Lucas v. United States ex rel. Blackstone Mfg. Co.

MARTIN, Chief Justice. This ease relates to certain income and profits taxes assessed by the Commissioner of Internal Revenue against the Blackstone Manufacturing Company, and challenges the action of the Commissioner in offsetting certain overpayments for the years 1937 and 1919 against a deficiency for the year 1918. Tho case was commenced in the lower court by a petition for mandamus filed by the taxpayer against the Commissioner for a refund. An answer was filed which was demurred to, and the demurrer was sustained. The Commissioner elected to stand upon his answer, and judgment was entered against him. This appeal followed. The answer of tho Commissioner sets out, in substance, the following facts: On June 15, 1918, the. collector of internal revenue erroneously and illegally collected. from the taxpayer excessive income taxes amounting to $10,761.04 for the year 1917. Tho Commissioner, however, did not schedule this sum as an overpayment until November 26, 1927. When tho taxpayer made its return for the year 1918, a deficiency in the sum of $11,708.28 was asserted by the Commissioner in reference thereto. The taxpayer appealed from this decision to the United States Board of Tax Appeals, and the appeal was not decided until October 6, 1927, when the decision of the Commissioner was affirmed. 8 B. T. A. 537. On October 18, 1927, the taxpayer paid the amount of tho deficiency to the collector of internal revenue, but this was not accepted by the Commissioner as a settlement of the deficiency, inasmuch as the overpayment of $10,761.04 for 1917, and also an overpayment of $3,953.52 for 1919, were not yet disposed of, and tho Commissioner held that the deficiency and overpayments should be set off pro tanto against one another in an adjustment of tho respective claims. Whereupon the sum thus paid by the taxpayer upon the deficiency was refunded and paid to it, as an overpayment for the year 1938. The Commissioner accordingly credited the taxpayer with the amounts of the overpayments less the amount of tho deficiency, ansi refunded and paid to tho taxpayer the net credit balance, together with interest as provided by the statute. The Commissioner alleged that the entire account for taxes between the taxpayer and the United States for the years 1917, 1918, and 1919 was thereby fully settled and closed. In our opinion this answer sets out a complete defense to the taxpayer’s petition, and the demurrer thereto should have been overruled. Section 284(a) of the Revenue Act of February 26, 1926 (44 Stat. 9, 66, 26 USCA § 1065(a), provides in part as follows: “Where there has been an overpayment of [292] any income, war-profits, or excess-profits tax imposed by this act, * * * the Revenue Act of 1918, the Revenue Act of 1921, or the Revenue Act of 1924, or any such Act as amended, the amount of such overpayment shall * * * be credited against any income, war-profits, or excess-profits tax or installment thereof then due from the taxpayer, and any balance of such excess shall be refunded immediately to the taxpayer.” The sole contention made in the brief of the taxpayer is that, when the overpayments for the years 1917 and 1918 were scheduled by the Commissioner on November 26, 1927, there was no tax deficiency due from the taxpayer for 1918, for the reason that such deficiency had been fully settled by the payment made by the taxpayer on October 8, 1927. We think, however, that the Commissioner was right in refusing to accept that payment as a settlement of the deficiency, and in returning the same to the taxpayer, inasmuch as otherwise the government would have been paying interest to the taxpayer upon the overpayments from the date of payment, whereas it would have collected interest upon the deficiency only from February 26, 1926. We have already held that such a result would contravene the plain intent of Congress. See McCarl v. U. S. ex rel. Leland, 59 App. D. C. 362, 42 F.(2d) 346. Also compare Riverside & Dan River Cotton Mills v. United States (Ct. Cl.) 37 F.(2d) 965; York Safe & Lock Co. v. United States (Ct. Cl.) 40 F.(2d) 148. In each of these cases certiorari was denied by the Supreme Court, October Term, 1930. U. S. ex rel. Leland v. McCarl, 51 S. Ct. 30, 75 L. Ed.-; Riverside & Dan River Cotton Mills v. United States, 51 S. Ct. 21, 75 L. Ed. —; York Safe & Lock Co. v. United States, 51 S. Ct. 21, 75 L. Ed.-. The judgment of the lower court is therefore reversed, and the cause is remanded for further proceedings! not inconsistent herewith.