General Electric Company v. United States

• Decision Date: 16 December 1966
• Docket Number: No. 228-62.,228-62.
• Citation: 177 Ct. Cl. 660,369 F.2d 724
• Parties: GENERAL ELECTRIC COMPANY v. The UNITED STATES.
• Court: U.S. Claims Court

177 Ct. Cl. 660, 369 F.2d 724 (1966)

GENERAL ELECTRIC COMPANY v. The UNITED STATES.

No. 228-62.

United States Court of Claims.

December 16, 1966.

Herbert L. Awe, Washington, D. C., for plaintiff, John P. Lipscomb, Washington, D. C., attorney of record, C. Rudolph Peterson, Washington, D. C., of counsel.

Philip R. Miller, Washington, D. C., with whom was Asst. Atty. Gen., Mitchell Rogovin, for defendant, Lyle M. Turner and David D. Rosenstein, Washington, D. C., of counsel.

Before COWEN, Chief Judge, and LARAMORE, DURFEE, DAVIS and COLLINS, Judges.

OPINION

LARAMORE, Judge.

This is an action to recover $205,447.77 which plaintiff paid as interest on excess profits tax deficiencies for the taxable year 1944. In issue is the proper method of computing interest on deficiencies under section 292(a) of the Internal Revenue Code of 1939.¹ 26 U.S.C. § 292(a) (1952 Ed.).² The facts have been stipulated.

On March 15, 1945, plaintiff filed a tentative return showing a 1944 excess profits tax of $128,000,000. Pursuant to section 56(b) (2) (A), it elected to pay this tax in four quarterly installments, the first $32,000,000 to be paid as of March 15, 1945, the last on December 15, 1945. After paying the second installment, but before paying the third, plaintiff recomputed its 1944 liability and filed a "final" return on September 14, declaring a tax of $79,213,845.41. The Collector divided this amount into quarters and credited $59,410,384.04 (three-quarters of the "final" declared tax) of plaintiff's prior payments of $64,000,000 against the 1944 excess profits tax liability, accrued through the third installment. Plaintiff paid the balance of $19,803,461.36 on December 14, 1945. On March 5, 1946, plaintiff filed an application for a tentative additional amortization allowance of $5,339,772.98 to reduce 1944 taxable income. Section 124(j). Under this so-called "quickie refund" provision, the Commissioner of Internal Revenue made a summary examination of the return and tentatively granted the additional allowance. This reduced plaintiff's 1944 excess profits tax by $4,565,505.90, which amount was refunded to plaintiff on May 27, 1946. The refund was augmented by six percent interest of $109,321.97 computed from December 15, 1945 (the last installment payment date) to May 9, 1946 (the date preceding the date of the refund check by not more than 30 days).

Presumably, the Commissioner started interest running on the last installment date because section 3771(b) (2) provides for interest on overpayments "from the date of the overpayment" and the courts have held that the date of overpayment of taxes paid on the installment method is the date the total amount paid first exceeds the amount due. Blair v. United States ex rel. Birkenstock, 271 U.S. 348, 46 S.Ct. 506, 70 L.Ed. 983 (1926); Matson Navigation Co. v. United States, 130 F.Supp. 357, 358-359, 131 Ct.Cl. 199, 201-202 (1955). There is no question that before December 15, 1945 plaintiff's installment payments did not exceed the total amount finally due, either as established by plaintiff's "final" return or ultimately after all deficiency computations.

Thereafter, in December 1946 and again in April 1953, the Commissioner determined deficiencies in plaintiff's 1944 excess profits tax totaling $6,764,669.67, which plaintiff accepted and paid. In computing interest against plaintiff on the deficiencies, the Commissioner used March 15, 1945 as the starting date. This was thought to be required by section 292(a) providing for six percent interest on deficiencies "from the date prescribed for the payment of the tax (or, if the tax is paid in installments, from the date prescribed for the payment of the first installment)." The effect of the Commissioner's calculations of interest on the tentative adjustment and the deficiencies has been to charge plaintiff six percent interest on $6,764,669.67 from March 15, 1945 and credit plaintiff with six percent interest on $4,565,505.90 only from December 15, 1945. Thus, for the 9-month period March 15 to December 15, 1945, plaintiff has not been credited with interest on the amount of the tentative adjustment to which it was entitled,³ although it has been charged interest on the amount of the deficiency to which defendant was entitled. Plaintiff here claims interest on the tentative adjustment for this period.

