Schulman v. Comm'r of Internal Revenue, Docket No. 41506.

• Decision Date: 29 December 1953
• Docket Number: Docket No. 41506.
• Citation: 21 T.C. 403
• Parties: MAX SCHULMAN, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
• Court: U.S. Tax Court

21 T.C. 403

MAX SCHULMAN, PETITIONER,

v.COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Docket No. 41506.

Tax Court of the United States.

Promulgated December 29, 1953.

Nathan Schwartz, Esq., for the petitioner.

Raymond B. Sullivan, Esq., for the respondent.

Upon the facts, held that section 3801 is not applicable to lift the bar of section 275(a), Internal Revenue Code. James Brennen, 20 T.C. 495, followed.

The Commissioner has determined a deficiency in income tax for the year 1945 in the amount of $2,514.99.

The determination of the deficiency by the respondent was made after the expiration of the 3-year statute of limitations provided by section 275(c), Internal Revenue Code.

The issue for decision is whether the adjustments made by the respondent are authorized by section 3801(b)(2), (3), or (5), Internal Revenue Code.

FINDINGS OF FACT.

All of the facts have been stipulated. The facts are as follows:

1. The petitioner is an individual residing in Los Angeles, California.

2. Petitioner filed his individual income tax return for the year 1944 on or before March 15, 1945, and paid the tax shown as due thereon.

3. On November 30, 1944, petitioner purchased $50,000 face value callable and convertible American Telephone and Telegraph bonds for a total consideration of $62,259.55. These bonds were callable upon 30 days' notice, at a reduced price. Petitioner in his return for the year 1944 claimed a deduction in the amount of $10,000, as allowable amortization of bond premiums. Interest on said bonds, received during the period they were owned by petitioner, was included in the gross income reported on income tax returns filed by him.

4. Subsequently, the Commissioner of Internal Revenue, based upon a revenue agent's report dated April 8, 1947, disallowed said deduction of amortizable bond premium for the year 1944, which disallowance resulted in an additional tax for the year 1944 in the amount of $5,940.60. Other items for the year 1944 adjusted in said report are not here in issue. Petitioner paid the additional tax assessed on or before June 24, 1947.

5. Petitioner filed his individual income tax return for the year herein involved, 1945, on or before March 15, 1946, and paid the tax shown as due thereon. Petitioner filed an amended individual income tax return for the year 1945 on or before April 15, 1946, and paid the additional tax as shown due thereon.

6. In his return for the year 1945, petitioner reported the long-term capital gain on a sale made on June 5, 1945, of the aforesaid American Telephone and Telegraph bonds in the amount of $12,285.97, pursuant to section 117 of the Internal Revenue Code and included one-half thereof, $6,142.98, in adjusted gross income pursuant to said section. The gain on said sale was computed as follows:

+---------------------------------------------------+
                ¦Selling price                           ¦$64,545.52¦
                +----------------------------------------+----------¦
                ¦Basis                                   ¦52,259.55 ¦
                +----------------------------------------+----------¦
                ¦Total gain                              ¦$12,285.97¦
                +----------------------------------------+----------¦
                ¦Amount included in adjusted gross income¦$6,142.98 ¦
                +---------------------------------------------------+
                

7. Subsequently, the Commissioner of Internal Revenue, based on a revenue agent's report dated April 8, 1947, adjusted petitioner's 1945 income tax return to reflect a decreased gain on the sale of American Telephone and Telegraph bonds by addition to petitioner's basis for gain the amount of $10,000, representing an amount equal to the $10,000 bond premium amortization which was disallowed concurrently for the year 1944. Petitioner's adjusted gross income was thereby decreased by $5,000, one-half of the $10,000, which resulted in a decrease in tax of $2,500. Other items adjusted in said report are not here in issue. The decrease in tax resulted in an overassessment and was applied on or before June 24, 1947, as a credit against petitioner's deficiency for the year 1944.

8. On August 15, 1948, petitioner filed with the collector of internal revenue for the sixth district of California, a timely claim for refund of taxes paid for the taxable year ended December 31, 1944, in the amount of $5,940.60. The basis of the claim for refund was the erroneous disallowance of bond premium amortization deduction in the amount of $10,000 claimed by the taxpayer in his return for the taxable year 1944 which was allowable pursuant to the Tax Court decision in Christian W. Korell, 10 T.C. 1001 (1948), affd. 339 U.S. 619 (1950).

9. Subsequent to the filing of the pleadings and before the time of trial in this proceeding, the Commissioner of Internal Revenue completed the delivery of a certificate of overassessment allowing said claim for refund. This action has reference to the scheduling of said certificate on or about April 19, 1951, and is the subject of paragraph IX of the answer and reply. The parties agree that for all purposes of this proceeding, the notice of deficiency was issued within 1 year after the date of allowance of said claim for refund.

10. By the notice of deficiency involved in this proceeding, dated April 16, 1952, the Commissioner of Internal Revenue determined a deficiency in the amount of $2,514.99 for the taxable year 1945. $2,500 of said deficiency resulted from a determination by the Commissioner that petitioner's long-term capital gain for the year 1945 should be increased by the amount of $10,000, 50 per cent of which, $5,000, the Commissioner added to petitioner's adjusted gross income for the year 1945. The increase in capital gain resulted from decreasing petitioner's basis for determining gain on the sale of the aforesaid American Telephone and Telegraph bonds by deducting from the cost the amount of $10,000 which represents amortizable bond premium allowed for 1944. See paragraphs 8 and 9 above. $14.99 of said assessment results from an error in computation of normal tax made in the prior revenue agent's report dated April 8, 1947.

11. More than 3 years passed from the date of the filing of petitioner's 1945 return on or before March 15, 1946, to the date of mailing of the notice of deficiency for 1945 in this proceeding, April 16, 1952, and, therefore, such assessment is barred by section 275, Internal Revenue Code.

12. More than 2 years has passed from the date on which the overassessment for the year 1945 was refunded or credited to petitioner's account, and, therefore, no suit to recover such refund may be brought pursuant to section 3746(b), Internal Revenue Code.

13. The assessment of the deficiency determined by the Commissioner on April 16, 1952, is barred by the statute of limitations and other provisions of the Internal Revenue Code unless the assessment constitutes an adjustment under the provisions of section 3801, Internal Revenue Code.

14. If it is found that section 3801 of the Internal Revenue Code applies, the deficiency would be $2,500. See paragraph 10.

OPINION.

HARRON, Judge:

The deficiency of $2,514.99 for 1945 results from an adjustment made by the respondent on April 12, 1952, the date of the mailing of the deficiency notice. The determination of a deficiency for 1945, on April 12, 1952, was barred by the statute of limitations unless section 3801 of the Code applied, as respondent contends. Petitioner takes the view that section 3801 does not apply. He relied upon James Brennen, 20 T.C. 495.

Briefly summarized, the facts are as follows: The petitioner...