Newport Industries, Inc. v. Commissioner of Internal Revenue
| Decision Date | 28 November 1939 |
| Docket Number | Docket No. 92331. |
| Citation | 40 BTA 978 |
| Parties | NEWPORT INDUSTRIES, INC., PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. |
| Court | U.S. Board of Tax Appeals |
Ellsworth C. Alvord, Esq., Floyd F. Toomey, Esq., and Alger B. Chapman, Esq., for the petitioner.
J. R. Johnston, Esq., for the respondent.
Respondent proposed a deficiency of $51,049.23, plus interest as provided by law, as representing petitioner's liability as transferee of the Newport Co. for unpaid taxes due from that company for the calendar year 1919.
Petitioner admits liability for any such tax deficiency of the Newport Co., but alleges none exists, since the tax liability of that company for the year 1919 was paid and satisfied prior to the mailing of the notice of deficiency in this proceeding.
The facts are found as stipulated.
The Newport Co., until its dissolution in 1931, was a Delaware corporation with its principal place of business at Carrollville, Wisconsin. On December 29, 1927, respondent determined a deficiency against that company for income taxes in the sum of $63,187.58 for the six-month period ended December 31, 1919. On appeal from that deficiency to this Board, final judgment was entered November 30, 1936, for a deficiency of $60,000, and, on December 31, 1936, this deficiency, together with interest in the amount of $39,039.45, was assessed.
On October 24, 1928, the Newport Co. filed a claim for refund of $53,785.32, representing the total tax paid by it for itself and affiliated company for the year 1926, evidenced by a consolidated return filed for that year. On January 15, 1937, the Commissioner signed "Schedule of Overassessments No. 59410", on which was listed an overassessment and overpayment of income taxes of the Newport Co. for 1926 in the amount of $53,785.32. This schedule was forwarded to the collector of internal revenue at Milwaukee, Wisconsin, with directions to credit this amount against any outstanding assessments against the Newport Co. On January 21, 1937, the collector credited this overassessment against the outstanding assessment of December 31, 1936, made against the Newport Co. for $60,000 tax and $39,039.45 interest for the period June 30 to December 31, 1919. In compliance with instructions from the office of the Commissioner, the collector recomputed the interest after allowance of the credit of $53,785.32, and filed an office claim for abatement of $30,479, interest assessed, on account of interest allowable upon the determined overassessment of $53,785.32. This claim was allowed on schedule IT 60559, authorized and signed by the Commissioner on or about February 2, 1937, after which the balance of tax and interest then outstanding on the collector's records against the Newport Co. for 1919 was the sum of $14,775.13.
On February 9, 1937, the petitioner, by its check, paid the sum of this outstanding balance, which payment was accepted by the collector and credited on its account with the Newport Co. By letter dated February 10, 1937, the Commissioner mailed the original certificate of overassessment, No. 2071569, to the Newport Co. in care of petitioner.
The petitioner is a Delaware corporation, organized to take over the business of the Newport Co. By indenture of September 29, 1931, in exchange for all of petitioner's capital stock, which was to be distributed to the stockholders of the Newport Co., petitioner acquired from the Newport Co. its entire property, business and assets, with the exception of certain cash and securities, certain of its records, and all claims against the United States for refund of income or profits taxes theretofore paid by it. On October 26, 1931, the Newport Co. was dissolved.
On September 29, 1937, more than seven months after the credit of the overassessment, determined for 1926, to the deficiency of $60,000 due for 1919 and the payment by this petitioner of the balance of the indebtedness then shown for the latter year, L. M. Simpson, head of Audit Division D of the Income Tax Unit, advised T. F. Langley, head of the Clearing Division of that unit, by memorandum, that, on reconsideration of the claim for refund filed by the Newport Co. for 1926, it appeared that the allowance of $53,785.32 was erroneous and request was made to reverse the credit. As a result, instructions were given the collector under which the record of credit of the overassessment, determined for 1926, against the deficiency of $60,000 determined for 1919, was reversed, and the interest credited on account of the overassessment was disallowed. The record after these changes showed a tax liability of the Newport Co. for 1919 unsatisfied in the sum of $51,049.23. The records in the Commissioner's office with respect to the account of this company were corrected to correspond with the adjustment thus made. It is the tax liability thus then outstanding on the records that is proposed for assessment against the petitioner here.
It is petitioner's contention that the allowance of the claim for refund of taxes paid by the Newport Co. for 1926 by the issuance of a certificate of overassessment in the amount of the claim as made, the application of this allowance as a credit against the outstanding tax indebtedness of the Newport Co. for 1919, and the payment by petitioner of the balance of that indebtedness then remaining constitute a final and complete settlement of the tax liability for 1919, since the Commissioner approved the account as it was thus stated, adjusted, and satisfied.
Petitioner argues that because the credit of the determined overassessment for 1926 taxes to the outstanding tax liability for 1919 was mandatory on the Commissioner, under section 284 (a) of the Revenue Act of 1926,1 that credit constitutes a refund or repayment of the taxes paid for 1926, and the application of the same in satisfaction of the outstanding liability for 1919. It is insisted that the situation is the same as if the refund had been made in cash, and that this payment and satisfaction are not disturbed and the expunged debt revived by the respondent's determination that the medium used in making that payment was erroneously obtained. It is suggested that the possible recourse available to respondent is limited to an action to recover the credit thus mistakenly granted through a determination of a deficiency for 1926 or suit to recover the erroneous refund for that year.
We agree with petitioner. The rule appears clearly established that the crediting of an overpayment for one year against taxes then due for another period, constitutes payment of the latter taxes as effectively as if such payment had been made in cash. If it be determined later that the allowance of overpayment so credited was erroneous, the liability...
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