The opinion of the court was delivered by: KIRKPATRICK
This is a suit by the receivers of a corporation to recover a balance ($43,836.67) of taxes paid by the corporation for the year 1919. Although the Commissioner of Internal Revenue found that there was an overassessment of $82,325.75 for that year, the defendant has refused to pay the balance claimed, upon the ground that the claim for refund filed by the taxpayer before bringing suit did not cover that portion of the overassessment. The period of statutory limitation has expired, so that no new suit can be begun.
By written stipulation the parties in this case waived trial by jury and the case was tried to the court without a jury. A stipulation of facts was filed which is adopted by the court as its findings of fact. Such additional facts as are stated in this opinion may also be taken as special findings.
Briefly summarized, the facts are as follows:
The taxpayer's return for the year 1919 was filed November 5, 1920, and the income and profits tax of $145,833.93 disclosed therein duly paid. Waivers extended the time for assessment and collection of these taxes until December 31, 1926.
On February 12, 1926, the commissioner sent the taxpayer a 60-day letter dealing with its returns of income and excess profits tax for the two years, 1918 and 1919. The letter stated that, for the year 1918, a deficiency of $153,077.07 had been determined against the taxpayer, and that, for the year 1919, an overassessment in the amount of $82,325.75 had been found in its favor. In particularizing the 1919 overassessment, the letter dealt with the two phases of the return -- net income and invested capital. The overassessment, it appeared, arose entirely by reason of a reduction of the net income from $440,291.87, as reported, to $189,550.60, which resulted in a reduction of both the income tax and profits tax. On the profits tax side, the invested capital was reduced from $1,110,323.74, as reported, to $828,454.40. This last, of course, was a finding against the taxpayer, and, had not the income been greatly reduced, would have resulted in an additional profits tax.
Promptly upon receiving this letter the taxpayer filed a claim for refund of the 1919 overassessment in the amount found, or $82,325.75. Less than three weeks later it filed its petition with the Board of Tax Appeals, appealing from the deficiency assessment for 1918.
The claim for refund specified the "character of assessment or tax" for which it was filed as "income and profits tax." No detailed facts were stated, but the facts set forth in the commissioner's 60-day letter were incorporated by the following reference: "This claim is filed pursuant to a Treasury Department Letter received by us dated February 12, 1926, which sets forth * * * an overassessment in the sum of $82,325.75 (as above) for the year 1919." In the petition appealing to the Board of Tax Appeals (as subsequently amended) the taxpayer set forth as a ground for appeal the failure of the commissioner to add to its invested capital a number of items (paid-in surplus, accounts receivable from officers, etc.) which it claimed should have been allowed in order properly to determine its profits tax.
It thus appears that from April, 1926, the commissioner had pending before him two practically contemporaneous proceedings initiated by the same taxpayer, one to defend against a deficiency assessment of profits and income tax for 1918, which raised the question of invested capital, and the other to recover an overassessment of income and profits tax for 1919, in which the commissioner's determination of invested capital was not challenged.
Both proceedings received administrative attention from the commissioner, and on July 18, 1929, the one based upon the claim for refund of the 1919 taxes was terminated by a certificate of overassessment sent by the commissioner to the taxpayer notifying it that "a consideration of all the claims (if any) filed by you for the year 1919" indicated that there had been an overassessment for that year in the amount of $89,473.11. Of this amount, $45,636.44 was allowed as a refund, and $43,836.67 was disallowed as "due to adjustments not covered by claim for refund."
The certificate of overassessment was based upon a decision of the commissioner (Decision No. 197) captioned as of the 1919 proceeding filed the day previous which contained an elaborate revision and restatement of the various items going to make up the taxpayer's tax liability. By this decision the income was increased over that given as the basis for the 60-day letter -- thus reducing the overassessment of income tax appearing by that letter. Four pages of the decision were devoted to a redetermination of the invested capital resulting in its increase from $1,110,323.74 as reported, to $2,409,829.88 and a consequent reduction of profits tax liability of $43,836.67, which, however, as stated above, was disallowed.
The commissioner's statement that this balance was the result of adjustments not covered by the claim for refund was strictly correct. The additions to invested capital found allowable by Decision No. 197 had not been claimed, nor for that matter had any increase of invested capital been even mentioned in the 60-day letter of February 12, 1926, which was the basis of the claim for refund. Naturally, the taxpayer had not in his claim for refund raised the question of the invested capital on which his 1919 profits tax was based (although the commissioner's 60-day letter had decreased it) because the profits tax itself was actually reduced by that letter, through reduction of income.
Now it will be remembered that the appeal from the 1918 deficiency assessment (involving principally invested capital) was pending during the time that he was considering the 1919 claim for refund. And it will also be borne in mind that, as a matter of accounting, invested capital, once determined for any year, is carried on through subsequent years in the same amount without change except as newly acquired information may cause it to be revised. Therefore, whatever information or data relating to invested capital the taxpayer submitted in one proceeding went to make a determination which was equally available in both. Though, as a matter of form and caption, it may have referred to the year 1918, as a practical matter it bore upon all subsequent years as well.
The appeal from the deficiency assessment for 1918 (to which had been added appeals from deficiency assessments for 1920-22 and 23) was dealt with by the commissioner through a Special Advisory Committee. To this committee the taxpayer had submitted comprehensive information relating to its invested capital, and entered ...