Opinion
Plaintiff seeks to recover overpayments of $2,948.33 for 1926 and $856.03 for 1927, totaling $3,804.36, with interest. He bases his right to recover on an alleged account stated and, also, upon a timely claim for refund filed for 1926. The defenses interposed are, first, that there was no account stated, and, second, although plaintiff filed a timely claim for 1926, he is not entitled to recover for that year because the money with which he paid the tax which he seeks to recover was furnished to him by another.
Special findings of fact
1. March 15, 1927, plaintiff filed an income tax return for 1926 showing a net income of $43,045.80 and a tax of $3,581.08, which was paid in four equal installments of $895.27 on March 15, June 17, September 16, and December 20, 1927. March 15, 1928, he filed a return for 1927 showing a new income of $27,122.69 and a tax of $1,383.46, which was paid in four installments of $345.87 on March 15, June 15, and September 15, 1928, and $345.85 on December 15, 1928.
2. On January 11, 1930, the Commissioner of Internal Revenue advised plaintiff by letter as follows:
"Your income tax assessed for the year 1926, appears to be in excess of the amount due, for the reason that income of Seth Seiders was reported on your return. "The limitation imposed by law is about to expire as to the year involved, after which a refund or credit cannot be made of any amount ultimately found to have been overpaid, unless a claim is filed before the expiration of such limitation. It is, therefore, suggested that you prepare a claim upon the enclosed Form, specifically setting forth in such claim the grounds or basis of the apparent overpayment."
The Commissioner enclosed with his letter a claim for refund form and on March 12, 1930, plaintiff in accordance with the provisions of law in that regard duly executed and filed the claim requesting the refund of an overpayment for 1926 in the amount of $3,050.83. As a part of this claim, plaintiff set forth the following computation of overpayment for 1926:
Net income reported ..............
$43,045.80
Tax paid on reported net income
3,581.08
Income of Seth Seiders reported
21,920.00
Corrected net income ..............
21,125.80
Corrected income tax .................
530.25
Income tax overpaid ................
3,050.83
3. July 23, 1930, plaintiff wrote the Commissioner as follows:
"Will you kindly advise me as to status of claim for $3,050.83 filed in March of this year.
"I filed this claim after conferring with Mr. Dwight W. Green, Asst. U.S. Attorney in Chicago, when I appeared as a Government witness in the case of the Government v. Seth Seiders, of Chicago."
In reply to this letter the Commissioner wrote plaintiff on August 20, 1930, with reference to his refund claim and his taxes for 1924 to 1927, as follows:
"Reference is made to your letter dated July 23, 1930, requesting that you be advised as to the status of a claim for refund of 1926 income tax filed with the Collector of internal revenue for the Third New York District on March 12, 1930. "You are advised that an examination has been made by a revenue agent of your income-tax liability for the years 1924 to 1926, inclusive, which indicates an overassessment for those years aggregating $3,804.36. This report has been received by the Income Tax Unit but action has been deferred pending settlement of related taxpayers' cases. "It is believed probable that settlement will be made of the related taxpayers' cases within the next few months, and inasmuch as you are protected by the filing of the above claim, Certificates of Overassessment for the years 1926 and 1927 will be issued in due time."
The statement of the year "1926" in the second paragraph of the above-quoted letter was an inadvertent typographical error. The correct year, and the one which the Commissioner intended to state, was 1927. The revenue agent's examination and his report which had been received by the Income Tax Unit, as referred to in the last sentence of this paragraph, covered the years 1924 to 1927, inclusive, and such report showed a total overassessment of $3,804.36 as stated in the Commissioner's letter. This total overassessment consisted of overassessments of $2,948.33 for 1926 and $856.03 for 1927, no deficiency or overassessment being shown for 1924 or 1925. The "related taxpayers' cases" referred to in the above-quoted letter of the Commissioner were the cases of Drawoh, Inc., Sredies, Inc., and Rehtam, Inc. v. Commissioner of Internal Revenue and Seth Seiders, personally, v. Commissioner, then pending before the Board of Tax Appeals.
Thereafter, on September 5, 1930, the Commissioner wrote the plaintiff as follows with reference to his taxes for 1926 and 1927:
"Reference is made to a recent visit to this office by Mr. Charles T. Wood, in your behalf, requesting information as to the closing of your income-tax case for the years 1926 and 1927 and advice as to the approximate date certificates of overassessment for these years may be expected. "Inasmuch as there is no power of attorney on file in the Bureau authorizing Mr. Wood to represent you in income-tax matters, the result of his visit is communicated to you directly. "You are advised that this office has given careful consideration to the request for an expeditious closing of your case for the years 1926 and 1927. Due to the fact that other related cases are required to be closed under the existing regulations before Certificates of Overassessment can be issued in your case, further action will be deferred pending settlement of these related cases, which are expected to be acted upon in the near future."
