Welz & Zeuveck, Inc. v. Commissioner

WELZ & ZERWECK, INC., PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. Welz & Zeuveck, Inc. v. Commissioner Docket No. 24471. United States Board of Tax Appeals 11 B.T.A. 1416; 1928 BTA LEXIS 3625; May 16, 1928, Promulgated *3625 The assessment and collection of additional taxes for the years 1918 and 1919 are not barred by the statute of limitations. L. L. Hamby, Esq., for the petitioner. V. J. Hefferman, Esq., for the respondent. SMITH *1416 This is an appeal from the Commissioner's notice of deficiency mailed to the petitioner on December 22, 1926, determining the petitioner's correct income and profits-tax liability for the year 1918 to be $33,636.09, of which $26,554.22 now stands assessed, and for the year 1919 to be $142,247.95, of which $14,172.26 now stands assessed. *1417 The Commissioner has proposed the assessment and collection of the balance of the deficiencies determined for the respective years. The sole issue submitted to the Board at this time is whether any further assessment may be made against the petitioner for the years 1918 and 1919, the allegation of the petitioner being that the statute of limitations has operated as a bar to such assessments. FINDINGS OF FACT. The petitioner is a New York corporation with its principal office in Brooklyn. On June 14, 1919, it filed a document purporting to be its income and profits-tax return*3626 for 1918, which was signed by both the petitioner's president and its secretary. On May 15, 1920, it filed its income and profits-tax return for 1919. In July, 1921, the respondent assessed taxes against the petitioner in the amount of $12,747.05 for the year 1918, and $136,028.28 for the year 1919. On September 29, 1921, petitioner filed a claim for abatement of a portion of the taxes assessed. In March, 1924, respondent assessed further taxes against petitioner for 1918 in the amount of $26,626.76, making the aggregate assessments for the year 1918, $39,373.81, and the taxes assessed and outstanding against the petitioner for the year 1919, $136,028.28. On April 15, 1924, the petitioner filed with the collector at Brooklyn a claim for the abatement of $26,626.76 of the tax assessed for 1918, and for the refund of $100,000 of the tax paid for that year. The claim stated: This claim is filed pursuant to the privilege granted in Treasury letter dated February 23, 1924, for the reason that the taxpayer was denied the benefits of Section 250d of the Revenue Act of 1921, owing to statutory limitations for the year 1918. Properly executed waiver is attached hereto. The waiver*3627 referred to has been lost or misplaced by the Commissioner. On April 8, 1925, there was filed with the respondent on behalf of the petitioner, but without having affixed its corporate seal, a consent in writing extending to December 31, 1925, the statutory period within which assessment might be made with respect to the years 1918 and 1919. This consent was signed by Welz & Zerweck, taxpayer, by Benjamin H. Roth, secretary. On June 10, 1925, there was filed with the respondent, on behalf of the petitioner, a consent in writing on which its corporate seal was duly affixed, which consent was as follows: INCOME AND PROFITS TAX WAIVER. (For taxable years ended prior to March 1, 1921.) In pursuance of the provisions of existing Internal Revenue Laws Welz and Zerweck, a taxpayer of Brooklyn, New York, and the Commissioner of Internal *1418 Revenue hereby waive the time prescribed by law for making any assessment of the amount of income, excess-profits, or war-profits taxes due under any return made by or on behalf of said taxpayer for the [years] 1918 and 1919 under existing revenue acts, or under prior revenue acts. This waiver of the time for making any assessment*3628 as aforesaid shall remain in effect until December 31, 1925, and shall then expire except that if a notice of a deficiency in tax is sent to said taxpayer by registered mail before said date and (1) no appeal is filed therefrom with the United States Board of Tax Appeals then said date shall be extended sixty days, or (2) if an appeal is filed with said Board then said date shall be extended by the number of days between the date of mailing of said notice of deficiency and the date of final decision by said Board. On October 3, 1925, respondent wrote the supervising internal revenue agent, New York, N.Y., referring to a report of Revenue Agents Joseph and Levine dated December 20, 1921, regarding their investigation of the income and profits-tax liability of the petitioner for the years 1917 to 1920, inclusive, advising him that further investigation was required on account of additional information submitted by the petitioner in a brief dated May 25, 1925, protesting the assessments which had been made for the years 1918 and 1919. Pursuant to such letter the supervising internal revenue agent caused a further examination to be made by agents Joseph and Levine of the taxpayer's*3629 records and plant for the purpose of procuring the information requested in a letter of October 3, 1925. On October 19, 1925, the day before the submission by agents Joseph and Levine of their report but after the same had been prepared and of which they then and there notified petitioner, the agents visited petitioner's offices at Brooklyn, N.Y., and told Benjamin H. Roth, secretary thereof, that they had examined the company's books in connection with the petitioner's claims and had made inspection of its plant and had their report ready, which they desired to show him, and stated that they were going to recommend substantially the cancellation of the taxes outstanding against the petitioner but that before doing so it would be necessary for them to have a waiver or consent for the assessment of any