Opinion
No. 42099.
December 7, 1936.
Allen H. Gardner, of Washington, D.C. (Morris, KixMiller Barr, of Washington, D.C., and Arnold R. Barr, of Chicago, Ill., on the briefs), for plaintiff.
John W. Hussey, of Washington, D.C., and Robert H. Jackson, Asst. Atty. Gen., for the United States.
Before BOOTH, Chief Justice, and GREEN, LITTLETON, WILLIAMS, and WHALEY, Judges.
Action by the Harnischfeger Corporation against the United States.
Petition dismissed.
This case having been heard by the Court of Claims, the court, upon the evidence and the report of a commissioner, makes the following special findings of fact:
1. The plaintiff is a corporation duly organized and existing under the laws of the state of Wisconsin, with its principal office in Milwaukee, Wis.
Prior to December 2, 1924, the name of plaintiff was Pawling Harnischfeger Company. On said date, the plaintiff legally changed its name to Harnischfeger Corporation.
2. On March 14, 1919, the plaintiff filed a tentative return for the year 1918, disclosing an estimated tax of $1,250,000, of which amount $312,500 was paid on the date the return was filed. An extension to July 1, 1919, having been granted within which to file the completed return, the plaintiff, on June 15, 1919, paid a second installment in the amount of $312,500. On June 30, 1919, the completed return was filed disclosing a tax liability of $1,008,348.27, which amount was assessed in due time and course. The balance of the tax due in the amount of $383,348.27 was paid on the following dates:
September 15, 1919 .................. $131,261.20 December 15, 1919 ................... 154,357.14 January 31, 1920 .................... 97,729.93 ___________ Total ............................ 383,348.27
Penalty and interest in the amount of $586.38 due on the final installment for failure to pay the same on December 15, 1919, was paid on January 31, 1920.
3. On March 16, 1920, the plaintiff filed a tentative return for the year 1919, disclosing an estimated tax of $142,090.49, of which amount $35,522.62 was paid on the date the return was filed. On June 15, 1920, the completed return was filed, disclosing a tax liability of $148,183.06, which amount was assessed in due time and course. The balance of the tax due in the amount of $112,660.44 was paid on the following dates:
June 26, 1920 ....................... $ 38,568.91 September 26, 1920 .................. 37,045.77 December 17, 1920 ................... 37,045.76 ___________ Total ............................ 112,660.44
Penalty and interest in the amount of $22.84 due on the first installment for failure to pay one-fourth of the tax disclosed in the final return was paid at the time of the payment of the third installment on September 26, 1920.
4. On March 16, 1921, the plaintiff filed a tentative return for the year 1920, disclosing an estimated tax of $110,025.58, of which amount $27,506.40 was paid on the date the return was filed. On April 15, 1921, the completed return was filed disclosing a tax liability of $119,997.75, which amount was assessed in due time and course. The balance of the tax due in the amount of $92,491.35, was paid on the following dates:
April 15, 1921 .............. $ 2,493.03 June 17, 1921 ............... 29,999.44 September 17, 1921 .......... 29,999.44 December 15, 1921 ........... 29,999.44 __________ Total .................... 92,491.35
Penalty and interest in the amount of $12.46 due on the first installment for failure to pay one-fourth of the tax disclosed in the final return was paid on April 15, 1921.
5. After an examination and audit of plaintiff's tax liability for the year 1918, the Commissioner of Internal Revenue determined a deficiency for that year, and on May 11, 1920, made an additional assessment against the plaintiff in the amount of $479,190.98. After notice and demand for payment made May 19, 1920, the plaintiff on May 28, 1920, filed a claim for the abatement of the total amount of $479,190.98.
6. After a further examination and audit of plaintiff's income and profits tax returns for the years 1918 and 1919, the Commissioner of Internal Revenue determined an overassessment in favor of plaintiff for the year 1918 in the amount of $365,830.27, and determined a deficiency for the year 1919 in the amount of $120,381.03.
7. The deficiency for the year 1919 in the amount of $120,381.03 was assessed by the Commissioner on November 29, 1922. The overassessment for 1918 in the amount of $365,830.27 was made the basis of a schedule of overassessments, which was transmitted to the collector and the amount thereof abated on December 9, 1922. On December 21, 1922, the collector gave notice and demand for the payment of the unpaid balance of the additional tax for 1918 covered by the claim in abatement amounting to $113,360.71, together with interest thereon, and the additional tax for the year 1919 assessed in November, 1922, in the amount of $120,381.03. The additional tax for the year 1918 was paid on December 28, 1922. The additional tax for the year 1919 and interest in the amount of $17,497.91 due on the rejected portion of the claim in abatement for the year 1918 was paid on January 6, 1923.
