Mahoning Inv. Co. v. United States

• Decision Date: 05 June 1933
• Docket Number: M-406.,No. M-405,M-405
• Citation: 3 F. Supp. 622
• Parties: MAHONING INV. CO. v. UNITED STATES. ROCHESTER & PITTSBURGH COAL & IRON CO. v. SAME.
• Court: U.S. Claims Court

3 F. Supp. 622

MAHONING INV. CO. v. UNITED STATES.

ROCHESTER & PITTSBURGH COAL & IRON CO. v. SAME.

Nos. M-405, M-406.

Court of Claims.

June 5, 1933.

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Howe P. Cochran, of Washington, D. C. (William N. Wood, Frederick S. Winston, and C. Leo De Orsey, all of Washington, D. C., on the brief), for plaintiffs.

George H. Foster and W. W. Scott, both of Washington, D. C., for the United States.

Before GREEN, WHALEY, WILLIAMS, and LITTLETON, Judges.

GREEN, Judge.

The two cases above entitled have been submitted together upon the same evidence but upon different theories, the contention of the plaintiffs being that one or the other is entitled to recover the amount for which each brings suit, namely, $250,889.42 and interest, amounting to nearly half a million dollars.

The facts are undisputed. The two companies are affiliated, the Mahoning Investment Company being the parent company and owning all of the stock of the Rochester & Pittsburgh Coal & Iron Company. The tax involved is for 1918. On June 13, 1919, the investment company filed a consolidated return for itself and affiliates. The coal company filed only the so-called tentative return on March 15th. The return filed by the investment company showed that the company itself had no taxable income for the year 1918 and that the great bulk of the consolidated income was income of the coal company. The total tax for the group, according to the return, was $1,193,666.06, of which amount $1,191,786.74, being the tax of the coal company, was paid by it and the balance of the tax was paid by two other affiliated companies. On January 16, 1924, the investment company was requested to furnish waivers for itself and affiliates for the year 1918, which was accordingly done and the period for assessment and collection for 1918 against the respective companies was extended to June 13, 1925.

On February 12, 1925, the Commissioner sent a "thirty day" letter to the investment company advising it of a proposed deficiency for 1918 in the sum of $250,889.42. The letter showed that this proposed deficiency resulted from changes made by the Commissioner in the amount of income of the coal company. Prior to this letter being sent out, a notice of a proposed deficiency somewhat larger had been sent to the investment company. The investment company protested against the proposed deficiency on behalf of itself and affiliates and a hearing was requested and granted with the result it was determined that the deficiency should be reduced to the amount disclosed in the letter of February 12, 1925. All of the matters pertaining to the taxes of the consolidated group of corporations and each of the affiliates were in charge of one Heath S. Clark, who was attorney in fact for each of the companies and duly authorized to act for each of them in these matters. He knew that the deficiency arose out of business of the coal company. All of the business between the government and these companies was dealt with through the Mahoning Investment Company, which at no time requested the Commissioner to deal directly with any of its subsidiaries but on the contrary acted for and in behalf of all of its subsidiaries in connection with the taxes involved herein.

On April 14, 1925, the Commissioner of Internal Revenue made an assessment against the Mahoning Investment Company for additional taxes in the amount of $250,889.42 for the calendar year 1918, and on June 5, 1925, said Heath S. Clark wrote the collector with reference to some taxes for which notice and demand had been given May 28, 1925. This letter was headed: "The Rochester & Pittsburgh Coal & Iron Co., Legal Department."

In this letter he stated:

"The same taxpayer has had assessed against it for the year 1918 an additional income and profits tax in the amount of $250,889.42, to which assessment the taxpayer has agreed. To date no notice and demand for same has been received and the taxpayer is willing to make prompt payment upon receipt of same."

He also referred to the fact that letters with reference to these taxes were addressed to the Mahoning Investment Company. The coal company never received any notice of final determination of the deficiency, nor was any notice of assessment or demand sent to it in its own name, nor did it receive any sixty day letter addressed to it advising it of the 1918 deficiency. There was no agreement between the coal company and the investment company by which the investment company agreed to assume and pay any taxes assessed against the coal company, nor any arrangement whereby taxes owed by the coal company should be assessed against the investment company, nor was any assessment of the additional tax of $250,889.42 ever made against the coal company but notice and demand was made for the payment of the additional tax on the investment company prior to July 17, 1925, and on the date last named the assessment was paid. The manner of payment was as follows: The fiscal agents of the coal company were requested by that company to pay the tax and charge the amount to the coal company. This was done and a receipt of the collector was issued in the name of the investment company. Payment was made upon advice from Clark that it was the coal company's liability and, as shown above, it was well understood that the assessment, notice, and demand had been made against the investment company. Both the investment company and the coal company not only acquiesced in the manner in which the tax proceedings were conducted but gave the government to understand that each agreed thereto. On behalf of the coal company, as shown above, it was expressly stated that the taxpayer agreed thereto and that when notice was given and demand made the coal company would promptly pay the tax, and it was in response to this advice and in accordance therewith that the government gave the notice and demand requested and in response thereto the coal company paid the tax. Subsequently and after the period of limitations had expired for making an assessment against the proper party and collecting the tax, each company filed a claim for a refund. Without stating in particular the ground of these claims, it may be said in general that the basis of each was that the assessment should have been made against the coal company, but that no such assessment was made, and under section 607 of the Revenue Act of 1928 (26 USCA § 2607) the amount so paid can be recovered back.

It should be observed that up to the time when the Commissioner made the assessment against the Mahoning Investment Company the government had assessed no tax against any of the members of the affiliated group. The record does not disclose how it happened that the deficiency assessment was made against the Mahoning Company instead of against the coal company. The only return that had been made (except the so-called tentative return of the coal company) was the consolidated return presented by the Mahoning Company on behalf of itself and the affiliated corporations. It may be that the underofficial of the government who attended to the matter of making the assessment thought it was proper to make the assessment against the Mahoning Company under all of the circumstances, as the law with reference to this matter seems not to have been very well understood at the time. Or, what is more likely, the manner of the assessment may have been simply an oversight. But we do not think this is material except that the conduct of the plaintiffs, acting through their attorney, was such as to render it likely that the error or oversight would not be discovered; or, if discovered, it would be considered that in view of his representations it was immaterial, for so far as the financial result was concerned it made no difference to either company which one paid the tax.

In the case of David Daube v. United States, 59 F.(2d) 842, 75 Ct. Cl. 633, in which it appeared that the plaintiff had been allowed an overassessment of a certain sum which he directed applied on the taxes of a copartnership of which he was a member, we held that he could not recover back the overpayment although it was so applied after the statute of limitations had run. The decision in the Daube Case, with reference to one division thereof, was reviewed by the Supreme Court and affirmed, 53 S. Ct. 597, 77 L. Ed. ___, but certiorari was denied upon the point with respect to which we now cite it 53 S. Ct. 403, 77 L. Ed. ___. In the case of John Muir v. United States, 3 F. Supp. 619, this day decided by this court, a similar question arose and the Daube Case was followed. The basis for these decisions is the principle that where a taxpayer has money due to him from the United States and he directs the application thereof on some other taxes than his own, the statutory provisions with reference to payments or credits upon his own taxes do not apply, provided, of course, there is a consideration for the transaction. We think that a similar principle is involved in the case at bar. The taxes in question were due and owing from the coal company although there had been no assessment thereof. The coal company so agreed in its statement to the defendant and promised to pay them if notice and demand was made. This having been done, it remitted the necessary funds accordingly to the defendant, and the defendant made the application accordingly in accordance with directions implied from the remittance. We do not think the statutory provisions...