Indianapolis Glove Co. v. Commissioner

INDIANAPOLIS GLOVE COMPANY, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. Indianapolis Glove Co. v. Commissioner Docket No. 82630. United States Board of Tax Appeals 37 B.T.A. 966; 1938 BTA LEXIS 956; June 1, 1938, Promulgated *956 A refund of Federal income taxes paid for years 1924 to 1928 was made to petitioner in 1932, the schedule of overassessments being approved by the Commissioner in August 1932, and interest thereon at 4 percent was paid pursuant to the Act of June 30, 1932. On March 3, 1933, the Act of June 30, 1932, was repealed as of the date of its approval, and in April 1933 additional interest calculated at 2 percent was paid on the refund, which brought. the total interest to 6 percent as provided for by the Revenue Act of 1928. Held, no part of the additional interest was income in 1932 to petitioner which was on accrual basis. Forman D. McCurdy, Esq., for the petitioner. Jonas M. Smith, Esq., for the respondent. KERN *966 This proceeding involves deficiencies in income and excess profits taxes in the amounts of $722.55 and $262.74, respectively, asserted by respondent against petitioner for the calendar year 1933. Petitioner seeks a redetermination of these deficiencies on the ground that respondent erred in finding that interest received in the year 1933 on a refund of income taxes which had been received in the year 1932, accrued in the year*957 1933, and in the alternative, that the respondent erred in including in income for 1933 that part of the interest received in 1933 which represented the adjustment of interest to a rate of 6 percent per annum from the dates of overpayment to June 30, 1932, where the respondent had paid interest only at the rate of 4 percent at the time of refunding the overpayments in the year 1932. FINDINGS OF FACT. The facts in this case have been stipulated by and between petitioner and respondent and are as follows: 1. The said Indianapolis Glove Company, the petitioner, is an Indiana corporation, with its principal office and place of business in Indianapolis, Indiana. 2. During the year 1929, the petitioner acquired all of the assets of the Coshocton Glove Company, an Ohio Corporation. 3. Among the assets acquired from the said Coshocton Glove Company, was a claim for refund of federal income taxes for the years 1924 to 1928, inclusive. 4. On or about September 12, 1932, the petitioner received a payment of $57,178.83 on account of said claim for refund, of which amount $46,669.37 represented the principal of said taxes, and $10,509.46 represented interest on the amounts*958 refunded, computed at the rate of 4% per annum from the various dates on which said taxes were paid to the date the overassessments were scheduled, in August, 1932. 5. On or about April 4, 1933, the petitioner received a payment of $5,254.92, which represented interest at the rate of 2% per annum from the various dates on which said taxes were paid to the date the overassessments were scheduled in August, 1932. *967 6. The Treasury Department notices of additional interest allowance are attached hereto, marked exhibits A, B, C, and D are as follows: Exhibit A - 1924 - Schedule 47473 $1,690.60 Exhibit B - 1925 - Schedule 47473 1,572.68 Exhibit C - 1926 - Schedule 47473 1,240.86 Exhibit D - 1927 - Schedule 47473 750.78 Total $5,254.92 7. The petitioner uses the accrual basis of accounting in its books and income tax returns. 8. In the petitioner's return for the year 1933, the said amount of $5,254.92 was treated as a credit to surplus. 9. The item of $5,254.92 was not reported as income by the petitioner in its 1932 or 1933 income tax return. 10. The respondent, in determining the petitioner's tax liability for the year 1933, included*959 the said amount of $5,254.92 in the petitioner's gross income for 1933. 11. In the petitioner's income tax return for the year 1932, a net loss was reported of $247,559.29. The exhibits referred to in the stipulation are notices of additional interest allowance which accompanied Treasury checks forwarded by respondent to petitioner, and are similar, except as to the amount of the checks, to the one set out as follows: NOTICE OF ADDITIONAL INTEREST ALLOWANCE Repeal Section 319 Act of June 30, 1932 IT:C:CC:4 District: 11-Ohio Schedule No. 47473 The Coshocton Glove Company, Indianapolis Glove Company, Successor, Coshocton, Ohio Sirs: Reference is made to interest in the amount of $3,381.20 allowed at the rate of 4 per cent in connection with an overassessment of income tax for the year 1924 allowed on Schedule IT 47473. Section 614 of the Revenue Act of 1928 providing for the payment of interest at the rate of 6 per cent per annum was amended by Section 319 of the Legislative Appropriation Act, approved June 30, 1932 whereby interest was payable at the rate of 4 per cent. Section 319 of the Legislative Appropriation Act referred to has been repealed as*960 of June 30, 1932, thereby making additional interest payable at the rate of 2 per cent per annum. Interest in the amount of $1,690.60 (for which a Treasury check is enclosed) is payable on the refund or credit. The amount of the enclosed check is taxable income, and must be included in your income tax return for the year or period in which received. By direction of the Commissioner. Respectfully, Inclosure: Check. T. F. LANGLEY, Head of Division. *968 OPINION. KERN: There are two alternative questions presented in this case. The first is whether the interest on the overpayment of taxes from the date of overpayment to the date of the signing of the schedule of overassessments respecting such taxes, in August 1932, should be considered as accruing to petitioner in 1932 at the rate of 6 percent per annum. The second is whether the interest should be considered as accruing to petitioner in 1932, calculated at 6 percent up to June 30, 1932, and at 4 percent after that date. These questions arise under section 614 of the Revenue Act of 1928, section 319 of the Legislative Appropriation Act of June 30, 1932, and section 15 of the Treasury and Postoffice*961 Departments Appropriations Act of March 3, 1933, which are set out in the margin. 