Hoyt v. United States

Full title: HOYT et al. v. UNITED STATES

Court: Court of Claims

Date published: Apr 7, 1930

39 F.2d 739 (Fed. Cir. 1930)

Opinion

No. H-225.

April 7, 1930.

Action by Charles C. Hoyt and another, as members of the partnership of Farnsworth-Hoyt Company, against the United States.

Judgment for plaintiffs.

This action was instituted to recover interest due on $62,788.95, part of an overassessment for the year 1917 in favor of the Farnsworth-Hoyt Company, a copartnership, applied as a credit against additional assessments made against the individual partners for said year.

The case having been heard by the Court of Claims, the court, upon a stipulation of facts signed on behalf of plaintiffs by their attorney, Mr. Frank J. Albus, and on behalf of defendant by Mr. Assistant Attorney General Herman J. Galloway, makes the following special findings of fact:

1. Charles Chase Hoyt and Robert Perkins Gay, during the calendar year 1917, operated a business in the city of Boston, commonwealth of Massachusetts, as a copartnership under the firm name of Farnsworth-Hoyt Company.

2. Robert Perkins Gay, prior to the filing of the petition in this case, died, and John Challis was duly appointed trustee by the probate court for the county of Middlesex in the said commonwealth of Massachusetts on January 17, 1924; John Challis as trustee of the estate of Robert Perkins Gay is a party to this action.

3. Charles Chase Hoyt and John Challis, the plaintiffs in this suit, are citizens of the United States and residents of the commonwealth of Massachusetts.

4. Charles Chase Hoyt and Robert Perkins Gay on March 30, 1918, filed copartnership income and excess profits tax returns for the calendar year 1917, from which it appeared that the excess profits tax due thereon was $381,511.85, which tax was paid on July 13, 1918.

5. Robert Perkins Gay, on March 30, 1918, filed an individual income tax return for the year 1917, from which it appeared that the tax due thereon was $50,400.91, which was paid on June 19, 1918.

6. Charles Chase Hoyt, on March 30, 1918, filed an individual income tax return for the calendar year 1917, from which it appeared that the tax due thereon was $87,316.61, which was paid on June 19, 1918.

7. Charles Chase Hoyt and Robert Perkins Gay, the decedent, included in their individual income tax return for the said year 1917 all of their pro rata share of the copartnership income for the year 1917.

8. Subsequent thereto, after an examination and an audit of the returns of the copartnership and individual members thereof, Charles Chase Hoyt and Robert Perkins Gay, and based on revenue agent's reports submitted to the Bureau of Internal Revenue on February 28, 1923, the Commissioner of Internal Revenue, in letters dated March 15, 1923, notified Charles Chase Hoyt, Robert Perkins Gay, and Farnsworth-Hoyt Company of his determination, which was as follows:

============================================== | Years | Underpayment ------------------------|-------|------------- Farnsworth-Hoyt Company | 1917 | $15,886.24 Charles Chase Hoyt .... | 1917 | 3,077.97 Robert Perkins Gay .... | 1917 | 1,154.02 ----------------------------------------------

9. During the month of March, 1923, the Commissioner of Internal Revenue made an additional assessment of the underpayment of excess profits taxes against the copartnership in the amount of $15,886.24 and made assessments of the underpayments of income taxes against the individual members previously referred to, Charles Chase Hoyt and Robert Perkins Gay, in the amounts of $3,077.97 and $1,154.02, respectively, as shown in finding 8, above.

10. On April 2, 1923, after notice and demand from the collector of internal revenue, the copartnership, Farnsworth-Hoyt Company, paid the underpayment of excess profits tax in the amount of $15,886.24.

11. On April 3, 1923, after notice and demand from the collector of internal revenue, Charles Chase Hoyt paid the underpayment of income tax in the amount of $3,077.97.

12. On April 14, 1923, after notice and demand from the collector of internal revenue, Robert Perkins Gay, the decedent, paid the underpayment of income tax in the amount of $1,154.02.

13. On January 25, 1924, the copartnership, Farnsworth-Hoyt Company, filed a claim for the refund of $150,000, excess profits taxes for the calendar year 1917, based on the allowance of additional salaries to the individual members, Charles Chase Hoyt and Robert Perkins Gay.

