Olds & Whipple v. United States

• Decision Date: 04 April 1938
• Docket Number: No. 43748.,43748.
• Citation: 22 F. Supp. 809,86 Ct. Cl. 705
• Parties: OLDS & WHIPPLE, Inc., v. UNITED STATES.
• Court: U.S. Claims Court

22 F. Supp. 809

86 Ct. Cl. 705

OLDS & WHIPPLE, Inc., v. UNITED STATES.

No. 43748.

Court of Claims.

April 4, 1938.

COPYRIGHT MATERIAL OMITTED

Warren W. Grimes, of Washington, D. C., for plaintiff.

John A. Rees, of Washington, D. C., and James W. Morris, Asst. Atty. Gen. (Robert N. Anderson and Fred K. Dyar, both of Washington, D. C., on the brief), for the United States.

Before BOOTH, Chief Justice, and GREEN, LITTLETON, WILLIAMS, and WHALEY, Judges.

LITTLETON, Judge.

Plaintiff here seeks to recover an overpayment of $7,047.30 determined by the Board of Tax Appeals and allowed by the Commissioner for 1928. Upon the facts alleged in the petition it appears that plaintiff and the W. S. Pinney & Co., also a Connecticut corporation, each filed separate tax returns for 1925, and for the years 1926 to 1929, inclusive, plaintiff filed consolidated returns for itself and the other corporation claiming therein that the two corporations were affiliated, and certain losses, which will be hereinafter mentioned, were claimed as deductions.

In the separate returns filed for 1925 plaintiff's return showed a net income of $67,625.03 and the Pinney Company reported a net loss of $238,009.36. For 1926, in the affiliated return, plaintiff used the Pinney Company's $151,772.46 current loss as an offset against plaintiff's income of $119,802, resulting in a claimed consolidated net loss of $31,970.46. No tax was shown to be due upon that return and none was paid. The Commissioner of Internal Revenue denied affiliation for 1926 but held that the stock of the Pinney Company, which was owned by plaintiff and which had cost $210,500, became worthless in 1926. The Commissioner therefore proceeded to offset that loss against plaintiff's separate income of $67,625.03 for 1926, resulting in no tax being due for that year.

In the 1927 consolidated return plaintiff claimed the right to carry over and deduct the consolidated net loss of $31,970.46 shown in the consolidated return for 1926. The Commissioner allowed affiliation for 1927 but disallowed the deduction of the consolidated net loss attempted to be carried over from 1926 on the ground that the corporations were not affiliated for that year and, by a statutory deficiency notice mailed February 5, 1931, determined and asserted a deficiency against plaintiff of $4,339.60 for 1927.

For 1928 a consolidated return was filed and plaintiff at that time claimed as a loss the cost to it of the stock of the Pinney Company as a deduction for 1928, on the ground that the stock became worthless in that year. The Commissioner disallowed the deduction on the ground that the loss of $210,500 on the stock of the Pinney Company had been sustained in 1926 and he had so ruled. In a statutory deficiency notice mailed February 5, 1931, the Commissioner determined and asserted a deficiency against plaintiff of $18,065 for 1928.

In the consolidated return for 1929 plaintiff claimed as a deduction for that year $100,372.15, representing the unabsorbed loss which it had claimed in the consolidated return for 1928 on the alleged worthlessness in 1928 of the stock of the Pinney Company. By disregarding the carrying over and deduction in 1929 of such claimed loss in 1928 of $100,372.15, plaintiff's income for 1929 was $113,820.29 and the Pinney Company's income was $6,243. The return as filed showed a tax of $1,178.70, and that amount was paid pursuant to the consolidated return as filed in which the unabsorbed portion of the stock loss claimed to have occurred in 1928 was deducted. The Commissioner denied the deduction of the $100,372.15 above mentioned for 1929 for the same reason that he denied a deduction on account of the same loss claimed for 1928, namely, that the loss on the stock of the Pinney Company occurred in 1926. The Commissioner by a statutory deficiency notice mailed November 16, 1931, determined and asserted a deficiency for 1929 of $11,698.28.

