California Iron Yards Co. v. Commissioner of Internal Rev.

• Decision Date: 09 February 1931
• Docket Number: No. 5962.,5962.
• Citation: 47 F.2d 514
• Parties: CALIFORNIA IRON YARDS CO. v. COMMISSIONER OF INTERNAL REVENUE.
• Court: U.S. Court of Appeals — Ninth Circuit

47 F.2d 514 (1931)

CALIFORNIA IRON YARDS CO. v. COMMISSIONER OF INTERNAL REVENUE.^*

No. 5962.

Circuit Court of Appeals, Ninth Circuit.

February 9, 1931.

W. W. Spalding and Robert A. Littleton, both of Washington, D. C., for petitioner.

G. A. Youngquist, Asst. Atty. Gen., and Sewall Key and Morton Poe Fisher, Sp. Assts. to Atty. Gen. (C. M. Charest, Gen. Counsel, Bureau of Internal Revenue, and R. N. Shaw, Sp. Atty., Bureau of Internal Revenue, both of Washington, D. C., of counsel), for respondent.

Before DIETRICH and WILBUR, Circuit Judges, and NORCROSS, District Judge.

WILBUR, Circuit Judge.

The petitioner seeks to review the action of the Board of Tax Appeals in affirming an order of the Commissioner of Internal Revenue fixing a deficiency tax of the petitioner for the years 1918, 1919, and 1920. The principal question in the case involves the validity and effect of a waiver of January 16, 1925. This waiver was signed more than five years after the return made by the petitioner for the year 1919, and it is contended by the petitioner that, in as much as this waiver was executed more than five years after return, and therefore after the limitation for assessment of the tax for the year 1919, it did not authorize the assessment which was made by the Commissioner on December 16, 1925. As the courts were divided upon that question (see note 1, p. 146 opinion of Supreme Court in Stange v. United States, 51 S. Ct. 145, 75 L. Ed. ___, affirming 68 Ct. Cl. 395, decided November 4, 1929), and, as the matter was then pending before the Supreme Court in that case on certiorari from the Court of Claims, it was suggested that a decision herein be postponed until the decision by the Supreme Court in that case. This decision was rendered January 5, 1931. It is there held in accordance with the contention of the Commissioner in this case that the waiver was effective notwithstanding that it was executed after the running of the statute of limitations. It follows that a properly executed waiver was effective notwithstanding the expiration of the period for making the assessment before the execution of the waiver.

The petitioner, however, contends that the waiver here in question was not properly executed and is not binding upon the petitioner. In order to understand the proposition advanced it will be necessary to state additional facts.

The California Iron Yards Company, a California corporation, was organized about February 3, 1914, to take over the business of dealing in scrap iron which had theretofore been conducted by Wm. M. McDaniel, E. D. Keeffe, and D. J. A. O'Keefe. On December 8, 1920, the officers of the California Iron Yards Company, with the unanimous consent of its stockholders, transferred its business, property, and assets to the California Iron Yards Corporation in exchange for its capital stock and of an agreement by the latter corporation to assume and pay all the obligations of the first-mentioned company. After this transfer the petitioner failed to pay its corporate tax to the state of California, and under and by virtue of the laws of California was, on March 5, 1921, and ever since has been, suspended on account of its failure to pay its license tax due to the state of California under the statutes thereof. Kerr's Political Code of California, § 3669c, subd. 2. It is claimed by the petitioner that, in view of this suspension of powers of the petitioner, it was incapable of executing the waiver in question.

On the hearing before the Board of Tax Appeals it was stipulated as follows: "At the taking of the depositions of witnesses on April 24, 1928, it was stipulated that for the fiscal years of the California Iron Yards Company ended January 31, 1919, the California Iron Yards Company executed and filed with the Bureau of Internal Revenue Income and Excess Profits Tax Waivers as follows: `Income and Profits Tax Waiver dated January 16, 1925, by the California Iron Yards Company for the years 1918 and 1919.'"

