Harrison v. Heiner
| Decision Date | 01 November 1928 |
| Docket Number | No. 3252.,3252. |
| Citation | 28 F.2d 985 |
| Parties | HARRISON et al. v. HEINER, Collector of Internal Revenue. |
| Court | U.S. District Court — Western District of Pennsylvania |
W. G. Heiner, of Pittsburgh, Pa., for plaintiff.
John D. Meyer, U. S. Atty., and W. J. Aiken, Asst. U. S. Atty., both of Pittsburgh, Pa., and John R. Wheeler and John A. McCann, Sp. Attys. of Bureau of Internal Revenue, both of Washington, D. C., for defendant.
The plaintiff has brought suit to recover certain moneys which are alleged to have been illegally collected by the defendant, collector of internal revenue, as part of the taxes of the Thomas Cronin Company for the years 1917 to 1922, inclusive. The parties waived a jury trial. Upon hearing before the court, the following facts were developed:
Findings of Fact.
(1) E. J. Harrison and H. R. Donnally are the duly appointed, qualified, and acting receivers of the Thomas Cronin Company, a corporation; the said receivers having been duly appointed by the court of common pleas of Allegheny county, in and for the state of Pennsylvania.
(2) Thomas Cronin Company, the above-named plaintiff, is, and at all times hereinafter mentioned was, a corporation organized and existing under the laws of the state of Pennsylvania, engaged in the general contracting business, with its principal office in Pittsburgh, Pa.; the said receivers having been duly substituted, on or about June 8, 1927, for Thomas Cronin Company, a corporation, original plaintiff in the above-entitled action, by an order of this court.
(3) D. B. Heiner, the above-named defendant, has been collector of internal revenue of the Twenty-Third district of Pennsylvania since August 1, 1921.
(4) During the years 1920 to 1922, inclusive, plaintiff herein entered into certain contracts with the city of Pittsburgh, Pa., providing for the payment and maintenance by the plaintiff of certain public streets and alleys in said city, in consideration of the payment to the plaintiff by the city of Pittsburgh of certain sums of money. There is attached to the agreed statement of facts filed in the case of E. J. Harrison and H. R. Donnally, receivers of Thomas Cronin Company, v. Lewellyn, formerly collector, and made a part hereof and marked Exhibit A, a copy of the form upon which said contracts were drawn. All of said contracts with said city were in the same form as Exhibit A.
(5) During the years 1920 to 1922, inclusive, plaintiff herein entered into certain contracts with the county of Allegheny, in the state of Pennsylvania, providing for the pavement and maintenance by the plaintiff of certain public roads in said county, in consideration of the payment to the plaintiff by said county of certain sums of money. There is attached to the agreed statement of facts filed in the case of E. J. Harrison and H. R. Donnally, Receivers, etc., v. Lewellyn, etc., and made a part hereof and marked Exhibit B, a copy of the form upon which said contracts were drawn. All of said contracts with said county were in the same form as Exhibit B.
(6) On March 15, 1921, plaintiff filed with C. G. Lewellyn, then collector of internal revenue for the Twenty-Third district of Pennsylvania, its income and profits tax return for the calendar year 1920, and paid 50 per cent. of the tax shown thereon to this defendant.
(7) On March 15, 1922, and on March 15, 1923, plaintiff filed with the defendant its income and excess profits tax return for the calendar years 1921 and 1922, respectively. The amounts of tax shown in said return were paid to the defendant herein.
(8) The taxes shown on the corporation's income and profits tax returns for the years 1920 to 1922, inclusive, filed as above set out, were calculated upon a profit arrived at by deducting from the total amount paid to the plaintiff under the contract the costs to the plaintiff of the completion of the roads or streets and an estimated amount which it was contemplated would be expended for maintenance of such roads or streets during the designated period. The profits thus reported were calculated as of the date of the completion of such roads and without regard to the period of maintenance.
(9) At the time of completion of such roads or streets as provided in any contract, and without regard to the period of maintenance, plaintiff received the balance of the contract price (provided for in the contract under which the roads or streets were completed) over and above the installments theretofore paid to it under the monthly estimate plan as provided for by said contract, so that upon completion of the construction work the plaintiff was paid in full.
