Peterson v. COMMISSIONER OF INTERNAL REVENUE, Docket No. 103375.
| Decision Date | 07 November 1941 |
| Docket Number | Docket No. 103375. |
| Citation | 45 BTA 624 |
| Parties | EMIL PETERSON, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. |
| Court | U.S. Board of Tax Appeals |
Reeves Aylmore, Esq., and Thomas U. Fowler, Esq., for the petitioner.
B. H. Neblett, Esq., for the respondent.
Respondent determined the following deficiencies and penalties in petitioner's income tax:
---------------------------------------------------
Year | Deficiency | 25% penalty
------------------------|------------|-------------
1918 __________________ | $348.57 | ____________
1919 __________________ | 123.08 | ____________
1920 __________________ | 786.44 | ____________
1921 __________________ | 98.79 | $24.70
1922 __________________ | 171.31 | 42.83
1923 __________________ | 281.54 | 70.39
---------------------------------------------------
The first issue is whether or not petitioner is liable for Federal income tax for the years 1918, 1919, and 1920. The second issue is whether petitioner is liable for Federal income tax for the years 1921, 1922, and 1923. The third issue is whether respondent erred in asserting a 25 percent penalty against petitioner with respect to each of the years 1921, 1922, and 1923 for failure to file returns in those years.
FINDINGS OF FACT.
Petitioner is a citizen of the United States and resides in Seattle, Washington. During all the taxable years petitioner was an unmarried individual.
During the Spanish-American War petitioner enlisted at Tacoma, Washington, with the regiment known as the "First Washington Regiment" and was sent to the Philippine Islands in 1898. Prior to his enlistment petitioner resided in Seattle, Washington. After cessation of the war, petitioner remained in Manila and went into business for himself. About 3½ months later petitioner was employed by M. A. Clark, a candy manufacturer, in the capacity of candy maker at a salary of approximately 300 pesos a month. Petitioner continued to work for that firm or its successors until 1924.
From the date of his discharge from the Army until 1924, petitioner remained a resident of the Philippine Islands. Petitioner became a half owner in a hotel there and derived profit in 1918 and 1920 from operation of the hotel. In 1920 the hotel was sold.
All of petitioner's income in the taxable years was derived from sources within the Philippine Islands. Petitioner filed returns with the Philippine Government for the years 1918 to 1923, inclusive. He filed no other income tax returns for those years. Petitioner's income during the years 1918 to 1923, inclusive, as disclosed by his returns made to the Philippine Government was as follows (in Philippine pesos):
----------------------------------------------------------------------------------------------------------------
| | Income | | | |
Year | Salary and | from | Dividends | Interest | Other | Total gross
| wages | business | | | income | income
-----------------------------------|------------|-----------|-----------|----------|---------------|------------
1918 _____________________________ | 4,800 | 5,640.25 | 1,620 | 347.00 | _____________ | 12,407.25
1919 _____________________________ | 5,800 | _________ | 1,800 | 1,317.19 | _____________ | 8,917.19
1920 _____________________________ | 4,800 | 7,800.00 | 2,160 | 1,201.28 | 115,000 | 30,961.28
1921 _____________________________ | 4,800 | _________ | 2,160 | 2,318.00 | _____________ | 9,278.00
1922 _____________________________ | 5,800 | _________ | 1,800 | 2,682.80 | _____________ | 10,282.80
1923 _____________________________ | 6,000 | _________ | 6,120 | 2,603.22 | _____________ | 14,723.22
----------------------------------------------------------------------------------------------------------------
1 Sale of hotel
Petitioner also received interest from Liberty bond investment in the sum of 92 pesos in each of the years 1922 and 1923, which sums are not included in the above schedule.
The interest items appearing in the above schedule include interest on unpaid salary of petitioner, which petitioner's employer had requested him to leave with the employer until a later date.
