Knight-Campbell Music Co. v. Commissioner

KNIGHT-CAMPBELL MUSIC COMPANY, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. Knight-Campbell Music Co. v. Commissioner Docket Nos. 35326, 36934, 37943, 41944. United States Board of Tax Appeals 23 B.T.A. 1234; 1931 BTA LEXIS 1747; July 22, 1931, Promulgated *1747 1. A waiver entered into between the parties after the period of limitation had expired and subsequent to the passage of the Revenue Act of 1926 and prior to the Revenue Act of 1928, is ineffective, since section 1106 of that act extinguished both the right and the remedy. Steiner Manufacturing Co.,18 B.T.A. 740; United States Refractories Corporation,23 B.T.A. 872, followed. 2. Where taxes were assessed before June 2, 1924, claims in abatement filed, collection stayed and payment of part of the amount assessed made within one year after the Revenue Act of 1928 was enacted, held, that section 611 of the Revenue Act of 1928 bars the recovery by the taxpayer of the amount so paid. Graham v. Goodcell,282 U.S. 409. 3. Where the period for collection of unpaid taxes for the fiscal year 1920 and the period ending December 31, 1920, which had been timely assessed, expired while the Revenue Act of 1926 was in effect, and a waiver further extending the time for collection was executed after the enactment of the Revenue Act of 1928 and before January 1, 1929, it is held that the effect of such waiver under section 506*1748 of the Revenue Act of 1928 is to remove the bar laid down by the Revenue Act of 1926 and permit subsequent collection, within the time as extended by the waiver. F. A. Gillespie,20 B.T.A. 1068, followed. Allen G. Gartner, Esq., and Leon E. Williams, C.P.A., for the petitioner. J. E. McFarland, Esq., for the respondent. BLACK *1235 In these proceedings, which have been consolidated for hearing and decision, the petitioner seeks a redetermination of its tax liability for the fiscal year ending April 30, 1920, the eight-month period ended December 31, 1920, and for the calendar years 1923, 1924 and 1926, for which periods the respondent has determined the following deficiencies: for the fiscal year ended April 30, 1920, $7,586.24; the period ended December 31, 1920, $2,061.75; for the calendar year 1923, $1,735.53; for the calendar year 1924, $5,336.41; and for the calendar year 1926, $1,203.07. At the hearing all the issues raised in Docket Nos. 36934, 37943 and 41944, pertaining to the calendar years 1923, 1924 and 1926, were abandoned, as well as all the issues in Docket No. 35326, except the following: 1. The right*1749 of the respondent to assess and collect the deficiency of $2,061.75 for the eight-month period ended December 31, 1920. 2. The right of the respondent to collect the amount of $14,223.25, which he did collect September 1, 1928, and December 30, 1929, representing that portion of the tax shown on the original return covered by the claim in abatement filed June 2, 1924, for the fiscal year ending April 30, 1920. 3. The right of the respondent to collect that portion of the tax shown on the original return in the amount of $3,631.85 for the eight-month period ended December 31, 1920, which he did collect December 30, 1929, which was also covered by a claim for abatement filed June 2, 1924. FINDINGS OF FACT. The petitioner is a corporation organized under the laws of the State of Colorado, with its principal office in Denver. The petitioner filed its original income-tax return for the fiscal year ended April 30, 1920, with the Collector's office in Denver on August 18, 1920. The tax shown on the return was assessed September 28, 1920, in the amount of $21,136.94, of which $6,913.91 was paid August 18, 1920; $1,949.27 was collected September 1, 1928; and the balance of*1750 $12,273.98 was collected by distraint proceedings on December 30, 1929. On October 15, 1920, a claim for credit of $14,223.25 was filed, based on an alleged overpayment for a prior *1236 year. The respondent rejected this claim on March 31, 1924. On May 12, 1924, demand was made for payment of $14,223.25, the amount of the claim for credit. A claim for abatement in the same amount was filed on June 2, 1924. The abatement claim was rejected in a letter dated December 28, 1927. The original return for the period ended December 31, 1920, was filed in the office of the Collector in Denver on April 15, 1921, and the tax shown thereon was assessed June 18, 1921, in the amount of $17,437.27. All of this amount was paid except $3,631.85, which was covered by a claim for credit filed April 14, 1921, based upon alleged overpayments for prior years. This claim was rejected by the respondent on March 31, 1924, and demand for payment was made on May 12, 1924. A claim for abatement of $3,631.85 was filed on June 2, 1924, and notice of rejection of this latter claim was given by the respondent in his letter to the petitioner dated December 28, 1927. The $3,631.85 was collected*1751 by distraint proceedings December 30, 1929. The petitioner filed with the respondent a number of waivers for the extension of both