Sellmayer Packing Co. v. Commissioner of Int. Rev.

• Decision Date: 21 December 1944
• Docket Number: No. 5306,5307.,5306
• Citation: 146 F.2d 707
• Parties: SELLMAYER PACKING CO. v. COMMISSIONER OF INTERNAL REVENUE.
• Court: U.S. Court of Appeals — Fourth Circuit

146 F.2d 707 (1944)

SELLMAYER PACKING CO. v. COMMISSIONER OF INTERNAL REVENUE.

Nos. 5306, 5307.

Circuit Court of Appeals, Fourth Circuit.

December 21, 1944.

COPYRIGHT MATERIAL OMITTED

Stanley Worth, of Washington, D. C. (J. Gilmer Korner, Jr., Richard S. Doyle, and Blair & Korner, all of Washington, D. C., on the brief), for petitioner.

Melva M. Graney, Sp. Asst. to Atty. Gen., in No. 5306, and Helen Goodner, Sp. Asst. to Atty. Gen., in No. 5307 (Samuel O. Clark, Jr., Asst. Atty. Gen., and Sewall Key, Robert N. Anderson, and F. E. Youngman, Sp. Assts. to Atty. Gen., on briefs), for respondent.

Before PARKER and SOPER, Circuit Judges.

SOPER, Circuit Judge.

No. 5307.

The Sellmayer Packing Company, the taxpayer in this case, filed a claim on June 30, 1937 for the refund of processing tax on hogs in the sum of $57,657.44 paid for the period from February, 1934 to February, 1935; and on September 15, 1939 filed an amended claim in the sum of $17,349.01. The Commissioner disallowed the claim on June 30, 1942. A petition to review this decision was filed by the taxpayer with the United States Processing Tax Board of Review on September 10, 1942. The petition contained allegations which described the nature of the taxpayer's operations and asserted that a fair comparison of the period before and after the tax with the tax period established the presumption that the taxpayer bore the burden of the tax to the extent of the refund claimed, and did not shift any portion of the tax to others. The answer of the Commissioner, filed December 28, 1942, denied the material allegations of the claim. The case was transferred to the Tax Court of the United States under the provisions of § 510 of the Revenue Act of 1942, Ch. 619, 56 Stat. 798, 26 U.S.C.A. Int.Rev.Acts. Testimony was taken for fifteen days and the Tax Court determined that no refund was due for reasons set out in a memorandum opinion filed November 30, 1943.

The case is governed by the provisions of §§ 902 and 907 of the Revenue Act of 1936, Ch. 690, 49 Stat. 1648, 7 U.S.C.A. §§ 644, 649 which specify the conditions for allowance of refunds of processing tax, declared unconstitutional in United States v. Butler, 297 U.S. 1, 56 S.Ct. 312, 80 L.Ed. 477, 102 A.L.R. 914. The taxpayer must establish to the satisfaction of the court that it bore the burden of the tax and did not shift the burden in any manner. It is prima facie evidence that the burden was borne by the taxpayer to the extent that the average margin per unit of the processed commodity was lower during the tax period than the average margin during the twenty-four months before the effective date of the tax in November, 1933, and the six months' period from February to July, 1936, after the tax was invalidated. The starting point for computing the average margins in these periods is the ascertainment of the gross sales value of the processed articles and this value is the amount derived by multiplying the quantity of the processed goods by the taxpayer's current sales price.

The taxpayer's original records of its current prices were the sales slips or invoices upon which the sales were recorded. These records were used in the preparation of the claim for refund by Herbert E. White, a certified public accountant employed by the taxpayer; but they were not produced at the trial of the case. Instead the taxpayer sought to prove its sale prices by the testimony of the accountant and by exhibits prepared by him in 1939 from the original records. The taxpayer endeavored to account for the absence of the sales slips by the testimony of certain officers and employees which tended to show that the sales slips had been accidentally destroyed in 1941 in the course of building operations at the taxpayer's plant when certain papers believed to be unimportant were burned. The Tax Court ruled that the accountant's testimony was inadmissible because the absence of the original sales slips was not sufficiently accounted for and the petition for review was therefore dismissed because the taxpayer was unable to prove an essential element of its case.

