BLENHEIM COMPANY, LIMITED v. Commissioner of Internal Revenue, Docket No. 95026.
| Decision Date | 15 November 1940 |
| Docket Number | Docket No. 95026. |
| Citation | 42 BTA 1248 |
| Court | U.S. Board of Tax Appeals |
| Parties | BLENHEIM COMPANY, LIMITED, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. |
Thomas F. Boyle, Esq., for the petitioner.
B. M. Brodsky, Esq., for the respondent.
For the calendar year 1934, the respondent determined a deficiency in normal income tax1 of $1,598.59, to which was added a 25 percent penalty2 of $399.65 for delinquency in filing a normal tax return on Form 1120, and a deficiency in personal holding company surtax3 of $2,790.27. By amended answer, respondent asks for increased deficiencies on the ground that he mistakenly failed to add to petitioner's taxable income for 1934 a gain in the amount of $677.65 on the sale of securities.
The issues are whether (1) petitioner is entitled to the benefit of any deductions in the computation of its normal tax and/or its personal holding company surtax where it filed a timely personal holding company surtax return on Form 1120 H but filed no normal tax "return" until after respondent had prepared and filed a normal tax return on Form 1120 for it under section 3176 of the Revised Statutes and determined deficiencies thereon and had mailed a notice of deficiency to the petitioner, and whether (2) respondent properly added a 25 percent penalty to the deficiency in normal tax for the delinquency in filing a normal tax return on Form 1120.
The facts are found as stipulated.
FINDINGS OF FACT.
Petitioner is a foreign corporation, organized under the laws of the Colony of Newfoundland. On June 15, 1935, it filed a personal holding company return on Form 1120 H, for the calendar year 1934, with the collector of internal revenue at Baltimore, Maryland, which showed the following items:
1. Net income (as defined in Title I of the Revenue Act of
1934) ___________________________________________________ $(1,445.37)
2. Dividends on stock of domestic corporations subject to
taxation under Title I of the Revenue Act of 1934 (from
Schedule A) _____________________________________________ 11,626.12
____________
3. TOTAL OF ITEMS 1 and 2 ___________________________________ $10,180.75
Less
6. Losses from sale or exchange of capital assets (disallowed
by section 117 (d) of the Revenue Act of 1934) ___________ $144,594.24
_____________
8. TOTAL OF ITEMS 4 to 7 ____________________________________ 144,594.24
_____________
9. ADJUSTED NET INCOME (Item 3 minus Item 8) _______________ $(134,413.49)
Thereafter, respondent sent numerous letters to petitioner and its representatives in the United States and Canada requesting that a normal income tax return be prepared and filed. Harold P. Cornell was petitioner's secretary resident in the United States. It was his duty to prepare and file Federal income tax returns on petitioner's behalf, and he did prepare and file the above mentioned Form 1120 H. However, he believed that no normal tax return on Form 1120 was required under the internal revenue laws, because he thought Form 1120 H contained all the information which would have been set forth on Form 1120, and because he also thought that the return on Form 1120 would show that petitioner did not have net income subject to tax for the calendar year 1934. Therefore, he did not file a timely return on Form 1120. He had prepared other returns for domestic corporate taxpayers on Form 1120 for 1934, but had not prepared any such returns for a foreign corporation for that year. He had prepared Form 1120 returns for foreign and domestic corporations for years prior to 1934, including returns for this petitioner.
On April 28, 1938, respondent prepared and made a normal tax return on Form 1120 for petitioner pursuant to the authority granted in section 3176 of the Revised Statutes. This return showed gross income of $11,626.12, consisting of dividends on stock of domestic corporations subject to taxation under Title I of the 1934 Act, no deductions, net income of $11,626.12 and a tax due of $1,598.59.
Respondent mailed a notice of deficiency to petitioner on May 18, 1938.
