Opinion
No. 43309.
April 3, 1939.
George E.H. Goodner, of Washington, D.C., for plaintiff.
Elizabeth B. Davis, of Washington, D.C., and James W. Morris, Asst. Atty. Gen. (Robert N. Anderson and Fred K. Dyar, both of Washington, D.C., on the brief), for the United States.
Before BOOTH, Chief Justice, and GREEN, LITTLETON, WILLIAMS, and WHALEY, Judges.
Suit by the Mohawk Mining Company against the United States to recover back income taxes.
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. Plaintiff is a Michigan corporation with its principal office at 15 William Street, New York City. Its business is that of mining and selling copper.
2. Plaintiff duly filed a corporation income tax return for the calendar year 1929 disclosing a net income of $917,839.60 and a tax liability of $100,962.36. The tax was paid in four equal installments of $25,240.59 on March 15, June 14, September 15, and December 15, 1930.
3. In May, 1931, the Commissioner of Internal Revenue assessed an additional tax for the year 1929 of $11 and interest of $.78, which tax and interest were paid by plaintiff June 15, 1931. That additional tax and interest were assessed pursuant to a waiver executed by plaintiff of its right to file a petition with the United States Board of Tax Appeals.
4. November 1, 1932, plaintiff filed a claim for refund of $101.53 for the year 1929 and assigned the following basis therefor:
"This company prepared the corporation income tax return for the year 1929 on the accrual basis.
"Included in the net amount, as reported, were two items of interest in the total amount of $1,088.74 received with refunds of taxes, as follows:
-------------------------------------------------------------------- Year | Certificate | Schedule | Refund | Interest | of overassessment | Number | | --------------|-------------------|----------|-----------|---------- 1919 ........ | 2076616 | 33539 | $6,100.01 | $915.00 1920 ........ | 2076613 | 33539 | 1,158.29 | 173.74 | | | |---------- Total ..... | ................. | ........ | ......... | $1,088.74 | | | | --------------------------------------------------------------------
"The interest is tax exempt, being an obligation of the Federal Government, or, if taxable at all, it should be accrued over the period for which it was allowed, and not all reported in the year 1929, in which it was received, in accordance with G.C.M. 10384, XI-15-5442, and the courts' decisions in the cases of Com'r v. Midland Valley R. Co., 10 Cir., 57 F.2d 1042, Apr. 11, 1932, and Miller Vidor Lumber Co. v. Com'r, 5 Cir., 39 F.2d 890."
5. On the same day that the claim for refund for 1929 (referred to in finding 4) was filed, namely, November 1, 1932, plaintiff filed a claim for refund of $23,000 for 1928 and assigned as one ground therefor a basis similar to that set out in the claim for refund for 1929 as to when certain interest accrued for taxation purposes, and in addition the following ground:
"On Aug. 16, 1923, Mohawk Mining Company acquired all of property and assets previously owned by the Wolverine Copper Mining Company. Refund of taxes should be allowed based on adjustments in opening and closing inventories, as well as adjustments in the allowances made for depletion, depreciation, and obsolescence. Reconsideration should be given to the value of the properties owned by the Wolverine Copper Mining Company, and acquired in 1923 by the Mohawk Mining Co., for depletion purposes, as well as for depreciation and obsolescence."
6. December 12, 1932, the Commissioner wrote plaintiff as follows:
"Receipt is acknowledged of your letters dated December 6, 1932, protesting the proposed rejection of your claim for refund of 1928 income tax, as outlined in office letter dated October 25, 1932, and requesting that a hearing in Washington be held in abeyance pending reconsideration.
"You are informed that another claim for refund relative to depletion has been received, and is now under consideration.
"Accordingly, a conference will not be arranged until thorough consideration has been given to both issues involved."
7. January 5, 1933, the Commissioner advised plaintiff that its claims for refund of $196.65 and $23,000 for 1928, and the claim for refund of $101.53 for 1929 had been examined and that it was proposed to disallow all of the claims, giving reasons therefor, but that in the event plaintiff did not acquiesce in such proposed action, an opportunity for a hearing would be granted if requested within thirty days.
