APPEAL OF NATIONAL REFINING CO. OF OHIO, Docket No. 186.

• Decision Date: 23 December 1924
• Docket Number: Docket No. 186.
• Citation: 1 BTA 236
• Parties: Appeal of the NATIONAL REFINING CO. OF OHIO ET AL.
• Court: U.S. Board of Tax Appeals

1 B.T.A. 236 (1924)

Appeal of the NATIONAL REFINING CO. OF OHIO ET AL.¹

Docket No. 186.

Board of Tax Appeals.

Submitted November 18, 1924.

Decided December 23, 1924.

J. W. Reavis, Esq., for the taxpayer A. Calder Mackay, Esq. (Nelson T. Hartson, Solicitor of Internal Revenue) for the Commissioner.

Before GRAUPNER, LITTLETON, and SMITH.

This appeal involves a deficiency in income and excess profits taxes for the year 1917 in the amount of $95,201.21 and at the hearing was presented on admissions contained in the pleadings and on documentary and oral evidence.

FINDINGS OF FACT.

1. The National Refining Co. of Ohio is a corporation organized under the laws of the State of Ohio with its principal offices in the city of Cleveland, Ohio. It is the parent company of the affiliated corporations named in the title of this appeal, and is hereinafter referred to as the taxpayer.

2. The taxpayer and its subsidiaries duly filed tax returns for the calendar year 1917 on March 15, 1918. In letters dated February 26, 1923, the Commissioner notified the taxpayer and its subsidiaries that an examination of their books relative to the year 1917 disclosed a total additional tax of $131,403.39 for such year. All of the letters were alike in text and each contained the following:

You are advised that section 250(d) of the Revenue Act of 1921 provides that assessment of additional tax found due as a result of an audit of a return must be made within five years from the date on which the return was filed, unless the Commissioner of Internal Revenue and the taxpayer consent in writing to a later determination, assessment, and collection of such tax. * * *

Assessment of any additional tax found due on your return must be made not later than April 15, 1923, the expiration of the five-year period provided in section 250(d). If you desire that your case be given consideration before assessment is made, it will be necessary that the inclosed form of waiver be signed and returned to this office immediately, otherwise assessment will be made not later than 15 days from the date of this letter. (Italics ours.)

3. Upon receipt of the letters, the taxpayer and each of its subsidiary corporations signed and executed waivers, under date of March 5, 1923, in the form proposed by the Commissioner, and filed them in the Commissioner's office, where they were signed by the Commissioner. Each of the waivers contained the following statement and limitation:

This waiver is in effect for one year from the date it is signed by the taxpayer.

This extended the period for the assessment of 1917 taxes from March 15, 1923, to March 5, 1924.

4. On September 7, 1923, the Commissioner addressed letters to the parent and subsidiary corporations wherein he notified them that the income-tax returns for 1917 had been reexamined and that he proposed to assess additional taxes for that year in the amount of $252,079.13. The letter to the parent corporation contained the statement, "Office letter dated February 24, 1923, is annulled." This date is obviously an error and should have been February 26, 1923. The letters of the same date addressed to the subsidiaries referred to the letter to the parent company. All the letters contained this provision:

In accordance with the provisions of section 250(d) of the Revenue Act of 1921, you are granted 30 days within which to file an appeal and show cause or reason why this tax or deficiency should not be paid. The final words of explanation in the schedules accompanying the letter of September 7, 1923, are "Waivers for 1917 filed March 5, 1923."

5. On September 17, 1923, and within the 30 days allowed by section 250(d) of the Revenue Act of 1921, each of the corporations named above, parent and subsidiaries, wrote to the Commissioner protesting the proposed assessment and demanding a hearing. The Commissioner acknowledged the receipt of these protests in a letter dated September 22, 1923, and fixed October 11, 1923, as a date for hearing thereon at Washington, D. C.

