Opinion
No. H-203.
April 7, 1930.
Suit by the West Leechburg Steel Company against the United States.
Judgment for plaintiff.
This suit is for the recovery of $34,218.74, interest on an overpayment of $97,448.17 income and profits tax for the fiscal year ending June 30, 1918, used as a credit against a deficiency in that amount for the fiscal year 1917.
November 4, 1925, the Commissioner of Internal Revenue determined a deficiency for the fiscal year ending June 30, 1917, of $97,448.17. On the same date he determined and advised the plaintiff of overassessments of $253,935.09 for the fiscal year 1918, $29,113.45 for the fiscal year 1919, and $3,533.92 for the six months' period ending December 31, 1919. The additional tax for the fiscal year 1917 was assessed November 21, 1925. The collector found the overassessments shown for the fiscal years 1918 and 1919 and the six months' period to December 31, 1919, were overpayments, and $97,448.17 of the overpayment for 1918 was credited against the additional assessment for 1917. The balance of the overpayments was refunded by checks dated March 9, 1926.
The Commissioner held that the payment of interest in respect of the amount credited against the additional assessment for 1917 was governed by the provisions of section 1116 of the Revenue Act of 1926 ( 26 USCA § 153 note). He therefore refused to pay any interest on the credit of $97,448.17. Plaintiff claims that the credit was taken prior to the effective date of the Revenue Act of 1926, and therefore the payment of interest is governed by section 1019 of the Revenue Act of 1924. The question is whether the provisions of section 1019 of the Revenue Act of 1924 or section 1116 of the Revenue Act of 1926 apply in the determination of interest on the credit here involved, and this question turns upon the question when the credit was taken.
The facts were stipulated.
Special findings of fact:
1. Plaintiff, a Pennsylvania corporation with principal office at Pittsburgh, filed its income tax return under the Revenue Act of 1916 ( 39 Stat. 756) for the fiscal year ending June 30, 1917, on August 28, 1917, with the collector of internal revenue for the 23d district of Pennsylvania. This return showed an income tax of $25,270.04, which was paid December 7, 1917. September 10, 1917, it filed its excess profits tax return under the Revenue Act of March 3, 1917, showing a tax for said fiscal year of $43,151.79, which was paid December 7, 1917. April 1, 1918, it filed its income and profits tax return under the Revenue Act of October 3, 1917, showing a tax of $244,950.75, which was paid June 15, 1918.
2. August 28, 1918, plaintiff filed its income and profits tax return for the fiscal year ending June 30, 1918, showing a tax of $772,914.68, which was paid December 12, 1918. April 28, 1919, it also filed a supplemental income and profits tax return for the fiscal year 1918, showing a tax for said fiscal year of $196,929.34, which was paid $60,000 on March 17, 1919, $40,000 on June 17, 1919, $50,000 on September 16, 1919, and $46,929.34 on December 17, 1919.
3. August 29, 1919, plaintiff filed its income and profits tax return for the fiscal year ending June 30, 1919, showing a total tax of $190,242.72, which was paid in four installments of $48,000 each on September 4 and December 17, 1919, and March 17, 1920, and $46,242.72 on June 15, 1920.
4. March 15, 1920, plaintiff filed its income and profits tax return for the six months' period ending December 31, 1919, showing a total tax of $15,444.20, which was paid in four installments of $4,000 on March 17, June 15, and September 14, 1920, and $3,444.20 on December 8, 1920.
5. After an examination of the returns for the fiscal years ending June 30, 1917 and 1918, the Commissioner of Internal Revenue on February 28, 1921, notified plaintiff that he had determined and proposed to assess an additional tax of $12,013.06 for the fiscal year 1917 and $19,410.58 for the fiscal year 1918. These amounts were assessed March 27, 1921, and were paid June 25, 1921.
