Opinion
No. J-129.
November 3, 1930.
Suit by Benjamin Clayton against the United States.
Petition dismissed.
This suit was instituted to recover $154,942.38 alleged to represent additional interest due on an alleged overpayment of tax of $313,550.33 for 1918 and $136,693.05 for 1919.
Special Findings of Fact:1. Plaintiff, a resident of Houston, Tex., filed an individual income tax return for the calendar year 1917 on May 21, 1918. This was a joint return of husband and wife and included the income of plaintiff's wife, Julia S. Clayton, and showed a total tax due of $9,634.32. No assessment was made on this return and no payment was made thereon.
June 17, 1918, plaintiff filed an amended income tax return for 1917 in which was included the income of his wife, showing a tax due of $8,469.85, which was paid July 1, 1918.
2. April 21, 1919, he filed a joint tax return for himself and wife for the calendar year 1918, showing a tax of $394,460.99, which was paid in four installments of $98,615.25 on April 21, June 16, and September 17, 1919, and $98,615.24 on December 20, 1919.
3. March 14, 1920, he filed a joint return for himself and wife for the calendar year 1919, showing a tax of $439,377.09, $199,117.80 of which was paid in three installments of $109,844.27 on March 15, 1920, $39,494.08 on November 6, 1920, and $49,779.45 on December 17, 1920, leaving a balance of $240,259.29.
May 15, 1920, plaintiff filed an amended individual income tax return of his income on a community property basis for 1919 from which the community income of his wife, Julia S. Clayton, was eliminated, which amended return showed a tax due by him of $199,117.80. The collector of internal revenue at first refused this amended return and on October 28, 1920, returned it to plaintiff with the remittance thereon. Later, however, on November 5, 1920, the amended return was accepted by the collector together with the remittance for the portion of the tax due for 1919 up to and including that date. November 25, 1920, plaintiff filed a claim for abatement of $240,259.29, which was subsequently, on March 23, 1921, allowed in full by the Commissioner of Internal Revenue, as shown by Schedule IT:5502.
4. March 15, 1921, plaintiff filed amended individual income tax returns of his income on a community property basis for 1917 and 1918 from which the community income of his wife, Julia S. Clayton, was eliminated. The amended return for 1917 showed a tax of $3,293.68, and that for 1918 showed a tax of $155,822.32. No assessments or payments were made on these returns.
With the aforesaid amended returns for 1917 and 1918 plaintiff and his wife, Julia S. Clayton, filed a claim asking that $85,962.99, income tax for 1916, 1917, and 1918, be credited in the amount of $42,981.50 against his unpaid balance of tax for 1920 and that $42,981.49 be credited against the unpaid portion of the income tax of his wife, Julia S. Clayton, for 1920.
5. March 15, 1921, the plaintiff filed a separate individual income tax return on a community property basis for the calendar year 1920, showing a tax of $153,605.95, of which amount $110,624.47 was paid in three, installments of $33,821.48 on June 17, 1921, $38,401.49 on September 19, 1921, and $38,401.50 on December 15, 1921, leaving a balance of $42,981.50, which amount was covered by the claim for credit referred to above.
6. March 15, 1922, plaintiff filed a separate individual tax return on a community property basis for the calendar year 1921, showing a tax of $20,338.77, of which $15,254.08 was paid in three installments of $5,084.69 on March 17 and June 15, 1922, and $5,084.70 on September 15, 1922, leaving an unpaid balance of $5,084.69.
December 13, 1922, plaintiff filed an amended individual income tax return for 1921 showing a total tax of $9,538.28. No assessment or payment was made on this return. At the time this amended return was filed, plaintiff filed a claim for the abatement of $5,084.69, being the amount of the last installment of tax for 1921, and for the refund of $5,715.80 of the tax paid for 1921.
7. March 14, 1923, plaintiff filed a separate individual income tax return on a community property basis for 1922, showing a tax of $5,754.01, of which $116.27 was paid on April 2, 1923; $78.06 of the unpaid tax returned for 1922 was transferred on October 31, 1923, to the income tax account of plaintiff's wife, Julia S. Clayton, for 1922, leaving an unpaid balance on his return for 1922 of $5,715.80. At the time plaintiff filed his return for 1922, he filed a claim asking that $5,715.80 of the tax assessed and paid for 1921 be credited against the unpaid balance of the tax in that amount shown on his return for 1922.
