1. A general claim for refund, though irregular in form under
the Treasury Regulations, may be amended after the period of
limitation by specifying the grounds, if the amendment is made
before final rejection.
United States v. Memphis Cotton Oil
Co., ante p.
288 U. S. 62. P.
288 U. S.
83.
2. A statement, without explanation, to the effect that
overpayments have been made in an aggregate amount is broad enough
to cover any deviation from the normal statutory rule in making the
computation or assessment.
Id.
Page 288 U. S. 74
3. The taxpayer claimed a refund of income and excess profits
taxes, assessed under § 326 of the Revenue Act 1918, upon the
ground that, owing to abnormal conditions affecting its capital and
income, there could be no fair appraisal of its property in
accordance with that section, and that it should have the benefit
of a special assessment under §§ 327(d) and 328, which provide for
computation of the tax in such cases without reference to value of
invested capital, by the ratio which the average tax of
representative corporations engaged in a similar business bears to
their average net income.
Held, that the claim could not
be turned by amendment into one for the revision of the assessment
by increasing the value of real estate included in invested
capital, and that a claim on that ground, coming after the time
limited by statute for filing claims, was barred. Pp.
288 U. S. 81,
288 U. S.
83.
4. A request for a special assessment in accordance with §
327(d) of the Revenue Act, 1918, calls for discretionary,
administrative action not ordinarily reviewable in court, and
suggests no challenge of the valuation, or need of a revaluation,
of invested capital. P.
288 U. S.
84.
5. Such an application so differs in essence and in its relation
to administration from a claim based on undervaluation of the
taxpayer's real estate capital in computing income and profits by
the normal method of the statute that the two must be regarded as
different claims or "causes of action," the one not amendable by
the other, tested either by the analogies of pleading or by the
necessities and realities of administrative practice. P.
288 U. S.
84.
6. Application for the special assessment being an appeal to
discretion, a condition may reasonably be imposed that the inquiry
shall be postponed until other and unrelated objections -- in this
case, reassessment of invested capital -- have been either
determined or abandoned. P.
288 U. S.
88.
7. The taxpayer in this case having elected to pursue its
application for a special assessment after having been informed by
the Commissioner that, by the Bureau's practice, the invested
capital and net income must first be definitely determined, either
by acquiescence in figures already reported or through an appeal,
held equivalent to an agreement that the claim for a
special assessment should be deemed to be a distinct one from that
for a revision of the values, so that retraction, if ever possible,
was too late when the statute of limitations had interposed its
bar. P.
288 U. S.
87.
8. Whether this Court has jurisdiction on certiorari to review
parts of a judgment adverse to the respondent although the
respondent
Page 288 U. S. 75
has neither secured nor applied for a writ of certiorari, will
not be decided where, assuming the existence of the power, the case
does not impel its exercise. P.
288 U. S.
88.
57 F.2d 676 reversed.
Certiorari to review the reversal in part of a judgment
recovered by the present respondent in a suit against the United
States based on overpayments of income and excess profits
taxes.
Page 288 U. S. 79
MR. JUSTICE CARDOZO delivered the opinion of the Court.
Respondent (the plaintiff in the court below) brought suit
against the United States in a District Court to recover
overpayments of income and excess profits taxes for the years 1918
and 1920. The overpayments had come about, so it was claimed, from
the undervaluation by the Commissioner of the respondent's invested
capital, with a consequent exaggeration of the profits to be taxed.
Two items or classes of property were the subject of the
controversy.
Page 288 U. S. 80
In each year there has been an omission to include the full
value of the real estate; indeed, the parties have stipulated that
the value of the real estate was greater by the sum of $46,371.08
than the sum allowed in the assessment. In each year also there had
been an omission to include the value of intangible property, and
particularly goodwill. The District Court held that there could be
no relief in respect of either item for the year 1918 because the
claim for refund filed with the Commissioner did not comply with
the statute and the Treasury Regulations. In respect of both items,
real estate and intangibles, relief was granted to the taxpayer to
the extent of overpayments for the year 1920. The result was a
judgment in favor of the respondent for $7,975.21. 46 F.2d 159.
Cross-appeals followed to the Court of Appeals for the Second
Circuit. Upon the taxpayer's appeal, the decision was that the
defective refund claim for 1918 and been made good by amendment,
and that the tax for that year, as well as for 1920, had been
overpaid as to the real estate. Upon the government's appeal, the
decision was that the item of intangibles should have been excluded
for both years. 57 F.2d 676. A writ of certiorari, designed to
bring up the ruling as to the amendment of the claim for 1918, was
granted by this Court on the petition of the government. No
petition for a writ was submitted by the taxpayer.