8. Claims for refund for the years 1918 and 1919 were filed by plaintiff on March 18, 1926, in the amounts of $113,360.71 and $120,381.03, respectively. An assessment waiver for the year 1920 was filed on December 1, 1925, extending the time for assessment to December 31, 1927.
9. After a further examination and audit of plaintiff's income and profits tax returns for the years 1918 and 1919, and an examination of plaintiff's income and profits tax return for the year 1920, the Commissioner of Internal Revenue in a letter dated January 13, 1927, notified the plaintiff of his further redeterminations resulting in overassessments for the years 1918 and 1919 in the amounts of $80,072.44 and $1,764.11, respectively, and a deficiency for the year 1920 in the amount of $100,442.20. The letter gave plaintiff 30 days in which to protest against the deficiency and also advised plaintiff that, in the event protest was filed and the Commissioner finally determined there was a deficiency, plaintiff would be advised by registered mail of such determination and given an opportunity to file a petition with the United States Board of Tax Appeals with respect to the deficiency shown. In the letter the following statement was made:
"The overassessments shown above will be scheduled in the form of certificates 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 [ 44 Stat. 66]."
10. In a 60-day letter dated March 16, 1927, the Commissioner advised plaintiff that the conclusions set forth in the letter of January 13, 1927, were sustained for the 3 years mentioned therein, thus showing overassessments of $80,072.44 and $1,764.11 for 1918 and 1919, respectively, and a deficiency of $100,442.20 for 1920. The letter further advised plaintiff of his right of appeal to the Board of Tax Appeals under section 274(a) of the Revenue Act of 1926 ( 44 Stat. 55), but stated that such right of appeal applied only to the deficiency for 1920.
11. On May 13, 1927, the plaintiff, by check dated May 12, 1927, paid an amount of $100,442.20 to the collector of internal revenue at Milwaukee, Wis. The check, bearing No. 24726, contained the printed direction on the reverse side: "This check is hereby accepted in full payment of the account as stated in voucher bearing corresponding number." There accompanied the check a voucher, No. 24726, referring to the proposed 1920 deficiency in tax amounting to $100,442.20. This amount was credited to plaintiff in the collector's 9 D suspense account and the card record indorsed, "Pending outcome of correspondence with Commissioner." The 9 D suspense account is an account in the collector's office in which payments received prior to receipt of formal assessment lists are carried until such assessment lists are sent from the Commissioner's office. The card record of this payment in the collector's office is as follows:
[Front]
Pmt. rec's. 5/13/27
Oct. 19, 1927
Pawling Harnischfeger Co. 1927-Oct. 52C #2 38th National Aves (Yr. 1920) Milwaukee, Wis.
DPFY
Transferred to Unidentified #9D 100442.20 Pending outcome of correspondence with Commissioner.
500007
Identified _______________________ Jan 27 1928. [Back]
Mim. #138 Paid Under Protest Rec'd 5/13/27 Cash 1494
Harnischfeger Co. M.O. (No.) _____________________ Check (No.) 13358 Name 5/12/27 Formerly Pawling H. Co. __________________________ Address Milwaukee #7422 100,442.20 __________________________ _________________ City Amount Rar-1920- IT — E — SM — 60 D ___________________________________________________ Class of Tax and Periods Identified Oct 12 1927. 9 D 1927 — Oct. 52c #2 pt. I ________________________ PFY Yr. 1920
12. On May 14, 1927, plaintiff filed with the United States Board of Tax Appeals a petition wherein it protested the Commissioner's final determination of its tax liability for the year 1920, as shown in the 60-day letter dated March 16, 1927. The answer of the Commissioner was filed with the Board by the General Counsel, Bureau of Internal Revenue, on July 12, 1927.
13. May 24, 1927, at a conference with a representative of the Commissioner, plaintiff requested the scheduling of the overassessments for 1918 and 1919 referred to in the letters of January 13 and March 16, 1927, and refund of the amounts shown therein with interest. At that time the Commissioner refused to accede to plaintiff's request but gave plaintiff an opportunity to submit a memorandum in support of its request. June 1, 1927, plaintiff's representative submitted such a memorandum, which read in part as follows:
"In accordance with conference with Mr. Sherwood on May 24, 1925, the following memorandum is submitted as to the right of the above taxpayer to refund of principal amounts and interest on account of overassessments determined by the Commissioner with respect to the years 1918 and 1919.
