Wilson v. United States

• Decision Date: 06 April 1967
• Docket Number: 66 C 65,66 C 76.,66 C 50,No. S 66 C 44,S 66 C 44
• Citation: 267 F. Supp. 89
• Parties: Ernest G. WILSON and Mary Ann Wilson, his wife, Plaintiffs, v. UNITED STATES of America, Defendant. James Richard KILLION and Henrietta Killion, his wife, Plaintiffs, v. UNITED STATES of America, Defendant. C. E. RONE, Plaintiff, v. UNITED STATES of America, Defendant. Donald RONE and Bethel Rone, Plaintiffs, v. UNITED STATES of America, Defendant.
• Court: U.S. District Court — Eastern District of Missouri

267 F. Supp. 89

Ernest G. WILSON and Mary Ann Wilson, his wife, Plaintiffs, v. UNITED STATES of America, Defendant.

James Richard KILLION and Henrietta Killion, his wife, Plaintiffs, v. UNITED STATES of America, Defendant.

C. E. RONE, Plaintiff, v. UNITED STATES of America, Defendant.

Donald RONE and Bethel Rone, Plaintiffs, v. UNITED STATES of America, Defendant.

Nos. S 66 C 44, 66 C 50, 66 C 65, 66 C 76.

United States District Court E. D. Missouri, Southeastern Division.

April 6, 1967.

Ward & Reeves, Caruthersville, Mo., for plaintiffs.

Elliott H. Kajan, Tax Division, Department of Justice, Washington, D. C., for defendant.

MEMORANDUM

MEREDITH, District Judge.

This Court has jurisdiction under Title 28, U.S.C. § 1346(a), after a denial by the Internal Revenue Service of timely claims for refund made by plaintiffs.

The parties have stipulated as to the following facts: On or about August 25, 1959, the Killion-Rone-Wilson Gin Company, a partnership, was incorporated under the laws of Missouri. The partnership transferred its assets to the corporation in exchange for corporate stock, and the shareholders of the stock were and are the former partners (although not in equal shares). The corporation commenced business on September 1, 1959, and on September 25, 1959, the shareholders timely filed Form 2553, by which they elected to be taxed under §§ 1371 through 1377 of the Internal Revenue Code of 1954 (26 U.S.C., Subchapter S, §§ 1371-1377), i. e., as a Subchapter S corporation.

On or about April 29, 1960, the corporation filed with the District Director in St. Louis, Missouri, its first United States Small Business Corporation Return of Income (Form 1120-S) for the taxable year beginning September 1, 1959, and ending March 31, 1960. On May 20 the shareholders held a special meeting and voted to change to a fiscal year ending May 31. Pursuant to this decision, the corporation submitted an Amended United States Small Business Return of Income on or about June 14, 1960. The District Director did not give effect to the amended return. He determined that the taxable year for the corporation was the year ending March 31, and refigured the plaintiffs' allocable share of the corporation's undistributed taxable income on that basis. He assessed the deficiencies and credited the over-assessments in November 1964 and on or about January 20, 1965, plaintiffs paid the deficiencies, plus interest, as required by the statute. On or about July 6, 1965, plaintiffs filed Claims for Refunds; they received notice of disallowance of these claims on or about January 18, 1966.

The case was originally brought as four separate cases: S 66 C 44, S 66 C 50, S 66 C 65 and S 66 C 76; but, because the issues in each case involve the identical questions of law and fact, and only the amounts claimed by each plaintiff are different (because they hold unequal shares), the four cases were consolidated by agreement and order dated January 31, 1967.

The issue is phrased by the plaintiffs as: Did the company irrevocably establish its taxable year as ending March 31st despite timely filing of an amended return electing a taxable year ending May 31st? Defendants argue yes, plaintiffs argue no on the grounds that (1) regulation 1.441-1(b) (3) gives a new taxpayer the right to select any taxable year in his first return, and (2) a timely amendment becomes a part of a taxpayer's first return and, therefore, should be given effect.

There is no disagreement as to the rights conferred by regulation 1.441-1(b) (3) or the timeliness of the filing of the amendment, and, therefore, the issue becomes: Is a timely amendment which alters the date on which the taxable year of a corporation ends to a later date which, had it been chosen in the original return, would have been permissible, effective to alter the date on which the taxable year shall end thereafter? This Court holds that it is.

One of the earliest cases in which the effect of a timely tax return amendment was discussed was Haggar Co. v. Helvering, 308 U.S. 389, 60 S.Ct. 337, 84 L.Ed. 340 (1940). The decision in that case turned on whether a capital stock tax return could be amended within the time fixed for filing the return. The result of holding the amendment effective in that case was to permit a change in the declared value of capital stock, which was the basis of computation for capital stock and excess profits taxes in force under the National Industrial Recovery Act of 1933. The Court stated:

"`First return' thus means a return for the first year in which the taxpayer exercises the privilege of fixing its capital stock value for tax purposes, and includes a timely amended return for that year. A timely amended return is as much a `first return' for the purpose of fixing the capital stock value in contradistinction to returns for subsequent years, as is a single return filed by the taxpayer for the first tax year." Haggar v. Helvering, supra, at 395, 60 S.Ct. at 340.

"To construe `first return' as meaning the first paper filed as a return, as distinguished from the paper containing a timely amendment, which, when filed is commonly known as the return for the year for which it is filed, is to violate one of the most elementary principles of statutory construction." Id. at p. 396, 60 S.Ct. at 340.

The rule was applied the following year and extended to include amendments filed within the time for filing original returns as extended by the Commissioner of Internal Revenue. A. J. Crowhurst & Sons, Inc., v. Commissioner of Internal Revenue, 109 F.2d 131 (3rd Cir. 1940), and again applied by Swan, Circuit Judge, in Lerner Stores Corp. v. Commissioner of Internal Revenue, 118 F.2d 455 (2nd Cir. 1941), who made a general statement that "Up to the time when the return is due, the taxpayer may change its judgment * * *" (at p. 457). In 1964 the principle was applied to the question of whether a taxpayer could change the method by which he computed invested capital. The United States Court of Claims held that taxpayer, by filing timely amended returns, could shift from one method to the other "at anytime up to the expiration of the period of limitations (for filing) for the years...