Within 60 days after the mailing of the deficiency notice of February 5, 1931, with reference to the years 1927 and 1928, plaintiff filed a petition with the United States Board of Tax Appeals for the redetermination of the deficiencies for those years, and within 60 days after mailing of the deficiency notice of November 16, 1931, it instituted a proceeding before the Board of Tax Appeals for a like purpose with respect to the year 1929. In both of these proceedings plaintiff contended (1) that it and the Pinney Company were affiliated for 1926 and that the Commissioner had erred in holding otherwise, and (2) that the loss to plaintiff of the cost to it of the stock of the Pinney Company occurred and was sustained in 1928 rather than in 1926, as determined by the Commissioner. In an answer filed to the plaintiff's petitions in the proceedings instituted before the Board of Tax Appeals, the Commissioner denied both contentions made by plaintiff. In that answer no new issues were raised by the Commissioner and no additional deficiencies, additional amounts, or additions to the tax were claimed by the Commissioner at or before the trial of the cases before the Board on May 15, 1933, or before the first decisions of the Board in the two proceedings were entered on December 14, 1933. On the last-mentioned date the Board, having heard the case upon the issues raised, rendered a memorandum opinion sustaining the determinations of the Commissioner as to both issues raised in the petitions and entered its decisions approving the deficiencies determined by the Commissioner in the amounts of $4,339.60 for 1927, $18,065 for 1928, and $11,698.28 for 1929.

Thereafter plaintiff perfected an appeal from the decisions of the Board to the United States Circuit Court of Appeals for the Second Circuit under sections 1001 (a) and 1002 (a) of the Revenue Act of 1926, 44 Stat. 109, 110. No bond to stay assessment and collection of the deficiencies as determined by the Board on December 14, 1933, was made and filed by plaintiff under section 1001 (c), 44 Stat. 109. By reason of no bond for the payment of the deficiencies as determined by the Board having been filed, the Commissioner in accordance with the provisions of section 1001 (c) proceeded to assess such deficiencies on March 9, 1934, and they were paid by plaintiff on April 2, 1934, together with interest of $1,556.25 for 1927, $5,394.51 for 1928, and $2,791.40 for 1929.

Thereafter, on February 4, 1935, the Circuit Court of Appeals for the Second Circuit published its opinion sustaining both contentions made by plaintiff before the Board of Tax Appeals and before the Circuit Court of Appeals, namely, that it was affiliated with the Pinney Company for the year 1926 and that the loss on the stock of the Pinney Company occurred and was sustained in 1928, and that the unabsorbed portion of such loss as a deduction from plaintiff's income for 1928 was a proper deduction from its income for 1929. The opinion of the Circuit Court of Appeals therefore reversed the decisions of the Board for the three years 1927, 1928, and 1929. The opinion of the court is reported in Olds & Whipple v. Com'r, 2 Cir., 75 F.2d 272-275.

On February 28, 1935, subsequent to the decision of the Circuit Court of Appeals, plaintiff filed a claim for refund for 1928 of $23,582.91 with interest from April 2, 1934, on the ground that under the opinion of the Circuit Court of Appeals an overpayment would result for 1928 by reason of the payment of the deficiency of $18,065 for 1928 on April 2, 1934. In the subsequent proceeding before the Board of Tax Appeals, which will be hereinafter referred to in more detail, the Board carried out the opinion of the Circuit Court of Appeals pursuant to the mandate of that court duly filed with the Board. No petition was made to the Supreme Court for a writ of certiorari to the Circuit Court of Appeals.

The mandate of the Circuit Court of Appeals dated February 20, 1935, to the Board of Tax Appeals was, so far as material here, as follows: "And whereas, in the present term of October, in the year of our Lord one thousand nine hundred and thirty-four, the said cause came on to be heard before the said United States Circuit Court of Appeals for the Second Circuit, on the said transcript of record, and was argued by counsel: On consideration whereof, it is hereby ordered, adjudged, and decreed That the order of said Board of Tax Appeals be and it hereby is reversed. You, therefore, are hereby commanded that such further proceeding be had in said cause, in accordance with the decision of this Court as according to right and justice, and the laws of the United States, ought to be had, the said appeal notwithstanding."

On February 27, 1935, the Board entered an order in both proceedings, No. 53529, relating to the years 1927 and 1928, and No. 60712, relating to the year 1929, as follows:

"Pursuant to mandate of the United States Circuit Court of Appeals for the Second Circuit, filed with the Board in the above-entitled proceedings February 21, 1935, reversing the decisions of the Board, it is

"Ordered, that these proceedings be placed upon the Day Calendar of March 27, 1935, for final decisions in accordance with the views expressed in the opinion of the United States Circuit Court of Appeals for the Second Circuit; the parties to submit on or before March 24, 1935, computations of the petitioner's tax for the years 1927, 1928, and 1929."

Pursuant to the mandate of the court and the order of the Board of February 27, 1935, the Commissioner on April 19, 1935, filed with the Board a recomputation of the tax for the 3 years involved in accordance with the opinion of the Circuit Court of Appeals, and, on April 29, 1935, after service upon it of a copy of the Commissioner's recomputation plaintiff filed an alternative computation. Thereafter the proceedings were taken under submission by the Board upon the recomputations filed and on November 20, 1935, the Board entered a judgment for 1927 and 1928 and a...