"By Bureau letter of January 13, 1927, the Bureau of Internal Revenue determined that there had been an overassessment for the year 1918 of $80,072.44 of $1,764.11 for 1919 and that there existed a deficiency for the year 1920 of $100,442.20. This last proposed deficiency was proposed instead of a deficiency in the amount of $104,569.78 which had been previously proposed. It was stated in substance in the letter of January 13, 1927, that the certificates of overassessment on the years 1918 and 1919 would be forwarded to the Collector and that the taxpayer would be notified in the usual course. The taxpayer was also notified in said letter that it had no appeal except as the letter stated a deficiency. Consequently, the taxpayer's protest was entered only as to the deficiency for the year 1920 and such protest was forwarded on January 29, 1927. Conference was had on February 17, 1927, and on March 16, 1927, the taxpayer was in receipt of a sixty-day letter refusing to change the proposed deficiency for 1920 in the amount of $100,442.20, such refusal resulting from the refusal to grant special assessment.
"The taxpayer's representatives at all times since the letter of January 13, 1927, have asked that the certificates of overassessment be forwarded and that refund be made, no amount being outstanding upon the Collector's books at Milwaukee, or at any other place. In answer to such requests representatives of the Bureau advised that the Act of March 3, 1875 [chapter 149, 18 Stat. 481 (31 U.S.C.A. § 227)] prevented the issuance of certificates of overassessment when there was a proposed deficiency outstanding. * * *
"While the taxpayer's representatives did not believe, and do not believe now, that such act is applicable or authorizes the withholding of refunds since a proposed deficiency, as to which a right of appeal to the Board of Tax Appeals is given, is very different from an `indebtedness' or `debt,' it was forced to assent to the Bureau's position and in order to make clear its right to refund of the taxes for 1918 and 1919 it paid to the Collector of Internal Revenue at Milwaukee, Wisconsin, the proposed deficiency of $100,442.20, together with interest at the rate of 6% per annum from February 26, 1926, until the date of payment.
"It is submitted that no reason now exists or can exist which will justify the withholding of the refunds for 1918 and 1919. Inasmuch as the amount of the refund for 1918 exceeds $75,000 and must be referred to the Joint Congressional Committee before payment can be made, it is requested that action be expedited inasmuch as five months have already elapsed since the allowance of the overassessments."
June 23, 1927, the Commissioner replied to plaintiff's letter of June 1st as follows:
"Reference is made to a letter dated June 1, 1927, from KixMiller and Barr in which request is made for the refund of overassessments of income tax for the years 1918 and 1919 determined in favor of the above-named taxpayer, the basis for such request being that an amount equal to the proposed deficiency for 1920 has been deposited with the Collector of Internal Revenue and that the Commissioner is, therefore, prohibited from applying the amounts overassessed as credits against any deficiency ultimately assessed. The taxpayer's expressed opinion that the deficiency determined by the Commissioner with respect to the year 1920 does not constitute an indebtedness under the terms of the Act of March 3, 1875 [31 U.S.C.A. § 227] and that, therefore, the Secretary of the Treasury may not, under that Act, withhold payment of amounts, determined to have been overpaid for the years 1918 and 1919, has been noted.
"It is the view of this office that inasmuch as the taxpayer has availed itself of all rights and privileges accruing to it under section 274 of the Revenue Act of 1926 [ 44 Stat. 55] with respect to deficiencies determined by the Commissioner, thereby depriving the Commissioner of the right to assess and collect the tax determined to be due, until such time as the United States Board of Tax Appeals shall have rendered final decision as to the tax liability for the year involved, the taxpayer is precluded from making any payment prior to the assessment of the tax and the issuance of Notice and Demand for same. The money so deposited, however, will be held as a cash bond, pending final action by the Board with regard to the year 1920, and the overassessments found due for 1918 and 1919 will be scheduled for allowance, without interest, at the earliest practicable date.
"When the case has been finally closed for all years involved, the taxpayer's rights with regard to interest will be considered and any adjustment found due will be made at that time."
14. On June 20, 1927, the Commissioner approved a schedule of overassessments, form 7920, known and designated as Schedule IT:25920, embracing, among others, overassessments in favor of the plaintiff for the year 1918 in the amount of $80,072.44, and for the year 1919 in the amount of $1,764.11. This schedule was transmitted to the collector for appropriate action in accordance with the directions appearing thereon.
July 9, 1927, the Commissioner wrote the collector as follows:
"Reference is made to your letter dated June 29, 1927, and to the attached Schedule No. 25920, and Certificates of Overassessment covering overpayments of income tax for the years 1918 and 1919, issued in favor of the above-named taxpayer.
"The overassessments hereby allowed were a part of an adjustment which included a proposed deficiency for 1920 amounting to $100,442.20. It appears that on May 13, 1927, the taxpayer deposited with you an amount equal to the proposed deficiency, apparently, as before stated, to prevent the payment of such tax by credit from the overassessments found due for 1918 and 1919, and to enforce the refund, with interest, of such overassessments.
