Illinois Addressograph Mfg. Co. v. Commissioner

ILLINOIS ADDRESSOGRAPH MANUFACTURING COMPANY, FORMERLY ADDRESSOGRAPH COMPANY (ILLINOIS), PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. Illinois Addressograph Mfg. Co. v. Commissioner Docket No. 49204. United States Board of Tax Appeals 31 B.T.A. 498; 1934 BTA LEXIS 1088; October 31, 1934, Promulgated *1088 The name of the petitioner, an Illinois corporation, until 1927 was "Addressograph Company." In 1927 a corporation of the same name was organized under the laws of Delaware. Thereafter the returns of the petitioner for 1924 and 1925 were audited and the petitioner filed refund claims and held conferences and conducted correspondence with the respondent concerning its tax liability for the years 1913 to 1926, inclusive, under the name of "Addressograph Company." During the course of the negotiations waivers were filed with the respondent in the name and under the seal of "Addressograph Company." Held, that the petitioner is estopped to deny the validity of the waivers. Leo H. Hoffman, Esq., for the petitioner. John D. Kiley, Esq., for the respondent. SEAWELL *498 The taxes in controversy in this proceeding are income taxes for 1924 and 1925 in the respective amounts of $9,645.57 and $8,688.89. Only one of the issues raised by the petitioner was presented for decision, namely, whether assessment and collection of the taxes are barred by the statute of limitations. By an amendment to his answer, the respondent raised the question of estoppel. *1089 The facts were stipulated. FINDINGS OF FACT. The petitioner is an Illinois corporation, organized under the name of "Addressograph Company." On August 24, 1927, it changed its name to "Illinois Addressograph Manufacturing Co." The "Addressograph Company", hereinafter referred to as the Delaware corporation, was incorporated under the laws of Delaware on August 4, 1927, on which date it took over about 95 percent of the assets and liabilities of the petitioner. At all times material, the address of both corporations was 901 West Van Buren Street, Chicago, Illinois. The income tax returns of the petitioner for 1924 and 1925 were filed March 16, 1925, and May 15, 1926, respectively. These returns, together with the books and records of the petitioner, were examined by a revenue agent in 1927. The revenue agent's report, dated August 22, 1927, gives "Addressograph Company" as the name of the taxpayer. One of the recommendations made by the revenue agent was that the amount claimed in the returns for depreciation on the March 1, 1913, value of patents be reduced. In June 1927 petitioner filed a power of attorney with the Bureau of Internal Revenue authorizing Leo H. Hoffman*1090 to represent it in *499 all tax matters for 1926 and years prior thereto. Until February 27, 1930, such power of attorney was the only one on file in the Bureau authorizing Leo H. Hoffman to represent either the petitioner or the Delaware corporation. On February 27, 1930, a power of attorney was filed by the Delaware corporation authorizing Leo H. Hoffman to represent it in all tax matters in 1926 and years prior thereto. The power of attorney was filed in response to a letter of the respondent reading, in part, as follows: Reference is made to letter of protest dated February 4, 1930, submitted by KixMiller, Baar & Hoffman, New York, New York, setting forth your exceptions to the proposed adjustments of your income tax liability for the years 1924, 1925 and 1926, as indicated in Bureau letter dated January 25, 1930. * * * There is on file in this office issued in June 1927, a power of attorney authorizing KixMiller, Baar & Hoffman to represent the Addressograph Company of Illinois. The records of this office indicate that your charter was granted in August 1927, from which it appears that the power of attorney on file was issued by your predecessor the Addressograph*1091 Company of Illinois, and will not authorize the individuals named therein to appear for you. In the event you desire to be represented at the conference by others than officials of your company, power of attorney authorizing them to represent you is required and should be presented at the conference. In August 1928 the respondent received a document signed by Leo H. Hoffman, petitioner's counsel here, headed: "In re Claims for Refund, Addressograph Company, 901 West Van Buren St., Chicago, Ill.", respecting refund claims filed by the petitioner for taxable periods prior to 1924. The petitioner's claims were based, in part, upon a March 1, 1913, valuation for patents of about $1,450,000. The matters set forth in the document were the subject of a conference held September 26, 1928, between representatives of the respondent and Leo H. Hoffman. On December 8, 1928, respondent mailed a 30-day letter to the "Addressograph Company, 901 West Van Buren Street, Chicago, Illinois", respecting