Opinion
No. K-549.
December 8, 1930.
Suit by the Atlantic Coast Line Railroad Company against the United States.
Petition dismissed.
This suit is for the recovery of $3,157.28, representing interest collected by the defendant under section 283(d) of the Revenue Act of 1926 (26 USCA § 1064(d) for the period from the date of the enactment of that act on February 26, 1926, to September 15, 1928, upon the sum of $20,590.49, being part of a deficiency of $32,056.44 determined by the Commissioner of Internal Revenue for the calendar year 1919 and approved by the United States Board of Tax Appeals in a judgment entered January 13, 1928.
The question presented is whether a letter of November 24, 1925, written by plaintiff's attorney to the Commissioner of Internal Revenue was a "signed notice in writing" within the meaning of section 274(d) of the Revenue Act of 1926 (26 USCA § 1048b).
Special findings of fact:
1. March 15, 1920, the plaintiff, a Virginia corporation, filed an income tax return for the calendar year 1919 for itself and certain affiliated corporations and paid the tax shown to be due thereon. Upon audit of the return, the Commissioner of Internal Revenue increased the plaintiff's net income for 1919 in the amount of $245,705.35 and determined a deficiency in tax thereon, of which he notified the plaintiff by letter of July 11, 1924.
2. August 9, 1924, the plaintiff consented in writing to the immediate assessment and collection of the tax of $11,465.95 on $143,324.38 of the increased income found by the commissioner.
3. Pursuant to section 274(a) of the Revenue Act of 1924 (26 USCA § 1048 note) the Commissioner of Internal Revenue on November 17, 1925, mailed to plaintiff a sixty-day deficiency notice in which he notified the plaintiff of his determination of an aggregate deficiency in tax for 1919 of $41,668.73. By this deficiency notice the taxable income of plaintiff was further increased, among other things, in the amount of $263,106.06 representing back mail pay awarded plaintiff by the Interstate Commerce Commission for transporting the United States mail. This increase in income was based upon the following ruling contained in said deficiency notice.
" Back Mail Pay. — Additional railway mail pay granted to carriers by order of the Interstate Commerce Commission dated December 23, 1919, for services performed from November 1, 1916, to December 31, 1917, is held to be taxable income in the year 1919 (L.O. 1086, C.B. I — 1, page 87). Accordingly, the following amounts included in your income-tax returns for the years 1920 and 1921 are added to income of the taxable year and will be eliminated from taxable income in the audit of the years in which reported:
============================================================== Company | Year | Amount | Reported | -------------------------------------|----------|------------- Atlantic Coast Line Railroad | | Company .......................... | 1920 | $254,766 41 Washington and Vandemere | | Railroad Company ................. | 1920 | 692 14 Georgia Railroad Company (½ of | | $15,521.18) ...................... | 1920 | 7,760 59 Atlantic Coast Line Railroad | | Company .......................... | 1921 | 11 49 | |------------- | | $263,230 63 Less overaccrual — Georgia Railroad | | Company (½ of $249.13) ........... | 1921 | 124 57 | |------------- | | $263,106 06" ----------------------------------------------------------------
4. November 24, 1925, plaintiff, through its general attorney, replied to this sixty-day deficiency notice. The portion of the letter from the plaintiff's general attorney relating to the present issue was as follows:
"Referring to your letter of November 17, file IV:CR;RR:MHS — 60 — D:
"In this letter reference is made for the first time to $263,106.06 additional railway mail pay under order of the Interstate Commerce Commission dated December 23, 1919. This amount is held to be taxable income in the year 1919 and it is stated that the amounts included in the income-tax returns of this company for the years 1920 and 1921 will be eliminated in the audit for those years. Under these circumstances this company does not desire to protest against the inclusion of the $263,106.06 in its income for 1919. * * *"
5. Thereafter, on January 5, 1926, the plaintiff, under authority granted by section 274(a) of the Revenue Act of 1924, appealed from the determination of the Commissioner of Internal Revenue, as set forth in said sixty-day deficiency notice to the United States Board of Tax Appeals, by the filing of its petition with the Board. In compliance with rule 5 of the Rules of Practice of the Board of Tax Appeals, the plaintiff in paragraph 4 of its petition in terms stated that of the deficiency determined by the Commissioner the only portion in controversy was $9,612.29 resulting from the following errors:
"(a) In treating certain donations as taxable income.