4. July 18, 1933, the United States Board of Tax Appeals promulgated its opinion in the consolidated appeals of Drawoh, Inc., Sredies, Inc., and Rehtam, Inc., v. Commissioner of Internal Revenue for 1926 and 1927. This opinion of the Board is reported in 28 B.T.A. 666.
5. June 16, 1934, the Commissioner wrote plaintiff as follows:
"This office is in receipt of a letter from Young & Hughes, 70 Pine Street, New York, New York, dated June 7, 1934, transmitting a letter addressed to them by you dated June 5, 1934, relative to your claim for refund of $3,050.83 income tax for the year 1926. "You are advised that although a decision was rendered by the United States Board of Tax Appeals in the case of Seth Seiders, Ltd., to which your case is related, and appeal has been taken to the Circuit Court and an offer in compromise is also under consideration. Until these matters are settled, the certificate of overassessment which has been prepared in your favor cannot be issued."
6. Appeals to the Circuit Court of Appeals for the Seventh Circuit from the decision of the Board of Tax Appeals in the consolidated cases of Drawoh, Inc., Sredies, Inc., and Rehtam, Inc., v. Commissioner of Internal Revenue, were perfected by all parties, but the corporations involved paid the deficiencies adjudicated against them by the Board, and, in addition, paid compromise amounts of $1,000 each to obtain dismissal of the appeal filed by the Government. As part of these compromises the corporations specifically waived any and all claims which they might have to refunds or overpayments of taxes for the years involved. Upon acceptance of the compromises, the appeals filed from the decision of the Board of Tax Appeals were dismissed, 74 F.2d 1012. Claims of the Government for deficiencies and fraud penalties against Seth Seiders personally in connection with his own tax liability and the tax liabilities of the corporations mentioned for 1926 and 1927 were also compromised and dismissed. In making this compromise Seth Seiders specifically waived any right which he might have to refund of any taxes for the years involved.
7. The corporations, Rehtam, Inc., and Sredies, Inc., paid to plaintiff the amounts of $21,920 which plaintiff returned as income for 1926 and $7,980 which he returned as income in his income-tax return for 1927. These amounts were erroneously returned by plaintiff as his income; although they were paid to plaintiff by the corporations as "salary," they were in reality distributions by the corporations to Seth Seiders and were turned over to Seiders by plaintiff. Prior to the filing by plaintiff of his claim for refund for 1926, as hereinbefore stated, the Commissioner had finally determined that the amounts mentioned paid to him by the corporation and returned by him as income, but later returned to Seth Seiders, constituted distributions by the corporations to Seth Seiders and were, therefore, income to him instead of to plaintiff. The Commissioner so taxed the income to Seth Seiders and this action was affirmed by the Board of Tax Appeals. The corporations of Rehtam, Inc., and Sredies, Inc., also paid to plaintiff in 1927, as "salary and bonus," additional monies specifically ascribed to payment of plaintiff's individual income tax liability upon the aforementioned amounts returned by plaintiff as income. The additional monies received by plaintiff from the corporations with which to pay the income taxes upon the amounts mentioned were also reported by plaintiff as income in his return for 1927. The tax thereon was paid by plaintiff for that year.
8. After the cases against the corporations mentioned and Seth Seiders with reference to their income tax liabilities and penalties for the years 1926 and 1927 had been finally settled, and the payments on account of the taxes had been made, as hereinbefore, stated, the Commissioner on May 16, 1935, declined and refused to refund to plaintiff any amount in respect of the taxes paid by him for 1926 and 1927 on account of income which had been reported by plaintiff which belonged and was returned to Seth Seiders, and advised plaintiff on that date as follows:
"Reference is made to your claim for refund of income tax, for the year 1926, in the amount of $3,050.83.
"The grounds set forth in your claim are as follows:
"In the determination of the tax liability of Seth Seiders, Inc., Mather and Company, C.J. Howard, Inc., Sredies, Inc., Rehtam and Company, Drawoh, Inc., and Seth Seiders, personally, the United States Board of Tax Appeals found as a fact, that Rehtam, Inc., and Sredies, Inc., paid the income tax on the additional amounts reported by you, by turning over to you the amounts representing the tax on such additional payments (28 B.T.A. 666, at page 674). For this reason it is held that there was no overpayment of income tax for the year 1926 on your part. "For the foregoing reasons, your claim will be disallowed. Official notice of the disallowance of your claim will be issued by registered mail in accordance with Section 1113(a) of the Revenue Act of 1926, 44 Stat. 116."
Net income for 1926 as reported
$43,045.80
Deduct: Amount of income claimed to be that of SethSeiders ...........................
29,920.00
----------
Corrected taxable income .......
21,125.80
Tax previously assessed and paid
3,581.08
Corrected tax assessable ..............
530.25
----------
Tax claimed to have been overpaid.......................
