Opinion
No. K-254.
March 5, 1934.
Marion Butler, of Washington, D.C., for plaintiff.
John W. Hussey and W.W. Scott, both of Washington, D.C., for the United States.
Before BOOTH, Chief Justice, and GREEN, LITTLETON, WILLIAMS, and WHALEY, Judges.
Suit by the Piedmont Wagon Manufacturing Company against the United States.
Petition dismissed.
Plaintiff sues to recover income and profits taxes of $7,095.40 for the fiscal year ended May 31, 1918, and $49,886.35 for the fiscal year 1919, with interest, on the ground that these taxes were barred by the statute of limitation at the time they were assessed and collected. The bar of the statute is predicated on the alleged invalidity of certain waivers of the statute of limitation, which bore plaintiff's corporate seal and were signed by it by its manager, secretary, and treasurer.
Plaintiff also sues for additional interest of $1,598.07 on an overpayment for 1917 credited on March 31, 1926, to a deficiency for the fiscal year 1920.
In June, 1931, plaintiff filed an amended petition alleging an overpayment of $18,736.88 for 1919 on the ground that its inventory for that year had been erroneously determined.
Special Findings of Fact.
1. Plaintiff, a North Carolina corporation with its principal office at Hickory, was organized in July, 1911, and continued to operate as a corporation at least until November 15, 1923, when its stockholders authorized its dissolution. An affidavit of the publication of the preliminary certificate of dissolution as required by chapter 22 of the Consolidated Statutes of North Carolina, entitled "Corporations," was filed with the secretary of state of North Carolina January 21, 1924, which effected a final dissolution of the corporation as provided in said statute. It was engaged in the manufacture and sale of wagons, in various related phases.
Fiscal Year Ended May 31, 1917.
2. (a) On or before November 15, 1917, plaintiff filed an income tax return for the fiscal year ended May 31, 1917, and on or before June 3, 1918, it filed an excess profits tax return for the same year. Payments were made on account of the tax liability due on the foregoing returns as follows:
November 15, 1917 .............. $1,094.35 November 24, 1917 .............. 305.97 June 3, 1918 ................... 2,687.96 April 10, 1923 ................. 1,009.71
(b) March 9, 1921, plaintiff executed an unlimited waiver of all statutory limitations as to the time within which assessments for the year ended December 31, 1917, might be made under the Revenue Act of 1916 ( 39 Stat. 756), as amended by the Revenue Act of 1917 ( 39 Stat. 1000). It was signed "Piedmont Wagon Mfg. Co. by J.A. Martin, V. Pres.," and it bears the plaintiff's corporate seal. It was also duly signed by the Commissioner of Internal Revenue.
(c) On or before February 8, 1923, plaintiff executed another unlimited waiver which likewise waived all statutory limitations as to the time within which assessments for the fiscal period January 1 to May 31, 1917, might be made under the Revenue Act of 1916, as amended by the Revenue Act of 1917. It was signed "Piedmont Wagon and Mfg. Co. by E.P. Rhyne," who was then secretary and treasurer of the plaintiff, and it was approved February 8, 1923, by the Commissioner of Internal Revenue. It was witnessed by "E.J. Smathers, Internal Revenue Agent," who was then making an examination of plaintiff's books.
(d) December 5, 1923, plaintiff filed a claim for refund of $2,041.44 for the fiscal period ended May 31, 1917, on the ground that the Commissioner had improperly adjusted its invested capital, and November 10, 1925, it filed another claim for refund of $2,195.18, for the same period on similar grounds, as the prior claim. Action on the two claims resulted in the issuance of a certificate of overassessment by the Commissioner in the amount of $1,598.07, which was credited March 31, 1926, to the tax due for the fiscal year ended May 31, 1920.
Fiscal Year Ended May 31, 1918.
3. (a) August 23, 1918, plaintiff filed an income and profits tax return for the fiscal year ended May 31, 1918, and made payments thereon as follows:
November 30, 1918 ........... $11,050.41 April 7, 1919 ............... 985.93 May 31, 1919 ................ 1,004.50 June 23, 1919 ............... 1,990.43 September 17, 1919 .......... 1,990.43 December 17, 1919 ........... 1,990.41 May 8, 1925 ................. 7,095.40
(b) September 5, 1923, plaintiff executed a waiver of all statutory limitations as to the time within which a determination, assessment, and collection of income and profits taxes for the year 1918 might be made. The waiver provided that it should remain in effect for one year from the date it was signed by the taxpayer. It was signed "Piedmont Wagon Mfg. Co. by E.P. Rhyne, Treasurer." It bears the corporate seal of the plaintiff, and it was duly signed by the Commissioner of Internal Revenue. This waiver was transmitted to and filed with the Commissioner by letter from plaintiff's agent then duly authorized by it to represent the corporation in its tax matters before the Treasury Department. This waiver had been requested by the Commissioner in a letter to plaintiff on August 18, 1923.