"After consideration of all facts pertaining to the case, it is proposed that the amount paid be held as a cash bond pending final decision by the United States Board of Tax Appeals as to the tax liability for the year 1920, and that the overassessments for 1918 and 1919, be scheduled for immediate allowance. The overassessments should be adjusted in accordance with regular procedure, without regard to the proposed deficiency for 1920. No adjustment of interest on the amounts overassessed will be made until the case has been finally closed for all years involved.
"The action taken in this case is not to be considered as a precedent and does not establish the taxpayer's right in any other instance to receive a refund while there is an apparent deficiency for another year."
In connection with consideration of the schedule of overassessments the collector not only determined that the overassessments shown therein were overpayments, but also that plaintiff was entitled to an overpayment on account of interest of $17,497.91 which had been paid on the rejected portion of a claim for abatement for 1918. (See Finding 7.) The collector accordingly prepared a "Notice of Refund" of a proportionate part of that interest, the notice reading as follows:
"Taxpayer paid interest in the amount of $17,497.91 on a rejected claim in the amount of $113,360.71 for the year 1918. The Commissioner has now found an overassessment of $80,072.44 for that year, Schedule IT:A:25920, and therefore, the same proportion of interest should be refundable.
"The computation is as follows:
"$80,072.44: 113,360.71:: x: 17,497.91= $12,359.66."
15. On July 18, 1927, and pursuant to instructions from the Commissioner, the collector signed and returned the schedule of overassessments referred to in finding 14 herein, after increasing the amount thereof to $94,196.21 by adding the interest item of $12,359.66 set out in the notice of refund referred to in finding 14 herein. The schedule showed the amount of $94,196.21 to be refundable.
16. Certificates of overassessment for the years 1918 and 1919 showing that the amounts of $80,072.44 and $1,764.11, respectively, were refundable, together with notice of refund of interest for 1918 in the amount of $12,359.66, were submitted to the joint committee on February 10, 1928, accompanied by a letter of that date advising that the 60-day period during which the refund would be withheld would expire on April 10, 1928. A check for the full amount of $94,196.21 was mailed to the collector by the disbursing clerk of the Treasury Department on April 12, 1928, and was thereafter delivered to the plaintiff.
The printed portion of the certificate of overassessment forms which were used in this instance had deleted therefrom the sentence which read as follows: "Included in the accompanying check is interest in the amount stated below, allowed on the refund or credit," and the schedule of overassessments was prepared consistent therewith, no interest allowable on the overpayments appearing thereon when finally certified by the Comptroller General for payment. No interest was paid on the overpayments, the interest adjustment being finally made, as hereinafter shown, on the basis of an application of the overpayments for 1918 and 1919 in partial satisfaction of the deficiency for 1920.
17. The Commissioner of Internal Revenue in October 1927, made an assessment on his October, 1927, No. 2 list, p. 5, line 2, of the asserted deficiency for 1920 amounting to $100,442.20, together with interest of $7,311.64 computed on said deficiency at 6 per centum per annum from February 26, 1926, to May 13, 1927. Thereafter, on November 9, 1927, the Commissioner instructed the collector that the assessment of deficiency and interest should be eliminated by a certificate of allowance which would be scheduled to his office for abatement. A certificate of overassessment for $107,753.84 was adjusted as an abatement on schedule IT 27699, dated November 18, 1927.
18. September 25, 1929, plaintiff requested certain information as to the manner in which the payment of $100,442.20 for 1920 had been handled on the collector's books, and October 16, 1929, the Commissioner replied, reviewing the past history of the transaction, quoting from his letter to plaintiff of June 23, 1927, and concluding his letter as follows:
"The amount paid in May 1927 was listed on the Collector's unidentified collections account in accordance with the usual procedure and no further entries have been made with respect to this payment.
"It appears that the status of the case has not changed since the letter above-quoted was written, and this office contemplates no further action until the appeal now pending before the Board has been decided."
19. On March 14, 1930, the parties to the proceeding described in finding 12 herein, through their respective counsel, entered into a stipulation which was filed with the Board of Tax Appeals on the same date. The said stipulation stated as follows:
"It is hereby stipulated and agreed by and between the parties to the above-entitled proceeding, through their respective counsel of record, that there is a deficiency in tax for the calendar year 1920 in the amount of $100,442.20 against this petitioner, which has been assessed subsequent to the filing of the petition herein and that there is, therefore, no additional deficiency in tax to be assessed against this petitioner.
"An order may be entered by the United States Board of Tax Appeals in accordance with this stipulation."