3,050.83
The claim for refund filed by plaintiff for 1926 was finally rejected by the Commissioner on a schedule signed June 15, 1935. This suit was instituted August 18, 1936.
9. The amount of tax overpaid by plaintiff for 1926 on account of the amount of $21,920 reported by him as his income, but which belonged to and was returned by plaintiff to Seth Seiders and later taxed to Seiders, was $2,948.33. The amount of tax overpaid by plaintiff for 1927 on account of the amount of $7,980 erroneously reported by plaintiff as salary was $856.03. [Copyrighted Material Omitted] [Copyrighted Material Omitted] Jacob Rabkin, of New York City (Mark H. Johnson, of New York City, on the brief), for plaintiff.
J.W. Hussey, of Washington, D.C., and James W. Morris, Asst. Atty. Gen. (Robert N. Anderson and Fred K. Dyar, both of Washington, D.C., on the brief), for the United States.
Before BOOTH, Chief Justice, and GREEN, LITTLETON, and WHALEY, Judges.
LITTLETON, Judge.
The facts which are not in dispute show that plaintiff overpaid the taxes due by him for 1926 and 1927 in the amounts stated in finding 9. However, counsel for defendant contend that judgment should not be entered in favor of plaintiff and that the petition should be dismissed for the reason that the money with which plaintiff paid the tax upon the income erroneously reported was furnished him by corporations owned by Seth Seiders. It is, therefore, contended that plaintiff has no equitable right to recover.
Under the facts in this case we are of opinion that this contention is without merit. The amounts of overpayment for 1926 and 1927 which plaintiff here seeks to recover were paid to him by the corporations mentioned in the findings as "salary and bonus," and the amounts so paid were used by plaintiff to pay, in part, the tax due upon the total income reported by him and no portion so paid to and received by plaintiff, to the extent of the overpayment here involved, was ever returned by plaintiff to Seth Seiders or to anyone else. The amount so received by plaintiff in 1927 and used by him as a payment on account of tax due for 1926 was reported and returned by plaintiff as income in the year in which received, and he paid the tax thereon. The fact that the Commissioner, in determining the net income for 1927 of the corporations which paid to plaintiff the amount used by him in paying the tax upon the 1926 income erroneously reported, denied the corporations a deduction on account of the amount of such payment to plaintiff is not a bar to plaintiff's right to recover the excess tax paid. Plaintiff was the taxpayer within the meaning to section 284(a) of the Revenue Act of 1926, 44 Stat. 66, and is the proper party to claim and receive the return of the overpayments made by him. This section provides that "where there has been an overpayment * * * the amount of such overpayment shall * * * be immediately refunded to the taxpayer." Cf. Old Colony Trust Co. et al. v. Commissioner of Internal Revenue, 279 U.S. 716, 49 S.Ct 499, 73 L.Ed. 918; United States v. Jefferson Electric Manufacturing Co., 291 U.S. 386, 54 S.Ct. 443, 78 L.Ed. 859; Builders' Club of Chicago v. United States, 14 F.Supp. 1020, 83 Ct.Cl. 556, 559.
The right of plaintiff to receive the return of the excess tax paid by him does not depend upon whether the corporation from which he received the amount with which to pay the tax was permitted to take a deduction from gross income therefor as an ordinary and necessary expense. It is clear that as between plaintiff and such corporation the plaintiff is the owner of the overpayments since the total thereof was unconditionally paid to him as salary and bonus. No one, except plaintiff, would have a right to demand and receive a refund of the overpayments. The fact, if it be a fact, that the corporations might not have paid plaintiff the amount with which to pay his tax, and which he here seeks to recover, if plaintiff had not been misled into reporting income which belonged to and was ultimately received by Seth Seiders, does not entitle the Government to retain the money. The positive provision of the statute is to the contrary.
Plaintiff filed a timely and proper claim for refund for 1926 and this suit was brought within two years after the rejection of such claim by the Commissioner. He is, therefore, clearly entitled to judgment for the overpayment of $2,948.33 with interest for 1926.
With reference to 1927, it appears that plaintiff did not file a claim for refund and we think it clear that the letters of the Commissioner of August 20 and September 5, 1930, did not constitute an account stated. These letters fail to disclose a definite statement by the Commissioner of any specific amount finally determined by him as an overpayment. The most that the Commissioner did was to refer to a report of a revenue agent recommending overassessments for 1926 and 1927 in amounts which are now found to have been correct. But the Commissioner, at the same time, stated that he had taken no action on this report and did not intend to do so until certain related cases had been finally disposed of. An account stated cannot be predicated upon implication and conjecture. It must be a positive and definite statement of a balance due. Any refund in respect of the overpayment for 1927 was, therefore, barred at the time this suit was instituted.
Judgment will be entered in favor of plaintiff for $2,948.33 with interest as provided by law. It is so ordered.