Pacific Mills v. Nichols

Decision Date17 July 1934
Docket NumberNo. 2897.,2897.
Citation72 F.2d 103
PartiesPACIFIC MILLS v. NICHOLS.
CourtU.S. Court of Appeals — First Circuit

O. Walker Taylor, of Boston, Mass. (Israel Gorovitz, of Boston, Mass., on the brief), for appellant.

J. Louis Monarch, Sp. Asst. to Atty. Gen. (Frank J. Wideman, Asst. Atty. Gen., Sewall Key, Sp. Asst. to Atty. Gen., and Francis J. W. Ford, U. S. Atty., of Boston, Mass., on the brief), for appellee.

Before BINGHAM, WILSON, and MORTON, Circuit Judges.

MORTON, Circuit Judge.

This is an appeal by the plaintiff from a judgment for the defendant in an action brought to recover income and profits taxes for the year 1918. The District Court did not go into the merits of the controversy. It heard the case only on the defendant's plea that the action was barred by the statute of limitations applicable thereto. On the facts, about which there was eventually no dispute, the District Judge ruled that the action could not be maintained. The question before us is whether that ruling was right.

The taxes in question, amounting to $334,822, were paid as part of a much larger sum ($7,649,283) on April 4, 1923. On March 14, 1924, a claim for refund was filed. It specified seven grounds of claim; each being stated in rather general terms and none of them claiming any specified amount. One of these grounds was that the claimant was entitled to relief by special assessment under sections 327 and 328 of the Revenue Act of 1918 (40 Stat. 1093). To this claim the Commissioner answered under date December 30, 1924:

"Reference is made to the requests contained in your claims dated March 11, 1924, that your profits taxes for the year 1918 and 1919 be computed under the provisions of sections 327 and 328 of the Revenue Act of 1918.

"Before consideration can be given your requests there must be a final determination of your net income for the years in question. Italics supplied. It will, therefore, be necessary for you to advise this office within thirty days from the date of this letter of your acquiescence in the determination of the net income disclosed in Schedules 1 and 3, or exceptions, if any, which you may take thereto."

The plaintiff replied:

"Pacific Mills hereby agrees to the determination of net income for the years 1918 and 1919 as set forth in said letter namely $12,386,889.23 for 1918 and $7,109,921.35 for 1919, for the purpose of determining the income and excess profits taxes for those years under the provisions of sections 327 and 328 of the Revenue Act of 1918." (Italics supplied.)

The Commissioner under date of December 18, 1925, rendered a decision denying special assessment and giving his reasons therefor. His letter then continues:

"The tax liability for each of the years 1918 and 1919 as determined in Bureau letter dated December 30, 1924 is, therefore, sustained.

"In accordance with the above conclusions, your claim for the refund of $7,649,283.10 for the year 1918, will be rejected in full and your claims for the refund of $1,487,736.15 and credit of $90,624.21, aggregating $1,578,360.36 for the year 1919, will be rejected for $1,485,603.46.

"The Collector of Internal Revenue for your district will be officially notified of the rejection at the expiration of thirty days from the date of this letter."

There the matter rested until March 26, 1927, when the plaintiff filed another claim for refund, the one now relied on, which was in effect a reassertion of the sixth item in its original claim. To this second claim the Commissioner made two replies. The first under date June 27, 1927, read as follows:

"Sirs: An examination of your claim for refund in the amount of $425,446.72, corporation income and profits taxes for the year 1918 has been made.

"The claim is based upon the contention that taxpayer's inventory should be valued at British Issue prices rather than at the figures fixed by the Department.

"Data submitted in connection with this claim does not substantiate taxpayer's contention for the reason that it is shown British Issue prices do not enter into taxpayer's inventory for the year 1918.

"You will be allowed ten days within which to submit other information. If no reply is received at the end of this time it will be presumed that you do not wish to pursue the matter further, and the claim will then be rejected on the next schedule to be approved by the Commissioner."

The second under date of August 26, 1927, was as follows:

"Sirs: An examination of your claim for refund in the amount of $425,446.72, corporation income and profits taxes for the year 1918 has been made.

"The claim is based upon the contention that taxpayer's inventory should be valued at British Issue prices rather than at the figures fixed by the Department.

"Data submitted in connection with this claim does not show that the corporation's source of supply would in any way justify the use of British Issue prices; moreover the Bureau has been consistent in its refusal to recognize British Issue prices as establishing market values of wool as at December 31, 1918.

"Inasmuch as no additional data has been submitted in reply to Bureau letter dated June 27, 1927 it is presumed that you do not wish to pursue the matter further.

"The claim will therefore be rejected and the rejection will appear officially on the next schedule to be approved by the Commissioner."

Final rejection in accordance with this letter was made on September 8, 1927.

The present action based on this last rejection was begun on September 3, 1929, i. e., more than five years after the payment of the tax and more than two years after the rejection of the original claim, but within two years after the rejection of the second claim.

The plaintiff contends upon certain technical grounds which we think it unnecessary to state that the government is prevented or estopped from raising the question of limitation by the form in which the pleadings were made and the evidence presented. The contentions are wholly without merit. The matter is jurisdictional, because the government can only be sued upon the terms and conditions which it imposes, and the point must be noticed when brought to the court's attention even if the pleadings are informal. Finn v. United States, 123 U. S. 227, 8 S. Ct. 82, 31 L. Ed. 128.

The statutes in question (Revenue Act of 1924, c. 234, 43 Stat. 253, 343) read as follows:

"Sec. 1014. (a) Section 3226 of the Revised Statutes, as amended, is amended to read as follows:

"Sec. 3226. No suit or proceeding shall be maintained in any court for the recovery of any internal-revenue tax alleged to have been erroneously or illegally assessed or collected, or of any penalty claimed to have been collected without authority, or of any sum alleged to have been excessive or in any manner wrongfully collected until a claim for refund or credit has been duly filed with the Commissioner of Internal Revenue, according to the provisions of law in that regard, and the regulations of the Secretary of the Treasury established in pursuance thereof; but such suit or proceeding may be maintained, whether or not such tax, penalty, or sum has been paid under protest or duress. No such suit or proceeding shall be begun before the expiration of six months from the date of filing such claim unless the Commissioner renders a decision thereon within that time, nor after the expiration of five years from the date of the payment of such tax, penalty, or sum, unless such suit or proceeding is begun within two years after the disallowance of the part of such claim to which such suit or proceeding relates. The Commissioner shall within 90 days after any such disallowance notify the taxpayer thereof by mail." USCA, title 26, § 156.

"Sec. 1012. Section 3228 of the Revised Statutes, as amended, is amended to read as follows:

"Sec. 3228. (a) All claims for the refunding or crediting of any internal-revenue tax alleged to have been erroneously or illegally assessed or collected, or of any penalty alleged to have been collected without authority, or of any sum alleged to have been excessive or in any manner wrongfully collected must, except as provided in section 281 of the Revenue Act of 1924, be presented to the Commissioner of Internal Revenue within four years next after the payment of such tax, penalty, or sum.

"(b) Except as provided in section 281 of the Revenue Act of 1924, claims for credit or refund (other than claims in respect of taxes imposed by the Revenue Act of 1916,...

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    ...deadline indefinitely. Even in 1936 this could occur only if there was no formal decision made on reconsideration. Pacific Mills v. Nichols, 72 F.2d 103, 107 (1st Cir. 1934). If a decision is made on reconsideration the deadline is extended to two years after the second notice, as the Commi......
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