1. While a full examination of the taxpayer's affairs was being
made by the Bureau for the purpose of determining the income and
profits tax for 1917, the taxpayer filed a claim for refund stating
only an amount, to cover any overpayment that might be found, and
not specifying the grounds. After the statutory period for filing
claims had run, an amended claim was filed, setting forth the
grounds in detail, with reasons why a special assessment should be
made under § 210 of the Revenue Act of 1917, which permits such
procedure if the Department is unable in any case satisfactorily to
determine the amount of invested capital. Thereafter, the
Commissioner decided that the case was one for such special
assessment, and, pursuing that method, found an overpayment in a
stated amount; but he refused to refund, upon the ground that the
first claim was too general and the second filed too late.
Held:
(1) That the first claim was subject to amendment until final
rejection, irrespective of a limitation running in the interval.
United States v. Memphis Oil Co., ante p.
288 U. S. 62. P.
288 U. S.
93.
(2) The second claim was not an abandonment of or departure from
the first -- not a new and independent claim -- but properly an
amendment.
United States v. Henry Prentiss & Co.,
ante, p.
288 U. S. 73,
distinguished.
Id.
(3) The Commissioner's certificate that assessment should be
under § 210 is binding in the absence of evidence impeaching his
conclusion, and the taxpayer is entitled to recover the overpayment
so found by the Commissioner. P.
288 U. S.
96.
2. There are clear and important differences between the
provisions for special assessments made by § 210 of the Revenue Act
of 1917 and those made by § 327(d) of the Revenue Act of 1918. P.
288 U. S.
94.
73 Ct.Cls. 707, 56 F.2d 902, affirmed.
Certiorari to review a judgment allowing a claim based on
overpayment of income and excess profits taxes.
Page 288 U. S. 90
MR. JUSTICE CARDOZO delivered the opinion of the Court.
The suit is by a taxpayer to recover $19,995.44, with interest,
an overpayment of income and profits tax. Here, as in other cases
decided at this session, the judgment stands or falls according to
our determination of the time within which a notice of a claim for
refund is subject to amendment.
On June 15, 1918, respondent, a corporation, filed an income and
profits tax return for the calendar year ending December 31, 1917,
and made payment of the tax in accordance therewith. The amount of
the payment was $177,338.72. In May, 1920, the Commissioner made an
assessment of an additional tax for 1917 in the sum of $267.32,
which was paid by the respondent on June 29, 1920. In August, 1920,
the Commissioner made another assessment of an additional tax for
the same year in the sum of $25,327.91. On account of this
additional tax, respondent on October 4, 1920, made a payment of
$9,388.57, and in the same month filed a claim for the abatement of
$15,933.34, the amount of the unpaid balance. In connection with
this claim for abatement, the Commissioner made an order on May 6,
1921, for a full examination of the affairs of the taxpayer by an
agent of the Bureau of Internal Revenue. Such an examination was
made, and a report by the examiner was filed with his superior.
In February, 1923, the audit by the Commissioner was still
incomplete, and the amount of the assessment not finally
determined. The taxpayer was fearful, so it seems, that the time
might go by within which claims for overpayments were due under the
law. To forestall any
Page 288 U. S. 91
default, it lodged with the Commissioner on February 27, 1923, a
claim for $177,606.04 in terms of sweeping generality. It stated in
so doing that there had been at that time no final audit of its
return or assessment of the tax, and that the purpose of the notice
was to save the taxpayer's rights under the applicable statutes
"and to permit the Commissioner to refund to deponent any excess
paid over taxes actually found to be due." There was no statement
in this notice as to the grounds of the claim that the payments
were excessive. No such statement was made until July 17, 1925,
when there was filed with the Commissioner an amended claim for
refund, setting forth grounds in detail. In this amended claim, the
taxpayer explains the reasons why a special assessment should be
made in accordance with § 210 of the Revenue Act of 1917 (c. 63, 40
Stat. 300, 307), permitting that procedure where the amount of the
tax cannot otherwise be determined with accuracy or justice. A copy
of that section is quoted in the margin.
*
Page 288 U. S. 92
In the interval between February, 1923, and July, 1925, there
had been action by the Commissioner upon the claim for abatement
which had been filed by the taxpayer in October, 1920. A claim for
abatement, unlike a claim for refund, has relation to a tax
assessed but still unpaid.
Rock Island A. & L. R. Co. v.
United States, 254 U. S. 141. The
Commissioner declined to abate the whole amount of $15,933.34
withheld by the taxpayer, but did declare an overassessment of
$3,293.89, leaving a balance of $12,639.45, with interest, then
determined to be due. This balance the taxpayer discharged by
payment to the collector in November, 1923.
