Southern Maryland Agricultural Fair Association v. Commissioner of Internal Revenue
| Decision Date | 12 September 1939 |
| Docket Number | Docket No. 94741. |
| Parties | SOUTHERN MARYLAND AGRICULTURAL FAIR ASSOCIATION, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. |
| Court | U.S. Board of Tax Appeals |
Vernon Cook, Esq., for the petitioner.
Charles H. Curl, Esq., for the respondent.
The Commissioner has determined deficiencies in the petitioner's income and profits taxes, and penalties for failure to file returns as follows:
--------------------------------------------------------------------------------------
| Income taxes | Excess profits tax
Calendar year |-------------------------|-------------------------
| Deficiency | Penalty | Deficiency | Penalty
----------------------------------|-------------|-----------|--------------|----------
1921 _____________________________| $794.48 | $198.62 | $1,736.21 | $434.05
1922 _____________________________| 1,895.39 | 473.85 |______________|__________
1923 _____________________________| 2,473.24 | 618.31 |______________|__________
1924 _____________________________| 1,602.57 | 400.64 |______________|__________
1925 _____________________________| 1,505.05 | 376.26 |______________|__________
1926 _____________________________| 2,014.43 | 503.61 |______________|__________
1927 _____________________________| 1,884.01 | 471.00 |______________|__________
1928 _____________________________| 2,141.11 | 535.28 |______________|__________
1929 _____________________________| 1,431.54 | 357.88 |______________|__________
1930 _____________________________| 1,878.87 | 469.72 |______________|__________
1931 _____________________________| 1,156.07 | 289.02 |______________|__________
1932 _____________________________| 861.88 | 215.47 |______________|__________
1933 _____________________________| 305.38 | 76.35 | 111.05 | 27.76
1934 _____________________________| 904.52 | 226.13 | 328.92 | 82.23
1935 _____________________________| 1,920.86 | 480.22 | 698.49 | 174.62
|_____________|___________|______________|__________
Total _____________________| 22,769.40 | 5,692.36 | 2,874.67 | 718.66
---------------------------------------------------------------------------------------
The petitioner by its pleadings contests the action of the Commissioner upon two grounds only. The first is that the statutes of limitation bar assessment and collection of all of the deficiencies except those for 1934 and 1935. The second is that the Commissioner may not reverse his ruling of January 18, 1924, in which he held that the petitioner was exempt from tax, because such a reversal would be arbitrary, inequitable, without warrant of law, and unconstitutional.
FINDINGS OF FACT.
The petitioner is a corporation, organized under the laws of Maryland in 1905. It has been engaged since that time in conducting an annual fair and race meet at Upper Marlboro, Maryland. It had income in each of the years 1921 to 1935, inclusive, and the Commissioner has correctly computed the amount of the tax for each year. It was not exempt from tax.
The petitioner filed returns for 1918 and 1919 showing tax due for 1918 but none for 1919, a year in which no fair or race meet was held. It has not filed returns for any of the years 1921 to 1935, inclusive.
The Commissioner ruled on January 18, 1924, that the petitioner was exempt from tax under section 231(1) of the Revenue Act of 1921 as an agricultural or horticultural organization. The petitioner believed that the ruling relieved it from the duty of filing returns and, for that reason, did not file any returns for the years 1923 to 1935, inclusive. The record does not show why the petitioner did not file returns for 1921 and 1922. The ruling was erroneous.
The Commissioner, on March 6, 1937, reversed his ruling of January 18, 1924, and held that the petitioner was not and never had been exempt as an agricultural or horticultural organization under section 101(1) of the Revenue Acts of 1934 and 1936, corresponding provisions of earlier acts, article 101(1)-1 of Regulations 86, or corresponding provisions of earlier regulations, since at all times the income of the petitioner had inured to the benefit of its stockholders. The petitioner was notified of the new ruling on April 23, 1937.
The petitioner filed a return for 1937 showing tax due.
The Commissioner, in the notice of deficiency, explained his retroactive application of the new ruling in part as follows:
* * * The officers of your corporation since 1921 have been making distributions to stockholders contrary to the basis on which the exemption was predicated, and must reasonably have known that the ruling of January 18, 1924 was not based upon a full knowledge of the facts.