"(b) In levying a tax of 10% instead of 8% which petitioner claimed was the proper rate under section 231(b) of the revenue act of 1918."
The United States Board of Tax Appeals, in an opinion rendered in the case and reported in 9 B.T.A. 1193, sustained the claims of plaintiff and on January 12, 1928, entered its decision redetermining the deficiency in tax to be $32,056.44, an amount slightly less than that conceded by plaintiff, namely, $32,785.72.
6. On September 15, 1928, the Commissioner assessed the deficiency in tax determined by the Board of Tax Appeals in the amount of $32,056.44, together with interest of $4,913.85, computed from the date of the passage of the Revenue Act of 1926, namely, February 26, 1926, to September 15, 1928, under section 283(d) of the Revenue Act of 1926 (26 USCA § 1064(d). Plaintiff protested against the assessment and collection of the interest of $4,913.85 upon the ground that prior to the enactment of section 283(d) of the Revenue Act of 1926 it had consented to the immediate assessment and collection of a deficiency in tax in excess of that finally determined by the United States Board of Tax Appeals. After a hearing, the Commissioner of Internal Revenue by letter of April 22, 1929, ruled that the consent referred to in paragraph 2 hereof executed on August 9, 1924, was a sufficient compliance with section 274(d) of the Revenue Act of 1926 (26 US CA § 1048b), to prevent the assessment and collection of interest on $11,465.95 of the deficiency but that the letter of November 24, 1925, from plaintiff's general attorney set out in paragraph 4 hereof was not a sufficient compliance with the statute to prevent the assessment and collection of interest on the balance of the deficiency of $20,590.49, and that interest amounting to $3,157.28 was collectible thereon from February 26, 1926, to September 15, 1928, the date of the assessment, under section 283(d) supra. The reasons given by the Commissioner for the rejection of plaintiff's claim were as follows:
"Regarding the letter stated to have been written on November 24, 1925, which in your opinion constituted an inferential consent to the assessment and collection of the tax due on an item of $263,106.06, you are advised that such a consent cannot be recognized as a valid waiver sufficient to permit an immediate assessment and collection of tax. Unless an express and unconditional consent is given to immediate assessment and collection, there is no authority in the bureau to disregard the restrictions imposed by law and it cannot supply such consent by inference."
7. Thereafter, on May 24, 1929, upon notice and demand from the collector at Raleigh, N.C., plaintiff paid the interest of $3,157.28 under written protest, and on May 7, 1929, filed a claim for refund thereof upon the grounds that it had consented in writing to the immediate assessment and collection of the deficiency upon which the interest was computed. This claim was rejected by the Commissioner August 16, 1929.
Robert R. Falkner, of Washington, D.C., for plaintiff.
Charles R. Pollard, of Washington, D.C., and Charles B. Rugg, Asst. Atty. Gen. (James W. Wideman, of Washington, D.C., on the brief), for the United States.
Before BOOTH, Chief Justice, and WHALEY, WILLIAMS, GREEN, and LITTLETON, Judges.
Plaintiff contends that no interest was collectible on $20,590.49 of the deficiency of $32,056.44 determined by the United States Board of Tax Appeals for the calendar year 1919 for the reason that it had by letter of November 24, 1925, which was written and signed by its general attorney, consented to the inclusion in its income for 1919 of an item of $263,106.06; that this letter constituted a consent to the immediate assessment and collection of the tax due on that item; that, if the amount of the tax upon the income mentioned had been assessed and collected prior to the Revenue Act of 1926 in accordance with its consent, no interest would have been assessible as there was no authority in law to assess such interest prior to 1921 until the enactment of section 283(d) of the Revenue Act of 1926, 26 USCA § 1064(d); that the failure of the Commissioner promptly to assess and collect the amount of tax alleged to have been due should not operate to prejudice its rights.