8. January 18, 1921, the Commissioner of Internal Revenue assessed an additional tax of $1,984.97 for 1917. January 25, 1921, the collector mailed plaintiff notice and demand for the payment of this additional assessment, and on April 13, 1921, plaintiff filed a claim for the abatement of the amount of the additional assessment.
9. April 30, 1923, the Commissioner assessed an additional tax of $13,805.29 for 1917, and on May 4, 1923, the collector mailed to plaintiff notice and demand for the payment of the said assessment. June 6, 1923, plaintiff filed a claim for abatement of the entire amount of this additional assessment.
10. After an examination and an audit on a community property basis of the returns for 1917 and 1918, the Commissioner on November 19, 1925, notified plaintiff that he had determined a deficiency in respect of his tax liability of $10,729.18 for 1917 and an overassessment on the joint return for 1918 of $313,550.32 in excess of his tax liability on a separate basis. The notice mailed by the Commissioner included the income tax computation of plaintiff's wife, Julia S. Clayton, for 1917 and 1918, showing deficiencies in respect of her tax liability of $10,729.18 for 1917 and $80,910.67 for 1918.
11. After an examination and an audit of the joint income tax return filed for 1919 and the separate income tax returns filed by plaintiff for 1920 to 1922, inclusive, the Commissioner, by notice of December 3, 1925, notified the plaintiff that with respect to his separate tax liability he had determined an overassessment of $126,407.67 on the joint return for 1919, a deficiency of $220,216.92 on the separate return filed for 1920, and an overassessment of $6,182.55 for 1921 and a deficiency of $1,308.67 for 1922; the total of the deficiencies being $221,525.59, and the total of the overassessments being $132,590.22.
12. February 24, 1926, the Commissioner made an additional assessment of a deficiency of $10,729.18 for 1917.
13. March 11, 1926, the Commissioner approved a schedule of overassessments, IT:A:19655, form 7805, embracing an overassessment of $313,550.32 for 1918. This schedule was transmitted to the collector for his action in accordance with the directions appearing thereon. The collector complied, and on March 24, 1926, signed and returned the schedule of overassessments to the Commissioner, together with a schedule of refunds and credits, IT:R:19655, form 7805-A. The last-mentioned schedule was approved by the Commissioner April 27, 1926, authorizing the disbursing clerk of the Treasury Department to issue checks for the amounts shown thereon to be refundable to the several taxpayers whose names appeared on such schedule.
The overassessment of $313,550.32 on the joint return of plaintiff and his wife for 1918 was found to be an overpayment, and was credited to the tax due by plaintiff and his wife, Julia S. Clayton, computed on the basis of separate returns, as follows:
--------------------------------------------------------- | Amount of Year to Which Credited. | Overpayment | Credited. -------------------------------------------|------------- Plaintiff's tax: | Underpayment of tax for 1917 ............. | $ 1,984 97 Underpayment of tax for 1917 ............. | 13,805 29 Underpayment of tax for 1917 ............. | 10,729 18 Original tax for 1920 .................... | 42,981 48 Original tax for 1922 .................... | 5,715 80 Tax of plaintiff's wife: | Original tax for 1917 .................... | 24,260.11 Underpayment of tax for 1917 ............. | 10,729 18 Original tax for 1918 .................... | 75,692 95 Underpayment of tax for 1918 ............. | 80,910 67 Original tax for 1920 .................... | 42,981 47 Original tax for 1922 .................... | 3,759 22 |------------- Total ................................ | $313,550 32 ---------------------------------------------------------
14. April 8, 1926, the Commissioner made additional assessments against plaintiff of a deficiency for 1920 of $220,216.92, with interest thereon of $1,571.68, and a deficiency for 1922 of $1,308.67.
15. April 15, 1926, the Commissioner approved a schedule of overassessments, IT:A:20181, form 7805, embracing an overassessment in respect of plaintiff's tax of $126,407.67 on the joint return for 1919 and an overassessment on his separate tax return for 1921 of $6,182.55. This schedule was transmitted to the collector for his action in accordance with the directions appearing thereon. The collector complied and on April 29, 1926, signed and returned the schedule to the Commissioner, together with schedule of refunds and credits, IT:R:20181, form 7805-A. The schedule of refunds and credits was approved by the Commissioner of Internal Revenue on June 1, 1926.
