Commissioner of Internal Revenue v. Smith Paper

• Decision Date: 02 May 1955
• Docket Number: No. 4908.,4908.
• Citation: 222 F.2d 126
• Parties: COMMISSIONER OF INTERNAL REVENUE, Petitioner, v. SMITH PAPER, Inc., Respondent.
• Court: U.S. Court of Appeals — First Circuit

222 F.2d 126 (1955)

COMMISSIONER OF INTERNAL REVENUE, Petitioner, v. SMITH PAPER, Inc., Respondent.

No. 4908.

United States Court of Appeals First Circuit.

May 2, 1955.

Harry Marselli, Sp. Asst. to the Atty. Gen., with whom H. Brian Holland, Asst. Atty. Gen., and Ellis N. Slack and Lee A. Jackson, Sp. Assts. to the Atty. Gen., were on brief, for petitioner.

Richard L. Shook, Washington, D. C., with whom Addison Yeaman, Louisville, Ky., was on brief, for respondent.

Before MAGRUDER, Chief Judge, and WOODBURY and HARTIGAN, Circuit Judges.

MAGRUDER, Chief Judge.

Smith Paper, Inc., the corporate taxpayer herein, filed with the Commissioner of Internal Revenue its applications for refunds, under the provisions of § 722 of the Internal Revenue Code of 1939, as amended by 54 Stat. 975, 26 U.S.C.A. § 722, of excess profits taxes paid in the years 1940 through 1944; and alternatively for refunds under the provisions of § 721 of the Code, 26 U.S.C.A. § 721, of excess profits taxes paid in the years 1941, 1942, and 1943. Each of these two sections provided for so-called abnormality relief of excess profits taxes; § 722 relating to abnormal income received in the base years, and § 721 relating to abnormal income received in the tax years. Certain processing changes in its manufacturing operations were said by the taxpayer to have resulted in the claimed abnormalities in income.

On April 2, 1951, the Commissioner formally notified the taxpayer of the disallowance in whole of the claimed refunds. In the Commissioner's letter he determined taxpayer's excess profits taxes for the years in question in the identical sums which had been assessed and paid previously; thus the letter did not give notice of any deficiencies.

Thereafter, pursuant to § 732 of the Code, 26 U.S.C.A. § 732, the taxpayer filed in the Tax Court of the United States a petition seeking a review of the action of the Commissioner in denying its claims for abnormality refunds.

The Commissioner's original answer to the petition was in effect a general denial. At the commencement of the hearing before the Tax Court, the Commissioner gave notice that in the course of preparation for trial he had discovered that there existed certain deficiencies in the taxpayer's excess profits taxes for the years in question, over and above the taxes which had previously been assessed and paid. Accordingly, the Commissioner obtained leave of the Tax Court to file an amendment to its answer. In this amendment, the Commissioner laid claim to the additional taxes due, which he asserted it was the duty of the Tax Court to determine, pursuant to § 272(e) of the 1939 Code, 53 Stat. 83, 26 U.S.C.A. § 272 (e), which gave jurisdiction to the Tax Court to redetermine a deficiency greater than the deficiency claimed in the notice to the taxpayer under § 272(a) (1), provided such claim for additional taxes "is asserted by the Commissioner at or before the hearing or a rehearing." Alternatively, the Commissioner asked in his amendment to the answer that the asserted deficiencies in excess profits taxes be at least used as a setoff against any amounts the Tax Court might determine that the taxpayer was entitled to receive in refunds under its abnormality claims.

On January 19, 1954, the taxpayer filed a motion in the Tax Court "to dismiss the above entitled proceeding for lack of jurisdiction insofar as the same relates to the issues raised by the Amendment to Answer filed by the respondent * * *." The asserted ground of this motion was that § 272(e) of the Code was inapplicable where the proceeding before the Tax Court was not instituted by the taxpayer under § 272(a) (1) for redetermination of a deficiency as determined by the Commissioner in a so-called ninety-day letter. Upon the authority of three previous Tax Court decisions, that court on March 16, 1954, entered an "Order" providing that the taxpayer's said motion to dismiss "be and it hereby is granted." Subsequently, on March 30, 1954, the Tax Court denied a motion by the Commissioner to vacate this order. Meanwhile, the taxpayer had abandoned its claim for refunds based on § 722, and thereafter pressed only its claims to abnormality refunds for the years 1941, 1942, and 1943, under § 721.

We have before us now a petition by the Commissioner for review of the aforesaid "Order" of the Tax Court of March 16, 1954. At the oral argument we suggested a question as to our jurisdiction and invited memoranda by counsel on the point. Counsel for both parties are in agreement, though perhaps for different reasons, that we have jurisdiction to hear and determine the present petition on its merits; but we do not think that this is so.

