Welch Ins. Agency v. Brast

• Decision Date: 12 January 1932
• Docket Number: No. 3228.,3228.
• Citation: 55 F.2d 60
• Parties: WELCH INS. AGENCY v. BRAST, Collector of Internal Revenue.
• Court: U.S. Court of Appeals — Fourth Circuit

55 F.2d 60 (1932)

WELCH INS. AGENCY v. BRAST, Collector of Internal Revenue.

No. 3228.

Circuit Court of Appeals, Fourth Circuit.

January 12, 1932.

Ira J. Partlow, of Welch, W. Va. (Joseph M. Crockett, of Welch, W. Va., on the brief), for appellant.

Okey P. Keadle, Asst. U. S. Atty., of Huntington, W. Va., and Henry L. Young, Sp. Atty., Bureau of Internal Revenue, of Washington, D. C. (James Damron, U. S. Atty., of Huntington, W. Va., and C. M. Charest, Gen. Counsel, Bureau of Internal Revenue, of Washington, D. C., on the brief), for appellee.

Before PARKER, NORTHCOTT, and SOPER, Circuit Judges.

SOPER, Circuit Judge.

The Welch Insurance Agency, a corporation, brought suit against the collector of internal revenue for the district of West Virginia to recover certain income taxes paid by it under duress in the sum of $3,371.30, composed of $2,469.82, representing the principal of the government's claim, and interest in the amount of $901.49. The case grew out of an income tax return made by the company on March 15, 1922, showing a tax liability on its part for the year 1921 in the sum of $3,293.09, of which one-fourth, $823.27, was paid when the return was filed, leaving a balance of $2,469.82 still due. Subsequently the taxpayer came to the conclusion that this return was in error on the ground that it covered the income of a personal service corporation, not liable for the payment of any income tax; and so on June 14, 1922, it filed, on forms furnished by the Treasury Department, a claim for a refund of the fourth of the tax already paid, and a separate claim for the abatement of the balance. On September 9, 1922, the Commissioner of Internal Revenue signed and transmitted to the collector of internal revenue at Parkersburg, W. Va., an assessment certificate certifying that he had made inquiries, determinations, and assessments of taxes specified in an attached assessment list as due from the individuals named thereon, including an assessment against the Welch Insurance Agency for $3,293.09, with a credit thereon of the sum of $823.27. On September 26, 1922, the receipt of the claims of the taxpayer for refund and abatement were acknowledged by letter of the Commissioner, and the taxpayer was told therein that the data necessary for the proper consideration of the case was being assembled, and that the claims would be assigned for adjustment at the earliest practicable date.

The collector stayed the collection of the taxes until after October 1, 1927, when the claims were rejected. On November 1, 1927, the collector made demand on the agency for the payment of the balance of the taxes shown on its return. On November 30, 1927, a second notice of such demand was made, and finally on July 21, 1928, the collector appeared at the office of the corporation, exhibited a distress warrant, and demanded payment of the money, whereupon the corporation, in order to avoid the distraint and sale of its property, paid the sum of $3,371.30 as set out above. Subsequent requests for a reconsideration of the matter were denied by the Commissioner, and the pending suit was brought on September 26, 1929. The District Court found for the collector.

The government concedes that the suit was brought in ample time to test the propriety, not only of the payment of the sum of $3,371.30 on July 21, 1928, but also that of $823.27 on March 15, 1922. See section 284 (b) (1) and section 1113 of the Revenue Act of 1926, 44 Stat. 66, 116, 26 USCA §§ 1065 (b) (1), 156; But the taxpayer does not seek to recover the earlier payment in this suit, and makes no attempt to show on the merits that it was in fact a personal service corporation, exempt from income tax under the law, in the year 1921. It rests its entire case upon the narrow contention that the collector's action on July 21, 1928, in making the collection under duress, came too late and was barred by limitations. The particular ground upon which this claim rests is the following provision in section 250 (d) of the Revenue Act of 1921 (42 Stat. 264, 265): "The amount of income, excess-profits, or war-profits taxes due under any return made under this Act for the taxable year 1921 * * * shall be determined and assessed by the Commissioner within four years after the return was filed * * * and no suit or proceeding for the collection of any such taxes * * * shall be begun, after the expiration of five years after the date when such return was filed. * * *" It is said that the Commissioner's certificate of September 9, 1922, did not constitute an assessment of the tax, and that no assessment was made within four years after the return was filed on March 15, 1922; and hence the enforced payment was without basis in law.

If the communication sent by the Commissioner of Internal Revenue to the collector on September 9, 1922, was a lawful assessment, the collection of the tax on July 21, 1928, was not barred by limitations. Section 278 (d) of the Revenue Act of 1926, 44 Stat. 9, 59 (26 USCA § 1061 and note), provides as follows: "Where the assessment of any income, excess-profits, or war-profits tax imposed by this title or by prior Act of Congress has been made (whether before or after the enactment of this Act) within the statutory period of limitation properly applicable thereto, such tax may be collected by distraint or by a proceeding in court (begun before or after the enactment of this Act), but only if begun (1) within six years after the assessment of the tax, or (2) prior to the expiration of any period for collection agreed upon in writing by the Commissioner and the taxpayer."

Since the taxpayer's return was filed on March 15, 1922, the Commissioner had four years thereafter within which to make the assessment and five years to make collection of any tax found to be due, as appears in section 250 (d) of the Revenue Act of 1921, supra. These statutory...