Henry Prentiss & Co. v. United States
| Decision Date | 15 June 1930 |
| Parties | HENRY PRENTISS & CO., Inc., v. UNITED STATES. |
| Court | U.S. District Court — Southern District of New York |
Jeffery & Redmond, of New York City (Wm. P. Jeffery and Joseph F. Murray, both of New York City, of counsel), for plaintiff.
Robert E. Manley, Acting U. S. Atty., of New York City (Leon E. Spencer, Asst. U. S. Atty., of New York City, of counsel), for the United States.
Though the action was tried last February, it was not argued or submitted until the 23d instant. As explained to counsel, it is essential that I dispose of it this week, before leaving on vacation. After I resume sitting in September, my time will be absorbed by new matters. Accordingly, without attempting a full exposition of the grounds, the points involved are determined as follows:
1. If the excess of actual value of the real estate over the figures entered in the books and balance sheets had been claimed in the returns for 1918 and 1920, the taxpayer would have been entitled to include the item in invested capital. As I understand, this proposition is not seriously (if at all) disputed.
2. Similarly, within the limits urged in the complaint, the taxpayer would have been entitled to include the item of intangibles in invested capital for those years. I think the corporate proceedings, recited in the stipulation, establish that the intangibles were part of the consideration paid for the $490,000 of capital stock when originally issued. As said in Doyle v. Mitchell, 247 U. S. 179, 187, 38 S. Ct. 467, 62 L. Ed. 1054, and in Isbell Porter Co. v. Commissioner of Internal Revenue (C. C. A. 2, April 7, 1930), 40 F.(2d) 432, the facts, and not the book entries, govern.
3. Whether the 1918 refund claim (Exhibit 3) included the real estate item or the intangibles item depends exclusively upon the significance to be attributed to the statement therein that there existed an abnormal condition in invested capital.
Possibly the two items rest on somewhat different bases. It is manifest that the real estate was under consideration. In a sense, therefore, its value was in issue before the bureau. Nevertheless, the contention with which we are now engaged with respect to an increase in the real estate value was not specifically mentioned; and certainly the question of whether intangibles might be included in invested capital was not specifically mentioned.
I take it that the regulation of the Secretary of the Treasury in regard to refund applications setting forth under oath "all facts relied on in support of the claim" is valid. Paul Jones & Co. v. Lucas (D. C.) 33 F.(2d) 907, 908; Art Metal Const. Co. v. United States (D. C.) 35 F.(2d) 379, 380. I do not believe that the employment of the word "should," instead of the word "shall," makes any difference.
The obvious purpose of the regulation was to secure bringing before the commissioner enough to enable him to make a fair decision. What was prescribed was "facts"; not facts alone but "all facts relied upon in support of the claim," and these were required to be "clearly set forth under oath." A taxpayer seeking relief suffered no risk and incurred no penalty through failure to furnish evidence or to make a contention or to give a reason or to cite a provision of law. He was left free to base a suit upon theories or upon arguments or upon statutory interpretations or upon court decisions which he had ignored when he framed his refund claim. He was merely debarred from judicial relief upon facts different from those presented to the administrative officials. The government, in its consent to be sued, limited recovery to instances in which "all facts" relied on had previously been embodied in a verified refund application. Compliance is a condition precedent to maintaining the action. Rock Island, etc., R. R. v. United States, 254 U. S. 141, 143, 41 S. Ct. 55, 65 L. Ed. 188.
Was the assertion that there was an "abnormal" condition in invested capital a full relation of the facts on which the case at bar turns? Was that assertion equivalent to telling the commissioner that invested capital should include a larger sum for real estate or should include a sum for intangibles? I think not. See Arizona Commercial Mining Co. v. Casey (D. C.) 32 F. (2d) 288, 290.
I hold therefore that the 1918 refund claim did not set forth "all facts" within the meaning of the regulation.