assessment and collection of the taxes here in controversy. As these waivers were all on the customary forms, it is not deemed necessary to set out their text in full. Assessment waivers. On July 17, 1925, a waiver dated July 14, 1925, was filed with the respondent. This instrument relates only to the fiscal year ended April 30, 1920, and extends the period for making assessment due on the return for that year to December 31, 1926. It was duly signed by the taxpayer and the Commissioner. Petitioner in this proceeding is not raising any question as to the right of the Commissioner to assess and collect the deficiency for the fiscal year ending April 30, 1920, covered by this waiver. On December 1, 1926, a waiver dated September 23, 1926, was received by the "Agent in Charge, Denver Division." This instrument was received by the "Consolidated Returns Audit Division, Administrative Section," on December 21, 1926. It relates to the taxable years 1919 to 1922, inclusive, and extends the time for making assessments for these respective years*1752 to December 31, 1927. It is signed by the taxpayer and the Commissioner. Collection waivers. On September 17, 1925, the petitioner, by its president, signed a waiver for the fiscal years ending April 30, 1918, 1919 and 1920, extending the time for collection of any taxes for these periods until *1237 December 31, 1926. This instrument was not signed for or on behalf of the respondent by any one, but the respondent offered in evidence in connection therewith the following undated typewritten statement: Waiver of September 15, 1925, of the Knight-Campbell Music Company, of Denver, Colorado, for the periods ending April 30, 1918, 1919 and 1920, is hereby formally accepted. (Signed) ROBERT H. LUCAS, Commissioner, By F. W. HOWBERT, Collector. The above typewritten statement was signed for and on behalf of the Commissioner sometime in 1929. The exact date of signing is not shown by the evidence. On November 8, 1926, the petitioner signed a tax collection waiver, consenting to the extension of the period for the collection of the $14,223.25 assessed for the taxable year ended April 30, 1920, and covered by a claim for abatement then on file until December 31, 1927. *1753 This instrument was also signed by the Commissioner. It was received on December 24, 1926, by "Consolidated Returns, Audit Division, Administrative Section." On December 5, 1927, the petitioner signed a tax collection waiver, agreeing to the extension of time for collection of $14,223.35 and $3,631.85 until December 31, 1928, representing assessments for the year ended April 30, 1920, and the period ended December 31, 1920, for which claims of abatement were then on file. This waiver was signed for the Commissioner as follows: Commissioner of Internal Revenue. By F. W. HOWBERT, Collector of Internal Revenue. It will be seen that the name of the Commissioner does not appear on this waiver. It was received by the Collector of Internal Revenue, District of Colorado, December 17, 1927. On December 12, 1928, by a tax collection waiver signed by petitioner and the Commissioner, the time for the collection of $12,273.98 assessed for the fiscal year ended April 30, 1920, and $3,631.85 assessed for the period ended December 31, 1920, was extended until December 31, 1929. This instrument was received by the "Special Advisory Committee" February 26, 1929. In a letter dated*1754 May 29, 1924, addressed to the Collector of Internal Revenue, Denver, Colorado, the petitioner stated, with reference to the claims for abatement which it was then filing, as follows: Our records show that Claim for Credit in the sum of $14,223.25 against unpaid assessment for the fiscal year ended April 30, 1920, was filed on October 12, 1920, because of alleged overpayment of income and excess profits taxes as disclosed by amended returns for prior years. The Claim for Abatement which we are handing you herewith takes the place of this original Claim for Credit. This condition is also disclosed by the letter from the Commissioner *1238 under date of February 26, 1924, in which the taxpayer is advised that Claim for Credit in the sum of $14,223.25 is rejected. The Claim for Abatement in the sum of $3,631.85 is to take the place of two Claims for Credit filed on April 14, 1921, against unpaid assessment for the eight months period ended December 31, 1920, these two Claims for Credit having been in the sums of $2,460.41 and $1,171.44. This condition is also borne out by the letter from the Commissioner of Internal Revenue under date of February 26, 1924, which shows the*1755 rejection of Claims for Credit in the sums of $2,460.41 and $1,171.44. The notice of deficiency covering the fiscal year ended April 30, 1920, and the eight-month period ended December 31, 1920, was dated December 28, 1927. OPINION. BLACK: As has already been stated in our preliminary statement, the petitioner has waived all contentions as to the assessment and collection of the deficiencies asserted by the Commissioner for all years involved in this proceeding