In re Sheinman, 7805.

• Decision Date: 30 July 1926
• Docket Number: No. 7805.,7805.
• Citation: 14 F.2d 323
• Parties: In re SHEINMAN.
• Court: U.S. District Court — Western District of Pennsylvania

14 F.2d 323 (1926)

In re SHEINMAN.

No. 7805.

District Court, E. D. Pennsylvania.

July 30, 1926.

J. Howard Reber, of Philadelphia, Pa., for trustee.

George W. Coles, U. S. Atty., and Claude Olwen Lanciano, Asst. U. S. Atty., both of Philadelphia, Pa., for the United States.

THOMPSON, District Judge.

The collector of internal revenue, on behalf of the United States, filed with the referee a proof of debt for income taxes under the Revenue Acts of 1918 and 1921 for the following amounts: For the taxable year 1919, $15,778.27; for 1920, $10,000.84; and for 1921, $1,647.94 — a total of $27,427.05, with interest from January 17, 1924, at 1 per cent. per month, until paid. The trustee duly filed objections to the allowance of the claim, and after hearing, at which testimony was taken, the referee made an order disallowing the claim. The matter comes before the court upon a certificate for review of the referee's order.

The petition in bankruptcy was filed June 3, 1922, and adjudication entered August 10, 1922. The bankrupt had filed an income tax return for the year 1919, stating his net taxable income as $22,620.01, and the tax thereon $2,361.60, was paid by him. He had also filed income tax returns for the years 1920 and 1921, setting forth that his net taxable income was below the statutory requirements and no tax was due. The collector assessed the additional taxes on May 20, 1924, after the petition in bankruptcy was filed.

It appears from the testimony taken before the referee that the assessment was arrived at by the following method: The Statistical Department of the Bureau of Internal Revenue has found that the average net profits of those engaged in the business in which the bankrupt was engaged, based on their gross annual sales, was as follows: For the year 1919, 6.51 per cent.; for 1920, 6.51 per cent.; for 1921, 5.46 per cent.

The revenue agent, who computed the extra assessments, ascertained from the books of the bankrupt the amount of his gross sales for the respective years, and multiplied that by the average percentage applicable to such year, from the information derived from the figures of the Statistical Department. As the agent who made the assessment was no longer in the service, his figures were interpreted by an agent still in the service. The method of computation followed is claimed to be under the authority granted the Commissioner of Internal Revenue by section 212 (b) of the Revenue Act of 1918 (Comp. St. § 6336 1/8f) and section 212 of the Revenue Act of 1921 (Comp. St. § 6336 1/8f), providing as follows:

"The net income shall be computed upon the basis of the taxpayer's annual accounting period (fiscal year or calendar year, as the case may be) in accordance with the method of accounting regularly employed in keeping the books of such taxpayer; but if no such method of accounting has been so employed, or if the method employed does not clearly reflect the income, the computation shall be made upon such basis and in such manner as in the opinion of the Commissioner does clearly reflect the income."

Section 64 (a) of the Bankruptcy Act (Comp. St. § 9648), making taxes preferred claims, provides that a trustee shall be credited with the amounts paid therefor upon filing receipts of the proper public officers, and that "in case any question arises as to the amount or legality of any such tax the same shall be heard and determined by the court."

The effect of this provision is that, where a claim for income taxes is made against a bankrupt estate, the ordinary rules of procedure governing collection of taxes against individuals, such as appeal or claim for abatement, and payment of the tax under protest, with the only remedy against their enforced payment a suit instituted for their recovery, do not apply to a trustee in bankruptcy. The purpose of the Bankruptcy Act is that the bankrupt estate shall be promptly wound up, and ordinary procedure would delay its final settlement. In re Wenatchee Heights Orchard Corporation (D. C.) 212 F. 787; In re Anderson (D. C.) 275 F. 397; affirmed (C. C. A.) 279 F. 525; In re Fisher Corporation (D. C.) 229 F. 316. And any question which arises as to the amount or legality of taxes must be heard and determined by the court with a view to ascertaining the amount really due. In re Williams Oil Corporation (D. C.) 265 F. 401.

The court is therefore not concluded by the findings of the taxing authorities. New Jersey v. Anderson, 203 U. S. 483, 27 S. Ct. 137, 51 L. Ed. 284. The question to be determined, then, is whether the evidence upon which the taxes were attempted to be assessed is such as to show a lawful imposition of taxes in the amount claimed or in any amount. The so-called regulations of the...