Dubuque Packing Company v. United States

• Decision Date: 27 December 1954
• Docket Number: Civ. No. 592.
• Citation: 126 F. Supp. 796
• Parties: DUBUQUE PACKING COMPANY, a corporation, Plaintiff, v. UNITED STATES of America, Defendant.
• Court: U.S. District Court — Northern District of Iowa

126 F. Supp. 796

DUBUQUE PACKING COMPANY, a corporation, Plaintiff, v. UNITED STATES of America, Defendant.

Civ. No. 592.

United States District Court, N. D. Iowa, E. D.

December 27, 1954.

Benjamin Arac, Boston, Mass., Matthew H. Czizek, Dubuque, Iowa, for plaintiff.

Girard R. Jetton, Jr., Sp. Asst. to Atty. Gen. of the United States, F. E. Van Alstine, U. S. Atty., Richard W. Beebe, Asst. U. S. Atty., Sioux City, Iowa, for defendant.

GRAVEN, District Judge.

This is an action by the plaintiff taxpayer under Section 1346(a) (1) of 28 U.S.C.A. to recover income and excess profits taxes alleged to have been wrongfully collected under the internal revenue laws of the United States. The complaint, filed herein on June 23, 1952, set forth four causes of action. In the First cause of action recovery was sought for the sum of $3,861.78 from income taxes paid. In the Second cause of action recovery was sought for $4,280.14 for excess profits taxes paid. In the Third cause of action recovery was sought for $5,878.54 for income taxes paid. It was later stipulated by the parties that the amount involved in the Third cause of action was the sum of $3,801.58. In the Fourth cause of action recovery was sought for $28,748.26 for excess profits taxes paid. On May 21, 1954, before the case was reached for trial, the defendant issued refund checks to the taxpayer in the amounts of $29,112.25 and $5,997.80. The effect of these payments was to satisfy the taxpayer's Second cause of action in full and to reduce the principal amount in controversy in the Fourth cause of action to the sum of $6,847.43. Later, with leave of Court, the defendant amended its answer. In its amended answer the defendant stated that due to a mistake in computation one of the refund payments was in excess of the amount to which the taxpayer was entitled. The defendant alleged that the refund check which was in the amount of $29,112.25 should have been in the sum of $27,818.61. The defendant asked recovery against the plaintiff for the alleged excess.

The taxpayer is an Iowa corporation with its principal place of business at Dubuque, Iowa. The taxpayer is engaged primarily in the processing and packing of meat products. It kept its books and filed its tax returns on the accrual basis and on the basis of a fiscal year beginning November 1st and ending on October 31st. For convenience in reference, the calendar year in which the taxpayer's fiscal year ends will be referred to as the tax year and the Collector of Internal Revenue at Des Moines, Iowa, will be referred to as the Collector.

The taxpayer filed its tax return for the year 1941 and paid the taxes thereon shown to be due. Sometime prior to November 27th, 1943, the taxpayer's return for that year was audited by the Internal Revenue Department. On the basis of the audit the examining revenue agent asserted a deficiency of $2,927.11 in the income tax for that year. On November 27, 1943, the taxpayer transferred $2,927.11 (plus accrued interest of $328.71) to the Collector. Sometime prior to June 18, 1946, another audit of the taxpayer's return for 1941 was made by the Internal Revenue Department. The examining revenue agent asserted a deficiency of $6,936.79 in the excess profits tax for that year. On June 18th, 1946, the taxpayer transferred $6,936.79 (plus accrued interest of $1,841.67) to the Collector.

The taxpayer filed its tax return for the year 1942 and paid the taxes thereon shown to be due. Sometime prior to April 26, 1945, the taxpayer's return for that year was audited by the Internal Revenue Department. Based on that audit, the examining revenue agent asserted a deficiency ($51,056.12 plus accrued interest of $8,219.82) totalling $59,275.94. In response thereto the taxpayer transferred the following sums to the Collector:

                May       12, 1945........ $34,207.60
                June       2, 1945........ $   476.80
                June      26, 1946........ $ 1,446.97
                September 11, 1946........ $   819.04
                

These amounts plus a current credit of $2,690.71 and a credit of $19,634.82 allowed on September 10th, 1946, totalled $59,275.94.

The transfers of money made by the taxpayer to the Collector were placed in an account referred to as "Unclassified Collection Account" or "Suspense Account." In the Collector's notice of remittance relating to the transfer of $2,927.11, it is stated that it was "Held in Suspense Account 9-D."

