1. The taxpayer made timely claim for overpayment of income tax
due to failure in the return to deduct for loss on worthless shares
of certain corporations. After expiration of the two-year
limitation (Revenue Act of 1928), he sought to amend by including
another overpayment for the same year which resulted from returning
as dividends payments received from another corporation which were
not dividends and, should have been reported as giving rise to a
capital gain, of less amount.
Held:
(1) That the second claim was not properly an amendment of the
first, but a separate claim on a new and unrelated ground, and was
barred by the statute. P.
302 U. S.
520.
(2) The fact that the first claim, though for a specific
transaction, contained also a "general relief" demand for any other
or greater sum which might be found due to the taxpayer could not
justify the amendment. P.
302 U. S.
524.
(3) Neither could it be upheld because the Commissioner, before
the statute ran, had learned from the corporation which had made
the payments that they were not dividends, but the proceeds of a
sale of shares owned by the taxpayer, and had so informed the
revenue agent, it not appearing that, prior to the attempted
amendment, the Commissioner knew that the taxpayer was a
shareholder in that company or knew that the reported receipt of
dividends had reference to such payments. P.
302 U. S.
526.
2. In deciding whether a tax refund claim is subject to an
amendment, the analogies of pleading are helpful, but they will not
be so followed as to ignore the necessities and realities of
administrative procedure. P.
302 U. S.
523.
A claim which demands relief upon one asserted fact situation,
and asks an investigation of the elements appropriate to such
relief, cannot be amended to discard that basis and invoke action
requiring examination of matters previously not germane.
84 Ct.Cls. 460, 17 F. Supp. 980, reversed.
Certiorari,
post, p. 664, to review a judgment
sustaining a claim based upon an overpayment of income tax.
Page 302 U. S. 518
MR. JUSTICE ROBERTS delivered the opinion of the Court.
In this case, we are called upon to determine whether a claim
for refund of income tax, asking repayment of a definite sum upon a
specific ground, is susceptible of untimely amendment to recover a
greater sum on a new and unrelated ground.
The respondent, on behalf of the estate she represented, paid
the income tax shown to be due by her return, which exhibited an
item of gross income of $110,891 as "dividends from domestic
corporations." Of this total, $36,750 was erroneously reported as
dividends from the M. A. Hanna Company. This amount was paid her
pursuant to a recapitalization of the company in which the estate
owned preferred stock, and, instead of being returned as a
dividend, should have been treated as giving rise to a capital gain
of $7,411.50.
In December, 1931, the respondent was advised by an internal
revenue agent that her return, reporting the receipt as a dividend,
was considered correct, subject to the approval of the Bureau in
Washington, and that, if later information should indicate a
material change in the amount of tax, the statutes would require a
redetermination of tax liability. October 6, 1932, as a result of
conferences with representatives of the Hanna Company, the
Commissioner of Internal Revenue advised the
Page 302 U. S. 519
agent in charge at Cleveland, Ohio, that the cash received by
preferred stockholders in the recapitalization of the company
represented proceeds from a sale, and that gain or loss therefrom
should be determined upon the basis of the cost of the original
stock. The respondent was not notified of the ruling until August
22, 1934.
February 1, 1933, respondent filed a claim for the refund of
$995.52, based upon an alleged loss in the taxable year due to the
worthlessness of stocks of two corporations. Consideration and
action thereon were delayed pending the outcome of litigation which
would affect the soundness of the claim. In 1936, this claim was
rejected in part but allowed to the extent of $160, which was
refunded.
June 29, 1934, after expiration of the statutory period for
filing refund claims, [
Footnote
1] the respondent presented a claim for $6,454.09 in which she
stated that it was "filed as an amendment and amplification of
claim for refund filed February 1, 1933," and asserted that the sum
of $36,750 reported as a dividend, was not such, but represented
the proceeds of sale of stock of the Hanna Company at a profit of
$7,411.50, and that the error in the return resulted in an
overpayment of $6,454.09.
