Schmidt v. CIR, 15712.

• Decision Date: 19 November 1959
• Docket Number: No. 15712.,15712.
• Citation: 272 F.2d 423
• Parties: Babetta SCHMIDT, Petitioner, v. COMMISSIONER OF INTERNAL REVENUE, Respondent.
• Court: U.S. Court of Appeals — Ninth Circuit

272 F.2d 423 (1959)

Babetta SCHMIDT, Petitioner, v. COMMISSIONER OF INTERNAL REVENUE, Respondent.

No. 15712.

United States Court of Appeals Ninth Circuit.

November 19, 1959.

Abraham Berry, San Francisco, Cal., for petitioner.

Charles K. Rice, Asst. Atty. Gen., John Pajak, Arthur I. Gould, Harry Baum, Lee A. Jackson, Attys., Dept. of Justice, Washington, D. C., for respondent.

Before CHAMBERS, POPE and HAMLIN, Circuit Judges.

POPE, Circuit Judge.

This case is before us upon petition to review a decision of the tax court rendered on redetermination of deficiency in income tax. Most of the facts which are important to our decision were stipulated. Petitioner, an elderly widow of foreign birth, whose income was derived from rents from real property which she owned, made it a practice to employ each year an accountant whom she entrusted to prepare her tax returns. This continued without incident through the year 1943. The accountant would leave the returns with the petitioner and she would file them. In the year 1944, this accountant prepared for the petitioner a declaration of estimated tax showing an estimated liability of $2473. She paid that sum in four equal installments within the time required by law. No declaration of estimated tax was filed for 1945. The accountant prepared declarations of estimated tax for the petitioner for the years 1946 and 1948 through 1951, which were filed on time; however, the returns, form 1040, for 1944 through 1949, and that for 1951, were not filed on time. The evidence showed that the accountant had been ill during this period and this accounted in part for petitioner's delinquency.

When the 1944 return on form 1040 was filed on June 30, 1952, it showed no liability for any tax. It showed that the $2473 paid on account of the estimated tax for 1944 was an overpayment and asked that this overpayment be credited on the 1945 estimated tax. The 1945 income tax, form 1040, filed at the same time, reflected the $2473 as a payment of a 1945 declaration of estimated tax. The return showed a total tax for 1945 of $3469.44; the liability for that amount was reduced by the $2473, leaving a balance of $996.44, which the petitioner then paid.

Upon receipt of the delinquent returns above stated, the Commissioner assessed the taxes due as disclosed by them, and added 25% penalties pursuant to § 291 (a) of the Internal Revenue Code of 1939, 26 U.S.C.A. § 291(a).

While the problems presented to us on this petition concern in the main the taxes on the returns for the years 1944 and 1945, it should be noted that petitioner also filed on June 30, 1952, her returns for the years 1946, 1947, 1948, 1949 and 1951, all of them then delinquent. Thus upon receipt of the returns for those years, similar penalties were added for the years 1947, 1948 and 1951. After audit of the delinquent returns, the Commissioner in June 1954, determined a deficiency in respect to the years 1944, 1945, 1946, 1947, 1948, 1949 and 1951, and sent the usual 90 day letter giving notice of such deficiency to the taxpayer. He added to the deficiencies for 1945 to 1948 inclusive a 25% penalty pursuant to the same statute. The 90 day letter disclosed an adjustment resulting in a deficiency for 1944 amounting to $95. The Commissioner applied $95 of the $2473 previously mentioned in payment of the deficiency for 1944. No part of the $2473 was allowed or credited upon the deficiency for 1945 as petitioner had requested in her returns for those years.

Before the Tax Court appellant petitioned for a redetermination of the deficiency plus penalties set forth in the Commissioner's notice of deficiency. In the petition, as amended, petitioner sought relief in three respects: first, she alleged that she had relied upon her accountant to see that the returns were filed; that she had not been informed that they had not been timely filed; that when she discovered they were not filed she immediately employed another accountant to take care of them, and that under the circumstances, the failure to file the form 1040 within time was not without just and reasonable cause; that hence no penalties were due and the penalties paid should be refunded. Second, she alleged an overpayment for the tax year 1951 amounting to $125.85, (the stipulation filed in the tax court discloses this overpayment); finally, she alleged the overpayment for 1944 taxes and sought a determination that she was entitled to a credit on her 1945 income tax to the extent of such overpayment.¹

The Tax Court found that petitioner's failure to file timely returns for the years in controversy was not due to reasonable cause and hence sustained the assessment and determination of the penalties added by the Commissioner. For reasons not disclosed in its findings or opinion, the Tax Court ignored the claim of overpayment for the year 1951.²