14. Based on the allowance of the said additional salaries for the year 1917 to the two individual members of the copartnership, Charles Chase Hoyt and Robert Perkins Gay, the income of the individual members of the copartnership as shown by their individual income-tax returns for the said year was increased by the amount of the said additional salaries allowed as a deduction to the copartnership, resulting in an underpayment of the income tax of the individual members of the copartnership for the said year as follows:

============================================== | Year | Underpayment -------------------------|------|------------- Charles Chase Hoyt ..... | 1917 | $29,533.59 Robert Perkins Gay ..... | 1917 | 33,255.36 ---------------------------------------------

15. On March 26, 1924, the Commissioner of Internal Revenue made an additional assessment of the underpayment of taxes for the year 1917, in the amount of $29,533.59 against the said Charles Chase Hoyt and $33,255.36 against Robert Perkins Gay.

16. On April 3, 1924, John Challis and Charles Chase Hoyt, as executors of the estate of Robert Perkins Gay, notified the collector of internal revenue at Boston, Mass., that the estate of the said Robert Perkins Gay waived all rights to the claim for credit presented to the said collector by Charles Chase Hoyt.

17. On April 3, 1924, Charles Chase Hoyt notified the collector of internal revenue at Boston, Mass., that he waived all rights to the claim for credit presented to the said collector by John Challis and Charles Chase Hoyt, as executors of the estate of Robert Perkins Gay.

18. On April 5, 1924, a claim for the credit of $33,255.36, income tax for the year 1917, was filed by John Challis and Charles Chase Hoyt as executors of the estate of Robert Perkins Gay, in which it was requested that the additional assessment of the underpayment of tax against the said Robert Perkins Gay be applied as a credit to the overassessment to be determined against the copartnership of Farnsworth-Hoyt Company; and that he be relieved from the necessity of complying with the demand for the payment of the said additional taxes.

19. On April 5, 1924, a claim for the credit of $29,533.59, income tax for the year 1917, was filed by Charles Chase Hoyt, in which it was requested that the additional assessment of the underpayment of taxes against the said Charles Chase Hoyt be applied as a credit to the overassessment to be determined against the copartnership of Farnsworth-Hoyt Company, and that he be relieved from the necessity of complying with the demand for the payment of the said additional taxes.

20. On May 6, 1924, in a letter signed by J.G. Bright, deputy commissioner, the copartnership was advised of a proposed overassessment in the amount of $120,000, based on the information submitted in the claim for refund referred to in finding 13 above.

21. In the absence of the filing of the waivers and claims for credit, the collector of internal revenue would have proceeded to make collection of the taxes assessed against the individual partners upon receipt of the assessment list from the Commissioner of Internal Revenue.

22. On May 14, 1924, the Commissioner of Internal Revenue approved a schedule of overassessments known and designated as Schedule IT:A-10262 on Form 7805 — A. Said schedule of overassessments embraced, among other overassessments, an overpayment in favor of the copartnership, Farnsworth-Hoyt Company, in the sum of $120,000 for the calendar year 1917. Said schedule of overassessments was transmitted to the collector of internal revenue for the district of Massachusetts for his action in accordance with the direction appearing thereon.

23. On August 11, 1924, the said collector of internal revenue complied with the direction appearing thereon and returned said schedule, properly signed, together with schedule of refunds and credits known and designated as Schedule IT:R-10262 on Form 7805-A.

24. Of the overpayment of $120,000, excess profits taxes for the calendar year 1917, previously referred to in finding 20 above, which excess profits taxes for the said year were paid by the copartnership, $29,533.59 was applied against the underpayment of taxes assessed against Charles Chase Hoyt and $33,255.36 was applied against the underpayment of taxes assessed against Robert Perkins Gay, leaving a net balance refundable to the copartnership in the amount of $57,211.05.

25. On September 2, 1924, the Commissioner of Internal Revenue signed the said schedule of refunds and credits authorizing the issuance of a treasury check to the copartnership, Farnsworth-Hoyt Company, in the amount of $57,211.05.

26. On September 3, 1924, the Commissioner of Internal Revenue, in a letter signed by J.G. Bright, deputy commissioner, notified the copartnership, Farnsworth-Hoyt Company, that the additional assessments of the underpayment of taxes made against the individual members of the copartnership, Charles Chase Hoyt and Robert Perkins Gay, had been credited against the overassessment of $120,000 due the copartnership, leaving a net balance refundable of $57,211.05.

