Second Carey Trust v. Comm'r of Internal Revenue

• Decision Date: 27 August 1943
• Docket Number: Docket No. 108355.
• Citation: 2 T.C. 629
• Parties: SECOND CAREY TRUST (AN EXPRESS TRUST), PETITIONER v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
• Court: U.S. Tax Court

2 T.C. 629

SECOND CAREY TRUST (AN EXPRESS TRUST), PETITIONER

v.COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Docket No. 108355.

Tax Court of the United States.

Promulgated August 27, 1943.

Upon advice of counsel that it was not an association taxable as a corporation, petitioner refused to file capital stock tax returns and in August 1937 a deputy collector filed delinquent returns under section 3176 of the Revised Statutes. Following judicial determination that it was taxable as a corporation, petitioner in December 1942, and after the institution of this proceeding, tendered for filing delinquent amended capital stock tax returns increasing capital stock values declared by respondent for 1936 and 1937, the effect of which was to eliminate the excess profits and liability determined by respondent in 1937. Held, petitioner is not entitled to amend the returns filed by the deputy collector or to substitute its own delinquent returns therefor. George E. H. Goodner, Esq., for the petitioner.

Wilford H. Payne, Esq., for the respondent.

This proceeding involves income and excess profits tax deficiencies for the years and in the amounts following:

+-------------------------------+
                ¦    ¦          ¦Excess profits ¦
                +----+----------+---------------¦
                ¦Year¦Income tax¦tax            ¦
                +----+----------+---------------¦
                ¦    ¦          ¦               ¦
                +----+----------+---------------¦
                ¦1937¦$9,904.15 ¦$1,535.59      ¦
                +----+----------+---------------¦
                ¦1938¦4,252.59  ¦               ¦
                +----+----------+---------------¦
                ¦1939¦4,993.28  ¦               ¦
                +-------------------------------+
                

All issues but one have been stipulated or waived. The stipulations, hereinafter set forth, will be taken into consideration in redetermining the deficiencies under Rule 50. The issue remaining for determination is whether respondent erred in using a capital stock value of $500,000 in computing petitioner's excess profits tax liability for 1937, petitioner having subsequently tendered for filing a delinquent capital stock tax return showing an adjusted declared capital stock value for 1937 of $783,032.12.

FINDINGS OF FACT.

The petitioner is an express trust created in or about 1934 under the laws of the State of Oklahoma, with its principal office at Tulsa, Oklahoma. Its returns for the periods here involved were filed with the collector of internal revenue at Oklahoma City, Oklahoma.

Petitioner originally filed fiduciary income tax returns for all years from its organization to and including the taxable year 1939. It filed no corporation income tax returns and no timely capital stock tax returns for those years. This procedure was followed upon the advice of counsel that it was not an association within the meaning of the revenue laws and was under no obligation to file corporate returns nor to pay a corporate tax.

In 1936 a revenue agent examined petitioner's books and records for 1934. Upon the basis of the agent's report the respondent determined that petitioner was an association taxable as a corporation and determined a deficiency in income tax for 1934. Petitioner appealed this determination, but respondent was affirmed, Second Carey Trust, 41 B.T.A. 800, decided April 9, 1940. On March 9, 1942, the Circuit Court of Appeals for the District of Columbia affirmed the Board in Second Carey Trust V. Helvering, 126 Fed.(2d) 526, and on October 12, 1942, certiorari was denied by the Supreme Court, 317 U.S. 642.

On August 18, 1937, a deputy collector, acting under authority of section 3176 of the Revised Statutes, prepared and filed delinquent capital stock tax returns for petitioner for the years 1934 to 1937, inclusive. Each of said returns set out a declared or adjusted declared value of $500,000.

Before preparing and filing said capital stock tax returns the deputy collector called upon petitioner and requested it to file the returns for said years. The trustees of the petitioner, upon the advice of counsel, refused to file capital stock tax returns because such returns might be construed as admissions that the trust was an association, a question which at that time was a matter of litigation between petitioner and respondent. Being unable to procure capital stock tax returns from petitioner, the deputy collector prepared and filed the returns above mentioned from audit reports of the petitioner and certain other records before him. All of petitioner's records were placed at his disposal and no information which he desired was denied him. In declaring the value of petitioner's capital stock, as reflected in each of said returns, the deputy collector used the value of $500,000, which is equal to the issue value of 5,000 units of beneficial interests. Said units were issued (and sold by dealers) for $100 per unit, or a total of $500,000, of which petitioner received only $400,000.

The 1937 capital stock tax return prepared and filed by the deputy collector reflected the same value as the 1936 capital stock tax return prepared and filed by him. Typed on said return is the following statement:

NO ADJUSTMENTS— TAXPAYER FILED INCOME TAX RETURNS AS A FIDUCIARY— ENTERING LITIGATION PROTESTING COMMISSIONER'S RULING AS TO BEING TAXABLE AS AN ASSOCIATION.

The deputy collector made no adjustment to the 1936 declared value in the 1937 return, principally because the information and data necessary for such adjustment are found in the corporate income tax returns, which returns had not been filed by the petitioners.

The capital stock taxes reflected in the returns filed by the deputy collector for the years 1934 to 1937, inclusive, were assessed against and paid by petitioner, together with penalties and interest. The amount of capital stock tax shown on the return for each of said years was $500.

After the United States Supreme Court denied certiorari in petitioner's 1934 income tax case (October 12, 1942), petitioner prepared capital stock tax returns for all years upon the basis that it was an association taxable as a corporation. These returns were delivered to the office of the collector of internal revenue. Petitioner's returns for 1936 and 1937 stated a declared value of capital stock of $800,000 for 1936 and an adjusted value for 1937 of $783,032.12. The 1937 return was marked ‘AMENDED‘ and was received by the collector on or about December 8, 1942, but was not prepared as a return. Petitioner tendered its check in the amount of $583 to the collector in payment of the additional tax shown by its 1936 and 1937 capital stock tax returns, i.e., $300 for 1936 and $283 for 1937. This remittance was placed in the collector's suspense account to be later refunded to petitioner.

The present proceeding involving an excess profits tax deficiency for 1937 was pending at the time petitioner prepared its capital stock tax returns for 1936 and 1937. The capital stock value declared by petitioner for 1936 is sufficient, after making the necessary adjustments for 1937, to eliminate the excess profits tax determined by respondent based on his determination of petitioner's 1937 net income. The information upon which petitioner's 1937 adjustments were based was prepared by petitioner within the last two or three years in connection with preparation for hearing in this proceeding. In determining the excess profits tax deficiency for 1937 respondent used an adjusted declared value of $500,000 for petitioner's capital stock.

It is stipulated that for 1937 p...