Eckert Packing Co. v. Commissioner

ECKERT PACKING COMPANY, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. Eckert Packing Co. v. Commissioner Docket No. 92346. United States Board of Tax Appeals 42 B.T.A. 1000; 1940 BTA LEXIS 920; October 18, 1940, Promulgated *920 In its fiscal year ended October 31, 1935, petitioner accrued $46,622.72 as Federal processing tax under the Agricultural Adjustment Act, which it never paid to the collector of internal revenue. The processing tax was held invalid on January 6, 1936 (United States v. Butler,297 U.S. 1), and shortly thereafter the amount of processing tax in question was abated by the collector of internal revenue. Held, that respondent correctly disallowed the deduction of the amount of processing tax in question on petitioner's corporation income and excess profits tax return for its fiscal year ended October 31, 1935. Bergan v. Commissioner, 80 Fed.(2d) 89; Leach v. Commissioner, 50 Fed.(2d) 371; Inland Products Co. v. Blair, 31 Fed.(2d) 867; Bohemian Breweries, Inc. v. United States,27 Fed.Supp. 588. P. McKinley Harris, Esq., and J. Bernard Brown, C.P.A., for the petitioner. Stanley B. Pierson, Esq., for the respondent. HARRON *1000 Respondent determined deficiencies of $4,117.84 in income tax and $548.92 in excess profits tax for the fiscal*921 year ended October 31, 1935. The basic question is whether on its corporation income and excess profits tax return for its fiscal year ended October 31, 1935, petitioner is entitled to deduct $46,622.72 in Federal processing tax which it accrued in the taxable year but never paid to the collector of internal revenue, and which was abated by the collector of internal revenue shortly after the processing tax was held invalid on January 6, 1936 (United States v. Butler,297 U.S. 1). Other adjustments made by respondent are not contested. *1001 FINDINGS OF FACT. Petitioner is a Kentucky corporation and has its principal place of business at Henderson, Kentucky. Petitioner filed its corporation income and excess profits tax return for the fiscal year ended October 31, 1935, with the collector of internal revenue for the district of Kentucky. Petitioner is engaged in the business of meat packing, which business includes the slaughtering of hogs for market. Petitioner keeps its books and files its income tax returns on the accrual basis and on the basis of a fiscal year ending October 31. During petitioner's fiscal year ended October 31, 1935, a*922 processing tax was in effect on the slaughtering of hogs for market under the Agricultural Adjustment Act, and petitioner filed monthly processing tax returns with the collector of internal revenue for the district of Kentucky, which disclosed liability for processing tax as follows: Month Year Amount of processing tax November [1934] $6,122.93 December [1934] 6,522.44 January [1935] 7,705.15 February [1935] 7,382.25 March [1935] 6,251.38 April [1935] 7,085.02 May [1935] 7,390.20 June [1935] $5,405.08 July [1935] 5,220.44 August [1935] 4,532.09 September [1935] 5,014.72 October [1935] 5,723.79 Total 74,355.49 Petitioner paid to the collector of internal revenue for the district of Kentucky the amounts of processing tax disclosed on its returns for the months of November and December 1934 and January and February 1935, or a total of $27,732.77. The balance of accrued processing tax, $46,622.72, was never paid to the collector of internal revenue. In an action brought by petitioner against the collector of internal revenue for the district of Kentucky in the United States District Court for the Western District of Kentucky, an order was entered*923 under date of August 3, 1935, temporarily restraining the collector from collecting processing tax from petitioner and directing petitioner to file monthly processing tax returns with the collector and to deposit the amounts of processing tax disclosed in such returns with the clerk of the court pending the outcome of certain litigation. In accordance with this order petitioner deposited with the clerk of the court the amounts of processing tax disclosed on its returns for the months of March, April, May, June, July, and August 1935, or a total of $35,884.21. Petitioner did not pay to the collector of internal revenue for the district of Kentucky nor deposit with the clerk of the United States District Court for the Western District of Kentucky, the amounts *1002 of processing tax disclosed on its returns for September and October 1935, or a total of $10,738.51. The amount of processing tax disclosed on each of petitioner's returns for the months of November and December 1934 and January, February, March, and April 1935 was entered on its books at the end of the respective months as a debit to processing tax on hogs and a credit to accounts payable; and the amount of*924 processing tax disclosed on each of its returns for the months of May, June, July, August, September, and October 1935 was entered on its books at the end of the respective months as a debit to processing tax on hogs and a credit to a reserve entitled, "Reserve for processing taxes accrued. Processing taxes in litigation may have to be paid. Uncertain as to constitutionality of Processing Tax Act." As of October 31, 1935, $74,355.49, the total of the amounts of processing tax debited to the processing tax on hogs account during the fiscal year, was closed into the profit and loss account on petitioner's books. On January 6, 1936, the processing tax under the Agricultural Adjustment Act was held invalid. United States v. Butler, supra. On January 16, 1936, the United States District Court for the Western District of Kentucky entered an order directing the clerk of the court to pay petitioner $35,884.21 which had been deposited by petitioner with the clerk on account of processing tax for the months of March, April, May, June, July, and August 1935. During January 1936 the clerk of the court paid petitioner $35,884.21 pursuant to such order. As of January 31, 1936, the*925 amounts of $35,884.21, which had been deposited with the clerk of the court, and $10,738.51, which had not been paid to the collector of