On Petition for Review of Decision of United States Board of Tax Appeals (now Tax Court of United States).
Before BIGGS, JONES, and GOODRICH, Circuit Judges.
The facts material to the question raised by the pending petition for review were found by the Board of Tax Appeals as stipulated by the parties.The findings show the following situation.
The corporate petitioner kept its books on a cash receipts and disbursements basis and made its returns for federal tax purposes on that basis. In 1937 it filed a capital stock tax return showing a $7,000 capital stock tax liability, which the Commissioner thereupon assessed and the petitioner paid in that year. In its income tax return for the calendar year 1937 the taxpayer claimed and took a deduction for the capital stock tax so paid in 1937 and, on April 27, 1938, filed a claim for refund therefor on the ground that it was not engaged in business in 1937 so as to become liable for capital stock tax for that year. The claim for refund was later allowed and, on November 3, 1939, the Collector accordingly paid the taxpayer $7,000 and interest thereon. In its income tax return for the calendar year 1939, the taxpayer reported as income received by it during that year the $7,000 tax refund with interest and paid income taxes thereon.
The Commissioner held, however, that, since the taxpayer was not liable for capital stock tax in 1937, the deduction taken in its 1937 return for the payment of such tax should be disallowed and, accordingly, determined a deficiency in the taxpayer's income taxes and personal holding company surtaxes for 1937. The Board, upon the taxpayer's petition for a redetermination, sustained the Commissioner's action and the taxpayer filed the pending petition for a review of the Board's decision.
While the subject matter of the review relates solely to the petitioner's tax liability for the year 1937, the question, as presented to the Board of Tax Appeals and as dissioner of by it, was whether the Commissioner may, if the procedure be not barred by the statute of limitations, readjust, the petitioner's income tax return for the earlier year, in the light of the subsequent tax refund, by disallowing the deduction taken for the tax payment, or whether the deduction should stand as originally claimed and the corresponding tax refund of the later year be charged as income to the petitioner in the year received.
Whatever differences of opinion may have heretofore existed as to the problem present under circumstances such as are here found, or as to the rule applicable thereto,*fn1 we think there is no longer any room for controversy since the recent decisions of the Supreme Court in Dobson v. Commissioner 320 U.S. 489, 64 S. Ct. 239, decided December 20, 1943, and Dixie Pine Products Company v. Commissioner, 320 U.S. 516, 64 S. Ct. 364, decided January 3, 1944.
In the Dobson case, Circuit Courts of Appeals were admonished to be careful, upon reviewing decisions of the Tax Court (formerly the Board of Tax Appeals) not to mistake questions of fact for questions of law and to give to facts determined by the Tax Court no less finality than is properly accorded, upon court review, to administrative determinations in other fields. Concretely, what that meant in relation to the Dobson case was that the Tax Court's decision, that a recovery had by that taxpayer in 1939 (the taxable year there in question) growing out of a particular transaction, entered into ten years before, was a return of capital and not income, was a determination of a fact competently found by the Tax Court according to relevant accountancy principles and, as such was binding upon the reviewing court.
As the Tax Court had found in the Dobson case that the recovery did not constitute income to the taxpayer, the year of its taxability was obviously not a question in that case. But that was the question present in the Dixie Pine case, where the Commissioner disallowed a deduction for a tax payment accrued for the taxable year under review, the taxpayer having later obtained release from liability for the item deducted. The Board sustained the Commissioner's action and the Court of Appeals affirmed the Board's decision, 5 Cir., 134 F.2d 273. The Supreme Court, in affirming [320 U.S. 519, 64 S. Ct. 366], held that the Board's "determination that the item in question was not properly deducted on the accrual basis is entitled to the finality indicated by Dobson v. Helvering [Commissioner], 320 U.S. 489, 64 S. Ct. 239." We think that the ruling in the Dixie Pine case necessarily determines the disposition to be made of the question here involved. We do not see how any distinction is to be drawn from the fact that the tax for which a deduction was taken in the instant case was actually paid, the taxpayer being on a cash receipts and disbursements basis, while in the Dixie Pine case the tax liability was accrued, the taxpayer reporting on the accrual basis. The authority for deducting the one is no different than that of the other. Sec. 23(c) of the Revenue Act of 1936, c. 690, 49 Stat. 1648, 26 U.S.C.A. Int. Rev. Code, § 23(c).
The decision of the Board of Tax Appeals ...