(10) That early in 1923 the Commissioner of Internal Revenue made additional assessment of income and profits taxes against the plaintiff as follows:
For the year 1917 ............... $10,885.16
For the year 1918 ............... 11,453.87
For the year 1919 ............... 3,784.00
— which additional taxes were paid to the defendant on July 23, 1923.
(11) On April 30, 1924, plaintiff filed with D. B. Heiner, collector of internal revenue, Twenty-Third district of Pennsylvania, amended income and profits tax returns for the calendar years 1920 to 1922, inclusive. Upon said returns plaintiff computed its taxable net income or net loss as follows:
============================================
Calendar Year. | Taxable Net Income
| or Loss
---------------------|----------------------
1920 | $14,311.74
1921 | 50,195.50
1922 | 5,546.86
--------------------------------------------
(12) Subsequent to the filing of said amended returns, as above set out, plaintiff filed with the Commissioner of Internal Revenue amended balance sheets for said years, which set out that the gross profits from the contracts above referred to were carried as a liability until the end of the designated maintenance period.
(13) In computing the taxable net income on said amended returns, the plaintiff reported the amounts received by it upon completion of the roads or streets as provided in the said contracts, and the total expenditures made in so completing such roads or streets, and in addition thereto it reported actual amounts expended for maintenance of such roads or streets from the date of completion of them to the end of the period of maintenance.
(14) That the average period within which the roads and streets were to be completed, under the contracts entered into between the plaintiff and the city of Pittsburgh and the county of Allegheny, during the period 1920 to 1922, were six months, and the period of maintenance was either one or five years.
(15) Part 2, standard form of contract for street improvement, at paragraph 13, pages 4 and 5 (Exhibit A), provides that the pavement laid under such contract shall be kept and maintained as specified by the contractor at his own expense for a period of either one year or five years, depending upon the character of the pavement installed. The character of pavement installed under each contract here involved made necessary the maintenance by the plaintiff of such pavement for five years from date of completion thereof.
(16) Paragraph 24, pages 66 and 67 (Exhibit B), provides for the maintenance of the roads by the contractor at his own expense, for a period of five years after the completion of the roads laid under said contracts with the county of Allegheny, state of Pennsylvania.
(17) During the years 1920 to 1922, inclusive, the plaintiff kept its books and filed its returns on the accrual basis, and not on the cash receipts and disbursements basis.
(18) Photostat copies of the original and amended income and profits tax returns filed by the plaintiff for the years 1920, 1921, and 1922 are attached hereto and hereby made a part hereof.
(19) On April 30, 1924, plaintiff filed with D. B. Heiner, collector of internal revenue, Twenty-Third district of Pennsylvania, claim for refund of $59,978.57, covering the period 1917 to 1922, inclusive. Said claim is based upon amended returns, as set out in paragraph 11 of this stipulation, and included payments to the defendant for the years 1921 and 1922, and also payment of 50 per cent. of the tax due for the year 1920, and payment of additional taxes as set out in paragraph 10 above, amounting in all to $38,668.93. This claim was rejected by the Commissioner of Internal Revenue on November 8, 1924.
(20) Beginning in 1915, plaintiff corporation has been required to maintain for five years the roads and streets constructed by it for the city of Pittsburgh and county of Allegheny, under contracts. These contracts were standard printed contracts, which required plaintiff to maintain the roads and streets constructed by it, free from defects arising from workmanship or materials, for a period of five years.
(21) A bond was required, in the case of every contract, to secure the faithful performance by plaintiff of both the construction work and the maintenance work.
(22) In cases where the construction work extended over a period of part of two years, and where installments of the contract amount were received and expenditures for construction were made during part of two years, plaintiff corporation, upon its original returns for the years 1917 to 1922, inclusive, carried such installment receipts as liabilities and such expenditures as assets until the year in which the construction was finished and the balance of the contract amount received, and not until that year was any report made of such installment receipts or expenditures.
(23) The Commissioner of Internal Revenue never objected to withholding installment receipts and construction expenditures on plaintiff's original returns for 1917-1922, as outlined in the preceding paragraph.
(24) In cases where the construction work extended over a period of part of two years, and where installments of the contract...
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