1. An oil operating company made timely claim for refund of an
additional income tax, basing it upon the specific grounds that
proper deduction for amortization had not been made, and that, in
respect of excess profits tax, it invested capital had been
understated. While this claim was pending, it sought to amend by
setting up as a further ground that, during the tax year, it had
received no income taxable, because its entire production of oil
had been distributed in kind to its lessors and to its
shareholders.
Held not a permissible amendment, but a new
claim untimely filed.
United States v. Andrews, ante, p.
302 U. S. 517. P.
302 U. S.
531.
2. The Commissioner of Internal Revenue is without power to
waive the bar of the statute of limitations against a claim for a
tax refund. P.
302 U. S.
533.
89 F.2d 749 reversed.
Certiorari,
post, p. 671, to review the reversal of a
judgment for the United States in an action to recover an alleged
overpayment of income tax.
MR. JUSTICE ROBERTS delivered the opinion of the Court.
The issue in this case is similar to that presented in
United States v. Andrews, ante, p.
302 U. S. 517. The
action was brought by the respondent in the District Court for
Southern California to recover an alleged overpayment of income
Page 302 U. S. 529
taxes for 1919. There is no controversy as to the facts found by
the trial court. The respondent, a California corporation, acquired
a lease of oil property October 3, 1907. April 10, 1911, the
directors resolved that all oil produced after January 1 of that
year should be transferred in kind to the lessors to the extent of
their royalty interest and to the company's stockholders
pro
rata to their respective holdings, so long as the latter
should pay calls for money necessary to defray the company's
expenses. The resolution remained in effect to and including the
year 1919 and distribution of all oil produced was made
accordingly. In its books of account and its return for income tax,
the respondent recorded at market value the oil produced and
treated the difference between that value and the cost of
production as income. The Commissioner of Internal Revenue followed
the same method in computing taxable income. In its 1919 return,
the respondent disclosed a net income of $16,928.61 and a tax
liability of $2,072.68 which was paid during the year 1920. The
Commissioner, as the result of an audit, assessed an additional tax
of $3,105.65 which was paid April 3, 1925.
March 30, 1929, within the four-year period of limitations
prescribed by the applicable statute, [
Footnote 1] the respondent filed a claim for the return of
the additional tax so paid, based upon two grounds: first, that the
respondent was entitled to an additional deduction of $12,500 for
the amortization of the cost of a drilling contract with Union Oil
Company by which the latter, in consideration of $250,000 par value
of respondent's stock, agreed to provide expenses of developing the
leased oil property, reimbursement to be made only out of oil
produced; and, second, that, in respect of excess profits tax, its
invested capital had been understated by failure to include the
unrecovered cost of the same contract in the sum of $109,375.
Page 302 U. S. 530
While this claim was pending, but subsequent to the expiration
of the period of limitation, the respondent filed a
"Statement of Garbutt Oil Company . . . for the purpose of
perfecting and completing claim for refund covering alleged
overpayment of income tax for the calendar year 1919."
Therein the respondent asserted that it "now develops that a
further reason exists in support of" the pending claim, since, by
distribution of oil in kind, the respondent realized no taxable
income during 1919, and that "it therefore follows that, even
though the specific grounds set forth in the claim for refund are
denied said claim should, nevertheless, be allowed in full," for
the reasons set forth in the statement. Refund was demanded of the
entire tax paid for 1919 ($5,178.33) "or so much thereof as is
properly refundable within the statute of limitations." August 12,
1929, the Commissioner wrote the respondent, concerning the merits
of the original claim and the amendment, stating that a refund of
$3,105.65 would not be allowed, but that a hearing could be had
upon the proposed rejection if requested in writing. On October 4,
1929, a conference was held, but it does not appear whether the
merits of the amendment were discussed. November 13, 1929, the
Commissioner advised the respondent that the claim would be
rejected on the merits and that the new contention embodied in the
statement filed would be rejected as it was not referred to in the
timely claim and was presented only after the expiration of the
period of limitations and after the expiration of the time allowed
to perfect informal claims, pursuant to a Treasury decision. Formal
rejection of the claim was made November 21, 1929.
The respondent brought suit for the recovery of the $3,105.65,
it being admitted that the remainder of the tax paid for the year
1919 could not be recovered because not claimed within the
four-year period specified in the statute. At the trial, the
grounds of the refund
Page 302 U. S. 531
claim originally filed were abandoned, and recovery was sought
upon the basis of the statement filed after the expiration of the
statutory period of limitation. The court held that the latter did
not constitute an amendment of the claim originally filed, and came
too late, although it also found that the Commissioner had
considered the late contention on its merits. Judgment was entered
in favor of the United States. The Circuit Court of Appeals
reversed, holding the statement filed as an amendment was germane
to the original refund claim and that both were grounded in
substantially the same facts. [
Footnote 2] We granted certiorari to resolve alleged
conflict of decision.
In view of what has been said in
United States v. Andrews,
supra, it is necessary only to inquire in the instant case
whether the original claim was specific, and the so-called
amendment completely shifted to a totally different ground for
refund.
The transactions of the taxpayer which gave rise to its tax
liability were exceedingly simple, due to the fact that it had
resorted to distribution of all the oil produced, partly to its
lessors as royalty and partly to its stockholders in return for
their advancing the corporate expenses. If it was liable for income
tax, the method of calculation it adopted was apparently the
correct one.