Since the pending petition was filed June 11, 1954, our jurisdiction was invoked under § 1141(a) of the Internal Revenue Code of 1939, as amended by 62 Stat. 991 and 63 Stat. 107, 26 U.S.C.A. § 1141(a), reading in essential part as follows:

"The courts of appeals shall have exclusive jurisdiction to review the decisions of the Tax Court * * * in the same manner and to the same extent as decisions of the district courts in civil actions tried without a jury * * *."

The effect of the clause added in 1948 — "in the same manner and to the same extent as decisions of the district courts in civil actions tried without a jury" — was not to incorporate by reference 28 U.S.C. §§ 1291 and 1292 giving jurisdiction to the courts of appeals to review final decisions and certain interlocutory decisions of district courts. It is abundantly clear from the legislative history that the only purpose of the 1948 amendment was to enlarge the scope of review of decisions of the Tax Court, thereby getting rid of the ruling in Dobson v. Commissioner, 1943, 320 U.S. 489, 64 S.Ct. 239, 88 L.Ed. 248, which imposed a narrower scope of review of decisions of the Tax Court from that which was applicable where a court of appeals had on review a decision of a district court in a civil action tried without a jury. E. g., Kohnstamm v. Pedrick, 2 Cir., 1945, 153 F.2d 506, 508-509. See Sen.Rep. No. 1559, 80th Cong., 2d Sess. (1948); 93 Cong.Rec. A3281 (1947); 94 Cong.Rec. 8500-01 (1948).

The question then is, what did Congress mean by "the decisions of the Tax Court" as used in § 1141(a)? No one has suggested that Congress thereby intended to make immediately reviewable any ruling or order of the Tax Court in the course of a proceeding before it, particularly orders or rulings of a procedural character. We think the Congress had in mind, in § 1141(a), the kind of determinations by the Tax Court referred to in the related § 1117, especially in subsection (c) thereof. 26 U. S.C.A. § 1117. Pertinent parts of § 1117 are as follows:

"(a) Requirement. A report upon any proceeding instituted before the Tax Court and a decision thereon shall be made as quickly as practicable. The decision shall be made by a judge in accordance with the report of the Tax Court, and such decision so made shall, when entered, be the decision of the Tax Court.

* * * * *

"(c) Date of decision. A decision of the Tax Court (except a decision dismissing a proceeding for lack of jurisdiction) shall be held to be rendered upon the date that an order specifying the amount of the deficiency is entered in the records of the Tax Court. If the Tax Court dismisses a proceeding for reasons other than lack of jurisdiction and is unable from the record to determine the amount of the deficiency determined by the Commissioner, or if the Tax Court dismisses a proceeding for lack of jurisdiction, an order to that effect shall be entered in the records of the Tax Court, and the decision of the Tax Court shall be held to be rendered upon the date of such entry.

"(d) Effect of decision dismissing petition. If a petition for a redetermination of a deficiency has been filed by the taxpayer, a decision of the Tax Court dismissing the proceeding shall be considered as its decision that the deficiency is the amount determined by the Commissioner. An order specifying such amount shall be entered in the records of the Tax Court unless the Tax Court can not determine such amount from the record in the proceeding, or unless the dismissal is for lack of jurisdiction.

"(e) Effect of decision that tax is barred by limitation. If the assessment or collection of any tax is barred by any statute of limitations, the decision of the Tax Court to that effect shall be considered as its decision that there is no deficiency in respect of such tax."

See also § 1140, 26 U.S.C.A. § 1140, another related section, which prescribes in minute detail, in numerous contingencies, when the "decision" of the Tax Court shall become final. Cf. Sweet v. Commissioner, 1 Cir., 1941, 120 F.2d 77.

That is to say, the word "decisions" of the Tax Court has a meaning of art; it refers only to two kinds of judicial action by the Tax Court, viz., (1) "dismissing the proceeding" pending before it, whether for lack of jurisdiction or otherwise, or (2) formally determining a deficiency, or the lack of a deficiency. In Michael v. Commissioner, 2 Cir., 1932, 56 F.2d 825, 826, referring to § 1003(a) of the Revenue Act of 1926, 44 Stat. 110, the earlier version of § 1141(a) of the 1939 Code, the court observed "that we have jurisdiction to review a decision of the Board of Tax Appeals and are not limited, in express terms, at least, to a final decision. But not every action taken by the Board is reviewable. We have power to review only its decisions and what is...