8. January 31, 1933, plaintiff requested a conference in regard to the claims referred to in finding 7 but requested that it be scheduled sometime in the month of March 1933, in order to enable it to assemble certain data for use at the conference.
February 7, 1933, the Commissioner replied to plaintiff's letter of January 31, 1933, and advised plaintiff in part as follows: "Since this office desires to give full and careful consideration to all information which will affect your income tax liability, and as it is deemed inadvisable to arrange a conference prior to the receipt of the detailed protest, you are granted until March 1, 1933, to submit additional data." The letter stated further that the request for a conference would be considered at a later date.
Thereafter the time for submitting the additional data was extended to March 11, 1933.
9. March 11, 1933, plaintiff filed a claim for refund of $25,251.29, income tax paid for 1929, and assigned the following basis therefor:
"On November 1, 1932, taxpayer filed a claim for refund with the Collector for the 2nd District of New York demanding refund of income tax paid for 1929. Said claim is now under consideration by the Commissioner at Washington, D.C. (See Bureau of Internal Revenue letter dated February 7, 1933, symbols IT: AR: A-3-AM. The time for filing additional data mentioned in said letter was subsequently extended orally to March 11, 1933.) This claim is now filed as supplemental and amendatory of said claim filed November 1, 1932.
"Taxpayer filed a timely income tax return for 1929 with the Collector for the 2nd District of New York, which return disclosed a net income of $917,839.60 and a tax liability of $100,962.36. Said tax was paid in quarterly installments on March 12, June 13, September 13, and December 13, 1930. The claim filed November 1, 1932, was therefore within two years of the last payment and is a valid claim to that extent ($25,240.59) as originally filed and as herein amended and supplemented. U.S. v. Memphis Cotton Oil Co., 288 U.S. 62, 53 S.Ct. 278, 77 L.Ed. 619, Jan. 9, 1933; U.S. v. Factors Finance Company, 288 U.S. 89, 53 S.Ct. 287, 77 L. Ed. 633, Jan. 9, 1933.
"In auditing the aforesaid return, the Commissioner of Internal Revenue disallowed a deduction of $100.00 taken therein for a donation by taxpayer to Good Will Farm, Houghton, Michigan, and assessed an additional tax thereon of $11.00, which tax was paid by taxpayer some time in 1932. This claim is filed within two years of such payment.
"In addition to the contention that 1929 income should be reduced by the amount of $1,088.74 representing interest on tax refunds received in 1929 and included in said income, as more fully set out in the aforesaid refund claim filed November 1, 1932, taxpayer claims that income was overstated by the amount of $105,447.13 because of its failure to take an adequate deduction for depreciation and obsolescence of its Mohawk and Wolverine plants which were then known to be approaching the end of their useful existence.
"Schedule 1 attached hereto sets forth the manner of computing the additional deduction herein claimed. The pounds of copper in the mine, the pounds removed, and the cost of the plant and equipment are not in dispute. It would therefore seem that this computation should be acceptable. It is an undeniable fact that the plant and equipment will have no value except for scrap when the copper is exhausted.
"Schedule 2 shows the correct income and tax liability on the basis of the contentions herein made.
"(Then follows a detailed computation of the additional deduction claimed for depreciation and obsolescence and also a recomputation of its income tax liability for 1929 showing an alleged overpayment for that year of $11,729.95.)"
10. March 18, 1933, the Commissioner advised plaintiff's counsel that in compliance with his verbal request a conference had been arranged for April 14, 1933, in connection with plaintiff's claims for 1928 and 1929.
The conference was held April 14, 1933 at which time the subject matter of plaintiff's claims for refund for 1928 and 1929 heretofore referred to was discussed, including the claim filed for 1929 on March 11, 1933, as well as plaintiff's income tax return for 1930, involving the same issues as to inventories, depletion, depreciation, and obsolescence. At that conference it was agreed between representatives of plaintiff and the Commissioner that the basis for the depletion deduction should be the pounds of copper sold and the basis for depreciation and obsolescence deductions the pounds of copper produced each year. As a result of that conference plaintiff's counsel was requested to furnish the Bureau a statement as to the number of pounds of copper produced by years. The Commissioner had previously obtained the information as to the pounds of copper sold each year. April 15, 1933, in accordance with the foregoing request, plaintiff's counsel transmitted a statement showing the pounds of copper produced from March 1, 1913, to December 31, 1930.
