Miami Metals Co. v. Commissioner

MIAMI METALS CO., PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. Miami Metals Co. v. Commissioner Docket No. 11081. United States Board of Tax Appeals 10 B.T.A. 421; 1928 BTA LEXIS 4116; January 31, 1928, Promulgated *4116 JURISDICTION. - On March 7, and July 28, 1925, the respondent notified the petitioner by registered mail that the latter's abatement claim filed on March 6, 1924, was rejected. Thereafter, however, the respondent reconsidered his determination of the petitioner's tax liability for the year covered by the claim and on November 20, 1925, he again notified the petitioner by registered mail that the conclusions set forth in the letter of March 7, 1925, were sustained. On January 18, 1926, the petitioner filed its petition for redetermination with the board. Held, the Board has jurisdiction, under the provisions of section 283(f) of the Revenue Act of 1926. Jacob Mertens, Jr., Esq., and Elmont B. Hazard, Esq., for the petitioner. Thomas Martinez Wilkins, Esq., for the respondent. GREEN *421 This proceeding is, on motion of the petitioner, limited to the issue of jurisdiction of the Board raised by paragraphs 1, 2, 4, and 5 of respondent's answer, which are as follows: (1) Denies that the taxpayer appeals from a determination of the Commissioner of Internal Revenue, within the meaning of sections 273 and 274 of the Revenue Act of 1924. *4117 (2) Denies that the letter of November 20, 1925, from which the taxpayer has appealed, constitutes a determination of the deficiency within the meaning of the above-mentioned sections. (4) Denies that any deficiency letter was mailed to this taxpayer on November 20, 1925. (5) Alleges that the determination of a deficiency within the meaning of sections 273 and 274 of the Revenue Act of 1924 was made by the Commissioner of Internal Revenue in his letter to the taxpayer dated March 7, 1925, a copy of which is attached to the taxpayer's petition marked Exhibit B and undated. FINDINGS OF FACT. The petitioner is a corporation incorporated February 18, 1916, under the laws of the State of Illinois for the purpose of manufacturing ferromanganese, with its principal office in the City of Chicago. On June 16, 1919, it filed its corporate income and profits-tax return for the calendar year 1918, showing a net income of $508,744.46 and a corresponding total income and profits-tax liability of $324.799.83. Attached to the return in accordance with article 901 of Regulations 45 on the petitioner's letterhead was an informal "CLAIM OF MIAMI METALS COMPANY - To have its Excess*4118 Profits *422 Tax assessed under the Provisions of Sections 327 and 328 of the Law of 1918," on the ground of a subsequent shrinkage in inventories. The concluding paragraph of this informal claim read as follows: In view of the abnormal conditions in our business we submit that we ought not to be assessed for the year 1918 a greater percentage of our taxable income than we were assessed for the year 1917, when our Excess Profits Taxes amounted to 32.6% of our taxable income and the total of our Income and Excess Profits Taxes amounted to 36.64%. We believe that an examination of the average taxes of representative corporations engaged in the same business will show that a tax of 32.6% of our taxable income as an Excess Profits Tax or 36.64% of our taxable income as a total of the Income and Excess Profits Taxes will be fair to the Government and to the Company. The petitioner paid in several installments a total tax amounting to $254,372.23, which represented 50 per cent of the net income as reported on the return. On January 25, 1924, the respondent notified the petitioner that a jeopardy assessment of $1,858.10 for the calendar year 1918 would be made immediately*4119 and that the Bureau would entertain a claim in abatement, if filed within a certain prescribed time not material here. This letter showed the total tax liability of the petitioner to be $326,657.93 on a net income of $514,520.05. On March 6, 1924, the petitioner filed a combined claim in abatement and refund asking for the abatement of the jeopardy assessment of $1,858.10 and for a refund of $65,852.08 representing the difference between 36.64 per cent of the corrected net income of $514,520.05, or $188,520.15, and the $254,372.23 already paid. The abatement and refund were both sought on the basis of the petitioner's claim to have its profits taxes for 1918 determined under the provisions of sections 327 and 328 of the 1918 law. The difference between the amount of tax liability of $326,657.93 as shown by respondent's letter of January 25, 1924, supra, and the amount of $188,520.15 admitted by the petitioner in its claim filed on