Lyddon & Company v. United States

• Decision Date: 07 May 1958
• Docket Number: No. 13-53.,13-53.
• Citation: 158 F. Supp. 951
• Parties: LYDDON & COMPANY (AMERICA) INC. v. UNITED STATES.
• Court: U.S. Claims Court

158 F. Supp. 951

LYDDON & COMPANY (AMERICA) INC. v. UNITED STATES.

No. 13-53.

United States Court of Claims.

March 5, 1958.

As Amended May 7, 1958.

Meyer Grouf, New York City, for plaintiff. Harold Manheim and Robert Braunschweig, New York City, were on the briefs.

William T. Kane, Washington, D. C., with whom was Asst. Atty. Gen. Charles K. Rice, for defendant. Lyle M. Turner, Washington, D. C., and Robert Livingston, Washington, D. C., were on the brief.

MADDEN, Judge.

The plaintiff sues for the recovery of $117,149.20 of excess profits taxes and interest collected from it for its fiscal years 1942, 1943, 1944 and 1945, together with interest thereon. The ground for its motion is that, it asserts, the taxes were never assessed against it, and were collected after the statute of limitations had made assessment impossible. The plaintiff relies on section 3770(a) (2) of the Internal Revenue Code of 1939, 26 U.S.C.A. § 3770 (a) (2), which says:

"Any tax (or any interest, penalty, additional amount, or addition to such tax) assessed or paid after the expiration of the period of limitation properly applicable thereto shall be considered an overpayment and shall be credited or refunded to the taxpayer if claim therefor is filed within the period of limitation for filing such claim."

The plaintiff's claim for refund and its suit in this court were timely.

The plaintiff claimed that it was not subject to the excess profits tax because of the relation of its business to foreign commerce. This motion is not concerned with the merits of that claim. Because it claimed to be exempt from the tax, it filed, for the years here in question, the Government's printed forms for excess profits tax returns, but filled in only its name and address and the words "see rider attached" or, "see explanation on page 2 hereof." On a separate rider, or in a blank space on page 2 of the form, it stated that it was not subject to the excess profits tax and gave the reason for that position.

A revenue agent, in examining a similar filing of the plaintiff for 1941, disallowed that claim and the plaintiff was subsequently advised by counsel that it might get into difficulties because of failure to file a return. Thereupon on February 19, 1946, the plaintiff filed "amended excess profits tax returns" for each of the years here involved. These returns were completely filled out with all the information necessary to compute the excess profits tax, and with the computation showing the amount of the tax. Inside each one was attached a rider claiming exemption from the tax and giving reasons for the exemption. With each return was a letter asserting the claim to exemption, quoting the rider which was inside the return, and stating that the claim of nonliability was the reason why no remittance accompanied the return.

As we have said, these "amended returns" were filed on February 19, 1946. On the March 1946 assessment list, the Commissioner purported to assess taxes and interest against the plaintiff on the basis of the figures and computations shown on the forms which the plaintiff had filed. On May 6 of the same year the plaintiff received a notice of the assessment for each of the years, which notice stated the amount of each assessment, and made demand for its immediate payment.

On November 26, 1946, the plaintiff by letter protested the action of the Commissioner in purporting to assess the taxes and interest without giving the plaintiff a 90-day deficiency notice as provided in section 272 of the 1939 Internal Revenue Code. Similar protests were made on December 9, 1946, and May 24, 1948.

Section 272 authorizes the Commissioner, if he determines that there is a deficiency, to send a taxpayer by registered mail a notice of the deficiency. It authorizes the taxpayer, at any time within 90 days from the day the deficiency letter is mailed, to petition the Tax Court for a redetermination of the deficiency. It then says:

"* * * No assessment of a deficiency in respect to the tax imposed by this chapter and no distraint or proceeding in court for its collection shall be made, begun, or prosecuted until such notice has been mailed to the taxpayer, nor until the expiration of such ninety-day period, nor, if a petition has been filed with the Tax Court, until the decision of the Tax Court has become final. Notwithstanding the provisions of section 3653(a) the making of such assessment or the beginning of such proceeding or distraint during the time such prohibition is in force may be enjoined by a proceeding in the proper court. * * *"

The plaintiff says that since no 90-day deficiency notice was ever sent to it, and since section 272 says that "No assessment of a deficiency * * * shall be made * * * until such notice has been mailed * * * nor until the expiration of such ninety-day period * * *," the taxes here in question were never assessed, and were collected at a time when they could no longer have been assessed because the statute of limitations had run.

When one files a tax return showing taxes due, he has, presumably, assessed himself and is content to become liable for the tax, and to pay it either when it is due according to the statute, or when he can get the money together. At any rate he shows no desire to resort to the Tax Court to contest the assessment. The Commissioner has no occasion to determine a deficiency and give the taxpayer notice of it, since at that stage, and until an audit shows something different, the taxpayer's own computation of his taxes may be taken as correct. The only notice which will be sent to the taxpayer will be a notice that the taxes shown to be due by his return should be paid immediately, with appropriate interest.

When a taxpayer, as did the plaintiff, furnishes, on the conventional form, the necessary information, and makes the necessary computation to determine the amount of the tax, but accompanies this return with a claim that no taxes are owing, for a stated reason, how should the Commissioner treat this filing? It he treats it as no return, and seeks to attach to it the painful consequences of a failure to file a return, that seems unfair to the taxpayer, who has been completely frank with the Commissioner. If he treats it as an ordinary return, and the lack of an accompanying check as a mere failure to pay the tax shown by the return to be owing, it is not a case for the determination of a deficiency, and a 90-day notice to the taxpayer that unless he petitions the Tax Court within the 90 days, the deficiency will be assessed and collected. The deficiency referred to in section 272 is, ordinarily at least, a shortage arising out of circumstances not disclosed in the return.

The plaintiff's filing, done purposely in the form it was in to avoid the penalties of failing to file a return, is a document to which it is somewhat difficult to assign a definite classification. Both parties were aware, throughout their dealings extending through many years, of all the relevant facts, and of the contention of the plaintiff that the taxes had never been validly assessed. The purpose of the procedure prescribed by section 272 is not, however, merely to assure the taxpayer of notice of impending action by the Commissioner. Its purpose is also to give the taxpayer the opportunity to try to prevent the assessment by petitioning the Tax Court, instead of raising the money, if he can, paying the tax, and later suing for a refund in a court having that jurisdiction.

In the instant case, if the Commissioner...