16. The overpayment of $126,407.67 for 1919 was credited against the additional assessment for 1920. Of the overassessment of $6,182.55 for 1921, $5,084.69 was abated, and the balance of $1,097.86 was credited against the additional assessment for 1920.
17. May 3, 1926, the collector mailed notice and demand to plaintiff for the net additional tax due for 1920 in the amount of $92,711.39 and interest of $1,571.68, totaling $94,283.07, and for the total additional assessment for 1922 of $1,308.67 tax and $242.10 interest, totaling $1,550.77. These amounts for 1920 and 1922 were arrived at as follows:
Additional assessment ..................... $220,216 92 Less: Overpayment for 1919 credited to 1920 ...................... $126,407 67 Overpayment for 1921 credited to 1920 ...................... 1,097 86 ___________ 127,505 53 ___________ Balance due ............................... $ 92,711 39 Interest thereon .......................... 1,571 68 ___________ Net amount due ......................... $ 94,283 07 =========== Additional assessment for 1922 ............ $ 1,308 67 Interest thereon .......................... 242 10 ___________ Total ..................................... $ 1,550 77
May 15, 1926, plaintiff paid to the collector the above-mentioned amounts due for 1920 and 1922.
18. The Commissioner determined and allowed interest on $94,437.97 of the overpayment for 1918 credited as set forth in finding 13, and allowed interest on the overpayment of $126,407.67 for 1919 credited against the additional assessment against plaintiff for 1920, as follows:
--------------------------------------------------------------------------------------------- | | Amount on | | | Amount of | Which | Interest Allowed. | Year. | Overpayment | Interest was |-----------------------| Interest. | Credited. | Allowed. | From — | To — | ----------------------------|-------------|--------------|-----------|-----------|----------- 1918 ...................... | $313,550 32 | $ 77,733 40 | 6/16/19 | 3/15/21 | $ 8,118 34 | | 8,229 55 | 4/21/19 | 3/15/21 | 935 01 | | 2,846 80 | 4/21/19 | 3/15/23 | 665 06 | | 2,885 00 | 4/21/19 | 6/15/23 | 718 68 | | 2,304 72 | 4/21/19 | 9/15/23 | 608 70 | | 1,438 50 | 4/21/19 | 12/15/23 | 401 26 | |--------------| | |----------- Total ..................... | ........... | $ 94,437 97 | ........ | ........ | .......... Total interest allowed .... | ........... | ........... | ........ | ........ | 11,447 05 1919 ...................... | 126,407 67 | 49,779 45 | 12/17/20 | 3/15/21 | 710 55 | | 39,494 08 | 11/6/20 | 3/15/21 | 848 31 | | 37,134 14 | 3/15/20 | 3/15/21 | 2,228 05 | |--------------| | |----------- Total ..................... | ........... | $126,407 67 | ........ | ........ | .......... Total interest allowed .... | ........... | ........... | ........ | ........ | $ 3,786 91 --------------------------------------------------------------------------------------------- No interest was allowed or paid on the amount of $218,112.35 of the overpayment for 1918 credited against the tax due from plaintiff for 1917 and against the tax due from plaintiff's wife, Julia S. Clayton, for 1917 and 1918.No interest was allowed or paid on the overpayment for 1921 of $1,097.86 credited against the additional assessment for 1920.
19. No interest has been paid by plaintiff on the additional assessments for 1917 referred to in findings 8, 9, and 12, nor on the additional assessments of tax for 1920 and 1922, referred to in finding 14, except $1,571.68 on the balance of the additional assessment due for 1920 and $242.10 on the additional assessment for 1922 as set forth in finding 17.
20. June 16, 1926, the collector mailed plaintiff a certificate of overassessment of $313.550.32 for 1918, together with Treasury check for $11,477.05, the amount of interest determined and allowed by the Commissioner thereon as set forth in finding 18.
21. July 8, 1926, the collector mailed to plaintiff a certificate of overassessment of $126,407.67 for 1919, together with Treasury check for $3,786.91, the amount of interest determined and allowed thereon by the Commissioner as set forth in finding 18, and a certificate of overassessment of $6,182.55 for 1921 referred to in findings 15 and 16.
