United States v. Kales

• Decision Date: 08 December 1941
• Docket Number: No. 35,35
• Citation: 314 U.S. 186,86 L.Ed. 132,62 S.Ct. 214
• Parties: UNITED STATES v. KALES
• Court: U.S. Supreme Court

314 U.S. 186

62 S.Ct. 214

86 L.Ed. 132

UNITED STATES

v KALES.

No. 35.

Argued Nov. 14, 1941.

Decided Dec. 8, 1941.

Messrs. Francis Biddle, Atty. Gen., and Arnold Raum, of Washington, D.C., for petitioner.

[Argument of Counsel from page 187 intentionally omitted] Mr. Hal H. Smith, of Detroit, Mich., for respondent.

[Argument of Counsel from page 188 intentionally omitted] Mr. Chief Justice STONE delivered the opinion of the Court.

Two questions are presented for decision by the record in this case. First, was a letter written to the tax collector by respondent taxpayer and lodged with the Commissioner a claim for refund of overpaid taxes so as to stop the running of the statute of limitations against the claim? Second, did a judgment refunding taxes paid to the collector in 1925 upon profits from the sale of certain shares of stock in 1919 bar a later suit for a further recovery of 1919 taxes overpaid in 1920 to a different collector upon profits from the same transaction?

In 1919 respondent was the owner of 525 shares of the stock of the Ford Motor Company which she had acquired before March 1, 1913. In anticipation of the sale of the stock she requested and obtained in 1919 from the Commissioner of Internal Revenue a ruling that the March 1st, 1913 value of the stock was $9,489 per share. She then sold the stock for $12,500 a share and reported in her income tax return for 1919 the profit over the March 1, 1913 value thus established. In 1920 she paid the tax so computed, amounting to $1,216,086, to Collector Grogan, since deceased.

In March, 1925, the Commissioner made a jeopardy deficiency assessment against respondent for an increase of profit on the sale of the stock in 1919, on the ground that respondent had overstated the 1913 value of the stock in her 1919 tax return. Respondent paid the additional assessment, amounting to $2,627,309, to Collector Woodworth on March 24, 1925. At the same time she lodged with the collector and the Commissioner a written protest, dated March 23, 1925, against the jeopardy assessment on the ground, among others, that the Commissioner was without authority in law to reopen and set aside the 1913 valuation of the stock as determined in 1919 by the then Commissioner, on the basis of which respondent had sold her stock. By paragraph 9 of the protest respondent also advised the collector, the Commissioner and the Government, that while it was respondent's position that the deficiency assessment was illegal and void for this and other reasons stated, if the Internal Revenue Department, the Board of Tax Appeals or any court having jurisdiction should hold that the assessment of March 1, 1913 value of her stock, made in 1919, should be vacated, set aside, reopened or reversed, then respondent would insist that the valuation fixed by the Commissioner in 1919 was less than the fair market value as of March 1, 1913, that the 1919 tax which she had paid in 1920 was correspondingly excessive and that she should recover the tax to the extent of such excess when the fair value had been determined. She added in paragraph 10 that 'if for any reason a revaluation shall be had', she 'will insist' that the stock was greatly undervalued by the Department and 'will claim the right to a refund' of the excess tax collected.

After a claim duly filed for refund of the amount of the jeopardy assessment, paid in 1925, respondent brought suit in the district court against Collector Woodworth, which resulted in a judgment for the taxpayer for the full amount of the assessment with interest. The Circuit Court of Appeals for the Sixth Circuit affirmed the judgment, Woodworth v. Kales, 26 F.2d 178, which was satisfied in November, 1928.

September 24, 1928, respondent filed a formal claim for refund of the taxes paid in 1919, stated to be an amendment of the claim for refund contained in her letter of protest of March 23, 1925. By the amendment respondent sought an additional refund of income taxes, paid for the year 1919, in the amount of $195,710 with interest, upon the ground that the Ford stock, as the Board of Tax Appeals had then determined in James Couzens v. Commissioner of Internal Revenue, 11 B.T.A. 1040, had a March 1, 1913 value of $10,000 per share, and that she should accordingly have the benefit of this higher basis in computing her profit. At a hearing granted by the General Counsel for the Bureau of Internal Revenue on June 13, 1929, the amended claim was considered on the merits. Again in January, 1933, a mem- ber of his staff, at a conference with respondent's attorney, advised the latter that the informal claim was filed in time and was good as an informal claim.