11. July 25, 1933, plaintiff's counsel wrote the Commissioner, referring to the conference of April 14, 1933, and the additional information furnished in the letter of April 15, 1933, and stated that it was his understanding at the conclusion of the conference that plaintiff's refund claims would be allowed to the extent agreed upon in the conference, but that since that time a revenue agent had requested certain additional information from plaintiff, from which plaintiff's counsel understood that certain readjustments of plaintiff's inventories would be required. Plaintiff's counsel further stated that in preparing the revised statement of the inventories an error had been discovered in the information previously furnished the Commissioner of copper produced for 1930 and accordingly transmitted revised inventories for 1928, 1929, and 1930, as well as changes in income and a recomputation of plaintiff's income tax liability for those years.
12. November 23, 1933, the Commissioner advised plaintiff of his proposed action on its two claims for refund for 1928, its claims for refund of $101.53 and $25,251.59 for 1929 and a claim for refund for 1930. One of the claims for refund for 1928 and the claim for refund of $101.53 for 1929 were based on certain contentions with respect to interest, and the Commissioner stated that it was proposed to disallow both of these claims. The other claims for 1928 and 1929 and the claim for 1930 had at least as the major ground certain contentions with respect to depletion, depreciation, and obsolescence and inventory adjustments. One paragraph of that letter read as follows: "As the result of the conference held in this office on April 14, 1933, adjustments have been made for depreciation and obsolescence based on reserve as at December 31, 1927, of 64,100,000 pounds of copper. The allowance is calculated on the pounds of copper actually taken out of the mines instead of on the pounds of copper sold as claimed on your income tax returns. The inventories have been adjusted to give effect to the revised depreciation and obsolescence."
The proposed action on the three last-named claims was as follows:
"Your claim for the refund of $23,000.00 for 1928 will be disallowed for the reason that the adjustments as shown in the attached statement result in a deficiency in income tax for 1928.
"Your claim for the refund of $25,251.59 for 1929 filed March 11, 1933, will be disallowed except for an amount of $11.78, for the reason that the claim was not filed within two years from the time the remainder of the amount of the income tax was paid. Reference: Section 322, Revenue Act of 1928. The Bureau holds that this claim is not an amendment to claim for $101.53 filed on November 1, 1932. See Treasury Decision #4265, Cumulative Bulletin VIII-1, page 110.
"Your claim for the refund of $34,405.06 for 1930 will be partially disallowed, based on the adjustments shown in the attached statement."
The letter extended to plaintiff the opportunity for a further hearing on the claims and to file additional information, provided request was made within fifteen days. Attached to the letter was a computation of depreciation and obsolescence for 1928, 1929, and 1930, a readjustment of inventories for those years, and a recomputation of income and tax liability for the same years. The revised tax liability showed a deficiency of $1,144.21 for 1928 but barred by the statute of limitations, an overassessment of $3,451.28 for 1929, $11.78 of which was shown as allowable and the balance barred by the statute of limitations, and an overassessment of $2,912.18 for 1930.
13. December 6, 1933, plaintiff's counsel asked for extension of time until January 20, 1934, in which to prepare and submit additional information and that request was granted by the Commissioner in a letter dated December 12, 1933.
January 23, 1934, plaintiff's counsel asked for a conference during the last week in March 1934, on plaintiff's claims for 1928, 1929, and 1930, stating that all the information regarding the issue in the claims was already before the Bureau.
