Windfall Grain Co. v. Commissioner

WINDFALL GRAIN COMPANY, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. Windfall Grain Co. v. Commissioner Docket No. 20368. United States Board of Tax Appeals 23 B.T.A. 725; 1931 BTA LEXIS 1833; June 16, 1931, Promulgated *1833 1. Section 611 of the Revenue Act of 1928, applied. 2. Certain waivers for the fiscal year 1918 were obtained after the statutory period for collection had expired, which were accompanied by letters containing certain specific reservations, and while the case for that year was pending before the Board. Held, that under the specific terms of such alleged waivers, as limited by said letters, no rights then barred by limitation were revived. Frank C. Olive, Esq., and George S. Olive, C.P.A., for the petitioner. W. F. Gibbs, Esq., for the respondent. LOVE *725 This proceeding is for the redetermination of deficiencies in income and profits taxes for the fiscal years ended May 31, 1917, and *726 May 31, 1918, in the amounts of $153.06 and $3,286.48, respectively, All of the issues raised in the amended petition were waived by petitioner except the one relating to the statute of limitations. The respondent also determined an overassessment of $2,030.01 for the fiscal year 1919, which he credited against the outstanding assessments for the fiscal years 1917 and 1918. Petitioner asks us to find overpayments for the fiscal years*1834 1917 and 1918 in the amounts so credited, and that the statutory period for the collection of the balance of the 1918 outstanding assessment has expired. FINDINGS OF FACT. Petitioner is an Indiana corporation with its principal office at Elwood, Ind. On May 6, 1918, petitioner filed with the collector of internal revenue for the District of Indiana, its Federal income and profits-tax return for the fiscal year ended May 31, 1917. During March, 1923, the respondent made a jeopardy assessment against petitioner of $289.24 additional taxes for the fiscal year ended May 31, 1917. On March 30, 1923, petitioner filed with the collector of internal revenue a combined abatement and refund claim for the fiscal year ended May 31, 1917, in which it claimed the abatement of the $289.24 assessed during that month, and a refund of at least $5,000 of the original taxes paid. On April 24, 1919, petitioner filed with the collector of internal revenue for the District of Indiana, its Federal income and profits-tax return for the fiscal year ended May 31, 1918. During February, 1924, the respondent made an assessment against petitioner of $3,633.64 additional taxes for the fiscal*1835 year ended May 31, 1918. On March 7, 1924, petitioner filed with the collector of internal revenue an abatement claim for the fiscal year ended May 31, 1918, in which it claimed the abatement of the $3,633.64 assessed during the previous month. On June 12, 1924, petitioner signed and filed with the respondent an instrument captioned "Income and Profits Tax Waiver," which provided as follows: In pursuance of the provisions of subdivision (d) of Section 250 of the Revenue Act of 1921, the Windfall Grain Company of Elwood, Indiana, 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 Windfall Grain Company for the fiscal years ending May 31, 1917, and May 31, 1918, under the Revenue Act of 1921 or 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, *727 and for other purposes" approved August 5, 1909. (This waiver is in effect for one year from the date it is signed*1836 by the taxpayer.) On August 4, 1926, the respondent mailed to petitioner the deficiency letter from which this proceeding was taken. The first paragraph of the letter reads as follows: Your claims for abatement of a deficiency in tax amounting to $289.24 and $3,633.64 assessed against you for the taxable years ended 5/31/17 and 5/31/18, respectively, have been carefully considered by this office, and it is proposed to allow the said claims for $136.18 and $347.16 and to reject them for $153.06 and $3,286.48, as computed upon the enclosed statement. The respondent also determined in his said letter of August 4, 1926, that petitioner was entitled to a refund of taxes overpaid for the fiscal year ended May 31, 1919, in the amount of $2,030.01. On November 11, 1926, the collector of internal revenue, without receiving any instructions from petitioner, applied or credited $153.06 of the overpayment for the fiscal year 1919 against the unabated and unpaid portion of the March, 1923, assessment for the fiscal year 1917, and also applied or credited the balance of the overpayment for the fiscal year 1919, or $1,876.95, against the entire February, 1924, assessment of $3,633.64, *1837 for the fiscal year 1918, thereby "leaving a balance outstanding which had not been abated or satisfied, amounting to $1,756.69." (The matter in quotation marks is taken from the stipulation of the parties. It is not clear why the collector did not give effect to the respondent's proposed allowance of an abatement of 1918 taxes in the amount of $347.16, which would have reduced the amount of $1,756.69 to $1,409.53.) On November 27, 1928, petitioner signed and filed with the respondent an instrument captioned "Tax Collection Waiver," which provided as follows: It is hereby agreed by and between Windfall Grain Company of Windfall, Indiana, party of the first part, and the Commissioner of Internal Revenue, party of the second part, that the amount of $1,756.69, representing an assessment of additional income tax for the year(s) Fiscal 5/31/1918 made against the said party of the first part, appearing on the 1924 Com's Feby 101 Spl #5 assessment list, page , line , for the district of Indiana, may be collected (together with such interest, penalties, or other additions as are provided for by law) from said party of the first part by distraint or by proceeding in court begun at any*1838 time prior to December 31, 1929. In forwarding the aforesaid waiver to the respondent, petitioner accompanied the waiver with a letter to the collector dated November 27, 1928, the contents of which are as follows: You have requested that we execute a tax collection waiver authorizing the Commissioner of Internal Revenue to collect an additional tax of $1,756.69, * * * We understand that unless we execute said waiver immediately you will issue a warrant of distraint against our property and collect said alleged tax with interest. *728 Our tax liability for said year, as you already know, including the above alleged tax liability, is involved in our appeal to the United States Board of Tax Appeals, Docket No. 20368, which appeal is now pending before said Board. In view of the provisions of Section 274(a) of the Revenue Act of 1926, and of Section 272(a) of the Revenue Act of 1928, which provide that no distraint or proceeding in court for the collection of taxes involved in proceedings before the Board of Tax Appeals shall be made, begun or prosecuted until the decision of the Board has become final, we believe that your threatened action of distraint is illegal. *1839 In order to prevent our property from being seized under a warrant of distraint, however, we have executed and enclose herewith, under protest, the tax collection waiver which was demanded, which, however, is being given to you and accepted by you with the understanding that if the right or power of the Commissioner of Internal Revenue to collect said taxes has heretofore expired by reason of the provisions of the various statutes of limitations prescribed in the several Acts of Congress under which said tax is or might be collectible, or if the liability therefor has heretofore become extinguished by virtue of the provisions of Section 1106(a) of the Revenue Act of 1926, the execution and delivery of said tax collection waiver shall not operate to revive such right or power in the Commissioner, but shall operate merely to extend the rights or powers which the Commissioner of Internal Revenue already has. On December 27, 1929, petitioner signed and filed with the respondent a "Tax Collection Waiver" the provisions of which were identical with the one filed on November 27, 1928, except that the time within which collection might be made was extended to December 31, 1930. In*1840 forwarding the aforesaid waiver to the respondent, the petitioner accompanied the waiver with a letter to the acting collector, dated December 27, 1929, the contents of which were identical with petitioner's letter to the collector dated November 27, 1928. At the hearing held before this Board on June 11, 1930, counsel for the respondent dictated into the record the following admissions: I admit that the respondent has never attempted to collect taxes involved in this appeal by distraint, nor has he ever instituted any proceeding in court for the collection thereof. I further admit that the respondent has not proposed any penalties for the filing of false or fraudulent returns with intent to evade the tax for either of the taxable years in controversy, and none of the alleged deficiencies are attributable to a change in the deduction tentatively allowed under paragraph 9 of sub-division (a) of Section 214, or paragraph 8, sub-division (a) of Section 234 of the Revenue Act of 1918, or the Revenue Act of 1921. OPINION. LOVE: The only issue remaining to be decided in this proceeding is whether the collection of the deficiencies of $153.06 and $3,286.48 for the fiscal years*1841 ended May 31, 1917, and May 31, 1918, respectively, is barred by the statute of limitations applicable thereto. We will consider the question first as it relates to the fiscal year 1917. *729 The 1917 returns were filed on May 6, 1918. Under section 250(d) of the Revenue Act of 1921, the five-year period for the collection of the taxes for 1917 expired on May 6, 1923. This condition continued and existed on June 2, 1924, the date the Revenue Act of 1924 was approved. The six-year period for collection after assessment provided for in section 278(d) of the Revenue Act of 1924, was