United States v. Helvering

• Decision Date: 08 March 1937
• Docket Number: No. 6561.,6561.
• Citation: 89 F.2d 848
• Parties: UNITED STATES ex rel. BOTANY WORSTED MILLS v. HELVERING, Com'r of Internal Revenue.
• Court: U.S. Court of Appeals — District of Columbia Circuit

89 F.2d 848 (1937)

UNITED STATES ex rel. BOTANY WORSTED MILLS v. HELVERING, Com'r of Internal Revenue.

No. 6561.

United States Court of Appeals for the District of Columbia.

Argued October 6, 7, 1936.

Decided March 8, 1937.

J. S. Y. Ivins and A. H. Conner, both of Washington, D. C., for petitioner.

Robert H. Jackson and Frank J. Wideman, Asst. Attys. Gen., and Sewall Key, Frank J. Ready, Jr., and Norman D. Keller, all of Washington, D. C., for Commissioner of Internal Revenue.

Before ROBB, VAN ORSDEL, GRONER, and STEPHENS, Associate Justices.

GRONER, J.

An appeal from a final judgment of the District Court. In March, 1933, petitioner applied in the court below for a mandamus to the Commissioner of Internal Revenue commanding him to act upon petitioner's claim for refund of its income and profits taxes for the year 1919 on the merits, and to decide whether petitioner is entitled to special relief under sections 327 and 328 of the Revenue Act of 1918 (40 Stat. 1057, 1093) and, if he should find that it is entitled to special relief, to certify to the proper authorities the overpayment ascertained to be due.

There was a prayer for other relief which we need not notice.

The District Judge in 1935 declined to issue the writ and dismissed the petition. The facts are these:

Petitioner is a New Jersey corporation. Its property was taken over by the Alien Property Custodian in 1918 and was managed by him until 1923. Tax returns for the years ended November 30, 1917, 1918, and 1919, were prepared and filed under the direction of the Custodian, "in collaboration with the Treasury Department," and the taxes were paid. Claims for refund for the three years were duly filed within the statutory period. The basis was that petitioner was entitled to a special assessment under the provisions of section 210 of the Revenue Act of 1917 (40 Stat. 300, 307) and sections 327 and 328 of the Revenue Act of 1918. Petitioner filed briefs with the Commissioner in support of the claims, attempting to demonstrate abnormalities of capital. In April, 1929, an official letter to the taxpayer announced that a special assessment was allowed as to 1918 taxes and a $650,000 overassessment determined;¹ but also announcing that after consideration and review the application for special assessment for 1919 was denied because an audit showed no gross disproportion between the tax paid and the tax computed by comparison with representative corporations. The letter announced that the denial would be officially reported to the proper collector unless within thirty days petitioner gave notice of a desire (a) for a hearing or (b) to file protest. Petitioner filed protest within the thirty days, challenging the Commissioner's audit and asking review of the denial, but a few days thereafter formal rejection of the 1919 claim was made. Notwithstanding this action, petitioner's protest was referred by Commissioner to the special advisory committee of the Bureau, and thereafter many conferences, covering a period of about two years, were had with the committee, with the Commissioner, and with the Under Secretary of the Treasury. In 1933 the special advisory committee reported to the Commissioner, recommending that the application to reopen be denied and the case be considered as closed — not on the merits, but only for the reason that the general counsel of the Bureau had advised that a refund would be erroneous under the provisions of section 608 of the Revenue Act of 1928 (26 U.S.C.A. § 1674 and note). The report was approved by the Commissioner, and on March 3, 1933, a letter to this effect was mailed to petitioner. The letter reads as follows:

"An examination of the facts discloses that the claim in question was disallowed after the enactment of the Revenue Act of 1928 (disallowed on schedule dated May 31, 1929) and the period of limitation for bringing suit as provided in section 1113 of the Revenue Act of 1926 expired on May 31, 1931 (two years after the disallowance of the claim), without suit having been filed by the taxpayer.

"Under such circumstances reopening of the claim is specifically prohibited by Paragraph II of T.D. 4234, which provides that:

"`A case in which the claim was disallowed on or after May 29, 1929, is governed by Section 608 of the Revenue Act of 1928, and no such case will be reopened if, under the provisions of such section, a refund would be considered erroneous.'

