Opinion
No. J-151.
April 7, 1930.
Suit by the Atlas Powder Company against the United States.
Judgment for plaintiff.
In this suit plaintiff seeks to recover $15,202.74 as interest in excess of that allowed by the Commissioner on $51,127.33 of an overpayment for 1917 credited against an additional assessment for 1919, and $12,164.73 of an overpayment for 1918 credited against a tax for 1919, the assessment of the additional tax for 1919 having been made on March 15, 1924.
Plaintiff contends that the credits were taken under the provisions of section 1019 of the Revenue Act of 1924 ( 26 USCA § 153 note) and that the provisions of that section apply in the determination of interest.
The defendant insists that the credits were taken subsequent to February 26, 1926, the effective date of the Revenue Act of 1926, and, by reason of the provisions of subdivision (c) of section 1116 of the Revenue Act of 1926 ( 26 USCA § 153 note) the provisions of the 1926 act control in the determination of interest upon the overpayments applied as credits.
The facts were stipulated.
Special findings of fact:
1. Plaintiff, a Delaware corporation, filed its income tax return for 1916 on February 26, 1917, showing a tax of $49,987.99, which was paid on May 25, 1917. September 27, 1917, it filed an amended return for 1916, from which it appeared that the total tax due for the year was $65,457.29, and, inasmuch as $49,987.99 had been paid upon the original return, the balance, or $15,469.30, was paid on June 25, 1918.
2. April 1, 1918, plaintiff filed an income tax return for 1917 showing a tax of $197,812.41, which was paid June 15, 1918. At the same time, and on the same date, it filed a consolidated excess profits tax return in which the taxable net income of the Grant Powder Company was included, and from which it appeared that the profits tax due was $935,261, which was paid June 15, 1918, the total tax paid for the year 1917 on these returns being $1,131,073.41. Subsequently, on May 3, 1919, the Commissioner of Internal Revenue made an assessment of the income and profits tax in the amount of $911,495.41. On August 20, 1919, plaintiff filed a claim for the abatement of the last-mentioned amount, claiming that it was a duplication and in error.
3. March 15, 1919, plaintiff filed a tentative income and profits tax return for 1918, on which the tax was estimated at $594,684.45. No assessment was made on this return. June 16, 1919, it filed a complete consolidated income and profits tax return for 1918 showing a total tax due by plaintiff and its affiliated companies of $604,002.84, which was paid in four installments — $148,671.11 on March 15, 1919; $153,365.25 on June 16, 1919; and $150,983.24 each on September 15 and December 15, 1919.
4. March 23, 1920, plaintiff filed a tentative income and profits tax return for 1919, on which it estimated a tax of $196,527.61. No assessment was made on this return. May 15, 1920, it filed a complete consolidated income and profits tax return for 1919 showing a tax due by plaintiff and its affiliated companies of $195,654.41, which was paid in four installments of $49,131.90 on May 15, 1920; $48,695.31 on June 15, 1920; and $48,913.60 each on September 15 and December 15, 1920.
5. March 15, 1921, plaintiff filed a consolidated income and profits tax return for 1920 showing the tax due by it and its affiliated companies of $153,836.44, on which it made payments of $37,831.05 on March 17, 1921, and $38,459.11 each on June 15 and September 15, 1921, leaving a balance of $39,087.17. December 13, 1921, it filed a claim for the abatement of the fourth installment of the income and profits tax for 1920 of $38,459.11. The first installment for 1920 was understated $628.06, the amount remaining due and unpaid after the filing of the claim for abatement of $38,459.11.
6. After an examination and an audit of the returns of plaintiff for the years 1916 to 1919, inclusive, the Commissioner of Internal Revenue on December 7, 1922, notified plaintiff of his determination that there were overassessments of $5,165.83 for 1916 and $33,153.39 for 1917, and deficiencies of $236,568.67 for 1918 and $69,526.20 for 1919, the total of the overassessments being $38,319.22 and the total of the deficiencies being $306,094.87.