additional taxes which might be found due for any year, because in adjusting items of depreciation and invested capital in connection with the petitioner's claims it would be necessary to make some assessment of taxes for other years on account of these adjustments and that if he would sign the waiver or consent they would submit their report, which would undoubtedly be approved, and*3630 which would in effect relieve the petitioner of 1919 taxes and result in a small assessment of a minor amount in other years. Relying upon these representations a consent was executed by Benjamin H. Roth, secretary of the petitioner, on October 19, 1925, extending to December 31, 1926, the statutory period within which additional assessments might be made for the years 1909 to 1921, inclusive. *1419 INCOME AND PROFITS TAX WAIVER (For taxable years ended prior to January 1, 1922) OCTOBER, 19TH, 1925. In pursuance of the provisions of existing Internal Revenue Laws WELZ & ZERWECK (A CORPORATION), a taxpayer of NEW YORK, NEW YORK, and the Commissioner of Internal Revenue hereby waive the time prescribed by law for making any assessment of the amount of income, excess-profits, or war-profits taxes due under any return made by or on behalf of said taxpayer for the year (or years) 1909 to 1921, inclusive, under existing revenue acts, or under prior revenue acts. This waiver of the time for making any assessment as aforesaid shall remain in effect until December 31, 1926, and shall then expire except that if a notice of a deficiency in tax is sent to said taxpayer by registered*3631 mail before said date and (1) no appeal is filed therefrom with the United States Board of Tax Appeals then said date shall be extended sixty days, or (2) if an appeal is filed with said Board then said date shall be extended by the number of days between the date of mailing of said notice of deficiency and the date of final decision by said Board. WELZ & ZERWECK. This consent bore the corporate seal of the petitioner and was executed on behalf of the petitioner by "Benj. H. Roth, Secty.," and by the respondent. Revenue Agents, Joseph and Levine, on October 20, 1925, submitted their report to the supervising revenue agent who, on November 9, 1925, submitted the same to the respondent, by whom it was received November 11, 1925, and recorded in the records division November 13, 1925, received in the audit division of Consolidated Returns, Section D, on November 13, 1925, and the matter entered "closed May 10, 1926." Following the consideration of the agents' report of October 20, 1925, two certificates of overassessment bearing ultimate date of May 21, 1926, were transmitted to and received by the petitioner, one for the year 1918 reciting taxes previously assessed, the correct*3632 tax, and the amount of overassessment in the sum of $12,819.59, and the fact that that part of the taxes so assessed theretofore was abated. The other certificate was for the year 1919, showing the taxes previously assessed as aforesaid, the correct tax liability, and the amount of overassessment which was therein set forth to be $121,856.02, and the fact that to the extent of this amount the taxes previously assessed were abated. The collector's records show $121,856.02 of the assessment for 1919 as having been abated on May 20, 1926. Subsequent to the receipt of the certificates of overassessment the petitioner received no further communication in regard thereto from the respondent until it received the notice of deficiency which was sent under date of December 22, 1926, and upon which this proceeding *1420 is based. The petition for such redetermination was filed with this Board on February 19, 1927. The by-laws of the petitioner, adopted in 1897, define in a general way the duties of the secretary and the powers of other officers, and purport to prescribe limitations upon the exercise of those powers. The duties as prescribed are limited to the conducting of corporate*3633 correspondence, to the keeping of minutes, and to the serving of notices. The by-laws prescribe that the seal of the corporation shall be kept in the custody of the treasurer and shall be affixed to those instruments requiring the corporate seal, together with the signature of either the president, vice president or treasurer. Benjamin H. Roth became secretary of the corporation in 1918. His duties at that time extended beyond the keeping of minutes and the care of corporate correspondence and the serving of notices. As secretary he joined with another officer of the corporation in June, 1919, in the execution of the return filed on behalf of the petitioner for 1918. In that return the corporation represented to the respondent that Roth, as secretary of the corporation, was in charge of its "financial and real estate" interests. He joined in the execution of the petitioner's 1920 income-tax return. The 1921 return was executed by other officers, but in that return petitioner against represented to the respondent that it was the duty of its secretary to handle its "financial and real estate" affairs. In April, 1924, Roth as secretary executed on behalf of the petitioner a*3634 claim in abatement and affixed the corporate seal. The unsealed consent of April 8, 1925, the properly sealed consent of June 10, 1925, and the final sealed consent of October 19, 1925, were each and all executed by Roth alone. On November 30, 1925, Roth made an affidavit which was filed with the respondent that the corporate seal was in his custody and that he was duly authorized to affix it to documents executed on behalf of the petitioner. As secretary of the petitioner and in charge of its financial affairs, Roth appeared before the respondent in behalf of the petitioner twelve or fifteen times between January, 1924, and October, 1925. No