Bemis Bros. Bag Co. v. United States

• Decision Date: 30 September 1932
• Docket Number: No. 9415.,9415.
• Citation: 60 F.2d 944
• Parties: BEMIS BROS. BAG CO. v. UNITED STATES.
• Court: U.S. Court of Appeals — Eighth Circuit

60 F.2d 944 (1932)

BEMIS BROS. BAG CO. v. UNITED STATES.

No. 9415.

Circuit Court of Appeals, Eighth Circuit.

August 29, 1932.

Rehearing Denied September 30, 1932.

Abraham Lowenhaupt, of St. Louis, Mo. (Spencer M. Thomas and Lowenhaupt & Waite, all of St. Louis, Mo., on the brief), for appellant.

Frederick W. Dewart, Sp. Atty., Bureau of Internal Revenue, of Washington, D. C. (Louis H. Breuer, U. S. Atty., of Rolla, Mo., Claude M. Crooks, Asst. U. S. Atty., of St. Louis, Mo., and C. M. Charest, Gen. Counsel, Bureau of Internal Revenue, of Washington, D. C., on the brief), for appellee.

Before GARDNER and SANBORN, Circuit Judges, and NORDBYE, District Judge.

NORDBYE, District Judge.

This action was brought to recover income and excess profits taxes paid by appellant for the years 1918 and 1919. The collector to whom the taxes were paid having gone out of office, the action was brought directly against the United States. The action was tried to the court without a jury on an agreed statement of facts. The only question presented to the lower court was whether or not the plaintiff in its claim for refund, at any time before the running of the statute of limitations, stated the facts or grounds upon which it asserted its right to a refund.

Paragraph 18 of the stipulation provides as follows:

"If the appellant within the time provided by law, filed claims for refund for the years 1918 and 1919 respectively, which under the law were sufficient to be the required preliminary for the maintenance of this action on that ground, above stated, then appellant may be entitled to judgment for the year 1918 in the amount of $14,054.18, with interest, and for the year 1919 in the amount of $9,073.15, with interest.

"If the claims for refund filed by the appellant for the years 1918 and 1919 respectively, were not sufficient under the law to be the required preliminary for the maintenance of this action on that ground, the appellee will be entitled to judgment dismissing this action."

The appellant on February 29, 1924, filed its claim for refund for 1918 of $1,270,907.97, and on December 12, 1924, its claim for refund for 1919 in the sum of $606,546.13. These claims for refund were based on the contention that the excess profits tax and war profits tax should be assessed under the provisions of sections 327 and 328 of the Revenue Act of 1918 (40 Stat. 1093). These sections are relief statutes enacted for the purpose of relieving a taxpayer from an excessive tax. Provision is made in section 327 for cases where the Commissioner is unable to determine the invested capital of the taxpayer, and in section 328 it is provided that "in the cases specified in section 327 the tax shall be the amount which bears the same ratio to the net income of the taxpayer (in excess of the specific exemption of $3,000) for the taxable year, as the average tax of representative corporations engaged in a like or similar trade or business, bears to their average net income (in excess of the specific exemption of $3,000) for such year."

In filing its claims for refund for the years 1918 and 1919, reference was made to a brief theretofore filed in support of the claim for refund for the 1917 taxes, and an additional brief was filed in support of the claims for refund for the years 1918 and 1919. The claim for refund for the year 1918 stated the following:

"Deponent verily believes that this application should be allowed for the following reasons: The Excess Profits Tax and War Profits Tax against this company for the year 1918 should be assessed under the provisions of sections 327 and 328 of the Revenue Act of 1918.

"The facts and argument in support of this claim are contained in a brief, duly verified, which has been filed with the Commissioner of Internal Revenue, in support of a claim for refund made in connection with the company's return for 1917 and the tax paid thereon. The facts and circumstances which entitle the company to assessment under said sections for 1917 obtained also in 1918. In order to simplify matter and avoid repetition, the brief filed with the claim for refund for 1917 (a copy of which brief is attached hereto) by reference thereto is made a part of this claim."

The brief attached to the claim for refund and by reference made a part of it states as follows:

"In Re: Claim of Bemis Bro. Bag Company for Refund of Taxes for the Year 1917 Based Upon Right to Special Assessment.

