Dependable Packing & Provision Co. v. Commissioner

Dependable Packing and Provision Co., a Corporation, Petitioner, et al., 1 v. Commissioner of Internal Revenue, Respondent Dependable Packing & Provision Co. v. Commissioner Docket Nos. 96, 97, 98, 99, 100, 101 United States Tax Court 5 T.C. 1365; 1945 U.S. Tax Ct. LEXIS 4; December 29, 1945, Promulgated *4 Decisions will be entered for the petitioners. Petitioners' nonpayment of processing tax on account of hogs slaughtered for them, for a fee, by another, held not to subject petitioners to unjust enrichment tax, notwithstanding that slaughterer may be treated as "vendor" within Revenue Act of 1936, section 501 (a) (2), there having been neither imposition of tax on petitioners nor payment by them to such vendor and reimbursement by it as are also required. W. R. Brown, Esq., and W. Robert Brown, Esq., for the petitioners. *5 Irene F. Scott, Esq., and R. E. Maiden, Jr., Esq., for the respondent. Opper, Judge. OPPER *1366 Each of these proceedings involves a deficiency in unjust enrichment tax for the calendar year 1936 under section 501 (a) (2) of the Revenue Act of 1936. They are companion cases to Docket Nos. 442 PT and 443 PT, involving processing tax refund claims for taxes already paid, and on which a memorandum findings of fact and opinion is being entered simultaneously herewith. The deficiencies here in issue were determined against the corporation, Dependable Packing & Provision Co., Docket No. 96, in the amount of $ 44,165.14 tax and $ 11,041.28 penalty, and against the partnership, Dependable Packing Co., Docket No. 97, in the amount of $ 29,331.10 tax and $ 7,332.77 penalty. Deficiencies have also been determined against the individual partners, of $ 7,447.38 tax and $ 1,861.85 penalty against each of the partners, Samuel Chapman, Docket No. 98, and Fred Sans, Docket No. 99; and of $ 7,218.17 tax and $ 1,804.54 penalty against each of the partners, Frank Penczek, Docket No. 100, and Charles Penczek, Docket No. 101, but respondent does not seek deficiencies against the individual*6 partners except in the alternative. FINDINGS OF FACT. The stipulated facts are hereby found accordingly. Those facts pertinent to the opinion and facts otherwise found from the record are as follows: The Dependable Packing Co., Docket No. 97, was a partnership engaged in business from May 1932 to August 31, 1935. Its business operations consisted entirely of selling hog products which were derived primarily from live hogs purchased by petitioners and slaughtered by the Empire Packing Co. for a fee of approximately 58 cents per hundred pounds, and the sale of other pork products not in carcass form purchased by it for resale. All of these business operations were conducted in Chicago, Illinois. The individual members of this partnership were Samuel Chapman, Fred Sans, Frank Penczek, and Charles Penczek, all petitioners herein. For each month beginning November 5, 1933, and ending September 30, 1935, Dependable Packing Co. filed returns denominated "Monthly Return of Processor of Hogs" with the collector of internal revenue, Chicago, Illinois. The processing tax rate for the period March 1934 *1367 to December 1935 was $ 2.25 per hundred pounds. The amounts shown to be due*7 by these returns were assessed against petitioner Dependable Packing Co. on the basis of these returns, and amounts aggregating $ 129,035.22 were paid by check drawn by Empire Packing Co., payable to the collector of internal revenue, in the respective amounts as follows: Nov.1933 $ 1,619.84 Dec.1933 3,754.19 Jan.1934 4,153.08 Feb.1934 6,972.82 Mar.1934 9,864.40 Apr.1934 7,624.21 May1934 10,095.92 June1934 12,426.30 July1934 6,091.24 Aug.1934 $ 10,192.93 Sept. 1934 7,806.25 Oct.1934 9,819.89 Nov.1934 10,963.35 Dec.1934 10,590.32 Jan.1935 10,734.86 Feb.1935 5,000.00 Aug.1935 1,325.62 (The amount of tax paid for February 1935 was 55.53 percent of the tax shown by the return to be due for that month, and the amount of the tax paid for August 1935 was 25 percent of the tax shown by the return to be due for that month.) The payments so made were credited on the records of the collector to the account of the Dependable Packing Co. During the period January 1 to and including August 31, 1935, the Dependable Packing Co.'s books show that processing tax in the amount of $ 47,570.32 was imposed under the Agricultural Adjustment Act*8 with respect to the slaughtering of hogs by Empire Packing Co. for Dependable Packing Co. for a fee, of which amount only $ 17,060.48 was paid by anyone to the collector of internal revenue. Dependable Packing Co. ceased business operations on August 31, 1935, at which time by a previous arrangement its entire business assets, profits, and liabilities were taken over by the Dependable Packing & Provision Co., a corporation, which carried on the business from September 1, 1935, until September or October 1936. Dependable Packing & Provision Co. was organized for the specific purpose of acquiring, investing in, and owning the business property and assets of the Dependable Packing Co., and it carried on the business which had formerly been operated by that partnership and discharged that