Philadelphia Lawn Mower Co. v. Commissioner

PHILADELPHIA LAWN MOWER CO., PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. Philadelphia Lawn Mower Co. v. Commissioner Docket No. 16750. United States Board of Tax Appeals 16 B.T.A. 435; 1929 BTA LEXIS 2587; May 9, 1929, Promulgated *2587 The petitioner filed an income-tax return under the provisions of the Revenue Act of 1917 for the fiscal year ended October 31, 1918, on December 24, 1918. It filed a return for the same fiscal year under the provisions of the Revenue Act of 1918 on April 25, 1919. On February 20, 1924, an additional assessment for the fiscal year ended October 31, 1918, was made by the respondent. An abatement claim was filed which was rejected in full on April 30, 1926, and the petitioner thereupon instituted this proceeding. Held, that the collection of any additional tax for the fiscal year ended October 31, 1918, is barred by the statute of limitations. Andrew S. Wilson, C.P.A., for the petitioner. Bruce A. Low, Esq., and George S. Herr, Esq., for the respondent. SMITH *435 This proceeding is for the redetermination of a deficiency in income and profits tax for the fiscal year ended October 31, 1918, in *436 the amount of $4,705.17. The petitioner assigns the following as errors: (1) In determining the petitioner's liability to tax for the fiscal year ended October 31, 1918, the respondent erroneously decreased its invested capital*2588 by the amount of $22,742.83 as representing the so-called accumulated depreciation of prior years; (2) The respondent's denial of petitioner's request that its tax liability be computed under the provisions of section 210 of the Revenue Act of 1917 and section 328 of the Revenue Act of 1918; (3) The taxes in question are outlawed and can not be collected. FINDINGS FACT. Petitioner is a Pennsylvania corporation and was in existence for many years prior to the taxable year herein involved. At the beginning of such taxable year the petitioner's books of account showed no reserve for depreciation. In prior years its plant had been closed down for two weeks in each year for the purpose of giving its machinery a general overhauling so that such machinery should be in good condition at all times. The cost of such repairs as were made was always charged to expense. The petitioner at the beginning and close of each year inventoried its physical properties and at the close of each fiscal year the values of its depreciable properties were estimated and any difference between such estimated values and book values was charged to profit and loss. The depreciation which had accrued*2589 up to the beginning of the taxable year had been taken care of by repairs to depreciable property. The book values of the depreciable assets represented their depreciated cost. For the fiscal year ended October 31, 1918, the petitioner set up a reserve for depreciation in the amount of $5,482.51. In the audit of the petitioner's return the Commissioner reduced the claimed value of depreciable assets at the beginning of the taxable year by the amount of $22,742.83, which he determined to be the amount of depreciation which had been sustained upon depreciable assets from the dates of acquirement to the beginning of the taxable year. In October, 1917, the petitioner had outstanding in notes payable the amount of $35,000. During the fiscal year ended October 31, 1918, there were additional notes payable amounting to $47,960 and total payments during that year on account of these notes of $47,960, leaving a balance of notes payable at the end of the year in the amount of $35,000. There was also outstanding at the beginning and close of the taxable year a mortgage payable in the amount of $30,000. The petitioner filed its income and profits-tax return for the fiscal year ended*2590 October 31, 1918, on December 24, 1918. This return showed a net income of $17,062.26. After the enactment of the Revenue *437 Act of 1918 the petitioner filed a second return for the same fiscal year showing the same net income but a different amount of tax due. This return was filed on April 25, 1919. The respondent made an assessment of additional tax for that year on February 20, 1924. The petitioner filed a claim for the abatement of the whole of such additional tax, which claim the respondent denied and mailed the deficiency notice upon which this appeal is based to the petitioner under date of April 30, 1926. An appeal was filed with this Board on June 5, 1926. OPINION. SMITH: The issues in this proceeding are (1) whether petitioner's invested capital should be decreased by the amount of $22,742.83; (2) whether petitioner's tax liability should be computed under the provisions of section 210 of the Revenue Act of 1917 and section 328 of the Revenue Act of 1918; and (3) whether the collection of any deficiency for the fiscal year ended October 31, 1918, is barred by the statute of limitations. Since the third issue goes to the whole of the alleged deficiency*2591 it will be disposed of first. Section 250(d) of the Revenue Act of 1918 provides: Except in the case of false or fraudulent returns with intent to evade the tax, 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 five years after the date when the return was due or was made. In the case of such false or fraudulent returns, the amount of tax due may be determined at any time after the return is filed, and the tax may be collected at any time after it becomes due. Section 250(d) of the Revenue Act of 1921 provides in part: The amount of income, excess-profits, or war-profits taxes due under any return made * * * under prior income, excess-profits, 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, shall be determined and assessed within five years after the return was filed, unless both the Commissioner and the taxpayer consent*2592 in writing to a later determination, assessment, and collection of the tax; and no suit or proceeding for the collection of any such taxes * * * shall be begun, after the expiration of five years after the date when such return was filed * * *. Section 277 of the Revenue Act of 1924 provides in part as follows: (2) The amount of income, excess-profits, and war-profits taxes imposed by the * * * Revenue Act of 1917, the Revenue Act of 1918, and by any such and no proceeding in court for the collection of such taxes shall be begun after the expiration of such period. The record discloses that on December 24, 1918, the petitioner filed an income-tax return under the provisions of the Revenue Act of *438 1917 for the fiscal year ended October 31, 1918. It filed a return for the same fiscal year under the provisions of the Revenue Act of 1918 on April 25, 1919, and a deficiency in respect of its taxes for that fiscal year was assessed against it on February 20, 1924. Counsel for the petitioner alleges that the petitioner and the respondent did not consent to the later collection of the deficiency and that no suit or proceeding has been brought for the collection of the*2593 additional assessment. The respondent does not show that such a consent was entered into; that such a suit or proceeding was begun within five years after the filing of either the first or the second return, or that the petitioner filed a false and fraudulent return. Cf. . In view of the foregoing we are of the opinion that there is no deficiency for the fiscal year ended October 31, 1918, which may be collected from the petitioner. ; . Since this disposes of the whole of the alleged deficiency, cf. , it will not be necessary to consider the remaining issues. Judgment will be entered for the petitioner.