The notice of deficiency relating to each of the taxable years was sent to petitioner under date of March 22, 1940. The deficiencies were determined by respondent by converting the net income in Philippine pesos reported by petitioner in his returns to the Philippine Government into dollars at the rate of exchange prevailing in the taxable years. Under date of March 18, 1940, petitioner paid under protest the deficiencies determined for the taxable years 1918 to 1923, inclusive.
The first issue concerns the liability of petitioner for income taxes for the years 1918, 1919, and 1920. Petitioner contends that respondent is barred by limitation from asserting deficiencies as to the years 1918, 1919, and 1920, maintaining that the applicable statute of limitations is contained in section 250 (d) of the Revenue Act of 1918.1 That section provides that except in the case of a false or fraudulent return the tax must be determined and assessed within five years from the date the return was due or made. Therefore, petitioner claims, the statute began to run with respect to each of the years 1918, 1919, and 1920 on the date the respective returns were due to be filed. Respondent argues that the statute of limitations applicable is section 250 (d) of the Revenue Act of 1921.2
Petitioner's contention might have validity if the applicable statute were section 250 (d) of the Revenue Act of 1918. The applicable statute, however, is section 250 (d) of the Revenue Act of 1921, which provides that with respect to income taxes imposed under prior acts the tax should be determined and assessed within five years after the return was filed; provided that in the case of a false or fraudulent return with intent to evade tax or "failure to file a required return," the tax might be determined, assessed and collected and a suit or proceeding for collection begun at any time after it becomes due.
We have previously considered the question of the applicability of section 250 (d) of the Revenue Act of 1918 to taxes imposed by the Revenue Act of 1918 where no return was filed. Helmuth Heyl, 34 B. T. A. 223; Eli Kirk Price, Executor, 23 B. T. A. 1192. In the Heyl case we applied section 276 (a) of the Revenue Act of 1934 (which is similar to section 250 (d) of the Revenue Act of 1921) to hold that the statute never began to run. In the Price case we held that no statute of limitations became effective as to the year 1918 where the required return was not filed, applying section 277 (a) (3) of the Revenue Act of 1926 which provides "the amount of income * * * taxes imposed by * * * the Revenue Act of 1918 * * * shall be assessed within five years after the return was filed, and no proceeding in court without assessment for the collection of such taxes shall be begun after the expiration of such period." The 1921 Act is specifically applicable to income taxes imposed under prior acts. We see no constitutional objection to such application. Accordingly, we hold that the statute of limitations never began to run with respect to petitioner's Federal income tax for the years 1918, 1919, and 1920.
Petitioner next maintains that the Revenue Act of 1918 was not in force with respect to citizens of the United States residing in the Philippines in either of the years 1918, 1919, and 1920. He maintains that since section 1400 (b) of the Revenue Act of 19183 provided that the Revenue Act of 1916 as amended should remain in force for assessment and collection of income tax in the Philippine Islands, the Revenue Act of 1916 as amended and not the Revenue Act of 1918 controls as to the taxable years 1918, 1919, and 1920. He also relies on article 1131 of respondent's Regulations 45, which states: Respondent argues that petitioner is taxable under the Revenue Act of 1918, placing his reliance on the case of Lawrence v. Wardell, 273 Fed. 405.
In Lawrence v. Wardell, supra, the Circuit Court of Appeals for the Ninth Circuit held that a citizen of the United States residing in the Philippines in 1918 was subject to tax under the Revenue Act of 1918 despite the provisions of section 1400 of the Revenue Act of 1918. The court stated:
In the repealing clauses of the act of 1918, as quoted in the statement of the case, the act of 1916, as amended by the act of 1917, in force in the Philippines, was continued in force, except as might be otherwise provided by the local Legislature. As a general statute of the United States there was clear repeal, but as to the Philippines the act of 1916 was kept alive, as direct legislation by Congress with respect to the local affairs of the island, and not as a general statute of the United States.
A citizen of the United States residing in the Philippines becomes subject to the Income Tax Law under the act of 1918. By section 261, supra, of that act, the tax shall be levied, collected, and paid in accordance with the act of 1916, as amended, returns to be made and taxes to be paid under title I of the act by "every...
To continue reading
Request your trial