United States v. Henry Prentiss Co

• Decision Date: 09 January 1933
• Docket Number: No. 234,234
• Citation: 288 U.S. 73,77 L.Ed. 626,53 S.Ct. 283
• Parties: UNITED STATES v. HENRY PRENTISS & CO., Inc
• Court: U.S. Supreme Court

288 U.S. 73

53 S.Ct. 283

77 L.Ed. 626

UNITED STATES

v HENRY PRENTISS & CO., Inc.

No. 234.

Argued Dec. 8, 9, 1932.

Decided Jan. 9, 1933.

[Syllabus from pages 73-75 intentionally omitted] Messrs. William D. Mitchell, Atty. Gen., and Chas. B.Rugg, Asst. Atty. Gen., for the United States.

[Argument of Counsel from pages 75-77 intentionally omitted] Mr. Joseph F. Murray, of New York City, for respondent.

[Argument of Counsel from pages 77-79 intentionally omitted] Mr. Justice CARDOZO delivered the opinion of the Court.

Respondent (the plaintiff in the court below) brought suit against the United States in a District Court to recover overpayments of income and excess profits taxes for the years 1918 and 1920. The overpayments had come about, so it was claimed, from the undervaluation by the Commissioner of the respondent's invested capital, with a consequent exaggeration of the profits to be taxed. Two items or classes of property were the subject of the con- troversy. In each year there has been an omission to include the full value of the real estate; indeed the parties have stipulated that the value of the real estate was greater by the sum of $46,371.08 than the sum allowed in the assessment. In each year also there had been an omission to include the value of intangible property, and particularly good will. The District Court held that there could be no relief in respect of either item for the year 1918 because the claim for refund filed with the Commissioner did not comply with the statute and the Treasury Regulations. In respect of both items, real estate and intangibles, relief was granted to the taxpayer to the extent of overpayments for the year 1920. The result was a judgment in favor of the respondent for $7,975.21. 46 F.(2d) 159. Cross-appeals followed to the Court of Appeals for the Second Circuit. Upon the taxpayer's appeal, the decision was that the defective refund claim for 1918 and been made good by amendment, and that the tax for that year, as well as for 1920, had been overpaid as to the real estate. Upon the government's appeal, the decision was that the item of intangibles should have been excluded for both years. 57 F.(2d) 676. A writ of certiorari, designed to bring up the ruling as to the amendment of the claim for 1918, was granted by this court on the petition of the government. 287 U.S. 585, 53 S.Ct. 22, 77 L.Ed. —-. No petition for a writ was submitted by the taxpayer.

On June 16, 1919, respondent filed its income and excess profits tax return for the year 1918, showing a total tax of $535,144.20, which it paid. On December 28, 1920, it paid for the year 1918 an additional tax of $119,191.19, as the result of an additional assessment, receiving back, however, $9,559.19 on the completion of the audit. Within the time prescribed by law, there was filed with the Commissioner, on March 14, 1924, a claim for refund. In this claim, the respondent demanded the repayment of $200,000. It stated, in substance, as the ground for this demand that, owing to abnormal conditions affecting its invested capital and income, there could be no fair computation of the tax by the appraisal of the cash value of its property is accordance with section 326 of the Revenue Act of 1918 (chapter 18, 40 Stat. 1057, 1091, 1092, 1093), and that it should have the benefit of a special assessment under sections 327 and 328.

Section 327 of the act provides in subdivision (d) that the tax shall be determined in accordance with section 328 '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.'

Section 328 provides in effect that, in cases covered thereby, the tax shall be computed without reference to the value of the invested capital, and shall be determined by the ratio which the average tax of representative corporations engaged in a like or similar trade or business bears to their average net income.