27. On September 8, 1924, the collector of internal revenue for the district of Massachusetts mailed to the copartnership, Farnsworth-Hoyt Company, the certificate of overassessment in the amount of $120,000, together with treasury check in the amount of $58,147.50, covering the net balance refundable in the amount of $57,211.05 and interest thereon in the amount of $936.45.

28. When the collector applied the overassessment in favor of the copartnership of Farnsworth-Hoyt Company against the additional tax due from the members of the copartnership, the question of interest was not discussed and the partnership waived none of its rights to receive the proper amount of interest due to it on the overassessment.

29. In a letter dated October 12, 1926, Farnsworth-Hoyt Company, by its authorized representatives, requested the Commissioner of Internal Revenue to allow additional interest on the overassessment of $120,000 for the year 1917.

30. On March 11, 1927, the Commissioner of Internal Revenue notified Farnsworth-Hoyt Company that additional interest had been allowed on the schedule of refunds and credits IT:I-22017 in the amount of $20,870.25, which interest was subsequently paid by treasury check mailed to the copartnership of Farnsworth-Hoyt Company.

31. The interest of $936.45 referred to in finding 27 above had been allowed on the underpayment of excess profits taxes in the amount of $15,886.24 referred to in finding 8 above from April 2, 1923, the date of the payment of the said underpayment of excess profits taxes for the year 1917, to March 26, 1924, the date of the assessment of the income tax to which credit was applied.

32. In accordance with the decision of the Supreme Court of the United States in the case of the Girard Trust Company, interest in the amount of $21,806.70 was determined. Inasmuch as $936.45 had previously been allowed, the balance of $20,870.25 was allowed on the amount refunded, $57,211.05 from July 13, 1918, the date of the payment of the original excess profits taxes, to September 2, 1924, the date of the signing of the schedule of refunds and credits referred to in finding 25 above.

33. The copartnership, Farnsworth-Hoyt Company, Charles Chase Hoyt, and Robert Perkins Gay, the decedent, have paid no interest on the underpayment of excess profits taxes and income taxes previously referred to.

Frank J. Albus, of Washington, D.C., for plaintiffs.

C.R. Pollard, of Washington, D.C., and Herman J. Galloway, Asst. Atty. Gen. (Ralph E. Smith, of Washington, D.C., on the brief), for the United States.

Before BOOTH, Chief Justice, and GRAHAM, GREEN, LITTLETON, and WILLIAMS, Judges.

GRAHAM, Judge.

This case involves primarily a question of the plaintiffs' right to recover interest on a credit and the due date of that credit from which interest should be computed. It being admitted that there was a credit allowed, interest should be computed from the date of payment of the amount credited to the date on which the Commissioner of Internal Revenue approved the schedule of refunds and credits and certified the credit to the disbursing officer. The question is controlled by the case of Swift Co. v. United States, 67 Ct. Cls. 322, and Boston Buick Co. v. United States (D.C.) 27 F.2d 395.

But there is another question involved which requires some comment. Without going into the details of the dates, briefly stated the facts are these: There existed a copartnership composed of Charles Chase Hoyt and Robert Perkins Gay. The copartnership made its tax return for 1917 and the individual members of the copartnership made their returns. The Commissioner of Internal Revenue assessed an underpayment against each of the partners, and thereafter declared an overassessment of $120,000 in favor of the copartnership. Robert Perkins Gay died prior to the filing of the petition in this case, and John Challis and Charles Hoyt qualified as executors of his estate, and are petitioners herein.

Of the intention to declare the said overassessment in favor of the copartnership, the partners were advised before the receipt of the formal notice, and they thereupon applied to the collector to have the underpayments assessed against each of them credited on the overassessment in favor of the copartnership. The underpayments assessed against them aggregated $62,788.95. They were told at the bureau by the deputy collector that the bureau would consent to do this if they would each waive their respective rights as to each other to have these credits made, and they filed waivers, each of them. The effect of the waivers, dated April 3, 1924, was that Hoyt waived all rights to claims for credit presented by the executors of the estate of Gay and the executors of the estate of Gay did the same as to Hoyt. Thereafter, on April 5, 1924, each of the partners filed a claim for credit on their income tax for 1917, in which it was requested that the additional assessment for underpayment of taxes against each of them be applied as a credit to the overassessment determined in favor of the copartnership.