On August 23, 1946, the Commissioner of Internal Revenue signed the assessment certificates assessing the asserted deficiencies and thereupon the Suspense Account was debited by the amount of the assessments. On May 28, 1948, the taxpayer filed its separate claims for refund of the amounts involved. On June 27, 1950, the Commissioner notified the taxpayer its claims for refunds of income taxes for the years 1941 and 1942 had been denied. On July 13, 1950, the Commissioner notified the taxpayer that its claims for refunds of excess profits taxes for the years 1941 and 1942 had been denied. As heretofore noted, this action was commenced by the taxpayer on June 23, 1952, and at the time the case was submitted there were three causes of action remaining for consideration. The parties are in controversy, among other matters, as to whether the taxpayer's claims for refund connected with transfers of money are barred by the statute of limitations. The claims connected with the transfers of money involve all the amount claimed by the taxpayer in its Fourth cause of action and a substantial part, but not all, of the amount claimed by the taxpayer in its First cause of action.

Section 322(b) (1) of 26 U.S.C.A. provides as follows:

"Unless a claim for credit or refund is filed by the taxpayer within three years from the time the return was filed by the taxpayer or within two years from the time the tax was paid, no credit or refund shall be allowed or made after the expiration of whichever of such periods expires the later. If no return is filed by the taxpayer, then no credit or refund shall be allowed or made after two years from the time the tax was paid, unless before the expiration of such period a claim therefor is filed by the taxpayer." (Emphasis supplied.)

The claims of the taxpayer for the refunds immediately under consideration were not made within two years from the time of the transfers of money but were made within two years from the time of formal assessment. The contentions of the parties as to this phase of the case revolve around the words in the statute "from the time the tax was paid." It is the claim of the defendant that the taxes in question were paid when the taxpayer made the transfers of money in response to the assertions of the deficiencies. It is the claim of the taxpayer that the taxes in question were not paid until their formal assessment.

The purpose of a statute of limitations is to compel the exercise of rights within a reasonable time after they accrue. A limitation is regarded as unreasonable that does not afford full opportunity to sue before the bar takes effect. Lamb v. Powder River Live Stock Co., 8 Cir., 1904, 132 F. 434; 34 Am.Jur. 31. This concept of fair opportunity to sue is incorporated into Section 322(b) (1) through the medium of the tax return. A tax return which does not disclose the requisite information necessary for the taxing authorities to determine tax liability does not start the statute of limitation running because the taxing authorities have not had a fair opportunity to determine whether a claim against the taxpayer exists. Commissioner v. Lane-Wells Co., 1944, 321 U.S. 219, 64 S.Ct. 511, 88 L.Ed. 684; John D. Alkire Inv. Co. v. Nicholas, 10 Cir., 1940, 114 F.2d 607. See also annotations 131 A.L.R. 822, 3 A.L.R.2d 647. Likewise even in the face of a retroactive tax act requiring an additional return, the old return will commence the statute of limitations where it gave all the information necessary for the computation of the new tax. Zellerbach Paper Co. v. Helvering, 1934, 293 U.S. 172, 55 S.Ct. 127, 79 L.Ed. 264. See Germantown Trust Co. v. Commissioner, 1940, 309 U.S. 304, 60 S.Ct. 566, 84 L.Ed. 770. Cf. Danz v. Commissioner, 1952, 18 T.C. 454, 465.

Section 322(b) (1) provides that not only will the filing of a return start the statute of limitations running but also payment of the tax. A taxpayer may transfer money to the tax collecting authorities for a number of reasons other than the satisfaction of a clearly defined tax liability. The transfer may be made to release an existing tax lien on real property. Mitchell v. Westover, D.C. Cal.1950, 90 F.Supp. 278. It may be made to avoid possible penalty or interest assessments. Reading Co. v. United States, 1951, 98 F.Supp. 598, 120 Ct.Cl. 223; Manee v. United States, D.C.N.Y. 1951, 97 F.Supp. 993. It may be made in anticipation of a deficiency assessment. Herrick v. United States, D.C. N.Y.1952, 108 F.Supp. 20; Murphy v. United States, D.C.Cal.1948, 78 F.Supp. 236. It may be made as payment of an estimated tax. Hanley v. United States, 1945, 63 F.Supp. 73, 105 Ct.Cl. 638. From a subjective standpoint the transfer may be considered as a tax payment by the parties, Hanley v. United States, supra, or they may merely consider it a deposit rather than payment of a tax. United States v. Los Angeles Soap Co., 9 Cir., 1946, 153 F.2d 320; Superior Valve & Fittings Co. v. Commissioner, 1952, 18 T.C. 931, 939.

It is evident from the cases that not every transfer of money by a taxpayer to a Federal tax authority will constitute a "payment" under the laws relating to Internal Revenue. The question here presented is as to the status of a transfer of money to a Federal tax authority as a "payment" within the statute of limitation contained in Section 322(b) (1). As heretofore noted, a "return" or "payment" will start the statute running. To do so the return must define the tax obligation or give sufficient information to define the tax obligation. It would seem that in construing the provisions...