Peerless Iron Pipe Exch. v. Commissioner

PEERLESS IRON PIPE EXCHANGE, INC., PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. Peerless Iron Pipe Exch. v. Commissioner Docket No. 44755. United States Board of Tax Appeals 23 B.T.A. 900; 1931 BTA LEXIS 1803; June 29, 1931, Promulgated *1803 Petitioner filed a consolidated return for itself and another company for the year 1921, setting forth the assets and liabilities, the gross income, the expenses and profits, and the taxable income of each company, separately and in combination. No information return on Form 1122 was filed. Based upon the consolidated return, the respondent assessed a deficiency tax against the subsidiary company, which was never collected. Later, and more than five years after petitioner had filed its return, respondent determined a liability against petitioner as transferee of the assets of the other company. Held, that the assessment of the proposed liability is barred by the statute of limitations. Paul E. Shorb, Esq., for the petitioner. James R. Johnson, Esq., for the respondent. MARQUETTE *900 This proceeding is for the redetermination of a liability as transferee of the Rochester War Salvage Company asserted by the respondent for the year 1921 in the amount of $13,926.25. The only issue involved is whether the assessment of such liability is barred by the statute of limitations. FINDINGS OF FACT. The petitioner is a corporation located*1804 in New York City. On November 16, 1923, the petitioner filed a corporation income and profits-tax return on Form 1120 for the calendar year 1921. It was filed as a consolidated return for the petitioner and the Rochester War Salvage Company, and was signed and verified by Charles A. Levine, president and treasurer of Peerless Iron Pipe Exchange, Inc. The return contained schedules of the gross income, of the expenses, and of the assets and liabilities of each company, separately, in a consolidated balance sheet; the return also set forth the taxable net income of each company, separately, in a combined profit and loss statement. No separate return for the year 1921 was filed by the Rochester War Salvage Company, and no information return on Form 1122 was filed. *901 On June 15, 1923, the Columbia Salvage Corporation filed a separate corporation return for the year 1921 on Form 1120. On April 19, 1924, petitioner filed an amended return on Form 1120 for the year 1921. It was filed as a consolidated return for Rochester War Salvage Company, Columbia Salvage Corporation, and the petitioner. It was signed and verified by Charles A. Levine, president and treasurer of*1805 the petitioner. Under date of December 8, 1925, the respondent mailed a 30-day letter to petitioner, advising it of a proposed determination of overassessment for 1920, and an additional tax, amounting to $15,155.66, for the year 1921. The letter was based upon a revenue agent's report on the amended consolidated return filed April 19, 1924. Petitioner filed a protest, which was considered at a conference held on February 25, 1926. On March 2, 1926, respondent notified petitioner by letter that the amount of the proposed additional tax for 1921 was not changed, but that it would be allocated as follows: Additional tax. Peerless Pipe Exchange, Inc None. Columbia Salvage Corporation $4,498.48 Rochester War Salvage Co 10,657.18 Total additional tax 15,155.66 On April 15, 1926, respondent mailed a 60-day letter to Rochester War Salvage Company, advising it of an assessment against it, in the amount of $10,657.18 for deficiency in income tax for 1921. The company took no appeal. No court proceeding against that company has been begun for the collection of said deficiency. On april 4, 1929, respondent mailed to petitioner a 60-day letter advising*1806 it of a proposed additional tax for 1921 in the amount of $13,926.25, on the ground that petitioner was a transferee of the assets of Rochester War Salvage Company. The petitioner did take over the assets and assume the then outstanding liabilities of the Rochester company on December 31, 1922. No part of said liability has yet been assessed against the petitioner as such transferee. OPINION. MARQUETTE: The respondent bases his determination of liability on the ground that petitioner was a transferee of the assets of the Rochester War Salvage Company, and contends that petitioner's consolidated return for the year 1921, unaccompanied by one on Form 1122, and executed by the officers of the Rochester company, did not comply with the law so as to make it a return for the latter company. Hence, he says, the return filed by the petitioner did not *902 start the running of the statute of limitations against the Rochester War Salvage Company. Section 240(e) of the Revenue Act of 1921, provides: (e) Corporations which are affiliated within the meaning of this section shall make consolidated returns for any taxable year beginning prior to January 1, 1922, in the same manner*1807 and subject to the same conditions as provided by the Revenue Act of 1918. It is provided in section 240(a) of the 1918 Revenue Act that: (a) * * * corporations which are affiliated within the meaning of this section shall, under regulations to be prescribed by the Commissioner with the approval of the Secretary, make a consolidated return of net income and invested capital for the purposes of this Title and Title III, and the taxes thereunder shall be computed and determined upon the basis of such return; * * * Regulations 45, promulgated by the Commissioner and approved by the Secretary of the Treasury, and relating to the 1918 Act, provides as follows: ART. 632. - Consolidated returns. - Affiliated corporations, as defined in the statute and in article 633, are required to file consolidated returns on form 1120. The consolidated return shall be filed by the parent or principal corporation in the office of the collector of the district in which it has its principal office. Each of the other affiliated corporations shall file in the office of the collector of its district form 1122, along with the several schedules indicated thereon. * * * The respondent does not*1808 contend that because of the failure to file a return on Form 1122 he was unable to determine the amount of income tax due either from the petitioner or from the Rochester War Salvage Company. Indeed, the facts show that the consolidated return filed by the petitioner furnished the respondent with information as to the assets and liabilities, the gross income and the expenses of both companies; and it gave him