On March 22, 1930, pursuant to the said stipulation, the Board of Tax Appeals entered an order which stated that "* * * there is now no deficiency in tax with respect to this petitioner for the year 1920."
20. Subsequent to the entry of the aforesaid order of the Board of Tax Appeals, the Commissioner of Internal Revenue, in a communication dated October 20, 1930, instructed the collector to cancel the certificate of overassessment purporting to abate the assessment of $107,753.84, to reverse the abatement of the same amount, and to transfer the payment of $100,442.20 made on May 13, 1927, from the suspense account to the assessment on the October, 1927, list, left open by the reversal of the abatement. The collector was further instructed in said communication to treat the overpayments for 1918 and 1919 totalling $81,836.55 as credits made to the 1920 deficiency in tax and to reduce the interest of $7,311.64 previously assessed by that proportionate part of the amount of $7,311.64 which the overassessments totalling $81,836.55 bore to the deficiency for 1920 of $100,442.20. Accordingly, the collector reinstated the assessment of $100,442.20, plus an amount of $1,354.39 as interest due on the 1920 deficiency. Thereafter the collector mailed to the plaintiff a notice and demand dated October 23, 1930, for the payment of interest on the 1920 deficiency computed at $1,354.39. This amount of $1,354.39 was paid by the plaintiff under protest on November 3, 1930.
November 20, 1930, plaintiff requested further information relative to the payment of $100,442.20 for 1920, and November 21, 1930, the collector replied, stating in part as follows:
"My records show that under date of May 13, 1927, payment was made to this office by you in the amount of $100,442.20 for the purpose of applying same against an impending additional tax for the year 1920 of a like amount. The amount was placed in my unidentified account pending the receipt of the assessment of the tax in question. It also appears that you received overassessments for the years 1918 and 1919 in the amount of $81,836.55, which amount was refunded to you as a result of the payment of the above mentioned impending additional tax for year 1920. It also appears that you filed an appeal to the Board of Tax Appeals with respect to such additional tax for the year 1920, and the question of interest adjustment for the years 1918, 1919, and 1920 was held in abeyance pending disposition of such case before the Board. I was subsequently advised by the Commissioner's office that a stipulation had been entered into to the effect that there was a deficiency in tax due of $100,442.20 for the year 1920 or a net amount due for the years 1918, 1919, and 1920 of $18,605.65.
"In conformity with this stipulation and in accordance with instructions received from the Commissioner's office, I applied the overassessments for the years 1918 and 1919 already refunded to you to the 1920 deficiency in order that the account in my office might be closed out."
The difference between the interest assessment on the deficiency for 1920 in the amount of $7,311.64 and the November 3, 1930, payment of $1,354.39, namely, $5,957.25, was abated on the basis of the adjustments made in the accounts for the years 1918, 1919, and 1920.
21. March 11, 1931, plaintiff made application for additional interest on the overpayments for 1918 and 1919, stating as a reason therefor that interest should be allowed on the overpayments for 1918 and 1919 by virtue of section 1116(a) of the Revenue Act of 1926 (26 U.S.C.A. § 1671 note), and that such interest should be computed at 6 per cent. from the date of the payment of the amounts refunded to the date of the allowance of the refunds.
April 2, 1931, the Commissioner denied such application.
April 20, 1931, plaintiff requested consideration by the General Counsel of the Bureau of Internal Revenue of its application for additional interest, and September 5, 1931, plaintiff's representative was advised of the result of the General Counsel's consideration in part as follows:
"You are advised that under section 1116(a) of the Revenue Act of 1926 no interest is payable on overpayments credited to a deficiency in tax imposed for 1920, or prior taxable years, for the period during which such deficiency was owing to the Government. Prior to the voluntary payment above referred to, there was no refund due the taxpayer within the meaning of the statute by reason of the overpayments made for the taxable years 1918 and 1919, nor was any interest payable on the said overpayments which were required to be credited to the deficiency in tax determined to be due for the taxable year 1920. The voluntary payment, while preventing adjustment of the taxpayer's accounts as provided in the statute, and as set forth in the notice given to the taxpayer, resulted in the refund subsequently made and interest will, therefore, be allowed accordingly; that is, from the date of the voluntary payment to the date of the allowance of the refund."
22. By letter dated September 25, 1931, the Commissioner of Internal Revenue advised the collector of an error in the interest computation on the 1920 deficiency resulting from a failure to consider the overpayment of interest for 1918, as set out in finding 14 herein, in the amount of $12,359.66. The interest on the deficiency had been computed on the basis of overpayments for 1918 and 1919 in the amount of $81,836.55 instead of $94,196.21. The collector was directed to prepare the appropriate form to show an interest adjustment on the basis of the difference between the interest paid on November 3, 1930, in the amount of $1,354.39, and an adjusted amount of $454.67 "Notice of refund" (form 844) for the difference in the amount of $899.72 was transmitted to the Commissioner of Internal Revenue by the collector on October 5, 1931.