1 *962 With regard to the first question, it is petitioner's contention that interest on the overpayment of taxes involved herein should be considered as accruing to it in 1932 at the rate of 6 percent per annum regardless of the Act of June 30, 1932, because that act was repealed as of the date of its approval by the Act of March 3, 1933, and, therefore, should be considered as never having existed. The difficulty with this contention, however, is that in order to have the interest accrue to petitioner in 1932 and be properly includable in petitioner's income for that year, there must have been in effect in that year a statute pursuant to which the interest claimed as accrued income was payable. The only statutes in force during that year were the Revenue Act of 1928 and the Act of June 30, 1932. The latter act was in force at the time of the signing of the schedule of overassessment by the respondent in August 1932 and was in force until March 3, 1933, when it was repealed as of the date of its approval. While the Act of March 3, 1933, made it obligatory to pay the full amount of 6 percent on overpayments of taxes during the period of June 30, 1932, to March 3, 1933, this obligation*963 did not arise until March 3, 1933, and, therefore, the petitioner's right to the payment *969 of interest at this rate after June 30, 1932, did not exist until 1933, and the additional interest became accrued income to petitioner only in 1933. In the alternative, the petitioner contends that although the schedule of overassessments was made up in August 1932, after the effective date of the Act of June 30, 1932, this act was not retroactive and the interest to be paid on the refund of taxes made by respondent on September 12, 1932, should be calculated at the rate of 6 percent up to June 30, 1932, and at 4 percent thereafter. Interest on refunds and credits is computed under the provisions of the act in force when the refunds and credits are allowed by the Commissioner. United States v. Boston Buick Co.,282 U.S. 476; Pottstown Iron Co. v. United States,282 U.S. 479; United States v. Magnolia Petroleum Co.,276 U.S. 160. A claim for a refund is allowed when the Commissioner approves the schedule of refunds and credits. *964 United States v. Swift,282 U.S. 468. It is stipulated that the overassessments in this case were scheduled in August 1932, and the payment of the principal of the overassessments to the petitioner took place on or about September 12, 1932. Petitioner's claim for refund was, therefore, allowed during the time the Act of June 30, 1932, was in effect, and, therefore, the interest due thereon was computable under its provisions. It is inescapable that the only interest which could be considered as accrued income to petitioner was the interest provided for by the Act of June 30, 1932, which was at the rate of 4 percent per annum. Petitioner has cited several cases in support of its contention that the interest on the overpayment of taxes should be computed at 6 percent up to June 30, 1932, and at 4 percent thereafter. These cases are Colorado Milling & Elevator Co. v. Howbert, 57 Fed.(2d) 768; Safe Deposit & Trust Co. of Baltimore v. Tate,3 Fed.Supp. 562; Reynolds v. Cooper, 64 Fed.(2d) 644; *965 Huwe v. Ohmer Fare Register Co., 61 Fed.(2d) 721. These cases involved the calculation of interest on judgments entered in favor of taxpayers prior to the Act of June 30, 1932, with the exception of one (Colorado Milling & Elevator Co. v. Howbert ) which had to do with the construction of a compromise agreement. They are, therefore, not authority in cases such as this, where refunds and credits are computed, since in the cases cited, the right to a certain rate of interest had vested in the taxpayer prior to June 30, 1932, either by virtue of a compromise agreement, or by judgment, while in the instant case the right to interest did not vest until the Commissioner approved the schedule of overassessments in August 1932. This conclusion seems implicit in the cases cited of United States v. Boston Buick Co., supra, and United States v. Swift, supra. Decision will be entered for the respondent. Footnotes 1. SEC. 614. INTEREST ON OVERPAYMENTS. (a) Interest shall be allowed and paid upon any overpayment in respect of any internalrevenue tax, at the rate of 6 per centum per annum, as follows: * * * (2) In the case of a refund, from the date of the overpayment to a date preceding the date of the refund check by not more than 30 days, such date to be determined by the Commissioner. Sec. 319. Legislative Appropriations Act, June 30, 1932. [47 Stat. 412.] Hereafter the rate of interest to be allowed or paid shall be four per centum per annum whenever interest is allowed or paid upon any judgment of whatever character against the United States and/or upon any overpayment in respect of any internal revenue tax. All laws or parts of laws insofar as inconsistent herewith are hereby repealed. Sec. 15. Treasury and Post Office Departments Appropriations Act of March 3, 1933 [47 Stat. 1517.] Section 319 of Part II of the Legislative Appropriation Act, fiscal year 1933, is repealed as of June 30, 1932; and the rate of interest to be allowed upon judgments against the United States and overpayments in respect of internal revenue taxes shall be the rate applicable thereto prior to the enactment of section 319 of such act. ↩