the name and address of the parent company. The information in that return as amended to include also the Columbia Salvage Corporation was the basis upon which the respondent determined and assessed a deficiency against the Rochester War Salvage Company, and also the liability here involved. It is quite apparent, therefore, that the failure to file a return on Form 1122 did not in any way hinder or defeat the respondent in the performance of his duties, and that such failure is, at best, only a technicality in the present instance. No charge is made that petitioner was lacking in good faith when it filed its consolidated return. In many decisions, both by this Board and by the courts, it has been held that where a taxpayer in good faith files a return, the fact that such*1809 return may have been defective in some respects did not prevent the running of the statute of limitations from the date *903 of such filing. Mabel Elevator Co.,2 B.T.A. 517; sustained in United States v. Mabel Elevator Co., 17 Fed.(2d) 109; Stetson & Ellison,11 B.T.A. 397; affd., 43 Fed.(2d) 553. In the latter case it appeared that although the gross income, deductions and credits of the taxpayer were included in a consolidated return, its figures could not be separately identified from the face of the return. In holding that such consolidated return was sufficient to start the running of the statute of limitations, we said: Where a consolidated return has been prepared and filed in good faith and the names of the companies included in the consolidation are made clear to the respondent, and all of the "items of gross income and the deductions" are included therein, although said items of income and deductions may not be in sufficient detail to enable the respondent to accurately compute the tax against each of the companies there is a "substantial" compliance with the statute. *1810 That decision was affirmed by the Circuit Court of Appeals for the Third Circuit. The court gave consideration to Lucas v. Pilliod Lumber Co.,281 U.S. 245, and to Florsheim Bros. Dry Goods Co. v. United States,280 U.S. 453, the cases upon which respondent relies in the present proceeding, but found that they were not controlling. In the case of Florsheim Bros. Co., it was held that the filing of a tentative return, on Form 1031-T, did not start the running of the period of limitation, for the reason that: As Form 1031-T made no reference to income, or to deductions or credits, it could not have been intended as the return "stating specifically the items of * * * gross income, and the deductions and credits" * * * the return required to satisfy the statute. In the case of the Pilliod Lumber Co., a tentative return was filed on Form 1031-T, properly signed and sworn to by the president and the treasurer of the company. Later the company filed a return on Form 1120, giving items respecting gross income, deductions, credits, etc., but not signed or sworn to by anyone. The Supreme Court held, following its decision in *1811 Florsheim Bros. Co., supra, that the statute of limitations did not start running with the filing of the tentative return. It also held that filing the later return did not start the running of the statute, for the reason that such return was neither signed nor sworn to as the law requires. In the present proceeding the return in question was not a tentative return on Form 1931-T, but was a full and complete return on Form 1120; it contained the items of gross income, and the deductions and credits, for both the petitioner and the Rochester War Salvage Company, and it was signed and sworn to by the petitioner's president and treasurer. These facts distinguish it from the Florsheim Bros. Co. case and the Pilliod Lumber Co. case, supra, and from Lucas v. Colmer-Green Lumber Co., 49 Fed.(2d) 234. *904 But it may be urged that the Stetson & Ellison decision does not apply here, for the reason that in that proceeding a return on Form 1122 was filed. The only information to be gained from such a return which was not supplied by the consolidated return of the present petitioner would be the place and date of incorporation*1812 of the subsidiary company and the amount and par value of its capital stock. As we have already pointed out, the lack of such information did not prevent, and apparently did not hinder, the respondent from finding, and assessing, a deficiency against the subsidiary, and no complaint is made on that score. The purpose and function of all income-tax returns, on whatever form, is to furnish such information as will enable the respondent to proceed intelligently in determining the proper amount of tax to be assessed. In our opinion that was done by the petitioner when, in November, 1923, it filed its consolidated return. The requirements of the statute were thereby substantially complied with, sufficient to start the running of the statute of limitations. Mabel Elevator Co., supra; Stetson & Ellison, supra;F.A.Hall Co.,3 B.T.A. 1172; Kellogg Commissioner Co.,6 B.T.A. 771; Myles Salt Co. v. Commissioner of Internal Revenue, 49 Fed.(2d) 232. And the fact that an amended return was filed later does not start anew the running of the statute of limitations, nor extend its period. *1813 Kellogg Commission Co., supra;Belle R. Weaver,4 B.T.A 15; Lancaster Lens Co.,10 B.T.A. 1153; Northern Anthracite Coal Co.,21 B.T.A. 1116. Section 277(a)(2) of the Revenue Act of 1926; provides that: That amount of income, excess-profits and war-profits taxes imposed by the Revenue Act of 1921, and by such Act as amended, for the taxable year 1921 and succeeding taxable years * * * shall be assessed within four years after the return was filed * * *. By section 280(b) of the same act it is provided that the period of limitation for assessment of liability of a transferee of property of a taxpayer shall be "within one year after the expiration of the period of limitation for assessment against the taxpayer." The statute of limitations having started running as to the Rochester War Salvage Company on November 16, 1923, under section 277(b) of the Revenue Act of 1926, as amended by section 504, Revenue Act of 1928, the period of limitation was completed, as to the Rochester company on March 16, 1928, and on March 16, 1929, the barrier of the statute was complete with respect to assessment of a liability, as*1814 transferee, against the petitioner. As no such liability was assessed or asserted within the prescribed period, the respondent is now precluded from asserting it. Judgment will be entered for the petitioner.