November 2, 1935, the Commissioner advised the respondent that,
while an overpayment had been made, a refund would be denied
because the claim of June, 1934, was wholly unrelated to that of
February 1, 1933, being an independent demand based upon an
entirely different ground. Pursuant to the Commissioner's holding
that the latter claim was not filed within the period prescribed by
law, and therefore could not be allowed, official notice of
rejection was mailed December 16, 1935. The respondent brought suit
in the Court of Claims, which gave judgment for her in the amount
of $5,536.97. [
Footnote 2]
Page 302 U. S. 520
Upon petitioner's representation that the decision is in
conflict with decisions of this Court and of two circuit courts of
appeals, we granted the writ of certiorari. We hold that the
so-called amendment was, in fact, a new claim, and its allowance
was barred by the statutory provision limiting the time for
presentation of claims for refund.
Notwithstanding the reliance of each of the parties on recent
decisions of this Court, none of them rules the precise question
now presented. They point the way, however, to a correct
decision.
In
United States v. Memphis Cotton Oil Co.,
288 U. S. 62, the
claim merely stated that there had been an erroneous overpayment,
the amount of which was shown by stating the taxpayer's true net
income, the tax due thereon, and the amount previously paid. The
claim asked repayment of the difference or any greater sum which
might be found to be due. Upon the footing of this general claim, a
complete audit of the taxpayer's books was made and an overpayment
in excess of the amount claimed was determined. After notification
of this fact, but before rejection, the taxpayer amended the claim
by making it specific and setting forth the supporting facts in
detail. The amendment was held effective. [
Footnote 3]
In
United States v. Factors & Finance Co.,
288 U. S. 89,
additional assessments were made subsequent to payment of the
amount shown to be due by the respondent's return. After paying
part of the sum so assessed, the taxpayer filed a claim for
abatement of the unpaid balance. In connection with that claim, the
Commissioner ordered a full examination of the taxpayer's affairs,
which was made. While this audit was in progress, the taxpayer
filed a claim for refund, couched in general terms, stating that,
as there had been no final audit of its return, the purpose of the
claim was to save the taxpayer's
Page 302 U. S. 521
rights under the statutes and permit the Commissioner to refund
any excess paid beyond the amount found to be due. No statement of
grounds for the claim was included. After the period of limitations
had expired, an amended claim was filed setting forth the grounds
in detail and asking special assessment under § 210 of the Revenue
Act of 1917, 40 Stat. 307. In the interval between the filing of
the first and the amended claim, the Commissioner had disposed of
the claim for abatement, but not of the claim for refund. After the
receipt of the amendment, the Commissioner considered the case on
the merits and found that the taxpayer's invested capital could not
be satisfactorily ascertained, and that a special assessment should
have been made under § 210, but he rejected the claim on the ground
that the amendment was not timely. We held the amendment
permissible. The opinion points out that the very generality of the
original claim required that the Commissioner's audit go into the
question of invested capital, and that therefore the more specific
amendment called attention to no new matter not covered by the
investigation the Commissioner had to make in examining the claim
as originally filed.
In each of these cases, the claim failed to comply with a
Treasury regulation requiring that the grounds for the relief
demanded should be set forth under oath and in detail. We held
that, while the Commissioner might promptly have rejected the
claims for failure to comply with the regulation, such compliance
was a matter he could waive, and, if he considered the merits, the
claim was susceptible of any amendment which would not amount,
under the rules of pleading in actions at law, to an alteration of
the cause of action, and would not require the Commissioner to make
a new and different inquiry than that which he was called upon to
make in order to consider the general grounds asserted in support
of the claim as presented.
Page 302 U. S. 522
In
Bemis Bros. Bag Co. v. United States, 289 U. S.
28, the taxpayer, in its original claim for refund,
requested a special assessment under §§ 327 and 328 of the Revenue
Act of 1918, 40 Stat. 1093, and submitted a supporting statement as
to its affairs wherein it sought relief on three distinct grounds
specified in the sections in question and submitted facts and
arguments in support of each of the grounds. Two of these grounds
called the Commissioner's attention to the fact that the taxpayer's
invested capital had been erroneously computed. After consideration
of the claim, the Commissioner notified the taxpayer that there was
no basis for relief under § 327(d), which furnished one of the
grounds put forward by the taxpayer, but he apparently overlooked
the circumstance that relief was also claimed under subdivisions
(a) and (c) of that section. The taxpayer filed a protest and an
amendment, which made no change of any importance in the facts and
arguments already submitted, but asked that computation of the tax
under § 328 be granted or, in the alternative, certain items the
Commissioner had stricken from invested capital be restored. Since
the original notice to the Commissioner was to the effect that
valuable assets had been omitted from invested capital, it would
have been open to the taxpayer in the first instance to ask for
relief under §§ 327 and 328 or, in the alternative, for a
recomputation of its invested capital in accordance with the facts
set forth in the original claim. The mere addition of the prayer
for alternative relief was not a departure from the claim, and did
not amount to a new and untimely claim, but constituted a proper
amendment.