6. Subsequently, on November 4, 1925, upon a further examination and audit of the returns for the fiscal years 1917 and 1918, and an examination and audit of the returns for the fiscal year 1919 and the six months' period ending December 31, 1919, the Commissioner by letter notified plaintiff of his determination of a deficiency of $97,448.17 for the fiscal year 1917 and overassessments of $253,935.09 for the fiscal year 1918, $29,113.45 for the fiscal year 1919, $3,533.92 for the six months' period ending December 31, 1917, the total overassessments being $286,582.46, which was $189,134.29 in excess of the deficiency determined for 1917. On November 7, 1925, plaintiff waived its right to institute a proceeding before the United States Board of Tax Appeals for the redetermination of the deficiency for the fiscal year 1917 and agreed to the assessment of the deficiency, and also agreed to the amount of overassessments and requested that the overpayments be applied against the deficiency. On November 21, 1925, the Commissioner assessed the additional tax of $97,448.17 for the fiscal year 1917.
7. The overassessments shown above were included in certificates of overassessments Nos. 532954, 532953, and 866531, respectively, and these certificates were listed on a schedule of overassessments known and designated as schedule IT:A:17424, form 7805. On November 27, 1925, the Commissioner signed this schedule and transmitted the same to the collector of internal revenue for the Twenty-Third district of Pennsylvania for his action in accordance with the directions appearing thereon, which were that the collector should check the items on the schedule against the accounts of plaintiff, and, if he should find any of the overassessments listed to be overpayments, to apply the overpayments as a credit against any tax due, and make appropriate entries in his accounts. At the same time the Commissioner sent to the collector an assessment list of the deficiency for the fiscal year 1917 with a notation thereon that the collector should withhold demand for payment thereof pending comparison with overassessments for the fiscal years 1918 and 1919 and the six months' period ending December 31, 1919. The collector complied and on December 15, 1925, returned the schedule to the Commissioner of Internal Revenue, together with schedule IT: R:17424 on form 7805-A, showing that the overassessments for the years mentioned constituted overpayments, and stated in his certificate to the Commissioner that "the items in this schedule have been checked against the accounts of the respective taxpayers concerned, and the amounts indicated have been applied as abatements and credits on their accounts."
8. The total overpayment of $253,935.09 for the fiscal year 1918 was overpaid in the amounts of $37,595.17 on December 12, 1918, $60,000 on March 17, 1919, $40,000 on June 17, 1919, $50,000 on September 16, 1919, $46,929.34 on December 17, 1919, and $19,410.58 on June 25, 1921.
9. The overpayment of $29,113.45 for the fiscal year 1919 was made on June 15, 1920, and the overpayment of $3,533.92 for the period ending December 31, 1919, was made in the amounts of $89.72 on September 14, 1920, and $3,444.20 on December 8, 1920.
10. The collector applied the overpayments of $19,410.58 on June 25, 1921, $46,929.34 on December 17, 1919, and $31,108.25 of the overpayment on September 16, 1919, of the tax for the fiscal year 1918 against and in satisfaction of the additional tax of $97,448.17 assessed for the fiscal year 1917, thus leaving an overpayment of $156,486.92 for the fiscal year 1918 to be refunded. The overpayments for the fiscal year 1919 and the six months' period ending December 31, 1919, were not applied as credits but were reported by the collector as refundable on the schedule of refunds and credits referred to above.
11. January 15, 1926, the Commissioner of Internal Revenue signed and approved the schedule of refunds and credits and transmitted the same to the disbursing clerk of the Treasury Department for the issuance of checks in the amounts of the refunds indicated above. No further action was taken until March 9, 1926, when checks covering the amounts refundable, as shown on the schedule approved by the Commissioner, were mailed to the plaintiff, together with copies of certificates of overassessment, together with interest of $62,282.17 on the amount refunded for the fiscal year 1918, $9,519.30 on the refund for the fiscal year 1919, and $1,054.80 on the refund for the six months' period ending December 31, 1919.