7. March 15, 1924, the Commissioner made additional assessments of the deficiencies for 1918 and 1919. In connection with this assessment the Commissioner instructed the collector as follows: "Withhold demand pending comparison with schedule of overassessments (Form 7805), No. ______, will be forwarded at an early date." March 31, 1924, the Commissioner approved a schedule of overassessments known and designated IT:A:9960, form 7805, which embraced an overassessment in favor of plaintiff of $5,165.83 for 1916. This schedule was transmitted to the collector of internal revenue for the district of Delaware for his action in accordance with the directions appearing thereon, together with a certificate of overassessment in the amount of $5,165.83. The collector complied with the directions and on April 10, 1924, signed and returned the schedule, together with the certificate of overassessment in the amount stated. The overassessment of $5,165.83 for 1916 was applied as a credit against the additional assessment of tax for 1918 in the amount of $236,568.57. The certificate of overassessment for 1916 was mailed to the plaintiff and received by it on August 5, 1924.
8. After a further examination and audit of the return for 1916 the Commissioner, by letter dated July 23, 1925, notified plaintiff that his determination for that year was erroneous to the extent of $3,091.03 and that the correct amount of the overassessment for 1916 was $2,074.80 instead of $5,165.83, as set forth above. Appropriate corrections were made to the credit referred to above, leaving a balance of the additional assessment for 1918 in the amount of $234,493.87. Subsequently, upon a re-examination and reaudit of the returns for 1917 and 1918, the Commissioner determined overassessments of $1,001,709.95 for 1917 and $250,883.81 for 1918.
9. December 8, 1925, the Commissioner approved a schedule of overassessments designated as schedule IT:A:17533, form 7805. This schedule embraced the overassessments above mentioned in respect of the tax of plaintiff for the years mentioned. The schedule was transmitted to the collector of internal revenue for the district of Delaware for his action in accordance with the directions appearing thereon, together with certificates of overassessments for 1917 and 1918 in the amounts of $1,001,709.95 and $250,883.81, respectively. The instructions to the collector of internal revenue, as shown on this schedule of overassessments, were as follows:
"Schedule of Overassessments and Allowance of Abatements, Credits, Refunds, and Related Claims, If Any — Income Tax Unit — Authorization of Commissioner
"To the Collector ______ District of Maryland ______:
"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 taxpayer's 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 other periods and apply the overpayment as a credit against the taxes due, if any, making the appropriate entries in your accounts. (This applies only to income, war-profits, and excess-profits taxes.) Such credits will be entered in column 9, and placed in column 5 of a 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 an appropriate memorandum made upon the taxpayer's account.
"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.
"Date ______ Dec. 8, 1925. "[Signed] D.H. Blair, J., "Commissioner of Internal Revenue."
10. The collector of internal revenue complied with the foregoing instructions and made the following entries on the schedule of overassessments:
======================================================================================= | Overassessments | | | | or reductions | Taxable | Abatement | Overpayment Name of taxpayer | of tax | year | (amount) | (amount) | liability | | | | (amount) | | | (3) | (4) | (6) | (7) | (8) -----------------------|-----------------|-------------|---------------|--------------- Atlas Powder Co. ..... | $1,001,709.95 | 17 | $911,495.45 | $90,214.50 Atlas Powder Co. ..... | 250,883.81 | 18 | 234,493.87 | 16,389.94 ========================================================================================= Credit | | Due date of | Net amount (amount | | items against | refundable carried to | Account credited. List, page, an line | which credit | carried to Form 7805-A) | | was made | Form 7805-A (9) | (10) | (11) | (12) ---------------|---------------------------------------|---------------|--------------- $39,087.17 | Dec., 1925-514 sec. ................. | 12-15-21 | .............. 51,127.33 | Dec., 1925-514 sec. ................. | ............. | .............. 12,164.73 | Dec., 1925-514 sec. ................. | ............. | $4,225.21 --------------------------------------------------------------------------------------- 11. On January 7, 1926, the collector signed the following certificate to the schedule of overassessments, form 7805, and returned it to the Commissioner: "Certificate of Collector."To the Commissioner of Internal Revenue:
"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.
"[Signed] Galen L. Tait. B., "Collector ______ District of Maryland. "Date ______ Jan. 7, 1926."