except the eight-month period ending December 31, 1920. We will, therefore, take up the remaining issues raised by petitioner in their order. The first is the right of the respondent to assess and collect the deficiency of $2,061.75 for the eight-month period ended December 31, 1920, the petitioner contending that the statute of limitations has tolled the assessment and collection of any deficiency for this period. The petitioner filed its return for the eight-month period ended December 31, 1920, on April 15, 1921. Sections 250(d) of the Revenue Acts of 1918 and 1921, and sections 277(a)(3) of the Revenue Acts of 1924 and 1926, impose a five-year limitation upon the assessment and collection of taxes under*1756 the 1918 Act, the statute running from the date the return was filed. The five-year period of limitations for assessing and collecting a deficiency from petitioner under its return filed April 15, 1921, expired on April 15, 1926. On September 23, 1926, after the passage of the Revenue Act of 1926, and also after the five-year period for assessment and collection had expired, the petitioner and respondent entered into a consent in writing for the first time for a later assessment of any deficiency for the fiscal year ending December 31, 1920. In , we considered a similar situation and there said: The aforesaid consent was ineffective to extend the period of limitations because at the time entered into both the right and the remedy had been extinguished by the enactment of section 1106 of the Revenue Act of 1926. , and , and the repeal of that section by section 612 of the Revenue Act of 1928 "did not revive a dead liability or create a new obligation." *1757 . *1239 Accordingly, as to this issue decision will be entered for the petitioner. Cf. ; . We will next take up issue No. 2, wherein the petitioner questions the action of the Commissioner in the collection of $14,223.25, representing unpaid taxes assessed on petitioner's original return for the fiscal year ending April 30, 1920, and not paid at the time of the filing of said return because petitioner filed a claim for credit on account of alleged overpayments for prior years, which claim was subsequently disallowed by the Commissioner, whereupon petitioner filed a claim for abatement June 2, 1924, and for a time stayed the collection of the tax. For the fiscal year 1920, the tax shown on the return was assessed shortly after the return was filed August 18, 1920, in the amount of $21,136.74, of which $6,913.91 was paid August 18, 1920, leaving a balance due of $14,223.25. Of this latter amount, $1,949.27 was collected September 1, 1928, and the remainder*1758 of $12,273.98 was collected by distraint proceedings on December 30, 1929. Under the Revenue Act of 1918 and subsequent acts, the period in which collection of this unpaid balance of $14,223.25 must be made was five years from the time of filing the return, which in the instant case was August 18, 1920. In ordinary course, therefore, without the intervention of waivers, collection of this balance would be barred August 18, 1925. September 17, 1925, a collection waiver signed by the taxpayer, covering the period involved, was filed with the Collector at Denver, Colo. This waiver, if not otherwise invalid, although signed by petitioner after collection of the tax was barred by the statute of limitations, was good to revive the liability, section 1106 of the 1926 Act, extinguishing the liability, not yet having been enacted. ; . But this waiver was invalid for any purpose because it was not signed by the Commissioner and was not formally accepted by him until 1929, long after the time for which the waiver was to run had expired. *1759 ; The collection of this $14,223.25 was therefore barred when the Act of 1926 was enacted and by virtue of section 1106 of that act, the liability was extinguished. Hence, the collection waivers of November 8, 1926, and December 5, 1927, were ineffective and did not revive the collection of an amount which was already barred prior to the enactment of the 1926 Act and which was extinguished by section 1106 of said act. ;; *1240 But since the collection of this $14,223.25 had been stayed by the filing of a claim for abatement, we must consider the effect of section 611 of the Revenue Act of 1928, which reads: SEC. 611. COLLECTIONS STAYED BY CLAIM IN ABATEMENT. If any internal-revenue tax (or any interest, penalty, additional amount, or addition to such tax) was, within the period of limitation properly applicable thereto, assessed prior to June 2, 1924, and if a claim in abatement was filed, with or without bond, *1760 and if the collection of any part thereof was stayed, then the payment of such part (made before or within one year after the enactment of this Act) shall not be considered as an overpayment under the provisions of section 607, relating to payments made after the expiration of the period of limitation on as essment and collection. The $1,949.27 which was collected September 1, 1928, was collected within one year after the enactment of the