On August 9, 1938, petitioner filed a normal tax return for 1934 on Form 1120. This return was filled out in full in the usual fashion and showed a deficit in income of $1,445.37 and no tax due. Attached schedules contained breakdowns of dividends and interest, showing payors and amounts, and of capital gains and losses, showing a net capital loss of $146,594.28. Included in the latter schedule was a profit of $677.65 on a sale of 2,500 shares of common stock of the Pacific Gas & Electric Co. At the time of filing this return petitioner did not know that respondent had filed a return for petitioner under section 3176 of the Revised Statutes.
On the normal tax return filed by petitioner on Form 1120, the sum of $1,888.50 was entered as interest received, and it constituted interest received from a domestic corporation less than 20 percent of the gross income of which was derived from sources within the United States for the three-year period ending with the close of the taxable year preceding the payment of such interest; and it is stipulated that as such it did not constitute income from sources within the United States within the meaning of section 119 of the Revenue Act of 1934. Schedule B, attached to the return and containing a breakdown of capital gains and losses, showed profits of $5,644.98 from the sale of 845 shares of North American Co. common stock and $14,520.27 from the sale of 500 shares of Union Carbide & Carbon Co. stock. It is stipulated that these profits resulted from sales of personal property without the United States and did not constitute income from sources within the United States within the meaning of section 119 of the Revenue Act of 1934.
A deduction taken on the return of $50 for Newfoundland taxes was not an item of expense allocated or appointed to income derived from sources within the United States.
The items of gross income received by petitioner from sources within the United States were as follows: dividends received from domestic corporations, $11,626.12; and gain derived from the sale of 2,500 shares of Pacific Gas & Electric Co. common stock within the United States, $677.65.
During the calendar year 1934, petitioner sustained losses on sales of securities (which are stipulated to have been capital assets within the meaning of section 117 (b) of the Revenue Act of 1934), within the United States in the aggregate amount of $167,437.18.
Petitioner's ordinary and necessary expenses incurred in connection with the earning of the aforesaid income from sources within the United States during the calendar year 1934 aggregated $1,283.77.
The correctness of both contested deficiencies depends upon whether petitioner has perfected its right to certain asserted deductions. New Colonial Ice Co. v. Helvering, 292 U. S. 435.
The petitioner was a foreign corporation. Section 233 of Title I of the Revenue Act of 1934, controlling here, provides:
A foreign corporation shall receive the benefit of the deductions and credits allowed to it in this title only by filing or causing to be filed with the collector a true and accurate return of its total income received from all sources in the United States, in the manner prescribed in this title; including therein all the information which the Commissioner may deem necessary for the calculation of such deductions and credits.
Was the so-called normal tax return filed by petitioner on Form 1120 a sufficient compliance with section 233 to entitle petitioner to the deductions therein claimed? We think not.
Undoubtedly a taxpayer may litigate a determination of respondent on the basis of a return made by the latter under section 3176 of the Revised Statutes. But, a "return" filed by a taxpayer after such a return has been prepared and filed for him by respondent, under the circumstances existing here, is a nullity and does not comply with section 233, supra. The taxpayer can not thus take advantage from an alleged return submitted by the taxpayer not only after the respondent's filing of its return under section 3176, but also after the issuance of a notice of deficiency. Taylor Securities, Inc., 40 B. T. A. 696; Sarah Briarly, 29 B. T. A. 256; Joe Goldberg, 14 B. T. A. 465; Theodore R. Plunkett, 41 B. T. A. 700. Cf. Del Mar Addition v. Commissioner, 113 Fed. (2d) 410. The case of Anglo-American Direct Tea Trading Co., Ltd., 38 B. T. A. 711, does not aid petitioner, since it held only that a return filed before the determination of a deficiency was sufficient compliance with section 233. Moreover, in that case, the return filed by the revenue agent was never accepted by the Commissioner, and the taxpayer's delinquent return was made the subject of an audit by respondent. In the Taylor case, supra, the Board held that these facts...
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