L. Loewy & Son, Inc. v. Commissioner

L. LOEWY & SON, INC., PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. L. Loewy & Son, Inc. v. Commissioner Docket No. 11639. United States Board of Tax Appeals 11 B.T.A. 596; 1928 BTA LEXIS 3760; April 16, 1928, Promulgated *3760 1. The petitioner filed its income-tax return for the fiscal year ended July 31, 1920, on October 14, 1920. It filed a consent with the Commissioner on March 2, 1925, extending until December 31, 1925, the period within which an assessment of an additional tax for the fiscal year ended July 31, 1920, might be made, and an additional consent on February 19, 1926, further extending the time within which assessment might be made for the same fiscal year. Notice of deficiency was sent to the petitioner by the Commissioner on December 11, 1925. Held, that the assessment and collection of the deficiency is not barred by the statute of limitations. 2. On September 1, 1922, the petitioner accepted a determination of additional tax made for the fiscal year ended July 31, 1920, pursuant to which acceptance an assessment of additional tax was made and paid in due course by the petitioner. Held, that such written acceptance did not preclude the Commissioner from determining an additional deficiency for the fiscal year stated. Arthur B. Hyman, Esq., for the petitioner. A. H. Murray, Esq., and S. B. Pierson, Esq., for the respondent. SMITH *3761 *596 The petitioner in this proceeding seeks the redetermination of a deficiency for the fiscal year ended July 31, 1920, of $1,165.11. It alleges as errors on the part of the Commissioner in determining the deficiency - (1) that the respondent has erroneously failed to give effect to the statute prohibiting the assessment and/or collection of any deficiency in taxes after the lapse of five years after the return was filed; (2) that the respondent has attempted to assess a tax for the fiscal year ended July 31, 1920, after the return of the petitioner for that fiscal year had been duly audited, its books and accounts examined by representatives of the Commissioner, after hearing upon the merits of various claims made by the Commissioner and the petitioner for said fiscal year, and after adjudication of the liability of the petitioner for that fiscal year and the payment by the petitioner of the tax found to be due for such fiscal year; and (3) that the Commissioner has attempted to assess a tax for the fiscal year ended July 31, 1920, after an agreement fixing the tax for that period had been duly executed by the petitioner at the request of the Commissioner, accepted by the*3762 Commissioner and the tax agreed upon assessed and paid. FINDINGS OF FACT. The petitioner is a New York corporation having its office and principal place of business in New York City. It filed its income-tax *597 return for the fiscal year ended July 31, 1920, on October 14, 1920, which showed a tax due of $28,973.83. This tax was assessed and paid by the petitioner. Thereafter the respondent caused an examination to be made of the books and accounts of the petitioner and proposed to assess additional taxes against it for the years ended July 31, 1917, 1918, 1919, and 1920, based upon the results disclosed in a report of a revenue agent who had, at the direction of the respondent, made the audit and examination. The petitioner in opposition duly filed a protest setting up various facts in opposition to the proposed assessment and to the report of the revenue agent in which it claimed that the respondent was in error in reducing invested capital by excessive depreciation, in arriving at invested capital generally, in refusing to allow $300,000 in debenture bonds to be included in invested capital, in disallowing losses on machinery, in disallowing claims for depreciation, *3763 in adjusting income, and in disallowing salaries. The petitioner, through its counsel, duly appeared before the respondent on a date fixed for a hearing, and upon the merits of the various claims mentioned and set forth above duly filed a brief in support of its contentions. The respondent, after said hearing and due deliberation upon the evidence presented and the questions of law discussed, allowed some of the contentions of the petitioner and disallowed others and determined the liability of the petitioner for each of the years in question. This determination of the respondent disclosed overassessments for the years 1917 and 1918 and additional assessments for the years 1919 and 1920. The respondent thereafter duly notified the petitioner of his determination and enclosed a blank form for the petitioner's signature which showed the deficiencies determined for the years 1919 and 1920. The petitioner accepted the determination, signed the blank form and returned it to the respondent, accompanying it with a letter dated September 1, 1922, which reads as follows: We enclose you herewith acceptance of L. Loewy & Son, Inc., which you sent for signature. You will please notice*3764 that this paper when originally sent covered only 1919 and 1920 and we have inserted the result for the years 1917 and 1918 and had it signed. This letter was signed by counsel for the petitioner. *598 The form of acceptance was as follows: AUGUST 30, 1922. COMMISSIONER OF INTERNAL REVENUE, Washington, D.C. SIR: Receipt is acknowledged of your office letters dated Aug. 4th and Aug. 29th, 1922 bearing identification symbols IT:CA:M and showing as a result of an examination of my tax MWH-13 returns - Additional Tax Liability Over-assessment Year 1919 $460.14 Year 1920 234.63 Year 1917 $342.27 Year 1918 105.09 Year Total $694.77 $447.36 447.36 Net additional tax: $247.41. In response thereto I hereby advise that: (1) I accept as correct the above statement of net additional tax liability and agree to its assessment in due course. OR (2) I believe the above statement of net additional tax liability is incorrect and I desire and shall proceed within the time fixed in your letter to prepare and present evidence showing that the amounts stated above should not be assessed. L. LOEWY & SON, INC. By MICHAEL*3765 L. SINSHEIMER, President. (NOTE: Taxpayer should sign but one of these statements.) Thereafter the respondent determined a further deficiency for the fiscal year ended July 31, 1920, which arose from the disallowance of the deduction from gross income as a reserve for bad debts. The petitioner filed with the respondent, under date of March 2, 1925, a consent