Western Wholesale Drug Co. v. United States

• Decision Date: 29 November 1930
• Citation: 47 F.2d 770
• Court: U.S. District Court — Southern District of California
• Parties: WESTERN WHOLESALE DRUG CO. v. UNITED STATES.

47 F.2d 770 (1930)

WESTERN WHOLESALE DRUG CO. v. UNITED STATES.

District Court, S. D. California.

November 29, 1930.

Claude I. Parker, Ralph W. Smith, and George H. Koster, all of Los Angeles, Cal., for plaintiff.

Samuel W. McNabb, U. S. Atty., of Los Angeles, Cal., C. M. Charest, Gen. Counsel, Internal Revenue Bureau, and Alva C. Baird, Sp. Atty., Internal Revenue Bureau, both of Washington, D. C. (Ignatius F. Parker, Asst. U. S. Atty., of Los Angeles, Cal., of counsel), for the United States.

HAZEL, District Judge.

The agreed facts are that plaintiff on November 14, 1919, filed its income and profits tax return for the fiscal year closing August 31, 1919, and showing a tax liability of $149,184.17, and on November 15, 1920, filed a separate tax return for the year closing August 31, 1920, disclosing a liability of $245,197.66. On audit by the Commissioner of Internal Revenue, he decided that certain sales had been erroneously included in the return of 1919, and that the tax for that year amounted to $242,136.58, and, for the year 1920, amounted to $165,760.40, thus determining an additional or deficiency tax for the year 1919, of $92,952.41, and an overassessment of $79,437.26, for the year 1920. It is evidenced that plaintiff paid in cash the deficiency tax of 1919, amounting to $20,922.99, and accepted application of a credit for the balance amounting to $72,029.42, comprising the excess found to have been paid for the year 1920. The entire amount paid by plaintiff on account of the 1919 tax including the credit made by the Commissioner on September 30, 1925, was $242,136.58.

I am of opinion that such credit involved a final disposition of the assessment in question, and its application to pro tanto payment of the 1919 tax within the statutory period was undoubtedly permissible. Swift & Co. v. U. S., 7 Am. Fed. Tax Rep. 9085-9087. And see Solicitors Op. 107 Cu. Bul., June, 1921, page 336, and York Safe & Lock Co. v. U. S. (Ct. Cl.) 40 F.(2d) 148, decided April 7, 1930. Upon subsequent ascertainment by plaintiff that it had overpaid income taxes for 1919 in cash and credit, a claim for refund for $33,751.78 was filed on June 18, 1928, within the statutory limitation.

The Commissioner then in office, while agreeing that plaintiff's liability for the year 1919 was as claimed in the claim for refund, nevertheless asserted the right to adjust the overpayment of the income tax of 1920 by reversing a part of the credit previously applied against the 1919 tax to the extent of $28,826.76, and merely refunding the difference between $213,309.82 and the asserted corrected amount of $208,384.80, totaling $4,925.09, as representing the complete overpayment of tax for the year 1919. Such determination manifestly resulted in abating or decreasing the tax of 1919, which had previously been paid by plaintiff in money and credit to a collector now out of office, and leaving a corresponding debt of $28,826.76 due on the income tax of 1919.

The crux of the question is whether the Commissioner had the lawful right to make a reversal of the previous determination, and the conclusion I have reached is that he was without authority to do so.

The prior determination that an additional tax was due for 1919 was prima facie the proper determination, and since the statute provides a remedy by proper court proceeding to require a...