Deakman-Wells Co. v. Commissioner of Internal Rev., 11214.

Decision Date08 June 1954
Docket NumberNo. 11214.,11214.
Citation213 F.2d 894
PartiesDEAKMAN-WELLS CO., Inc. v. COMMISSIONER OF INTERNAL REVENUE.
CourtU.S. Court of Appeals — Third Circuit

Arthur L. Barton, New York City, for petitioner.

Robert B. Ross, Washington, D. C. (H. Brian Holland, Asst. Atty. Gen., Ellis N. Slack, Robert N. Anderson, Sp. Assts. to the Atty. Gen., on the brief), for respondent.

Before MARIS, McLAUGHLIN and HASTIE, Circuit Judges.

MARIS, Circuit Judge.

In this case the court is asked to review a decision of the Tax Court. The facts are these. Taxpayer, a corporation organized under the laws of the state of New Jersey, was engaged in the business of constructing buildings. Since its incorporation, taxpayer has kept its books of account on the accrual basis but has filed its federal income tax returns on the cash basis. The accrual method of accounting clearly reflected the net income of taxpayer for each of the taxable years involved and taxpayer's net income should have been computed and reported in its returns in accordance therewith. Taxpayer's return for the taxable year ended April 30, 1947 was filed on July 15, 1947. The notice of deficiency was sent to taxpayer on June 27, 1951. The only portion of the notice relating to the taxable year ended April 30, 1947 concerned the disallowance of a carryback loss from the taxable year ended April 30, 1948 and the allowance of an increased carry-over loss from the taxable year ended April 30, 1945. On September 21, 1951 the taxpayer petitioned for a redetermination by the Tax Court. On September 3, 1952, the Commissioner filed in the Tax Court an amendment to his answer which asserted that the taxpayer had failed to include properly in its gross income the sum of $72,694.87.

Taxpayer's return for the taxable year ended April 30, 1947 did not contain any report on page one of the items includible in its gross income, but in a schedule entitled "Statement of Operations — Fiscal Year Ended April 30, 1947" attached to the inside portion of the return, taxpayer reported and computed its "gross profit" as follows:

                "Income
                    From Construction Contracts, rental of equipment
                      etc.                                                       $1,471,581.08
                    Plus: Unpaid Accounts Receivable 4/30/46                         10,674.04
                                                                                 _____________
                                                                                  1,482,255.12
                    Deduct Unpaid Accounts Receivable 4/30/47                       217,931.43
                                                                                 _____________
                    Sales — Cash Basis                                            1,264,323.69
                  Cost of sales
                    Job Costs                                  1,323,032.16
                    Small Tools Consumed                             848.08 red
                    Job Expenses                                   4,336.86
                    Yard Rent                                        270.00
                                                              _____________
                                                               1,326,790.94
                    Less — Discounts                               1,947.60
                                                              _____________
                                                               1,324,843.34
                    Plus — Accounts Payable —
                      Unpaid 4/30/46                              23,747.57
                                                              _____________
                                                               1,348,590.91
                    Less — Accounts Payable —
                      Unpaid 4/30/47                             158,310.09
                                                              _____________
                                                                                  1,190,280.82
                                                                                 _____________
                      Gross Profit                                                  74,042.87"
                

If the "gross profit had been computed by taxpayer upon the accrual basis, such computation would have been as follows:

                Income
                    From Construction Contracts, rental of equipment
                      etc.                                                       $1,471,581.08
                  Cost of sales
                    Job Costs                                  1,323,032.16
                    Small Tools Consumed                             848.08 red
                    Job Expenses                                   4,336.86
                    Yard Rent                                        270.00
                                                              _____________
                                                               1,326,790.94
                    Less — Discounts                               1,947.60
                                                              _____________
                                                                                  1,324,843.34
                                                                                 _____________
                        Gross Profit                                                146,737.74
                

The Tax Court concluded that the taxpayer had omitted from its gross income reported for the taxable year ended April 30, 1947 amounts properly includible therein which were in excess of 25% of the gross income reported, within the meaning of section 275(c) of the Internal Revenue Code, 26 U.S.C.A. The Court held that the five-year statute of limitations imposed by section 275(c) applied, that the statute had been suspended by the filing of the taxpayer's petition in the Tax Court before the expiration of the five-year period and that the claim for the deficiency based on the omission of the sum of $72,694.87 having been made at or before the Tax Court hearing, the claim was timely and should be allowed. 20 T.C. 610. The taxpayer then brought the case to this court for review.