March 6, 1924, supra, is $138,137.78 and is covered by claims as follows: Tax sought to be abated: Shown on returns $324,799.83 Tax paid 254,372.23 Tax covered by informal claim attached to return 70,427.60 Tax covered by combined claim in abatement and refund filed 3/6/24 1,858.10 $72,285.70 Tax sought to be refunded: Tax paid 254,372.23 Tax due as claimed by combined claim in abatement and refund filed 3/6/24 188,520.15 65,852.08 Amount of tax affected by claim for special assessment 138,137.78 *4120 *423 On March 7, 1925, the respondent mailed to petitioner the following registered letter: TREASURY DEPARTMENT, Washington March 7, 1925. IT:E:SM JMB-A-923 Miami Metals Company, 122 South Michigan Avenue, Chicago, Illinois. Sirs: Reference is made to your corporation income and profits tax return for the calendar year 1918. After careful consideration and review and an examination of all the facts submitted, your application under the provisions of Section 327 for assessment of your profits tax under Section 328 of the Revenue Act of 1918 has been denied for the reason that no abnormality affecting either your capital or income has been disclosed which would bring your case within the scope of paragraph (d) of Section 327. In accordance with the above conclusions, your claim for the abatement of $1,858.10 will be rejected in full. 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. Upon receipt of notice and demand from that official, payment should be made at his office, in accordance with the condition of his notice. Respectfully, *4121 J. G. Bright, Deputy commissioner. On July 28, 1925, the respondent mailed the petitioner a second registered letter as follows (Note: In this letter the respondent has confused the petitioner's combined claim for abatement of $1,858.10 and refund of $65,852.08 as a combined claim for abatement of both amounts): IT:E:SM ALA-A-923 Miami Metals Company, 122 South Michigan Ave., Chicago, Illinois. Sirs: Reference is made to your corporation income and profits tax return for 1918, and to your claims for abatement of $1,858.10 and $65,852.08, aggregating $67,710.18. By office letter dated March 7, 1925, your application for the determination of your profits tax for 1918 under the provisions of Sections 327 and 328 was denied thereby concluding the audit of your return. At that time, your claim for abatement was rejected for $1,858.10. Upon the basis of the foregoing facts the balance of your claim for abatement amounting to $65,852.08 is now rejected. Your case is, therefore, deemed closed. Respectfully, J. G. BRIGHT, Deputy Commissioner. By Chief of Section. *424 In the meantime and before receipt of the letter*4122 of July 28, 1925, the petitioner had prepared an appeal to the Commissioner from the letter of March 7, 1925, the appeal and supporting brief being filed with the respondent on April 5, 1925. The schedule rejecting the claim filed March 6, 1924, was sent to the collector of internal revenue for the petitioner's district on August 20, 1925. On September 5, 1925, the respondent wrote the petitioner's attorney as follows: Reference is made to brief filed by you in the case of Miami Metals Company, protesting its income and profits taxes for the year 1918, of which it was advised in Bureau letter of March 7, 1925. As Treasury Decision 3708 discontinues hearings before the Review Division of the Solicitor's office, a conference has been arranged for the further consideration of the questions raised in the above brief. The date of conference has been set for Thursday, September 17, 1925, at 9.30 o'clock, in Conference Room 114, Treasury Annex No. 2, 15th Street and Ohio Avenue, N.W., Washington, D.C. Pursuant to such arrangement a conference was held on September 17, 1925, between Lewis T. Matlack and D. W. Rissinger, representing the respondent, and G. E. Holmes, J. D. Deering, *4123 A. B. Marcus, F. H. Hardy, and C. D. Tripp, representing the petitioner. At this hearing the petitioner submitted new facts, data and argument as to why its taxes should be assessed under the special assessment provisions of the law. In his report of the conference, Matlack referred to the denial "under date of March 7, 1925," of the petitioner's application for assessment under section 328 for the reason "that no abnormality had been disclosed." The report then stated that, "The case is now under consideration on the basis of this protest." The said conference report further stated that, "The case was originally denied for the reason that the only abnormality advanced was the subsequent shrinkage in inventory." It then set out the material facts submitted at the conference and closed with the following decision: It is very evident