On May 14, 1924, the commissioner approved a schedule of overassessments, among which was an overassessment in favor of the partnership of $120,000 for the calendar year 1917. This schedule was transmitted to the collector for his action in accordance with the directions appearing thereon. On August 11, 1924, the collector in compliance with said directions, returned the schedule properly signed, together with schedule of refunds and credits. Of this sum of $120,000, excess profits taxes due the copartnership, $29,533.59 was applied against the underpayment of taxes assessed against Hoyt, and $33,255.36 applied against the underpayment of taxes assessed against Gay, leaving a net balance of $57,211.05.

On September 2, 1924, the Commissioner of Internal Revenue signed the said schedule of refunds and credits, authorizing the issuance of a treasury check to the copartnership for the last-named sum, and on September 3, 1924, notified the copartnership of the action he had taken and of the refundable balance due of $57,211.05. On September 8, 1924, the collector of internal revenue mailed to the copartnership a check for $58,147.50 covering the net balance refundable and interest thereon amounting to $936.45.

The Farnsworth-Hoyt Company, by its authorized representatives, on October 12, 1926, requested the commissioner to allow additional interest on the overassessment of $120,000 for the year 1917, and on March 11, 1927, the Commissioner of Internal Revenue notified the company that additional interest had been allowed amounting to $20,870.25, which was subsequently paid by treasury check mailed to the copartnership.

The first allowance of interest, $936.45, had been allowed on the underpayment of excess profits taxes in the amount of $15,886.24 from April 2, 1923, the date of the payment of the said underpayment of excess profits taxes for the year 1917, to March 26, 1924, the date of the assessment of the income tax to which credit was applied. The aforesaid $20,870.25, the second allowance of interest, was the balance after deducting the first allowance, $936.45, from $21,806.70, the interest determined on $57,211.05, the balance of the overassessment, from July 13, 1918, the date of the payment of the excess profits taxes, to September 2, 1924, the date of the signing of the schedule of refunds and credits by the commissioner, authorizing the issuance of a treasury check for the balance due.

The copartnership, Farnsworth-Hoyt Company, Charles Chase Hoyt, and Robert Perkins Gay, the decedent, have paid no interest on the underpayment of excess profits taxes and income taxes previously referred to.

Under the statutes no interest could be collected by the government other than by suit or upon failure to pay prior to the act of 1921 on additional assessments against taxpayers, and the situation existed where under certain conditions the taxpayer could collect interest on refunds and credits but the government could not, and this condition continued until the passage of the act of 1926, when, although the assessments made under that act were for taxes involved in the years prior to the act of 1921, interest in the case of a credit is payable only to the due date of the tax discharged by credit.

The instant case involves taxes for 1917, and the government could collect no interest on additional assessments for underpayments against the copartners, and so if the credit of the underpayments of the copartners to the overassessment allowed the copartnership was not properly made, the partnership would be entitled to interest on the $120,000, the whole amount of the overassessment, to the date of certification of the amount as an overpayment to the disbursing clerk; that is, September 2, 1924, under the ruling in the Swift and other cases cited above.

The question here is: Are they entitled to this interest? If they had not asked for this credit the partnership would have been entitled to interest on $120,000 from the date of payment, July 13, 1918, to the date of certification of the amount to the disbursing clerk, and as liquidating partners they would have received it. Is the mere fact that they asked for this credit sufficient to deprive them of what they are entitled to under the law? It does not appear that the request for the credit said anything about interest, and it appears that the object in asking for the credit was to get their indebtedness to the government on their respective additional assessments paid at that time. As there is nothing to show that this request was intended to be a waiver of the interest, we are of the opinion that they are entitled to the whole interest.

In this view of the matter it is not necessary for the court to pass upon the question raised in the case, whether the commissioner legally could enter as credits against the individual indebtedness of the partners a refund to the partnership. The action of the commissioner in this case was a short method of disposing of the matter, and what was done was done for the convenience of the plaintiffs. But this mere fact is not sufficient to deprive them of their legal rights as to the interest. The plaintiffs are entitled to recover $23,116.80, interest on $62,788.95, the amount of its overpayment by the partnership used to satisfy the underpayments charged against plaintiffs, from July 13, 1918, to the date of the signing of the schedule of refunds, September 2, 1924. It is so ordered.