Consolidated Edison Co. of New York v. United States
| Decision Date | 25 May 1960 |
| Docket Number | Docket 26041.,No. 298,298 |
| Citation | 279 F.2d 152 |
| Parties | CONSOLIDATED EDISON COMPANY OF NEW YORK, INC., Plaintiff-Appellant, v. UNITED STATES of America, Defendant-Appellee. |
| Court | U.S. Court of Appeals — Second Circuit |
Whitman, Ransom & Coulson, New York City, for plaintiff-appellant. James K. Polk, Harold F. Noneman, and Julius M. Jacobs, New York City, of counsel.
S. Hazard Gillespie, Jr., U. S. Atty., New York City, for defendant-appellee. Arthur V. Savage, Asst. U. S. Atty., New York City, of counsel.
Before LUMBARD, Chief Judge, and SWAN and CLARK, Circuit Judges.
Plaintiff-appellant is a well-known public utility corporation which keeps its books and files its tax returns on an accrual and calendar year basis. It brought the present suit under 28 U.S. C.A. § 1346(a) to recover an alleged large overpayment of federal income taxes for the year 1951. Defendant's answer to the complaint interposed a general denial and an affirmative defense of collateral estoppel. A motion for summary judgment based on the affirmative defense was denied by Judge Palmieri in 1958 in an opinion reported at D.C., 162 F.Supp. 854. Thereafter, upon amended pleadings and a stipulation which eliminated all factual issues, each party moved for summary judgment. The district judge, Judge Sugarman, before whom these motions were argued, denied plaintiff's motion, granted defendant's, and dismissed the complaint. This is the order appealed from.
The ultimate questions to be decided are two, namely, (1) whether, under § 23(c) of the Internal Revenue Code of 1939, 26 U.S.C.A. § 23(c), a contested real estate tax liability accrued in the year the litigation was settled, or in a prior year when the contested tax was involuntarily paid under protest; and (2) whether the receipt of a partial refund of the contested and involuntarily paid tax, constituted income to the taxpayer in the year of settlement.
Before reaching the merits of these issues, it is desirable to consider defendant's contention of collateral estoppel based upon a decision of the Court of Claims which adjudicated the identical issues with respect to contested real estate taxes of earlier years. Consolidated Edison Co. of N. Y. v. United States, 135 F.Supp. 881, 133 Ct.Cl. 376, certiorari denied 351 U.S. 909, 76 S.Ct. 694, 100 L.Ed. 1444. The Court of Claims held that the contested taxes were deductible as a liability in the year they were paid to the City of New York, and that the amount refunded was income to the taxpayer in the year it was received from the City.1
On the issue of collateral estoppel both parties rely on Commissioner of Internal Revenue v. Sunnen, 333 U.S. 591, 68 S.Ct. 715, 92 L.Ed. 898, as they also did when that issue was before Judge Palmieri in 1958. He decided the issue adversely to defendant. We agree with his conclusion and are entirely satisfied with the reasoning of his opinion reported in 162 F.Supp. 854. As the Sunnen opinion states in 333 U.S. at page 601, 68 S.Ct. at page 721:
Under the New York law as to real estate taxes, the assessed valuation and the tax imposed on a given parcel of land for a given year is separate from, independent of, and unconnected with the assessed valuation and tax imposed on that parcel for any other year; and the same is true with respect to the administrative and judicial proceedings by which an aggrieved owner seeks review of the contested assessed valuation and the tax on that parcel for the given year. Hence we think it obvious that "the relevant facts" in the Court of Claims case and in the case at bar "are separable, even though they may be similar or identical," and that collateral estoppel does not control the legal issues "which recur in the second case."
To facilitate the presentation and consideration of the facts and legal issues involved, the stipulation above mentioned set forth an illustrative example which is applicable to all the years herein involved and reads as follows:
"(a) for the year 1949 plaintiff
was notified, on January 25
1949, of a tentative assessment
in the amount of ....................... $100
(b) plaintiff duly filed by
March 15, 1949, a bona fide
protest, admitting liability of ........ 85
(c) after hearing duly held
and on or about May 25, 1949
final assessment was made in
the amount of .......................... 100
(d) thereafter on or about October
1, 1949, under protest
and for the stated purpose of
avoiding liens, seizures, levies,
penalties, interest, etc., and reserving
all rights, payment
was made of ............................ 100.
(e) on October 25, 1949, certiorari
proceedings were duly
instituted in the New York Supreme
Court admitting liability
of, and denying liability in
excess of .............................. 85.
(f) in December, 1951, the
certiorari proceedings were
settled, fixing the tax liability
at ..................................... 95.
and establishing an overpayment
which was duly refunded,
in the amount of ....................... $ 5."
The government claims, in terms of the example, that the taxpayer was required to deduct the entire $100 from its gross income in 1949, the year in which the money was paid, and to include in its gross income for 1951 the $5 refunded to it by the City in that year. The taxpayer's position is that it was required to deduct in 1949 only $85, the amount of real estate tax paid and uncontested and that it should be permitted to deduct in 1951 an additional $10, the portion of the disputed $15 ultimately determined to have been properly assessed. The overall effect of the taxpayer's position would be to require the payment of a greater tax than the government claims is due in the year 1949, because of the smaller deduction, and a lesser tax in the year 1951, because of the additional $10 deduction accrued then and the absence of the inclusion of the $5 refund in gross income. Having paid its 1951 taxes under the government's theory, the taxpayer claims that it is now entitled to a refund.
The stipulation states the legal issues raised herein, in terms of the illustrative example, as follows:
This illustrative example has greatly simplified the facts necessary to be stated on this appeal. It will suffice to say that appellant owns many parcels of real estate in New York City with respect to which corporate real estate taxes for each year were assessed by applying tax rates established by the City Council to final assessed valuations fixed by one City Tax Commission. In each of the years 1938 to 1950, with the exception of 1942 and 1943, the appellant contested in the manner prescribed by local law part of the taxes so imposed. The contest proceedings in respect to the years 1938-1940 were concluded in 1941 by a settlement which fixed the taxes at a somewhat lower figure than the taxes assessed, and the difference was refunded, although this was less than appellant had sought to recover.2 A similar settlement was concluded in December 1951 of the contest proceedings instituted in respect to the years 1946-1950.
We turn now to the merits of the issues presented by the illustrative example. The sections of the 1939 Code which are involved are §§ 23(c), 41, 42, 43 and 48.3 Section 23 allows a deduction from gross income to be taken for "taxes paid or accrued within the taxable year" — with exceptions not here material. Section 41 prescribes that net income shall be computed "in accordance with the method of accounting regularly employed in keeping the books of such taxpayer," unless the method employed does not clearly reflect the income. Section 42 recognizes that items of income, though normally to be included in gross income in the taxable year of receipt, may "under methods of accounting permitted under section 41" be properly accounted for as of a different period. Section 43 says that deductions and credits "shall be taken for the taxable year in which `paid or accrued' or `paid or incurred', dependent * * * upon the basis of which the net income is computed, * * *" Section 48 directs that "paid or incurred" and "paid or accrued" shall be construed according to the method of accounting upon the basis of which the net income is computed.
In a number of cases involving the counterparts of these sections, the Supreme Court has explained that a tax liability becomes deductible under § 23(c), to a taxpayer keeping its books on the accrual basis, only when all events have occurred which determine the fact and amount of the tax liability. This "all-events rule," announced in United States v. Anderson, ...
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