Gulf States Steel Co v. United States

• Decision Date: 07 November 1932
• Docket Number: No. 24,24
• Citation: 287 U.S. 32,53 S.Ct. 69,77 L.Ed. 150
• Parties: GULF STATES STEEL CO. et al. v. UNITED STATES
• Court: U.S. Supreme Court

287 U.S. 32

53 S.Ct. 69

77 L.Ed. 150

GULF STATES STEEL CO. et al.

v UNITED STATES.

No. 24.

Argued Oct. 20, 1932.

Decided Nov. 7, 1932.

Messrs. John W. Drye, Jr., of New York City, James P. McGovern, of Washington, D.C., and John M. Perry, of New York City, for petitioners.

The Attorney General and Mr. Whitney North Seymour, of Washington, D.C.,

[Argument of Counsel from page 33 intentionally omitted] for the United States.

Mr. John E. Hughes, of Washington, D.C., filed a brief as amicus curiae.

Mr. Justice McREYNOLDS delivered the opinion of the Court.

In the District Court for Alabama—August 25, 1930—the United States sued the Gulf States Steel Company, principal, and National Surety Company, surety, petitioners here, upon a bond dated September 9, 1925, whereby they agreed to pay Snead, collector of internal revenue, so much of the additional income and profits taxes for 1917 assessed by him against the principal in 1921 'as is not abated.' Judgment on a verdict went for plaintiffs; the Circuit Court of Appeals affirmed; the matter is here by certiorari.

Petitioners say the sole question presented is whether the additional taxes were abated by the determination of the Board of Tax Appeals (July 10, 1928) in a proceeding brought by the Steel Company to review the Commissioner's final rejection of its demand for abatement. The Board held 'that the respondent is now barred by statute from collecting any part of the additional assessment made in April, 1921, and that there is no deficiency for the year 1917.' It directed entry of an order to that effect.

The petition for certiorari asserts: 'The sole question in this case is whether the final decision of the Board that there was no deficiency 'abated' the tax.' The following is the only specification of error relied on here: 'That the Court erred in holding that the claim for the deficiency of taxes was not abated by the final decision of the United States Board of Tax Appeals that there was no deficiency.' And in their brief counsel for petitioners say: 'The sole question in this case is whether the final decision of the Board that there was no deficiency 'abated' the tax.'

March 28, 1918, the Steel Company filed its income and excess profits tax return for 1917, and shortly thereafter paid the amount apparently due. In April, 1921, the Commissioner made a deficiency assessment of $153,815.30; May 6, 1921, the company filed claim and demand for abatement of this entire sum upon the ground that the additional assessment was unwarranted and illegal in so far as it resulted (1) from the failure to compute the invested capital by including the actual cash value of claimant's property on January 1, 1914; (2) from the action of the examiners in deducting only 7 per cent. of invested capital, instead of 8 per cent.; and (3) from disallowance of certain interest payments as part of invested capital.

March 13, 1923, fifteen days before the five-year statute would have barred collection of the deficiency assessment, the additional tax being wholly unpaid and the abatement claim undetermined, in order to secure delay and further consideration of objections, the taxpayer as principal, with the American Surety Company as surety, gave the collector a bond for $175,350, which recites:

'The condition of the above obligation is such that, if the said Gulf States Steel Company will indemnify the said W. E. Snead as Collector as aforesaid, or his successor in office, against all loss, cost, damage, and expense to which he may be put by reason of having allowed the said Gulf States Steel Company to withhold the payment to him, as such Collector, of the sum of One Hundred and Fifty-three Thousand Eight Hundred Fifteen and 30/100 Dollars ($153,815.30), claimed of it under the War Revenue Act of 1917, pending the filing, by the said Gulf States Steel Company of additional facts and information in support of a claim for the abatement of said amount heretofore filed by it, then this obligation to be null and void, otherwise, to be and remain in full force and effect.'

