Bemis Bros Bag Co v. United States

• Decision Date: 13 March 1933
• Docket Number: No. 515,515
• Citation: 289 U.S. 28,53 S.Ct. 454,77 L.Ed. 1011
• Parties: BEMIS BROS. BAG CO. v. UNITED STATES
• Court: U.S. Supreme Court

289 U.S. 28

53 S.Ct. 454

77 L.Ed. 1011

BEMIS BROS. BAG CO.

v UNITED STATES.

No. 515.

Argued Feb. 13, 14, 1933.

Decided March 13, 1933.

Mr. Abraham Lowenhaupt, of St. Louis, Mo., for petitioner.

Mr. Erwin N. Griswold, of Washington, D.C., for the United States.

Messrs. Kingman Brewster, James S. Y. Ivins, Percy W. Phillips, O. R. Folsom-Jones, and Richard B. Barker, all of Washington, D.C., amici curiae.

Mr. Justice CARDOZO delivered the opinion of the Court.

The controversy to be determined presents another phase of a problem which has been much considered by the court in opinions recently announced. United States v. Memphis Cotton Oil Co., 288 U.S. 62, 53 S.Ct. 278, 280, 77 L.Ed. 619; United States v. Henry Prentiss & Co., 288 U.S. 73, 53 S.Ct. 283, 285, 77 L.Ed. 626; United States v. Factors & Finance Co., 288 U.S. 89, 53 S.Ct. 287, 289, 77 L.Ed. 633, January 9, 1933. There is need once again to decide whether a claim for the refund of a tax has been presented by the taxpayer in such a form as to be subject to amendment after a claim wholly new would be barred by limitation.

The petitioner Bemis Bros. Bag Company, having made payment of excess profits taxes for 1918 and 1919, filed its claims for refund with the Commissioner of Internal Revenue. The claims contained a request for a special assessment under sections 327 and 328 of the Revenue Act of 1918 (40 Stat. 1093), and in support of the request annexed a statement under oath which had been filed with a like claim as to the taxes of another year.

By the statement thus annexed, the right to the relief demanded is placed upon three grounds which are not to be confused.

The first is that the case is one 'where the Commissioner is unable to determine the invested capital' in the ordinary way. This is the ground covered by section 327(a) of the applicable statute.

The second is that the case is one 'where a mixed aggregate of tangible and intangible property has been paid in for stock or for stock and bonds and the Commissioner is unable satisfactorily to determine the respective values of the several classes of property at the time of payment, or to distinguish the classes of property paid in for stock and for bonds, respectively.' This is the ground covered by section 327(c).

The third is that the case is one where 'the tax, if determined without the benefit of this section (327) would, owing to abnormal conditions affecting the capital or income of the corporation, work upon the corporation an exceptional hardship evidenced by gross disproportion between the tax computed without the benefit of this section and the tax computed by reference to the representative corporations specified in section 328.' This is the ground covered by section 327(d).

The taxpayer, in presenting its claims to the Commissioner, submitted facts and arguments in support of each of the three grounds.

To show that the invested capital had been inaccurately determined, and could not be accurately determined by resort to the usual methods, the taxpayer stated inter alia that the value of printing plates and patterns had been erroneously omitted, and that, owing to the loss of vouchers and the changes wrought by the lapse of time, the value of these items could not be measured with complete precision, though it was susceptible even then of being fixed approximately. An estimate of the value was included in the claims.

To show that the case was one of a mixed aggregate of tangibles and intangibles paid for in stock, with the value of the several elements not subject to accurate division, the taxpayer made a statement of the corporate history and structure.

To show that there were abnormal conditions that would bring about injustice if the computation of the tax were to be made according to the usual method, and this though the invested capital were to be accurately determined, the taxpayer made a statement of the inequalities between its position and that of other corporations engaged in a like business.

Grounds Nos. 1 and 2 gave notice to the Commissioner that the taxpayer's invested capital had been erroneously assessed and charged him with a duty to inquire into the error and to give appropriate relief. United States v. Factors & Finance Co., supra. If he found that items had been omitted, but that he was unable to ascertain their value with reasonable accuracy, he might resort to section 328, and order the tax to be assessed in accordance with a special method. If he found that there had been omissions, but that he was able to his own satisfaction to identify and appraise them, he would learn in the process that there had been an undervaluation of invested capital, and that the assessment of the tax was correspondingly erroneous.

Ground No. 3 is independent of the others, and has a different origin and meaning. 'A demand for a special assessment in accordance with section 327(d) of the statute of 1918 is not a challenge to any act of the Commissioner in the valuation of invested capital. On the contrary, the valuation of invested capital is irrelevant if the special method is accepted. The very basis of the application for the use of such a method is the presence of abnormal conditions whereby an unfair and disproportionate burden will be laid upon the taxpayer if invested capital is to be reckoned according to the statutory definition (sections 325, 326), and the profits of the taxpayer subjected to a tax accordingly. Let the new method be adopted and the value of the invested capital ceases to be a factor in the process.' United States v. Henry Prentiss & Co., supra.

The Commissioner notified the taxpayer in October and November, 1926, that there was no evidence before him sufficient to justify relief under section 327(d) on the ground of abnormal conditions in the business of the claimant as compared with that of others. He seems to have overlooked the fact that the taxpayer was claiming relief also under subdivisions (a) and (c). A protest promptly followed the delivery of the notice, and with the protest went an amended claim. In this amended claim there was no change of importance, unless importance be attached to the form of the relief demanded. The request for a computation in accordance with section 328 was accompanied by a request for relief in the alternative. In the event of a denial of a special assessment, the taxpayer now demanded that the items 'improperly eliminated from invested capital should be restored to invested capital, and the excess profits tax recalculated on that basis.' The Commissioner ordered another hearing, and considered the claim anew. Upon reconsideration he held that there had been an undervaluation of invested capital in 1918 and 1919, with the result that the taxes for the one year had been overpaid in the sum of $14,054.18, and for the other in the sum of $9,073.15. After thus finding an error in the assessment, he dismissed the claims for refund on the ground that their form as first presented was defective and that the amendment came too late. Cf. United States v. Memphis Cotton Oil Co., supra. In a suit by the taxpayer to recover the moneys overpaid, the District Court gave judgment for the government, and the Court of Appeals affirmed. 60 F.(2d) 944. The case is here on certiorari, 288 U.S. 594, 53 S.Ct. 318, 77 L.Ed. —-.

We held in United States v. Henry Prentiss & Co., supra, that, after the period of limitation, a claim for a special assessment under section 327(d) may not be turned by amendment into one for the reaudit of invested capital and for the reassessment of the tax accordingly. The two proceedings, it was pointed out, are essentially diverse. The one is...