Trefry v. Commissioner

W. S. TREFRY, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. Trefry v. Commissioner Docket No. 3397. United States Board of Tax Appeals 10 B.T.A. 134; 1928 BTA LEXIS 4175; January 24, 1928, Promulgated *4175 Under the evidence, held, that the assessment involved herein, made April 13, 1925, is void and of no force and effect, and that assessment and collection of the tax are now barred by the statute of limitations. Claude I. Parker, Esq., and Ralph W. Smith, Esq., for the petitioner. Brice Toole, Esq., for the respondent. MARQUETTE *134 This proceeding is for the redetermination of a deficiency in income tax for the year 1919 in the amount of $3,595.30. *135 FINDINGS OF FACT. The petitioner is an individual residing at Los Angeles, Calif. In the year 1916 the petitioner, at that time a resident of the State of Kansas, organized a corporation under the laws of Kansas, known as the Trefry Motor Co., for the purpose of selling Ford motor cars, trucks, parts and automobile accessories. He transferred to the corporation an agency contract he held with the Ford Motor Co., and received in exchange 25 shares of the corporation's capital stock of the total par value of $2,500. He subsequently acquired the remainder of the capital stock outstanding, consisting of 25 shares, for $9,500. The petitioner gave his entire time to the*4176 corporation's business from the time the corporation was organized until July 1, 1919, except from August, 1918, to December, 1918, when he was in the military service of the United States. On July 1, 1919, the corporation was dissolved and the petitioner as the sole stockholder received all of the assets in liquidation. The balance sheet of the corporation as of June 30, 1919, showed assets and liabilities as follows: ASSETS: Cash: Imprest fund $200.00 Bank account 7,248.00 Stock room charge 10.00 Accounts receivable 1,628.24 Prepaid expenses 526.60 Stock accounts: Automobiles 3,077.29 Ford parts 7,819.48 Accessories 3,681.13 Gas, oil, and grease 572,19 Secondhand cars 400.98 Tires and tubes 675.30 Implements 668.60 Tractor parts 371.16 S. H. radiators 21.65 Office equipment 892.12 Shop equipment 4,319.06 United States bonds 1,317.50 $33,429.30 LIABILITIES: Accounts payable $2,510.48 Accrued pay rolls 112.00 Surplus and undivided profits 23,483.63 Reserve for depreciation - office equipment 562.89 Reserve for depreciation - shop equipment 1,760.30 Investment 5,000.00 33,429.30 *136 The*4177 Trefry Motor Co. filed a return as a personal service corporation for the period January 1, 1919, to July 1, 1919, but the respondent subsequently denied it classification as a personal service corporation and required it to pay a tax on its income for said period. The petitioner on March 5, 1920, filed with the collector of internal revenue at Wichita, Kans., an income-tax return for the year 1919, stating thereon that his address was No. 1014 Kansas Avenue, Topeka, Kans. He included in his gross income the earnings of the Trefry Motor Co. for the period January 1 to July 1, 1919, amounting to $10,485.33, but did not report any profit on account of the dissolution of the Trefry Motor Co. and the acquisition by him of the corporate assets. The respondent, upon audit of the return, determined that the petitioner realized a taxable gain in the amount of $12,000 on the dissolution of the Trefry Motor Co. and increased the petitioner's income accordingly. He did not, however, exclude from the petitioner's income the amount of $10,485.33, representing the income of the Trefry Motor Co. for the period January 1 to July 1, 1919, which had been reported in the petitioner's return. *4178 On February 14, 1925, the respondent addressed a letter to the petitioner at "Topeka, Kansas," no street address, advising the petitioner that "an audit of your income-tax return for the year 1919 disclosed a deficiency in tax amounting to $3,595.30." Said letter was returned "unclaimed" to the respondent, and was then sent by him to the collector at Wichita, Kans., who, on March 21, 1925, mailed it to the petitioner at his then address, No. 1020 South Olive Street, Los Angeles, Calif. The petitioner had in January, 1925, notified the collector at Wichita, Kans., of his change of address. The additional tax shown by the deficiency letter was assessed April 13, 1925. The petition herein was filed April 14, 1925. OPINION. MARQUETTE: The petitioner contends that under the Revenue Act of 1924 the period within which additional tax might be assessed