its tax liability for 1924, 1925, and 1926. In determining the tax due for each year the respondent allowed depreciation on patents on the basis of a March 1, 1913, value of $398,907.29. In a letter*1092 dated January 4, 1929, addressed to and received by the respondent, Leo H. Hoffman, on behalf of the petitioner, protested the proposed deficiencies, claiming that the patents had a valuation of about $1,450,000. The name of the taxpayer is shown in the letter as the "Addressograph Company." On February 13, 1929, the respondent wrote a letter to the "Addressograph Company" reading as follows: An examination of your case relative to your income tax liability indicates that the period of limitation prescribed by law for assessment of a deficiency for the years 1924 and 1925 will presently expire unless you consent to extend the period by executing the inclosed Forms 872. *500 It is desired to give you an opportunity to present evidence or contentions relative to the determination of your correct tax liability, but the Bureau will be obliged to protect the interests of the Government by notifying you of its final determination of any deficiency unless you consent to an extension of time for assessment. It is, therefore, suggested that you execute and return to this office within ten days from the date of this letter the inclosed Forms 872 which extend the time for assessment*1093 of taxes until December 31, 1929. Before mailing the unsigned waivers, the respondent inserted "Addressograph Company" and "901 West Van Buren Street, Chicago, Illinois", in the blank spaces provided for the name and address of the taxpayer. On February 27 and 28, 1929, the respondent and Leo H. Hoffman exchanged telegrams respecting the mailing of the waivers requested in the letter. The waivers were transmitted to the respondent by letter dated February 25, 1929, reading as follows: We have your letter of the 13th enclosing Consent Fixing Period of Limitation upon Assessment of Income and Profits Tax for the years 1924 and 1925. We have signed and sealed these instruments and are attaching them herewith. Yours very truly, ADDRESSOGRAPH COMPANY, [Signed] F. N. HARVEY, Asst. Treas. The waivers extending the period of limitation for each year to December 31, 1929, were signed by "Addressograph Company, F. N. Harvey, Asst. Treas. Taxpayer" and bear the seal of the Delaware corporation. They were signed by or on behalf of the respondent on February 28, 1929. If these waivers had not been filed, the respondent would have sent the "Addressograph Company, Chicago, *1094 Illinois " a deficiency notice for the taxable years prior to the expiration of the statutory periods of limitation. On March 1, 1929, the "Addressograph Company" filed claims for refund for 1924 and 1925. Each claim was signed by F. N. Harvey, assistant treasurer. In these claims the claimant asked for a March 1, 1913, valuation for its patents for depreciation purposes of about $1,450,000. After February 28, 1929, the respondent's files of the "Addressograph Company" for 1924 and 1925 were transferred from the Income Tax Unit to the Engineering Division of the Bureau of Internal Revenue for consideration of the patent valuation question involved. In 1928 and 1929 several conferences were held in the Engineering Division between Leo H. Hoffman and representatives of the respondent. On September 21, 1929, the Engineering Division recommended that the "Addressograph Company" be allowed a March 1, 1913, valuation for patents of $700,000 instead of the value of $398,907.29 allowed in the 30-day letter. Following the receipt of this recommendation the Income Tax Unit reaudited the petitiower's *501 returns from 1913 to 1926, inclusive, to reflect, among other adjustments, *1095 the patent valuation of $700,000. The adjustments made for 1924, 1925, and 1926 were set forth in a statement attached to a letter addressed to the "Addressograph Company" on January 25, 1930. The deficiencies proposed in the letter were the subject of a letter of protest dated February 4, 1930, signed by Leo H. Hoffman and naming the "Addressograph Company" as the taxpayer. During the latter part of 1929 the respondent prepared in the name of "Addressograph Company", address, "Chicago, Illinois", and delivered to Leo H. Hoffman, with the request that they be executed, waivers extending the statutory period of limitation for 1924 and 1925 to December 31, 1930. The waivers were signed by "Addressograph Company, Taxpayer, by F. N. Harvey, Asst. Treas." on December 1, 1929, and bear the seal of the Delaware corporation. They were filed with and executed by the respondent on December 6, 1929. The notice of deficiency for 1924 and 1925 was sent to the petitioner on April 21, 1930. F. N. Harvey was assistant treasurer of petitioner in 1924, 1925, 1929, and 1930. He occupied the same office with the Delaware corporation in 1929 and 