This ruling presents the crucial question in the case. It is admitted that the sales slips were the original records of the transactions in issue and that under the well established rule of evidence, the accountant's secondary testimony was not admissible unless the court was satisfied that the original records had been lost and could not be found after diligent search or had been destroyed without fault or fraudulent design on the taxpayer's part. See Renner v. Bank of Columbia, 9 Wheat. 581, 596, 597, 6 L.Ed. 166; Riggs v. Tayloe, 9 Wheat. 483, 6 L.Ed. 140; Berthold-Jennings Lumber Co. v. St. Louis, I. M. and S. R. Co., 8 Cir., 80 F.2d 32, 42, 102 A.L.R. 688, certiorari denied 297 U.S. 715, 56 S.Ct. 591, 80 L.Ed. 1001; Consolidated Coke Co. v. Commissioner of Internal Revenue, 3 Cir., 70 F.2d 446; Guilford Granite Co. v. Harrison Granite Co., 23 App.D.C. 1; In re Willfuehr et al., S.D.N.Y., 292 F. 387.

It is conceded also that the evidence on the point presents an issue of fact and that the finding of the Tax Court thereon is binding on this court if supported by substantial evidence; but, it is contended that there is no substantial evidence to support the court's finding adverse to the taxpayer. Our examination of the evidence now to be summarized leads us to the conclusion that the taxpayer's contention should not be sustained. The sales slips were examined not only by the taxpayer's accountant, before the amended claim for refund was filed in September, 1939, but also in December, 1939, and January, 1940, by two United States Revenue Agents, Harrison and Swett, and again in December, 1940, by two other revenue agents, Plummer and McFerrin; but after that, according to the testimony of officers of the corporation, there was no occasion to refer to the sales slips until the end of 1942. The operation of the plant had been stopped in 1937. The sales slips were then kept in the record room of the plant where they remained during the several examinations of the accountants for the taxpayer and the government. But, in 1941, it was decided to eliminate the record room in the course of extensive alterations of the building and it became necessary to move the records and it was then, according to the taxpayer's testimony, that they were accidentally destroyed. This testimony tended to show that the records were moved by a foreman and two laborers who were instructed by the officers of the taxpayer to place the important records, including the sales slips, in the cold storage room but the officers did not make any check to see that their instructions were obeyed. In 1942 they searched for the records in the ice box and elsewhere in the plant and could not find them. Seach was also made by a deputy United States marshal and a deputy clerk of the Criminal Court of Baltimore in February, 1943 but the records could not be found in the plant. The foreman and the laborers instructed to move the records disagreed in their testimony. The laborers testified that five truck loads of papers were burned and the rest placed in the ice box and that amongst the papers burned were some invoices; but they admitted that they did not know what an invoice was. The foreman, on the other hand, testified that all the papers in the record room were transferred to the cold storage room with the exception of certain newspapers and magazines which were burned, and that the sales slips were still in the ice box in October, 1942.

In various respects that need not be described in detail, the testimony of the principal officers for the taxpayer was inconsistent within itself and with the testimony of other witnesses, and the Tax Court said that it was unable to credit the testimony of the officers. It is conceded that there is substantial evidence to support this conclusion and that it is binding upon this court. Having rejected this testimony for sufficient reasons, the Tax Court found it impossible to conclude from the rest of the testimony that the records were not in existence when the secondary evidence was offered in court. The taxpayer points out that the testimony of the foreman was untruthful in some respects and contends that the Board should have accepted the testimony of the laborers as to the destruction of the sales slips by fire. But, it is obvious that here again the point for decision is the credibility of the witnesses of which the Tax Court is the final judge; and, in addition, that the testimony of the laborers was not so definite as to show with certainty the nature of the papers which were burned. We think that the record furnishes substantial support for the conclusion of the Tax Court that the taxpayer had not borne the burden of showing that the sales slips had ceased to exist. Under the rule, the party who offers secondary evidence of the contents of a document alleged to be lost must go further than to show that it is doubtful whether or not the document exists; he must demonstrate to the satisfaction of the court that although it once existed, it cannot be found despite a diligent and unsuccessful search and that there is no reasonable probability that it has been designedly withheld or suppressed.

The Tax Court also considered the latter alternative and held that if the sales slips were not in existence at the time of the hearing, the only logical conclusion was that they had been deliberately destroyed to prevent their production at the hearing. In our view, this conclusion also finds substantial support in the record before us. In the first place there was the evidence of the foreman who said that the sales slips had been stored in the ice box in 1941 and were still there in October, 1942, whereas the officers of the corporation, whom the court was unable to believe, said that in September, 1942 the sales slips were not in the ice box and could not be found. In the...