23. A schedule of overassessments on form 7920, designated Supplemental Schedule IT:25920, was signed by the Commissioner of Internal Revenue on October 22, 1931. In this were listed interest allowances on the amounts of overpayments for the years 1918 and 1919 in the amounts of $568.51 and $10.85, respectively, which were shown as having been allowed on a schedule of identical number dated June 20, 1927, and allowance on account of the error in the interest computation on the 1920 deficiency in the amount of $899.72, plus additional interest thereon in the amount of $52.29. The total of said certificate was $1,531.37. On November 4, 1931, a check for the full amount shown thereon, together with notices of interest allowances for 1918 and 1919, and notice of refund for 1920, was mailed to the plaintiff. The notices of interest allowances showed that the 1918 and 1919 overpayments aggregating $94,196.21 had been refunded.
24. The interest refunds and allowances were computed as follows:
----------------------------------------------------------------------- Amount of | Interest allowed | overpayment |------------------------------------------| Interest | From — | To — | ------------|--------------------|---------------------|--------------- 1913 | | | $80,072.44 | May 13, 1927 ..... | June 20, 1927 ..... | $492.48 12,359.66 | May 13, 1927 ..... | June 20, 1927 ..... | 76.03 ----------- | | | ------- 92,432.10 | .................. | ................... | 568.51 | | | 1919 | | | 1,764.11 | May 13, 1927 ..... | June 20, 1927 ..... | 10.85 | | | 1920 | | | 899.72 | November 3, 1930 | October 22, 1931 | 52.29 -----------------------------------------------------------------------
No other interest allowances have been made by the Commissioner of Internal Revenue with respect to the overpayments as determined for the years 1918 and 1919. No other action was taken by plaintiff until November 15, 1932, when this suit was instituted.
25. The computation of interest by the Commissioner on account of overpayments in favor of plaintiff for 1918 and 1919 and the deficiency for 1920 was consistent with the advice furnished plaintiff from at least May 24, 1927, and the scheduling of the overpayments for 1918 and 1919 on June 20, 1927, was done by the Commissioner upon the express statement to plaintiff that interest thereon would not be adjusted until after a final determination by the Board of the deficiency for 1920.
The plaintiff brings this suit for interest on alleged overpayments of income taxes for the year 1918 and 1919 which it claims were refunded to it. The controversy arises in the following manner:
Prior to and during 1927, the Commissioner of Internal Revenue had under consideration the returns of the plaintiff for the years 1918, 1919, and 1920, and, as a result of his audits, he determined an overassessment for 1918 of $80,072.44, an overassessment for 1919 of $1,764.11, and a deficiency for the year 1920 of $100,442.20. On January 13, 1927, a 30-day determination letter was sent to the plaintiff showing the above overassessments and deficiency and notifying plaintiff that the overassessments would be credited to the deficiency in accordance with section 284(a) of the Revenue Act of 1926 ( 44 Stat. 66). On March 16, 1927, a 60-day letter was sent to the plaintiff advising it of the proposed overassessments and deficiency and notifying it of its right of appeal to the United States Board of Tax Appeals so far as the deficiency was concerned. On May 13, 1927, prior to the expiration of the 60 days, plaintiff voluntarily delivered to the collector its check for $100,442.20, the exact amount of the proposed deficiency for 1920, and indicated on the check that payment was being made under protest. At that time the deficiency had not been assessed, and therefore the collector, in accordance with the usual procedure, entered this amount in his suspense account awaiting instructions of the Commissioner. The following day the plaintiff filed its petition with the Board of Tax Appeals, asking for a redetermination of the proposed deficiency. On May 24, 1927, at a conference with a deputy commissioner of Internal Revenue, plaintiff requested that the overassessments for 1918 and 1919 be scheduled, and, if found to be overpayments, that they be refunded in full, with interest, since a check for the full amount of the proposed deficiency for 1920 had been deposited with the collector. The Commissioner refused to accede to plaintiff's request, for the reason that the deficiency for 1920 was before the Board of Tax Appeals for determination and, when finally determined, he intended to apply the overassessments for 1918 and 1919 as a credit against the deficiency for 1920 and make payment to the plaintiff of the net balance due (if any) with the appropriate adjustment of interest. When the Commissioner was notified by the