The respondent's claim for refund, with the specification of the erroneous denial of a special assessment as the statement of its grievance, was filed, as we have seen, in March, 1924. On May 14 of that year, the respondent received from the Commissioner a letter acknowledging the filing and notifying the claimant of the procedure to be followed. 'No consideration,' it was there written, 'may be given under the provisions of sections 327 and 328 until statutory net income and invested capital are definitely determined. It is therefore necessary that you acquiesce in the net income and invested capital as shown in the revenue agent's report of March 25, 1920, for the year 1918, or submit exceptions, if any, which you may take thereto. If exceptions are taken they should be presented in the form of an appeal prepared in accordance with the provisions of Treasury Decision 3492, a copy of which is enclosed.'

The respondent does not assert that in response to this notice it took any appeal or filed any exceptions complaining of the assessment of capital or income. If any such document were in existence, it would have been equivalent to an amendment of the claim, and no doubt would be in evidence. What the respondent chose to do was obviously to acquiesce in the report that the cash value of the capital had been fairly ascertained, and to take its stand on the position that under sections 327 and 328 its tax should be determined without reference to such value and in accordance with other methods both exceptional and discretionary. Accordingly the Commissioner proceeded to a consideration of the claim that error had been committed in failing to give the taxpayer the benefit of a special method of assessment. On July 16, 1925, the respondent was advised by written notice that there was no evidence of abnormal conditions sufficient to call for a departure from the usual forms of computation. The notice, signed by an acting deputy commissioner, closes with these words: 'In accordance with the above conclusions, your claim will be rejected.' To this is added a statement that the collection for the taxpayer's district will be officially notified of the rejection at the expiration of thirty days.

Notwithstanding this notice, the Bureau of Internal Revenue kept the proceeding open. Writing to the respondent on February 23, 1926, the Solicitor of the Bureau stated that his office has before it for consideration the application for a special assessment of the taxes for 1918, and that 'before a final decision is reached' the taxpayer 'will be granted an opportunity to be heard orally.' If such a hearing is not desired, 'the decision in the matter will be based upon the record as it now stands.' In answer to that invitation the respondent requested an oral hearing, which it received, and also filed on April 8, 1926, a statement under oath, which, by concession, was equivalent in form to an amended proof of claim. In this statement the respondent put before the Commissioner the evidence both as to the undervaluation of the real estate and as to the exclusion of intangibles.¹ The Commissioner rejected the claim on September 3, 1926, by signing the rejection schedule.

We are holding in United States v. Memphis Oil Co., 288 U.S. 62, 53 S.Ct. 278, 77 L.Ed. 619, decided herewith, that a general claim for refund, though irregular in form under the Treasury Regulations, may be amended after the period of limitation by specifying the grounds, if the amendment is made before final rejection. A statement, without explanation, to the effect that overpayments have been made in an aggregate amount is broad enough to cover and and all grounds for reassessment and return. This at all events is true where the basis of the grievance is that the tax has been erroneously computed even by the normal method, that there has been a deviation, in other words, from the statutory rule. Such is not the claim in controversy here. Here the taxpayer by its claim as originally presented abandoned the position that there had been any error of fact or law in the assessment of the tax according to the normal method, and planted itself on the position that the special method would be fairer. We are to say whether the ground thus deserted may be recovered by amendment.

The act of the Commissioner of Internal Revenue in granting or refusing a special assessment under section 327(d) of the Act of 1918 is discretionary and administrative, not subject to be challenged in any court, at least in the absence of fraud or other irregularities. Williamsport Wire Rope Co. v. United States, 277 U.S. 551, 562, 48 S.Ct. 587, 72 L.Ed. 985. Discretionary and administrative also is the review of his determination by the Board of Tax Appeals. Williamsport Wire Rope Co. v. United States, supra. If this amendment is permissible, a request for the exercise of a discretionary jurisdiction, will have been turned after the running of the statute (Revenue Act of 1921, c. 136, § 252, 42 Stat. 227, 268; Revenue Act of 1924, c. 234, § 1011, 26 USCA § 149 and note; 43 Stat. 253, 342; Revenue Act of 1926, c. 27, §§ 284, 1113(a), 44 Stat. 9, 66, 116, 26 USCA § 1065 and note and § 156), into a claim of error of law or fact, and...