California Brewing Association v. COMMISSIONER OF INTERNAL REVENUE
| Decision Date | 26 February 1941 |
| Docket Number | 101296.,Docket No. 101295 |
| Parties | CALIFORNIA BREWING ASSOCIATION, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. ACME BREWERIES, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. |
| Court | U.S. Board of Tax Appeals |
Norman A. Eisner, Esq., and Myrtile Cerf, C. P. A., for the petitioners.
Harry R. Horrow, Esq., for the respondent.
The Commissioner determined a deficiency of $3,095.69 in 1936 income tax of the California Brewing Association, and transferee liability therefor of Acme Breweries. Petitioners assail (1) the deficiency notice as (a) improper and (b) barred by the statute of limitations; and (2) surtax on undistributed profits, claiming (a) a dividends paid credit and (b) that the tax is retroactively applied.
FINDINGS OF FACT.
California Brewing Association (herein called petitioner) was incorporated under California law on June 20, 1921, under the name of California Bottling Association, and its name was changed on January 16, 1933. Its books and income tax returns were on an accrual basis, and its income tax returns for 1935 and prior years were on a calendar year basis.
Petitioner's certificate of election to wind up and dissolve was filed on March 28, 1936. On March 31, 1936, its assets, including its earnings and profits, were distributed in complete liquidation, and on April 7, 1936, a certificate of winding up and dissolution was filed.
On March 15, 1937, the Commissioner of Internal Revenue extended until April 15, 1937, its time to file its return "for the calendar year 1936" provided a tentative return was filed before March 25, 1937, and payment made of one-fourth of the estimated tax shown thereon.
Such tentative return was filed on March 15, 1937. On April 15, 1937, a completed income tax return was filed "For Calendar Year 1936 or Fiscal Year begun January 1, 1936, and ended March 31, 1936." The return stated that petitioner had been dissolved March 31, 1936. A schedule attached to the return stated that petitioner's parent company (its sole shareholder) had taken over all its assets and assumed all its liabilities in complete liquidation. On January 1, 1936, and at the date of its liquidation and dissolution, its outstanding capital stock consisted of 800 shares of preferred and 200 shares of common, each of $100 par value.
The balance sheet on the tax return showed a surplus and undivided profits of $49,526.59 on January 1, 1936, and $63,555.06 at the end of the taxable year. The return showed net income of $16,870.17 for the taxable year. The respondent's deficiency notice determined taxable net income for the year to be $19,058.96. The return showed a tax of $1,833.12, which was paid:
March 15, 1937 ________________________________ $1,100.00
April 15, 1937 ________________________________ 460.57
December 14, 1937 _____________________________ 272.55
_________
1,833.12
A revenue agent's report of June 17, 1938, recommended an additional tax of $283.71 for the period January 1, 1936, to March 31, 1936. On December 20, 1938, petitioner filed a consent to the assessment and collection of such amount, but waiving nothing "in respect of any other items affecting the income tax liability of taxpayer for the year 1936."
Acme Breweries has stipulated that it is liable as a transferee for the amount of such deficiency of California Brewing Association as is determined by the Board.
1. In the notice of deficiency, which was dated November 3, 1939, determining a deficiency of $3,095.69 for the calendar year 1936, reference is made to earlier reports of examination, a protest and a conference, but there is no intimation of a protest or controversy as to the use of the calendar year as the period under consideration. Adjustments were made in four deductions and a dividends paid credit was disallowed. The petition assails none of the deduction adjustments; it assails the disallowance of the dividends paid credit. It alleges that "the tax in controversy is deficiency in income tax in the amount of $3,095.69 as set forth in the notice of deficiency for the taxable year ended December 31, 1936." It puts in issue the authority of the Commissioner to adopt the calendar year 1936 as the tax year and to determine any deficiency for the entire year and thus it seeks a decision of no deficiency for want of a valid determination.
The attack upon the deficiency notice as a proper foundation for a deficiency must fail. The taxpayer, it is true, liquidated and dissolved on March 31, 1936, and had it chosen to act upon that fact as a basis for a final income tax period and return, it might have had the right to do so, cf. Elgin Compress Co., 31 B. T. A. 273; Pittsburgh & West Virginia Railway Co., 32 B. T. A. 66. That would have required the taxpayer to file a return for that period within three months thereafter, or before July 1, 1936. Had the taxpayer filed such a return, it might have been entitled to have its tax liability or any deficiency determined for the short period. But it did not do so, and there is nothing in the statute requiring the taxpayer in such circumstances to treat the short final period as its taxable period and to file a short period return. Nothing requires the Commissioner to recognize a short closing taxable period before he has knowledge of dissolution, cf. Mrs. Grant Smith, 26 B. T. A. 1178; and in this case the earliest date when the Commissioner had such knowledge was when the complete return was filed on April 15, 1937. This return was ambiguous; its heading showed it to be "FOR CALENDAR YEAR 1936 or FISCAL YEAR begun January 1, 1936, and ended March 31, 1936." Upon the basis of such return the Commissioner carried on the audits, and in 1938, after a revenue agent had prepared an additional tax for the short period of 1936, the taxpayer paid the additional amount and reserved its right to claim refund or otherwise proceed "for the year 1936." Cf. Commissioner v. Forest Glen Creamery Co., 98 Fed. (2d) 968.
Under such circumstances it is now too late for the taxpayer to stand upon a short period as the necessary basis of its tax and resist the assessment of a correct deficiency because the adjustments were stated in a notice covering the entire year, which it had itself treated as its tax period. However troublesome may be the scope of the doctrine of estoppel, there should be no doubt of its applicability here to hold the taxpayer to the taxable period which it has so clearly led the Commissioner to recognize. To permit the taxpayer to escape the correct deficiency would be offensive to the practice of voluntary returns upon which the income tax system is founded. The Commissioner's use of the calendar year 1936 is sustained.
2. The petitioner contends that assessment is barred by the statute of limitations, Revenue Act of 1936, section 275. There is no express or direct written request by the petitioner or in its behalf for prompt assessment. The statement on the face of the return that the corporation was dissolved March 31, 1936, clearly was not a request for assessment, and there is no reason to construe it as such. The Acme Breweries, called the ...
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