Dascomb v. McCuen

• Decision Date: 13 November 1934
• Docket Number: 90.,No. 89,89
• Citation: 73 F.2d 417
• Parties: DASCOMB v. McCUEN, Collector of Internal Revenue. SAME v. KENNEDY, Former Collector of Internal Revenue.
• Court: U.S. Court of Appeals — Second Circuit

73 F.2d 417 (1934)

DASCOMB v. McCUEN, Collector of Internal Revenue.

SAME v. KENNEDY, Former Collector of Internal Revenue.

Nos. 89, 90.

Circuit Court of Appeals, Second Circuit.

November 13, 1934.

R. T. Fleming, of Houston, Tex. (Selden Leavell and R. C. Fulbright, both of Houston, Tex., of counsel), for appellant.

Frank J. Wideman, Asst. Atty. Gen. (Sewall Key, Norman D. Keller, and Frederick W. Dewart, Sp. Assts. to Atty. Gen., and Joseph A. McNamara, U. S. Atty., of Burlington, Vt., of counsel), for appellees.

Before L. HAND, SWAN, and AUGUSTUS N. HAND, Circuit Judges.

SWAN, Circuit Judge.

The appellant was the president and largest shareholder of Vaughan Lumber Company, a common-law association or trust, herein referred to for convenience as the Trust. On February 15, 1920, he received from the Trust a dividend of some $270,000. This he reported in his income tax return for 1920, showing a part thereof as taxable income, and the balance as a distribution of capital and so nontaxable. His income taxes for 1920 were assessed in accordance with his return, and were paid in four installments during 1921 to the collector in office when the successive installments respectively fell due. In dividing the aforesaid dividend into taxable and nontaxable parts, the taxpayer assumed that the Trust had succeeded a partnership of the same name, dissolved on February 15, 1919, and that the 1919 earnings of the Trust covered the period from February 15th to December 31st. That assumption the taxpayer now asserts to have been erroneous; his position being that the first partnership was succeeded by a second, and the Trust was not legally created until August 22, 1919; consequently its 1919 earnings available for the dividend of February 15, 1920, were less than assumed, the nontaxable portion thereof was greater than reported, and an overassessment resulted in respect to the appellant's 1920 tax. This is the theory upon which he brought his actions against the collectors. They resisted recovery not only upon the merits but also upon the ground that the taxpayer's claim for refund was insufficient to support the cause of action sued on. The District Court so held, and the correctness of this decision is the first issue presented by these appeals.

The Trust originally filed a partnership return for the period from February 15 to December 31, 1919. This stated that Vaughan Lumber Company was a common-law trust organized on February 15, 1919, and gave the "Net Income for Accounting Period to be Accounted for by Members" as nearly $358,000. Accordingly the appellant included in his tax return for 1919 his distributive share of the Trust's income. Thereafter by letters of August 9 and September 3, 1920, the Commissioner notified him that Vaughan Lumber Company was taxable as a corporation and should file an amended return to cover the period from February 15 to December 31, 1919, and that its members who had reported distributive shares of its income should file amended personal returns and claims for refund. This was done. The Trust paid a tax of $118,137.13 on a net income of about $360,000, and the appellant received a refund of a large part of his 1919 taxes. On March 12, 1921, he filed his return for the year 1920, showing dividends received from the Trust in the sum of $270,196, of which he claimed $66,483.72 was from capital and $203,712.28 from earnings. His return disclosed a tax liability of some $92,000, which he duly paid during 1921. On March 11, 1926, he filed a claim for refund of 1920 taxes on three grounds, of which only the second is now material. This starts out with the statement that Vaughan Lumber Company was organized on February 15, 1919, and there were issued to the taxpayer as of that date 8,716 shares; it then recites the error of the Trust in filing a partnership return for 1919, the notification to it to file a return as a corporation, its compliance therewith and the resulting tax to it and refunds to its members. It alleges that Vaughan Lumber Company in making its tax return as a corporation for the year 1920 made an "improper computation for 1920," as a result of which it furnished its certificate holders erroneous information as to what part of its dividend of February 15, 1920, was from earnings and what part from capital. There follow several pages of calculations which show that the portion of the dividend attributable to capital in the appellant's return for 1920 had been understated by some $34,000, because the Trust had incorrectly computed its profits of the year 1920 available for the dividend of February 15th. The claimed refund was calculated as $21,610.23. During 1927 the claim was rejected, but the taxpayer was informed that it might be reopened in the event that the Supreme Court should reverse a case then pending....