The Commissioner has determined that the petitioner had certain income, is liable for certain deficiencies and penalties, and was not exempt from tax as an agricultural or horticultural organization,1 during the years 1921 to 1935, inclusive. The petitioner does not contest the correctness of the amount of income determined or the correctness of the computation of the tax and penalty for any year. It does not contend that it was in fact and in law exempt from tax as an agricultural organization or otherwise. Therefore, the Board must assume that the income, deficiencies, and penalties determined are correct in amount and that in fact and in law the petitioner was never an exempt corporation. The petitioner seeks to defend itself against the assessment and collection of the deficiencies and penalties on the grounds, first, that the statutes of limitation bar assessment and collection, and, second, that the Commissioner had no authority to change the ruling of his predecessor and hold in 1937 that the petitioner was not an exempt corporation.
The petitioner concedes in its brief that the period of limitation had not run as to 1934 and 1935 when the Commissioner made his determinations in the notice of deficiency. The returns for 1921 and 1922 were due before the Commissioner made his ruling of January 18, 1924, and the petitioner has failed to show any reason whatsoever for its failure to file timely returns for those years. It has not filed returns for any of the years and, therefore, the penalties must stand, if any of the deficiencies may be properly assessed. See section 3176 of the Revised Statutes, section 1103 of the Revenue Act of 1926; section 291 of the Revenue Acts of 1928, 1932, and 1934; National Contracting Co., 37 B. T. A. 689; affd., 105 Fed. (2d) 488; Scranton, Lackawanna Trust Co., Trustee, 29 B. T. A. 698; affd., 80 Fed. (2d) 519; certiorari denied, 297 U. S. 723; E. M. Green, 11 B. T. A. 185; John T. Sline, 9 B. T. A. 1222. Although the petitioner probably could have avoided the penalties by filing returns after the ruling of March 6, 1937, Searles Real Estate Trust, 25 B. T. A. 1115, it chose not to do so, thinking, perhaps, that the filing of returns might give the Commissioner additional time to assess and collect the taxes imposed upon it by the various revenue acts.
The Revenue Act of 1921 and subsequent acts have required "every corporation subject to taxation under this title" to file a return within a prescribed time. See section 239 of the Revenue Act of 1921. Although a corporation exempt from taxation under the statute is not required to file any return, the petitioner was not exempt and, therefore, was required by the statute to file a return. Section 250 (d) of the Revenue Act of 1921 provided that "taxes due under any return made under this Act for the taxable year 1921 or succeeding taxable years shall be determined and assessed by the Commissioner within four years after the return was filed" and provided further that there should be no time limit in the case "of a failure to file a required return." The provisions of later acts are, for present purposes, substantially similar. The statutory period of limitations upon determination, assessment, and collection of a deficiency is initiated under these provisions by the filing of a return. Keystone Automobile Club Casualty Co., 40 B. T. A. 291. The only exception, where the shareholders report the net income of the corporation, is not urged by the petitioner and the record contains no evidence to support that exception. The petitioner concedes that it is not within the letter of the statutes, since it filed no returns. The point which it attempts to make is that it was excused from filing returns by the ruling of the Commissioner that it was exempt and the statutes should be read as if they provided a period of limitation beginning when the return for the particular year was "filed or excused." It cites no case in point.
The petitioner relies upon the regulations of the Commissioner as authority for adding the words "or excused" to the statute. The regulations have provided, at all times material hereto, that a corporation claiming exemption shall first make certain proof to the Commissioner "to establish its exemption, and thus be relieved of the duty of filing returns of income and paying the tax" and "when an organization has established its right to exemption, it need not thereafter make a return of income or any further showing" so long as it does not change its character. See, for example, article 511, Regulations 45 and 62, and article 521, Regulations 74. The Commissioner issued some kind of a ruling on January 18, 1924, holding that the petitioner was exempt from tax, apparently as an agricultural organization. The argument of the petitioner is that it had "established its right to exemption" on January 18, 1924, and "it need not thereafter make a return of income," since it never changed its character thereafter.
This...
To continue reading
Request your trial