Hodges v. Commissioner

C. S. HODGES, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. Hodges v. Commissioner Docket No. 19083. United States Board of Tax Appeals 14 B.T.A. 664; 1928 BTA LEXIS 2943; December 10, 1928, Promulgated *2943 STATUTE OF LIMITATIONS. - Where an assessment was made in 1919 within the five-year period of limitation provided for by section 250(d) of the Revenue Act of 1918, and the Revenue Act of 1924 was enacted prior to the expiration of an extension of that period under section 250(d) of the Revenue Act of 1921, held, that the Commissioner had six years from date of assessment within which to begin suit or other proceeding for the collection of the tax under section 278(d) of the Revenue Act of 1924, under authority of Art Metal Works,9 B.T.A. 491. The said six-year collection period having been extended by consent in writing until December 31, 1926, and an appeal having been filed with the Board on August 3, 1926, held, collection not barred. Robert P. Smith, Esq., for the petitioner. C. H. Curl, Esq., for the respondent. TRUSSELL *665 This proceeding results from the Commissioner's determination of a deficiency in the amount of $28,079.85 in petitioner's income and surtax for the calendar year 1918. The only issue raised is whether the collection of the said deficiency is barred by the statute of limitations. FINDINGS*2944 OF FACT. Petitioner, a resident of Cyrene, Ga., filed his tax return for the year 1918 on April 15, 1919, he having filed a tentative return prior thereto. The said return showed a tax liability of $3,999.62. On the Commissioner's assessment list of September 23, 1919, there was assessed against petitioner an additional tax in the amount of $80,049.75 for the calendar year 1918. Prior to October 16, 1919, the collector served on the taxpayer a notice and demand for the payment of $80,049.75 additional tax and petitioner then filed a claim in abatement which was taken under consideration by the Commissioner. The petitioner voluntarily executed and filed the following waiver: DECEMBER 10, 1923. INCOME AND PROFITS TAX WAIVER. In pursuance of the provisions of subdivision (d) of Section 250 of the Revenue Act of 1921, C. S. HODGES of Cyrene, Georgia, and the Commissioner of Internal Revenue, hereby consent to a determination, assessment, and collection of the amount of income, excess-profits, or war-profits taxes due under any return made by or on behalf of the said C. S. Hodges for the years 1917 and 1918 under the Revenue Act of 1921, or under prior income, excess-profits, *2945 or war-profits tax Acts, or under Section 38 of the Act entitled "An Act to provide revenue, equalize duties, and encourage the industries of the United States, and for other purposes," approved August 5, 1909. This waiver is in effect for one year from the date it is signed by the taxpayer. (Signed) C. S. HODGES, Taxpayer. (Signed) D. H. BLAIR, Commissioner. On August 27, 1925, a deputy collector served a warrant of distraint on petitioner, who accepted service in the following form: BAINBRIDGE, GA., 8/27/25. COLLECTOR OF INTERNAL REVENUE, Dist. of Ga. DEAR SIR: This is to acknowledge and accept service of Warrant for Distraint #15574, Account No. 1919, Sept. P.O.-L7 for additional income taxes and interest to date in the amount of $112,067.65 for the year 1918 issued against me and served this date by your Deputy, "E. Willard Smith." *666 The above liability is not being settled at the present time due to the final determination of the correct amount from the final result of a protest which is pending in the department at this time. (Signed) C. S. HODGES. Witnessed this 27 day of August, 1925. E. WILLARD SMITH Deputy Collector,*2946 Dist. of Ga. Under date of September 8, 1925, the collector addressed the following communication to petitioner: ATLANTA, GA., September 8, 1925. Mr. C. S. HODGES, Cyrene, Georgia. DEAR SIR: Reference is made to your claim filed for the abatement of $80,049.75, representing an unpaid balance of income tax assessed on the basis of your return for the calendar year 1918. Section 278(d) of the Revenue Act of 1924, provides that where an assessment of tax is made within the time prescribed by law, action to collect such assessment by distraint or Court proceedings must be begun within six years from the date of assessment. The six-year period of limitation in which collection of the amount outstanding against you may be made will expire on September 23, 1925. It is possible you have not received information from the Commissioner of Internal Revenue to the effect that your claim will be allowed in whole or in part, however, no such information has reached this office, and in the absence of an official certification to that effect, I would not be justified in withholding action. I assure you it is not my desire to enforce collection by seizure and sale of sufficient*2947 property to satisfy the outstanding balance until it has been definitely determined that the amount is actually due. There is enclosed an Income and Profits Tax Waiver, which I trust you will execute, extending the time in which distraint or Court proceedings may be begun, to December 31, 1926. By so doing, the Commissioner will be enabled to thoroughly consider your claim. The signing of this Waiver will not in any way affect the favorable consideration of the claim and I will be relieved of the necessity of taking action to recover the amount involved. It is important that the Waiver reach this office not later than September 15, 1925. Yours very truly, (Signed) J. T. ROSE, Collector. In order to prevent seizure of his property under the distraint warrant petitioner executed and filed the following waiver: INCOME AND PROFITS TAX WAIVER SEPT. 12, 1925. In order to enable the Bureau