12. Plaintiff has paid no interest on the additional tax of $97,448.17 for the fiscal year 1917 which was assessed on November 21, 1925, and against which a portion of the overpayment for the fiscal year 1918 was credited. The defendant paid no interest to the plaintiff on the amount of the overpayment for the fiscal year 1918 credited against the deficiency for the fiscal year 1917 in the amount of $97,448.17. The defendant allowed and paid interest to the plaintiff on the amounts refunded for the fiscal years 1918 and 1919, and the six months' period ending December 31, 1919, from the dates of overpayments to November 27, 1925, the first date on which he signed the schedule of overassessments, as follows:
=================================================================================== Fiscal year | Amount | Interest | Allowed | | refunded | from — | to — | Interest -------------------------------|------------|------------|------------|------------ June 30, 1918 ................ | $18,891.75 | 9/16/19 | 11/27/25 | $ 7,024.10 | 40,000.00 | 6/17/19 | 11/27/25 | 15,465.75 | 60,000.00 | 3/17/19 | 11/27/25 | 24,098.63 | 37,595.17 | 12/12/18 | 11/27/25 | 15,694.69 June 30, 1919 ................ | 29,113.45 | 6/15/20 | 11/27/25 | 9,519.30 Period December 31, 1919 ..... | 3,444.20 | 12/8/20 | 11/27/25 | 1,026.80 | 89.72 | 9/14/20 | 11/27/25 | 28.00 ----------------------------------------------------------------------------------- August 12, 1926, plaintiff made application to the Commissioner of Internal Revenue for additional interest upon the amount of overpayment for the fiscal year 1918 applied as a credit against the additional tax for 1917. September 22, 1926, the Commissioner rejected this application.13. The practice in the Bureau of Internal Revenue with relation to certificates of overassessment is as follows:
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 overassessment is an abatement, the certificate of overassessment is mailed directly to the taxpayer by the collector.
If the collector finds that the overassessment is an overpayment, and the overpayment is applied as a credit against an outstanding tax, the collector returns to the Commissioner 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 overassessment 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.
John Enrietto, of Washington, D.C. (Charles D. Hamel and R.S. Doyle, and Hopkins, Starr, Hopkins Hamel, all of Washington, D.C., on the brief), for plaintiff.
Charles R. Pollard, of Washington, D.C. (Herman J. Galloway, Asst. Atty. Gen., and Ralph E. Smith, of Washington, D.C., on the brief), for the United States.
Before BOOTH, Chief Justice, and LITTLETON, WILLIAMS, GREEN, and GRAHAM, Judges.
The question is whether, for the purpose of the interest provisions, the credit of the overpayment for 1918 against the deficiency for 1917 "was taken" while the Revenue Act of 1924 ( 43 Stat. 253) was in force or after the 1926 act ( 44 Stat. 9) became effective.
Section 1019 of the Revenue Act of 1924 ( 26 USCA § 153 note) provided that upon the allowance of a credit interest should be paid on the amount of such credit at the rate of 6 per cent. per annum from the date of the overpayment of the amount used as a credit to the due date of the amount against which the credit is taken, but that if the amount against which the credit is taken is an additional assessment, then to the date of the assessment of that amount.
The deficiency for the fiscal year 1917, against which a portion of the overpayment for 1918 was credited, was an additional assessment, and if the amount of $97,448.17 was a "credit taken" prior to February 26, 1926, the effective date of section 1116 of the Revenue Act of 1926 ( 26 USCA § 53 note) plaintiff is entitled to recover interest on the amount used as a credit from the dates of the overpayments so credited to November 21, 1925, the date of the assessment of the additional tax for the fiscal year 1917.
The plaintiff insists that the credit here in question was taken on December 15, 1925, when the collector of internal revenue, having made appropriate entries in his account, signed the certificate on the schedule of overassessments to be returned to the Commissioner of Internal Revenue.
The defendant takes the position that the credit was taken when plaintiff received from the Commissioner of Internal Revenue the certificate of overassessment advising it of the amount credited and the amount to be refunded, together with refund checks, and that, since the certificate of overassessment and the refund checks were mailed to the plaintiff on March 9, 1926, the provisions of subdivision (c) of section 1116 of the Revenue Act of 1916 make that section applicable, and no interest is payable upon the overpayment for 1918 used as a credit against the deficiency for 1917, since the additional tax for 1917 was due prior to the date on which the tax for 1918 was overpaid.
