Central United National Bank v. COMMISSIONER OF INTERNAL REVENUE, Docket No. 69212

• Citation: 33 BTA 588
• Decision Date: 27 November 1935
• Docket Number: 71063.,Docket No. 69212
• Parties: CENTRAL UNITED NATIONAL BANK, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
• Court: U.S. Board of Tax Appeals

33 B.T.A. 588 (1935)

CENTRAL UNITED NATIONAL BANK, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Docket Nos. 69212, 71063.

Board of Tax Appeals.

Promulgated November 27, 1935.

Carmi A. Thompson, Esq., and Orville Smith, Esq., for the petitioner.

Clay C. Holmes, Esq., for the respondent.

OPINION.

VAN FOSSAN:

These proceedings were brought to redetermine deficiencies in the income taxes of the petitioner for the years 1929 and 1930 in the sums of $10,131.52 and $8,620.76, respectively.

The facts were stipulated and are substantially as follows:

The petitioner is a national banking association duly organized under the laws of the United States, located at Cleveland, Ohio, with its principal office at 308 Euclid Avenue, Cleveland, Ohio.

For the calendar years 1928, 1929, and 1930 the petitioner accrued on its books and claimed as deductions on its income tax returns for said respective years, the amounts of personal taxes charged against it on the county treasurer's duplicate of Cuyahoga County, Ohio, for the said respective years, in the following amounts, to wit:

                    Year                                          Original assessment
                    1928 ________________________________________________  $116,083.23
                    1929 ________________________________________________   153,507.89
                    1930 ________________________________________________   165,520.15
                

These taxes were not paid as assessed and billed by the proper taxing authorities of Cuyahoga County, Ohio, before the close of each said respective calendar year. As hereinafter appears, the petitioner subsequently instituted certain equitable suits for injunctive relief in the District Court of the United States for the Northern District of Ohio, Eastern Division, and in the Court of Common Pleas of Cuyahoga County, Ohio, questioning whether or not the said taxes were illegally discriminatory.

For the years in controversy, as well as prior and subsequent thereto, the petitioner kept its books of accounts and filed its returns on the accrual basis of accounting.

On August 5, 1929, the petitioner filed a bill of complaint against Alex Bernstein, treasurer of Cuyahoga County, in the said Federal court for the purpose of enjoining him from collecting personal taxes charged against the petitioner for the year 1928. On August 19, 1929, the motion for an injunction was denied and on November 21, 1929, a stipulation between counsel was filed, agreeing to defer state action pending a decision on a similar case in the District Court of the United States for the Southern District of Ohio, Northern Division, brought by the Huntington National Bank and involving the same question. On February 26, 1931, the suit was dismissed without prejudice.

On May 1, 1931, the petitioner filed a suit in the Court of Common Pleas for Cuyahoga County restraining the then county treasurer from collecting personal taxes charged against it for the years 1928, 1929, and 1930. During the pendency of this suit an injunction was granted in the Huntington National Bank case and the Federal court held, in effect, that personal taxes assessed against national banks in Ohio were illegally assessed because of discrimination between national banks and other moneyed capital coming into competition with the national banks (45 Fed. (2d) 213). The Huntington National Bank case was appealed to the Circuit Court of Appeals for the Sixth Circuit, where it was reversed, the case being decided, on June 29, 1932, in favor of the county treasurer. (59 Fed. (2d) 479.)

For some time prior to the decision of the district judge in the Huntington National Bank case, negotiations had been carried on between the petitioner and the taxing officials of Cuyahoga County, Ohio, looking to an adjustment of the petitioner's personal taxes for the years 1928, 1929 and 1930, and, after the decision of the district judge and prior to the reversal of the decision by the Circuit Court of Appeals, the petitioner had reached a basis of compromise with the taxing officials of Cuyahoga County, under which an adjustment was to be made on the following basis:

                ---------------------------------------------------------------
                                 Year                |   Original  |    1932
                                                     |  assessment | settlement
                -------------------------------------|-------------|-----------
                1928 _______________________________ | $116,083.23 | $46,433.29
                1929 _______________________________ |  153,507.89 |  61,403.16
                1930 _______________________________ |  165,520.15 |  82,760.07
                ---------------------------------------------------------------
                

Carrying into effect the compromise so reached, the Court of Common Pleas in the injunction suit against the county treasurer entered its order finding that the petitioner owed the county treasurer the respective amounts indicated in the above schedule as 1932 settlement. The court order required the county treasurer to accept the amounts in full for the taxes to be paid for the several years, and payment thereof was made on February 1, 1932.

In the journal entry recording the decision of the court in the last mentioned case, reference is made to a certain action brought by the petitioner in the United States District Court for the Northern District of Ohio, Eastern Division, against Walter E. Cook, in which the petitioner sought to recover personal taxes paid by the petitioner for the year 1927, and in which court order it was stated that the petitioner would dismiss its action in that court.

In its income tax return for the year 1932, the petitioner reported as income to it in the said year, the amount of savings on the settlement of its personal taxes for the years 1928, 1929, and 1930, as set forth in the above settlement schedule, such savings being in the sum of $244,514.75. Petitioner's income tax return for the year 1932 did not show any net taxable income.

In determining the petitioner's taxable income for the years 1929 and 1930, the respondent allowed as deductions $61,403.16 for the year 1929 and $82,760.07 for the year 1930. These amounts represented payments made by the petitioner for personal property taxes as determined by the compromise agreement effected in 1932.

The petitioner contends that for the years in question it accrued properly on its books the full amount of personal taxes assessed against and billed to it, that it so reported to the Comptroller of the Currency, as required by section 5211, U. S. Revised Statutes, and that on December 31 of the respective years it had not challenged the correct amount of such taxes. It contends further that after the decision of the Circuit Court of Appeals holding the tax valid it correctly reported as income in 1932 the saving effected by the compromise.

The respondent's theory is that simultaneously with making the accruals on its books the petitioner protested the correctness of the taxes; that the various actions brought by it were for the purpose of correcting a mistake and that, therefore, the amount of taxes as paid through compromise should relate back to the years for which they were due.

The facts do not support the respondent's position. As to each year, the petitioner entered on its books correct accruals of the personal taxes which the taxing authorities of Cuyahoga County had determined it was compelled to pay. All of the events necessary to fix the amount of the tax and the liability of the taxpayer to pay it had occurred within the respective taxable years. United States v. Anderson, 269 U. S. 422. Subsequent to December 31 of each year, it attacked the assessment of such taxes as being illegally discriminatory. It did not question the correctness of the amount assessed or the valuation employed. Cf. Inland Products Co. v. Blair, 31 Fed. (2d) 867; Brooklyn Union Gas Co., 22 B. T. A. 507. Thus, it was not a matter of correcting an error, but a denial of the petitioner's liability for any tax such as was imposed.

In Ohio, under state law as it stood in the taxable years, the day preceding the second Monday in April was the date of tax incidence. John H....