(c) August 21, 1924, plaintiff executed a waiver in which it consented to a determination, assessment, and collection of any income, excess profits, or war profits taxes due on its return for the fiscal year ended May 31, 1918. The waiver provided that it should remain in effect for one year after the expiration of the statutory period of limitations or the statutory period of limitations as extended by any waivers already on file. Such waiver was signed "Piedmont Wagon Mfg. Co. by E.P. Rhyne, Manager." It bears the corporate seal of the plaintiff, and it was duly signed by the Commissioner of Internal Revenue. This waiver was executed and transmitted to and filed with the Commissioner by plaintiff in response to the Commissioner's request therefor in a letter to the corporation of August 14, 1924.
(d) An additional assessment was made against the plaintiff for the fiscal year ended May 31, 1918, on the list of April, 1925, in the amount of $7,095.40, and such amount was paid, as heretofore shown, May 8, 1925.
(e) August 11, 1925, plaintiff filed a claim for refund for the fiscal year ended May 31, 1918, in the amount of $6,064.01 on the ground that the Commissioner had improperly adjusted its invested capital, and a certificate of overassessment was issued for that year in the amount of $4,595.47, which was credited March 31, 1926, to the fiscal year ended May 31, 1920.
Fiscal Year Ended May 31, 1919.
4. (a) August 18, 1919, plaintiff filed an income and profits tax return for the fiscal year ended May 31, 1919, and made payments thereon as follows:
August 20, 1919 ......... $10,875.58 September 17, 1919 ...... 10,875.58 December 23, 1919 ....... 21,751.18
(b) June 26, 1924, plaintiff executed a waiver in which it consented to a determination, assessment, and collection of any taxes due on its return for the fiscal year ended May 31, 1919. The waiver provided that it should remain in effect for one year after the expiration of the statutory period of limitations, or the statutory period of limitations as extended by any waivers already on file. Such waiver was signed "Piedmont Wagon Mfg. Co. by E.P. Rhyne, Sec. Treas." It bears the corporate seal of the plaintiff and it was duly signed by the Commissioner of Internal Revenue. This waiver was transmitted to and filed with the Commissioner by plaintiff in response to the Commissioner's request therefor in his letter to plaintiff of January 18, 1924.
(c) On or before July 22, 1925, an additional assessment was made against the plaintiff for the fiscal year ended May 31, 1919, in the amount of $59,181.20, and July 22, 1925, an abatement claim was filed with the collector in that amount. Of the foregoing amount, $9,294.85 was abated by the Commissioner, and on May 3, 1926, plaintiff paid the balance, namely, $49,886.35, together with interest in the amount of $2,244.87.
5. E.P. Rhyne, who signed each of the waivers referred to above, except the waiver which was signed by J.A. Martin, was elected secretary and treasurer of the plaintiff on or before February 8, 1923, and he continued in such capacity throughout the remainder of its existence. August 23, 1923, he was elected a member of the plaintiff's board of directors and continued in such capacity throughout the remainder of its existence. No change was made in the authorized duties of E.P. Rhyne upon the dissolution of the plaintiff, and no trustees were appointed to wind up plaintiff's affairs. Upon dissolution of plaintiff, its assets were acquired by D.E. Rhyne, who owned all of its capital stock at that time, and E.P. Rhyne continued with the business in a similar capacity as theretofore. No express authority was ever given E.P. Rhyne to sign waivers, nor was express authority given any one to sign such papers.
6. April 25, 1927, plaintiff filed a claim for the refund of $1,598.07, $4,595.47, $49,886.35, $7,882.46, and $1,114.70 for the fiscal years ended May 31, 1917, to May 31, 1921, respectively. The basis of the claim was set out as follows:
"That for the fiscal years ending May 31, 1917, and May 31, 1918, a refund was found to be due, as indicated by letter from the office of the Commissioner of Internal Revenue, dated February 26, 1926, in the amounts of $1,598.07 and $4,595.47, respectively, which refund was erroneously credited against alleged unpaid assessments for either the fiscal year ended May 31, 1919, or May 31, 1920, when, in fact, no tax was due for these latter years.
"That the alleged tax for the fiscal years ended May 31, 1919, May 31, 1920, and May 31, 1921, is erroneous, excessive, and illegal.
"That the collection of said alleged taxes for the latter years was barred at time of payment by the tolling of the statute of limitations, for the following reasons, to wit:
"1. That payment was exacted more than five years after the return was filed;
"2. That no suit or proceeding was instituted within the five-year period;
"3. That the return was not false or fraudulent, neither had `both the Commissioner and the taxpayer consented in writing to a later determination, assessment, and collection of the tax.' (See section 250(d), Revenue Act 1921 [ 42 Stat. 227].)
"That, by reason of the expiration of the statute of limitations applicable, not only was the procedure for its collection barred, but the right, if any, of the Government to the alleged tax itself, is extinguished."
