A. J. Crowhurst & Sons, Inc. v. Commissioner

A. J. CROWHURST & SONS, INC., PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. A. J. Crowhurst & Sons, Inc. v. Commissioner Docket No. 83788. United States Board of Tax Appeals 38 B.T.A. 1072; 1938 BTA LEXIS 795; October 28, 1938, Promulgated *795 Petitioner filed capital stock tax return containing a declaration of value of corporate stock as the net worth of the corporation. Prior to expiration of extensions granted under regulations, another declaration was filed. Held, that under section 215(d) and (f), National Industrial Recovery Act of 1933, no amendment of return is permitted; held, further, that ignorance or mistake as to nature and extent of petitioner's rights under the statute does not relieve the taxpayer on the theory of mistaken election; held, further, that section 215(d) and (f) of the National Industrial Recovery Act of 1933 is not shown to be unconstitutional. Jesse K. Robinson, Esq, and Max Gissen, C.P.A., for the petitioner. G. W. Brooks, Esq., and E. W. G. Huffman, Esq., for the respondent. DISNEY *1072 This proceeding involves income taxes in the amount of $163.07, and excess profits taxes in the sum of $3,976.32, both for the fiscal year ended August 31, 1933. Deficiencies were determined in the above amounts by respondent, and the entire amounts are in dispute herein. FINDINGS OF FACT. Petitioner has its principal place of business*796 at Belleville, New Jersey. It was incorporated on September 1, 1931, under the laws of Massachusetts. The final filing date for capital stock tax returns for the year ended June 30, 1933, was extended by the Commissioner to and including September 29, 1933, by Treasury Decisions 4368 and 4386. On August 17, 1933, the petitioner, A. J. Crowhurst & Sons, Inc., filed with the collector of internal revenue for the fifth district of New Jersey, its capital stock tax return on form 707, prescribed *1073 therefor, and declared the total value of its capital stock to be $23,277.93, upon which a tax was paid of $23, being $1 per $1,000 of said valuation. On September 7, 1933, Max Gissen wrote to the Commissioner of Internal Revenue, requesting the privilege of filing an amended capital stock tax return. He received in answer a letter dated September 16, 1933, reading as follows: Sep 16 1933 Mr. Max Gissen, 11 East 44th St., New York, N.Y. SIR: Reference is made to your letter of September 7, 1933, relative to the capital stock tax imposed under section 215 of the National Industrial Recovery Act, in which you request the privilege to file an amended capital stock*797 tax return. Under the provisions of section 215(f) of the Act and under the provisions of Article 24, Regulations 64, 1933 Edition, there exists no authority for amending the declared value of the capital stock once a return has been regularly filed. Under section 215(d) of the Act returns are required to be filed within one month after the close of the taxable year. The time for filing returns for the taxable year ended June 30, 1933, was extended to August 31, 1933, by Treasury Decision 4368. A further extension to September 29, 1933, has now been granted by Treasury Decision 4386. Any capital stock tax return filed during the period July 1, 1933, to September 29, 1933, both dates inclusive, is regularly filed in so far as point of time is concerned, and such return is the first return within the meaning of the Act. The law specifically provides that the value declared by a corporation "in its first return under this section" cannot be amended. On September 29, 1933, petitioner filed a return declaring a capital stock value of $650,000 and forwarded a check for $650 to the collector for the tax thereon, which is not admitted by the Commissioner to be an amended return*798 or any return whatsoever. The petitioner's income tax return for the fiscal year ended August 31, 1933, reported on line 28 a net income of $82,418.08, and was filed November 15, 1933. On or about, to wit, April 7, 1934, the Acting Deputy Commissioner notified the petitioner that the return filed September 29, 1933, was not acceptable and that the additional tax paid on the basis of that return would be refunded. Notice of refund of the payment of $650 together, with interest of $29.09, was mailed to the petitioner on or about June 27, 1934, and on or about July 18, 1934, the collector notified the petitioner that a check for $679.09 was being held subject to the petitioner's order. Under date of April 26, 1935, the collector's office delivered to the petitioner a Treasury Department check for $679.09, being for the *1074 refund of $650 paid on September 29, 1933, together with $29.09 as interest thereon. This check was accepted under protest and has never been endorsed or cashed by the petitioner, which had never made claim or demand for same. Under date of January 30, 1936, the Commissioner issued his notice of deficiency for petitioner's fiscal year ended August 31, 1933, asserting*799 a deficiency in income tax of $163.07 and a deficiency in excess profits tax of $3,976.32, all of which is due and assessable on the basis of a declared value for petitioner's capital stock of $23,277.93, but none of which is due and assessable on the basis of a declared value of $650,000. Petitioner had for several years employed a certified public accountant, Max Gissen, to do its accounting work, including the preparation of its returns as to income tax, excess profits tax, and capital stock tax. After consultation with those in charge of the affairs of the corporation, Max Gissen prepared the corporation stock tax return for 1933. He believed that the proper value to declare was the net worth, which, as reflected by capital stock and surplus as at August 31, 1932, was $23,277.93, and so drew the return as showing a declared value of $23,277.93. In so believing, he relied upon the printed instructions on the back of form 707, provided by respondent for corporation capital stock tax return, which instructions included the following: The corporation is required by the act