of Internal Revenue to give thorough consideration to any claims for abatement or credit filed by or on behalf of C. S. HODGES, of CYRENE, GEORGIA, covering any income, excess-profits or war-profits tax assessed against the said taxpayer under the existing or prior Revenue Acts*2948 for the year 1918, and to prevent the immediate institution of a proceeding for the collection of such tax prior to the expiration of the six-year period of limitation after assessment within which a distraint or a proceeding in court may be begun for the collection of the tax, as provided in section 278(d) of the existing Revenue Act, the said taxpayer hereby waives any period of limitation *667 as to the time within which distraint or a proceeding in court may be begun for the collection of the tax, or any portion thereof, assessed for the said year, and hereby consents to the collection thereof by distraint or a proceeding in court begun at any time prior to the expiration of this waiver. This waiver is in effect from the date it is signed and will remain in effect until December 31, 1926. (Signed) C. S. HODGES, Taxpayer. (Signed) D. H. BLAIR, Commissioner of Internal Revenue. (Signed) J. T. ROSE, Collector of Internal Revenue. The assessment in the amount of $80,049.75 was reduced and on or about June 4, 1926, the Commissioner mailed the following notice of his final determination of a deficiency in the amount of $28,079.85 for the year 1918: *2949 TREASURY DEPARTMENT, OFFICE OF COMMISSIONER OF INTERNAL REVENUE, Washington. Income Tax Unit IT:R:CC - Certificate of Overassessment Number: 894989 Allowed: $34,969.90 Mr. C. S. HODGES, Cyrene, Georgia. SIR: An audit of your income tax return, Form 1040, and a consideration of all the claims (if any) filed by you for the year 1918 indicates that the tax assessed for this year was in excess of the amount due: Tax assessed #42737 $3,999.62 Additional assessment, Sept. 1919 list, page 0, line 7 80,049.75 Total assessment $84,049.37 Less: Amount previously allowed 17,000.00 Net assessment $67,049.37 Correct tax liability 32,079.47 Overassessment $34,969.90 The amount of the overassessment will be abated, credited, or refunded as indicated below. (You will be relieved from the payment of any amount abated; if an overpayment has been made and other taxes are due, credit will be made accordingly, and any amount refundable is covered by a Treasury check transmitted herewith.) Included in the accompanying check is interest in the amount stated below, allowed on the refund or credit. Respectfully. C. R. NASH, Deputy*2950 Commissioner, Ass't. to the Commissioner. By (Signed) A. LEWIS, Head of Division. Abated: $34,969.90 Instructions executed Signature 6-4-26 (S) J. T. Rose, Coll. Int. Rev. District of Georgia *668 IT:PA:PYA ARM CERTIFICATE OF OVERASSESSMENT In re: C. S. HODGES, Cyrene, Ga. A reaudit was made of your 1918 income tax return in connection with the report of the Internal Revenue Agent in Charge at Atlanta, Ga.; with the valuation report by the Engineering Division on the Timber sold and with your protest and discloses an overassessment as shown above. The above mentioned report has been approved with the exception that the March 1, 1913, value of the timber sold, allowed by the Engineering Division is $380,000.00 instead of $325,000.00 as shown in the previous adjustment of the case. On June 10, 1926, petitioner was served with a second notice and demand for taxes in the amount of $28,079.85 plus interest in the amount of $7,174.40. On August 3, 1926, petitioner filed an appeal with this Board from the Commissioner's notice of June 4, 1926, which was the only notice received by petitioner as to the Commissioner's final determination. *2951 During all the times herein mentioned the petitioner was a resident of Cyrene, Decatur County, Ga., and was within the jurisdiction of U.S. District Court for the middle district of the State of Georgia. On October 17, 1927, no suit or other proceeding had been commenced or was then pending against the petitioner for the collection of internal revenue taxes for the year 1918. OPINION. TRUSSELL: By an amended petition filed shortly before the trial of this action, the petitioner waived all claims of error except that the statute of limitations had run against the collection of any alleged deficiency for the calendar year 1918 and that a certain instrument headed "Income and Profits Tax Waiver" executed September 12, 1925, had been made under duress and was, therefore, ineffective and void. Upon the question of duress we have examined with some care the arguments of counsel and the decisions cited for the petitioner, and we have arrived at the opinion that these precedents and none of them are decisive of the issue in this case. During all the time from October, 1919, to June, 1926, there was pending in the office of the Commissioner a claim for the abatement of part or*2952 all of an assessment of additional taxes against the petitioner in the amount of $80,049.75. On August 27, 1925, a deputy collector called upon and exhibited to the petitioner a warrant of distraint for the collection of said additional assessment of $80,049.75, plus interest aggregating $112,067.65. The deputy did not then make a levy under said warrant but returned to his superior officer with a memorandum signed by the petitioner, and set forth *669 in the findings of fact, which in substance expressed the wish of the petitioner that the warrant be not served until the final result of a protest then pending in the office of the Commissioner. On the following September 8 the collector addressed a letter to the petitioner advising him that the six-year period of limitation for collecting the tax would expire on September 3, 1925, and inviting the petitioner to sign