Commissioner of Internal Rev. v. Seminole Mfg. Co.

• Citation: 233 F.2d 395
• Decision Date: 08 May 1956
• Docket Number: No. 15739.,15739.
• Parties: COMMISSIONER OF INTERNAL REVENUE, Petitioner, v. SEMINOLE MANUFACTURING COMPANY, Respondent.
• Court: United States Courts of Appeals. United States Court of Appeals (5th Circuit)

233 F.2d 395 (1956)

COMMISSIONER OF INTERNAL REVENUE, Petitioner, v. SEMINOLE MANUFACTURING COMPANY, Respondent.

No. 15739.

United States Court of Appeals Fifth Circuit.

May 8, 1956.

Harry Marselli, Atty., Dept. of Justice, Washington, D. C., H. Brian Holland, Asst. Atty. Gen., Ellis N. Slack, Sp. Asst. to Atty. Gen., John Potts Barnes, Chief Counsel, Int. Rev. Service, Claude R. Marshall, Sp. Atty., Lee A. Jackson, Atty., Dept. of Justice, Washington, D. C., for petitioner.

Stanley H. Richards, Chicago, Ill., Robert S. Foster, Chicago, Ill., Foster, Kennedy & Nosek, Chicago, Ill., of counsel, for respondent.

Before HUTCHESON, Chief Judge, and TUTTLE and CAMERON, Circuit Judges.

TUTTLE, Circuit Judge.

The question presented by this appeal is one that has been much litigated in the Tax Court and in the Courts of Appeals. The Tax Court has held consistently to one view and the appellate courts in at least eight cases have reversed. In one Circuit the Court of Appeals dismissed the appeal as being premature.

This is a petition for review of an order of the Tax Court in a proceeding authorized by § 732, 26 U.S.C.A., for redetermination of excess profits tax liability under the terms of § 722, 26 U.S.C.A., which, under circumstances there stated, provide abnormality relief. The order complained of struck an amendment to the Commissioner's answer by which, having already filed a general denial, the Commissioner sought to raise so-called "standard issues" as to the correct amount of the taxpayer's excess profits tax liability without reference to the abnormality question. The order was entered by the Tax Court on motion of the respondent here, the court itself taking the position that, in a proceeding to obtain abnormality relief under § 722 the Tax Court could not consider matters affecting excess profits tax liability not related to the question of abnormality.¹

At the time of the entry of the order appealed from the taxpayer and commissioner had entered into a stipulation whereby they had disposed of the § 722 issue by agreeing to a constructive base period net income for 1941 through 1945, the years in question. There remained only the mathematical computation to dispose finally of the proceeding.

As has already been indicated, this precise question has been before the courts repeatedly, and with practical uniformity of result. With the exception of the Court of Appeals for the First Circuit, the appellate courts have uniformly reversed the Tax Court on its construction of the applicable sections of the Second World War Excess Profits Tax Law.² In the First Circuit the court seems to indicate agreement with this view, but it dismissed the appeal as having been taken from an interlocutory rather than final order.³

Concluding, as we do, that the Courts of Appeals which have already considered and passed on the merits of this controversy have correctly construed the law, we decide that the Tax Court has jurisdiction in a § 722 proceeding to consider standard issues unrelated to the question of abnormality relief, if such issues are properly before that court. We adopt the reasoning of the Court of Appeals for the Sixth Circuit in the most recent cases on this phase of the appeal. See Commissioner of Internal Revenue v. Blue Diamond Coal Co. and Commissioner of Internal Revenue v. Central Paper Company, Inc.⁴ An excellent statement of the procedural steps provided by the statute to deal with this type of situation is included in the opinion of the Court of Appeals for the Third Circuit in Commissioner of Internal Revenue v. S. Frieder & Sons Co.⁵ We think that analysis is a clear and convincing exposition of the view we take of the law in common with the other Courts of Appeals.

We now turn to the question raised here by respondent taxpayer's motion to dismiss the appeal as having been taken from an interlocutory order and not from a "decision" of the Tax Court. The argument is made that the order dismissing the amendment to the answer is not such "decision" as, under the terms of Section 7482(a) of the Internal Revenue Code of 1954, 26 U.S.C.A. § 7482(a), formerly Section 1141(a) of the 1939 Code,⁶ may be appealed. It was so held in the First Circuit case of Commissioner of Internal Revenue v. Smith Paper Co., supra. The opposite view was taken in the only other instances where the Courts of Appeals have specifically passed on it. These instances are the decisions by the Third Circuit in Commissioner of Internal Revenue v. S. Freider & Son Co., supra, and the Sixth Circuit in Commissioner of Internal Revenue v. Blue Diamond Coal Co., supra, and Commissioner of Internal Revenue v. Central Paper Company, Inc., supra.

We are persuaded that the order of the Tax Court by which it dismissed a pleading of the Commissioner seeking to establish a deficiency in tax finally disposed of that "proceeding." This amounts to a "decision" dismissing a proceeding pending before it. We are the more persuaded to this view because of the unusual circumstance that in the state of the record in this case no other decision of the Tax Court could ever be appealed to this Court. The statute allowing such petition for § 722 relief expressly provides that no appeal shall be taken from an adverse ruling on that issue.⁷ Thus, if we were to hold this appeal premature because from an interlocutory order, it would simply amount to returning the case to the Tax Court long enough to permit it to enter its final decision on the abnormality issue, which itself would not be appealable, and requiring the losing party then to appeal to this Court again to bring up this same question, and only this same question, for review. Under these circumstances we hold, in line with the Third and Sixth Circuits and contrary to the First, that the order complained of was an appealable decision of the Tax Court.

There is still a further question for our consideration. The taxpayer contends that the record before us shows that the Tax Court was right in dismissing the amendment because it was apparent on the face of the pleadings that the new matter sought to be introduced as a claimed deficiency for the years 1941-1945 could not be pleaded because the Commissioner had already been foreclosed by the applicable statute of limitations. The defense of the statute of limitations being essentially one of fact, it should be passed on in the first instance by the Tax Court. As said by the Court in ...