United States v. Joe Graham Post No. 119, American Legion

• Decision Date: 12 March 1965
• Docket Number: No. 21431.,21431.
• Citation: 340 F.2d 474
• Parties: UNITED STATES of America, Appellant, v. JOE GRAHAM POST NO. 119, AMERICAN LEGION, Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

340 F.2d 474 (1965)

UNITED STATES of America, Appellant, v. JOE GRAHAM POST NO. 119, AMERICAN LEGION, Appellee.

No. 21431.

United States Court of Appeals Fifth Circuit.

January 25, 1965.

Rehearing Denied March 12, 1965.

John B. Jones, Jr., Louis F. Oberdorfer, Asst. Atty. Gen., Lee A. Jackson, Dept. of Justice, Washington, D. C., Robert E. Hauberg, U. S. Atty., Jackson, Miss., David O. Walter, Karl Schmeidler, Meyer Rothwacks, Dept. of Justice, Washington, D. C., (E. R. Holmes, Jr., Asst. U. S. Atty., of counsel), for appellant.

William E. Logan, Stanford E. Morse, Jr., Gulfport, Miss., for appellee.

Before TUTTLE, Chief Judge, and JONES and ANDERSON,^* Circuit Judges.

ANDERSON, Circuit Judge:

In 1946 the appellee taxpayer was advised, through a group ruling by the acting Deputy Commissioner of Internal Revenue, that it was granted an exemption from Federal Income Tax. On September 13, 1961, however, the Commissioner directly notified the taxpayer that its exempt status had been revoked because it had allegedly engaged in the movie theatre and cafeteria business with the general public. On March 15, 1962 the taxpayer filed an untimely corporate income tax return for the fiscal year ending June 30, 1961 and, at the same time, paid in full the tax, penalty and interest as reflected in the return in the total amount of $1290.48. On April 2, 1962 the taxpayer filed a timely claim for a refund of the amount paid. As no action was taken with respect to it by the Commissioner for more than six months, and as the taxpayer had fulfilled the conditions of § 7422(a) of the Internal Revenue Code of 1954, it brought the present action for refund on November 26, 1962 in the United States District Court.

Following the loss of the taxpayer's exempt status in 1961, the Commissioner on June 28, 1963 asserted deficiencies in the taxpayer's income tax for the calendar years 1944 through December 31, 1960 for the total amount of $118,265.66. The taxpayer on August 1, 1963 filed a petition with the Tax Court contesting the deficiency assessed for each of these years, including the calendar year January 1, 1960 through December 31, 1960; and specifically assigned as error on the part of the Commissioner the computation and determination of the "tax and penalties against petitioner on the calendar year basis." The Government then filed a motion in the refund action in the District Court to dismiss the complaint on the ground that the court had lost jurisdiction under the provisions of § 7422(e) of the 1954 Code.¹ The District Court denied the motion to dismiss and, on certification by the trial judge, the Government has brought this appeal.

The question before this court is whether or not a taxpayer who, under § 7422(e), exercises his option to contest in the Tax Court an alleged deficiency, assessed on the basis of the calendar year January 1, 1960 through December 31, 1960, loses his right to prosecute in the United States District Court an already pending tax refund claim for the fiscal year July 1, 1960 through June 30, 1961, which for a six months period overlaps the calendar tax year in issue before the Tax Court.

Central to the resolution of this issue is the matter of the correct accounting period. If the Government is correct and the calendar year basis is the proper one, then under the governing statute, § 7422(e), the taxpayer by his petition to the Tax Court has elected to have that tribunal pass upon all issues relating to the assessment of a deficiency for the calendar year 1960, and the District Court has lost its jurisdiction over the refund case, because the 1961 fiscal year is not the correct accounting period and, in effect, the taxpayer would have paid a tax only on the income for one-half of the calendar year 1960. As income tax liability is for an entire year of income transactions, Burnet v. Sanford & Brooks Co., 282 U.S. 359, 51 S. Ct. 150, 75 L.Ed. 383 (1931), the taxpayer cannot maintain a refund suit in the District Court when less than the tax for the entire income period has been paid. Flora v. United States, 362 U.S. 145, 80 S.Ct. 630, 4 L.Ed.2d 623 (1960).

If, on the other hand, the taxpayer is correct and it is properly on a fiscal year accounting basis, then the District Court retains jurisdiction of the refund case for the fiscal year July 1, 1960 through June 30, 1961.

We conclude that in this case the determination of the correct accounting period is a matter for decision by the Tax Court because the taxpayer elected to place the issue before that tribunal.

The provisions of § 7422(e) are designed to give the taxpayer an option, once he has received a ninety day deficiency notice from the Commissioner, to petition the Tax Court for a redetermination of the asserted deficiency or to refrain from filing such a petition and, having paid the alleged deficiency in full, proceed in the District Court on its suit for refund. He cannot do both because § 7422(e) says that if the taxpayer files a petition with the Tax Court, the District Court "shall lose jurisdiction of taxpayer's suit to...