internal revenue or deposited with the clerk of the court, were entered on petitioner's books as debits to the reserve for processing tax and as credits to surplus. On or about March 30, 1936, the amount of processing tax disclosed on petitioner's processing tax returns for the months of March, April, May, June, July, August, September, and October 1935, or a total of $46,622.72, was abated by the collector of internal revenue for the district of Kentucky. OPINION. HARRON: The basic question is whether, on its corporation income and excess profits tax return for its fiscal year ended October 31, 1935, petitioner is entitled to deduct $46,622.72 in Federal processing tax which it accrued in the taxable year but never paid to the collector of internal revenue, and which was abated by the collector of internal revenue shortly after the tax was held invalid on January 6, 1936 (United States v. Butler, supra). On its corporation income and excess profits tax return for the fiscal year ended October 31, 1935, petitioner*926 included in its cost *1003 of manufacturing, and thus deducted, $74,355.49 in processing tax. In the deficiency notice respondent disallowed the deduction of $46,622.72 in processing tax, the amount which petitioner accrued in the taxable year but never paid, and allowed the deduction of $27,732.77, the amount of processing tax which petitioner actually paid to the collector of internal revenue. Petitioner contends that respondent erred in disallowing the deduction of $46,622.72 in processing tax because, in spite of the fact that the amount in question was never paid and was abated, petitioner had a fixed and determined liability to pay the amount in question at the end of the taxable year. In support of his determination respondent contends that petitioner is not entitled to deduct the sum of $46,622.72 in question because it never paid that amount to the collector of internal revenue, and because, prior to the date of the filing of the petition in this proceeding, the processing tax was held invalid and the amount in question was abated. Respondent relies on *927 Philip C. Brown,10 B.T.A. 1122. A taxpayer is not entitled to deduct the amount of tax paid in a given year if, prior to the final determination of his tax liability for such year, the amount paid is refunded or recovered. Bergan v. Commissioner, 80 Fed.(2d) 89; Leach v. Commissioner, 50 Fed.(2d) 371; Inland Products Co. v. Blair, 31 Fed.(2d) 867; Bohemian Breweries, Inc. v. United States,27 Fed.Supp. 588; Joseph V. Horn,23 B.T.A. 1131; Philip C. Brown, supra; and see Lehigh Valley Coal Sales Co.,15 B.T.A. 1401. Similarly, a taxpayer is not entitled to deduct the amount of tax accrued in a given year if, prior to the final determination of his tax liability for such year, the amount accrued is ascertained to be excessive, and then he is entitled to deduct only the correct amount of tax. See Elsie S. Eckstein,41 B.T.A. 746, in which the Board stated in part as follows (p. 751): * * * In any event, however, we have consistently held that where in a given year a taxpayer takes a deduction which, prior to the*928 final determination of his income tax liability for such year, is ascertained to be excessive only the correct amount will be allowed in the final determination of his income tax liability. Inland Products Co.,10 B.T.A. 235; affd., 31 Fed.(2d) 867; Mary W. Leach,16 B.T.A. 781; affd., 50 Fed.(2d) 371; Joseph V. Horn,23 B.T.A. 1131; J. B. Jemison,18 B.T.A. 399; Beacon Coal Co.,9 B.T.A. 280; Producers Fuel Co.,1 B.T.A. 202. See also Bohemian Breweries, Inc. v. United States, supra, in which the Court of Claims stated, in part, as follows: * * * So long as a case involving the audit and determination of the correct tax liability of a taxpayer is open and under consideration by the Commissioner of Internal Revenue, it is his duty correctly to determine the income of the taxpayer and deductions to which the taxpayer is entitled. *1004 Lewis v. Reynolds,284 U.S. 281; *929 Illinois Terminal Co. v. United States, 73 C.Cls. 263, 53 F(2d) 904. * * * This conclusion that plaintiff cannot recover because of the exclusion of these deductions is not inconsistent with the rule that an amount deducted and allowed from income in a certain year must be included in income when collected or recovered in a subsequent year when the correction of the return and the tax liability in a prior year is barred by the statute of limitations. * * * Wherever it is possible to do so, the taxing statutes require that the items of income subject to tax and the deductions to which the taxpayer is legally entitled for the years under consideration be correctly and legally determined by the Commissioner in his final decision, notwithstanding such decision may be made several years after the returns for the particular years involved were filed. Lewis v. Reynolds, supra.[Italics supplied.] The application of the principles set forth above to the facts here compels the conclusion that petitioner is not entitled to deduct $46,622.72 in Federal processing tax which it accrued in the taxable year but never paid, and which was abated shortly*930 after the tax was held invalid on January 6, 1936. The respondent correctly disallowed the deduction of the amount in question. Bergan v. Commissioner, supra;Leach v. Commissioner, supra;Inland Products Co. v. Blair, supra;Bohemian Breweries, Inc. v. United States, supra;Philip C. Brown, supra;Elsie S. Eckstein, supra.See also Cartex Mills, Inc.,42 B.T.A. 894; and J. A. Dougherty's Sons, Inc.,42 B.T.A. 892. In view of the conclusion that respondent correctly disallowed the deduction of the amount in question, it is not necessary to consider the further contention made by respondent that petitioner is not entitled to deduct the amount in question because the statute under which the processing tax was levied "was declared unconstitutional and was as inoperative as though it had never been passed." Philip C. Brown, supra. The cases cited by petitioner have been considered and in our opinion are neither controlling nor applicable. Decision will be entered for the respondent.