In
United States v. Henry Prentiss & Co., Inc.,
288 U. S. 73, a
situation materially differing from those involved in the foregoing
cases was presented. There, the taxpayer's claim for refund
asserted that, owing to abnormal conditions affecting invested
capital and income, there could be no fair computation of the tax
by the appraisal of the
Page 302 U. S. 523
cash value of its property under § 326 of the Revenue Act of
1918, 40 Stat. 1092, and it should therefore have the benefit of a
special assessment under §§ 327 and 328, 40 Stat. 1093, which
provide for computation of the tax in such cases without reference
to the value of the invested capital and for determination of the
tax according to the ratio which the average tax of representative
corporations engaged in a similar business bears to their average
net income. In response to the claim, the Commissioner advised the
taxpayer that he could not consider the propriety of a special
assessment until the statutory net income and invested capital were
determined, and asked the taxpayer, therefore, to acquiesce in the
net income and invested capital shown in the revenue agent's report
or submit any exceptions it might have thereto. The taxpayer filed
no such exceptions but apparently acquiesced in the determination.
The Commissioner then proceeded on the basis of the facts he had
ascertained, and advised the taxpayer the case was not one for
special assessment and the claim would be rejected. Thereafter at
an oral hearing accorded by the Commissioner before final rejection
of the claim, the taxpayer presented an amendment in which it set
forth that, in ascertaining its invested capital, real estate had
been undervalued and certain intangibles had been improperly
excluded from the computation. This Court held that such an
amendment, filed after the expiration of the period of limitations,
could not be considered, first, because it totally changed the
taxpayer's cause of action, if the analogies of pleading were to be
regarded, and second because the original claim did not challenge
the Commissioner's determination of invested capital, and an
amendment which attacked this determination, fundamental to the
taxpayer's contention, was in effect a new claim based upon a
complete reversal of the taxpayer's former position.
In all these cases, the court found the analogies of pleading
helpful in deciding whether the claim was in such
Page 302 U. S. 524
form as to be subject to the proffered amendment at a time when
a claim wholly new would have been barred, but the opinions point
out that the analogy to pleading at law is not to be so slavishly
followed as to ignore the necessities and realities of
administrative procedure. Where a claim which the Commissioner
could have rejected as too general, and as omitting to specify the
matters needing investigation, has not misled him, but has been the
basis of an investigation which disclosed facts necessary to his
action in making a refund, an amendment which merely makes more
definite the matters already within his knowledge, or which, in the
course of his investigation, he would naturally have ascertained,
is permissible. On the other hand, a claim which demands relief
upon one asserted fact situation, and asks an investigation of the
elements appropriate to the requested relief, cannot be amended to
discard that basis and invoke action requiring examination of other
matters not germane to the first claim.
With these settled principles in mind we turn to the
circumstances disclosed in the present case. The claim here was not
general, but specific. It did not assert generally that income,
gross or net, had been overappraised or, generally, that the
taxpayer was entitled to deductions not taken or granted. On the
contrary, it pointed to two specific items of deduction which had
not been taken and to which the taxpayer claimed to be entitled. It
stated that, during the taxable year, the taxpayer's holdings of
stock in two named corporations had become worthless, entailing a
deductible loss of $995. While the claim added the phrase that the
taxpayer claimed the sum named, or any greater sum which might be
ascertained to be due, this did not call upon the Commissioner to
make a complete reaudit of the taxpayer's return. The fact that he
might have done so is immaterial. He could have acted on the claim,
as apparently
Page 302 U. S. 525
he did, by investigating the affairs of the two corporations. It
was ascertained that litigation was in process upon the outcome of
which would depend a decision as to the alleged worthlessness of
some of the shares in question. He therefore naturally postponed
action on the claim until the termination of that litigation. While
matters were in this posture, and after the period of limitation
had expired, the respondent presented a so-called amendment of her
claim having no relation whatever to the items set forth in the
original claim, but dealing with a wholly distinct item of $36,750
reported as dividends received and asking that it be eliminated
from that category and that the transaction be reclassified as
capital gain upon a basis which would result in a reduction of tax
by some $6,000. This is not a case where the Commissioner waived
the regulation with respect to the particularity with which the
grounds of the claim must be set forth. There was no need for him
to do so. The claim was not general like that in the
Memphis
Cotton Oil case and the others following in its train. It was
as specific as it could be made, and pointed unerringly to the
items the Commissioner must consider. It called for no general
audit of the taxpayer's affairs, and apparently none was made. An
investigation of the items designated could not have the least
relation to that attempted to be opened in the untimely amendment.