Revenue Act of 1928, and hence comes within the provisions of section 611. The United States Supreme Court in the case of , discussed at length section 611 and the situations which it covered, as well as its relation to section 607 of the same act. Section 611 enacts a qualification by providing that in stated circumstances the payment of the tax shall not be considered an overpayment under the provisions of section 607. These circumstances are (a) an assessment of the tax within the time applicable thereto and before June 2, 1924, (b) the filing of a claim in abatement, (c) the stay of the collection of any part of the tax, and (d) the payment of such part of the tax before, or within one*1761 year after, the enactment of the Act of 1928. See also , decided the same day by the Supreme Court. Accordingly, as to the amount of $1,949.27, the petitioner is now barred from any recovery. We now turn to the amounts of $12,273.98, unpaid balance of the tax for fiscal year ending April 30, 1920, and $3,631.85, unpaid balance of the tax for the eight-month period beginning May 1, 1920, and ending December 31, 1920, which were collected by distraint proceedings on December 30, 1929, a date which precludes their inclusion within the terms of section 611 of the Revenue Act of 1928. Both of these amounts were included in the assessments made shortly after the filing of the original returns. The collection of both these amounts was barred at the time the Commissioner collected them by distraint, for reasons which we have already enumerated, unless revived by the collection waiver of December 12, 1928, which was signed by both the taxpayer and the Commissioner and by its express terms included both the amounts of $12,273.98 and $3,631.85 and extended the time for the collection thereof until December 31, 1929. *1762 Prior to the signing of this waiver, the Revenue Act of 1928 had been enacted, which by its express terms repealed section 1106 of the Revenue Act of 1926. *1241 Prior to the execution of this collection waiver of December 12, 1928, section 506 of the Revenue Act of 1928 had been enacted, which reads: (a) Section 278(c) and (d) of the Revenue Act of 1926 are amended to read as follows: "(c) Where before the expiration of the time prescribed in section 277 for the assessment of the tax, both the Commissioner and the taxpayer have consented in writing to its assessment after such time, the tax may be assessed at any time prior to the expiration of the period agreed upon. The period so agreed upon may be extended by subsequent agreement in writing made before the expiration on the period previously agreed upon. "(d) Where the assessment of any income, excess-profits, or war-profits taxes imposed by this title or by prior Act of Congress has been made (whether before or after the enactment of this Act) within the period of limitation properly applicable thereto, such tax may be collected by distraint*1763 or by a proceeding in court (begun before or after the enactment of this Act), but only if begun (1) within six years after the assessment of the tax, or (2) prior to the expiration of any period for collection agreed upon in writing by the Commissioner and the taxpayer before the expiration of such six-year period. The period so agreed upon may be extended by subsequent agreements in writing made before the expiration of the period previously agreed upon." (b) Section 278 of the Revenue Act of 1926 is further amended by adding at the end thereof a new subdivision to read as follows: "(f) Any agreement which would be within the provisions of subdivision (c) or (d) of this section but for the fact that it was executed after the expiration of the period of limitation extended by such agreement, shall be valid and effective according to its terms if entered into after the enactment of the Revenue Act of 1928 and before January 1, 1929." (c) The amendments made by this section to the Revenue Act of 1926 shall not be construed as in any manner affecting the validity of waivers made prior to the enactment of this Act, which shall be determined according to the law in existence at*1764 the time such waiver was filed. We direct particular attention to subdivision (b) of the above quoted section. We think the waiver dated December 12, 1928, extending the time for the collection of said amounts falls squarely within the above quoted language and that the collections made by the Commissioner under distraint warrant December 30, 1929, were not barred by the statute of limitations. The facts in respect to this particular phase of petitioner's case are very similar to those which we had before us in , in which we said: "As set out above, the facts in this case exactly fit in the provisions of section 278(f) of the Revenue Act of 1926, as amended by section 506(b) of the Revenue Act of 1928, and we hold that the waiver dated December 4, 1928, serves to extend the time for collection of additional tax assessed for 1917." Accordingly, on this issue, we hold in favor of respondent. Decision will be entered under Rule 50.