On the same date the collector signed and returned with this schedule a schedule of refunds and credits designated as schedule IT:E:17533, form 7805-A. On this schedule of refunds and credits, the collector made the following entries:
Schedule of refunds and credits — Illegal or erroneous collections — Income Tax Unit ========================================================================================= Name and address of taxpayer | Net amount | | refundable | Amount credited (3) | (4) | (5) --------------------------------------------------------|--------------|----------------- Atlas Powder Co. ...................................... | ............ | $39,087.17 Credit to additional assessment list dated 3/15/24. | | Atlas Powder Co. ...................................... | ............ | 51,127.33 Credit to additional assessment list dated 3/15/24. | | Atlas Powder Co. ...................................... | ............ | 12,164.73 Atlas Powder Co. ...................................... | $4,225.21 | ................ ----------------------------------------------------------------------------------------- On the same date the collector certified each certificate of overassessment as follows:"I certify that the records of this office are given above; that I have caused to be prepared on Form 7776-B the full, true, and correct transcript of all accounts of the taxpayer as required by instructions thereon; and that the amounts have been abated, credited, or certified for refund as shown on the reverse side of this form.
"[Signed] Galen L. Tait. B., "Collector of Internal Revenue. "By ________, ________."
12. These schedules were received by the Commissioner, and on February 18, 1925, he signed and approved the schedule of refunds and credits authorizing the disbursing clerk of the Treasury Department to issue checks for the amounts to be refunded to the taxpayers whose names appeared on the said schedule.
13. Of the overassessment of $1,001,709.95 for 1917, $911,495.45 was abated, and of the balance $39,087.17 was credited against the unpaid portion of the fourth installment of tax for 1920 hereinbefore referred to, and $51,127.33 was credited against the additional assessment for 1919 in the amount of $69,526.20.
14. Of the overassessment of $250,883.81 for 1918, $234,493.87 was abated; $12,164.73 of the overpayment was credited to the balance of the deficiency for 1919, and the balance of the overpayment for 1918, amounting to $4,225.21, was refunded.
15. Interest has been allowed and paid on the overpayments for 1917 and 1918 credited and refunded as follows:
====================================================================================================== | | | | | Interest allowed | | Amount of | Amount | Amount | Amount |---------------------| Year | overassessment | abated | credited | refunded | From — | To — | Interest -----------|----------------|-------------|-------------|-----------|----------|----------|----------- 1917 ..... | $1,001,709.95 | $911,495.45 | $51,127.33 | ........ | 6/15/18 | 3/15/20 | $5,368.37 | | | 39,087.17 | ........ | 6/15/18 | 3/15/21 | 6,449.38 | | | | |----------- | Interest allowed for 1917 .............. | ........ | ........ | ....... | $11,817.75 | | | | |=========== 1918 ..... | 250,883.91 | 234,493.87 | 10,089.93 | ........ | 12/15/19 | 3/15/20 | $ 151.35 | | | | |----------- | | $4,225.21 | 12/15/19 | 12/ 8/25 | $ 1,667.27 | Interest allowed for 1918 .............. | ......... | ........ | ........ | 1,515.92 ------------------------------------------------------------------------------------------------------ Upon the return by the collector of the schedule of overassessments and the subsidiary schedule showing the condition of the taxpayer's accounts, a computation of the interest upon the amounts that should be credited or refunded is made in the Bureau of Internal Revenue, and such computation is shown upon the collector's certified record of assessments and payments before the schedule of refunds and credits is signed and approved by the Commissioner of Internal Revenue; such interest computation was made in this case, as set forth in the preceding paragraph, by M.A. Griswold, interest examiner of the Bureau of Internal Revenue, on February 8, 1926, and the schedule was signed and approved by the Commissioner on February 18, 1926, as hereinbefore set forth.16. The plaintiff paid no interest on the additional tax assessed for 1918 and 1919.
17. April 10, 1926, a certificate of overassessment in the amount of $1,001,709.95 for 1917, together with a treasury check for $11,817.75, representing interest allowed by the Commissioner on the overpayment for that year credited against the additional tax for 1919 and 1920, and a certificate of overassessment in the amount of $250,883.81 for 1918, together with a treasury check in the total amount of $5,892.48 made up of $4,225.21, the amount of the overpayment for that year refunded, and interest in the amount of $1,667.27 upon a portion of the overpayment credited and the amount refunded, were mailed to the plaintiff.