The respondent urges that these considerations are of no legal
significance, since the claim not only called for redress of a
specified grievance, but demanded general relief as well. She
insists we have likened a claim for refund to an action for money
had and received, and have required the Commissioner to accept and
act upon a bill of particulars furnished him before actual
rejection of the claim although the period of limitation has
expired. But, as we said in
United States v. Henry Prentiss
& Co., Inc., supra, p.
288 U. S.
84,
"This does not mean that a pleader who abandons
Page 302 U. S. 526
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."
Were it not for the presence in the original claim of the demand
for refund of any other or greater sum which might be found due the
taxpayer, we think it could not even be suggested that the claim
was a general one for money had and received. Save for that clause,
the demand was of a specific amount based upon a specific
transaction. Whether adjudication in strict analogy to the rules of
pleading would permit the amendment we need not determine, for the
necessities and realities of administrative procedure preclude any
such result.
United States v. Henry Prentiss & Co., Inc.,
supra, p.
288 U. S. 85.
The very specification of the items of complaint would tend to
confine the investigation to those items, and there is no evidence
that the examination was more extended.
Nor can the respondent gain advantage from the Commissioner's
ruling communicated to his agent at Cleveland. There is no finding
that, prior to the attempted amendment, the Commissioner knew the
respondent was a stockholder of the Hanna Company or, if he did,
that his attention was called to the fact that the reported receipt
of dividends had reference to what the taxpayer received in respect
of preferred stock of that company.
These views accord with the decisions of two circuit courts of
appeal. [
Footnote 4] The
respondent relies upon two decisions of the Court of Claims:
Youngstown Sheet & Tube Co. v. United States, 7 F.
Supp. 290, and
Con. P. Curran Printing Co. v. United
States, 15 F. Supp. 153. In the first, a claim for additional
depreciation depletion and amortization of an investment in mining
properties was
Page 302 U. S. 527
timely made. As a result of this claim, a general audit of the
taxpayer's affairs was had, and resulted in the determination of a
deficiency much greater than the amount of refund claimed. Upon
appeal to the Board of Tax Appeals, the deficiency was set aside
and the Board found an overassessment due to failure to allow the
claimed deduction and also deductions for depreciation of other
assets. The Commissioner agreed that the overpayment found by the
Board was correct. Thereupon the taxpayer filed, out of time, an
amendment to claim additional specific deductions in accordance
with the findings of the Board. The Commissioner allowed a refund
of the item originally claimed, but refused a refund of the others
on the ground that the amendment sought to introduce new and
distinct matters. In an action for recovery of the overpayment
found by the Board, and claimed in the original and amended claims,
the Court of Claims gave judgment for the taxpayer. We express no
opinion as to whether the result may be sustained by the fact that,
while the original claim was pending, the Commissioner was fully
apprised of the items of deduction ultimately claimed in the
amendment by two complete audits of the taxpayer's affairs and
accounts. A similar situation is disclosed in the second case. The
decisions were, however, put by the Court of Claims upon the same
ground as in the instant case -- that a claim limited to a
specified item might be amended out of time to seek a refund on
account of other and unrelated items -- a view we hold
untenable.
The judgment is
Reversed.
[
Footnote 1]
Revenue Act of 1928, c. 852, § 322(b)(1), 45 Stat. 791, 861.
[
Footnote 2]
17 F. Supp. 980.
[
Footnote 3]
See also Moore Ice Cream Co. v. Rose, 289 U.
S. 373,
289 U. S.
384.
[
Footnote 4]
Bryant Paper Co. v. Holden, 63 F.2d 370; 65 F.2d 1012;
Swedish Iron & Steel Corp. v. Edwards, 1 F. Supp. 335,
aff'd, 69 F.2d 1018;
United States v. Richards,
79 F.2d 797;
New York Trust Co. v. United States, 87 F.2d
889.