Claim for refund was not filed until 1929, when the statute of
limitations had barred refund of all payments made by the
respondent except the amount of the additional assessment paid in
1925. In an effort to recover that much of the tax paid for the
year 1919, the claim set out two grounds: first, that a deduction
of $12,500 should be allowed for amortization of a drilling
contract which the company had, and, second, that its invested
capital should have been increased by more than $100,000 to embrace
the unrecovered cost of this drilling contract. The
Page 302 U. S. 532
claim directed the Commissioner's attention to these two items
only. It gave him no notice that the taxpayer claimed not to have
been in receipt of any income whatever for the taxable year. The
documents would not naturally suggest any such claim, for, as in
United States v. Henry Prentiss & Co., Inc.,
288 U. S. 73, the
ground asserted in the later demand was totally inconsistent with,
and involved a negation of, that specified in the claim for refund.
Before the Commissioner had acted on the claim for refund, the
respondent, in an effort to evidence continuity and identity of
claim, filed its so-called statement perfecting and completing the
claim for refund. This abandoned the grounds originally alleged in
support of the claim. The position taken in the amendment was that
the taxpayer had no income whatever, and that, if the Commissioner
refused refund on the basis of a rejection of the deductions
claimed from gross income in the original demand, he should find
that the taxpayer's operations were not productive of any income to
it.
In defense of the amendment the respondent says that it was
claiming only the $3,105.65 paid in 1929 pursuant to the additional
assessment; that in no event could it recover the entire tax paid;
that, if the original grounds for claiming refund of payment of the
sum in question had been held valid, this would have been
sufficient to require the refund of the whole of the sum, and the
amended claim would have no different result. This contention is
advanced to persuade us that, after all, the cause of action in
this case was for the recovery of $3,105.65 as money had and
received to the respondent's use, and that therefore there is no
departure and no new cause of action asserted by the amendment. To
adopt this view would be to disregard what was said in earlier
cases to the effect that the analogies of pleading must not be
pressed to such an extent as to disregard the realities of
administrative procedure. The claim as filed called for no
investigation
Page 302 U. S. 533
of the question whether the taxpayer's transactions gave rise to
income. On the contrary, the grounds advanced assumed the receipt
of income. The claim being thus specific, the Commissioner was
entitled to take it at face value and to examine only the points to
which it directed his attention. It would be to disregard the
natural course of procedure in the Bureau to suppose that grounds
thus specifically asserted would direct attention to another at war
with them.
The respondent urges that, although the amendment was not
timely, the Commissioner, in considering the merits of the position
taken therein, waived any objection which might have been available
to him that this position was not disclosed in the original claim.
The contention is bottomed upon the fact that, in his letter of
August 12, 1929, the Commissioner refers to the reasons advanced in
the untimely statement. The argument confuses the power of the
Commissioner to disregard a statutory mandate with his undoubted
power to waive the requirements of the Treasury regulations. The
distinction was pointed out in
United States v. Memphis Cotton
Oil Co., 288 U. S. 62,
288 U. S. 71,
wherein it was said:
"The line of division must be kept a sharp one between the
function of a statute requiring the presentation of a claim within
a given period of time and the function of a regulation making
provision as to form. The function of the statute, like that of
limitations generally, is to give protection against stale demands.
The function of the regulation is to facilitate research."
In the cited case, and others decided at about the same time, we
held that, while the Commissioner might have enforced the
regulation and rejected a claim for failure to comply with it in
omitting to state with particularity the grounds on which the claim
was based, he was not bound to do so, but might waive the
requirement of the regulation and consider a general claim on its
merits. This was far from holding that, after
Page 302 U. S. 534
the period set by the statute for the filing of claims, he had
power to accept and act upon claims that complied with or violated
his regulations.
Tucker v. Alexander, 275 U.
S. 228, cited by the respondent, is clearly
distinguishable. There, a timely claim was filed and disallowed. It
alleged two specific grounds for refund. Suit was brought to
recover the alleged overpayment, and again reliance was placed on
the same two specific grounds. At the trial of the action, and
within the period of limitations, the taxpayer abandoned the
grounds alleged in its claim and complaint and asserted a new
ground. Counsel for the government stated that the new question
brought forward was the only one involved in the case, and
stipulated as to the amount to be recovered if the trial court
should hold in favor of the taxpayer on this new ground. The court
did so. On appeal, the government, for the first time, raised the
point of the insufficiency of the claim for refund, and the Circuit
Court of Appeals held that the new basis for the claim did not
sustain recovery because reference had not been made to it in the
refund claim. This Court decided that there was an express waiver
as to the form and contents of the claim, and that counsel
representing the government had power, prior to the expiration of
the period of limitation, to waive the objection that the supposed
basis for refund was not disclosed in the claim. In so holding, the
court adverted to the fact that the Commissioner was not deceived
or misled by the deficiency of the claim, and that it was in the
interest of justice that in the circumstances the claimant be not
remitted to the resort of filing a new claim and pursuing it
through the Bureau and the courts. The opinion expressly recognized
that no officer of the government has power to waive the statute of
limitations, and cited, in support of the proposition,
Finn v.
United States, 123 U. S. 227,
saying:
"Such waivers, if allowed, would defeat the only purpose of the
statute and impose a liability upon the United States
Page 302 U. S. 535
which otherwise would not exist -- consequences which do not
attach to the waiver here."
The statement filed after the period for filing claims had
expired was not a permissible amendment of the original claim
presented. It was a new claim untimely filed, and the Commissioner
was without power, under the statute, to consider it.
The judgment is reversed.
[
Footnote 1]
Revenue Act of 1926, c. 27, ยง 284(a)(b)(1)(2), 44 Stat. 9,
66.
[
Footnote 2]
89 F.2d 749.