Opinion
No. H-229.
April 7, 1930.
Suit by the Pottstown Iron Company against the United States.
Judgment for defendant.
Certiorari granted 50 S. Ct. 466, 74 L. Ed. ___.
This suit was instituted to recover $91,160.24 interest on $229,719.22, representing a portion of an overpayment for 1918 applied as a credit against additional assessments for 1916 and 1917, from June 11, 1919, the date of the overpayment to January 22, 1926, the date of the additional assessments.
The Commissioner allowed no interest on the overpayment applied as a credit, claiming that the provisions of section 1116 of the Revenue Act of 1926, 44 Stat. 9, 119, section 153, note, tit. 26, USCA, govern the allowance of interest. The plaintiff, however, contends that the credit was taken prior to the enactment of the Revenue Act of 1926, and while the Revenue Act of 1924, 43 Stat. 253, 346, was in force, and that interest on the credit is therefore payable under section 1019 of the 1924 act ( 26 USCA § 153 note).
The Commissioner on January 29, 1926, signed and transmitted to the collector of internal revenue a schedule of overassessments and, also, transmitted to him a list of additional assessments made on January 22, 1926. The collector returned the schedule of overassessments and the schedule of credits and refunds certified by him on February 27, 1926, and the last-mentioned schedule was signed and approved by the Commissioner April 15, 1926.
The position of the plaintiff is that a credit is taken and made effective when the collector examines his records, makes entries in the taxpayer's accounts thereon, and certifies the schedules to the Commissioner.
The defendant, on the other hand, contends that the credit was allowed when the Commissioner signed the first schedule of overassessments on January 29, 1926, and that the credit was taken within the meaning of the statutes when the plaintiff received from the Commissioner the certificates of overassessments, together with the treasury checks for the amount of the refund or interest.
Special findings of fact:
1. Plaintiff, a Pennsylvania corporation with office and place of business at Philadelphia, filed its income tax return for 1916 on February 27, 1917, showing an income tax of $529.16, which was paid at the time and in the manner provided by law. September 23, 1918, it filed a supplemental income tax return for 1916, which showed an understatement of tax in the original return of $3,487.60. Thereafter, in December, 1918, the Commissioner of Internal Revenue made an additional assessment against plaintiff for 1916 in the amount of $3,487.60, the total tax assessed for 1916 being $4,016.76.
2. March 26, 1918, plaintiff filed its income and profits tax returns for 1917 showing a tax of $461.19, which was paid at the time and in the manner provided by law. Subsequently it filed amended income and profits tax returns for 1917 showing that the income and profits tax due thereon was $119,124.32, which was paid in December, 1918, the total tax assessed for 1917 being $119,585.51.
3. March 15, 1919, plaintiff filed a tentative return for 1918 estimating the tax at $441,701.33. No assessment was made on this return. The final complete income and profits tax return for 1918 was filed June 11, 1919, showing the corrected income and profits tax due as $438,206.79, which amount was paid in four installments of $150,000 on March 15, 1919, $69,103.40 on June 11, 1919, $109,551.70 on September 13, 1919, and $109,551.69 on December 15, 1919.
4. March 13, 1920, plaintiff filed its income and profits tax return for 1919 showing a total tax of $4,799.17, which was paid March 13, 1920.
5. March 10, 1921, it filed its income and profits tax return for 1920 showing a tax of $5,138.68, which was paid in four equal installments of $1,284.67 on March 10, June 15, September 10, and December 9, 1921.
6. February 13, 1925, the Commissioner of Internal Revenue approved a schedule of overassessments, designated as Schedule IT: A:13307, Form 7805, which embraced overassessments in favor of the plaintiff of $1,045.57 for 1919 and $1,007.81 for 1920. Interest was allowed thereon for 1919 in the amount of $308.44 and for 1920 of $192.15. Treasury checks for the amounts of the overpayments, with interest, were thereafter issued and received by plaintiff.
7. Subsequent to the filing of the returns and the payment of the tax shown thereon, the Commissioner made an examination and audit of them, and, by letter of December 31, 1925, notified plaintiff of his determination that there were deficiencies of $2,683.29 for 1916 and $227,035.93 for 1917, and that there were overassessments of $250,871.34 for 1918, $765.61 for 1919, and $4,130.87 for 1920, the total of the deficiencies being $229,719.22 and the total of the overassessments being $255,767.82. The aforementioned letter of the Commissioner to the plaintiff, which contained a detailed computation resulting in the determination as above set forth, stated:
"In view of your letter dated December 18, 1925, in which you specifically consent to the immediate assessment of the deficiency in tax of $2,683.29 and $227,035.93 for the years 1916 and 1917, respectively, and acquiesce in the overassessments of $250,871.34 for the year 1918, $765.61 for the year 1919, and $4,130.87 for the year 1920, which several deficiencies in tax and overassessments are equal in amount to the totals set forth in the first paragraph of this letter, the said deficiencies in tax will be listed for immediate assessment and the overassessments will be allowed on the next schedule to be approved by the commissioner."
