Hoosac Mills Corporation v. Commissioner of Int. Rev., 2941.

• Decision Date: 31 January 1935
• Docket Number: No. 2941.,2941.
• Parties: HOOSAC MILLS CORPORATION et al. v. COMMISSIONER OF INTERNAL REVENUE.
• Court: U.S. Court of Appeals — First Circuit

75 F.2d 462 (1935)

HOOSAC MILLS CORPORATION et al. v. COMMISSIONER OF INTERNAL REVENUE.

No. 2941.

Circuit Court of Appeals, First Circuit.

January 31, 1935.

Theodore B. Benson, of Washington, D. C. (Edward R. Hale and Bennett Sanderson, both of Boston, Mass., on the brief), for petitioners.

Helen R. Carloss, Sp. Asst. to Atty. Gen. (Frank J. Wideman, Asst. Atty. Gen., and Sewall Key, Sp. Asst. to Atty. Gen., on the brief), for Commissioner of Internal Revenue.

Before BRIGHAM, WILSON, and MORTON, Circuit Judges.

MORTON, Circuit Judge.

This is a petition to review a decision by the Board of Tax Appeals. It involves the liability of the petitioner, as transferee of property formerly owned by the Nemasket Mill, for deficiency income and profits taxes assessed against the former owner for the year 1919. The Nemasket Mill transferred its assets to the Butler Mill in 1923; and the Butler Mill, in 1931, transferred the property in question as part of its assets to the petitioner.

There is no controversy as to the amount of the tax, the only question being whether the assessment was outlawed. The return was filed on June 8, 1920, and under the statutes assessment was barred by limitation after five years, i. e. on June 8, 1925. Waivers were filed, however, by the Nemasket Mill which extended the time for assessment at least until December 31, 1926. The provisions of these waivers as far as here material were as follows:

"This waiver of the time for making any assessment as aforesaid shall remain in effect until December 31, 1926, and shall then expire except that if a notice of a deficiency in tax is sent to said taxpayer by registered mail before said date and (1) no appeal is filed therefrom with the United States Board of Tax Appeals, then said date shall be extended sixty days, or (2) if an appeal is filed with said Board then said date shall be extended by the number of days between the date of mailing of said notice of deficiency and the date of final decision by said Board."

On February 20, 1926, ten months before the final date fixed by the waivers, the Commissioner sent a deficiency letter notifying the Nemasket Mill of the deficiency tax in question. Thereupon the taxpayer appealed to the Board of Tax Appeals. Under the waivers the appeal tolled the statute of limitation until final decision by the Board. This resulted in an extension of the time within which the assessment might be made for 4 years, 3 months, 9 days, or to April 9, 1931. The parties are in agreement that the date of final decision was May 29, 1930, when the Board, upon the stipulation of parties, entered a decision affirming the Commissioner's action. The tax in question was accordingly assessed against the Nemasket Mill on July 26, 1930.

Nothing further appears to have been done in the matter until May 18, 1932, a delay of nearly two years, when the Commissioner sent a "sixty day" letter or notice of deficiency to the petitioner as transferee, from which the appeal was taken to the Board of Tax Appeals which is now before us. As the law then stood, where property of a person liable for a tax was transferred subsequent to the accrual of the liability, the tax might be assessed against the transferee at any time up to one year after the final date on which it could be assessed against the original owner, or in this case up to April 9, 1932. The parties agree that the petitioner is liable if the statute of limitation has not barred the enforcement of liability against it.

The question before us is therefore whether the right of assessment against the petitioner had become barred on or before May 18, 1932. According to the terms of the waivers the time as against the Nemasket Mills expired on April 9, 1931; the time for the assessment against the petitioner expired a year later; and the assessment of May 18, 1932, was too late.

But while the waivers were in force the Revenue Act of 1926 became effective. A question at once arises whether Congress by statute could affect the plain language of the waivers to the extent for which the government contends. It is unnecessary to decide it because we are unable to agree with the Commissioner's interpretation of the statute. The statute provided, in section 274 (a), 26 USCA § 1048, that the Commissioner should be prohibited from assessing or collecting any tax in case of an appeal until the decision of the Board of Tax Appeal became final, though he could still make a jeopardy assessment under section 279 (26 USCA §§ 1051, 1063). It was further provided in section 277 (b), 26 USCA § 1057 note, in effect, that the period provided in that section, or under section 274 (a), or under section 278 (26 USCA §§ 1058, 1059, 1060 note, 1061 note, 1062), for assessing a tax, should in case of an appeal be suspended until 60 days after the decision of the Board became final.

