Summary
In York Safe Lock Co. v. United States, 40 F.2d 148, 69 Ct.Cl. 529, 538, we held that section 284(a) of the Revenue Act of 1926 was mandatory that an overpayment should be credited against any tax due.
Summary of this case from Harnischfeger Corporation v. United States, (1936)Opinion
No. J-79.
April 7, 1930.
Suit by the York Safe Lock Company against the United States.
Judgment for defendant.
This suit is for the recovery of $9,082.04, interest on $28,520.31, representing a portion of an overpayment of income and profits tax for the fiscal year ending June 30, 1919, credited against an additional assessment for the fiscal year ending June 30, 1918, in the amount of $27,529.62, tax, and interest of $990.69, assessed on October 2, 1926.
On June 26, 1926, the Commissioner of Internal Revenue mailed plaintiff a notice, under section 274(a) of the Revenue Act of 1926 (26 USCA § 1048), of his final determination in respect of its tax liability for the fiscal years ending June 30, 1918, and 1919, showing a deficiency of $27,529.62 for 1918 and an overassessment of $96,521.68 for 1919. In this notice the Commissioner advised plaintiff that the overassessment would be made the subject of a certificate of overassessment which would go to the collector, and that the overassessment would be applied in accordance with section 284(a) of the Revenue Act of 1926. 26 USCA § 1065(a).
After the receipt of the notice from the Commissioner, and on September 3, 1926, plaintiff executed and filed an amended return for the fiscal year ending June 30, 1918, which it transmitted to the collector, showing its correct tax liability for this year as set forth in the Commissioner's notice, all of which, except $27,529.62, the amount of the deficiency determined by the Commissioner, had theretofore been paid on the original return. With this amended return two checks were transmitted to the collector, one for $27,529.62, the amount of the deficiency determined by the Commissioner, and the other for $859.63, interest on the deficiency at 6 per cent. from February 26, 1926, to August 31, 1926.
The Commissioner refused to recognize the amended return and the payment of the deficiency theretofore determined. He credited a portion of the overpayment for 1919 against the deficiency for 1918 and refunded the balance of the overpayment, and also the amount paid with the amended return with interest.
The question for decision is whether the plaintiff, by filing an amended return and transmitting checks to the collector for the deficiency for 1918, defeated the Commissioner's right to apply the overpayment for 1919 as a credit against the 1918 deficiency, and whether the assessment of the additional tax for the fiscal year 1918 was an additional assessment "made under the revenue act of 1926" within the meaning of section 1116 of the revenue act of 1926.
Special Findings of Fact(1) The plaintiff, a Pennsylvania corporation with office and place of business at York, filed an income and profits tax return on September 23, 1918, for the fiscal year ending June 30, 1918, showing a total tax of $69,694.07, which was paid December 16, 1918. March 19, 1919, it filed a tentative income and profits tax return for the fiscal year 1918 on which the tax was estimated at $38,616.43. No assessment was made on this return, but $9,654.11 of the estimated tax was paid on March 19, 1919. June 13, 1919, plaintiff filed a complete income and profits tax return for the fiscal year 1918 showing a tax due of $108,310.49. Inasmuch as $69,694.07 had been assessed on the return of September 23, 1918, and paid on December 16, of that year, and as $9,654.11 had been paid on March 19, 1919, there remained an unpaid balance of $28,962.31, which was paid June 16, 1919.
(2) September 24, 1919, plaintiff filed a consolidated income and profits tax return for the fiscal year ending June 30, 1919, showing a total tax of $643,319.90, which was paid in four installments of $160,829.98 each on September 24 and December 13, 1919, and March 13, 1920, and $160,829.96 on June 14, 1920.
(3) After an examination and an audit of the returns for the fiscal years 1918 and 1919, the Commissioner of Internal Revenue, by letter dated June 26, 1926, notified plaintiff, pursuant to section 274 of the Revenue Act of 1926, that he had determined a deficiency of $27,529.62 for the fiscal year 1918 and an overassessment of $96,521.58 for the fiscal year 1919. A detailed computation showing how the overassessment for 1919 was arrived at accompanied this notice to plaintiff. In this notice the Commissioner advised plaintiff as follows: "The overassessment shown above will be made the subject of a certificate of overassessment which will reach you in due course through the office of the collector of internal revenue for your district and will be applied by that official in accordance with section 284(a) of the revenue act of 1926," this being the section requiring that an overpayment be credited against any tax or installment thereof then due from the taxpayer and that any balance be refunded.
