L. Loewy & Son v. Commissioner of Internal Revenue

• Decision Date: 01 April 1929
• Docket Number: No. 239.,239.
• Parties: L. LOEWY & SON, Inc., v. COMMISSIONER OF INTERNAL REVENUE.
• Court: U.S. Court of Appeals — Second Circuit

31 F.2d 652 (1929)

L. LOEWY & SON, Inc., v. COMMISSIONER OF INTERNAL REVENUE.

No. 239.

Circuit Court of Appeals, Second Circuit.

April 1, 1929.

Paskus, Gordon & Hyman, of New York City (Arthur B. Hyman, of New York City, of counsel), for appellant.

Mabel Walker Willebrandt, Asst. Atty. Gen. (John Vaughan Groner, Sp. Asst. Atty. Gen., and C. M. Charest, Gen. Counsel, Bureau of Internal Revenue, and Stanley Suydam, Sp. Atty., Bureau of Internal Revenue, both of Washington, D. C., of counsel), for appellee.

Before MANTON, L. HAND, and AUGUSTUS N. HAND, Circuit Judges.

AUGUSTUS N. HAND, Circuit Judge (after stating the facts as above).

The questions involved on this appeal are:

(1) Whether the taxpayer and the Commissioner reached an agreement fixing the amount of the tax which, when followed by payment, constituted an accord and satisfaction, or an estoppel, and barred the assessment and collection of additional taxes.

(2) Whether or not the assessment and collection of any deficiency in taxes for the fiscal years was barred by the statute of limitation.

The first question seems to have been answered by the Supreme Court in Botany Worsted Mills v. United States, 49 S. Ct. 129, 73 L. Ed. ___. In that case an adjustment of taxes had been made between the taxpayer and the Bureau of Internal Revenue, but there had been no compromise effected in accordance with section 3229 of the Revised Statutes (26 USCA § 158), which provides that:

"The Commissioner of Internal Revenue, with the advice and consent of the Secretary of the Treasury, may compromise any civil or criminal case arising under the internal revenue laws instead of commencing suit thereon; and, with the advice and consent of the said Secretary and the recommendation of the Attorney General, he may compromise any such case after a suit thereon has been commenced. Whenever a compromise is made in any case there shall be placed on file in the office of the Commissioner the opinion of the Solicitor of Internal Revenue, * * * with his reasons therefor, with a statement of the amount of tax assessed, * * * and the amount actually paid in accordance with the terms of the compromise."

The Supreme Court said, in its opinion in Botany Worsted Mills v. United States, supra, that:

"Congress intended by the statute to prescribe the exclusive method by which tax cases could be compromised, requiring therefor the concurrence of the Commissioner and the Secretary, and prescribing the formality with which, as a matter of public concern, it should be attested in the files of the Commissioner's office. * * *"

In view of the Botany Worsted Mills decision, it is quite manifest that a binding adjustment of a disputed tax can only be had in the way prescribed by the statute, and that the Commissioner was free to revise his figures and make his final assessment at any time within the period allowed by statute.

The foregoing conclusion is reinforced by section 1312 of the Revenue Act of 1921 (42 Stat. 313), in force at the time the taxpayer accepted the additional tax liability of $247.41. That section provides that if, after assessment, the taxpayer has paid a tax without protest, or accepted any abatement, credit, or refund based on such determination and assessment, "and an agreement is made in writing between the taxpayer and the Commissioner, with the approval of the Secretary, that such determination and assessment shall be final and conclusive, then (except upon a showing of fraud or malfeasance or misrepresentation of fact materially affecting the determination or assessment thus made) (1) the case shall not be reopened or the determination and assessment modified. * * *"

It is hard to see why section 1312 should require a written agreement, approved by the Secretary of the Treasury, in order to prevent the modification of an assessment, if the assessment under such conditions could not be revised anyway.

It is contended by the taxpayer that Woodworth v. Kales, 26 F.(2d) 178, is persuasive of the correctness of its position. The Circuit Court of Appeals of the Sixth Circuit there seemed to hold that an assessment once made could not be revised, even within the statutory period, except for fraud or for a mistake of fact, neither of which existed here. But in the present case, there was apparently no assessment made of a deficiency of $247.41, nor has there been any assessment of the further deficiency of $1,165.11 later determined.

The taxpayer relies on the theory that, when he was confronted with the Commissioner's determination that there was a deficiency of $247.41, and he accepted the figures then presented as correct, and paid the tax, there was both an account stated and an accord and satisfaction, which the Commissioner could not later reject, unless for fraud or...