Charles Leich and Company v. United States

• Decision Date: 13 March 1964
• Docket Number: No. 367-56,419-56.,367-56
• Citation: 165 Ct. Cl. 127,329 F.2d 649
• Parties: CHARLES LEICH AND COMPANY v. The UNITED STATES.
• Court: U.S. Claims Court

165 Ct. Cl. 127, 329 F.2d 649 (1964)

CHARLES LEICH AND COMPANY v. The UNITED STATES.

Nos. 367-56, 419-56.

United States Court of Claims.

March 13, 1964.

Henry B. Walker, Jr., Evansville, Ind., for plaintiff.

David D. Rosenstein, Chicago, Ill., with whom was Asst. Atty. Gen., Louis F. Oberdorfer, for defendant. Edward S. Smith, Lyle M. Turner, and Philip R. Miller, Washington, D. C., on the brief.

Before JONES, Chief Judge, and WHITAKER, LARAMORE, DURFEE and DAVIS, Judges.

LARAMORE, Judge:

These are related actions brought by the same taxpayer. The cases were tried separately, but were consolidated for oral argument since they both arise from the same factual situations. In Case No. 367-56, taxpayer seeks to recover $14,403.14 in interest on amounts of Federal income and excess profits taxes, together with interest thereon, allegedly overpaid in fiscal years ending April 30, 1952 and 1953. The issue involved in this case is whether the amounts remitted were "overpayments" within the meaning of section 3771(a) of the Internal Revenue Code of 1939, so as to entitle taxpayer to interest when these amounts were refunded in 1955.¹

In Case No. 419-56, taxpayer seeks to recover $47,483.09 as alleged overpayments of Federal income and excess profits taxes for fiscal years ending April 30, 1951, 1952, 1953 and 1954. Taxpayer's claims are based on two separate claims for refund. First, taxpayer claims that for the fiscal years ending April 30, 1952 and 1953, the Commissioner of Internal Revenue erroneously and illegally disallowed deductions for interest allegedly paid in each of said years in connection with Federal income and excess profits taxes allegedly overpaid in the years 1952 and 1953. Second, taxpayer claims that the Commissioner erroneously and illegally did not allow it to use the "historical method" of computing its invested capital in determining its excess profits credit which denial allegedly resulted in an overpayment of taxes for the years ending April 30, 1951 through 1954. We shall treat each case separately.

A. Case No. 367-56

The facts in this case have been stipulated; it is the legal conclusion from them which is the subject of controversy. The Commissioner of Internal Revenue determined and assessed a deficiency in taxpayer's excess profits tax for the fiscal year ending April 30, 1942. This assessed deficiency, with interest, was duly paid on February 21, 1949. Taxpayer filed a timely claim for refund. On April 3, 1950, as the Commissioner had taken no formal action with respect to this claim, taxpayer instituted a suit for refund in the U. S. District Court for the Southern District of Indiana.

Shortly thereafter, a revenue agent's report for the taxpayer's fiscal years 1943-1949, dated June 13, 1950, proposed adjustments in taxpayer's income and excess profits tax for those years. The adjustments proposed would be in conformity with the position taken by the Commissioner in the pending litigation for the year 1942, with respect to the proper computation of taxpayer's invested capital. The net result of the proposed adjustments would have been an overall deficiency of $66,639.80. Taxpayer filed a protest to the proposed adjustments for the years 1943-1949 with the District Director, requesting that the case be forwarded to the technical staff of the Internal Revenue Service. Taxpayer was advised by the Internal Revenue Service that consideration of its protest would be hold in abeyance pending the outcome of the litigation involving the suit for refund of 1942 taxes, since the ultimate decision of the District Court as to the 1942 taxes would be controlling as to virtually all of the points on which the proposed deficiencies for 1943 through 1949 were based.

Subsequently, on February 13, 1952, the District Court entered judgment for the Government in the refund suit involving fiscal year 1942. On February 23, 1952, taxpayer filed a motion for a new trial, together with a motion requesting the amendment of the findings of fact and conclusions of law. While these motions were pending, taxpayer on March 15, 1952 remitted to the then Collector of Internal Revenue the sum of $75,000 in respect of the proposed adjustments contained in the Revenue Agent's report. Part of the sum remitted consisted of alleged interest on the proposed deficiency, which amount ($14,276.50) taxpayer deducted as interest expense on its Federal income and excess profits tax returns for the fiscal year ended April 30, 1952. On April 10, 1952, taxpayer filed amendments to the above referred motions. On April 2, 1953, the District Court denied said motions. On April 30, 1953, taxpayer remitted to the then appropriate Collector of Internal Revenue the sum of $12,444.13, representing interest allegedly due on the proposed deficiency for years 1943 through 1949. Taxpayer deducted this amount as an interest expense in its income and excess profits tax returns for the fiscal year 1953.