In defending against this claim, the government argues that overpayment and underpayment interest procedures are clearly provided for by statute, and that whatever the equities, the Commissioner properly followed the statutory mandate. Section 271(a) defines a "deficiency" as "the amount by which the tax imposed by this chapter⁴ exceeds the excess of — (1) the sum of (A) the amount shown as the tax by the taxpayer upon his return * * * over — (2) the amount of rebates, as defined in subsection (b) (2), made." "Rebate" is defined as "an abatement, credit, refund, or other repayment, as was made on the ground that the tax imposed by this chapter was less than the amount shown in the return plus any deficiency." Applying these provisions to the facts, defendant notes that the Commissioner correctly computed plaintiff's deficiency, i. e., he determined after audit that the correct tax was $81,413,009.18 which was $6,764,669.67 more than the $74,648,339.51 which plaintiff had paid after giving effect to the 1946 tentative adjustment "rebate." The deficiency having been correctly determined, the defendant argues that the interest calculation was crystal clear; section 292(a) says interest "shall be paid upon the amount determined as a deficiency * * * from the date prescribed for the payment of the first installment," here March 15, 1945.

Neither party questions the correctness of the Commissioner's determination of interest on the rebate, even in the light of the subsequent determination of the "correct" deficiencies,⁵ so our sole task is to determine whether the government is correct in its position that the Commissioner properly applied sections 271 and 292.⁶ The plaintiff appears to have two arguments, each a facet of what it calls "the fundamental principle for the allowance of interest." The "fundamental principle" is: interest accrues to the person who has the right to the use of the funds. Plaintiff asserts this is made clear by Manning v. Seeley Tube & Box Co., 338 U.S. 561, 70 S.Ct. 386, 94 L.Ed. 346 (1950) and United States v. Koppers Co., 348 U.S. 254, 75 S.Ct. 268, 99 L.Ed. 302 (1955). In both, the Court held that interest should accrue to the government on taxes to which it was entitled even though those taxes were subsequently abated by relief provisions.⁷ In the present context, the first argument is that for purposes of computing interest for the period from March 15 to December 15, 1945, the real underpayment or deficiency was $2,199,163.77 and not $6,764,669.67. This is a kind of "net" deficiency analysis, and is arguably a proper approach because before plaintiff got the "quickie refund" in 1946, the actual deficiency (as subsequently determined) was the $81,413,009.18 correct tax, less the $79,213,845.41 tax declared and paid in installments. Under a use-of-money theory, the government could not be entitled to interest on any more than the $2,199,163.77 to which it retroactively became entitled by virtue of the deficiency determination. This was essentially the thinking of the District Court in Central Fibre Products Co. v. United States, 115 F.Supp. 147 (N.D.Ill.1953), which plaintiff urges us to follow. The difficulty with this approach is that it has no footing in the statute. This was pointed out in a later District Court case and by implication in a Court of Appeals case reversing the relevant part of the lower court decision relied upon in Central Fibre Products Co., supra. Standard Oil Co. v. United States, 175 F.Supp. 670 (N.D.Ohio 1959); Babcock & Wilcox Co. v. Pedrick, 98 F.Supp. 548 (S.D.N.Y.1951), rev'd in part (on the interest determination), 212 F.2d 645 (2d Cir. 1954), cert. denied, 348 U.S. 936, 75 S.Ct. 355, 99 L.Ed. 733 (1955). While we would agree with plaintiff that these two cases may be distinguished from Central Fibre Products, we do not find the distinctions meaningful. It is true that the court in Standard Oil inferred from the special nature of the "quickie refund" procedure that Congress might have intended interest to be different on deficiencies from that on overpayments resulting from "quickie refunds." 175 F.Supp., at 672. And, in the present case, plaintiff's "quickie refund" survived the audit, almost in its entirety.⁸ However, we do not feel that the result there turned on the fact that the plaintiff's "quickie refund" had to be returned after audit. This fact was mentioned only as a possible justification of the result dictated by statute. The Babcock & Wilcox case may be distinguished as involving two different taxes and not two computations of the same tax. In fact, in an apparent effort not to conflict with the District Court in Central Fibre Products, the Second Circuit mentioned in a footnote that this was a distinction. N. 4, 212 F.2d, at 650. We do not find this distinction helpful, again because nothing turns on it. The sense of both Standard Oil and Babcock & Wilcox was that the statute controls, and it does not permit the kind of contention plaintiff makes here.

It is for the above reason that we find plaintiff's second argument more persuasive; it looks to the precise words of the statute. Again proceeding from its use-of-funds theory, plaintiff asserts that we must look to the meaning of the word "interest" in section 292. The statute authorizes the government to collect "interest" and nothing else on the deficiency, so inquiry must be made to determine whether the plaintiff, or the government, should have had the use of the funds on which the six percent charge has been made. Plaintiff points out that it elected to pay its 1944 tax in installments as...