collector that the taxpayer had voluntarily paid the full amount of the proposed deficiency, the Commissioner instructed the collector to hold this amount as a cash bond, for the reason that the plaintiff had taken an appeal to the Board of Tax Appeals for a redetermination. The Commissioner also notified the taxpayer that this amount, voluntarily paid in to the collector, would be treated as a cash bond awaiting the decision of the Board of Tax Appeals on the amount of the deficiency for the year in question. However, having in his possession funds in the amount of the overassessments for 1918 and 1919, amounting to some eighty odd thousand dollars and a check deposited by the plaintiff equal to the proposed deficiency in the sum of $100,442.20, the Commissioner in effect advised plaintiff that he would, as a concession and as a special favor to the plaintiff, return to it a sum equal to the two overassessments, and, as there was no other method of paying this sum to plaintiff, he consented to schedule these overassessments and pay them to the plaintiff in the form of a refund. Accordingly, on July 18, 1927, the collector prepared, signed, and returned the schedule of overassessments and sent the same to the Commissioner. The Commissioner completed the schedules and the plaintiff was paid the amount without any computation of interest. The certificates of overassessments, which were completed at about the same time, likewise were for the amount of the overassessments without any allowance of interest. After the plaintiff had been paid these amounts, the parties to the proceeding before the Board of Tax Appeals stipulated that the deficiency for 1920, as determined by the Commissioner, was correct and an order was taken dismissing the appeal. The Commissioner then proceeded with the final adjustment of plaintiff's accounts for the 3 years in question by treating the overpayments for 1918 and 1919 as credits against the deficiency for 1920, as provided for under section 284(a) of the Revenue Act of 1926 ( 44 Stat. 66), and determined interest accordingly. In this manner the accounts for these years were finally closed.
The plaintiff's contention is that, the Commissioner having scheduled the overassessments as overpayments and refunded to it these amounts, under section 1116(a) of the Revenue Act of 1926 (26 U.S.C.A. § 1671 note), interest should have been computed from the dates of payment to the date of the refunds. This court and other courts have had many similar situations and the courts have consistently sustained the action of the Commissioner. York Safe Lock Company v. United States, 40 F.2d 148, 69 Ct.Cl. 529; Standard Oil Company (Indiana) v. United States, 5 F. Supp. 976, 7 F. Supp. 301, 78 Ct.Cl. 714; Eastman Kodak Company v. United States, 13 F. Supp. 435, decided by this court February 3, 1936, certiorari denied October 19, 1936, 57 S.Ct. 46, 81 L.Ed. ___; McCarl v. Leland, 59 App.D.C. 362, 42 F.2d 346; Tull Gibbs v. United States (C.C.A.) 48 F.2d 148; United States ex rel. Cole v. Helvering, 64 App.D.C. 35, 73 F.2d 852; and United States v. Pacific Midway Oil Company, decided by the District Court for the Northern District of California and affirmed (C.C.A.) 66 F.2d 1017. The plaintiff recognizes the force of these decisions as opposed to recovery but contends that certain acts of the Commissioner take this case out of the general rule and permit recovery of interest. It contends that this case falls within the rule laid down by this court in the case of Libby, McNeill Libby v. United States, 9 F. Supp. 673, 80 Ct.Cl. 579, which is an exception to the general rule.
No District Court opinion for publication.
In the Libby Case, supra, the Commissioner found an overpayment for 1917 and applied a part of it at the taxpayer's request to an installment of the original tax for 1928. The balance of the overpayment was certified as refundable. At the time this determination was made there was pending before the Board of Tax Appeals a deficiency for 1919, which apparently had been determined entirely separate and apart from the overpayment for 1917. The balance of the overpayment for 1917 was withheld from refund to the taxpayer pending disposition of the appeal to the Board for 1919. When the appeal for 1919 was finally determined, showing a deficiency for that year, the Commissioner assessed the deficiency and made demand for payment, which the taxpayer complied with. Later, when the taxpayer demanded the refund of the balance of the overpayment for 1917, the Commissioner sought to change his records and have the overpayment applied as a credit against the deficiency for 1919 which had already been satisfied. This court held that, since the deficiency had already been satisfied after assessment and demand for its payment by the Commissioner, there was nothing against which the overpayment could be applied.