to declare a value for its entire capital stock as of the date of the last income-tax taxable year ending*800 on or prior to June 30, 1933, or as of the date of organization in the case of a corporation having no income-tax taxable year ending on or prior to June 30, 1933. Such original declared value is not subject to any amendment either by the Commissioner or by the corporation. * * * In arriving at the original declared value, the value of the corporation's business and property as an entirety and as a going concern should be considered, and in doing so, it should look to the net worth of the corporate assets, including its surplus and undivided profits as shown by the books, also to the franchise, good will, outstanding contracts, the earning capacity of the corporation, and the market value of its shares of stock. After having done so, the corporation should then determine the original declared value for its entire capital stock according to its best judgment. OPINION. DISNEY: The only question for our determination here is as to whether the petitioner may amend a capital stock tax return under section 215(d) and 215(f) of the National Industrial Recovery Act, 48 Stat. 195, 208. Petitioner's contentions are (a) that first "returns" as used in the statute is intended to mean*801 "the return for the first year"; (b) that a declaration made in ignorance of, or under a mistake as to the real nature and extent of, taxpayer's rights, does not constitute binding election precluding the filing of an *1075 amended return; and (c) that the statute, if construed to prevent such second filing, is unconstitutional as violative of the Fifth Amendment. So far as the first proposition is concerned, as to the intent and effect of the statute, we have held, in William A. Webster Co.,37 B.T.A. 800, and in Haggar Co.,38 B.T.A. 141, that the return may not be amended. We find no essential difference as to the facts of filing between those cases and the instant matter, and though petitioner cites Glenn v. Oertel Co., 97 Fed.(2d) 495 (C.C.A., 6th Cir.), holding to the contrary, we, with due respect for that court, as stated in Haggar Co., supra, adhere to our earlier decisions and hold that the statute does not permit filing of an amended return. *802 Scaife & Sons Co. v. Driscoll, 94 Fed.(2d) 664; certiorari denied, 305 U.S. 603. Petitioner urges, however, as its second proposition, that ignorance or a mistake as to petitioner's rights, that is, a mistaken belief by the certified public accountant filing the return for petitioner that net worth was the proper declaration of value, is such mistake or ignorance as to prevent the first filing being an election, under familiar principles as to effect of ignorance or mistake upon election of remedies. Petitioner, however, is in error, we think, in thinking that there is herein involved a question of election. The question was not one of election between two courses, but merely of declaration of a value for corporate stock as required by the statute. Petitioner, due to misunderstanding of the meaning of statute and regulations, declared a value which it now contends was erroneous. We discern no application here of principles controlling election. The situation in Haggar Co., supra, was not dissimilar to that herein. Therein par value of stock was declared as the value; here the declaration was total of par value of stock and surplus, *803 or net worth. Reliance upon the regulations as cause of confusion or mistake is hardly convincing, for the regulation, it seems to us, not only does not justify the conclusion reached by petitioner's tax consultant, but the same numbered paragraph affirmatively reminds the taxpayer that the original declared value is not subject to any amendment either by the Commissioner or the corporation. The regulation referred to by petitioner states that the corporation "should look to the net worth of the corporate assets [which petitioner did], including its surplus and undivided profits as shown by the books, also to the franchise, good will, outstanding contracts, the earning capacity of the corporation, and the market value of its shares of stock." Yet petitioner disregarded all of these elements except net worth. The error is not such in any event, in our opinion, as to be basis for appeal to equitable principles of election, if same were applicable here. *1076 Finally, petitioner urges unconstitutionality of the statute, if construed to prevent filing of second declaration of value. *804 Glenn v. Oertel Co., supra, is quoted, but the language therefrom does no more than suggest that serious constitutional questions arise, in connection with the present question. The case does not hold the statute unconstitutional. We are unable to say that deprivation of the privilege of filing amended returns is deprivation of due process under the Fifth Amendment. On the contrary, due process principles seem to be satisfied by the process specified and permitted by the statute - filing the original declared value. Deprivation of property must amount to arbitrary or capricious confiscation thereof. The obvious reasons forming the basis for the statute here considered negative, it seems to us, any idea of arbitrariness or confiscation. Chicago Telephone Supply Co. v. United States,23 Fed.Supp. 471; certiorari denied, 305 U.S. 628, upheld the constitutionality of a similar statute, sections 701 and 702 of the Revenue Act of 1934. No such clear demonstration of unconstitutionality appears here as to call for our conclusion to that effect. *805 Rita O'Shaughnessy, Executrix,21 B.T.A. 1046. We therefore conclude that the petitioner had no right to file a second or amended declaration of value of corporate stock, and that the respondent properly took into consideration the original declaration of value in determining deficiencies. It having been stipulated that in such case the deficiencies determined by respondent in the sum of $3,976.32 excess profits tax and $163.07 income tax are all due and assessable, Decision will be entered for the respondent.