Brewerton v. United States

• Decision Date: 14 January 1935
• Docket Number: No. M — 333.,M — 333.
• Citation: 9 F. Supp. 503
• Parties: BREWERTON et al. v. UNITED STATES.
• Court: U.S. Claims Court

9 F. Supp. 503

BREWERTON et al. v. UNITED STATES.

No. M — 333.

Court of Claims.

January 14, 1935.

COPYRIGHT MATERIAL OMITTED

F. W. McReynolds, of Washington, D. C., for plaintiffs.

Elizabeth B. Davis, of Washington, D. C., and Frank J. Wideman, Asst. Atty. Gen.

Before BOOTH, Chief Justice, and WHALEY, WILLIAMS, LITTLETON, and GREEN, Judges.

WHALEY, Judge.

This is a suit for the recovery of income and profits taxes for 1918. The present plaintiffs are the receivers for the corporation which succeeded to the interests of the corporation in existence at the time the returns hereinafter referred to were filed, but for convenience and simplicity of discussion the name "plaintiff" will be used indiscriminately as referring to the foregoing parties. In short, the facts may be stated as follows:

Plaintiff duly filed returns for 1917, 1918, 1919, and 1920 and paid the tax shown to be due thereon. In 1921 the Commissioner audited the returns for 1917 and 1918 and found an additional tax for each year. In making such determination, the Commissioner adjusted plaintiff's depreciation deduction for these years. When plaintiff was notified by the collector of the additional assessments, which were made July 13, 1921, plaintiff made payment in cash of the total amount less $934.86 for 1918, for which it filed a claim for credit on account of an alleged overpayment in that amount for 1919. In filing such claim for credit, plaintiff contended that a consistent application of the depreciation basis, as made for 1917 and 1918, to 1919 would result in an overpayment of $934.86 for 1919. The claim for credit was accompanied by a bond in double the amount claimed as a credit. The collector applied the cash received in full satisfaction of the additional tax for 1917 and of all of the additional tax for 1918 except $934.86 for which the claim for credit was filed, thus leaving an outstanding assessment on his books of that amount for 1918. The claim for credit was duly forwarded to the Commissioner of Internal Revenue at Washington for consideration.

On or about April 25, 1922, a further audit was made by the Commissioner of plaintiff's returns for 1917 and 1918 and such audit also included the returns for 1919 and 1920. As a result of the audit, the Commissioner determined further additional taxes for 1917 and 1918 of $2,740.65 and $16,257.40, respectively, and also overassessments for 1919 and 1920 of $484.84 and $10,054.42, respectively. The additional taxes were thereafter duly assessed. Plaintiff's contention as set out in its claim for credit for $934.86 was not sustained, but in lieu thereof the Commissioner found an overassessment of $484.84 for 1919. The Commissioner duly forwarded assessment and overassessment schedules to the collector and noted on the assessment schedule that demand should not be made for the additional assessments until after comparison with the schedule of overassessments on which appeared the overassessments in favor of plaintiff, but no reference appeared on such schedules to specific action on the claim for credit for 1919. The collector found the overassessment of $484.84 for 1919 and of $10,054.42 for 1920 were overpayments and credited them to the additional assessment of $16,257.40 for 1918, thus leaving a balance due of that additional assessment of $5,718.14 which was paid in cash November 13, 1922. The additional assessment for 1917 was likewise paid in cash November 13, 1922. The overassessment schedule referred to above was signed by the Commissioner August 21, 1922, and by the collector October 5, 1922.

In making the above credits of the overpayments for 1919 and 1920 against the additional assessment for 1918 and thus determining the cash balance to be paid for 1918, the collector overlooked the fact that there was a balance due from plaintiff of $934.86 for that year from the first additional assessment which had been suspended from payment by the claim for credit heretofore referred to, and accordingly when the payments and credits were made as set out above there was left outstanding and unpaid an assessment of $934.86 for 1918. However, when the assessment and overassessment schedules were being considered by the collector in August and September, 1922, both plaintiff and the collector were proceeding on the theory that through the credits and payments to be made plaintiff's tax liability for 1917, 1918, 1919, and 1920 would be settled. At that time the bond to secure payment of the tax for 1918, which was held up from collection by the claim for credit for 1919, was still outstanding, but both the surety company and plaintiff were desirous of having it released. September 2, 1922, the surety company wrote the collector stating that advice had been received from plaintiff that the claim was being adjusted in connection with other years and inquiring whether the bond could be released. The collector replied that evidence of adjustment of the claim had not been received and accordingly that the bond could not be released. September 19, 1922, the surety company forwarded to the collector a letter from plaintiff to the effect that the claim had been adjusted in the accounts for other years and asked what steps should be taken in order to release the bond. September 29, 1922, the collector advised the surety company that the schedule on which the allowance of the claim appeared had been received and that the bond might be released. On the same day the collector returned the bond to plaintiff with the advice that it could be released since the tax liability for which it was issued had terminated.

In thus releasing the bond, the collector was unaware that through the above adjustments and settlement the outstanding liability of $934.86 for 1918 for which the bond was issued had not been paid, and apparently the same was true of plaintiff, since there is no charge of fraud or bad faith on its part. Late in 1926, almost four years after the bond had been canceled, the collector discovered that the liability had not been satisfied, and accordingly demanded payment from ...