4. The claim for refund of the 1918 taxes was filed in time. Apparently this is not now controverted.
5. If I be right as to the regulation, then (as I see it) there was no waiver. True, some officials had power to waive (Tucker v. Alexander, 275 U. S. 228, 230, 231, 48 S. Ct. 45, 72 L. Ed. 253); but neither a ruling by the commissioner that the two items sued on were not proper elements of invested capital nor a temporary admission in the original answer (withdrawn by the amended answer) of the due filing of the 1918 refund claim was sufficient to constitute a waiver. An essential element of waiver is a conscious relinquishment of something that is known. Waiver must be either expressed or implied. Indisputably here there was no express waiver, as there was in Tucker v. Alexander; and I see in the proof no warrant whatever for inferring a waiver. See Arizona Commercial Mining Co. v. Casey (D. C.) 32 F.(2d) 288, 291; Ritter v. United States (D. C.) 19 F. (2d) 251, 252.
6. Plainly, and I believe concededly, the 1920 refund claim (Exhibit 13) included both the real estate and the intangible items.
7. Within the time available for consideration, I have been unable to discover in the confusing phraseology of section 284 of the Revenue Act of 1926 (26 USCA § 1065), or elsewhere, any provision which brings the 1920 refund application within the exceptions mentioned in the Revised Statutes, § 3228 (26 USCA § 157), to the four years' period of limitations prescribed thereby. Failure of the answer to raise the issue is immaterial, because the burden is on the taxpayer to show affirmatively that the refund application was seasonably filed. United States v. Richards (C. C. A.) 27 F.(2d) 284.
Unless agreed on, settle judgment (including findings), in accordance with the foregoing, on five days' notice.
November 5, 1930.
I have examined the briefs and the authorities cited. I have considered the findings proposed. I have also studied the questions raised and have formed some tentative impressions. Yet, I am somewhat uncertain what is the true significance of what is embraced in paragraph 7 of my memorandum of June 27, 1930, brought up on reargument. Since that memorandum was filed, the issues and the proof have so far passed out of mind that I feel that I cannot now fairly dispose of the matters presented without going again over the entire record. If counsel will send me all the papers (including their memoranda, preferably in the form previously furnished), at the first opportunity I will again review the case.
November 10, 1930.
This memorandum will deal only with taxes of 1920. It will discuss only refunds, as distinguished from credits. Accordingly, references to statutes hereafter, unless otherwise stated, will be confined to portions which apply to refunds of taxes of that year. In the interest of brevity the Revised Statutes will be cited by giving merely the section numbers thereof.
I have re-examined all papers submitted pursuant to my memorandum of November 5. As I understand, the parties now stipulate that on May 6, 1926, the plaintiff filed with the Commissioner of Internal Revenue (1) a waiver of the taxpayer's right to have its taxes determined and assessed within the statutory time prescribed therefor, and (2) a claim for refund. I say that this is my understanding, because to date the matter rests entirely on oral statements recently made by counsel at my chambers, reiterated or implied in their briefs. The claim for refund (Exhibit 13) was put in evidence at the trial; but no waiver was then produced, although on the refund claim there is an entry (apparently in pencil) as follows: "Waiver dated 5-5-26 on file."
In view of the above, for the purpose of disposing of what is presently before me, I shall assume that it is undisputed, and that it is agreed that it shall be taken as part of the record, that both a waiver and a refund claim were duly filed with the commissioner on May 6, 1926. It may be remarked also that if the facts be as I have set out, then even at this late stage the admission on the record that the two papers were filed on the date stated merely saves the trouble of reopening the case so as to permit formal proof to that effect.
The sole question raised by the plaintiff is whether paragraph 7 of my memorandum of June 27, 1930, should be modified.
As already indicated, when I wrote the June memorandum there was no warrant for finding that a waiver had been filed. It is true that on Exhibit 13 there was a notation (by some undisclosed person) about a waiver; but, apart from that not having been called to my attention, it seems to me insufficient as evidence. I still feel that, without a showing of waiver, I should adhere to my first memorandum. See Porter v. United States (C. C. A.) 27 F.(2d) 882, 884. If so, then all that remains for consideration is whether addition of proof of the waiver changes the result.
The issue turns on the condition of the law as it was amended by the Revenue Act of 1926 (44 Stat. 9). That is conceded, I believe, by both sides. There are three relevant provisions. I shall recite and comment on such portions only of those provisions as seem to me relevant.
1. Section 3226 (26 USCA § 156, 44 Stat. 116, § 1113(a) prohibits maintenance of a suit for the recovery of a wrongfully collected tax until a claim for refund has been filed. It also expressly requires that the claim shall be filed "according to the provisions of law in that regard." Those provisions are to be found in section 3228 or in other laws...
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