22. August 12, 1927, a notice of refund on Schedule IT:25824 was mailed to the plaintiff, together with Treasury check for $239.80, interest refunded, which was determined as follows:
Interest paid in 1922 underpayment of tax .... $242 10 Correct amount of interest thereon ........... 16 94 _______ Interest overpaid ............................ $225 16 Interest thereon from May 15, 1926, to June 15, 1927 ................................... 14 64 _______ Total ........................................ $239 80
23. August 25, 1926, plaintiff filed claim for additional interest of $112,564.20 on the overpayment for 1918 and $42,378.18 on the overpayment for 1919. By notice of March 24, 1927, the Commissioner refused to allow and pay such additional interest, and he still refuses to allow and pay the same.
24. At the time of the filing of the separate amended individual income tax returns hereinbefore referred to for the years 1917 and 1918, by plaintiff and his wife, Julia S. Clayton, certain agreements signed by both of them regarding the disposition to be made of the tax theretofore paid for such years on the joint returns filed for these years were submitted and filed with the Commissioner of Internal Revenue. These agreements were that the total tax paid upon the original joint returns for 1917 and 1918 should be allocated equally in satisfaction of the tax due by each of them on their separate returns, and that any balance should be applied as a credit against taxes due by them for 1920. These agreements are marked "Exhibit 3," and, by reference, are made a part of this finding, but need not be set forth herein.
25. The tax of plaintiff's wife, Julia S. Clayton, against which a part of the overpayment made on the original joint return for 1918 was credited, as shown in finding 13, was assessed for the years in the amounts and on the dates following:
------------------------------------------------------------------------------------- | Amount | | Year. | Assessed. | Character of Tax. | Date of Assessment. ---------------|------------|-----------------------------------|-------------------- 1917 ......... | $24,260 11 | Original tax .................... | April 30, 1923. | 10,729 18 | Additional assessment ........... | February 24, 1926. 1918 ......... | 75,692 95 | Original tax .................... | March 8, 1924. | 80,910 67 | Additional assessment ........... | February 24, 1926. 1920 ......... | 42,981 47 | Original tax .................... | 1922 ......... | 5,786 02 | Original tax .................... | ------------------------------------------------------------------------------------- 26. On May 4, 1923, notice and demand was issued for the tax due by plaintiff's wife, Julia S. Clayton, in the amount of $24,260.11 for 1917 above referred to, and on March 14, 1924, notice and demand was issued for the tax due by her in the amount of $75,692.95 for 1918.27. The property from which plaintiff and his wife, Julia S. Clayton, derived their income for the years involved was community property, and the tax paid by plaintiff and his wife was all paid out of undivided community funds, being the community property of plaintiff and his wife, Julia S. Clayton.
John C. White, of Washington, D.C. (R.C. Fulbright and Fulbright, Crooker Freeman, all of Washington, D.C., on the brief), for plaintiff.
Charles R. Pollard, of Washington, D.C., and Charles B. Rugg, Asst. Atty. Gen. (J.S. Franklin, of Washington, D.C., on the brief), for the United States.
Before BOOTH, Chief Justice, and WILLIAMS, GREEN, and LITTLETON, Judges.
This case involves a claim for additional interest upon overassessments on joint returns filed for 1918 and 1919, which overassessments, so far as they had been paid, were allocated to the separate tax liability of plaintiff and his wife when determined on the community property basis, and certain portions of the amounts were credited against additional assessments. The credits were all taken after the approval of the Revenue Act of 1926, 44 Stat. 9, 119, and the allowance of interest thereon is governed by section 1116 of that act ( 26 USCA § 153 note).
The Commissioner allowed no interest upon the portions of the overassessments on the joint returns for 1918 and 1919 which were allocated and applied in satisfaction of the tax finally determined by him to be due separately by plaintiff and his wife, Julia S. Clayton, on the community property basis. On all other credits in controversy against original and additional taxes, the Commissioner allowed and paid interest to the due dates of such taxes, such "due dates" being determined by him to be the dates fixed by law for the payment of tax in installments upon the filing of returns for the years involved.