The government contends that these provisions have the effect of suspending the waivers so far as they relate to the tolling the statute, and of extending the time within which the tax might be assessed by an additional period as long as that during which the waivers were thus suspended. In other words, this period, amounting to four years, three months, and nine days, is to be added, according to the government's contention, to the date when the decision of the Board became final, and 60 days thereafter, or until November 6, 1934, or against the petitioner until November 6, 1935. As an alternative, the government urges that at least the period of 10 months and 11 days between February 20, 1926, when the deficiency letter was sent, and December 31, 1926, to which date the waiver by its terms unquestionably extended the period for assessment, should be added to the statutory period within which the tax might be assessed under section 277 (b).

Under the government contention, the case turns on whether sections 274 (a), 277 (b), and 278 of the 1926 Act operate to extend the period for assessment beyond May 18, 1932. When Congress provided in section 277 (b) of the 1926 Act that the statute of limitations was suspended until 60 days after the decision of the Board became final, it does not follow that the Commissioner could take no action during that 60 days. The law authorizing the assessment of a tax was not suspended during that 60 days' period. It merely gave the Commissioner time to assess a tax in case a waiver had not extended the time for assessment beyond the date when the decision of the Board became final. If it meant that the waiver was suspended until the expiration of the 60-day period after the decision of the Board became final, and that any unexpired part of the waiver period was then added, the addition of 4 years, 3 months, and 9 days is the only logical construction; but such a construction would be absurd.

We think Congress, when it provided by section 277 (b) of the 1926 Act, that the running of the statute of limitations was suspended during the period in which the Commissioner was prohibited from assessing a deficiency tax, and for 60 days thereafter, did not thereby intend to extend the time for assessing a deficiency tax beyond the 60 days therein mentioned, by adding the unexpired period of a waiver, if any, after the notice of a deficiency tax was mailed; but merely to suspend the tolling of the statute of limitations provided in sections 274 (a), 277, and 278 for 60 days after the decision of the Board became final. Ample time to assess a deficiency tax is given by this construction, if the period as extended by a waiver is insufficient in any case. The Commissioner did not act in this case within the time permitted by the statute or the waiver, and the tax against this petitioner was barred.

The decision of the Board of Tax Appeals is reversed.

BINGHAM, Circuit Judge (dissenting).

The tax in question is one assessed against a transferee.

Section 280 (a) (1) of the Revenue Act of 1926 (26 USCA § 1069 (a) (1) imposes a liability upon the transferee for the tax imposed upon the taxpayer, and subdivision (b) (1) of that section (26 USCA § 1069 (b) (1) fixes the period of limitation for the assessment of any such liability as follows:

"Within one year after the expiration of the period of limitation for assessment against the taxpayer."

One of the material questions in the case is when the period of limitation for the assessment of the tax against the taxpayer ended, for the assessment of the tax against the transferee is required to be made within a year thereafter.

If this question is to be determined by the provisions of the waiver, then, as I construe them, the period for the assessment of the tax against the taxpayer was extended from December 31, 1926, by the period from February 20, 1926, the date of the deficiency notice, to May 29, 1930, the date the parties have agreed upon as the date of the final decision of the Board, or for a period of 4 years, 3 months, and 9 days, which, added to December 31, 1926 (the date fixed by the waiver to which the extension period was to be added), would extend the time within which the tax could be assessed to April 9, 1931. If the time for the assessment of the tax against the taxpayer is to be thus determined, then the assessment of the tax against the transferee under section 280 (b) (1) had to be made within one year after April 9, 1931, or on or before April 9, 1932. It therefore appears that, under the terms of the waiver and its provisos, the deficiency notice to transferee of an assessment against it, on May 18, 1932, was too late. This is the contention of the Hoosac Mills, and its contention would be the solution of the problem unless Congress intended that the applicable provisions of the Revenue Act of 1926 should govern, in which case their application would, as I construe and apply them, produce a different result.

Section 283 (c) of the Revenue Act of 1926 (26 USCA § 1064 (c) relates to the assessment of taxes imposed by prior acts, and...