(4) After the receipt of the Commissioner's notice, the plaintiff, being aware that the overassessment determined by the Commissioner constituted an overpayment, prepared an amended income and profits tax return for the fiscal year ending June 30, 1918, in accordance with the information contained in the Commissioner's notice of June 26, 1926, showing a total tax for this fiscal year of $135,840, which amount included the deficiency of $27,529.62. This amended return was accompanied by two checks of the plaintiff, one being for $27,529.62, the amount of the deficiency determined by the Commissioner, and the other for $859.83, the amount of the interest upon the deficiency at 6 per cent. from February 26, 1926, to August 31, 1926, these amounts being the difference between the amount determined by the Commissioner to be due and the amount of $108,310.49 paid by plaintiff on the original return hereinbefore referred to. Under the provisions of section 274(a) of the Revenue Act of 1926 (26 USCA § 1048), plaintiff had sixty days from the date of the Commissioner's notice of his determination within which to file a petition with the United States Board of Tax Appeals for the redetermination of the deficiency for the fiscal year 1918. Plaintiff did not file such a petition, but agreed to the deficiency and overassessment as determined by the Commissioner. The amended return was also accompanied by a letter of plaintiff signed by its comptroller, dated York, Pa., September 3, 1926, addressed to the collector of internal revenue at Philadelphia, Pa., as follows:
"Enclosed is an amended income and profits tax return covering the fiscal year ended June 30, 1918. This return is filed for the purpose of stating our fiscal 1918 tax liability in accordance with the final determination of the Commissioner of Internal Revenue as shown in his letter of June 26, 1926. All of the tax shown by this return, with the exception of $27,529.62, has previously been assessed against us. In order to avoid any duplicate assessment we respectfully and specifically call your attention to the fact that the only additional tax for which we are liable is $27,529.62.
"Our purpose in filing this amended return is to reduce interest charges to a minimum. It is our understanding that we are liable for interest on the $27,529.62 from February 26, 1926 to the date of filing this return. We enclose two checks, one in the amount of $27,529.62, covering the unpaid taxes shown by the return, and the other in the amount of $859.83, covering interest at 6 per cent. from February 26, 1926, to Aug. 31, 1926, inclusive."
(5) On October 2, 1926, the Commissioner made an assessment of the deficiency in tax for the fiscal year 1918 of $27,529.62, together with interest of $990.69, totaling $28,520.31. On this assessment list the Commissioner instructed the collector, as follows: "Collector: Withhold demand pending comparison with 1919 overassessment."
(6) On October 13, 1926, the Commissioner approved a schedule of overassessments, known and designated as IT:A:22537, on form 7805, which schedule embraced the overassessment in respect of plaintiff's tax for the fiscal year 1919 in the amount of $96,521.68. The instructions of the Commissioner to the collector appearing upon this schedule of overassessments were as follows:
" To the collector: The amounts listed in column 4 as overassessments (or reductions of tax liability) are hereby approved, and the related claims, if any, allowed in the respective amounts indicated by the 'Certificates of overassessment' or 'Notices of adjustment of claim for abatement' attached thereto. You will immediately check such items against the accounts of the several taxpayers, and determine whether the amounts in which the tax liabilities have been reduced should be respectively abated, in whole or in part, and make such abatements as may be warranted by the condition of the taxpayers' accounts for the years involved. If any part of any such item is found to be an overpayment you will examine all accounts of the taxpayer for the 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 the subsidiary schedule of refunds and credits (Form 7805-A). The balance, if any, of the overpayment will be entered in column 12, and placed in column 4 of the subsidiary schedule (Form 7805-A) referred to above, and appropriate memorandum made upon the taxpayer's accounts. You will thereupon complete and certify this schedule and the schedule upon Form 7805-A, and return the necessary copies of each to the Commissioner of Internal Revenue."
This schedule of overassessments was transmitted to the collector of internal revenue for the First district of Pennsylvania for his action in accordance with the aforementioned directions. The collector complied with the directions of the Commissioner, and found that the overassessment determined by the Commissioner for the fiscal year 1919 constituted an overpayment. He made appropriate entries upon his records and upon the schedule of overassessments, preparing at the same time the subsidiary schedule of refunds and credits showing the application of a portion of the overpayment for the fiscal year 1919 in satisfaction of the additional assessment of the deficiency and interest for the fiscal year 1918. On November 12, 1926, the collector signed the following certificate to the commissioner on the schedule of overassessments, form 7805: "The items in this schedule have been checked against the accounts of the respective taxpayers concerned and the amounts indicated have been applied as abatements and credits on their accounts. The amounts of overpayment and the net amounts refundable have been determined to be as indicated herein." He certified to the Commissioner on the subsidiary schedule of refunds and credits, form 7805-A, as follows: "The items hereon are relisted as they appeared for refund or credit on an original schedule (bearing the same number) of overassessments and related claims, if any, heretofore approved and allowed by the Commissioner of Internal Revenue. An examination of the accounts of the several taxpayers named disclosed such items to be the portions of such previously allowed overassessments or reductions of tax liability subject to refund or credit." After so certifying, the schedules were returned to the Commissioner of Internal Revenue. The entries made upon these schedules by the collector showed that the total overassessment for the fiscal year 1919 constituted an overpayment, that $27,529.62 thereof had been applied against the additional assessment of tax for the fiscal year 1918 and $990.69 against the interest assessed thereon, and the balance of $68,001.37 was shown as refundable. The schedule of refunds and credits, form 7805-A, was signed by the assistant to the Commissioner of Internal Revenue on December 27, 1926.