Plaintiff insists, first, that the additional assessments against which the credits were taken were additional assessments "made under" the Revenue Acts of 1924 and 1926 ( 43 Stat. 253 and 44 Stat. 9) and that under the provisions of section 1116 of the Revenue Act of 1926 interest on the amounts so credited was payable to the dates of the additional assessments; secondly, that, if the additional assessments were not made under the Revenue Act of 1926, but under the Revenue Acts of 1916 and 1918 ( 39 Stat. 756 and 40 Stat. 1057), the due dates of the additional tax under section 250(b) of the Revenue Act of 1918 ( 40 Stat. 1083) was the date on which the collector gave notice and made demand; thirdly, that, when the tax of plaintiff and his wife was computed separately on the community property basis, the overassessments of the tax as shown assessed and paid on the original joint returns of plaintiff and his wife for 1918 and 1919 were overpayments by the plaintiff, and, when a portion of such tax was allocated in satisfaction of the tax due by Mrs. Clayton on the community property basis, interest was payable on such amounts to plaintiff as provided by section 1116 of the 1926 act as in the case of other credits.
The defendant contends, first, that, notwithstanding some of the additional assessments involved were made on dates subsequent to the enactment of the Revenue Act of 1921 ( 42 Stat. 227), they were for years prior to 1921, and were "made under" prior revenue acts as that term is used in section 1116 of the Revenue Act of 1926; secondly, that, as used in section 1116, the "due date" is the date on which the tax should have been paid and is the same as the date fixed for the payment of the original tax or the installments thereof; thirdly, that no interest was payable upon that portion of the tax paid upon the original joint returns which was allocated to the tax due by Mrs. Clayton on a separate community property basis, because the payment of that amount on the original joint return was merely a payment by her in respect of her tax.
The first two questions are the same as those considered and decided by this court in Riverside Dan River Cotton Mills, Inc., v. United States, 37 F.2d 965. For the reasons stated in that case, we hold that the defendant is correct in its contention and that plaintiff is not entitled to additional interest claimed upon the ground stated.
On the third issue, we are of opinion that the Commissioner of Internal Revenue correctly refused to allow and pay interest upon that portion of the overassessment on the original joint returns subsequently allocated to the tax determined to be due by Mrs. Clayton, computed on the community property basis. The correctness of the determination of the income and the tax due by plaintiff and his wife on the community property basis and their right to report their income on the community property basis is not in question. When the original joint returns of plaintiff and his wife were made and the tax shown thereon was paid, a part of the tax was paid on the community income belonging to the wife and out of community funds belonging to her. To the extent, therefore, of the payment of the original tax on the entire income shown on these returns which should have been paid by the wife, it was her tax paid out of community funds. When the Commissioner of Internal Revenue, upon the claim of plaintiff and his wife, determined and computed the income and the tax separately on the community property basis and allocated a portion of the tax returned and paid upon the joint returns to the tax due by the wife upon that portion of the community income allocated to her, he was in contemplation of law using her money which had been paid on the joint return out of undivided community funds in respect of the tax for which she would have been liable had separate returns been filed in the first instance. To the extent, therefore, of the tax liability of the husband and the wife when the income shown on the joint returns was divided between them, there was, in reality, no overpayment. But, for administrative purposes, the Commissioner correctly treated the excess of the tax shown and assessed on the joint return over that due by the plaintiff on a separate basis as an overassessment, since he signed the return, and his name only appeared on the assessment list. The community fund is an undivided fund in which the husband and the wife each have a one-half interest.
The contention of plaintiff that the provisions of section 284(a) of the Revenue Act of 1926 (26 USCA § 1065(a), with reference to the crediting of an overpayment on a return against any tax "then due by the taxpayer" must be literally construed; that the authority of the Commissioner is thus expressly limited to crediting overpayments to the tax due from the particular taxpayer; that the Commissioner has no legal authority in the case of a division of community income on a joint return equally between the husband and wife to credit one taxpayer's account with an overpayment by another taxpayer — argues against the claim that he and his wife had a right under the statute to make separate community property returns. We are of opinion that there is no merit in plaintiff's contention on the third issue.
The petition must be dismissed, and it is so ordered.
WHALEY, Judge, did not hear this case, and took no part in the decision thereof.