On June 16, 1919, respondent filed its income and excess profits
tax return for the year 1918, showing a total tax of $535,144.20,
which it paid. On December 28, 1920, it paid for the year 1918 an
additional tax of $119,191.19, as the result of an additional
assessment, receiving back, however, $9,559.19 on the completion of
the audit. Within the time prescribed by law, there was filed with
the Commissioner, on March 14, 1924, a claim for refund. In this
claim, the respondent demanded the repayment of $200,000. It
stated, in substance, as the ground for this demand,
Page 288 U. S. 81
that, owing to abnormal conditions affecting its invested
capital and income, there could be no fair computation of the tax
by the appraisal of the cash value of its property is accordance
with § 326 of the Revenue Act of 1918 (c. 18, 40 Stat. 1057, 1091,
1092, 1093), and that it should have the benefit of a special
assessment under §§ 327 and 328.
Section 327 of the Act provides in subdivision (d) that the tax
shall be determined in accordance with § 328
"where, upon application by the corporation, the Commissioner
finds and so declares of record that the tax, if determined without
benefit of this section, would, owing to abnormal conditions
affecting the capital or income of the corporation, work upon the
corporation an exceptional hardship evidenced by gross
disproportion between the tax computed without benefit of this
section and the tax computed by reference to the representative
corporations specified in § 328."
Section 328 provides in effect that, in cases covered thereby,
the tax shall be computed without reference to the value of the
invested capital, and shall be determined by the ratio which the
average tax of representative corporations engaged in a like or
similar trade or business bears to their average net income.
The respondent's claim for refund, with the specification of the
erroneous denial of a special assessment as the statement of its
grievance, was filed, as we have seen, in March, 1924. On May 14 of
that year, the respondent received from the Commissioner a letter
acknowledging the filing and notifying the claimant of the
procedure to be followed. "No consideration," it was there
written,
"may be given under the provisions of §§ 327 and 328 until
statutory net income and invested capital are definitely
determined. It is therefore necessary that you acquiesce in the net
income and invested capital as shown in the revenue agent's report
of March 25, 1920, for the
Page 288 U. S. 82
year 1918, or submit exceptions, if any, which you may take
thereto. If exceptions are taken, they should be presented in the
form of an appeal prepared in accordance with the provisions of
Treasury Decision 3492, a copy of which is enclosed."
The respondent does not assert that, in response to this notice,
it took any appeal or filed any exceptions complaining of the
assessment of capital or income. If any such document were in
existence, it would have been equivalent to an amendment of the
claim, and no doubt would be in evidence. What the respondent chose
to do was obviously to acquiesce in the report that the cash value
of the capital had been fairly ascertained, and to take its stand
on the position that, under §§ 327 and 328, its tax should be
determined without reference to such value, and in accordance with
other methods, both exceptional and discretionary. Accordingly, the
Commissioner proceeded to a consideration of the claim that error
had been committed in failing to give the taxpayer the benefit of a
special method of assessment. On July 16, 1925, the respondent was
advised by written notice that there was no evidence of abnormal
conditions sufficient to call for a departure from the usual forms
of computation. The notice, signed by an acting deputy
commissioner, closes with these words: "In accordance with the
above conclusions, your claim will be rejected." To this is added a
statement that the collection for the taxpayer's district will be
officially notified of the rejection at the expiration of thirty
days.
Notwithstanding this notice, the Bureau of Internal Revenue kept
the proceeding open. Writing to the respondent on February 23,
1926, the Solicitor of the Bureau stated that his office has before
it for consideration the application for a special assessment of
the taxes for 1918, and that, "before a final decision is reached,"
the taxpayer "will be granted an opportunity to be heard
Page 288 U. S. 83
orally." If such a hearing is not desired, "the decision in the
matter will be based upon the record as it now stands." In answer
to that invitation, the respondent requested an oral hearing, which
it received, and also filed on April 8, 1926, a statement under
oath which, by concession, was equivalent in form to an amended
proof of claim. In this statement, the respondent put before the
Commissioner the evidence both as to the undervaluation of the real
estate and as to the exclusion of intangibles. [
Footnote 1] The Commissioner rejected the claim on
September 3, 1926, by signing the rejection schedule.
We are holding in
United States v. Memphis Oil Co.,
ante, p.
288 U. S. 62,
decided herewith, that a general claim for refund, though irregular
in form under the Treasury Regulations, may be amended after the
period of limitation by specifying the grounds, if the amendment is
made before final rejection. A statement, without explanation, to
the effect that overpayments have been made in an aggregate amount
is broad enough to cover any and all grounds for reassessment and
return. This, at all events, is true where the basis of the
grievance is that the tax has been erroneously computed even by the
normal method, that there has been a deviation, in other words,
from the statutory rule. Such is not the claim in controversy here.