(7) The Commissioner computed and allowed interest on the overpayment of $68,001.37 determined to be refundable in the amount of $25,813.50 from June 15, 1920, to October 13, 1926. No interest has been allowed or paid on the amount of the overpayment for the fiscal year 1919 credited against the additional assessment of tax and interest for the fiscal year 1918.
(8) Because of the fact that plaintiff had transmitted an amended return for the fiscal year 1918 to the collector of internal revenue with its check for the additional tax theretofore determined by the Commissioner, with interest, the Commissioner on June 23, 1927, approved another schedule of overassessments, designated IT:CR:26829, in addition to the schedule of overassessments hereinbefore referred to, issued in accordance with his determination on June 26, 1926. This schedule of overassessment of June 23, 1927, embraced an overpayment in favor of plaintiff in the amount of $28,389.45, being the amount paid by the plaintiff with the amended return. This schedule was transmitted to the collector for the First district of Pennsylvania for his action in accordance with directions appearing thereon. The overpayment of $28,389.45 was shown on the schedule as refundable. Subsequent thereto, and in accordance with the authorization of the Commissioner to issue checks for the amounts shown as refundable on the first schedule of overassessments, IT:A:22537, form 7805, and the schedule of refunds and credits, IT:R:22537, form 7805-A, and the last schedule of overassessments, IT:CR:26829, form 7920, a check in the amount of $29,760.31 was mailed to plaintiff, together with a notice of refund in the amount of $28,389.45 for the fiscal year ending June 30, 1918. The amount shown by the Treasury check was made up as follows:
Tax paid upon submission of amended return on September 3, 1926 .................... $27,529.62 Interest paid thereon ........ 859.83 _________ Total ................... 28,389.45 Interest allowed from Sept. 3, 1926, to June 23, 1927 ..... 1,370.86 _________ Total ................... 29,760.31
This notice of refund of the Commissioner advised the plaintiff as follows:
"The amount of the additional tax and interest due for the fiscal year ended June 30, 1918, was paid by credit from an overassessment allowed for the fiscal year ended June 30, 1919.
"The sum of $28,389.45, purporting to cover the same tax and interest due, was paid also upon submission of an amended return for the fiscal year ended June 30, 1918, filed September 3, 1926. The amount so paid was paid in excess of the amount due and is now refundable."
In accordance with the authorization of the Commissioner to issue checks for the amounts shown as refundable on schedule IT:R:22537, check for the amount of $93,814.87 was mailed to plaintiff on December 15, 1927, together with certificate of overassessment in the amount of $96,521.68 for the fiscal year ending June 30, 1919. The amount refundable, as shown by the Treasury check, was arrived at as follows:
Amount of overassessment as shown in certificate of overassessment issued for the fiscal year ended June 30, 1919 ............. $96,521.68 Less: Additional assessment of tax for the fiscal year ended June 30, 1918, as shown in bureau letter dated June 26, 1926 ................. $27,529.62 Interest assessed thereon .............. 990.69 __________ 28,520.31 Net overassessment ..................... 68,001.37 Interest thereon as shown in Finding 7 above ...................... 25,813.50 _________ Total amount of Treasury check ............................ 93,814.87
(9) In April, 1928, the Commissioner refunded to plaintiff the amount of interest paid on the additional assessment of tax for the fiscal year ending June 30, 1918, in the amount of $990.69, together with interest thereon in the amount of $87.13. Subsequent to June 4, 1928, but during that month, the Commissioner also refunded to plaintiff the additional interest on the interest assessed for the fiscal year ending June 30, 1918, in the amount of $990.69, computed as follows:
===================================================================================================== Interest assessed for 1918 | Year to which | Due | Date of | Amount of | credited | | allowance | interest ----------------------------------------------------------------------------------------------------- $990.69 | June 30, 1919 | June 15, 1920 | Mar. 31, 1928 | $463.28 Previously allowed and refunded as shown above ..................................... | 87.13 |-------------- Additional interest allowed and refunded ....................................... | $376.15 ----------------------------------------------------------------------------------------------------- (10) On January 19, 1928, the attorney for plaintiff requested the Commissioner by letter to allow additional interest in the amount of $9,082.04, which request was denied by the Commissioner in a letter to the attorney on February 21, 1928. The Commissioner has failed and refused, and still refuses, to pay the interest as demanded by plaintiff, and has paid interest to the plaintiff only as hereinbefore stated.Thomas G. Haight, of Jersey City, N.J. (J. Marvin Haynes and Robert H. Montgomery, both of Washington, D.C., Roswell Magill, of Chicago, Ill., and William Diebold, of New York City, on the brief), for plaintiff.
