Boyne City Lumber Co. v. Doyle, 3239.

• Decision Date: 11 July 1930
• Docket Number: No. 3239.,3239.
• Citation: 47 F.2d 772
• Parties: BOYNE CITY LUMBER CO. v. DOYLE et al.
• Court: U.S. District Court — Western District of Michigan

47 F.2d 772 (1930)

BOYNE CITY LUMBER CO. v. DOYLE et al.

No. 3239.

District Court, W. D. Michigan, S. D.

July 11, 1930.

Norris, McPherson, Harrington & Waer, of Grand Rapids, Mich., for plaintiff.

Fred C. Wetmore, Dist. Atty., of Grand Rapids, Mich., for defendants.

RAYMOND, District Judge.

Plaintiff in this suit sues to recover alleged overpayments made by it on income and excess profits taxes for the years 1918 and 1919. The controversy arises out of the application and construction of sections 202 (a) (1) and 234 (a) (9) of the Revenue Act of 1918 (40 Stat. 1060, 1077), and regulations prescribed by the Commissioner of Internal Revenue pursuant thereto, known as articles 230 and 235 of Regulations 45, which, so far as pertinent, are appended hereto.¹

The amounts which the taxpayer seeks to recover by way of refund result from a redetermination of the fair market value of the taxpayer's stumpage as of March 1, 1913. It is the contention of the plaintiff that, because of the direct prohibition against revaluation as of March 1, 1913, contained in article 235, the Commissioner of Internal Revenue, after having placed a valuation upon a taxpayer's stumpage, cannot thereafter change the amount so fixed in the absence of fraud or misrepresentation.

Defendant contends that the true meaning of articles 230 and 235 is that no revaluation of timber is allowable during the same ownership if the true market value as of March 1, 1913, has been determined; that the regulation is purely an administrative measure which cannot properly be construed as depriving the Commissioner of the power to correct on his own motion an error whether in favor of or against the taxpayer, or as requiring him to compute depletion allowances upon the basis of anything except cost or March 1, 1913 value.

Plaintiff relies principally upon the cases of Woodworth v. Kales (C. C. A.) 26 F.(2d) 178, and Penrose v. Skinner (D. C.) 278 F. 284; Id. (D. C.) 298 F. 335; while defendant relies largely upon the cases of Holmquist v. Blair (C. C. A.) 35 F.(2d) 10; Loewy & Son, Inc., v. Commissioner (C. C. A.) 31 F.(2d) 652; Austin Co. v. Commissioner (C. C. A.) 35 F.(2d) 910; Wickwire v. Reinecke, 275 U. S. 101, 48 S. Ct. 43, 72 L. Ed. 184; McIlhenny et al. v. Commissioner (C. C. A.) 39 F.(2d) 356.

It is to be observed that the question is not one of correction of the computation by the Commissioner of a tax for a particular year. It does involve the right of the Commissioner to make a redetermination of the value of tangible assets of a taxpayer owned on March 1, 1913. Defendant contends that to construe article 230, as contended by plaintiff, would nullify the regulations, because the statute requires that depletion shall be based on the March 1, 1913, value of the timber, and not upon an arbitrary figure which may be incorrect, and urges that such a construction would change the statutory basis from the March 1, 1913, value to any other value found by the Commissioner, and that this would, in effect, defeat the law.

It has long been recognized that questions of value and estimates thereof involve matters of opinion upon which minds are prone to differ. An opinion as to value is generally based upon a prior determination of extrinsic facts. Disagreement as to these facts often results in difference of opinion as to value. Common experience indicates that agreement upon these extrinsic facts offers no assurance of agreement upon the ultimate question of value. The difficulties inherent in the problem are increased when an attempt is made to determine values as of a distant date either past or future. The problem then often becomes more complicated by changes in the unit of value, the loss or destruction of records, and the lack of availability of witnesses having knowledge of the facts. These considerations make necessary some rule of finality of determination. It seems to the court that neither the contention of the defendant that the only way by which the Commissioner can be foreclosed from changing a determination as to the March 1, 1913, value of a taxpayer's property is by the running of the statute of limitations, nor that of the plaintiff that such determination cannot thereafter be altered in the absence of fraud or misrepresentation, is tenable. To say that such determination may not be reopened because of gross error by either the Commissioner or the taxpayer is as unsupportable in principle as to say that it may be reopened by each succeeding Commissioner, or by the same Commissioner, because a review of the same facts results in a difference or change of opinion. The true principle should be that such a determination may not be reopened, except for fraud, misrepresentation, or gross error.

Counsel for defendant states that there is no contention made here that the taxpayer was guilty of fraud or misrepresented anything. This case must therefore turn upon the question of whether or not the record discloses such gross error as to warrant the Commissioner in making a redetermination of 1913 values. If there were here no evidence of the basis of the revaluation made by the Commissioner, the presumption of regularity and validity of the Commissioner's action would necessarily result in the conclusion that further facts were before him upon his second determination warranting the conclusion that gross error had been committed in the first determination. See cases of U. S. v. Chemical Foundation, 272 U. S. 1, 14, 47 S. Ct. 1, 71 L. Ed. 131; Austin Co. v. Commissioner of Internal Revenue (C. C. A.) 35 F. (2d) 910.

In this case, however, the basis of redetermination appears from the valuation report by timber section (Exhibit 18). The grounds for revaluation are therein stated as follows:

"An examination of this information discloses that the basis for...