Keith v. Woodworth, 8379.

• Decision Date: 11 December 1940
• Docket Number: No. 8379.,8379.
• Citation: 115 F.2d 897
• Parties: KEITH et al. v. WOODWORTH.
• Court: U.S. Court of Appeals — Sixth Circuit

115 F.2d 897 (1940)

KEITH et al. v. WOODWORTH.

No. 8379.

Circuit Court of Appeals, Sixth Circuit.

December 11, 1940.

R. M. O'Hara, of Detroit, Mich., for appellants.

Carlton Fox, Sp. Asst. to Atty. Gen. (Samuel O. Clark, Jr., Asst. Atty. Gen., Sewall Key, Courtnay C. Hamilton, and Leon F. Cooper, Sp. Assts. to Atty. Gen. and John C. Lehr and J. Thomas Smith, both of Detroit, Mich., on the brief), for appellee.

Before HICKS, SIMONS, and ALLEN, Circuit Judges.

ALLEN, Circuit Judge.

Appeal from a judgment of no cause of action against appellants on their petition for refund of taxes alleged to have been illegally collected. Jury trial was waived, and the court rendered judgment in favor of the appellee upon the ground that appellants were barred from recovery by § 611 of the Revenue Act of 1928, 45 Stat. 791, 26 U.S. C.A. Int.Rev.Acts, page 461, and were not proper parties to maintain the suit.

The facts are stipulated and neither the amount nor the legality of the assessment is questioned. The stipulation in substance shows that Detroit Pressed Steel Company, a Michigan corporation, hereinafter called the Michigan corporation, was organized in 1909, and suspended business in 1919, having given the notice of change of attitude required by the statutes of that state on September 29, 1919. Detroit Pressed Steel Company, a Delaware corporation, hereinafter called the Delaware corporation, was organized in 1919 for the purpose of taking over all the assets and liabilities of the Michigan corporation. Common stock of the Delaware corporation was issued to the shareholders of the Michigan corporation in proportion to their common stock. Each holder of preferred stock received eight dollars in cash and accrued dividends and one share of the preferred stock of the Delaware corporation for each share of preferred stock of the Michigan corporation. Later the Delaware corporation became insolvent, and appellants were duly appointed receiver and ancillary receiver thereof. The Delaware corporation was dissolved December 18, 1924. Under court authority this refund action was instituted, arising out of the following facts:

In 1923 the Commissioner determined a deficiency against the Michigan corporation and assessed against it additional taxes for the year 1917 in the amount of $101,180.90. Notice of this deficiency was mailed to "Detroit Pressed Steel Company, 6660 Mt. Elliot Avenue, Detroit, Michigan," which was the office address of both the Michigan and Delaware corporations during the period of their corporate activities. The statutory period of five years from date of filing the Michigan corporation's tax return for 1917 expired March 30, 1923. § 250 (d), Revenue Act of 1921, 42 Stat. 227, 265. An assessment of the amount determined as deficiency and underpayment of taxes was made March 24, 1923, and notice and demand for payment thereof was mailed by appellee March 29, 1923. A claim for abatement executed on behalf of Detroit Pressed Steel Company by the assistant treasurer of the Delaware corporation was filed April 6, 1923. On May 23, 1924, the Commissioner notified Detroit Pressed Steel Company, Detroit, Michigan, that he had allowed the claim for abatement for $35,386.86, and rejected it for $65,794.04. A certificate of over-assessment was issued, and notice and demand were made for payment of the $65,794.04 with interest.

In May, 1923, the Delaware corporation sold most of its assets to Midland Steel Products Company, hereinafter called Midland, receiving therefor preferred stock of Midland, while Midland assumed certain of the liabilities of the Delaware corporation, including income and excess profits taxes up to $155,000. Midland issued its check in payment of the assessment, although the Delaware corporation, which was not then in liquidation, had unincumbered assets of value in excess of the amount of the check. The secretary of the Delaware corporation delivered Midland's check to the collector October 2, 1924, and received a receipt therefor in the name of Detroit Pressed Steel Company. The Michigan corporation was not dissolved until subsequent to the payment of the tax.

We think the District Court erred in its conclusion that appellants are barred from recovery by § 611 of the Revenue Act of 1928. This section, with its cognate § 607, 26 U.S.C.A. Int.Rev.Acts, page 459, read as follows:

§ 611. "If any internal-revenue tax (or any interest, penalty, additional amount, or addition to such tax) was, within the period of limitation properly applicable thereto, assessed prior to June 2, 1924, and if a claim in abatement was filed, with or without bond, and if the collection of any part thereof was stayed, then the payment of such part (made before or within one year after the enactment of this Act) shall not be considered as an overpayment under the provisions of section 607, relating to payments made after the expiration of the period of limitation on assessment and collection."

§ 607. "Any tax (or any interest, penalty, additional amount, or addition to such tax) assessed or paid (whether before or after the enactment of this Act) after the expiration of the period of limitation properly applicable thereto shall be considered an overpayment and shall be credited or refunded to the taxpayer if claim therefor is filed within the period of limitation for filing such claim."

The question is whether within the meaning of the enactment there was a stay of the collection of the tax. The assessment was made within the statutory limitation and prior to June 2, 1924. The claim of abatement was filed and the tax was paid within one year after the enactment of the Act. But the claim was filed after the statute had run. If the Commissioner delayed action in consequence of the claim in abatement, and if this delay constitutes the stay contemplated by § 611, then the payment could not be considered overpayment, and recovery...