that there was a pronounced abnormality in the manner of organization in the first place and in the use of this $800,000.00 borrowed money, which was in fact the acquisition of preferred stock, as upon dissolution of the syndicate the loaning corporations did not receive the entire amount of their loans due to shrinkage through losses. It is therefore*4124 recommended that the case be reconsidered upon the basis of the comparatives suggested. From the names listed above it may be possible to call the companies that they suggest and in that manner collect sufficient information on which to base a fair comparison. *425 On November 20, 1925, the respondent mailed the petitioner a third registered letter as follows: TREASURY DEPARTMENT Washington, Nov. 20, 1925. Office of Commissioner of Internal Revenue IT:E:SM ALA-A-923 Miami Metals Company, 122 South Michigan Avenue, Chicago, Illinois. Sirs: Reference is made to your protest dated April 4, 1925, against the denial of your application for assessment of your profits tax under the provisions of Section 328 of the Revenue Act of 1918, as set forth in Bureau letter dated March 7, 1925. After a careful review of your protest and of all the evidence submitted in support of your contentions, you are advised that the Bureau holds that comparatives carefully selected in compliance both with the provisions of Section 328 and with the suggestions made by you at a conference held in this office on September 17, 1925, show that your profits tax determined under*4125 the provisions of Section 301 is not in excess of the profits tax of representative concerns. Accordingly, the conclusions set forth in the above-mentioned letter are sustained. Your case is, therefore, deemed closed. Respectfully, (Signed) C. R. NASH Assistant to the Commissioner. On January 18, 1926, the petitioner filed a petition for the redetermination of its 1918 income and profits-tax liability before the United States Board of Tax Appeals. OPINION. GREEN: Section 283(f) of the Revenue Act of 1926 provides that: If any deficiency in any income, war-profits or excess-profits tax imposed by the Revenue Act of 1916, the Revenue Act of 1917, the Revenue Act of 1918, or the Revenue Act of 1921, or by any such Act as amended, was assessed before June 3, 1924, but was not paid in full before that date, and if the Commissioner after June 2, 1924, but before the enactment of this Act finally determined the amount of the deficiency, and if the person liable for such tax appealed before the enactment of this Act to the Board and the appeal is pending before the Board at the time of the enactment of this Act, the Board shall have jurisdiction of the appeal. * * * *4126 In our opinion the petitioner comes squarely within the above provisions of the 1926 Act. The respondent has assessed against the petitioner a deficiency in income and profits taxes imposed by the *426 Revenue Act of 1918 before June 3, 1924; the assessment was not paid before that date; the respondent after June 2, 1924, but before the enactment of the Revenue Act of 1926, finally determined the amount of the deficiency; and the petitioner appealed to the Board before the enactment of the 1926 Act, at which time its appeal was still pending before the Board. Under such facts we know of no reason why the Board does not have jurisdiction of the appeal. The case is covered by the statute. But the respondent in his brief contends that, "The provisions of section 283(f) do not apply for the reason that the Commissioner 'finally determined the amount of the deficiency' on July 28, 1925, and the taxpayer's appeal was not filed within sixty days after the registered mailing of the notice of such determination." In his answer he had alleged that such determination was made at the mailing of the first registered letter on March 7, 1925. We see no merit in this contention*4127 or allegation. If the respondent's only objection to the application of section 283(f) of the 1926 Act to the facts of this proceeding is that the petition was not filed within 60 days after the respondent made his final determination of the amount of the deficiency, such objection may be set at rest on the ground that in our opinion his final determination in the instant case was not made until November 20, 1925, the date of the third registered letter. Up to and including the mailing of the second registered letter on July 28, 1925, the respondent had never compared the petitioner with any representative concerns to determine whether the petitioner's taxes were excessive for the reason that in his judgment the petitioner was not entitled to have its taxes determined under section 328 of the 1918 Act as "no abnormality had been