"Under Section 608 a refund `shall be considered erroneous * * * in the case of a claim filed within the proper time and disallowed by the Commissioner after the enactment of this Act if the refund was made after the expiration of the period of limitation for bringing suit — unless within such period suit was begun by the taxpayer * * *.'

"The request for consideration is accordingly denied and the case henceforth will be considered as finally closed."

The questions involved are:

First, whether the period of limitation specified in section 608 of the Revenue Act of 1928 applies at all;

Second, whether, even if it does apply, the claim for refund was reopened after rejection by reconsideration on the merits, and in that event whether such action tolled the statute;

Third, whether in that case, if it is held that the claim is still open and undecided, petitioner is entitled to a writ of mandamus to require Commissioner to take final action.

We shall discuss these propositions in the order in which we have placed them.

1st. Does section 608 apply in a case in which the courts have no jurisdiction of a suit for refund based upon the special assessment provisions of the 1918 act?²

These are the applicable statutes:

Revenue Act of 1918:

"Sec. 327. That in the following cases the tax shall be determined as provided in section 328:

"(a) Where the Commissioner is unable to determine the invested capital as provided in section 326;

"(b) * * *

"(c) Where a mixed aggregate of tangible property and intangible property has been paid in for stock or for stock and bonds and the Commissioner is unable satisfactorily to determine the respective values of the several classes of property at the time of payment, or to distinguish the classes of property paid in for stock and for bonds, respectively;

"(d) Where upon application by the corporation the Commissioner finds and so declares of record that the tax if determined without benefit of this section would, owing to abnormal conditions affecting the capital or income of the corporation, work upon the corporation an exceptional hardship evidenced by gross disproportion between the tax computed without benefit of this section and the tax computed by reference to the representative corporations specified in section 328. * * * "Sec. 328. (a) In the cases specified in section 327 the tax shall be the amount which bears the same ratio to the net income of the taxpayer * * * for the taxable year, as the average tax of representative corporations engaged in a like or similar trade or business, bears to their average net income * * * for such year."

Revenue Act of 1926 (44 Stat. 9, 116):

"Sec. 1113. (a) Section 3226 of the Revised Statutes, as amended, is re-enacted without change, as follows:

"`Sec. 3226. No suit or proceeding shall be maintained in any court for the recovery of any internal-revenue tax alleged to have been erroneously or illegally assessed or collected, or of any penalty claimed to have been collected without authority, or of any sum alleged to have been excessive or in any manner wrongfully collected until a claim for refund or credit has been duly filed with the Commissioner of Internal Revenue, according to the provisions of law in that regard, and the regulations of the Secretary of the Treasury established in pursuance thereof; but such suit or proceeding may be maintained, whether or not such tax, penalty, or sum has been paid under protest or duress. No such suit or proceeding shall be begun before the expiration of six months from the date of filing such claim unless the Commissioner renders a decision thereon within that time, nor after the expiration of five years from the date of the payment of such tax, penalty, or sum, unless such suit or proceeding is begun within two years after the disallowance of the part of such claim to which such suit or proceeding relates. The Commissioner shall within 90 days after any such disallowance notify the taxpayer thereof by mail.'"

Revenue Act of 1928:

Sec. 608. "A refund of any portion of an internal-revenue tax * * * made after the enactment of this Act (May 29, 1928), shall be considered erroneous —

"(a) * * *

"(b) in the case of a claim filed within the proper time and disallowed by the Commissioner after the enactment of this Act, if the refund was made after the expiration of the period of limitation for filing a suit, unless —

"(1) Within such period suit was begun by the taxpayer, or

"(2) Within such period, the taxpayer and the Commissioner agreed in writing to suspend the running of the statute of limitations for filing suit from the date of the agreement to the date of final decision in one or more named cases then pending before the Board of Tax Appeals or the courts."

The argument for the government, re the applicability of the last-quoted statute to a case of special assessment, is that the statute is broad in its terms and clearly expresses the legislative intent to protect the Treasury by a statute of repose against disbursements on account of stale or outlawed claims for tax overpayment. The Commissioner says that section 608 provides only two exceptions to the rule, (1st) unless within two years after rejection of the claim suit is begun by the taxpayer; or, (2nd) unless within that period the taxpayer and Commissioner in writing agree to suspend the period of limitations. On this basis the Commissioner insists that, since Congress has not excepted special assessment cases, a court may not. Hence, he argues that section...