not, therefore, applicable. See section 278(e) of the Revenue Act of 1924, and . When petitioner, on June 12, 1924, signed the consent in writing provided for in section 250(d) of the Revenue Act of 1921, and section 278(c) of the Revenue Act of 1924, it again revived the liability and extended the time for collection until June 12, 1925, inclusive. . The period for the collection of the taxes for 1917 again expired on June 12, 1925. *1842 This condition continued and existed on August 4, 1926, the date the respondent mailed to petitioner the deficiency letter, on October 4, 1926, the date petitioner filed its petition for a redetermination with this Board, and on November 11, 1926, when the collector applied or credited $153.06 of the overassessment for the fiscal year 1919 against the then unabated and unpaid portion of the March, 1923, assessment for the fiscal year 1917. The action of the collector taken on November 11, 1926, amounted to a payment on that date of the deficiency of $153.06 here in question. ; affirmed by the Supreme Court in . Under section 611 of theRevenue Act of 1928, a payment made under the circumstances recited in our findings "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 assessment and collection." In this connection the Supreme Court, in *1843 , said: There is also a contention that section 611 does not apply when the tax was paid by the credit of the amount of an overpayment for another taxable year. But the application of a credit against an assessment at a time when collection was barred must be regarded as an erroneous collection, and we see no reason for taking such a case out of the statute. Petitioner has placed some reliance upon the fact that the credit made by the collector on November 11, 1926, was made while section 1106(a) of the Revenue Act of 1926 was in effect. This distinction does not affect the result. See , in which the Supreme Court said: The Congress had constitutional authority in the circumstances set forth in section 611 of the Revenue Act of 1928 to cure the defect in administration which had resulted in the collection of the tax after the statute of limitations had run and to deny recovery to the taxpayers for the amount paid. The fact that section 1106(a) of the Revenue Act of 1926 was in effect at the time of the collection is a distinction which does not affect the result. *1844 *730 The deficiency of $153.06 for the fiscal year 1917 has been paid and we know of no provision of law that would authorize its return to this petitioner. All that we have said with respect to the deficiency for the fiscal year 1917, applies with equal force to the amount of $1,876.95 which the collector, on November 11, 1926, applied or credited against the February, 1924, assessment of additional taxes for the fiscal year 1918. It only remains for us to determine whether the collection of the balance of the February, 1924, assessment of additional taxes for the fiscal year 1918, of $1,756.69 (or perhaps $1,409.53, if it becomes necessary to decide the exact amount) is at the present time barred by the statute of limitations applicable thereto. Petitioner contends that in accordance with the provisions of the letters by which the two tax collection waivers were transmitted to the collector, the said waivers did not revive any right or power of the respondent to collect any tax with respect to which the statutory period for collection had expired, but merely operated to continue such rights or powers of collection as the respondent already possessed. At the time*1845 the alleged waiver here in question was signed and delivered, (November 27, 1928) the case of , had not been decided by the Supreme Court, and the legal right of the Commissioner to collect, within six years, a tax timely assessed, was openly asserted. That the petitioner did not intend to revive a right to collect a tax at that time barred by the statute of limitation, is manifest from the explicit terms of the letter which accompanied the alleged waiver. By accepting that alleged waiver, limited as it was by the accompanying letter, the collector and the Commissioner were fully informed of petitioner's purposes and intent, were not in any manner misled, and lost no right which the Government then possessed. Under such circumstances, to hold that the document did revive the cause of action would be imputing to it a meaning wholly repugnant to its explicit terms. That the letter accompanying the alleged waiver formed a part of that document, and should be considered in connection with it, is fully authorized, as is clearly indicated in Ruling Case Law, vol. 6, p. 850, par. 240, and cases therein cited. In this view of the*1846 matter, it is unnecessary to discuss the question of duress. It follows that the collection of the balance of the February, 1924, assessment of additional taxes for the fiscal year 1918 is now barred by the statute of limitation applicable thereto. Reviewed by the Board. Judgment of no deficiency will be entered.