The claim for abatement had thus been disposed of, but no action
had yet been taken upon the claim for refund. The Commissioner
permitted this to slumber, without deciding or considering it, till
after the filing of the amendment in July, 1925. Upon receipt of
that amendment, or soon afterwards, he proceeded to a consideration
of the claim upon the merits. There were hearings and rehearings at
which the taxpayer gave evidence in support of its claim that its
payments had been excessive and that there was need of a special
assessment to arrive at a computation consistent with equity and
justice. The Commissioner decided the merits of the controversy in
favor of the taxpayer. He held that a case had been made out for a
special assessment in accordance with § 210 of the Revenue Act of
1917. He held, after computing the tax accordingly, that there had
been an overpayment of taxes in the sum of $32,634.89. He held,
however, that the notice of claim of February 27, 1923, was
defective for failure to state the grounds of the taxpayer's
objections; that the notice of July 17, 1925, was without avail as
an amendment in respect of overpayments made in 1918 and 1920,
since as to these it was too late; that it was good as an original
claim for the refund of the overpayment made in November, 1923;
Page 288 U. S. 93
and hence that, of the total overpayments of $32,634.89, there
should be a refund of $12,639.45, the 1923 installment, with
$3,028.24, interest paid thereon, and that, as to the residue of
the overpayments, $19,995.44, a refund should be refused. A very
different case would be here if the Commissioner had ruled that no
adequate reason for a special assessment had been established, and
had refused relief upon that ground. We do not say that a
justiciable controversy would then have arisen for a court.
Williamsport Wire Rope Co. v. United States, 277 U.
S. 551,
277 U. S. 562;
United States v. Henry Prentiss & Co., ante, p.
288 U. S. 73. What
he did was to find that there was need for a special method, that
the application of such a method would reduce the tax by a stated
sum, but that, because of defects in the form of the claimant's
notice, there could be relief only in part. For the amount thus
disallowed, the taxpayer brought suit in the Court of Claims, which
overruled the action of the Commissioner and gave judgment
accordingly. 56 F.2d 902, 73 Ct.Cls. 707. A writ of certiorari
brings the case here.
We are holding in
United States v. Memphis Oil Co.,
ante, p.
288 U. S. 62, that
a general claim for refund, not specifying grounds, is subject to
amendment until final rejection irrespective of a limitation
running in the interval. We are holding in
United States v.
Henry Prentiss Co., Inc., ante, p.
288 U. S. 73, that,
under the Revenue Act of 1918, a claim specifying as the sole
ground for relief the necessity for a special assessment by reason
of anomalous conditions prevailing in the claimant's business may
not be turned by amendment into one for the revision of an
assessment by increasing the value of real estate included in
invested capital. The present case falls midway, or near to that,
between the other two. Here, the taxpayer did not specify any
ground in the claim first presented, but offered an amendment
afterwards setting forth the reasons why the assessment should be
special.
Page 288 U. S. 94
The case is a close one, giving fair opportunity for argument
either way, but we think the better reasons uphold the privilege of
amendment.
1. The conclusion favorable to the privilege has support in the
analogies of pleadings in a lawsuit. The claim in its original form
is one for money had and received to the use of the respondent
after the manner of the common counts in a suit at common law. It
does not specify a particular state of facts, as did the claim in
the
Prentiss case, abandoning all others. It charges
overpayment generally, and thus brings within its range whatever
facts reside in the domain of equity and conscience.
2. The conclusion thus supported by the analogy of pleadings is
not inconsistent with the necessities of administrative
practice.
This is not a case where the grounds injected by the amendment
have already been abandoned by agreement tacit or express. Such
abandonment and agreement there was in the
Prentiss case,
the claimant seeking at the beginning the privilege of the special
method of assessment and reverting thereafter to another ground of
challenge which by implication, if not expressly, it had promised
to renounce. This is a case where the claimant has left the grounds
of challenge open, and where the Bureau has itself to blame for not
insisting at the outset upon a full disclosure of the
grievance.
