Morris Plan Ind. Bank v. Commissioner of Int. Rev., 14.
| Decision Date | 05 November 1945 |
| Docket Number | No. 14.,14. |
| Citation | 151 F.2d 976 |
| Parties | MORRIS PLAN INDUSTRIAL BANK OF NEW YORK v. COMMISSIONER OF INTERNAL REVENUE. |
| Court | U.S. Court of Appeals — Second Circuit |
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Donald Horne, of New York City (Henry W. Parker, of New York City, of counsel), for petitioner.
Samuel O. Clark, Jr., Sewall Key, Robert N. Anderson, and Harry Baum, all of Washington, D. C., for respondent.
Before L. HAND, CHASE and FRANK, Circuit Judges.
1. We cannot agree that the pending suit in the district court deprived the Commissioner of his statutory authority to issue a deficiency notice or rendered that notice legally inefficacious. The suit was not what is commonly called "in rem" or "quasi in rem," and therefore could not operate to prevent him from exercising his statutory powers. Perhaps had there been a judgment in the district court, it would have been res judicata; but there has been no such judgment. Since the district court action was in personam, it could not, at least before entry of a judgment therein, affect the Commissioner's authority.1
2. On the merits, we see nothing to taxpayer's contentions. It had, we think, plainly elected in 1921 to use the reserve method with respect to its so-called "industrial" loans.
Since 1921, the taxpayer had never in its tax returns, before the tax years here in question, claimed any deduction from its gross income for any actual specific "industrial" loans ascertained to be worthless. It had merely, in making its calculations of the additions to the reserve as reported in its returns — which additions it did in those returns deduct from gross income — taken into account such loans actually ascertained to be worthless. Thus, before 1938, taxpayer adhered to the reserve method. This conduct constituted an election. The applicable regulation provides, "The method used in the return for 1921 must be used in returns for all subsequent years unless permission is granted by the Commissioner to change to the other method". We think that provision valid. No such permission has ever been granted.
Taxpayer asserts that its own accounting methods used in computing its additions to its reserve before 1938 were erroneous, and that, therefore, taxpayer cannot be said to have made an election. But whether its accounting techniques were in some manner mistaken, we need not consider; for undoubtedly in its returns taxpayer utilized, with respect to "industrial" loans, the reserve alternative and is bound by it. The taxpayer itself segregated its "industrial" from its "commercial" loans, applying the method of specific actual bad debt deductions solely to the latter. It now maintains that the same method must be applied to all its loans, and that, as the Commissioner has allowed its specific deductions as to bad debt "commercial" loans, the Commissioner and the Tax Court erred in finding that taxpayer elected the reserve method as to its other loans. We do not agree. Perhaps the Commissioner erred in approving the segregation and in allowing the specific deductions in the case of the "commercial" loans; but, if so, he has not complained, and taxpayer cannot. Whether or not the segregation was proper, there can be no doubt of...
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