Here, the taxpayer, by its claim as originally presented, abandoned
the position that there had been any error of fact or law in the
assessment of the tax according to the normal method, and planted
itself on the position that the special method would be fairer. We
are to say whether the ground thus deserted may be recovered by
amendment.
Page 288 U. S. 84
The act of the Commissioner of Internal Revenue in granting or
refusing a special assessment under § 327(d) of the Act of 1918 is
discretionary and administrative, not subject to be challenged in
any court, at least in the absence of fraud or other
irregularities.
Williamsport Wire Rope Co. v. United
States, 277 U. S. 551,
277 U. S. 562.
Discretionary and administrative also is the review of his
determination by the Board of Tax Appeals.
Williamsport Wire
Rope Co. v. United States, supra. If this amendment is
permissible, a request for the exercise of a discretionary
jurisdiction will have been turned after the running of the statute
(Revenue Act of 1921, c. 136, § 252, 42 Stat. 227, 268; Revenue Act
of 1924, c. 234, § 1011; 43 Stat. 253, 342; Revenue Act of 1926, c.
27, §§ 284, 1113(a), 44 Stat. 9, 66, 116) into a claim of error of
law or fact, and hence into a controversy within the jurisdiction
of a court. What at the beginning was nonjusticiable, with
exceptions few and narrow (
Williamsport Wire Rope Co. v. United
States, supra, p.
277 U. S.
562), will have become justiciable at the end.
An amendment so far-reaching, a metamorphosis so complete, may
well be thought to destroy the identity of the claim or cause of
action if the analogies of pleading in a lawsuit are to govern our
decision. A declaration according to the common court for money had
and received may be good though it does not tell us how the money
was received or the use established.
United States v. Memphis
Oil Co., supra. This does not mean that a pleader who abandons
the common count and states the particular facts out of which his
grievance has arisen retains unfettered freedom to change the
statement at his pleasure. All will then depend on the degree and
kind of the departure. A cause of action alleging as a grievance
that there has been a deviation from a rule of law or the breach of
a legal duty in the collection of a tax is far apart from an appeal
to an administrative officer to abandon the normal rule or method
and substitute another, the substitution
Page 288 U. S. 85
being dependent upon administrative discretion. Overpayments
there may have been in each case, yet in senses widely different.
But the analogies of pleadings are not decisive of the controversy
before us, wherever they may point and however helpful they may be.
To make our conclusion sound, we must keep in mind also the
necessities and realities of administrative practice. A demand for
a special assessment in accordance with § 327(d) of the statute of
1918 is not a challenge to any act of the Commissioner in the
valuation of invested capital. On the contrary, the valuation of
invested capital is irrelevant if the special method is accepted.
The very basis of the application for the use of such a method is
the presence of abnormal conditions whereby an unfair and
disproportionate burden will be laid upon the taxpayer if invested
capital is to be reckoned according to the statutory definition (§§
325, 326) and the profits of the taxpayer subjected to a tax
accordingly. Let the new method be adopted, and the value of the
invested capital ceases to be a factor in the process. The
taxpayer, it is true, may complain even then that there is a
variance between such capital when restricted to the elements
covered by the statute and invested capital when viewed as an
economic concept, and that, by reason of special conditions, there
should be an addition of other elements commonly excluded.
See,
e.g., J. H. Guild Co. v. Commissioner, 11 B.T.A. 914, 921.
Indeed, that is the very reason why a special assessment becomes
necessary. The fact remains, however, that the grievance does not
grow out of a failure of the assessors to value the invested
capital truly according to the statute. It has no relation, for
example, to an assessment of tangible property such as land or
buildings at less than the cash value. The grievance that will
support an application for a special method of assessment under
subdivision (d) of § 327 assumes adherence to the statute, and
counts upon extraordinary conditions as justifying
Page 288 U. S. 86
a claim that the statute is oppressive. If the special method is
accepted, the income of the taxpayer is considered without
reference to capital as commonly determined, and the tax becomes
proportionate to that of other representative corporations engaged
in a like business.
A claim or cause of action will be ill defined for the purpose
of an administrative remedy if the definition gives no heed to the
understanding or conduct of administrative officers. We are to ask
ourselves how a request for a special method of assessment might be
expected to be viewed or acted on by those required to consider it.