18. The interest upon the overpayment of $2,074.80 for 1916, first credited against the additional assessment made for 1918 on March 15, 1924, before it was determined later that there had been an overassessment for 1918, and the additional interest upon the overpayment for 1917 applied as a credit, were determined as follows:
================================================================================================= | | | | Interest allowed | | Amount of | Amount | Amount |---------------------| Year | overassessment | abated | credited | From — | To — | Interest -----------|----------------|--------------------|-------------|----------|----------|----------- 1916 ..... | $2,074.80 | ................. | $ 2,074.80 | 6/25/18 | 3/15/20 | $ 213.96 | 1,001,709.95 | $911,495.45 | ........... | ........ | ........ | .......... | | 51,127.33 | 6/15/18 | 3/15/20 | 5,368.37 | | 628.06 | 6/15/18 | 3/15/21 | 103.63 | | 38,459.11 | 6/15/18 | 12/15/21 | 8,076.41 | | | | |----------- | Interest allowable for 1917 ....... | ........... | ........ | ........ | $13,548.41 | Previously allowed as shown in | | | | | finding 15 ...................... | ........... | ........ | ........ | 11,817.75 | | | | |----------- | Additional interest allowed .... | ........... | ........ | ........ | $ 1,730.66 --------------------------------------------------------------------------------------------------- 19. April 8, 1927, plaintiff received from the collector of internal revenue notice of interest allowance in the amount of $213.96 for 1916, together with a treasury check in that amount, and on April 15, 1927, it received from the collector a notice of interest allowance in the amount of $1,730.66 for 1917, together with a treasury check in that amount.20. In a letter of June 8, 1927, plaintiff protested the allowance of interest and requested the Commissioner to compute and allow additional interest on the overpayments for 1916, 1917, and 1918. On July 6, 1927, the Commissioner notified plaintiff that an allowance of interest in addition to that computed would not be made.
John Enrietto, of Washington, D.C. (Richard S. Doyle and Hamel Doyle, all of Washington, D.C., on the brief), for plaintiff.
Charles R. Pollard, of Washington, D.C., and Herman J. Galloway, Asst. Atty. Gen. (J.S. Franklin, of Washington, D.C., on the brief), for the United States.
Before BOOTH, Chief Justice, and LITTLETON, WILLIAMS, GREEN, and GRAHAM, Judges.
The question in this case is the same as that this date decided by the court in West Leechburg Steel Company, 39 F.2d 131, the provisions of section 1019 of the Revenue Act of 1924, 43 Stat. 253, 346, or section 1116 of the Revenue Act of 1926, 44 Stat. 9, 119, section 153, note, tit. 26, USCA, control in determining the amount of interest to which the plaintiff is entitled upon overpayments for 1916 and 1918.
The plaintiff claims that the provisions of section 1019 of the Revenue Act of 1924 ( 26 USCA § 153 note) govern and that it is entitled to interest to the date of the assessment of the additional tax against which the overpayments were credited; that as to the overpayment of $2,074.80 for 1916 applied as a credit against the additional tax for 1918, assessed on March 15, 1924, it is entitled to interest of $712.01, or $498.05 in excess of that allowed and paid by the Commissioner, computed from the date of the overpayment on June 25, 1918, to the date of the assessment of the additional tax for 1918, on March 15, 1924; that as to the amount of $51,127.33, being that portion of the overpayment for 1917 credited against the additional assessment for 1919, it is entitled to interest in the total amount of $17,638.93, or $12,270.56 in excess of that allowed and paid by the Commissioner, computed upon this amount from the date of the overpayment on June 15, 1918, to the date of the assessment of the additional tax for 1919, on March 15, 1924; that as to the amount of $10,089.93, representing that portion of the overpayment for 1918 subsequently determined and credited against the additional tax for 1919, it is entitled to interest in the total amount of $2,572.93, or $2,421.58 in excess of that allowed and paid by the Commissioner, computed from December 15, 1919, the date of the overpayment to the date of the assessment of the additional tax for 1919, on March 15, 1924; the total of the additional interest claimed being $15,190.19.
The plaintiff contends that a credit is taken within the meaning of the act and is made effective by the action of the collector of internal revenue upon the receipt by him of the certificate of overassessment from the Commissioner and that, in any event, a credit, within the meaning of the statute, is taken not later than the date on which the Commissioner approves the schedule of refunds and credits certified to him by the collector of internal revenue and since, in this case, both of those dates were prior to the effective date of the Revenue Act of 1926, which was approved on February 26, 1926, it is entitled to judgment for the interest claimed herein.
The defendant insists that the provisions of the Revenue Act of 1926 govern for the reason that a credit is not taken until the taxpayer receives from the Commissioner through the collector the certificates of overassessment and the checks for the amount of the refunds and interest.
