United States v. C. C. Clark, Inc.

HOLMES, Circuit Judge. This appeal involves income taxes for 1937 under the Revenue Act of 1936.1 The essential facts, as stipulated by the parties and found by the trial court, are as follows : In December, 1937, the taxpayer declared a dividend to its stockholders in the amount of $118,500, payable in its own notes out of undistributed profits. A few months thereafter, in early 1938, the taxpayer cancelled this dividend ahd declared as a substitute therefor a cash dividend of $88,500, which was paid. During the tax year in question, the sum of $30,000 was paid by taxpayer to two of its stockholders in payment of its notes held by them. In its return for 1937, the taxpayer took proper credit for the $88,500 dividend payment, but did not take credit for the $30,000 payment under Section 26(c) (2) of the Act or under Section 27(a) thereof. In December, 1939, taxpayer filed its claim for refund of surtaxes paid on undistributed profits in the amount of $3,326.-11 alleged to have been overpaid in 1937 by reason of its failure to take credit for the $30,000 payment, above mentioned, under Section 26(c) (2) of the Act. Its claim was rejected by the Commissioner of Internal Revenue, and thereafter suit was instituted by the taxpayer against the United States. The result of that suit was the affirmance by this court of the judgment against the taxpayer.2 After the filing but before the determination of that suit, the stockholders amended their individual returns so as to report the $30,000 payment to them by the taxpayer herein, and they paid their individual taxes for 1937 on a basis of $118,500 paid to them by the taxpayer. In January, 1941, the taxpayer filed its claim for refund of $3,337.28 of surtaxes on undistributed profits paid by it for the calender year 1937, basing its claim upon the assertion that the taxpayer had distributed $118,500 in dividends to its stockholders, who had been required to pay their individual income taxes on such amount, but that the taxpayer had been allowed a dividends-paid credit of only $88,-500, and that the taxpayer was entitled to the exact amount of dividends-paid credit which its individual stockholders were required to pay taxes on as dividends. That claim is the suit herein, and is based on Section 27(a) of the Revenue Act of 1936. [490] The question for determination on this appeal is whether our decision in C. C. Clark, Inc., v. United States, 5 Cir., 126 F.2d 292, denying taxpayers recovery of an asserted overpayment of surtaxes for 1937 under Section 26(c) (2) of the Act is res judicata of the same taxpayer’s suit for the recovery of an asserted overpayment of surtaxes for 1937 under Section 27(a) of the Act. We think the doctrine of res judicata is applicable. Income-tax liability for any one year is a single cause of action. Each taxable year constitutes a separate cause of action, and in every suit for refund one of the questions presented is the determination of the amount by which the taxpayer has overpayed his taxes for the year involved.3 This doctrine is based on' a sound public policy, and its main purpose is to avoid useless litigation brought about by the splitting of actions. The judgment appealed from is reversed, and the cause remanded for further proceedings not inconsistent with this opinion. Footnotes [1] 49 Stat. 1648, 26 U.S.C.A. Int.Rev. Acts, pages 813-972. [2] C. C. Clark, Inc., v. United States, 5 Cir., 126 F.2d 292. [3] Lewis v. Reynolds, 284 U.S. 281, 52 S.Ct. 145, 76 L.Ed. 293; International Curtis Marine Turbine Co., v. United States, 56 F.2d 708, 74 Ct.Cl. 132; Chicago Junction Rys., etc., v. United States, 10 F.Supp. 156, 80 Ct.Cl. 824. Cf. Guettel v. United States, 8 Cir., 98 F.2d 229, 118 A.L.R. 1060, certiorari denied 305 U. S. 603, 59 S.Ct. 64, 83 L.Ed. 383; Cleveland et al. v. Higgins, 2 Cir., 148 F.2d 722, certiorari denied 326 U.S. 722, 66 S.Ct. 27.