We think the Commissioner of Internal Revenue correctly assessed and collected the interest in question. The Revenue Act of 1921, section 250(b), 42 Stat. 264, was the first act to require the payment by the taxpayer of interest upon a deficiency assessment other than the usual interest required to be paid upon the filing of a claim for abatement or credit and failure to pay after notice and demand, and for negligence. That act provided for the payment of interest at the rate of one-half of 1 per cent. per month upon the deficiency from the time the tax was due, or, if paid in installments, from the time the installments were due until the date paid. The Revenue Act of 1924, approved June 2, 1924, created the United States Board of Tax Appeals, and gave that Board authority to review the Commissioner's determination of a deficiency. This act gave the taxpayer the right to have the determination of the Commissioner reviewed before being forced to pay the deficiency. When a proceeding was instituted before the Board, the Commissioner could not under section 274(a) assess and collect any portion of the deficiency determined by him until final decision by the Board. If the decision of the Board was unfavorable to the taxpayer, the only recourse was to pay the tax, file a claim for refund, and, upon rejection thereof, to institute suit. The act imposed interest upon deficiencies determined for 1924 and subsequent years from the due date of the tax to the date of assessment.
Section 274 of the Revenue Act of 1926 likewise gave the taxpayer the right to institute a proceeding before the Board of Tax Appeals within sixty days after the mailing by the Commissioner of a notice of his determination of a deficiency, and provided that, except as otherwise provided in subdivion (d) or (f) of section 274 (26 USCA §§ 1048b, 1048d), or in sections 279, 282, or 1001 ( 26 USCA §§ 1051, 1063, 1071, 1224), no assessment of a deficiency in respect of the tax and no distraint or proceeding in court for its collection should be made or prosecuted until such notice had been mailed to the taxpayer, nor until the expiration of sixty days after such mailing, nor, if a petition should be filed with the Board, until the decision of the Board should become final.
Section 283(d) of the Revenue Act of 1926 (26 USCA § 1064(d) for the first time provided for interest on all deficiencies in tax for years prior to 1921 from the date of the passage of the act, February 26, 1926, to the thirtieth day after the waiver of the right, under section 274(a), 26 USCA § 1048, to take the case to the Board of Tax Appeals is filed or the time the tax is assessed, whichever is the earlier. Section 274(d) of the Revenue Act of 1926 (26 USCA § 1048b) provides that "the taxpayer shall at any time have the right, by a signed notice in writing filed with the commissioner, to waive the restrictions provided in subdivision (a) of this section on the assessment and collection of the whole or any part of the deficiency." By complying with the provisions of this subdivision, the taxpayer could stop the running of interest on the whole or a part of the deficiency beyond the thirty days after the filing of a waiver or consent if the Commissioner neglected to assess the tax within that time. Unless the letter from the general attorney of the plaintiff to the Commissioner satisfied the requirements of the statutes and left the Commissioner free immediately to assess and collect the deficiency, the action of the Commissioner in assessing and collecting the interest in question was correct. In our opinion the letter of November 24, 1925, was not sufficient to constitute a waiver contemplated by section 274(d) of the Revenue Act of 1926. A waiver that will stop the running of interest must be a clear, unequivocal, and decisive act of the taxpayer amounting to an estoppel on his part further to contest the determination of the Commissioner. The letter of November 24, 1925, was not such a waiver. It was not the act of the plaintiff, but was written and signed by the plaintiff's general attorney. There was nothing in it to inform the Commissioner of Internal Revenue that the deficiency arising from the inclusion of an item of $263,106.06 as income for 1919 could be immediately assessed and collected. So far as appears from the record, the general attorney was not empowered to bind the plaintiff. The Commissioner was not justified under the letter in making an immediate assessment and collection of any portion of the deficiency determined by him prior to the decision by the Board of Tax Appeals. The letter did not state that the plaintiff waived its right of appeal to the Board of Tax Appeals on the item in question, nor did it state that the plaintiff consented to the immediate assessment and collection of the tax. It did not confer upon the Commissioner any right not otherwise given by the statute. The plaintiff was familiar with the contents of a waiver that would authorize the Commissioner immediately to assess and collect, and therefore stop the running of interest. Such a waiver had been executed by the plaintiff on August 9, 1924.
Plaintiff is not entitled to recover, and the petition must be dismissed. It is so ordered.