The decision of the Tax Court must be reversed. We are satisfied that the case does not come within the purview of section 275(c) of the Internal Revenue Code.1 We recently had occasion to consider the scope of that subsection in Uptegrove Lumber Co. v. Commissioner of Internal Revenue, 3 Cir., 1953, 204 F.2d 570. In that case we pointed out that the statute applies only where the taxpayer has failed to make a return of some taxable gain, where he has altogether omitted an item from the income reported, and not to a case such as this where he merely understates the final figure in his gross income computation, the item in question having been disclosed in the return but eliminated in the computation of the final figure. We adhere to the views which we expressed in the Uptegrove case and conclude that the Tax Court erred in holding section 275(c) applicable.

The Commissioner contends that the present case is distinguishable from the Uptegrove case in that in Uptegrove the taxpayer computed his gross income on page one of the return, following the form supplied by the Commissioner, while in the present case the taxpayer did not use page one to compute its gross income but used instead a schedule attached to the return, making various adjustments in its accounts payable and receivable which were not required by the tax return. The asserted distinction is, we think, wholly without legal significance. In the present case the taxpayer made no computation of any kind on page one, substituting merely the notation "See Schedule Attached". In computing its gross income in the attached schedule it substantially followed the form of page one of the return, except for the adjustment in its accounts from the accrual to the cash basis. It can scarcely be expected that every taxpayer's business will be such that the form supplied by the Commissioner can always be followed in computing gross income. It is accordingly sufficient if all items of gross income are disclosed in a schedule attached to the return in which the computation is made.

The Commissioner makes another contention. He points to the fact that under section 276(d)2 of the Internal Revenue Code he was in any event authorized on June 27, 1951, when his notice of deficiency was sent, to assess an additional tax for the year ended April 30, 1947 based on the disallowance of the carryback to that year of a loss suffered in the year ended April 30, 1948, the period for assessing deficiencies for the latter year not then having expired. The taxpayer having appealed to the Tax Court from the notice of deficiency thus given for the year ended April 30, 1947, the Commissioner next points to section 272(e)3 of the Internal Revenue Code and contends that since he made claim to the additional deficiency here in question in his amended answer filed before the hearing, the Tax Court was empowered under section 272(e) to redetermine the deficiency for the year ended April 30, 1947, as it did, regardless of the three-year limitation of section 275 (a) or the five-year limitation of section 275(c).

We hold this contention to be without merit. It is true that ordinarily section 272(e) does operate to permit the Commissioner to claim before the Tax Court an additional tax deficiency for the year which is under review by the court even though he did not claim it in his original notice of deficiency. Such a claim may be made after the statute of limitations has run against additional assessments...

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  • Lawrence v. Comm'r of Internal Revenue
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    ...of that type and affirmed in one does not help the present taxpayer. Uptegrove Lumber Co. v. Commissioner, 204 F.2d 570; Deakman-Wells Co. v. Commissioner, 213 F.2d 894, reversing 20 T.C. 610; Goodenow v. Commissioner, 238 F.2d 20, reversing 25 T.C. 1; Reis v. Commissioner, 142 F.2d 900, af......
  • Patchen v. Commissioner of Internal Revenue
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    ...1955, 24 T.C. 973; Melvin E. Tunningley, 1954, 22 T.C. 1108; Deakman-Wells Co., 1953, 20 T.C. 610, reversed on other grounds 3 Cir., 1954, 213 F.2d 894; Bradstreet Co. of Maine, 1931, 23 B.T.A. 1093, reversed on other grounds 1 Cir., 1933, 65 F.2d 943; Louis Kamper, 1928, 14 B.T.A. 767; Rib......
  • Scar v. Comm'r of Internal Revenue , Docket No. 16586–82.
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    ...that notice tolled the statute of limitations. See section 6213(a); Frieling v. Commissioner, supra. Compare Deakman-Wells Co. v. Commissioner, 213 F.2d 894, 897–899 (3d Cir. 1954), revg. 20 T.C. 610 (1953). Under these circumstances, even if respondent had asked for an increased deficiency......
  • Maxcy v. Comm'r of Internal Revenue , Docket No. 870-71.
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    ...(1961).12 Taxpayers were similarly limited in their ability to resist the determination of such deficiencies. Deakman-Wells Co. v. Commissioner, 213 F.2d 894, 899 (C.A. 3, 1954), reversing on another issue 20 T.C. 610 (1953); United Surgical Steel Co., 54 T.C. 1215, 1226-1227 (1970). In 196......
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