by the Tax Court, resembles that of Coke in his fortunately unsuccessful attempts to destroy the equitable powers of the Chancellor. The need today for governmental revenue is indeed great, but not so great as to justify, the stingy statutory interpretation the Commissioner here espouses. The country is not that hard up.
In Bahen Wright v. Commissioner, 4 Cir., 176 F.2d 538 the Fourth Circuit, we think correctly, held that under a state statute like Rhode Island's, the Commissioner's notice of deficiency constituted part of the same "proceeding" as the pursuit of the remedy in the Tax Court. We think the rationale of that decision fits here.
Cf. Bowers v. New York, Albany Lighterage Co., 273 U.S. 346, 349, 351-352, 47 S.Ct. 389, 71 L.Ed. 676; N.L.R.B. v. Timken Silent A. Co., 2 Cir., 114 F.2d 449, 450 (C.A.2).
We reject the Commissioner's suggestion that the sole available method of avoiding injustice to these taxpayers was the appointment of receivers in 1947 at the time of the dissolutions, for no purpose except that of filing petitions with the Tax Court, if the Commissioner in his uncontrollable discretion should happen to postpone his determination for more than three years. Surely taxpayers should not have to incur this added expense in anticipation of administrative delay.
Reversed and remanded.