1930. He signed the petitioner's 1925 return*1096 as assistant treasurer. On February 21, 1931, the respondent made a final determination respecting refund claims filed prior to August 1927 for the years 1913 to 1923, inclusive. Overpayments were determined in favor of the petitioner in the amount of $106,803.36, of which $47,877.21 is attributable to the patent valuation of $700,000. With the exception of $16,287.31 held by the respondent pending the outcome of deficiencies for other years, all of the overpayments have either been credited or refunded to the petitioner. The income tax return of the petitioner for the period January 1 to June 12, 1927, was filed June 15, 1928, with the collector of internal revenue at Chicago, Illinois, under the name of "Illinois Addressograph Manufacturing Co., Formerly Addressograph Company." The Delaware corporation filed its income tax return for 1928 on May 15, 1929. OPINION. SEAWELL: In filing the stipulation of facts, the parties thereto reserved the right to object to the relevancy or materiality of any facts set forth therein either upon trial or on argument. On brief counsel for the petitioner contends that only so much of the stipulation of facts as relates to the time and*1097 place of incorporation of the petitioner and the Delaware corporation; the acquisition of assets and assumption of liabilities of the petitioner by the Delaware corporation; the dates on which the returns of the petitioner were filed; *502 the date on which the deficiency notice was sent; the officers of the Delaware corporation in 1929 and 1930; the making of jeopardy assessments in 1930 for the taxable years; and the amount paid on the assessments, are material and relevant, and moves that the remaining facts having to do with audits, conferences, waivers, including the circumstances under which they were filed, etc., all of which have some bearing on the estoppel question, be stricken from the record as immaterial and irrelevant. The motion is denied. The statutory period of limitation for assessment of the deficiencies for the respective taxable years expired March 16, 1929, and May 12, 1929, dates prior to the mailing of the deficiency notice. Sec. 277(a)(1) and (2), Revenue Act of 1926. Whether the deficiency notice was timely depends upon the sufficiency of the several waivers to extend the time for assessment. The contention of the petitioner is, in substance, *1098 that the instruments relied upon by the respondent are not its waivers, but waivers of the Delaware corporation, a taxpayer separate and distinct from it. The respondent relies upon equitable estoppel. In , the Court said: The estoppel here relied upon is known as an equitable estoppel, or estoppel in pais. The law upon the subject is well settled. The vital principle is that he who by his language or conduct leads another to do what he would not otherwise have done, shall not subject such person to loss or injury by disappointing the expectations upon which he acted. Such a change of position is sternly forbidden. It involves fraud and falsehood, and the law abhors both. This remedy is always so applied as to promote the ends of justice. It is available only for protection, and cannot be used as a weapon of assault. It accomplishes that which ought to be done between man and man, and is not permitted to go beyond this limit. It is akin to the principle involved in the limitation of actions, and does its work of justice and repose where the statute cannot be invoked. * * * *1099 In a later case, , the same Court remarked: An equitable estoppel which is to prevent the State from receiving the benefit of an exercise of its power to alter the rule or rate of taxation for all the time of the existence of a business corporation, should be based upon the clearest equity. It is fitly denominated an equitable estoppel, because it rests upon the doctrine that it would be against the principles of equity and good conscience to permit the party against whom the estoppel is sought to avail himself of what might otherwise be his undisputed rights. * * * The Court of Claims, in ; certiorari denied, , after reviewing the authorities on the question of estoppel, said: The doctrine of equitable estoppel is predicated upon the fact "that it would be unconscionable to permit a person to maintain a position inconsistent with one on which he has acquiesced or of which he has accepted any benefit." If a *503 person is induced by another's acts and conduct to do what he would not otherwise have done, or, *1100 as is said, if he abstained from doing what he would have done, the person inducing such conduct may not suddenly change his attitude to the injury of the other. In .lucas v. , Hunt, formerly president of a corporation and one of its liquidators in dissolution proceedings, signed a waiver extending the period for assessment of taxes against the