8. January 29, 1926, the Commissioner of Internal Revenue approved a schedule of overassessments designated as schedule IT: A:17941, form 7805, which embraced overassessments in respect of the tax of the plaintiff of $250,871.34 for 1918, $765.61 for 1919, and $4,130.87 for 1920. This schedule was transmitted to the collector for the first district of Pennsylvania for his action in accordance with the directions appearing thereon. The collector complied with the directions and on February 27, 1926, signed and certified this schedule together with the entries made thereon by him, together with Schedule IT:R:17941, Form 7805-A. The collector certified that the overassessments for the years mentioned constituted overpayments. These schedules were made a part of the record as Exhibit 5 and are made a part of these findings by reference.
9. Of the overpayment of $250,871.34 for 1918, $2,683.29 was applied as a credit against the deficiency for 1916 and $227,035.93 against the deficiency for 1917, and the balance of $21,152.12 was refunded. The overpayments of $765.61 for 1919 and $4,130.87 for 1920 were also refunded. The authorization of the Commissioner of Internal Revenue to the disbursing clerk of the Treasury Department appearing upon the schedule of refunds and credits, form 7805-A certified to him by the collector of internal revenue, was dated April 15, 1926. Treasury checks for the amounts of the refund were thereafter mailed to plaintiff by the collector of internal revenue, together with copies of certificates of overassessment in the amounts of $250,871.34 for 1918, $765.61 for 1919, and $4,130.87 for 1920.
10. On February 23, 1926, plaintiff directed a letter to the collector of internal revenue at Philadelphia relative to the overassessments and deficiencies, and the crediting of the overpayments against the deficiencies. On the same date the collector of internal revenue acknowledged the receipt of the letter.
11. Plaintiff has paid no interest on the underpayment of tax for 1916 of $2,683.29 and the underpayment for 1917 of $227,035.93, or any part thereof.
12. Plaintiff has been allowed and paid interest on the amounts refunded from the dates of overpayment to January 29, 1926, the first date on which the schedule of overassessments was signed by the Commissioner, as follows:
=============================================================== | | Interest allowed | Year | Amount |---------------------| | refunded | From — | To — | Interest ---------------|-------------|-----------|---------|----------- 1918 ......... | $21,152.12 | 6/11/19 | 1/29/26 | $8,417.67 1919 ......... | 765.61 | 3/13/20 | 1/29/26 | 269.98 1920 ......... | 276.86 | 12/9/21 | 1/29/26 | 68.74 | 1,284.67 | 9/10/21 | 1/29/26 | 335.91 | 1,284.67 | 6/15/21 | 1/29/26 | 356.24 | 1,284.67 | 3/10/21 | 1/29/26 | 376.57 ---------------------------------------------------------------
13. The practice in the Bureau of Internal Revenue was, at the times hereinbefore mentioned, as follows with relation to certificates of overassessment:
Such a certificate accompanies the schedule of overassessments (form 7805) when it is transmitted by the Commissioner of Internal Revenue to the collector of internal revenue.
If the collector finds upon examination of the taxpayer's accounts that the overassessment shown on the schedule of overassessments is an abatement, the certificate of overassessment is mailed directly to the taxpayer by the collector.
If the collector finds that an overassessment is an overpayment and the overpayment is applied as a credit against an outstanding tax, the collector returns the certificate of overassessment along with the schedule of overassessment and subsidiary schedule (forms 7805 and 7805-A, respectively).
If the collector finds that the overassessment is an overpayment and is refundable, the collector returns the certificate of overassessment to the Commissioner along with the schedule of overassessments, and the subsidiary schedule (forms 7805 and 7805-A, respectively).
Upon receipt by the Commissioner from the collector of forms 7805 and 7805-A, together with the certificate of overassessment, the certificates of overassessment which show that the total amounts appearing on the certificates have been applied as a credit, are held in the office of the Commissioner until warrants are issued by the disbursing clerk of the Treasury Department to the taxpayers for the actual refunds of taxes appearing on the same schedule returned by the collector.
Thereupon the certificates of overassessment covering refunds and interest, if any, together with warrants for the amount thereof, and the certificates of overassessment covering the amounts applied as a credit by the collector, together with warrants for the amount of interest, if any, on said credits, are returned to the collector for mailing to the taxpayers.
No other written communication is given by the Commissioner to the taxpayer of the allowance of a credit or refund.
