NELSON SPECIALTY CORPORATION v. United States

• Citation: 154 F. Supp. 155
• Decision Date: 06 August 1957
• Docket Number: Civ. No. 32768.
• Parties: NELSON SPECIALTY CORPORATION, Plaintiff, v. The UNITED STATES, Defendant.
• Court: U.S. District Court — Northern District of California

154 F. Supp. 155

NELSON SPECIALTY CORPORATION, Plaintiff, v. The UNITED STATES, Defendant.

Civ. No. 32768.

United States District Court N. D. California, S. D.

August 6, 1957.

Charles J. Leighton, Jr., Oakland, Cal., for plaintiff.

Charles K. Rice, Asst. Atty. Gen., James P. Garland, Walter B. Langley, Attys., Department of Justice, Washington, D. C., Lloyd H. Burke, U. S. Atty., Lynn J. Gillard, Chief Asst. U. S. Atty., San Francisco, Cal., for defendant.

HARRIS, District Judge.

Plaintiff, a California corporation, seeks to recover from defendant certain moneys collected for the tax year ending March 31, 1944. Under its first cause of action plaintiff seeks a refund of $5,624.04 which is 10% of an excess profits tax deficiency of $56,240.44 paid by plaintiff subsequent to July 1, 1945.

In its first counterclaim, defendant seeks to recover $23,171.35 from plaintiff, such sum being the balance owing on plaintiff's excess profits account for the tax year ending March 31, 1944. The balance refers to the previous deficiency of $56,240.44 (referred to above) and to which plaintiff seeks a post war credit of $5,624.04 as set forth in its first cause of action.

There are many complex transactions involved in the computation of the particular sums at issue in this litigation. It is unnecessary to review them as the parties do not dispute the accuracy of the above amounts. Interest, credits (including California franchise tax credits) and deficiencies have been considered in reaching these computations.

The difference between the parties — and the sole issue to be considered by the Court on the first cause of action and the first counterclaim — is the applicability of the statute of limitations as a bar to the defendant's counterclaim.

The amount owing the defendant as set forth in the first counterclaim represents interest assessed against plaintiff by reason of its failure to pay the full amount of excess profits tax due for the year ending March 31, 1944. Plaintiff has paid the deficiency itself and the money received by defendant was applied to the basic sum owing. This is the normal procedure followed by the government in its collection of taxes. The present case arose through a mistake of the government in its initial computation of excess profits tax due from plaintiff and the correlative right of plaintiff to receive a 10% bonus or refund in accordance with Section 3806(b) of the Internal Revenue Code of 1939, 26 U.S.C.A. § 3806b (26 U.S.C.A. Excess Profits Taxes, § 780).

If the two-year statute of limitations contained in § 3746(b) of the Internal Revenue Code of 1939 (26 U.S.C.A. § 7405) is applicable to the government's first counterclaim, then plaintiff is entitled to recover the $5,624.04 as set forth in its first cause of action. On the other hand, if the statute of limitations is not applicable, then the defendant shall obtain summary judgment in the amount prayed for in its first counterclaim. Both plaintiff and defendant have moved for summary judgment on the first counterclaim and the first cause of action, while defendant has moved to dismiss plaintiff's first...