During the period that the issue with respect to year 1942 was being litigated, taxpayer never signed a waiver agreeing to the assessment of all or any part of the proposed deficiency; no statutory notice of deficiency was ever issued as to all or any part thereof; and no part of the proposed deficiency was assessed by the Commissioner of Internal Revenue.

Taxpayer filed its notice of appeal from the judgment of the District Court, and on February 26, 1954, the U. S. Court of Appeals for the Seventh Circuit reversed the District Court's decision. The litigation was concluded a year later when taxpayer obtained a judgment against the United States in the District Court. Subsequently, taxpayer filed claim for refund for $87,444.13, which purportedly represented overpayments of tax for the years 1943-1949, together with interest thereon. Interest on the refund was also demanded. On March 2, 1955, the Internal Revenue Service refunded these amounts;² however, no statutory interest was allowed with respect to the alleged "overpayments" in question.

It is this claim for statutory interest which is the subject matter of taxpayer's petition No. 367-56. Taxpayer's entitlement to the statutory interest under the provisions of section 3771(a) of the Internal Revenue Code of 1939 depends on whether or not the amounts remitted constituted an "overpayment in respect of any internal revenue tax * * *." (emphasis added) We believe that the amounts remitted by taxpayer did not constitute payments of tax, consequently taxpayer is not entitled to statutory interest when said amounts were subsequently refunded.

The problem of what constitutes a "payment" of tax within the meaning of the Internal Revenue Code has been the subject matter of extensive litigation, but the courts when confronted with this question have failed to reach uniform results even under similar factual situations.³ The state of the law with respect to what constitutes a "payment" was thrown into further confusion when Congress, in amending section 3770 of the 1939 Code, added subsection (c) providing that:⁴

"(c) Rule where no tax liability. An amount paid as tax shall not be considered not to constitute an overpayment solely by reason of the fact that there was no tax liability in respect of which such amount was paid." emphasis added

The basic factual situation which gives rise to the problem is quite simple. A taxpayer places in the hands of the Commissioner of Internal Revenue an amount of money. The question whether the remittance is a payment of tax or a mere deposit to stop the running of interest is complicated by the widely differing circumstances which prompt taxpayers to take such action. These surrounding factors are usually determinative of the question whether the remittance is a payment or a deposit.

Before we examine the decided cases in this area, we must point out that what is considered a payment for a specific purpose in the Internal Revenue Code must also be viewed as such in all of the contexts in which the question of "payment" might arise in the Code. This consistent treatment of the term payment is required by the Supreme Court decision in Rosenman v. United States, 323 U.S. 658, 663, 65 S.Ct. 536, 89 L.Ed. 535 (1945).

It seems clear that a remittance made by a taxpayer of an amount shown in good faith to be due on its tax return or given in response to an assessment of taxes by the Internal Revenue Service is a payment of tax. Thus, the problem area may be limited to the situation in which a taxpayer makes a remittance of an amount not shown to be due on its return and which has not been assessed by the Commissioner.

Congress, in enacting section 3770(c), made use of a double negative. This subsection seems to indicate that the fact that there has been no assessment or tax return which sets forth the tax liability should not of itself negate "payment". There must be other factors present which, taken in conjunction with the fact of no tax liability, have the effect of negating "payment". In Reading Co. v. United States, 98 F.Supp. 598, 599-600, 120 Ct.Cl. 223, 231 (1951), we said that this subsection was enacted "because some decisions holding that remittances not made incident to a bona fide and orderly discharge of the taxpayers' actual or reasonably apparent duties had been read by some as meaning that no tax payment resulted if no tax liability actually existed."⁵ In that opinion, we noted that where the taxpayer merely dumped money as taxes on the collector by disorderly remittances taken in conjunction with no tax liability, no payment of tax resulted. See also Moskowitz v. United States, 285 F.2d 451, 152 Ct.Cl. 412 (1961). Taxpayer contends that a disorderly remittance or a lack thereof is the only factor which need be considered by the court in determining whether a remittance is a payment or a mere deposit. We believe this to be an erroneous oversimplification.

Taxpayer relies in the opinions of this court in Atlantic Oil Producing Co. v....