Section 1116(a) of the Revenue Act of 1926 ( 26 USCA § 153 note) provides that upon the allowance of a credit, interest shall be allowed and paid on the amount of such credit at the rate of 6 per cent. per annum from the date the tax was paid to the due date of the amount against which the credit is taken, but that if the amount against which the credit is taken is an additional assessment made under the Revenue Acts of 1921, 1924, or 1926, then to the date of the assessment of that amount. Paragraph 2, subdivision (a), of section 1116 provided that "the term `date of the allowance of the refund' means, in the case of any income, war-profits, or excess-profits tax, the first date on which the Commissioner signs the schedule of overassessments in respect thereof." Subdivision (c) of section 1116 provides that "this section shall be applicable to any refund paid, and to any credit taken, on or after the date of the enactment of this act, even though such refund or credit was allowed prior to such date." 26 USCA § 153 note.
We think a credit is taken within the meaning of the statutes when the Commissioner approves the schedule of refunds and credits certified to him by the collector of internal revenue. Until then the Commissioner has not definitely and finally decided whether any portion of the overassessment shown on the schedule of overassessments is an overpayment or that there should be an abatement or refund made or a credit taken. The determination that there is an overpayment, the decision that a credit should be taken, the determination of the amount, if any, to be refunded and the payment thereof, and the act of abating that portion of the assessment that has not been paid must of necessity occur after the Commissioner has determined that there has been an overassessment of tax. The statute is mandatory in its requirements that when an overpayment has been determined, all or a portion thereof must be credited against any tax then due (sections 272 and 281 of the Revenue Act of 1924 (26 USCA §§ 1046, 1065 note) and 272 and 284 of the Revenue Act of 1926 (26 USCA §§ 1046, 1065). The duty of finally deciding that there has been an overpayment is upon the Commissioner and he cannot delegate it. A credit cannot be taken until the Commissioner has decided that there has been an overpayment that may be used as a credit. Under the 1924 act he determined an overpayment when he approved the schedule certified to him by the collector containing the entries showing the payments made by the taxpayer for the year or years for which overassessments had been determined, and any amounts due by the taxpayer for any other year, together with amount of the overpayment, if any, for any year that should be credited against an amount due and unpaid for another year. It seems obvious therefore that a credit is taken when the Commissioner approves this schedule.
In Girard Trust Co. et al. v. United States, 270 U.S. 163, 46 S. Ct. 229, 232, 70 L. Ed. 524, the court said "The Commissioner of Internal Revenue is the final judge in the administrative branch of the Government to decide that an overassessment has been made and that a refund or credit should be granted, and when he has made that decision finally, he has allowed the claim for the refund or credit of the taxes paid within the meaning of the section." The court then rejected the government's contention that a credit or refund was allowed under the Revenue Act of 1921 when the Commissioner decided that there had been an overassessment and signed and forwarded to the collector certificates of overassessments with instructions to examine his accounts and report back the amounts, if any, that should be credited or refunded. On this point the court said: "We cannot concur, however, in the view of the Treasury Department that the date of the allowance of the claim as intended by the statute is the date when the Commissioner first decides that there has been an overassessment and sends upon a proper form his decision to the collector of internal revenue, who made the collection and keeps the account with the taxpayer."
We think it is clear that the Commissioner must finally act before a credit is taken. The nature of a credit is not essentially different from a refund except when a credit is taken nothing further remains to be done, and there is no reason for holding that under section 1019 of the Revenue Act of 1924 ( 26 USCA § 153 note) a credit was taken on a date different from the allowance of a refund under the statute and the decision of the court in Girard Trust Co. et al. v. United States, supra. Since no one but the Commissioner has authority to allow a refund or credit, his decision that there has been an overassessment, his signing of the schedule of overassessments and forwarding it to the collector for his report as to the amounts, if any, that should be credited or refunded, cannot constitute an allowance until some further action by the Commissioner. As to this, the court, in the case of Girard Trust Company said: "The findings and the exhibits show that the course of business is that the collector on receiving from the Commissioner the schedule as to the overassessment, examines his books and reports back to the bureau the amount which should be credited on taxes due and the amount to be refunded, that this is examined by the Assistant Commissioner and then is delivered to the Commissioner, who makes it effective by his approval. Until it reaches him and is approved by him, the refund cannot be paid. This we think is the real date of allowance." While the controversy in Girard Trust Company Case was with reference to refunds, the court expressly places credits on the same footing as refunds for the purpose of determining the date of allowance and lays down the rule that the Commissioner "has allowed the claim for the refund or credit" not when he "first decides that there has been an overassessment and sends upon a proper form his decision to the collector of internal revenue" but only after the collector "examines his books and reports back to the bureau the amount which should be credited on taxes due and the amount to be refunded," and the Commissioner "by his approval" makes that report effective.