It is also stipulated that a certificate of the California secretary of state should be received in evidence, which certificate stated in effect that the powers of the corporation were suspended from and after March 5, 1921, and that said corporate rights and privileges and powers of the corporation remained suspended. While the stipulation that the waiver was executed by the taxpayer, the California Iron Yards Company, is sufficiently broad to cover all questions concerning the power of the officers executing the agreement and the method of signing the agreement, the additional stipulation with regard to the suspension of the powers of the corporation under the law of California requires us to consider whether or not any officer or representative of the corporation could act for it in waiving the statute of limitations for the imposition of a deficiency tax under the laws of the United States. Revenue Act 1921, § 250(d), 42 Stat. 227, 265.

The law of California suspending the corporate powers (section 3669c, subd. 2, Pol. Code of Cal., supra) provides that for nonpayment of the corporate license tax "the corporate rights, privileges and powers of every domestic corporation which has failed to pay said tax and money penalty shall, from and after said hour of said day, be suspended, and incapable of being exercised for any purpose or in any manner, except to defend any action brought in any court against such corporation, until said tax with all accrued penalties, and all taxes and charges due the state under the Corporation License Act are paid as hereinafter provided." It is also provided that "until such taxes, penalties and charges are paid, every person who attempts or purports to exercise any of the rights, privileges or powers of any delinquent corporation, * * * shall be guilty of a misdemeanor and upon conviction thereof shall be punished by a fine of not less than two hundred fifty dollars. * * * Every contract made in violation of this section is hereby declared to be void."

The question thus presented is whether or not the corporation which is in default for failure to pay its license tax to the state of California is prohibited by the above-quoted law of that state from filing a waiver with reference to the imposition of taxes as authorized by the laws of the United States. If by the laws of California the penalty for failure to pay the license tax was the forfeiture of its charter and the dissolution of the corporation, as was formerly the case, it might well be contended that, in view of the fact that the corporation no longer exists, it could not take advantage of any law of the federal government authorizing a corporation to act in reference to federal taxes for the same reason that a dead person could not act under laws authorizing living individuals to act. The status of such a corporation in California, however, is one of suspended animation. 7 Cal. Jur. 640; Hanson v. Choynski, 180 Cal. 275, 180 P. 816; Rossi v. Caire, 186 Cal. 544, 199 P. 1042; Ransome-Crummey Co. v. Superior Court, 188 Cal. 393, 205 P. 446.

The question is whether such a corporation which can at any time be revived with full corporate powers upon paying its license tax to the state, and which is deprived of its powers solely for the purpose of enforcing its obligation to the state, has sufficient vitality to act under the federal law authorizing it so to do in connection with tax matters which affect the federal government. In considering this matter it is obvious at the outset that the entire purpose of the California statute is to punish the corporation for its default in the payment of the state license taxes and not to interfere with the enforcement of a similar right by the federal government in connection with the collection of the taxes due to it. It is a fundamental rule of construction that general language in a statute does not apply to the sovereign. U. S. v. Herron, 87 U. S. (20 Wall.) 251, 22 L. Ed. 275; Dollar Savings Bank v. U. S., 86 U. S. (19 Wall.) 227, 22 L. Ed. 80; U. S. v. Hoar, 2 Mason 311, Fed. Cas. No. 15,373, page 329; Balthasar v. Pac. Elec. Ry. Co., 187 Cal. 302, 305, 202 P. 37, 19 A. L. R. 452; State v. Royal Cons. Ming. Co., 187 Cal. 343, 202 P. 133; Pine Hill Coal Co. v. U. S., 259 U. S. 191, 42 S. Ct. 482, 66 L. Ed. 894. It would seem to follow from this principle that contracts entered into by the delinquent corporation with the representatives of the federal government in the exercise of their powers under the laws of the United States would not be included in the class of contracts thus declared void by the state Legislature. The same rule would seem also to make inapplicable those provisions of the state statute imposing a...