6. At the hearing, as a part of its evidence in support of the protest against the proposed assessment, the taxpayer introduced and filed in the Commissioner's office, and not with the collector at Cleveland, Ohio, a volume containing about 70 pages of calculations and exhibits bound in a leather cover, on the front page of which was printed the title: "The National Refining Co., Cleveland, Ohio, Final Amended Income and Excess Profits Tax Return with Consolidated Statements and Schedules, Year 1917." This was admitted in evidence before the Board and marked "Taxpayers' Exhibit 5." Attached to the third page of this bound volume was an accomplished corporation income tax return (Form 1031) entitled "Final Amended," which was not verified, and, also, an accomplished corporation excess profits tax return (Form 1105), which was verified October 4, 1923. The remainder of the volume consisted of tabulations and schedules such as reconciliation of tax return, balance sheets, profit-and-loss account, depreciation and depletion, etc.

7. After the hearing of October 11, 1923, no notice was received from the Commissioner by the taxpayer concerning the proposed assessment until July, 1924, when it received a letter from him, dated July 21, 1924, notifying it that a deficiency had been determined and that it had 60 days within which to appeal to this Board.

DECISION.

The deficiency in tax determined by the Commissioner in his deficiency notice of July 21, 1924, for the calendar year 1917, amounting to $95,201.21, is disallowed.

OPINION.

GRAUPNER:

On the hearing of this appeal, the taxpayer waived its claims as to one of the two alleged errors asserted in its petition and confined its presentation and argument to the following assigned error of the Commissioner in determining the tax:

That the entire additional assessment as proposed in department letter dated July 21, 1924, against all of the above-named companies for the taxable year 1917, is outlawed under the Statute of Limitations contained in section 277(a) (2) of the Revenue Act of 1924.

In his answer to the petition, the Commissioner, after admitting most of the allegations of fact contained in the petition, alleged an affirmative defense in the following language:

(5) That the taxpayers, on or about October 4, 1923, filed with the Bureau of Internal Revenue amended income and excess-profits tax returns for the taxable year 1917; that said amended returns were accepted by the Bureau of Internal Revenue and that the taxes proposed in said deficiency letter are due under said amended returns; that the taxes proposed in said deficiency letter arise and are based upon the information and statements contained in said amended returns.

The Commissioner averred, as propositions of law, that:

(1) The five-year limitation imposed by section 250(d) of the Revenue Act of 1921, and by section 277(a) (2) of the Revenue Act of 1924, for taxes due under the amended returns filed by the taxpayers began to run from the date the said amended returns were filed.

(2) The five-year limitations imposed by section 250(d) of the Revenue Act of 1921 and section 277 (a) (2) of the Revenue Act of 1924 have not expired.

At the hearing of the appeal the Solicitor objected to the introduction of the oral and documentary evidence offered by the taxpayer and, after its introduction, moved to strike it out on the following grounds; (a) that it was incompetent, irrelevant, and immaterial, and (b) that the Board has no jurisdiction to entertain an appeal which goes only to the remedy of the collection of taxes and not to the amount of the deficiency proposed by the Commissioner. Ruling on the motion was withheld and, for the purpose of clarifying the record, the motion is now denied.

We will consider the question of jurisdiction before passing upon the single issue presented by the taxpayer.

Section 900 of the Revenue Act of 1924 grants the Board power to hear and determine appeals filed under section 274 of the act. Section 274, the one applicable to the tax under consideration in this appeal, grants to the taxpayer the right of appeal if the Commissioner determines that there is a deficiency in respect of the tax imposed by Title II of the act. Nowhere does the act contain any limitation on the Board as to what it may consider in determining whether or not a deficiency in tax exists. There is no restriction on the taxpayer's asserting in his appeal from a deficiency that such tax is in violation of the Constitution, in violation of the provisions of any of the revenue acts, or illegal for any other reason. There is no more cause to prevent it pleading section 277(a) (2) of the Revenue Act of 1924 as a reason why...