The defendant contends that since only a refund was involved in Girard Trust Co. et al., supra, the opinion of the court cannot be taken as authority for the proposition that a credit is allowed or taken on the same date that refund is allowed. We think the court definitely decided the question, but even had the court not mentioned credits in its opinion as to the real date of the allowance under the statute, we think this would have followed, because credits of overpayments for one year against a tax due for another year is simply one method of making a refund. Authority to allow credits and refunds is vested by law in the Commissioner, Girard Trust Co. et al. v. United States, supra, and, being of a judicial nature, United States v. Kaufman, 96 U.S. 567, 24 L. Ed. 792; United States v. Savings Bank, 104 U.S. 728, 26 L. Ed. 908; and United States v. Louisville, 169 U.S. 249, 18 S. Ct. 358, 42 L. Ed. 735, cannot be delegated; The Floyd Acceptances, 7 Wall. 667, 19 L. Ed. 169; Martin v. Mott, 12 Wheat. 19, 6 L. Ed. 537; Runkle v. United States, 122 U.S. 543, 7 S. Ct. 1141, 30 L. Ed. 1167.
The defendant insists that its contention here that a credit is taken when the plaintiff receives the certificate of overassessments advising it of the amount credited and the amount refunded, together with refund checks, is in accordance with the uniform practice of the Treasury Department, but this is not the case. Article 1040, Reg. 62, provided that "A claim for refund or credit is allowed within the meaning of the statute when the commissioner approves the schedule in whole or in part for transmission to the proper accounting officer, for credit or refund." Article 1371, Reg. 65, contained the same provision. See also, Law Opinion 1106, C.B. I-2, page 221. In Blair v. United States ex rel. Birkenstock, 55 App. D.C. 376, 6 F.2d 679, affirmed 271 U.S. 348, 46 S. Ct. 506, 70 L. Ed. 983, the Commissioner took the position that a credit was allowed by the same action that constituted an allowance of a refund. In Boston Buick Co. v. United States (D.C.) 27 F.2d 395, the government insisted that a credit was allowed under section 1019 of the Revenue Act of 1924 when the Commissioner signed the schedule of overassessments for transmission to the collector of internal revenue. The District Court rejected this view, and the decision was affirmed in United States v. Boston Buick Co. (C.C.A.) 35 F.2d 560. In this case the Commissioner signed the schedule of overassessments for transmission to the collector prior to the passage of the Revenue Act of 1924 by finally approving them after return for certification by the collector on July 11, 1924, after the Revenue Act of 1924 became effective. The government was endeavoring to have the interest provision of section 1324 of the Revenue Act of 1921 applied.
In Swift Co. v. United States, 68 Ct. Cl. 97, the defendant contended that credit was allowed under the Revenue Act of 1921 when the Commissioner signed the schedule of overassessments for transmission to the collector. This court rejected the government's contention. It held that the credit was allowed when the Commissioner approved the schedule of refunds and credits certified to him by the collector.
Sections 1019 of the Revenue Act of 1924 and 1116 of the Revenue Act of 1926 ( 26 USCA § 153 note) definitely fix the period during which interest should be paid in the case of a credit, and the date of final allowance of the credit under either of the acts is unimportant so far as the computation of interest is concerned. Neither the Revenue Act of 1924 nor the Revenue Act of 1926 defines the words "credit taken" and, for the reasons stated, we find no justification for holding that, as contended by the defendant, a credit is not taken until the taxpayer receives the certificates of overassessments and the refund checks. The court is of opinion that the credit involved in this case was taken prior to the enactment of the Revenue Act of 1926. The provisions of section 1019 of the Revenue Act of 1924 therefore apply, and the plaintiff is entitled to judgment for interest upon the amount of overpayments made for the fiscal year 1918 credited against the additional assessment for the fiscal year 1917 to November 21, 1925, the date of the assessment of the additional tax for the fiscal year 1917. It is so ordered.
BOOTH, Chief Justice, and WILLIAMS, GREEN, and GRAHAM, Judges, concur.