"To the honorable Commissioner of Internal Revenue, Washington, D. C.:

"Bemis Bro. Bag Company has heretofore filed its claim for refund of taxes for the year 1917, based upon the right to assessment of its Excess Profits Taxes under section 210 of the Revenue Act of 1917. It now desires to elaborate and present in detail the reasons why its Excess Profits Tax for said year should be so determined.

"Statement. — The facts are hereafter stated in the order and under the subdivision above written.

"I. Reasons Why the Tax Should be so Determined and the Facts Upon which Such Reasons Are Based.

"V. Relief Sought.

"Relying upon the sufficiency of the facts above recited to entitle it to the assessment of its Excess Profits Tax liability under the provisions of section 210 of the Revenue Act of 1917, Bemis Bro. Bag Company has heretofore presented a claim for refund for the year 1917."

A similar statement and a similar reference to the 1917 brief was used in filing the claim for refund for the year 1919.

The appellant in filing its claim for refund for the years in question, in the brief above referred to, attempted to set forth in substantiation of its claim, the fact that injustice would be done if it were not permitted to receive the benefit of the special assessment provided in sections 327 and 328 of the 1918 Revenue Act. It proceeded to set forth in detail the various phases of its business which made it difficult to determine the values of the several classes of property that were paid in for stock. It is quite apparent that the appellant was concerned over the large tax it was required to pay to the government, and felt that the relation of its income to its invested capital was strikingly abnormal. It set out a large number of reasons why it was entitled to a tax based on a comparison with representative corporations engaged in a like or similar business. Instances were cited of the accounting policy of the company in previous years where expenditures were charged to expense or profit and loss, when good accountancy would have justified the capitalization thereof. As an example of the conservative methods employed by the company, reference was made to certain printing plates which are used for the purpose of printing the various brands on the bags that are manufactured by the appellant. That is, the appellant is equipped to print upon the bags manufactured, the user's brands. During the years it has been in business, it has accumulated a large amount of printing sets for the printing of user's brands, which it contended were reasonably worth $851,375.50. The value was according to the taxpayer something more than the mere consideration of bare labor and material that went into the manufacture of the printing set. It represented the results of alert business solicitation and advertising with years of service that has been rendered by it to its customers; consequently, it contended in this presentation to the Commissioner, that the printing equipment represented an accumulation of years of good will, and although expense had been charged from year to year for the actual outlay for labor and material, no portion of this value had ever been added to the invested capital.

The facts concerning the original incorporation of the company and the early history of the corporation were presented to substantiate the failure on the part of the company to capitalize its good will in the proper amount. New plants, it was contended, had been obtained from time to time, and no good will value was set up on the books for the different properties that were acquired in the long period of time that it had been engaged in the manufacturing business. Failure to properly capitalize certain patent rights was also set forth in the taxpayer's brief. Not all the various items which were incapable of proper valuation and which should have gone into capital were set forth. It was merely the intention of the taxpayer as disclosed by its brief, to throw some light upon what appeared to be abnormal profits upon which it was assessed; and it was contended by the taxpayer that the showing made entitled it to the special assessment that it requested. In other words, the various phases of the business of the taxpayer were set forth in order that the Commissioner would be convinced that the large taxes that had been assessed arose on account of under-capitalization, rather than excessive profits.

Section 156, title 26, USCA provides that: "No suit or proceeding shall be maintained in any court for the recovery of any internal-revenue tax alleged to have been erroneously or illegally assessed or collected, or of any penalty claimed to have been collected without authority, or of any sum alleged to have been excessive or in any manner wrongfully collected until a claim for refund or credit has been duly filed with the Commissioner of Internal Revenue, according to the provisions of law in that regard, and the regulations of the Secretary of the Treasury established in pursuance thereof. * * *"

The statute of limitations applicable fixes the time for filing such claim at four years after the payment of any part of the taxes. The claims filed on February 29, 1924, and December 12, 1924, were timely, and were duly considered by the Commissioner on their merits. On October 30, 1926, a communication was sent by the Treasury Department to the taxpayer, a portion of which reads as follows:

"You are advised that after careful consideration and review your application...