With respect to petitioner's claim of an overpayment for 1944, and that she was entitled to a credit of the balance of that overpayment, that is to say, $2378, on the 1945 income tax, the court declined to take any action or make any determination on the stated ground that no appeal had been taken from the determination for 1944, the year when the payment in question was made.³

Whether the delinquency in filing the tax returns was due to reasonable cause and not willful neglect presents a question of fact. This question has been decided against petitioner by the Tax Court before whom she testified in person. We are unable to say that the findings of that court in this respect are clearly erroneous, and its decision with respect to the penalties added we must uphold.

However, we find ourselves unable to go along with the refusal of the Tax Court to deal with appellant's 1944 overpayment and the claim for credit on the 1945 taxes. Assuming for the moment that the Tax Court was right in its statement that no appeal was taken with respect to 1944, (we deal with that later), yet the petition definitely did put in issue the 1945 tax. Since there was a deficiency assessment as to that year, there is no question but that a proper petition can vest the Tax Court with jurisdiction to deal with that year's tax. In the language of Peerless Woolen Mills v. Rose, 5 Cir., 28 F.2d 661, 663: "If there is a deficiency assessment, the jurisdiction of the Board extends to the whole controversy, to the end that it may determine or redetermine the correct amount of the tax."⁴

Granted that the petition as originally filed did not adequately specify the particulars of the petitioner's complaint, yet it was amended to make the cause of action stated more specific. Even in the most limited sense, the cause of action was the request for a redetermination of deficiency or liability for 1945. (But see footnote 6, infra.) Since this was the cause of action, the amendment was an appropriate one, and it related back to the date of the filing of the original petition. Ethel Weisser, 32 B.T.A. 755, 759; William H. Krome, ¶ 48,118, P.H. Memo T.C.; Factors' & Finance Co. v. United States, 56 F.2d 902, 907, 73 Ct.Cl. 707.⁵ The fact that circumstances occurring after the original petition was filed prompted the amendment does not change the operation of the rule. Junso Fujii v. Dulles, 9 Cir., 224 F.2d 906, 907.

We therefore consider the allegation of the petition that "the respondent failed and refused to credit against 1945 liability the overpayment of estimated tax for the year 1944 in the amount of $2,473.00." The claim for that credit was made in full conformity with the Regulations. (Hereafter we shall consider whether the claim was filed in time.) Income Tax Regulations, Supplement O, § 39.322-3 provides that such claims by the taxpayer "shall be made on Form 843, or on Form 1040 or 1040A." Subdivision (b) of the same section provides that "A properly executed return on Form 1040 shall, at the election of the taxpayer, constitute a claim for refund or credit within the meaning of § 322 for the amount of the overpayment disclosed by such return." The taxpayer may advise "whether such amount shall be refunded to the taxpayer or shall be applied as a credit against the taxpayer's estimated tax for the taxable year immediately succeeding the taxable year for which such return is filed."

Petitioner did just that. In her 1944 return, after showing (on line 9) the amount of the overpayment claimed, she marked a cross in the appropriate box below, indicating it should be "credited on her 1945 estimated tax." At the same time, in the 1945 return, she claimed credit for the same sum by inserting it in line 7B opposite the words "By payments on 1945 Declaration of Estimated Tax." The claim was properly made. Rittenbaum v. United States, D.C.N.D.Ga., 109 F.Supp. 480, 483. We perceive no reason therefore why the Tax Court did not have jurisdiction to pass upon and determine petitioner's right to this credit upon her 1945 taxes. Of course the claim for the full amount of $2473 could not be allowed in view of the fact that $95 of that sum was properly applied upon the 1944 deficiency. Not only did the court have jurisdiction but as we shall demonstrate shortly, it should have adjudged and determined that petitioner was entitled to the credit for a sum which it is conceded she had overpaid. (The amount of the overpayment in 1944 was stipulated, as was the fact that $95 thereof was applied to the 1944 deficiency. The balance, the appropriate amount of credit for 1945, is ascertained by simply subtracting $95 leaving a credit due of $2378.)

Any suggestion that because we are here dealing with taxes for 1945, the Tax Court cannot look into or investigate the 1944 tax, or that it could not consider the claim for credit because a portion of the claim was inserted on the 1944 return, is plainly unsound and untenable. § 272(g) of the 1939 Code plainly contemplates that the court shall consider facts occurring in other taxable years when necessary to determine a deficiency or...