partnership's liabilities. The Empire Packing Co. slaughtered all of Dependable Packing Co.'s hogs for a fee and was the first domestic processor of hogs under section 9 of the Agricultural Adjustment Act. The Empire Packing Co. carried no processing tax account, whether as a charge against Dependable Packing Co. or otherwise, for the slaughter of Dependable Packing Co. hogs, and all accruals and payments*9 of processing tax were charged directly in the books of Dependable Packing Co. The only payments or accruals made between the Empire Packing Co. and *1368 Dependable Packing Co. with reference to the slaughter of Dependable Packing Co. hogs were the killing charge therefor. During its period of business operations the Dependable Packing Co. had no bank account in its own name. All moneys or checks received by Dependable Packing Co. were deposited in the bank account of the Empire Packing Co. and were commingled with the moneys and accounts of the Empire Packing Co. All payments by check for hogs slaughtered by the Empire Packing Co. for the Dependable Packing Co. for amounts shown by returns to be due for processing tax with respect to this slaughter, and for other expenses, were made by checks drawn on this account by the Empire Packing Co., and charges of the amounts of such checks were entered in the books of Empire Packing Co. on an account denominated "Dependable Packing Company Account." During the period of its business operations prior to September or October 1936, Dependable Packing & Provision Co. likewise had no bank account in its own name, and all moneys or checks*10 received by it prior to September or October 1936 were disbursed in the bank account of Empire Packing Co. and commingled with the moneys and accounts of the Empire Packing Co. All payments by check for hogs slaughtered by Empire Packing Co. for Dependable Packing & Provision Co., of such amounts shown by the returns to be due for processing tax with respect to this slaughter, as were paid, and other expenses, were made by checks drawn on this account by the Empire Packing Co., and charges of the amounts of such checks were entered in the books of the Empire Packing Co. in an account denominated "Dependable Packing and Provision Company Account." When Dependable Packing & Provision Co. opened its own bank account in September or October 1936 the moneys in the Empire Packing Co. account belonging to Dependable Packing & Provision Co. were transferred and went into Dependable Packing & Provision Co.'s own bank account. During the period September 1, 1935, to and including January 6, 1936, the books of Dependable Packing & Provision Co. show that processing tax in the amount of $ 16,917.44 was imposed under the Agricultural Adjustment Act with respect to the slaughtering of hogs by *11 the Empire Packing Co. for Dependable Packing & Provision Co. for a fee, of which amount only $ 2,348.05 was paid by anyone to the collector of internal revenue. Neither Dependable Packing Co. nor Dependable Packing & Provision Co. was a processor of hogs, and no amount was imposed on either of these companies as processing tax by the Agricultural Adjustment Act, as amended. On January 6, 1936, the processing tax under the Agricultural Adjustment Act was held invalid, . *1369 Dependable Packing Co. filed a tentative, an original, and an amended "Return of Tax on Unjust Enrichment," Form 945, for the taxable year beginning January 1 and ending August 31, 1935, in which it reported $ 30,114.68 as the amount of processing tax imposed on it but unpaid for that taxable year. The final partnership income tax return (information) also covered Dependable Packing Co.'s last business operations during the period from January 1 to August 31, 1935. Respondent, on acquiescence by Dependable Packing Co., thereafter adjusted the net income shown for the partnership during that period by adding thereto the sum of $ 30,114.68*12 on account of the processing tax accrued on petitioners' books but unpaid. Respondent prorated this increase in net income between the individual partners and thereby increased the distribution of income to each member of the partnership in the amount of $ 7,528.67 for the taxable period from January 1 to August 31, 1935. Dependable Packing & Provision Co. and Dependable Packing Co. did not file unjust enrichment tax returns for the taxable year 1936 or any subsequent taxable year. No one of the partners of Dependable Packing Co. filed unjust enrichment tax returns for the taxable year 1935 or any subsequent taxable year. In the notice of deficiency mailed to Dependable Packing & Provision Co., asserting the deficiency against it for 1936, respondent stated: The facts on file in your case disclose that you did not process hogs. Hogs were purchased by Empire Packing Company, 3840 South Emerald Avenue, Chicago, Illinois, and this company slaughtered the hogs and sold the carcass and slaughter products to you. As part of the purchase prices, it appears that you assumed payment of the processing taxes applicable to the processing of hogs by The Empire Packing Co. According to the*13 information on record in this office, such taxes imposed but not paid