7. May 26, 1927, the Commissioner notified plaintiff of his rejection of the foregoing claim on the ground that the amounts of tax therein involved were timely assessed and collected.
8. Plaintiff originally filed this suit May 25, 1929, in which recovery was sought in the amounts and on substantially the same bases as set forth in the refund claim which was rejected May 26, 1927.
9. An amended petition was filed June 6, 1931, and, except for the fact that it states with greater particularity the bases of the contention as to the statute of limitations, it differs in effect from the original petition only in that recovery is therein sought for the fiscal year ended May 31, 1919, on an additional ground not stated in any claim for refund theretofore filed, namely, that "the tax return for said year was based on an inflated or padded inventory showing an income larger than was actually earned, resulting in an increase in taxes for said year to the extent of $18,736.88."
10. Thereafter, August 29, 1931, plaintiff filed a claim for refund in which the contention with respect to "padded inventories," referred to above, was presented to the Commissioner of Internal Revenue for the first time. Such claim showed alleged overpayments for the fiscal years ended May 31, 1919, and May 31, 1920, in the respective amounts of $18,736.88 and $3,355.02 and an additional tax for the fiscal years ended May 31, 1918, and May 31, 1921, in the respective amounts of $4,334.98 and $986.36. As heretofore shown, the last payment by the plaintiff for the fiscal year ended May 31, 1919, which is the only year involved in the foregoing claim for which a refund was asked that is involved in this suit, was made May 3, 1926, which was more than four years prior to the time when the claim in question was filed. This claim was rejected on a schedule dated December 4, 1931.
The claim for additional interest on the overpayment for 1917 credited on March 31, 1926, to a tax due for 1920 cannot be allowed. This credit was made under section 1116 of the Revenue Act of 1926 ( 26 USCA § 153 note), which provides that interest on overpayments credited shall be paid only to the due date of the tax against which credited. The Commissioner computed and paid interest to the due date of the 1920 tax in accordance with the statute. No additional tax was assessed for 1917.
The claim for an overpayment of $18,736.88 for the fiscal year 1919, based on the alleged erroneous determination by the Commissioner of Internal Revenue of the inventory for that year, cannot be considered for the reason that no claim for refund on this ground was filed until August 29, 1931, more than five years after the return was due and more than four years after the tax was paid. Moreover, the evidence introduced by plaintiff with respect to this item does not support the claim that the inventory was erroneously determined by the Commissioner.
The main contention of plaintiff, and the ground upon which the suit was originally predicated, is that the additional taxes for the fiscal years 1918 and 1919 were barred by the statute of limitation at the time they were assessed and collected for the reasons that (1) E.P. Rhyne, manager, secretary, and treasurer of the corporation, was without authority to execute the waivers, and (2) all of them were secured under duress and by fraud. We cannot sustain this contention. E.P. Rhyne was an executive officer of the corporation and it held him out as authorized to act for it in the matter of its tax liability for the years involved. The Commissioner, by letters addressed to plaintiff, requested the waivers for 1918 and 1919 and in response to these requests plaintiff transmitted to the Commissioner and filed with him such waivers bearing its corporate seal, and executed by it by said E.P. Rhyne as secretary and treasurer. Central Aguirre Sugar Co. v. United States (Ct.Cl.) 2 F. Supp. 538. An executive officer or manager of North Carolina corporations has broad authority to act therefor. Rumbough v. Improvement Co., 112 N.C. 751, 17 S.E. 536, 34 Am. St. Rep. 528; Morris v. Basnight, 179 N.C. 298, 102 S.E. 389; Beck v. Wilkins-Ricks Co., 186 N.C. 210, 119 S.E. 235; Kelly v. Newark Shoe Stores Co., 190 N.C. 406, 130 S.E. 32; Fuller v. Motor Tire Service, 190 N.C. 655, 130 S.E. 545, and such authority is the same as to third persons; Powell Powell v. Lumber Co., 168 N.C. 632, 84 S.E. 1032. See, also, Hammond v. Carthage Sulphite Pulp Paper Co. (D.C.) 34 F.2d 155; Liberty Baking Co. v. Heiner (D.C.) 34 F.2d 513; Id. (C.C.A.) 37 F.2d 703; Stevens Engraving Co. v. United States (C.C.A.) 53 F.2d 1.
Upon the record we think E.P. Rhyne acted within the scope of his authority as manager, secretary, and treasurer of the corporation in signing the waivers consenting to assessment and collection of the tax in question after the statutory period of limitation and that plaintiff is not entitled to recover on the ground that the waivers were invalid for lack of authority in Rhyne to act for the corporation in the premises.
The claim that the waivers were obtained under fraud and duress is not sustained by the evidence. The waivers in question were sent to plaintiff by the Commissioner in the usual way with request that they be executed and returned. This was done without protest of any kind.
The petition must be dismissed. It is so ordered.