disclosed" in accordance with section 327(d). After July 28, 1925, the respondent made arrangements for a conference with the petitioner. At this conference which was held on September 17, 1925, the petitioner submitted new facts and argument as to why it was entitled to have its taxes determined and assessed under section 328. It also suggested*4128 several concerns with which it desired to be compared. The conferee found that "It is very evident that there was a pronounced abnormality" and recommended "that the case be reconsidered upon the basis of the comparatives suggested." In the letter of November 20, 1925, the petitioner was notified that: After a careful review of your protest and of all the evidence submitted in support of your contentions, you are advised that the Bureau holds that comparatives carefully selected in compliance both with the provisions of section 328 and with the suggestions made by you at a conference held in this office on September 17, 1925 show that your profits tax determined under the provisions of Section 301 is not in excess of the profits tax of representative concerns. *427 In our opinion the respondent after July 28, 1925, reconsidered his previous actions and made his final determination of the amount of the deficiency on November 20, 1925. The petition was filed on the fifty-ninth day thereafter. See Appeal of Joseph Garneau Co.,1 B.T.A. 75. The respondent has also argued that, since the claim itself was actually rejected on August 20, 1925, and was*4129 not in the file that was considered by the Special Assessment Section at and after the conference, it can not be said that the claim was reconsidered. A reconsideration of the tax liability for a given year carries with it, in our opinion, a reconsideration of any previous action taken on any claims filed for such year. The letter of November 20, 1925, specifically states that "After a careful review * * * the conclusions set forth" in the letter of March 7, 1925, "are sustained." The letter of March 7th contained a reference to the proposed rejection of the claim in abatement. The respondent could not have reconsidered his conclusions expressed in the letter of March 7th without reconsidering his decision on the claim. In Appeal of R. M. Eddy Foundry Co., Docket No. 11447 (not yet decided on the merits), the Commissioner made an additional assessment in March, 1923. On March 31, 1925, the petitioner was advised that: After careful consideration and review and an examination of all the facts submitted, your application under Section 328 of the Revenue Act of 1918 has been denied, for the reason that no abnormality affecting either your capital or income has been disclosed*4130 which would bring your case within the scope of paragraph (d) of Section 327. Furthermore, the audit of your case discloses no exceptional hardship evidenced by gross disproportion between the tax computed without benefit of Section 328 and the tax computed by reference to the representative corporations specified in that section. Under date of December 1, 1925, the Commissioner addressed a letter to the taxpayer referring to a protest dated May 1, 1925, which had apparently been filed by the taxpayer against the denial of its application for assessment under the provisions of section 328 of the Revenue Act of 1918, as set forth in the Bureau letter dated March 31, 1925. It was stated in that letter that: After a careful review of your protest and of all the evidence submitted in support of your contentions, also taking into consideration the result of conference held in this office on October 27, 1925, you are advised that the Bureau holds that no abnormality has been disclosed affecting either your capital or income that would bring your case within the scope of Paragraph (d) of Section 327. The comparatives used are representative concerns engaged in a like or similar trade*4131 or business to that of your company and meet all the requirements of Section 328 of the Revenue Act of 1918 as near as may be. Accordingly the conclusions as set forth in the above-mentioned letter are sustained. *428 The respondent in that case filed a motion to dismiss for lack of jurisdiction. The motion was denied at the hearing with a statement by the Member presiding that: My opinion is that this letter of December 1st is such a final determination on its face that the taxpayer had the right to appeal from it. In the instant case we are clearly of the opinion that we have jurisdiction of the appeal filed by the petitioner on January 18, 1926. The attention of both parties is now directed to the Board's order in this case dated May 2, 1927. On the jurisdictional issue, judgment will be entered for the petitioner.