14. Pursuant to the request of January 23, 1934, a conference was held on March 16, 1934, between plaintiff's representative and representatives of the Commissioner. At that time the issues involved in the tax liability for the years 1928, 1929, 1930, and 1931, were considered and an agreement was reached as to the manner in which depreciation and obsolescence should be considered in computing the cost of inventories and the proper rate of depreciation. Plaintiff's representative was requested to furnish a computation of the 1931 inventory of copper on hand and the number of pounds of copper produced and sold in 1931.
As a result of that conference plaintiff's counsel on May 21, 1934, furnished a recomputation of its inventories for the years 1928, 1929, 1930, and 1931, giving effect to depreciation and obsolescence, and also set out a revised computation of its tax liability. Such recomputation showed an overpayment for 1928 of $2,913.82, an overpayment for 1929 of $9,597.32, an overpayment for 1930 of $6,643.72, and a loss for 1931.
May 25, 1934, plaintiff submitted further information regarding plaintiff's depreciable property accounts and its method of calculating annual depreciation charges, and on May 29, 1934, submitted additional information in regard to the same matter.
15. June 28, 1934, the Commissioner advised plaintiff of his action on the claims heretofore referred to for 1928, 1929, and 1930, such letter reading in part as follows:
"Adjustments have been made for depreciation and obsolescence based on reserve as at December 31, 1927, of 64,100,000 pounds of copper. The allowance is calculated on the pounds of copper actually taken out of the mines, instead of on the pounds of copper sold, as claimed on your income-tax return. The inventories have been adjusted in accordance with the computations submitted by your representative, Mr. George E.H. Goodner, in brief dated May 21, 1934, the obsolescence of plant and equipment included with depreciation in cost of mining in office letter dated November 23, 1933, has been eliminated therefrom, resulting in the revised inventories.
"Your claim for the refund of $25,251.59 for 1929, filed March 11, 1933, will be disallowed except for an amount of $11.78, for the reason that the claim was not filed within two years from the time the remainder of the income tax was paid. See Section 322 of the Revenue Act of 1928, 26 U.S.C.A. § 322 note. The Bureau holds that this claim is not an amendment to claim for $101.53 filed on November 1, 1932. See Treasury Decision 4265, Cumulative Bulletin VIII-1, page 110.
"Your claims for 1928 and 1930 will be allowed in part as shown in the attached statement. Official notice of the partial disallowance of your claims will be issued by registered mail in accordance with section 1103(a) of the Revenue Act of 1932, 26 U.S.C.A. §§ 1672-1673."
Attached to letter was a statement showing a computation for depreciation and obsolescence for 1928, 1929, and 1930, inventories for those years, and adjusted income and tax liability for the same years. The statement showed an overassessment for 1928 of $2,589.06, an overassessment for 1929 of $10,026.32, of which $10,014.54 was shown as barred by the statute of limitations and $11.78 allowable, and an overassessment for 1930 of $6,643.72. With respect to the overassessment for 1929 the letter stated: "The overassessment determined is due to additional allowances for depreciation and obsolescence and adjustment of closing inventory. The first item is covered by claim for refund filed March 11, 1933, which date was within two years from June 15, 1931, the date of payment of $11.78 additional tax and interest assessed. This claim was not filed within two years from date of payment of original assessment, hence the allowable overassessment may not exceed the sum of $11.78."
16. July 30, 1934, the Commissioner issued to plaintiff a certificate of overassessment which stated that an audit of its income-tax return and all claims filed for 1929 showed an overassessment determined as follows:
Income tax assessed:
Original, account #402852 ................. $100,962.36 Additional, May 23, 1931, page 2, line 4, #4 ...................................... 11.00 Interest, May 23, 1931, page 2, line 4, #4 .78 ___________ Total ................................... $100,974.14 Correct income tax liability .... $90,947.82 Correct interest liability ...... None __________ 90,947.82 ___________ Overassessment of tax and interest .......... $ 10,026.32 Barred by statute of limitations ............ 10,014.54 ___________ Overassessment allowable ................ $ 11.78
The certificate of overassessment showed the amount allowed as $11.78 and gave the following explanation of the Commissioner's action:
"The adjustments producing this overassessment are contained in schedules attached to a separate communication addressed to you.
