Rushlight Automatic Sprinkler Co. v. United States

• Decision Date: 23 June 1961
• Docket Number: No. 16834.,16834.
• Citation: 294 F.2d 572
• Parties: RUSHLIGHT AUTOMATIC SPRINKLER CO., Appellant, v. UNITED STATES of America, Appellee. UNITED STATES of America, Appellant, v. RUSHLIGHT AUTOMATIC SPRINKLER CO., Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

294 F.2d 572 (1961)

RUSHLIGHT AUTOMATIC SPRINKLER CO., Appellant, v. UNITED STATES of America, Appellee.

UNITED STATES of America, Appellant, v. RUSHLIGHT AUTOMATIC SPRINKLER CO., Appellee.

No. 16834.

United States Court of Appeals Ninth Circuit.

June 23, 1961.

Denton G. Burdick, Jr., Hutchinson, Schwab & Burdick, Portland, Or., for appellant.

Charles K. Rice, Asst. Atty. Gen., Meyer Rothwacks, A. F. Prescott, Helen A. Buckley and Arthur Gould, Attys., Dept. of Justice, Washington, D. C., for appellee.

Before STEPHENS and HAMLEY, Circuit Judges, and BOWEN, District Judge.

BOWEN, District Judge.

The 1953 fiscal year's income of a joint venture, of which Rushlight Automatic Sprinkler Co. (the defendant below, being both appellant and appellee here, and hereinafter referred to as Rushlight) was a member, was pursuant to § 3806(b) of the Internal Revenue Code of 1939, 26 U.S.C.A. § 3806(b), renegotiated for excessive profits by the Los Angeles Regional Renegotiation Board. In September 1956 the Board determined that the joint venture had received excessive profits of which Rushlight's individual share was $22,250. Thereupon the District Director of Internal Revenue advised the Board that Rushlight was entitled to a tax credit in the sum of $8,560.71 under the provisions of said § 3806(b). Accordingly, in November 1956 Rushlight paid to the United States, and it with that credit accepted, the sum of $13,690.29 (the record balance of said $22,250 less said $8,560.71 credit is actually $13,689.29, but the discrepancy is de minimis) as full payment and satisfaction of Rushlight's $22,250 liability respecting such excessive profits.

That $8,560.71 tax credit was mistakenly allowed because at the time of its allowance the United States erroneously thought that Rushlight had an adjusted income tax liability for the fiscal year 1953 of $12,024.90, but in fact, Rushlight had no tax liability whatever for that tax period because the District Director in July 1956 allowed to Rushlight a net operating business loss of $12,024.90 occurring in 1955 as a carry-back to the fiscal year 1953 with the result that at that time that sum was refunded to Rushlight.

Thereafter in September 1956 when the tax credit was computed in connection with the renegotiation proceedings, the fact that the full amount of the tax paid by Rushlight for the year 1953 had already been refunded to it was entirely overlooked. So, Rushlight was not entitled to any tax credit or refund for the year 1953 under the renegotiation agreement because as explained in the next preceding paragraph Rushlight did not in fact finally pay a tax for that year.

This action followed in the District Court. It had and this Court has jurisdiction. 28 U.S.C. §§ 1345, 1291. By the action the United States seeks to recover, under § 3746(b) of the 1939 Internal Revenue Code, 26 U.S.C.A. § 3746(b), providing specifically for the recovery of erroneously allowed refunds, against Rushlight for that sum of $8,560.71 mistakenly credited against Rushlight's tax liability for the year 1953, and for interest on that sum from the time it was so credited, as if that tax credit had been a refund payment of money. The District Court upheld that theory and granted judgment to the United States for that sum, but allowed interest thereon only from the date of the judgment. Both parties now appeal to this Court, the defendant as to all the relief granted plaintiff, and the plaintiff respecting only the period during which interest should run.

Rushlight below denied and on this appeal denies all liability contending that this proceeding in reality is one requiring as a condition precedent to the right of recovery that a deficiency assessment and notice proceeding be first had under the provision of § 272 of the Code, 26 U.S.C.A. § 272, in order to entitle the United States to any recovery. The latter denies that contention, but admits that if such deficiency and notice procedure was or is required none such occurred, and that such procedure is now time barred, and asserts that as specifically provided in said § 3746(b) it is entitled to maintain this action for recovery of the $8,560.71 erroneous refund plus interest as claimed, without previous deficiency notice.

The pertinent words of said § 3746 (b) itself do specifically and plainly provide:

"Any portion of an internal revenue tax (or any interest, penalty, additional amount, or addition to such tax) which has been erroneously refunded (if such refund would not be considered as erroneous under section 3774) may be recovered

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