Ohio Steel Foundry Co. v. United States

• Decision Date: 17 February 1930
• Docket Number: No. F-143.,F-143.
• Citation: 38 F.2d 144
• Parties: OHIO STEEL FOUNDRY CO. v. UNITED STATES.
• Court: U.S. Claims Court

38 F.2d 144 (1930)

OHIO STEEL FOUNDRY CO. v. UNITED STATES.

No. F-143.

Court of Claims.

February 17, 1930.

Donald Horne, of Washington, D. C., for plaintiff.

R. C. Williamson, of Washington, D. C., and Herman J. Galloway, Asst. Atty. Gen., for the United States.

Before BOOTH, Chief Justice, and LITTLETON, WILLIAMS, GREEN, and GRAHAM, Judges.

LITTLETON, Judge.

In this suit, which was instituted May 3, 1926, plaintiff asked judgment for $242,937.38, income and profits tax alleged to have been erroneously and illegally collected for 1918, with interest thereon as provided by law.

The jurisdiction of the court is questioned by the defendant's special answer and plea to jurisdiction, in which the claim is advanced that this court was deprived of jurisdiction to entertain the suit by reason of the fact that on December 29, 1926, the Commissioner of Internal Revenue mailed to the plaintiff a notice of his determination of a deficiency of $56,444.21, in respect of the tax of plaintiff for the calendar year 1918, as authorized by section 274(a) of the Revenue Act of 1926 (26 USCA § 1048), and on February 26, 1927, the plaintiff instituted a proceeding before the United States Board of Tax Appeals by the filing of its petition for a redetermination of such deficiency.

The defendant contends that this court did not have jurisdiction to entertain this suit at the time it was instituted on May 3, 1926, and particularly was it without jurisdiction after December 29, 1926, because of the provisions of section 284(d) of the Revenue Act of 1926 (26 USCA § 1065(d).

The question presented by the demurrer necessitates an interpretation of the provisions of sections 274 and 284 of the Revenue Act of 1926, sections 1001-1005 of title X of the Revenue Act of 1926 amending title IX of the Revenue Act of 1924, and also of section 1113(a) of the Revenue Act of 1926, reenacting section 3226 of the Revised Statutes as amended (26 USCA § 156).

From the record it appears that the plaintiff duly filed its tax return for the calendar year 1918 and paid to the collector of internal revenue the tax shown to be due thereon of $658,440.69. Thereafter, on March 7, 1924, January 5, 1925, and November 16, 1925, plaintiff and the Commissioner entered into certain written consents by which the limitation period for assessment and collection of additional taxes for 1918 was extended to December 31, 1926. The several consents contained provision for a further extension in the event of the determination of a deficiency and the institution of a proceeding before the Board of Tax Appeals.

February 26, 1924, plaintiff filed claim for refund of $10,000, and on January 8, 1925, it filed a further claim for refund of $50,000 on the ground that it was entitled to a paid-in surplus of $240,000. May 27, 1925, plaintiff notified the Commissioner of its intention to claim a deduction from gross income for 1918 for amortization, and on August 15, 1925, filed claim for refund of $100,000, basing this claim on the ground that it was entitled to a deduction for amortization as provided in section 234(a) (8) of the Revenue Acts of 1918 (40 Stat. 1078) and 1921 (42 Stat. 255).

December 31, 1925, plaintiff filed another claim for refund of $658,440.69, being the total amount of tax paid for 1918. More than six months prior to the institution of this suit the Commissioner of Internal Revenue had not rendered a decision on these claims.

Thereafter, on December 29, 1926, the Commissioner of Internal Revenue determined a deficiency of $56,444.21 in respect of the tax of plaintiff for 1918, and mailed to plaintiff a notice thereof by registered mail. February 26, 1927, plaintiff instituted a proceeding in the United States Board of Tax Appeals by the filing of a petition as authorized by section 274(a) of the Revenue Act of 1926 (26 USCA § 1048) for the redetermination of such deficiency. At the time of the hearing of this demurrer, the proceeding was still pending before the Board of Tax Appeals, and had not been heard or decided by the Board. The questions raised by plaintiff in the proceeding instituted before the Board with respect to amortization of war facilities and paid-in surplus are identical with the questions presented in the plaintiff's petition in this court. No portion of the deficiency of $56,444.21 determined by the Commissioner on December 29, 1926, has been paid.