against him for the year 1919 expired on March 5, 1925, and that the assessment made by the respondent on April 13, 1925, is void and of no force and effect. He further contends that if the assessment was legally made the amount thereof should be reduced, because the respondent failed to exclude from the income reported on the return*4179 the amount of $10,485.33, representing the income of the Trefry Motor Co. for the period January 1 to July 1, 1919, which the petitioner included in his own income on the theory that the Trefry Motor Co. was a personal service corporation; that the petitioner's gain from the liquidation of the Trefry Motor Co. as determined by the respondent should be reduced by the amount of $4,037.91, because *137 the assets received by the petitioner on dissolution were worth that much less than their book value, and that the gain arising from the liquidation is subject only to surtax. The respondent concedes that he should have excluded from the income reported in the petitioner's return the amount of $10,485.33, included in the income of the Trefry Motor Co., but denies that he erred in any other respect. As to the validity of the assessment the respondent urges that the letter sent on February 14, 1925, was a notice of a deficiency mailed within the purview of section 274(a) of the Revenue Act of 1924; that the period within which the assessment could be made was thereby extended by section 277(b) of that Act, and that the assessment was made within the period as extended. That the*4180 Board has jurisdiction of this proceeding is clear, since the petition was filed within sixty days from the date the deficiency letter was mailed, whether the date of mailing was February 14, 1925, as contended by the respondent, or March 21, 1925, as claimed by the petitioner. The parties hereto are in agreement that the petitioner's incometax return for the year 1919 was filed on March 5, 1920; that on February 14, 1925, a deficiency notice was addressed to the petitioner at "Topeka, Kansas," and was put in the mail and was returned unclaimed; that the notice was subsequently, on March 21, 1925, remailed to the petitioner at Los Angeles, Calif., and was received by him, and that the period within which the additional tax could be assessed against the petitioner expired on March 5, 1925, unless the letter of February 14, 1925, was "mailed" to the petitioner within the meaning of the Revenue Act of 1924, so as to extend the period for assessment. What constitutes "mailing" under the Revenue Acts of 1924 and 1926 has been the subject of consideration by this Board. In Utah orpheum *4181 , Korner, Chairman, in discussing this question, said: The question of mailing is a mixed question of law and fact. The authorities seem to be clear that three elements are necessary to constitute mailing: (1) That the matter sought to be mailed to duly deposited with the postal authorities; (2) that it bear proper postage or be free of postage; and (3) that it be properly addressed to the person for whom it is intended. In the instant case only the third element is involved. There may be cases in which difficulty is experienced in determining whether the matter sought to be mailed is properly addressed. Many facts and circumstances may have to be considered, and doubts resolved, for a correct determination in such a case. But in a case wherein it is shown that the matter was not properly addressed, a mailing was not accomplished. See also . Applying to the facts here presented the rule we have just quoted, it is clear that the notice of deficiency was not mailed to the petitioner *138 on February 14, 1925, within the meaning of the statute. One of the elements of a proper mailing*4182 is missing - the notice was not properly addressed. The petitioner printed on his income-tax return for 1919 that his then address was at 1014 Kansas Avenue, Topeka, Kans., and he later notified the collector of his change of address, and we are of the opinion that under the circumstances the mailing of the notice that we have under consideration was not the mailing required by section 274(a) of the Revenue Act of 1918. It follows that the period within which the additional tax could be assessed against the petitioner for the year 1919 expired on March 5, 1925, and the assessment made on April 13, 1925, has no force or effect. Since the statute of limitations has run against the assessment and collection of the tax, there is no deficiency. Judgment of no deficiency will be entered.