Charles R. Pollard, of Washington, D.C., and Herman J. Galloway, Asst. Atty. Gen. (Ralph E. Smith, of Washington, D.C., on the brief), for the United States.
Argued before BOOTH, Chief Justice, and LITTLETON, WILLIAMS, GREEN, and GRAHAM, Judges.
It is the position of the plaintiff that, inasmuch as it paid the additional tax determined for 1918 after the receipt of the Commissioner's notice of June 26, 1926, and before an assessment thereof had been made, and before the Commissioner had credited any portion of the overpayment for 1919 against the deficiency for 1918, it is entitled to interest upon that portion of the overpayment for 1919 which the Commissioner finally credited against the additional tax for 1918 from the date of the overpayment to October 13, 1926, the date on which the Commissioner approved the schedule of overassessment. In other words, plaintiff contends that it is entitled to interest upon the entire overpayment of $96,531.68 for 1919 instead of upon that portion which was actually refunded. Plaintiff further contends that, if it should be held that the Commissioner correctly credited a portion of the overpayment for 1919 against the deficiency for 1918, it is entitled to interest under the provisions of section 1116 of the Revenue Act of 1926, 26 USCA § 153 note, upon the overpayment so credited from the date the amount was overpaid to October 2, 1926, the date on which the additional tax for 1918 was assessed. In other words, plaintiff contends on this point that the deficiency for 1918 was "an additional assessment made under the revenue act of 1926."
The defendant claims that the statute, section 284(a) of the Revenue Act of 1926, 44 Stat. 9, 66, 26 USCA § 1065(a), is mandatory in its provision that any overpayment shall be credited against any tax or installment thereof due from the taxpayer, and that, since the additional tax for 1918 was due, and the Commissioner had determined and notified plaintiff of the amount of the deficiency for 1918 and the amount of overpayment for 1919, also that the 1919 excess would be applied as a credit against the deficiency for 1918, the plaintiff could not thereafter defeat the credit and obtain greater interest than that provided in the statute by paying the deficiency before the credit had been made effective. The defendant also contends that under section 1116 of the Revenue Act of 1926 interest upon overpayments applied as credits for years prior to 1921 is payable only to the due date of the tax against which the credit is taken, and, since the due date of the 1918 tax was prior to the date of the overpayment for 1919, no interest is allowable.
We are of opinion that the position of the defendant is correct. The provision of the statute that an overpayment shall be credited against any tax due is mandatory. Had the plaintiff discovered the deficiency in tax for 1918 and paid it before the Commissioner made his determination and notified plaintiff on June 26, 1926, the entire overpayment for 1919 would have been refundable with interest. What the situation would have been had plaintiff paid the deficiency after receipt of the Commissioner's notice of June 26, 1926, but before the expiration of the 60 days allowed for filing of a petition with the United States Board of Tax Appeals, we do not decide. On August 26, 1926, plaintiff's liability for the deficiency became definitely and finally fixed under section 274(c) of the Revenue Act of 1926 (26 USCA § 1050); it could not thereafter defeat the credit under section 284(a) of the 1926 (26 USCA § 1065(a) act by payment to the collector before the steps necessary to make the credit effective were taken. The fact that the payment was accompanied by a return does not change the situation. An amended return is not recognized or provided for in the statute, and the fact that plaintiff filed a second return after receiving the notice of the Commissioner's determination in which it computed its income and the tax thereon, in accordance with the Commissioner's notice, is of no significance in connection with the right of the Commissioner to make a credit. Plaintiff contends that it had a right to pay the additional tax and stop interest, but whatever right it may have had in this regard did not exist after August 26, 1926, which was the expiration date of the time allowed for contesting the Commissioner's determination of the deficiency. From and after August 26, 1926, the matter was controlled entirely by the provisions of the statute requiring examination of the accounts of the taxpayer with the government and the adjustment thereof by the application of the overpayment to the extent necessary to satisfy any tax due and by the refund of any excess of overpayment with interest as provided by law. The Commissioner, therefore, correctly proceeded to carry out the provisions of the statute and make the credit. He also properly held that the amount paid for 1918 on September 3, 1926, constituted an overpayment that should be refunded.
The second point, with reference to interest upon the amount of overpayment for 1919 applied as a credit against the deficiency for 1918, is controlled by the decision of this court in Riverside Dan River Cotton Mills, Inc. v. United States, 37 F.2d 965, decided February 10, 1930.
Plaintiff is not entitled to recover, and the petition must therefore be dismissed. It is so ordered.
BOOTH, Chief Justice, and WILLIAMS, GREEN, and GRAHAM, Judges, concur.