during the taxable year ended December 31, 1935, aggregated $ 56,027.92. Inasmuch as this amount, in effect, constituted part of the selling prices charged you by your vendor, Empire Packing Company, and you did not pay the tax, you were relieved from payment of the full selling prices to that extent. It is, accordingly, held that you constructively received $ 56,027.92 net income from reimbursement from your vendor, representing Federal excise-tax burdens included in prices charged to your predecessor, Dependable Packing Co., a partnership until August 24, 1935, and to your corporation subsequent to that date, by Empire Packing Company. Such income, less inventory as of January 6, 1936, is subject to tax on unjust enrichment under the provisions of section 501 (a) (2) of the Revenue Act of 1936, "to the extent that such net income does not exceed the amount of such Federal excise-tax burden which such person in turn shifted to his vendees." In the notice of deficiency sent Dependable Packing Co. asserting a deficiency against it for 1936 comparable statements were made. *1370 OPINION. There was a period *14 during which the processing tax on hogs was in effect but was not paid with respect to the slaughtering of hogs sold by petitioners. It can accordingly be presumed that in an economic sense there may have been an unjust enrichment. But we are confronted with the application of a specific statute, and the unjust enrichment tax must be grounded on it. . The tax determined by respondent under the statute (Revenue Act of 1936, sec. 501 (a)) must be on petitioners' net income from "(1) * * * the sale of articles with respect to which a Federal excise tax was imposed on such person [petitioner] but not paid which is attributable to shifting to others to any extent the burden of such Federal excise tax and which does not exceed such person's net income for the entire taxable year from the sale of articles with respect to which such Federal excise tax was imposed," or "(2) * * * from reimbursement received by such person from his vendors of amounts representing Federal excise-tax burdens included in prices paid by such person to such vendors, to the extent that such net income does not exceed the amount of such*15 Federal excise-tax burden which such person in turn shifted to his vendees." Respondent contends only that the tax is supported by reference to (2) above, and perhaps to strengthen his position in the refund cases above mentioned and present a consistent position there (i. e., that petitioners were not processors of hogs subject to a processing tax under the provisions of the Agricultural Adjustment Act, and that this Court is without jurisdiction), places no reliance upon (1). He stipulates that the tax was not imposed on petitioners but on Empire, the actual slaughterer. Cf. . Empire fills the position of "vendor" under section 501 (a) (2), 2 but, in addition, the statute requires that the price, including the Federal excise tax, must have been paid to this vendor and that reimbursement of amounts representing such excise tax must have been received from it. The facts as found disclose that petitioners made no payments to Empire, and they accrued nothing on their books of account other than the fee for slaughtering, which admittedly was not large enough to include the processing tax. The processing tax returns*16 were filed by and in the name of petitioners, and they did not purport to recognize, and the payments made did not and did not purport to discharge, any tax liability on the part of Empire. Cf. Confusion might appear to arise from the arrangement whereby petitioners, during the time when the processing tax was in force, had *1371 no bank accounts of their own, but had all their receipts deposited by and with those of Empire, which also made all disbursements for petitioners. But such confusion is resolved by the showing that Empire and petitioners maintained their respective independence. The facts establish the existence of an agency; and funds held in Empire's account were none the less petitioners'. Petitioners were the ones who actually paid the excise tax*17 direct to the collector, in so far as such payments were made at all. Cf. They are in an even stronger position than the taxpayer in , where the processing tax was held by an escrow agent until liability therefor was determined, and it was held that repayment thereof to the taxpayer in 1936 did not represent a reimbursement from the processor (vendor) within the meaning of section 501 (a) (2). Absent the "payment," it is likewise difficult to envisage a "reimbursement," also called for by section 501 (a) (2). The foregoing conclusion also eliminates other questions argued by the parties, although to observe technicalities, Docket No. 97, involving the partnership, should be and is dismissed on authority of . In the remaining dockets, Decisions will be entered for the petitioners. Footnotes 1. Proceedings of the following petitioners are consolidated herewith: Dependable Packing Company, a Partnership; Samuel Chapman; Fred Sans; Frank Penczek; and Charles Penczek.↩ 2. ; affd. (C. C. A., 5th Cir.), ; and Revenue Act of 1936, sec. 501 (k).↩