Before JAMES, LITTLETON, SMITH, and TRUSSELL. TRUSSELL: This is an appeal from the determination of a deficiency in income and profits taxes for the year 1918 in the amount of $35,213.85. The issues presented by the pleadings are: (1) Whether a deficiency assessment made by the Commissioner on June 13, 1924, was made within the five-year limitation prescribed by statute. (2) Whether the same Commissioner may, after having once made an adjustment of this taxpayer's liability to income and profits taxes, thereafter, upon his own motion, reopen the case and assert an additional liability to income and profits taxes and assess the same within the period of limitations prescribed by statute. (3) Whether, after having reopened the case, the Commissioner, in applying the provisions of section 328 of the Revenue Act of 1918, used improper and unfair comparatives, with the result that the asserted deficiency is excessive, unjust, and inequitable, and imposes upon this taxpayer a rate of tax in excess of that paid by others. similarly circumstanced. Prior to the date set for the hearing of this appeal the taxpayer, through its counsel, applied for and there was issued a subpoena requiring the Commissioner to appear at the hearing of the appeal and to bring with him and produce the returns of the corporations with which he compared this taxpayer, and such other information and data as was used by him pursuant to section 328 (a) of the Revenue Act of 1918 in computing the deficiency herein complained of. At the hearing, the Commissioner's counsel announced that the Commissioner acknowledged the receipt of the subpoena but declined to furnish the returns or any other data or information in respect thereto, basing his action upon section 3167 of the United States Revised Statutes, as amended. Thereupon, counsel for the taxpayer introduced into the record. the several Commissioner's letters, which are herein recited, and argued the questions of law concerning the running of the statute of limitations and reopening of tax cases, and at the close of the oral argument the Division of the Board announced that, in the event the decision of the Board should be unfavorable to the taxpayer upon the issues of law presented, the taxpayer would be allowed a period of 30 days within which to move for such further proceedings in connection with this appeal as might be deemed appropriate and necessary. The taxpayer is an Illinois corporation with its principal place of business in Chicago, where it is engaged in the business of manufacturing brass and copper and articles of merchandise made from said materials, and dealing in the same, as well as in similar prod ucts manufactured by others. During the calendar year 1918, the taxpayer's business produced a net income, as shown by its books, in the amount of $266,940.74, upon which its income and profits tax liability, computed in accordance with the provisions of sections 230 and 301 of the Revenue Act of 1918, aggregated $181,297.03. Under date of February 13, 1919, the Commissioner caused announcement to be made through the public press of a plan under which taxpayers who would be called upon to make income and profits-tax returns under the Revenue Act of 1918, which had not then been enacted, would be enabled to have the benefit of an extension of time within which to file completed returns. A part of such authorized publication and notice was as follows: To collectors of internal revenue and others concerned: Although no general extension of time will be authorized for filing Federal Income Tax returns due March 15, the Commissioner of Internal Revenue has approved a novel feature of tax collection which will serve for all practical purposes as a possible extension of forty-five days for the filing of corporation income and excess profits tax returns in cases where corporations are unable to complete and file their returns on March 15. If a corporation finds that, for good and sufficient reason, it is impossible to complete its return by March 15, it may make a return of the estimated tax due and make payment thereof not later than March 15. If meritorious reason is shown as to why the corporation is unable to complete its return by the specified date, the collector will accept the payment of the estimated tax and agree to accept the revised and completed tax return within a period of not more than 45 days. Again, under date of February 27, 1919, three days after the approval of the Revenue Act of 1918, the Commissioner caused to be published in the public press and otherwise, for the information of taxpayers, further announcement concerning extensions of time within which to file income and profits tax returns, a part of which published notice is as follows: Income taxpayers, both corporation and individual, were today granted by the Internal Revenue Bureau further relief with respect to the filing of their completed tax returns for 1918. The statement that the taxpayer is unable by March 15, to execute and file the complete return will be accepted. under the new procedure, as sufficient reason for extending for forty-five days the time for filing complete income and excess profits returns, provided in every case the taxpayer pays on or before March 15 at least 25 per cent of the estimated amount of the tax due. The tentative return to be used by corporations who make payment of the estimated tax due on or before March 15 is being printed, and a supply will be forwarded tomorrow to each collector, who will mail these Forms to every corporation on his list (to be known as Form 1031-T). On or about April 14, 1919, the Commissioner issued his mimeographed letter No. 2101, addressed to collectors of internal revenue, and published in the public press for the information of taxpayers, the relevant portion of which is as follows: In the case of corporations which filed Form 1031-T on or