"In the determination of this overassessment the grounds set forth in your claims for the refund of $101.53 and $25,251.59 have been given careful consideration, and to the extent disallowed official notice will be issued by registered mail in accordance with section 1103(a) of the Revenue Act of 1932.
"The portion of this overassessment which represents an overpayment, if any, is refunded or credited in accordance with the provisions of section 322 of the Revenue Act of 1928."
17. August 16, 1934, plaintiff received a check for $13.99 representing the overpayment set out in the foregoing certificate of overassessment and interest as determined by the Commissioner for 1929.
18. August 23, 1934, the Commissioner advised plaintiff by registered mail that its two claims for refund for 1928 and the two claims for 1929 had been disallowed to the extent not allowed as heretofore shown.
In this suit for the recovery of income tax, plaintiff's contention is that it filed a timely claim for refund under which it may recover an overpayment determined by the Commissioner for 1929, which the Commissioner has refused to allow on the ground that the claim was not filed within two years from the time the tax was paid as provided in section 322 of the Revenue Act of 1928.
An examination of the facts, which we have set out in some detail in order to show what occurred, leaves no doubt that plaintiff's contention is without merit. The only claim for 1929 which was filed within two years of the payment of the tax (except as to a small additional tax which is not in dispute) was a claim filed November 1, 1932, and it was specific in character, relating to whether certain interest was tax exempt. That claim was rejected and is not involved in this suit. Since it was specific in character it could not be amended after the statute had run to allow recovery on grounds not advanced in the original claim. United States v. Mabel S. Andrews, 302 U.S. 517, 58 S.Ct. 315, 82 L.Ed. 398.
The second claim for 1929 which was filed more than two years after the payment of the tax sought to be recovered and which was referred to as amendatory of the claim filed November 1, 1932, sought recovery on new and additional grounds, namely, adjustments of inventories, depletion, depreciation and obsolescence. The overpayment determined by the Commissioner, which he refused to refund to plaintiff, was on account of adjustments under the additional grounds just stated. Obviously, adjustments of that character are so far removed from the basis of the first claim, tax-exempt interest, as to leave no doubt that the second claim undertook to set up a new cause of action which was not within the first claim and therefore could not be considered an amendment under the rule laid down in the Andrews case, supra.
Plaintiff makes the further contention that the second claim filed for 1929 amounted to the "perfecting" of an informal claim timely filed for that year and therefore recovery should be allowed. The informal claim referred to was a claim filed for 1928 and made no reference to 1929, the year with which we are concerned. All the revenue acts since the adoption of the Sixteenth Amendment, U.S.C.A. Const., have provided for the return of income on an annual basis, and the return for each year is required to be complete in and of itself. Burnet v. Sanford Brooks Co., 282 U.S. 359, 51 S.Ct. 150, 75 L.Ed. 383. The events occurring in one year may be connected with or affect transactions occurring in another year but that does not alter the fact that the return must be complete for the year for which made. Clearly the same rule would apply to limitations applicable to that return with respect to the making of additional assessments or the refund of overpayments. The fact, therefore, that the adjustments asked for in the claim for 1928 might affect income in subsequent years would not permit a refund for any year other than the year named in the claim for refund. How far reaching the upholding of plaintiff's contention would be is well illustrated by the character of adjustments requested and allowed under the 1928 claim, namely, inventories, depletion, and depreciation. The bases fixed for these adjustments for 1928 not only affected income for 1929 and 1930 but also might well have a similar effect on income for other subject years, and certainly claims for refund would be required before recovery could be had in those years.
Nor is the situation changed because the Commissioner, in making the adjustments sought under the claim for 1928 and similar adjustments asked within the statutory period for 1930, gave consideration to, and made corresponding adjustments for, the intervening year, 1929, even though an untimely claim for 1929 was then before the Commissioner, since no officer of the Government can waive the statute of limitation and therefore the Commissioner was without power to make an allowance under the late claim. United States v. Garbutt Oil Co., 302 U.S. 528, 58 S.Ct. 320, 82 L.Ed. 405.
It follows that the petition must be dismissed. It is so ordered.