Bouvelt Realty, Inc. v. Commissioner

BOUVELT REALTY, INC., PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. CLINRON CORPORATION, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. Bouvelt Realty, Inc. v. Commissioner Docket Nos. 105212, 105213. United States Board of Tax Appeals 46 B.T.A. 45; 1942 BTA LEXIS 917; January 7, 1942, Promulgated *917 Petitioners requested and were granted extensions of time to file 1937 income and excess profits tax returns. During the extension period petitioners' tax advisor prepared completed returns and submitted them to petitioners with instructions that they be signed and sworn to by the proper officers and filed with the collector prior to the expiration of the extension period. The returns were executed as directed, but, due to inadvertence of an employee whose duty it was to file the returns, the completed returns were placed in a file together with copies of returns of many other corporations. Upon notice from the collector a year later, the employee discovered the error and the returns were thereupon filed. Held, that the delinquent filing was "due to reasonable cause and not due to willful neglect" and no penalty for deliquency may be imposed. Sydney S. Snyder, Esq., for the petitioners. William G. Ruymann, Esq., for the respondent. ARUNDELL *45 The sole question at issue in these two proceedings is the correctness of the Commissioner's determination of 25 percent delinquency penaltiees for the year 1937. The penalty determined against*918 the Bouvelt Realty, Inc., is $3,056.90 and the penalty determined against the Clinron Corporation is $448.62. The proceedings were consolidated for hearing and opinion. FINDINGS OF FACT. Both petitioners are corporations engaged in the real estate business and maintain offices at Jamaica, Long Island, New York. Prior to March 15, 1938, both petitioners requested of the Commissioner of Internal Revenue an extension of time within which to file their corporate income and excess profits tax returns for the calendar year 1937. Pursuant to their request and in accordance with section 53 of the Revenue Act of 1936, the Commissioner granted each of these petitioners an extension of time within which to file their tax returns for the calendar year 1937, provided that each petitioner would file a tentative return showing only its name and address, estimated tax, if any, together with a one-fourth payment thereof, and provided further that each petitioner would file its completed return on or before June 15, 1938. *46 Tentative returns for both petitioners for the calendar year 1937 were filed with the collector of internal revenue for the first district of New York on*919 March 15, 1938. These returns showed no tax due by either petitioner. Albert Silbert, a certified public accountant, who had been employed by petitioners to advise them concerning tax matters, prepared the tentative returns filed with the collector. On or before April 9, 1938, Silbert prepared an original and four duplicate copies of petitioners' completed returns. The returns so prepared by him were forwarded to each petitioner with instructions that they be signed and sworn to by the proper corporate officers and that the original and one duplicate copy be filed with the collector of internal revenue on or before June 15, 1938. The completed returns as prepared by Silbert for the calendar year 1937 for these two corporations were executed by the officers thereof on April 15, 1938. These returns as so prepared and executed by the officers of petitioners were turned over to Grace Gaghan, an employee in the office of Benjamin Marvin, legal representative of petitioners, whose duty it was to file the tax returns of petitioners, together with the returns of some 20 to 25 other corporations. It was the custom and practice of this employee to keep copies of returns of all corporations*920 handled through her office, which copies were arranged in alphabetical order, fastened together, and placed in a file, all returns of the same type and year of the 20 odd corporations being kept together. After the completed returns of petitioners had been executed, Grace Gaghan got out the file containing the copies of the returns made by the other 20 odd corporations and, inadvertently, the original completed returns of these petitioners for the year 1937 were placed in the file instead of being mailed to the collector. Thereafter, in 1939, petitioners received letters from the collector requesting information about the failure of the petitioners to file completed returns by June 15, 1938, the expiration date of the extension granted by the Commissioner through the collector of internal revenue. Thereupon, Grace Gaghan examined her files and found the two original returns, which were immediately forwarded to the collector of internal revenue, first district of New York, where they were received on May 18, 1939. Attached to each of the completed returns as filed was a sworn statement to the effect that the delinquency of each petitioner "in filing returns of Income Tax for*921 the year ending 12/31/37 as required by law was not due to any intent to violate the law or evade taxation, but was due to: Fact that through an inadvertence in the office of said Corp., said original and duplicate original return was filed away with office copy." *47 Silbert prepared petitioners' 1938 return of capital stock for the year ended June 30, 1938, and also petitioners' income tax returns for the calendar year 1938, and these several returns were timely filed with the collector of internal revenue and at dates prior to the notice from the collector of the failure to file on time the income tax returns of petitioners for the calendar year 1937. In all the time Grace Gaghan has been in charge of the returns for the various corporations, this was the first and only occasion in which she failed properly to file the returns. Petitioners' failure to file their completed income tax returns for the calendar year 1937 within the time prescribed by the Commissioner pursuant to law was due to reasonable cause and not to willful neglect. OPINION. ARUNDELL: Section 291 of the Revenue Act of 1936 imposes a delinquency penalty for failure to file returns within the*922 time required by law or within the time prescribed by the Commissioner "unless it is shown that such failure is due to reasonable cause and not due to willful neglect * * *." The evidence establishes beyond question that there was no willful neglect, if that term means, as we think it does, that the failure to file was intentional or designed. The securing of an extension of time to file the final returns, the prompt filing of tentative returns, the early making out of the final returns by the petitioners' tax accountant, followed by the prompt execution of those returns by the proper corporate officers, and the turning over of the returns for filing to petitioners' employee who was charged with the duty of personally seeing that they were filed, are all facts which point to the absence of any willful neglect by petitioners. Grace Gaghan, whose duty it was to file the returns, takes the blame for the delay. Some 20 to 25 different corporate returns were prepared under the direction of the office in which she was employed and it appears that in all other instances the returns of the several corporations were timely filed. The returns of petitioners for prior and subsequent years*923 had been timely filed and the reason for the delay in this case, as pointed out in the findings, results from the fact that the returns in question became mixed with the retained copies of the returns of the several other corporations and thus were not sent in due course to the collector. It was not until the collector wrote petitioners asking why the final returns had not been filed that a search through the office copies disclosed that the completed returns had not been filed. The returns were then immediately forwarded to the collector and duly filed. *48 Both corporations were real estate companies and it appears from the returns in evidence that in the case of Bouvelt there was only one transaction within the year and in the case of Clinron two transactions. The tentative and final returns of both companies had reported no tax due, although the transactions apparently were set forth fully in the final returns. Thus the fact that no tax was paid would not place the officers of petitioners on notice that the returns had not been filed, as might be the case where a return shows a tax due. In the circumstances we think it may be said that there was s reasonable cause*924 for the failure to file on time. . We are not unmindful of the grave necessity for the timely filing of tax returns, but the imposition of the penalty is not made mandatory by the statute. Congress was fully alive to the fact that there would be occasions where responsible officers of corporations had taken every safeguard for filing their returns and yet something went wrong. We are of the opinion that on these facts the penalty should not be imposed. Decision will be entered for the petitioners.