April 3, 1925, in order to obtain release of the American Surety Company from the above-described bond, also to make certain the payment of whatever the commissioner might thereafter finally declare to be payable under the deficiency assessment of 1921, the Steel Company executed a second obligation and pledged as security $200,000 United States Liberty loan bonds. This obligation recites:

'Whereas the Gulf States Steel Company did execute a bond in the penal sum of One Hundred Seventy-five Thousand, Three Hundred and Fifty Dollars, ($175,350.00), and in favor of W. E. Snead, Collector of Internal Revenue, for the District of Alabama, which said bond was signed by the American Surety Company of New York, as surety, under date of the 13th day of March, 1923, and was given in support of a claim for the abatement of assessments, penalties and interests, under the Revenue Act of 1917. Being desirous of relieving the above bound surety Company and further securing the payment of any amount found to be due the United States government under the above Revenue Act, now, therefore, if the undersigned Gulf States Steel Company shall pay to W. E. Snead, Collector, or his successors in office, such amount of the claim as is not abated, together with all costs, damages, penalties, interest, or other expense connected therewith, then this obligation shall be void, otherwise it shall remain in full force and effect.'

September 9, 1925, the Steel Company as principal, and National Surety Company as surety, executed the bond in suit, conditioned as follows:

'Whereas, an additional income tax has been assessed for the year 1917 in the sum of One Hundred Fifty-three Thousand Eight Hundred and Fifteen Dollars and Thirty Cents ($153,815.30), with penalty and interest against the Gulf States Steel Company of Birmingham, Alabama. A claim for the abatement of the additional tax was filed with the Collector of Internal Revenue for the District of Alabama at Birmingham. On the third day of April 1925, the Gulf States Steel Company did execute its bond securing the payment of so much of the additional assessment, penalties and interest as is not abated. In lieu of surety on the above bond the said company did deposit with the Federal Reserve Bank of New York, under Section 1029 of the Revenue Act of 1924, the following described United States, Fourth Liberty Loan 4 1/2% Gold Bonds of 1933—8 series, being of the par value of $200,000.00 (coupons), numbers —-. The above bonds were deposited on account and subject to the orders of W. E. Snead, Collector of Internal Revenue for the District of Alabama. Now, therefore, if W. E. Snead, Collector of Internal Revenue, shall release and surrender the said bonds to the said Company, and the principal, or sureties, either or both, shall pay to the said Collector so much of the amount of the claim as is not abated, together with penalties and interest thereon as provided by Law, then this obligation shall be of no efect. Otherwise, it shall reamin in full no effect. Otherwise, it shall remain in full

May 12, 1926, the Commissioner finally rejected in toto the Steel Company's long pending claim for abatement of the additional assessment of 1921 and gave proper notice. This notice among other things stated: 'You are allowed 60 days (not counting Sunday as the sixtieth day) from the date of mailing of this letter within which to file a petition with the United States Board of Tax Appeals, Earle Building, Washington, D.C., contesting in whole or in part the correctness of this determination.'

By an original petition to the Board of Tax Appeals, July 9, 1926, the Steel Company asked a 'redetermination of the deficiency set forth by the respondent (Commissioner) in his notice of deficiency * * * dated May 12, 1926.' The prayer follows:

'The petitioner prays for relief from the deficiency asserted by the respondent and from payment of the taxes assessed in the following and each of the following particulars:

'(a) That the petitioner be allowed as a deduction from its gross income for the year 1917, the sum of $47,021.82 as amortization of the cost to it of the lease (or stock) of Clinton Mining Company or as depletion or exhaustion of the leased properties based upon a cost of $145,000.00; or

'(b) That the Clinton Mining Company be granted a reasonable allowance for the exhaustion or depletion of the leased properties based upon a March 1, 1913, value of the leasehold, and that amount so allowed be deducted in computing the consolidated net income of the petitioners and Clinton Mining Company for the year 1917:

'(c) That the petitioner be allowed $11,000,000.00 in computing its invested capital for 1917, on account of the property paid in for stock on December 1, 1913.

'Wherefore petitioner prays that this Board may hear and determine the deficiency herein alleged.'

By an amended petition, March 2, 1927 (after Bowers v. New York & Albany Lighterage Co. (February, 1927) 273 U.S. 346, 47 S.Ct. 389, 71 L.Ed. 676), the Steel Company renewed its request for 'a redetermination of the deficiency set forth by the respondent in his notice of deficiency' dated May 12, 1926.

The petitions are identical, except the amended one contains two new paragraphs which allege extinguishment through the statute of limitations of all liability of the Steel Company for the additional taxes; also the following new prayer:

'(d) That the Board determine that the liability of the petitioner for the payment of the alleged deficiency has been extinguished by the running of the Statute of Limitations upon its collection and/or that the collection of said alleged deficiency was barred at the expiration of five years after said returns were filed.'

The Board of Tax Appeals in July, 1928, held: 'None of the bonds in the instant case can be said to constitute a consent in writing by both the Commissioner and the...