In the instant case, the plaintiff voluntarily attempted to make payment of the deficiency which had not been assessed, and, when the matter was brought to the attention of the Commissioner, he treated this payment as a cash bond for the reason that overassessments had been determined for the prior years and the plaintiff had taken an appeal to the Board of Tax Appeals for a redetermination of the proposed deficiency. When the plaintiff requested the scheduling of these overassessments and the payment of them in full with interest, the Commissioner refused, but, as a concession, agreed to return a part of the money which he held in his hands for the payment of this deficiency when the amount of it should be found by the Board of Tax Appeals, however, on the clear condition that these overassessments would be kept open and applied as credits to whatever amount was found by the Board to be the correct amount of the deficiency, and, when this credit was made, the interest would be computed. Plaintiff was not only advised by letter that the overpayments were not being scheduled in the usual manner as a closed and completed transaction, but also the acts of the Commissioner were consistent with such provisional action, the letter advising that the overpayments would be scheduled without interest, the schedule of overassessments being completed without the usual interest computation, and the certificate of overassessment, of which plaintiff received a copy, likewise omitting the usual interest notation. Under such circumstances it would be groundless to say that plaintiff was not clearly advised that the Commissioner was not making final disposition of the overpayments at this time but was leaving them open for final adjustments when the deficiency was finally determined. It is therefore clear that the plaintiff accepted the payment of these amounts with the full knowledge that the Commissioner intended to carry out the provisions of section 284(a) of the Revenue Act of 1926 which permitted him, where there were overassessments and a deficiency, to credit the overassessments to the deficiency before computing interest. The Commissioner was aware that the plaintiff was apparently endeavoring to pay the 1920 proposed deficiency so as to stop interest on this amount and to collect interest on the overassessments for the years 1918 and 1919 for some greater number of years. The Commissioner was consistent from the beginning to the end of this transaction in keeping the record clear so that, in making these payments to the plaintiff, the provisions of section 284(a) would not be impaired in any way and that he would be free to apply the overpayments as a credit to the deficiency as soon as the appeal taken to the Board of Tax Appeals was determined.
It will be seen that this case differs entirely in its facts and the actions of the Commissioner in reference to the deficiency from the facts presented in the Libby Case. There was no demand for payment made by the Commissioner or an application of the payment to the deficiency. On the contrary, the deficiency had not been assessed when the plaintiff voluntarily made the payment of a like amount to the collector. However, the plaintiff contends that refunds were made to it and that, where refunds or credits are made, section 1116(a) requires that interest shall be computed from the date of the payment to the date of the refund on all overpayments. Technically speaking, refunds were made to the plaintiff but they were not real refunds in the technical sense. What the Commissioner did was to allow the plaintiff a sum equal to the overpayments out of the large amount in his possession in the form of refunds but, in substance, partial or advance payments only. The plaintiff knew when these amounts were paid that the Commissioner had refused to compute interest; that he had consistently stated that the overassessments when scheduled as overpayments would be applied to the deficiency when it was finally determined and that interest then would be computed.
In our opinion, the concession made to the plaintiff of the repayment of part of this large amount held by the Commissioner should not be a penalty upon him for the favor granted to the taxpayer. He could have retained the entire amount until the decision of the Board of Tax Appeals had been rendered, during which period the plaintiff would have been out of the use of the large amount of money which, as a special favor, the Commissioner returned to him.
In our judgment this case falls within the general rule, as shown by the cases above cited, and not within the exception.
The plaintiff is not entitled to recover, and its petition is therefore dismissed. It is so ordered.
BOOTH, Chief Justice, and WILLIAMS, Judge, concur.
LITTLETON, Judge, concurs in view of former decisions.
If the Commissioner had adhered to his original determination with reference to the payment by plaintiff and the application of the overassessments, he would have been on safe ground. But, realizing that a large amount of money would eventually have to be returned, he refunded the amount of the overassessments without interest, having previously and continuously given the plaintiff clearly to understand that interest would not be allowed as demanded. It is urged by plaintiff that the law expressly required the payment of interest on refunds, but I do not think this prevented the Commissioner from making a conditional payment especially under the circumstances of the case. 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. In Standard Oil Co. (Indiana) v. United States, 5 F. Supp. 976, 7 F. Supp. 301, 78 Ct.Cl. 714, we discussed this matter further and held that the statute required the Commissioner to credit overpayments on deficiencies then existing. In Eastman Kodak Co. v. United States, 13 F. Supp. 435, 82 Ct.Cl. 504, we reaffirmed this rule. In the case at bar, the Commissioner had determined that overpayments had been made and that there was a deficiency. He therefore had no right or authority to refund any part of the overpayment that should under the law have been applied on the deficiency. When the Commissioner made the final settlement and adjustment of plaintiff's account for the 3 years involved, he complied with the law by applying the overpayments for 1918 and 1919 in payment of the deficiency of 1920 and computed the interest accordingly. The law did not require that interest should be allowed on a refund illegally paid, and his final determination was correct.
I am authorized to state that WILLIAMS, Judge, and BOOTH, Chief Justice, concur in the views above expressed.