corporation after the expiration of the statutory period of three years within which the officers could legally act for the corporation. In its decision estopping Hunt from denying the validity of the waiver, the court remarked: * * * We are of opinion that Hunt by signing the waiver estopped himself to question its validity, with the result that he was bound to respond to the assessment to the extent of funds in his hands which belonged to the dissolved corporation taxpayer. The circumstances all show that the commissioner relied on the waiver and is therefore entitled to claim the equitable estoppel asserted by counsel in his behalf. In other cases the courts have estopped taxpayers from denying the validity of waivers on which the Commissioner relied. *1101 ; ; ; ; ; . The returns of the petitioner for 1924 and 1925 were filed and audited under the name of "Addressograph Company." Notwithstanding the change of its name in 1927 to "Illinois Addressograph Manufacturing Co." and the organization at that time of the "Addressograph Company" under the laws of Delaware, the petitioner, directly or through its attorney in fact and counsel in these proceedings, held numerous conferences with representatives of the respondent respecting the correct tax liability of the petitioner; received letters from the respondent with reference thereto; and filed refund claims and letters of protest on proposed deficiencies with the respondent, all under its original name. True it is that the return of the petitioner*1102 for the period January 1 to June 12, 1927, showed a change of its name, yet thereafter the petitioner, in numerous ways, indicated willingness to have its tax liability for 1926 and prior years determined under its original name. Such notice of a change of corporate name is not controlling. The Delaware corporation was not organized until 1927, and had no tax liability to adjust or pay for 1924 and 1925, the years involved here. Harvey, who signed the petitioner's return for 1925 *504 as assistant treasurer and who occupied the same positon with the Delaware corporation, is charged with knowledge of this fact. If it were Harvey's intention to furnish the respondent 1924 and 1925 waivers of the Delaware corporation, instead of the petitioner, it would, indeed, be difficult to conclude that the transaction was free from fraud. Clearly, the use of the seal of the Delaware corporation was a mistake. In any event, the statute requires only "consent", ;*1103 ; and corporate waivers without seals have been held to be valid. ; reversed on other grounds, ; . Cf. . The waivers were furnished by the petitioner for the purpose of obtaining extensions of the periods of limitation; they were relied upon by the respondent for that purpose; and the petitioner received and accepted the benefits of the waivers. Under the circumstances, we think it would be unreasonable to allow the petitioner to repudiate the instruments. See , and . Reviewed by the Board. Decision will be entered for the respondent. MURDOCK MURDOCK, concurring: Although I agree that the consents extended the statutory period for assessment, I do not agree that the effectiveness of the consents depends upon equitable estoppel. The question of whether or not an equitable*1104 estoppel has been established is not to be decided by considering only such general principles as are quoted in the prevailing opinion. Cf. Tide Water Oil Co.,29 B.T.A. 1208. There are certain essentials of an equitable estoppel, all of which must be present in order to estop a party to a proceeding. The following brief statement of these essentials will suffice for present purposes: (1) a misrepresentation or concealment of a material fact; (2) this fact must be known to the party estopped; (3) the person claiming the benefit of the estoppel must have been in ignorance of the truth of this fact at the time of the misrepresentation or concealment, at the time that he acted upon the fact, and until it was too late to change his action; (4) the misrepresentation or concealment must have been done with the intention or expectation that it would be acted upon by the other party or, under such circumstances, that it was natural or probable that it would be acted upon; (5) the fact must have been relied upon and acted upon by the other party; (6) his action must have changed his position *505 for the worse. Bigelow on Estoppel, p. 437; Pomeroy's Equity Jurisprudence, *1105 4th ed. vol. 2, par. 805; Bouvier's Law Dictionary and Words and Phrases, tit. "Estoppel"; Howard Sheep Co.,1 B.T.A. 966; Ergenbright v. Henderson,72 Kan. 29; 82 Pac. 524. It has been held, in connection with requirement (3), that the deceived party must not only not know the fact, but must have had no convenient or ready means of acquiring knowledge of the fact. Brant v. Virginia Coal & Iron Co.,93 U.S. 326. Furthermore, the deceived party must have