By letter of June 4, 1935, however, the Commissioner declined to act upon it, on the single ground that because respondent's judgment for refund of the jeopardy assessment for 1919 taxes had been satisfied 'the Bureau is precluded from giving further consideration in any respect to the matter of your income tax liability for the taxable year 1919.' This was followed by the Deputy Commissioner's letter of August 20, 1935 to respondent, stating that 'the refund claim filed in 1925 was merged into the judgment * * * and you were, therefore, precluded from filing an amendment to the earlier claim which had been finally adjudicated.' The letter added 'The adjudication by the court removed this matter from the realm of administrative action other than to make refund as directed by the judgment.'

Collector Grogan having retired from office and having died, the present suit for refund of the overpayment of the tax claimed was brought in the district court against the United States under the provisions of § 1122(c) of the Revenue Act of 1926, 26 U.S.C.A. Int.Rev.Acts, page 331. This section authorizes suits in the district court for the refund of overpayment of revenue taxes even if in excess of $10,000 to be brought against the United States where the collector to whom the overpayment was made is dead or is not in office when the suit is brought. The judgment of the district court dismissing the suit on motion was reversed by the Circuit Court of Appeals, 6 Cir., 115 F.2d 497, which held that the letter of March 23, 1925, was a timely informal claim for refund which had been perfected by the formal amended claim filed in September, 1928, that consequently the respondent's cause of action was not barred by limitation and that recovery was not precluded by the previous judgment for recovery of the jeopardy assessment for 1919. We granted certiorari, 313 U.S. 553, 61 S.Ct. 940, 85 L.Ed. 1516, upon petition of the Government, which urged that any further recovery for overpayment of the 1919 tax was barred by the judgment in the respondent's suit and recovery of the jeopardy assessment for that year, a question of importance in the administration of the revenue laws. The Government urges as grounds for reversal that if respondent's letter of March 23, 1925 be considered a claim for refund any recovery is barred by the 1928 judgment, and that in any event the letter was not a claim for refund and does not support the present suit.

First: Concededly recovery of the 1919 tax, paid in 1920, is not barred by limitation if respondent's letter of March 23, 1925, be treated as a claim for refund. The Collector of Internal Revenue extended the respondent's time to make return of her 1919 income taxes for thirty days from March 15, 1920, and her letter was placed with the Commissioner within five years of the expiration of the extended time. Section 284(h) of the 1926 Revenue Act, 44 Stat. 9, 26 U.S.C.A. Int.Rev.Acts, page 223, provides that a claim for refund of 1919 taxes shall not be barred by a lapse of time if filed within five years from the date when the return was due. Revised Statutes, § 3226, 26 U.S.C. § 1672, 26 U.S.C.A. Int.Rev.Code, § 3772, makes the filing of a claim for refund in accordance with the law and Treasury regulations a condition precedent to suit to recover it. Article 1306 of Treasury Regulation 65, promulgated under the 1924 Revenue Act and applicable here, provides that claims for refund shall be made upon Form 843, setting forth all the facts relied on under oath. But Treasury Decision 4266, promulgated March 27, 1929, authorizes the Commissioner to make a refund after the expiration of the statutory period of limitation, even though no formal claim has been filed before that time, in any case in which an informal or defective claim, duly filed prior to the expiration of the period of limitation and stating specifically the grounds for the refund, is perfected by the filing of a claim prior to May 1, 1929.

This Court, applying the statute and regulations, has often held that a notice fairly advising the Commissioner of the nature of the taxpayer's claim, which the Commissioner could reject because too general or because it does not comply with formal requirements of the statute and regulations, will nevertheless be treated as a claim where formal defects and lack of specificity have been remedied by amendment filed after the lapse of the statutory period. United States v. Memphis Cotton Oil Co., 288 U.S. 62, 53 S.Ct. 278, 77 L.Ed. 619; United States v. Factors & Finance Co., 288 U.S. 89, 53 S.Ct. 287, 77 L.Ed. 633; Bemis Bros. Bag Co. v. United States, 289 U.S. 28, 53 S.Ct. 454, 77 L.Ed. 1011; Moore Ice Cream Co. v. Rose, 289 U.S. 373, 384, 53 S.Ct. 620, 624, 77 L.Ed. 1265. This is especially the case where such a claim has not misled the Commissioner and he has accepted and treated it as such. Bonwit Teller Co. v. United States, 283 U.S. 258, 51 S.Ct. 395, 75 L.Ed. 1018; United States v. Memphis Cotton Oil Co., supra, 288 U.S. at page 70, 53 S.Ct. at page 281, 77 L.Ed. 619.

In applying these guiding principles to the case in hand it is necessary to read the letter of March 23, 1925, in the light of the peculiar circumstances then well known to the Commissioner and referred to in the letter. The...