other officer of the petitioner ever appeared before the respondent in connection with its corporate tax matters. OPINION. SMITH: The petitioner states that the sole issue herein is whether the respondent at the time he issued the notice of deficiency dated December 22, 1926, had any legal authority to assess or the collector had any legal authority to collect the taxes for 1918 and 1919 against the petitioner. Counsel for the petitioner argued at the hearing that that portion of the 1919 deficiency already assessed is now barred*3635 of *1421 collection. That issue, however, he does not now ask the Board to pass upon since he stated "we are able to take care of ourselves on that." The sole question which the Board is asked to rule upon is, Is the unassessed portion of the 1918 and 1919 deficiencies now barred of assessment? The statutory provisions involved are section 277(a)(3), section 278(c), section 278(d), section 277(b), section 274(a), section 283(a) and section 283(e) of the Revenue Act of 1926, and section 1000 of the Revenue Act of 1926, amending section 907(a) of the Revenue Act of 1924. The petitioner claims in substance (1) that the execution of the alleged agreement of June 10, 1925, by its secretary was requested and procured upon specific representations made by the respondent or his agents to the said officer of the petitioner that it should not be effectual for the purpose of assessing any further taxes against petitioner for the said years; (2) that the said agreement is wholly void and did not confer any legal authority upon the respondent to assess such further taxes against the petitioner for 1918 and 1919 because it was not executed nor entered into until subsequent to the expiration*3636 of five years from the date of filing the return and there was no consideration therefor; and (3) that the said agreement was not the agreement of petitioner because it was not executed by any person authorized to bind the petitioner in respect to the assessment of further taxes against it for the years 1918 and 1919. The deficiencies determined by the respondent and covered by the deficiency notice sent to the petitioner on December 22, 1926, are for the calendar years 1918 and 1919. They are the respondent's computations of tax liabilities imposed by the Revenue Act of 1918. Their assessment and collection are subject to the limitations imposed by the Revenue Act of 1926. The Commissioner had five years after the return was filed within which to make an assessment of additional income and profits tax. The Revenue Act of 1926 does not provide a certain period of five years within which assessments for 1918 and 1919 must be made. The five-year period provided by section 277(a) of the Act is operative in those cases only in which the taxpayer and the Commissioner have not agreed in writing under the provisions of section 278(c) upon some different period of limitation. *3637 The record of this action shows that the petitioner filed with the respondent a series of consents extending the statutory period within which assessments might be made against it for the years 1918 and 1919. No question is raised by the petitioner but that the consent executed on June 10, 1925, was a valid consent. It was in full force and effect at a time when certain agents of the Commissioner requested further consents with respect to the years 1918 and 1919 *1422 and prior years in October, 1925. The petitioner contends that the agents represented to their secretary, the corporate officer who, for the petitioner, executed the consent of October 19, 1925, that consents were not desired for the years 1918 and 1919 but that inasmuch as the agents did not have with them sufficient blanks to prepare a consent for each year one blanket consent would be given which would enable the Commissioner to straighten out deficiencies for all years 1909 to 1921, inclusive. It is further contended that the agents represented that they were recommending to the Commissioner that the petitioner's claims for the years 1918 and 1919 be allowed and that they would undoubtedly be allowed and*3638 that the taxes assessed against them for those years would be abated. The consent bearing date of October 19, 1925, makes no reference to such an understanding. It does not except from the period of years covered by the consent the years 1918 and 1919, which could easily have been excepted if the agents or the petitioner had desired to except thereto. A properly executed instrument in writing must be considered to express the intent of the parties signing the same. It is a well established rule of the common law, which has been embodied in statutes in a number of states, that when any * * * contract, agreement, or undertaking has been reduced to writing, and is evidenced by a document, or series of documents, the contents of such documents cannot be contradicted, altered, added to or varied by parol or extrinsic evidence. (22 C.J. 1070.) The authorities giving expression to the principle are so many as to prohibit any attempt at selective citation. See ; ; *3639 ; ; . In , the Supreme Court said: In the absence of fraud, accident, or mistake the rule is the same in equity as at law, that parol evidence of an oral agreement alleged to have been made at the time of drawing, making or indorsing a bill or note cannot be permitted to vary, qualify, or contradict, or to add to or subtract from, the absolute terms of the written contract. . (Italics supplied.) See also ; ; . The findings of fact state the circumstances under which the consent of October 19, 1925, was given. We think, however, that that evidence is not competent to vary the terms of the consent given. After the receipt of the consent of October 19, 1925, the respondent made certain adjustments in the