before March 15, a further extension, where needed, to June 15, 1919, in which to file complete returns on Form 1120 is hereby granted, but all such corporations will be required to pay on or before June 15 a sum sufficient, with the amount paid on March 15, to equal one-half the tax due as shown by the return on Form 1120, together with interest at the rate of one-half of 1% per month on any deficiency in the first installment. On March 12, 1919, the taxpayer filed with the collector of internal revenue at Chicago a so-called tentative return on Form 1031–T, and on that day paid to the collector the sum of $32,619.99, representing that said amount was one-fourth of 50 per cent of the total amount of the net income and was then paid pursuant to section 328 (b) of the Revenue Act of 1918. Securely affixed to the form is a typewritten slip in words and figures as follows: Said taxpayer, Dallas Brass & Copper Co., hereby gives notice to the Collector of Internal Revenue that it intends to make application to the Commissioner to apply the benefit of sections 327 and 328 of the Revenue Act of 1918, in force February, 1919, to the computation of the proper tax to be paid by this corporation, and in accordance with section 328, paragraph "B," pays the Collector herewith the sum of Thirty-two thousand, six hundred nineteen and Dollars ($32,619.99), said installment being computed upon the basis of a tax equal to fifty per cent of the net income of said Dallas Brass & Copper Co. for the year ending December 31, 1918. 99 This form was signed by the president of the taxpayer corporation, acknowledged before a notary, and filed in the collector's office at Chicago on March 12, 1919. Thereafter, the taxpayer procured the department Form 1120, "corporation income and profits tax return for calendar year 1918," and caused such form to be prepared in the manner apparently indicated by the form and the instructions contained thereon, showing that the net taxable income was $266,940.74, and the tax computations carried out in the manner indicated by the form show Total excess and war profits taxes.. $170, 165.95 11, 131. 08 Total tax liability.. 181, 297.03 This form was signed by the president of the corporation, sworn to before a notary on June 13, 1919, and filed in the office of the collector of internal revenue at Chicago on June 13, 1919, and there is a notation on the form that a remittance accompanied it in the amount of $39,680.73. Thereupon, the taxpayer made an application for relief, accompanied by claim for abatement, under sections 327 and 328 of the Revenue Act of 1918, and the Commissioner, under date of Febru ary 10, 1921, granted an abatement of tax in the amount of $27,828.98. The taxpayer then made application for further special relief, in response to which, after a number of conferences, the Commissioner, under date of September 14, 1922, allowed a further reduction of assessment in the amount of $51,239.16, and forwarded to the taxpayer a letter setting forth such findings, in words and figures as follows, in so far as the said letter related to the calendar year 1918: Interest on U. S. obligations not exempt-- $2,015. 77 80, 132. 29 The overassessments shown herein will be made the subject of certificates of overassessments which will reach you in due course through the office of the Collector of Internal Revenue for your district and will be applied by that official in accordance with section 252 of the Revenue Act of 1921. Respectfully, E. H. BATSON, Deputy Commissioner. Here the subject of this taxpayer's liability to income and profits taxes for the year 1918 appears to have rested until, on or about June 12, 1924, the Commissioner caused to be prepared and forwarded to the taxpayer a letter as follows: IT: E: SM LTM-A-2351 THE DALLAS BRASS AND COPPER COMPANY, 223-231 North Jefferson Street, Chicago, Ill. JUNE 12, 1924. SIRS Reference is made to your income and profits tax return, Form 1120, for the calendar year 1918, and to Bureau letter dated September 14, 1922, in which you were advised of an overassessment amounting to $51,239.16, determined as a result of computing your tax liability under the provisions of section 328 of the Revenue Act of 1918. A reexamination has been made of your application for assessment of your profits taxes under the relief provisions of the Revenue Act of 1918, together with all other evidence in the case, and you are advised that the above-mentioned determination of your tax liability was erroneous. A correct computation of your tax liability under section 328 of the Revenue Act of 1918 has been made and the additional assessment, $35,213.85, necessary to correct the excessive overassessments erroneously determined will be listed immediately in accordance with the provisions of section 274 (d) of the Revenue Act of 1924, without giving the sixty days' notice as provided in section 274 (a) of the same act. The Bureau, therefore, will entertain a claim in abatement if filed within ten days of receipt of notice and demand from the Collector of Internal Revenue for your district, in accordance with the provisions of section 279 of the above-mentioned Revenue Act. An appeal covering the basis of the claim should be filed, setting forth in full all information upon which you base your protest against the above assessment and any additional facts in support of your claim for the application of the relief provisions of the Revenue Act of 1918. This appeal should be filed in triplicate and should be addressed to the Commissioner of Internal Revenue for the specific attention of IT: E: SM-LTM-A-2351. On request a conference will be arranged prior to final decision. If an appeal is not filed, payment should be made upon receipt of notice and demand from the Collector of Internal Revenue for your district. In re: The Dallas Brass and Copper Company, 223-231 North Jefferson |