The presentation of such a claim, unlike the presentation of a
claim of error in fact or law, does not suggest the need for a new
and general audit of assets and liabilities. [
Footnote 2] The two proceedings, alike in form and
in consequences, are essentially diverse. By the very terms of the
statute, § 327(d), the special assessment is the outcome of a
special application; it is made on motion of the taxpayer. A
revision for error of fact or law, on the other hand, may be made
by the Commissioner on his own motion, and indeed is commonly so
made, for it is incidental to his general duty to audit the
accounts. Upon an application for special relief, under subdivision
(d), there are no compensating adjustments favorable to the
government that will move an examiner to reconsider the value of
the tangibles, and make it either less or greater.
Lewis v.
Reynolds, 284 U. S. 281. He
will conceive of the invested capital as deposited in a separate
compartment which there is no need for him to open. Upon a claim of
deviation from the statute, the taxable balance for the
Page 288 U. S. 87
year will be subject to reaudit as if the tax were laid anew.
The grievances differ so essentially that the assertion of the one
must be felt to be unrelated to any complaint as to the other.
The conclusion derived from the analogies of pleadings in a
lawsuit is thus seen to be confirmed by the probabilities, if not
the certainties, of administrative practice. If this is not enough,
however, there is confirmation from other sources. In the pages of
this record, we find convincing evidence that, by the understanding
of the parties, the claim for a special assessment was to exclude
any claim for the revision of the value of the capital, and that no
such claim would be pressed, at all events while the claim for a
new method of assessment was alive and undetermined. We have seen
that, in May, 1924, the Commissioner of Internal Revenue gave
notice to the taxpayer that there could be no consideration of the
prayer for relief under §§ 327 and 328 of the applicable statute
"until statutory net income and invested capital are definitely
determined." The taxpayer was accordingly informed, in conformity,
it seems, with the usual practice of the Department, that it would
be necessary to do one or other of two things: to appeal from the
report as to invested capital and income in accordance with a
prescribed form, or to acquiesce in it.
Cf. Commissioner v.
Ohio Falls Dye & F. Works, 50 F.2d 660;
Norton Co. v.
Commissioner, 50 F.2d 664. The notice would tend to show,
though assent to its requirements were lacking, that, in the
judgment of the men intrusted with the administration of the Act,
the two subjects of inquiry are diverse and independent. Coupled
with the assent of the taxpayer, its significance is heightened.
There is no suggestion that the taxpayer, when faced with this
alternative, resorted to an appeal. In these circumstances, its
conduct in proceeding with its application for a special assessment
was a tacit assent to the condition imposed by the Commissioner
and
Page 288 U. S. 88
an abandonment of any objection that capital and income had been
erroneously valued if valuation was to be ascertained according to
the normal method. We have seen that an application for a special
assessment involves an appeal by the taxpayer to the Commissioner's
discretion. The application being of that order, a condition may
reasonably be imposed that the inquiry shall be postponed until
other and unrelated objections have been either determined or
abandoned. There is room for argument that the taxpayer, having won
the privilege of a hearing on those terms, is estopped from
retracting its assent and resuming the abandoned ground.
Sturm
v. Boker, 150 U. S. 312,
150 U. S.
333-334;
Davis v. Wakelee, 156 U.
S. 680,
156 U. S. 689.
At least its assent is equivalent to an agreement that the claim
for a special assessment shall be deemed to be a distinct one from
that for a revision of the values. Retraction, if ever possible,
must be held to be too late when the statute of limitations has
interposed a bar.
The respondent complains of the ruling of the Court of Appeals
whereby the value of intangibles was excluded from the invested
capital for the year 1920, and the judgment of the District Court
modified accordingly. The argument is that this Court has
jurisdiction in the exercise of its discretion to review those
parts of the judgment adverse to the respondent, though no writ of
certiorari was granted except to the petitioner, the government,
nor was any other even asked for. We are not required at this time
either to affirm or to deny the existence of the power that the
argument imputes to us. If the power exists, the respondent has not
persuaded us that our discretion should be moved to use it.
The judgment of the Circuit Court of Appeals should be reversed
to the extent of the petitioner's objections thereto, and the cause
remanded to the District Court for further proceedings in
conformity with this opinion.
Reversed.
[
Footnote 1]
Certain forms of intangibles, for example, goodwill, are
excluded in general from the definition of invested capital, but
there are special conditions in which there is a duty to include
them. Revenue Act of 1918, § 326, (4) and (5).
[
Footnote 2]
The range of investigation upon special applications is
considered by Albert E. James, a former member of the Board of Tax
Appeals, in an article "Special Assessment cases in the Courts and
the Board," published in volume 8, pt. 1, National Income Tax
Magazine, 287, 289, 290, August, 1930.
See also
Investigation of Bureau of Internal Revenue, Senate Report No. 27,
pt. I, 69th Congress, 1st Session, p. 215.