petitioner's tax liability for the years 1918 and 1919. He canceled certain*3640 portions of the assessments outstanding against the petitioner. The consent of October 19, 1925, was executed on behalf of the petitioner by Benjamin H. Roth, then secretary of the corporation. *1423 In support of its contention that Roth had no authority to execute this consent on behalf of the petitioner, it caused to be read into the record extracts from the by-laws of the corporation, adopted in 1897. The substance of those provisions is shown in the findings of fact. The evidence adduced at the hearing shows that Roth had charge of its income-tax affairs in Washington. The board of directors was informed in detail as to the progress of Roth's negotiations. Roth advised them in detail as to the steps taken by him on behalf of the petitioner. Those detailed steps included the execution of the consent of October 19, 1925, as well as the consents executed in April, 1924, in April, 1925, and in June, 1925. The board of directors had been informed in detail in respect to those acts on the part of Roth. The board of directors did not repudiate the acts of its secretary with respect to the authority he had assumed to exercise prior to the receipt by the petitioner*3641 of the notice of a deficiency upon which this proceeding is based. The contention of the petitioner that express authority to execute the consent of October 19, 1925, had been withheld from Roth as secretary of the corporation is contrary to the facts in the case. But even if Roth had not been expressly directed by the board of directors to take charge of the corporation's tax matters, still it would be conclusively bound by the acts of Roth under the circumstances here prevailing. Mr. Justice Story, speaking for the court in , said: If officers of the corporation openly exercise a power which presupposes a delegated authority for the purpose and other corporate acts show that the corporation must have contemplated the legal existence of such authority, the acts of such officers will be deemed rightful and the delegated authority will be presumed. In , the court, speaking through Mr. Justice Harlan, said: And it is settled law that the existence of such authority in subordinate officers may, in the absence of express statutory prohibition, *3642 be shown otherwise than by the official record of the proceedings of the board. It may be established by proof of the course of business between the parties themselves; by the usages and practice which the company may have permitted to grow up in its business; and by the knowledge which the board, charged with the duty of controlling and conducting the transactions and property of the corporation, had, or must be presumed to have had, of the acts and doings of its subordinates in and about the affairs of the corporation. In , Mr. Justice White, speaking for the court, said: As, therefore, the trustees of The Sun Association must be presumed to have exercised a supervision over the business of the corporation, they are to be charged with knowledge of the extent of the power usually exerted by its managing *1424 editor, and must be held to have acquiesced in the possession by him of such authority, even though they had not expressly delegated it to him. In *3643 ; , the court quoted with approval the rule advanced by Mr. Justice Story, quoted above, and said: But the jury have found that the defendant's president acted within the scope of his apparent authority, and it is settled doctrine in America that the appointment of an agent may be inferred and implied from the adoption or recognition of his acts by the trustees and directors, or by the corporation. In ; , the court said: In response to the request to charge that, before a verdict could be found for the plaintiff, the jury must be satisfied by affirmative proof that Smith was authorized to indorse the name of the company on the note by prior resolution of the executive committee or by the board of directors, or by ratification by resolution or some equivalent act of such committee or board, the court charged substantially that the jury, to reach such result, must find either Prior authority or subsequent ratification, and that it could be evidenced by general course of business as well as resolution. There was no*3644 error in this charge. (Italics ours.) In ; , the defendant corporation had the right under a certain contract to suspend certain operations for a reasonable period of time. One Dimmick, secretary of the corporation, directed a protracted suspension, and the corporation was held liable in damages. The court said: The actual authority conferred by the corporation upon Dimmick does not appear. But his authority may be implied from the power he had been accustomed to exercise without dissent of the company, and presumably with its acquiescence. The New York court repeated this rule in ; , a case in which it was urged "that there was no proof that the president of the company had any authority to make such an agreement binding the company." From the decisions cited above, as well as from a host of other authorities too voluminous to admit of citation, it is established beyond dispute as a settled rule of law that a corporation may not, whether within Federal jurisdiction or within the State of New York, repudiate*3645 the authority of its officer acting on its behalf and in its name, and with the knowledge and approval and under the instructions of its board of directors. An order will be entered denying the motion of petitioner for judgment upon the basis that the assessment and collection of additional taxes for 1918 and 1919 is barred by the statute of limitations and the proceeding will be restored to the calendar for hearing upon its merits. Reviewed by the Board.