a waiver extending the time for collection, and such waiver is the instrument dated September 12, 1925, which the petitioner now claims to have been executed and delivered under duress. It appears from the findings of fact that the petitioner then on September 12, 1925, fully understood his rights respecting*2953 the matter of the service of the warrant of distraint; that he then believed that the final determination of the Commissioner upon his claim for abatement would furnish him with some relief and that he was then desirous of postponing the collection of the tax until the Commissioner had finally acted upon such claim; and that he signed the instrument of September 12, 1925, for the purpose of securing a postponment of enforced collection and that the consideration for the signing and delivery of said instrument was the granting of an extension of time by the collector, and that by reason of having made such arrangements with the collector the enforced collection of the tax was postponed. The Commissioner later acted upon the claim for abatement and granted relief to the extent of the difference between the $80,049,75 and $28,079.85. In view of these facts we are of the opinion that the instrument of September 12, 1925, was executed and delivered by the petitioner with a full understanding of his then rights and remedies in respect to the collection of the amount then claimed to be owing by him, and that in consideration of the execution and delivery of said instrument he received such*2954 immediate relief as could flow from the making of such an instrument, and we are of the opinion that these facts can not be interpreted to sustain the petitioner's claim that the said instrument was executed under duress and that the said instrument must be held to be a lawful agreement and effective according to its terms. Section 250(d) of the Revenue Act of 1918 provides that, except in the case of fraud, the amount of tax due under any return shall be determined and assessed by the Commissioner within five years after the return was due or was made, and no suit or proceeding for the collection of any tax shall be begun after the expiration of said five years. Petitioner's return was duly filed on April 15, 1919, and the five-year period expired on April 15, 1924. However, section 250(d) of the Revenue Act of 1921 provides that the said five-year period *670 may be extended if both the Commissioner and taxpayer consent in writing to a later determination, assessment and collection of the tax. The waiver or consent duly executed on December 10, 1923, extended the period of limitations until December 10, 1924. On June 2, 1924, within the period of limitations as*2955 extended, the Revenue Act of 1924 was enacted. Section 280 of that Act provides that taxes for prior years shall be computed under the proper prior acts but shall be assessed and collected in accordance with the provisions of the 1924 Act. Section 278(d) of the Revenue Act of 1924 provides that where the assessment of the tax is made within the period prescribed in section 277 (within five years as to taxes for the year 1918) such tax may be collected by distraint or proceeding in court begun within six years after the assessment of the tax. In the case at bar the assessment was made on September 23, 1919. Within six years therefrom and on September 12, 1925, the petitioner and the Commissioner consented in writing to an extension of the six-year collection period until December 31, 1926. On June 4, 1926, the Commissioner completed his consideration of the petitioner's claim for abatement and made a readjustment of petitioner's tax liability reducing the alleged additional tax from the amount of $80,049.75 to $28,079.85, notice of which adjustment was served upon the petitioner on June 10, 1926. Petitioner then filed an appeal with this Board on August 3, 1926. This appeal*2956 was made pursuant to the provisions of sections 274 and 283 of the Revenue Act of 1926, and section 274(a), providing for appeals to this Board, contains the following provision: * * * Except as otherwise provided * * * no assessment of a deficiency in respect of the tax imposed by this title and no distraint or proceeding in court for its collection shall be made, begun, or prosecuted until such notice has been mailed to the taxpayer, nor until the expiration of such 60-day period, nor, if a petition has been filed with the Board, until the decision of the Board has become final. The final action of the Commissioner upon petitioner's claim for abatement and the petitioner's appeal to this Board all occurred during the extended period for collection of the tax agreed to in the instrument of waiver made September 12, 1925, and the petitioner's appeal to this Board immediately had the effect of setting into operation the above-quoted provision of section 274(a) of the Revenue Act of 1926, which automatically suspended any further proceedings in respect to the enforcement of petitioner's tax liability for the year 1918 until such time as the decision of the Board upon the appeal*2957 became final and for 60 days thereafter. In view of all of this record, we are compelled to conclude that the Commissioner's final action and determination upon petitioner's claim for abatement and the Commissioner's notice thereof of June *671 4, 1926, were duly and lawfully made; that upon receipt of petitioner's appeal the Board acquired jurisdiction to redetermine the Commissioner's final action upon the asserted deficiency, and, following the rule of , that the period within which collection of the amount finally redetermined may be made has not and will not expire until the Board's decision shall have become final and for 60 days thereafter. Judgment will be entered for the respondent.