exercised reasonable diligence under the circumstances to learn the truth. Bailey v. Lisle Mfg. Co.,238 Fed. 257. The prevailing opinion does not indicate that due consideration has been given to the question of whether or not all of the essentials of an estoppel are present in this case. It fails to point out precisely what the fact was which was misrepresented or concealed and upon which the Commissioner relied to his disadvantage. The Commissioner apparently seeks to estop the petitioner to deny that the consents which the Commissioner relied upon were in fact the consents of this petitioner. *1106 The rationale of this contention would seem to be that the petitioner, in order to deceive the Commissioner, had the Delaware corporation execute the consents, and the Commissioner, not knowing that there were two corporations having similar names and believing that the consents filed had been executed by the petitioner, relied upon those consents until after the statutory period for assessment had expired. There could be no estoppel based upon such a contention if, under the circumstances, a reasonably prudent person, acting with such care as he might be expected to exercise in an important matter, would not have been misled. ;; ; ; ; . The petitioner, in its return filed for 1928, specifically called the attention of the Commissioner to the change in its name, and the Commissioner's letter of February 11, 1930, clearly indicates that he then knew of the existence of two corporations*1107 having similar names. But perhaps the Commissioner in his consideration of prior tax liability ought not to be charged with knowledge of the change in name furnished in a return for a later year, even though that information came to him more than a year before the expiration of the assessment period for the earlier taxes, and, of course, on February 11, 1930, it was too late to assess unless the consents were valid. Aside from these circumstances, however there was another circumstance which a reasonably prudent man would not have overlooked and which precludes the Commissioner from successfully raising the defense of estoppel in connection with *506 these consents. The Commissioner knew all along that the taxpayer was an Illinois corporation, yet each of the consents upon which he relies was clearly impressed with a seal which plainly showed that it was the seal of a Delaware corporation. The seals were placed in accordance with the instructions on the forms supplied by the Commissioner. Reasonable diligence upon his part in the examination of these documents would have disclosed the fact that the seal was not that of the taxpayer and he must be charged with knowledge*1108 of that fact. He knew that he wanted consents from an Illinois corporation and that he did not want consents from a Delaware corporation. Estoppel can not be raised as a defense to avoid the consequences of one's own negligence. ;;The Commissioner has failed to establish his right to estop the petitioner to deny that the consents were its consents or to deny and material fact in the case. However, it does not follow that the consents were invalid or ineffective to extend the statutory period for assessment of the deficiencies for 1924 and 1925. The Delaware corporation was not organized until 1927 and, of course, had no tax liability or income tax questions for the years 1924 and 1925. The Illinois corporation was the taxpayer, and its duly authorized representative had a number of conferences and communications with the Commissioner in which both parties fully understood that they were dealing with the tax liability of the Illinois corporation for the years 1924 and 1925. The parties apparently*1109 disregarded the change in name in these conferences and communications. It seems reasonably clear to me, from a consideration of all of the evidence, that both the taxpayer and the Commissioner intended the consents to be valid consents on the part of the taxpayer to the later assessment of its taxes for the years 1924 and 1925. The name used on these consents was the name which both parties had used at all times theretofore in their negotiations and discussions. The officer who signed these consents on the part of the taxpayer was in fact the assistant treasurer of the taxpayer. The use of the seal of the Delaware corporation on the consents seems to have been an error rather than an attempt on the part of the taxpayer to invalidate the consents which it obviously intended to give. Fraud on the part of the corporation should not be imputed. The statute does not require that there be any seal on a consent, and for present purposes, the seal can be regarded as mere surplusage. Cf. ; reversed, *1110 . The consents were valid consents in writing and served to extend the period for assessing the deficiencies for 1924 and 1925. STERNHAGEN, GOODRICH, and LEECH concur in the above.