Appeal from the District Court of the United States for the Western District of Pennsylvania; Frederic P. Schoonmaker, Judge.
Before BUFFINGTON, DAVIS, and BIGGS, Circuit Judges.
This is an appeal from a judgment of the District Court entered in favor of the collector of internal revenue because the appellant taxpayer had not appealed to the United States Board of Tax Appeals within 60 days after notice from the Commissioner of Internal Revenue by an unregistered letter that it was not entitled to a special assessment of its corporate profits taxes for the year 1918.
The appellant filed its income tax return for 1918 and paid its tax thereon except $23,174.51, for which it filed a claim in abatement. The Commissioner rejected this claim, and in February, 1924, made a jeopardy assessment of additional income and profits taxes of $10,372.28 against appellant for 1918 under the provisions of subdivision (d) of section 250 of the Revenue Act of 1921 (42 Stat. 264, 265). On April 19, 1924 appellant filed a claim for abatement of these taxes, and at the same time filed an application to have its profits taxes for 1918 determined by a special assessment under the provisions of sections 327 and 328 of the Revenue Act of 1918 (40 Stat. 1093). On March 15, 1924, appellant filed a claim for refund of $19,000 on the ground that it was entitled to have its profits taxes for 1918 determined by special assessment.
On April 25, 1925, by registered letter, the Commissioner notified the appellant that its application for special assessment had been refused and its claims for refund and abatement had been denied. The appellant thereupon filed with the Commissioner a protest, and the Commissioner, after a hearing on the protest and consideration of the new evidence submitted, notified the taxpayer by an unregistered letter dated December 17, 1925, that its petition for a special assessment had been denied for the reason that no abnormality affecting either its capital or income had been disclosed which would bring the case within the scope of the provisions of sections 327 and 328 of the Revenue Act of 1918 entitling it to a special assessment and that the case was "deemed closed."
Because this last letter was not registered as it believed the statute required, the appellant did not either pay the tax which the Commissioner determined that it owed or appeal to the Board of Tax Appeals. In consequence the collector of internal revenue issued his warrant of distraint and under it seized $20,170.50. On December 11, 1928, the appellant filed a suit in the Supreme Court of the District of Columbia for a writ of mandamus to compel the Commissioner to issue a "sixty-day" letter by registered mail showing his final determination of appellant's tax liability from which an appeal could be taken to the Board of Tax Appeals. The Supreme Court issued the writ, but the Court of Appeals reversed the judgment of the Supreme Court.
On June 15, 1930, appellant filed a claim for refund on the ground that the money had been illegally collected from it. The Commissioner rejected the claim by letter dated November 12, 1930, and this suit to recover the money was filed in the District Court on July 8, 1932, within 2 years as required by the statute.Rev. St. § 3226, as amended (26 U.S.C.A. §§ 1672-1673).
The question which arises out of these facts is whether or not the failure of the Commissioner to notify the appellant on December 17, 1925, by registered letter that its claims to a special assessment, refund, and abatement had been denied, deprived it of the right to appeal to the Board of Tax Appeals. That in turn depends upon whether or not the letter of December 17, 1925, was the final letter closing the case. If it was, the District Court erred in treating the letter of April 25, 1925, as the final determination.
The Commissioner says that this question was settled in the suit for a mandamus in the District of Columbia. Lucas v. United States, 59 App.D.C. 159, 36 F.2d 1015.
In that case the court merely decided that the appellant was not entitled to the highly prerogative writ of mandamus because of laches, it having delayed 2 1/2 years before seeking the writ. The question there was different from the one in this suit in which the appellant seeks to recover taxes claimed to have been illegally collected because it was denied the computation of its taxes under a special assessment. This question was not in issue in that case and so was not decided there. That the Commissioner had not notified the appellant by registered letter of the rejection of its application for special assessment and for refund was stated in that suit and made the basis of the petition for the writ of mandamus, but the Court of Appeals refused the writ and reversed the Supreme Court on the ground of laches without passing upon the merits of the question here involved. So the question decided there is not res judicata here.
The taxpayer says that the registered letter of April 25, 1925, was not the final determination of the deficiency from which it could appeal to the Board of Tax Appeals, but that it was a so-called "thirty-day" letter from which it could not appeal. In that letter the Commissioner said: "The Collector of Internal Revenue for your district will be officially notified of the rejection at the expiration of thirty days from the date of this letter." An appeal could not be taken from such a letter. United States ex rel. Dascomb et al. v. Board of Tax Appeals, 56 App.D.C. 392, 16 F.2d 337.
If, in the case of a taxpayer, the Commissioner determines that there is a deficiency in his taxes, he must notify the taxpayer "of such deficiency by registered mail," and within 60 days after such notice the taxpayer may file an appeal with the Board of Tax Appeals. Section 274(a) Revenue Act of 1924 (43 Stat. 297). It is evident that the determination of the Commissioner from which an appeal must be taken within 60 days is the final determination. Otherwise a proceeding might be going on before the Commissioner upon an issue after an appeal embracing that same issue had been taken. In the case at bar it was 8 months after the Commissioner sent the notice in his registered letter on April 25, 1925, before he disposed of the protest, finally determined the question of special assessment, and notified the taxpayer on December 17, 1925. Until this final determination on December 17, 1925, the taxpayer did not and could not know what the final determination of the Commissioner would be, and until that was known no appeal could be taken. The determination to which section 274(a) of the Revenue Act of 1924 refers is the final determination, and the letter of April 25, 1925, though registered, was not the final determination in this case, and, if a determination which might have been final, depending upon the action of the taxpayer, had been sent by the Commissioner before his final determination, he should again have notified the taxpayer by "registered letter," as the statute directs, of his final determination. Any other method of notice does not comply with the statute and is invalid. The method directed by the statute is mandatory. Henry M. Day v. Com'r, 12 B.T.A. 161; Wilson v. Commissioner, 16 B.T.A. 1280. In the latter case at page 1290, the Board said:
"Since the original mailing did not under our decisions constitute such a notice as the statute contemplates, in that it was not mailed to the correct address, and since the second notice enclosing the first did not constitute a compliance with the statute in that it was not registered, it is apparent that no notice, either for the year 1922 or 1923, such as that provided for by statute was ever sent to the petitioner. As a consequence, we must hold that there is no basis for a proceeding before this Board ...