Beam v. Hamilton

Decision Date15 May 1923
Docket Number3787.
Citation289 F. 9
PartiesBEAM v. HAMILTON, Collector of Internal Revenue.
CourtU.S. Court of Appeals — Sixth Circuit

W. H Fulton, of Bardstown, Ky. (A. B. Bensinger, of Louisville Ky., and E. N. Fulton, and John A. Fulton, both of Bardstown Ky., on the brief), for plaintiff in error.

S Duffield Mitchell, Sp. Atty. for Bureau of Internal Revenue, of Washington, D.C. (W. Sherman Ball, U.S. Atty., of Louisville, Ky., and Carl A. Mapes, Solicitor of Internal Revenue, on the brief), for defendant in error.

Before KNAPPEN, DENISON, and DONAHUE, Circuit Judges.

KNAPPEN Circuit Judge.

This writ brings up for review a judgment rendered in favor of the collector in a suit by plaintiff in error to recover a penalty of 50 per cent. assessed (and paid under protest) for alleged failure to make a return under the Revenue Act of October 3, 1917 (40 Stat. 300 (Comp. St. 1918, Sec. 6336 3/8a et seq.)). During that calendar year (and for many years before) plaintiff in error was the vice president and general manager of a distillery, for which service he received an annual salary of $4,200. On his shares of stock therein he drew dividends of $18,000. He was also on his own account (and for several years preceding had been) engaged in the business of registered distiller and wholesale and retail liquor dealer, and as such distiller owned and operated that individual business. He made an income tax return showing the salary and dividends referred to and several thousand dollars of other income (not connected with his personal distillery and liquor business), showing a net taxable income of $27,472.78, on which a tax of $1,360.74 was computed and paid. No return whatever was made of his income from his personal business as distiller, etc., from which he received during 1917 an income of $51,994.70. A return thereof would have made plaintiff liable to an additional income tax of $4,333.18 (a total of $5,693.92, instead of $1,360.74), and to an excess profits tax of $21,155.47. On discovering this situation, the Commissioner made a new assessment of taxes on the correct basis, adding to the taxes assessed a penalty of 100 per cent. ($5,693.92) for making a false and fraudulent return, and a penalty of 50 per cent. upon the excess profits taxes for failure to make and file an excess profits return. The entire of the additional taxes and penalties so assessed was paid under protest.

In this suit to recover both items of penalties paid, the District Court (which tried the case on statutory waiver of jury, under Rev. St. Sec. 649, U.S. Comp. Stat. Sec. 1587) concluded that the return actually made was not false and fraudulent; it appearing to have been prepared by an expert accountant, plaintiff in error claiming he had given the accountant full data for the return, and that he had executed the same without 'looking at it or noting the amount thereof. ' The court held, however, that plaintiff was not entitled to recover the 50 per cent. penalty assessed and paid for failure to make an excess profits return. The government has not asked review of the judgment regarding the 100 per cent. penalty. Plaintiff in error does not complain of the reassessed taxes paid. The only question here relates to the 50 per cent. penalty.

Rev. St. Sec. 649 (U.S. Comp. Stat. Sec. 1587), provides that 'the finding of the court upon the facts, which may be either general or special, shall have the same effect as the verdict of a jury. ' Rev. St. Sec. 700 (U.S. Comp. Stat. Sec. 1668), provides for a review of the rulings of a court in the progress of a trial, if excepted to at the time and presented by bill of exceptions, and that 'when the finding is special the review may extend to the determination of the sufficiency of the facts found to support the judgment. ' The record does not show that any request for special findings was made, nor that any finding was made, except that in the judgment entry the court 'found the fact to be that the said return, upon which said penalty was based, imposed, and collected as stated in the pleadings, was not willfully 'false' nor 'fraudulent,' nor was it willfully made with intent to defeat or evade assessment of a tax. ' The return referred to is obviously the income tax return actually made, on which the tax of $1,360.74 was computed and paid.

The statute under which the penalty in question was assessed (Rev. St. Sec. 3176, as amended September 8, 1916 (39 Stat.p. 773, U.S. Comp. Stat. 1918, U.S. Comp. St. Ann. Supp. 1919, Sec. 5899)), provides that 'in case of any [1] failure to make and file a return or list within the time prescribed by law or by the collector, the Commissioner of Internal Revenue shall add to the tax fifty per centum of its amount,' subject to an exception hereinafter referred to. A fraudulent failure to file return is not necessary to the imposition of that penalty; concededly, mere failure is enough. With reference to that item, the judgment entry is merely 'in respect to the remainder of the amount sought to be recovered by the plaintiff, viz. the further sum of $11,015.21, and interest thereon, the court is of opinion and now adjudges that plaintiff's action should be and it is dismissed. ' This adjudication has the force of a general verdict of a jury, and (in the absence of exception to the admission of evidence) is conclusive upon all matters of fact involved therein. See Lehnen v. Dickson, 148 U.S. 71, 13 Sup.Ct. 481, 37 L.Ed. 373; Vicksburg, etc., Ry. Co. v. Anderson, etc., Co., 256 U.S. 408, 415, 41 Sup.Ct. 524, 65 L.Ed. 1020; National Surety Co. v. C., N.O. & T.P. Ry. Co. (C.C.A. 6) 145 F. 34, 76 C.C.A. 19; Mason v. Smith (C.C.A. 6) 191 F. 502, 503, 112 C.C.A. 146. Our statement of facts, supra, is supported by admissions in pleadings or otherwise.

The exception in the 50 per cent. penalty provision before referred to is that, 'when a return is voluntarily and without notice from the collector filed after such time, and it is shown that the failure to file was due to a reasonable cause, and not to willful neglect, no such addition shall be made to the tax. ' On this record plaintiff is not entitled to the benefit of this exception. The fact of voluntary return without notice from the collector is not found, the allegation thereof in plaintiff's petition is denied by the answer, and there is direct evidence to the contrary. Two witnesses testified, without dispute, that plaintiff refused, under advice of his accountant, to sign the excess profits tax return prepared by the revenue officers. Presumably the extent of plaintiff's actual claim in respect to voluntary return of the excess profits tax is that his act in furnishing the revenue officers with the details of his income from his personal business, which was incorporated into the proposed return and upon which the excess profits tax was assessed, amounted to a making of such return by him.

The sole substantial question presented is whether the penalty provision involved extends to a failure to make a return of excess profits, or whether it is limited to failure to make any income tax return. In our opinion the 50 per cent penalty applied to the failure to make an excess profits tax return. The excess profits feature had its genesis in the United States in the Act of March 3, 1917, which applied only to corporations and partnerships. The Act of October 3, 1917, with which we are concerned, applied to individuals as well, and superseded the Act of March 3, 1917, so covering the entire of the year 1917. Holmes, Federal Taxes (1923 Ed.) p. 1213. In the Act of October 3, 1917, a distinction between ordinary income taxes and excess profits taxes was clearly...

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    ...(D. C.) 285 F. 410; United States v. Chicago & E. I. Ry. Co. (D. C.) 298 F. 779; Holmes, Federal Taxes (1923 Ed.) p. 1213; Beam v. Hamilton (C. C. A.) 289 F. 9-12. The rule would, of course, be the same with respect to excess profits; and inasmuch as the Act of October 3, 1917, applied to a......
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    ...not assessed until 1951, the assessment and collection thereof were barred and the court was not in error in so holding. In Beam v. Hamilton, 6 Cir., 289 F. 9, the first excess profits tax, the one of 1917, was involved. The taxpayer had filed an income tax return for 1917, which on its fac......
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