Before GOODRICH, MCLAUGHLIN, and KALODNER, Circuit Judges.
In this petition for review of the decision of the Tax Court we are met with a problem in the administrative procedure for obtaining excess profits tax relief under Section 722 of the Internal Revenue Code, 26 U.S.C.A. Int. Rev. Code, § 722.
The issue is whether (1) payment of any part of the petitioner's excess profits tax and (2) denial in whole or in part by the Commissioner of a claim for refund or credit under Section 722, are prerequisites to the jurisdiction of the Tax Court to determine petitioner's right to relief under Section 722.
The facts, which are not in dispute, are as follows:
Petitioner filed its excess profits tax return for the calendar year 1942, computing its tax without the application of Section 722. In the return it reported its excess profits net income as $206,334.07, its excess profits credit based on invested capital as $73,428.16, and its unused excess profits credit adjustment as $142,794.08. Since the credits exceeded the excess profits net income, the return showed no excess profits tax due, and none was paid.
On September 4, 1943, the petitioner filed, on Form 991, an application for relief under Section 722, covering the years 1940, 1941 and 1942. Subsequently, the Commissioner notified the petitioner that he proposed to determine a deficiency of $88,642.23 in excess profits tax for 1942, based upon an increase in petitioner's excess profits tax net income and decreases in petitioner's credits.On July 20, 1944, petitioner filed, on Form 991, an amended application for relief, in the same amount as the proposed deficiency, under Section 722 covering the tax year 1942. After numerous conferences between petitioner's and Commissioner's representatives, the Commissioner, on August 29, 1945, mailed a notice of deficiency in excess profits taxes for 1942 in the amount of $88,642.23. In this deficiency notice, the Commissioner said:
"You have filed Forms 991, Application for Relief under Section 722 of the Internal Revenue Code, one on September 4, 1943, covering the years 1940, 1941 and 1942, and one, amended on July 20, 1944, covering the year 1942. Since these applications do not constitute claims for refund, no excess profits tax having been paid for any of the aforementioned years, this letter is not a notice of disallowance under Section 732 of the Internal Revenue Code. However, consideration has been given to your contentions relative to reconstruction under Section 722 of your base period income for excess profits credit purposes, and it has been determined that you have not established that the tax computed under subchapter E of Chapter 2 of the Internal Revenue Code, without the benefit of Section 722 of the Code, results in an excessive and discriminatory tax within the provisions of Section 722(a) and (b) of the Code, and that you have not established what would be a fair and just amount representing normal earnings to be used as a constructive average base period net income for the purposes of an excess profits tax based upon a comparison of normal earnings and earnings during the excess profits tax taxable years ended December 31, 1940, December 31, 1941, and December 31, 1942." (Emphasis supplied)
From this deficiency determination, a petition was made to the Tax Court on November 21, 1945. In two general assignments, the petition alleged error in determining the deficiency; nine other assignments were directed toward the Commissioner's failure to grant relief under Section 722. Thereafter, the Tax Court granted a motion by the Commissioner to dismiss the proceeding for lack of jurisdiction insofar as it related to petitioner's application for relief under Section 722 on the ground that no excess profits tax had been paid by petitioner in 1942, and its application for relief had not been denied; it did so expressly upon the authority of its decisions in American Coast Line, Inc., v. Commissioner, 6 T.C. 67 (No. 10), since affirmed 2 Cir., 1947, 159 F.2d 665; Uni-Term Stevedoring Co., Inc., 3 T.C. 917; and Pioneer Parachute Co., Inc., 4 T.C. 27.
Following the answer of the Commissioner, the petitioner amended its petition before the Tax Court to clearly reflect that no issue other than relief under Section 722 was intended to be raised. Thereupon, pointing out that the pleadings as they then stood raised no issue as to any adjustments made by the Commissioner in determining the excess profits tax deficiency and that the only errors assigned related to the failure of the Commissioner to grant relief under Section 722, the Tax Court entered its order sustaining the deficiency determined by the Commissioner.
As is immediately apparent, we are not here concerned with the merits of petitioner's claim for relief under Section 722; we are concerned with the procedure for the realization of such relief.
Petitioner takes the position that the Tax Court is required to pass upon its right to Section 722 relief before it determines whether any proposed deficiency exists, for under Section 729(a)*fn1 of the Internal Revenue Code, 26 U.S.C.A. Int. Rev. Code, § 729(a), Sections 271 and 272 are applicable. Briefly, these sections grant a taxpayer the right to petition the Tax Court for a redetermination of any deficiency determined by the Commissioner before payment thereof, and define a deficiency as the amount by which the tax imposed exceeds the amount shown as the tax on the taxpayer's return.
Moreover, it is contended that the "tax shown on its return" was "paid" since its return showed no excess profits tax due, and that the Commissioner has disallowed petitioner's claim for relief. Accordingly, petitioner asserts that the Tax Court had jurisdiction to redetermine the deficiency in its excess profits tax for the year 1942, and should have considered petitioner's right to relief under Section 722.
The Commissioner's position is that the excess profits tax structure contemplates the determination and payment of petitioner's "normal" excess profits tax, with the proviso that petitioner may obtain the benefits of Section 722, an "abnormality" provision designed to alleviate the tax burden in hardship cases, only by way of a claim for refund or credit. The Commissioner further contends that the Tax Court may consider a taxpayer's right to relief under Section 722 only after the taxpayer has paid the ...