Paul E. Myers, of Washington, D.C., for plaintiff.
Charles 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 LITTLETON, WILLIAMS, GRAHAM, and GREEN, Judges.
Under section 1019 of the Revenue Act of 1924, 43 Stat. 253, 346 ( 26 USCA § 153 note) interest on credits against additional assessments was payable from the date of overpayment to the date of the assessment of the additional tax against which credit was applied. The plaintiff contends that this case falls within the provisions of this section.
Section 1116 of the Revenue Act of 1926, 44 Stat. 9, 119, section 153 note, tit. 26, US CA, changed the situation with reference to the payment of interest upon credits, Riverside Dan River Cotton Mills, Inc., v. United States (Ct.Cl.) 37 F.2d 965, decided February 10, 1930, and, with respect to overpayments and additional assessments for years prior to 1921, provided for the payment of interest upon overpayments applied as credits only to the date on which the additional tax should have been paid. By subdivision (c) the provisions of that act were made applicable to any credit taken after the enactment of the Revenue Act of 1926. The defendant contends that the credits with which we are here concerned were taken subsequent to February 26, 1926.
The court is of opinion that the credit of a portion of the overpayment for 1918 against the deficiencies for 1916 and 1917 was taken and made effective within the meaning of the statutes, on April 15, 1926, when the Commissioner signed and approved the schedule of refunds and credits theretofore certified to him by the collector of internal revenue, authorizing the disbursing clerk of the Treasury Department to issue checks in accordance with such schedule, and that the defendant, therefore, correctly refused to pay interest upon that portion of the overpayment for 1918 credited against the deficiencies for prior years. The assessment of the additional tax for 1916 and 1917 was not made under any of the revenue acts mentioned in section 1116 of the Revenue Act of 1926 ( 26 USCA § 153 note), and, since the due date of the tax for 1916 and 1917 was prior to the date of the overpayment for 1918, no interest is allowable. Riverside Dan River Cotton Mills, Inc., v. United States, supra; West Leechburg Steel Company v. United States (Ct.Cl.) 40 F.2d 131; and Atlas Powder Company v. United States (Ct.Cl.) 40 F.2d 136, decided this date.
The fact that the plaintiff on February 23, 1926, wrote a letter to the collector of internal revenue with reference to the crediting of any overpayments against the additional assessments to which it had agreed, and the acknowledgment of the receipt of such letter by the collector, does not change the situation. The statute does not make the taking of a credit dependent upon advice from the taxpayer to the collector, nor does the statute suspend the effective date of a credit until the taxpayer has received the checks for the refund of tax together with interest, if any, and the certificates of overassessments from the Commissioner through the collector.
In these cases involving interest upon credits, the defendant argues that when the Commissioner signs the schedule of refunds and credits he only authorizes the disbursing clerk to pay the amount of tax shown to be refundable and the interest upon any refund or credit, and that this cannot be regarded as the taking of a credit. We think by this action the Commissioner does more than merely authorize the payment of the refund and the interest. He approves the report of the collector, finally determines that there has been an overpayment, and makes effective a credit of that overpayment against the additional tax for another year.
When the collector receives from the Commissioner a schedule of overassessments and an assessment of an additional tax, and finds upon examination of his records that the assessment is an overpayment and exactly equals the additional assessment for another year, leaving no amount to be shown as refundable, he nevertheless makes appropriate entries in the schedule of overassessments, form 7805, prepares the subsidiary schedule of credits, form 7805-A, embodying his report, and also prepares his record of assessments and payments, each of which he certifies and returns to the Commissioner, together with certificates of overassessments forwarded to him by the Commissioner with the schedule of overassessments. Upon the receipt of these documents from the collector the Commissioner, if he finds that any interest is payable upon the credit, has a check issued for the amount thereof which is forwarded to the collector, together with these certificates of overassessment to be mailed to the taxpayer. If the Commissioner determines that an overpayment to be credited is one that bears no interest under the statute, he forwards the certificates of overassessment to the collector with instructions that he mail them to the taxpayer. Whether the Commissioner, in such a case, signs the schedule certified to him by the collector or not, the credit is taken and made effective by whatever action the Commissioner takes in approving the report of the collector. It is stipulated that in cases of this kind the certificates of overassessment received from the collector with his reports are returned by the Commissioner to the collector for mailing to the taxpayer. The date on which this is done, if the Commissioner does not formally sign the schedule, would constitute the Commissioner's approval of the report of the collector and would make effective the credit of the overpayment against the additional assessment.
The plaintiff is not entitled to recover, and the petition must therefore be dismissed. It is so ordered.
BOOTH, Chief Justice, and WILLIAMS and GREEN, Judges, concur.
GRAHAM, Judge, concurs in view of the previous decisions of the court.