Mills v. Comm'r of Internal Revenue, Docket No. 268 P.T.

• Decision Date: 05 June 1945
• Docket Number: Docket No. 268 P.T.
• Citation: 5 T.C. 175
• Parties: CHEROKEE TEXTILE MILLS, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
• Court: U.S. Tax Court

5 T.C. 175

CHEROKEE TEXTILE MILLS, PETITIONER,

v.COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Docket No. 268 P.T.

Tax Court of the United States.

Promulgated June 5, 1945.

Evidence relevant to ground for refund of processing taxes not specified in petitioner's refund claim, held, inadmissible and subject to respondent's motion to strike, in absence of showing that formal requirements relating to refund claims have been waived. George E. H. Goodner, Esq., for the petitioner.

Irene F. Scott, Esq., for the respondent.

OPINION ON MOTION.

OPPER, Judge:

This case, involving a refund of processing taxes, is before us pursuant to a mandate of the Sixth Circuit Court of Appeals. The matter for immediate disposition is respondent's motion to strike certain evidence offered at the original hearing which was held before the Processing Tax Board of Review.

On February 17, 1942, that Board made findings of fact and entered a decision. On March 30, 1942, respondent filed a motion for rehearing, which was argued on May 5, 1942. Decision on the motion was reserved. To quote from the opinion on review (143 Fed.(2d) 587), pursuant to which the case is now here:

Petitioner filed its petition for review addressed to this court on May 15, 1942, several days before the statutory three months' time had elapsed from the mailing by the Processing Tax Board of Review of its findings of fact and decision. No action had been taken by that board prior to that time on respondent's motion for rehearing, although the motion had been argued. The Processing Tax Board of Review went out of existence by operation of law without ever having ruled upon respondent's motion for a rehearing.

Since the return of the case to the Tax Court, pursuant to that reversal and remand, respondent has made the present motion to strike certain designated evidence with reference to petitioner's production and sale of a combination cotton and wool cloth, sometimes referred to as mohair cloth. Respondent objected to the proffered evidence at the original hearing as not admissible under the claim as filed. He renewed his motion attacking such evidence at the close of the trial. The Board member reserved decision on its admissibility.

By the evidence to which the present motion is directed petitioner is attempting to rebut the unfavorable statutory presumption, as permitted by Revenue Act of 1936, section 907(e), and to show that it was by reason of its temporary profitable venture into the manufacture of mohair cloth that the margin showing became unfavorable.

Petitioner is a cloth manufacturer. Its first claim for refund was filed June 30, 1937, and before the respondent had acted thereon was amended on June 30, 1939, making claim for refund of the full amount of cotton processing tax $104,865.13), paid under the Agricultural Adjustment Act, declared invalid by the Supreme Court.¹

The schedules attached to the first claim and the amended claim established that under the statutory formula² all of the processing tax paid had been presumptively shifted to others. Except for the usual schedules, the only remaining ground for the claim is set forth in a statement of ‘Other evidence‘ attached to the first claim as follows:

Claimant asserts that the results obtained by comparison of the average margins per unit as shown by Schedule D-1, is not prima facie evidence that all of the processing tax paid as indicated, in Schedule ‘A‘ was shifted to others.

Operating under code requirements, the increased cost of production, labor, administrative and selling expenses were factors directly causing the increased sale value of the articles processed during the tax period, while the cost of the commodity (cotton) processed as indicated in Schedule ‘D,‘ column 3, does not reflect such increased costs and selling expense.

Claimant's operating profit before and after the tax period was $36,785.10 and the average operating profit per lb. was .009 cents.

Claimant's operating loss during the tax period was $5,434.02, and the average operating loss per lb. was .0022 cents.

The decreased operating margin during the tax period, over the before and after tax period was .0112 cents per pound of cotton processed.

Claimant asserts that the processing tax absorbed by it and not shifted to others is reflected in the decreased operating margin of .0112 cents per lb. on 2,455,398 pounds of cotton processed during the tax period, amounting to (2,455,398 x .0112) $27,500.46.

The amended claim while repeating the unfavorable statutory margin showings, sought refund of all the processing taxes paid, plus interest, and contained the following statement:

Taxpayer bore the entire burden of the tax as comprehended by the law, even though the prima facie showing set out in Schedule D of the original claim (filed June 30, 1937) indicated that only part of it was borne by taxpayer. Taxpayer did not shift the burden of the tax by including it, directly or indirectly, in the sales price of the commodity processed, nor by a reduction of the price paid for any commodity. Taxpayer has no understanding or agreement whereby it may be relieved of the burden of the tax, or be reimbursed for it, or by which it may be shifted to others.

The data set out in Schedule D of the original claim filed June 30, 1937, is incorporated herein for whatever it may be worth; but, if it should be held that profits or losses per unit of cotton valued or marketed during the tax period, as compared with profits or losses per unit of cotton valued or marketed during the average margin period before and after the tax period, indicates or constitutes proof that the burden of the tax was not borne by taxpayer, then the law so interpreted is unconstitutional, null, and void.

The claim was considered by respondent and examinations were made of petitioner's books and records in connection therewith. Respondent was never apprised at that time, or through the allegations of the claim, or otherwise, of any contention in support of the claim on the ground that petitioner manufactured mohair cloth during certain periods and not others. After such examination respondent, on January 22, 1940, mailed to petitioner a rejection of the claim, stating in part:

The data submitted with your claim is prima-facie evidence that you did not bear the burden of the amount paid by you as processing tax. Since the rebuttal evidence submitted by you is not sufficient to overcome the margin showing, it follows that you have not established that you bore the burden of the tax. * * *

(Notice was given that a petition could be filed with the Processing Tax Board) for a hearing on the merits of the claim.

After the oral argument upon the present motion, the parties were given an opportunity to submit briefs. The final brief was received on January 8, 1945. In the meantime, and on December 4, 1944, the United States Supreme Court granted...