United States v. Mahoning Coal RR Co.

• Decision Date: 08 July 1931
• Docket Number: No. 5765-5768.,5765-5768.
• Parties: UNITED STATES v. MAHONING COAL R. R. CO. et al. (three cases). ROUTZAHN, Collector, etc., v. SAME.
• Court: U.S. Court of Appeals — Sixth Circuit

51 F.2d 208 (1931)

UNITED STATES v. MAHONING COAL R. R. CO. et al. (three cases).

ROUTZAHN, Collector, etc., v. SAME.

Nos. 5765-5768.

Circuit Court of Appeals, Sixth Circuit.

July 8, 1931.

Wright Matthews, of Washington, D. C. (W. J. Mahon and John B. Osmun, both of Cleveland, Ohio, and C. M. Charest, of Washington, D. C., on the brief), for appellants.

C. C. Handy and William Mann, both of New York City, for respondents.

Before DENISON, HICKS, and HICKENLOOPER, Circuit Judges.

DENISON, Circuit Judge.

These four cases involve the liability of the Mahoning Company for income taxes during the years 1917, 1918, 1919, and 1920, the most substantial question being whether the Mahoning Company and the New York Central Railroad, or its subsidiary, the Lake Shore, were affiliated corporations within the meaning of section 240 (b) of the Revenue Act of 1918 (40 Stat. 1082) and section 1331 of the Act of 1921 (26 USCA § 1067).

In case 5765, it appears that the Mahoning Company, having paid this tax for the calendar year 1918, thereafter and on March 7, 1924, filed its claim for refund. This claim was disallowed by the Commissioner, at a date which is in controversy. The suit to recover the claimed refund was brought February 7, 1927, more than five years after payment of the tax. The five-year statute of limitations allowed two years after a claim for refund was disallowed. (Section 1113 a of the Revenue Act of 1926 26 USCA § 156).

We think the statute had not run. The petition shows that on February 2, 1927, the local collector notified the plaintiffs "that said claim for refund had been disallowed on January 27, 1925." A demurrer presenting the defense of limitation was overruled, upon the expressed understanding by the district judge that notice to the taxpayer of the disallowance was necessary to start the two-year period running. We think the demurrer was properly overruled, although the reason stated has since been held to be insufficient. U. S. v. Michel, 282 U. S. 656, 51 S. Ct. 284, 75 L. Ed. 598. It is true that this action was not brought within five years after the payment, and hence the burden was upon the petitioner to allege that it was brought within two years after the disallowance of the claim for refund. The petitioner evidently intended to allege a denial, effective as of February 2, 1927. If it had alleged a disallowance on January 27, 1925, that would have been fatal; but that was not the allegation, it was only that the collector said that the claim had been disallowed on that date by the Commissioner. The fact as to the date of the disallowance was not expressly stated; and upon demurrer the petition was therefore good by virtue of its intent to allege disallowance as of February 2, 1927.

Thereupon answer was filed, which admitted "that on January 27, 1925, the Commissioner of Internal Revenue disallowed such claim for refund," and denied everything else. The petition not having made the allegation which the answer purported to admit, the formal reply therefore made an issue as to the date of the disallowance. Upon the proofs, the alleged letter of February 2, 1927, from the collector did not appear. The only proof as to the rejection is found in a letter of February 7, 1925, from the Commissioner, which makes reference to the claim for refund and the reasons which make it not proper to be allowed and concludes, "These claims will therefore be rejected. The rejection of these claims will officially appear on the next schedule to be approved by the Commissioner." It therefore sufficiently appears that the disallowance was not earlier than February 7, 1925, and so the suit was in time.

We think it unnecessary to recite all the facts as to the supposed affiliation. They are fully covered by the stipulation of facts. We think it clear that under our decision in the Painesville Case (United States v. Cleveland, P. & E. R. Co.), 42 F.(2d) 413, there is not that degree of ownership or control by one corporation of substantially all the stock of the other, or community of ownership by the same interest of substantially all the stock of both corporations, necessary to give the statutory affiliated character. Indeed, the decision of the district court that they were affiliated was based upon the previous decision of the same court in the Painesville Case to the same effect; and it is now conceded that our reversal of the Painesville Case necessitates also a reversal in these cases, excepting for the additional feature present here and not there. During all the period in question, the relations between the two companies were...