The defendant demurred to the petition herein, and this demurrer was overruled October 25, 1926. Subsequent to the mailing by the Commissioner of the deficiency notice on December 29, 1926, the parties to this suit filed with the court certain stipulations of fact, testimony was taken, and documentary evidence introduced, and the plaintiff's case was closed. Thereafter, on January 14, 1929, the defendant filed its special answer and plea to the jurisdiction of this court.

The question for decision is whether, under the provisions of the Revenue Act of 1926, the determination by the Commissioner of a deficiency and the institution by the taxpayer of a proceeding before the Board of Tax Appeals, all occurring after the suit had been properly instituted in this court, renders such suit premature and deprives this court of jurisdiction to entertain it. The defendant insists that such is the case, for the reason (1) that the plaintiff's remedy in the proceeding before the Board of Tax Appeals is the same as that sought in this court, since the Board is authorized to find that there has been an overpayment of tax; (2) that the beginning of a proceeding before the Board and a suit for refund are alternative remedies, which may not be pursued by a taxpayer at the same time; (3) that the taxpayer has ample protection and right of appeal before either the Board or this court, and that, having chosen one tribunal, he should be excluded from the other at least until final judgment is made by that tribunal; and (4) that, in any event, suit may not be brought in this court until the plaintiff has paid the deficiency asserted by the Commissioner.

By the Revenue Act of 1926 the jurisdiction and powers of the Board of Tax Appeals were enlarged and a system of review of the decisions of the Board by the United States Circuit Courts of Appeals or the Court of Appeals of the District of Columbia was provided so that, if a taxpayer, having been notified by the Commissioner of a deficiency, elects to file a petition with the Board, after the enactment of the Revenue Act of 1926, his entire tax liability for the year in question, except in case of fraud, is finally and completely settled by the decision of the Board that has become final. See section 284 (d) (1) and (e) of the Revenue Act of 1926 (26 USCA § 1065(d) (1) and e); also page 25 of the Report of the Committee on Finance of the Senate, Sixty Ninth Congress, First Session, concerning the Revenue Act of 1926.¹

The Board of Tax Appeals is therefore the trial court when a taxpayer elects to go into it, and its jurisdiction in a proper case, if it first acquires it, is exclusive. Having in mind the clear and manifest purpose of the act to vest in the Board of Tax Appeals and the appellate courts upon petition for review exclusive power ultimately and finally to decide all questions, both as to deficiencies and overpayments, that could arise between the taxpayer and the government in connection with the tax liability for the year or years involved in such proceeding, this court has no disposition to entertain a suit over which the Board is given exclusive jurisdiction under the statute; but we think this case does not come entirely within those provisions of the statute, and, if this be true, the plaintiff's suit should not be dismissed.

Section 284(d) (1) of the Revenue Act of 1926 (26 USCA § 1065(d) (1) provides:

"If the Commissioner has mailed to the taxpayer a notice of deficiency under section 1048 of this title and if the taxpayer after February 26, 1926, files a petition with the Board of Tax Appeals within the time prescribed in such section, no credit or refund in respect of the tax for the taxable year in respect of which the commissioner has determined the deficiency shall be allowed or made and no suit by the taxpayer for the recovery of any part of such tax shall be instituted in any court except —

"(1) As provided in subdivision (e) of this section or in subdivision (i) of section 1051 or in subdivision (b), (f), or (i) of section 1064 or in subdivision (d) of section 1224 of this title; and"

Subdivision (e) of section 284 (26 USCA § 1065(e) provides:

"If the Board finds that there is no deficiency and further finds that the taxpayer has made an overpayment of tax in respect of the taxable year in respect of which the Commissioner determined the deficiency, the Board shall have jurisdiction to determine the amount of such overpayment, and such amount shall, when the decision of the Board has become final, be credited or refunded to the taxpayer as provided in subdivision (a). Such refund or credit shall be made either (1) if claim therefor was filed within the period of limitation provided for in subdivision (b) or (g), or (2) if the petition was filed with the Board within four years after the tax was paid, or, in the case of a tax imposed by this Act, within three years after the tax was paid."

The Board of Tax Appeals clearly has jurisdiction of the proceeding instituted there by the plaintiff as a result of the Commissioner's determination of a deficiency for 1918, and it has authority and jurisdiction under the statute to decide all matters placed in issue concerning the tax liability of the Ohio Steel Foundry Company for 1918. Peerless Woolen Mills, 13 B. T. A. 1119; Peerless Woolen Mills v. Rose (C. C. A.) 28 F.(2d) 661. The jurisdiction of this court in no wise depends upon the lack of jurisdiction or authority of the Board to adjudicate any question in relation to the correct tax liability, but rests upon the...