In the opinion of the court a credit is taken within the meaning of section 1019 of the Revenue Act of 1924 and section 1116 of the Revenue Act of 1926 ( 26 USCA § 153, note) when it has finally been made effective, and that this does not occur until the Commissioner of Internal Revenue has finally determined that there has been an overpayment, which can be credited, and has approved the schedules certified to him by the collector of internal revenue.
Although the computation of interest in this case and the approval by the Commissioner of the schedule of refunds and credits occurred prior to the enactment of the Revenue Act of 1926 and while the Revenue Act of 1924 was in force, the interest computed, allowed, and paid was made to conform to the provisions of section 1116 of the Revenue Act of 1926, which was subsequently enacted.
Congress used the words "allowance of a refund or credit" and "credit taken" in sections 1019 of the Revenue Act of 1924 and 1116 of the Revenue Act of 1926 ( 26 USCA § 153 note); in paragraph 2, subdivision (b), of section 1116, Congress, for the purpose of fixing the time during which interest should be computed and paid upon an amount to be refunded, defined the term "date of allowance of refund" as being the first date on which the Commissioner signs the schedule of overassessments. Nothing was said as to the date on which a credit should be regarded as taken. In these sections Congress primarily was concerned with the dates from which and to which interest should be computed upon overpayments to be refunded and overpayments for one year to be credited against deficiencies for another year. In the case of credits, this period was definitely fixed. As to additional assessments the period as fixed by section 1019 of the Revenue Act of 1924 was from the date of the overpayment to the date of the assessment of the deficiency; in the Revenue Act of 1926 it was from the date of overpayment to the date on which the amount constituting the deficiency should have been paid, in respect of the additional assessments for years prior to 1921 and in respect of additional assessments for 1921 and subsequent years from the date of the overpayment to the date of the assessment of the additional tax. Riverside Dan River Cotton Mills, Inc., v. United States (Ct.Cl.) 37 F.2d 965, decided February 10, 1930. The date on which a credit is taken or is made effective under the statute is the same, whether made under the 1924 act or under the 1926 act. For the reasons stated by the court in West Leechburg Steel Company v. United States, supra, we think a credit is made effective and is taken on the date on which the Commissioner approves the schedule of abatements, credits, and refunds certified to him by the collector.
The Commissioner is the executive directly in charge of the administrative branch of the government having to do with the assessment, collection, refund, and crediting of taxes. Girard Trust Co. et al. v. United States, 270 U.S. 163, 46 S. Ct. 229, 70 L. Ed. 524. The collector of internal revenue cannot act independently of him in these matters, except as to the collection of taxes shown by the taxpayer upon the return and not stayed by the filing of a claim for abatement or otherwise. The signing of the schedule of overassessments by the Commissioner in the first instance and the making of a report by the collector to the Commissioner as to the status of the taxpayer's accounts are steps preliminary to making a credit effective. In the matter of credits the collector of internal revenue is merely the bookkeeper who reports the condition of the taxpayer's accounts to the Commissioner of Internal Revenue for final action.
The parties in their briefs have confused the term "credit taken." The plaintiff contends that "the collector takes the credit," while the defendant insists that "the taxpayer takes the credit when he receives notice from the commissioner that it has been made." Neither position is correct. The law takes the credit when the Commissioner has performed the act necessary to make the credit effective under the statute, and, in the absence of any statutory provision to the contrary, the credit is taken and is made effective when the Commissioner finally acts by approving the schedule certified to him by the collector. That which is thereafter done in respect of a credit is administrative and procedural, requiring no exercise of judgment or discretion. See Pittsburgh Bridge Iron Works v. U.S. (D.C.W.D., Pa.) 40 F.2d 692, par. 11, vol. 1, P.H. Federal Tax Service. Therefore the credits here involved were taken within the meaning of the statute prior to the enactment of the Revenue Act of 1926 and the amount of interest upon the overpayments applied as credits is governed by section 1019 of the Revenue Act of 1924 ( 26 USCA § 153 note). The plaintiff is therefore entitled to judgment for $15,190.19 as interest upon the credits mentioned from the dates of overpayment thereof to the date of the additional assessment of the tax against which credited. It is so ordered.
BOOTH, Chief Justice, and WILLIAMS, GREEN, and GRAHAM, Judges, concur.