There are other elements of difference, however, besides the
presence or absence of agreement, that divide the
Prentiss
case from this one. These other elements of difference are even
more important, for the
Prentiss ruling would have been
the same if agreement had been absent. When the two cases are
considered in the light of administrative practice, a distinction
is to be noted at the outset between the nature of a special
assessment under the Revenue Act of 1918, § 327(d), 40 Stat. 1093,
and the nature of such an assessment under the Act of 1917,
Page 288 U. S. 95
§ 210. The application in the
Prentiss case was made
under § 327(d) of the Act of 1918, whereby the taxpayer, ignoring a
possible challenge of the computation of invested capital, plants
itself upon the ground of a variance between the statutory
definition and the economic concept, and calls upon the
Commissioner to exercise a dispensing power given to him, in
circumstances of hardship, by the provisions of the statute. In an
application for special relief under § 210 of the Act of 1917, the
grounds of challenge are very different if the letter of the
section is the measure of relief thereunder. The value of the
invested capital under the statutory definition (Revenue Act of
1917, § 207) is not put aside in such circumstances as an
irrelevant inquiry. On the contrary, it becomes the very essence of
the claim by the taxpayer that there must be a recourse to another
method. Under § 210 of the Act of 1917, the special method is not
permissible unless "the Secretary of the Treasury is unable in any
case satisfactorily to determine the invested capital." In brief, §
210 of the Act of 1917 is the precursor of § 327(a) of the Act of
1918, and is not at all the analogue of § 327(d).
Cf.
Williamsport Wire Rope Co. v. United States, 277 U.
S. 551,
277 U. S.
558.
We are not forgetful of the fact that, by the regulations of the
Commissioner and the practice of his Bureau, the distinction
between the two acts has been obscured, if not destroyed. Relief
has been granted under the Act of 1917 as if its provisions were
the same as those of the act adopted later. Treasury Regulations
41, 1918, Art. 52.
Cf. R. H. Montgomery, Excess Profits
Tax Assessment (1920), pp. 242, 243. The validity of the
regulations, if applied to proceedings under the Act of 1917, is a
question not now before us. The practice, we may say in passing,
has not been left unchallenged, but has been criticized in the
Report of the Senate Committee for the Investigation of the Bureau
of Internal Revenue.
See
Page 288 U. S. 96
Report No. 27, pt. I, pp. 214, 215,
et seq., 69th
Congress, First Session, 1925-26. Certain at all events it is that
an appeal to the Commissioner to exercise his jurisdiction under §
210 of the Act of 1917 is not confined to the occasions stated in §
327(d) of the Act of 1918, if indeed it covers them at all. It is
at least broad enough to give notice that jurisdiction should be
exercised in accordance with the letter of § 210, upon the ground,
that is to say, of the inability of the Commissioner to arrive at a
conclusion as to value satisfactory to himself. Under § 327(d) of
the Act of 1918, a special assessment is not ordered except on the
motion of the taxpayer, setting forth the special reasons why the
statutory definition is oppressive, and why another method should
be adopted. Under § 210 of the Act of 1917, as under § 327(a) of
the Act of 1918, the Commissioner acts of his own motion whenever
he is unable to satisfy himself that the valuation will be accurate
if there is adherence to the statute.
This question, if no other, he must have considered and
determined when a claim for refund was submitted by the taxpayer
without specifying the grounds.
United States v. Memphis Oil
Co., ante, p.
288 U. S. 62. This
question, if no other, he must again have considered and determined
when he certified to the taxpayer, after the claim had been amended
and after submission of the evidence, that § 210 of the Act of 1917
supplied the applicable rule. It is a question that in last
analysis is addressed to his own conscience, and, in the absence of
any evidence impeaching his conclusion, his certificate of
satisfaction or the contrary is binding on the courts.
The cumulative force of these administrative opportunities and
these procedural analogies upholds the claim and the amendment.
The judgment of the Court of Claims is accordingly
Affirmed.
Sec. 210. That if the Secretary of the Treasury is unable in any
case satisfactorily to determine the invested capital, the amount
of the deduction shall be the sum of (1) an amount equal to the
same proportion of the net income of the trade or business received
during the taxable year as the proportion which the average
deduction (determined in the same manner as provided in section two
hundred and three, without including the $3,000 or $6,000 therein
referred to) for the same calendar year of representative
corporations, partnerships, and individuals, engaged in a like or
similar trade or business, bears to the total net income of the
trade or business received by such corporations, partnerships, and
individuals, plus (2) in the case of a domestic corporation $3,000,
and in the case of a domestic partnership or a citizen or resident
of the United States $6,000.
"For the purpose of this section, the proportion between the
deduction and the net income in each trade or business shall be
determined by the Commissioner of Internal Revenue in accordance
with regulations prescribed by him, with the approval of the
Secretary of the Treasury. I n the case of a corporation or
partnership which has fixed its own fiscal year, the proportion
determined for the calendar year ending during such fiscal year
shall be used."