in writing as follows: In pursuance of the provisions of existing Internal Revenue Laws L. LOEWY & SON, INC., a taxpayer of 15 East 26th St. New York City, 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 fiscal year ended July 31st, 1920 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, 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*3766 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. This is without prejudice to taxpayer's claim that tax has already been assessed and paid. *599 This consent was signed by L. Loewy & Son, Inc., by Moses Sinsheimer, vice president, and bore the corporate seal. Upon receipt it was executed by the respondent. A notice of deficiency was mailed to the petitioner on December 11, 1925. Thereafter, on February 19, 1926, the petitioner filed a further consent with the respondent for the assessment of any deficiency which might be determined for the fiscal year ended July 31, 1920. This consent provided in part: This waiver of the time for making any assessment as aforesaid shall remain in effect until six months after the date of the final decision of the United States Board of Tax Appeals on any taxable year which is now pending upon appeal to the said Board. OPINION. SMITH: The petitioner contends that the assessment and collection of the deficiency in tax for the fiscal year ended July 31, 1920, is*3767 barred by the statute of limitations and relies upon the decision of the court in ; that the consent was only a consent to the assessment of a deficiency and that the petitioner did not waive any right which it might have with respect to the collection of the deficiency. Under the provisions of the Revenue Acts of 1921 and 1924, the respondent had five years from the date of the filing of the return, viz, October 14, 1920, within which to make an assessment of a deficiency, and where there was a written agreement filed extending the period for the making of the assessment such further period as was provided by the consent filed. The consent filed March 2, 1925, was a valid consent. The period within which assessment of a deficiency could be made had not expired at the time of the enactment of the Revenue Act of 1924, viz, June 2, 1924. The instant proceeding is, therefore, clearly distinguishable from the case of The assessment of the deficiency was not barred and under the provision of section 278(d) of the Revenue Act of 1924, *3768 the Commissioner has six years from the date within which an assessment may be made within which to collect the same. The petitioner further argues that the assessment of a further deficiency for the fiscal year ended July 31, 1920, is barred by section 1312 of the Revenue Act of 1921, which reads as follows: That if after a determination and assessment in any case the taxpayer has without protest paid in whole any tax or penalty, or accepted any abatement, credit, or refund based on such determination and assessment, and an agreement is made in writing between the taxpayer and the Commissioner, with the approval of the Secretary, that such determination and assessment shall be final and conclusive, then (except upon a showing of fraud or malfeasance or misrepresentation of fact materially affecting the determination or assessment thus made) (1) the case shall not be reopened or the determination and *600 assessment modified by any officer, employee, or agent of the United States, and (2) no suit, action, or proceeding to annul, modify, or set aside such determination or assessment shall be entertained by any court of the United States. *3769 The evidence in this case clearly shows that there was no agreement made in writing between the petitioner and the Commissioner with the approval of the Secretary. The evidence does not indicate that the acceptance was made for any purpose other than to assure the Commissioner that the determination made by him was agreeable to the petitioner, and that no protest was to be made thereto which would prevent the respondent from immediately assessing and collecting the amount of the deficiency determined. In , we said: It has long been recognized, both by the Commissioner and all of his predecessors, as well as taxpayers generally, that reconsiderations of liability to internal-revenue taxes were both proper and lawful. * * * The principle or rule of law to the effect that reconsiderations and adjustments of tax liability can be properly made seems to have been recognized by Congress * * * [citing sections 1309 and 1312, Revenue Act of 1921]. In , we said: There is no provision in the various Revenue Acts which provides that the Commissioner may not make more than one*3770 assessment in respect of the tax for any year * * *. In , we said: * * * We know of no statute or decision which in this case in any way limits the right of the Commissioner to reopen it [tax liability] as often as he chooses until such time as the statute of limitations has run against him. In support of its position that the tax liability of the petitioner was settled in 1922 by its acceptance of the determination of the Commissioner, the petitioner relies upon the , in which the court held that where an agreement was entered into between a taxpayer and the Commissioner of Internal Revenue, under which the taxpayer accepted a partial disallowance as to compensation, and also received certain concessions as to other disputed items, the benefit of which it still enjoys, the taxpayer may not recover the tax paid on account of the particular item which it regards as unfavorable to its interests, and at the same time hold to the advantage derived from the settlement of other items in dispute involved in the same general settlement. The facts in that case*3771 are, however, totally dissimilar to those which obtain in the present proceeding. In the first place there has been no showing that the petitioner has received any benefits from the settlement reached in 1922 that it was not legally entitled to. Furthermore, if the respondent had received any such benefits it was possible for the petitioner to have raised an issue with *601 respect to them before this Board. No such issue has been raised in this proceeding. So far as the Board is able to determine from the pleadings and evidence adduced before it, the correct tax liability of the petitioner for the fiscal year ended July 31, 1920, is $1,165.11 in excess of the tax already paid by the petitioner. Judgment will be entered for the respondent.