Zellerbach Paper Co. v. Helvering
| Decision Date | 28 February 1934 |
| Docket Number | No. 7209-7211.,7209-7211. |
| Citation | 69 F.2d 852 |
| Parties | ZELLERBACH PAPER CO. v. HELVERING, Commissioner of Internal Revenue (two cases). NATIONAL PAPER PRODUCTS CO. v. SAME. |
| Court | U.S. Court of Appeals — Ninth Circuit |
John Francis Neylan and J. Paul Miller, both of San Francisco, Cal., for petitioners.
Sewall Key and Francis H. Horan, Sp. Assts. Atty. Gen., for respondent.
Before WILBUR, SAWTELLE, and GARRECHT, Circuit Judges.
Petitioners seek a review of the decision of the Board of Tax Appeals sustaining deficiency tax assessed upon the incomes of the petitioners for their taxable year ending April 30, 1921. A consolidated return was filed by the Zellerbach Paper Company and its affiliated corporations, the National Paper Company, and the A. S. Hopkins Company, on July 16, 1921, while the Revenue Act of 1918 (40 Stat. 1057) was in force and before the enactment of the Revenue Act of 1921 (42 Stat. 227), which was made retroactively effective to January 1, 1921. Tax was fixed against each of the corporations on the consolidated return. This consolidated return showed a gross income of $5,826,652.14, credits and deductions claimed of $5,067,846.02, net income of $758,546.17. The original return is before us and we summarize its contents in the language of the petitioners' brief:
The Commissioner's audit of the return attached to the deficiency letter covers 29 pages of the transcript and shows net income for the Zellerbach Paper Company of $774,423.89, an increase of net income of $242,185.60, and an increase of tax of $64,024.37; a net income of $355,297.11, an increase of tax of $31,141.52, for the National Paper Products Company, and a net income of $10,700.61 and an increase of $1,688.70 for the A. S. Hopkins Company.
The petitioners allege that no changes in their return were made necessary by the Revenue Act of 1921 (42 Stat. 227) other than the change in the $2,000 exemption. This allegation was denied and the Board of Tax Appeals made no finding thereon, but did find that the return filed showed an exemption of $2,000 to which the petitioners were not entitled under the Revenue Act of 1921 for the four months of the taxable year in the calendar year 1921.
The sole question presented is whether or not the deficiency notice of May 11, 1928, was too late.
The Revenue Act of 1926 (44 Stat. 9) in force at the time the notice of deficiency was mailed provided that an income tax imposed by the Revenue Act of 1921, or any prior act, must be assessed within four years after "the return" was filed. The only return made by the taxpayer for its taxable year ending April 30, 1921, was that filed July 16, 1921.
The question submitted to us has been decided against the contention of the Commissioner by two Circuit Courts of Appeals Myles Salt Co. v. Commissioner (C. C. A. 5) 49 F.(2d) 232; Valentine-Clark Co. v. Commissioner (C. C. A. 8) 52 F.(2d) 346, and by the Court of Appeals of the District of Columbia, Isaac Goldmann v. Burnet, Commissioner, 60 App. D. C. 265, 51 F.(2d) 427. Nevertheless the Commissioner declines to accept these decisions and the Board of Tax Appeals has again sustained the position of the Commissioner. The Attorney General asks us to sustain the Commissioner and the Board of Tax Appeals frankly looking to a conflict of decision which will enable him to invoke the jurisdiction of the Supreme Court to settle the conflict in favor of the Commissioner. The question thus presented is one that must be determined by us according to our own judgment with due consideration of the weight that should be attached to prior decisions of courts of co-ordinate jurisdiction.
We will first develop the case as we see it and then comment somewhat briefly upon the cases cited above in which the express question has been decided.
What is a return?
Notwithstanding the importance of the question in the administration of the income tax provisions of the Revenue Acts the meaning of the word "return" has never been legislatively defined, and hence the courts have been required to define the term as applied to specific cases presented to them. It is clear from the provisions of the Revenue Acts that the return required from the taxpayer must show his gross income, the deductions and credits, and his net income, within the meaning of those terms as defined in the act itself (Revenue Act 1921, § 239 (a), 42 Stat. 259; see Florsheim Bros. Drygoods Co. v. U. S., 280 U. S. 453, 50 S. Ct. 215, 217, 74 L. Ed. 542). All these terms are flexible and have been changed by almost every Revenue Act. It should be observed that "gross income" is quite distinct from "gross receipts" and that deductions therefrom permissible by law in estimating the net income are quite distinct from the taxpayer's expenditures, or outgo. The Revenue Acts expressly require the return to show the deductions from the gross income allowed by the law (section 239 (a), Revenue Act 1921) to determine the taxable net income. The petitioners in the case at bar do not contend that their return shows either the "deductions" allowed by the Revenue Act of 1921 or the "net income" as fixed by that act, but they do claim that the return they made July 16, 1921, did show the gross revenue, the deductions therefrom, and the net revenue, under the Revenue Act of 1918 (40 Stat. 1057) in force at the time the return was made, and that their failure to show the net income in accordance with the subsequently enacted Revenue Act of 1921 was not their fault because it was impossible to know what the Revenue Act of 1921 would require. This must, of course, be conceded, but the question remains, Did Congress, in requiring a return for the purpose of levying a tax under the Revenue Act of 1921 showing the deductions therein allowed, intend to adopt as sufficient a return theretofore filed which did not show the deductions as therein authorized and provided and did not purport to do so? Was such a return under the Revenue Act of 1918 a return "under this Act" within the meaning of the Revenue Act of 1921 which set the statute of limitations running against the Commissioner? And was it "the return under the Revenue law of 1921" within the meaning of the limitation provisions of section 277 (a) (2), of the Revenue Act of 1924 (26 USCA § 1057 note), or within the meaning of section 277 (a) (2) of the Revenue Act of 1926 (26 USCA § 1057) which was in force at the time the deficiency assessments were levied and which are here involved? To thus state the question is to answer it, and the obvious answer is no. But there is a complication due to the fact that the income tax provisions of the Revenue Act of 1921 passed November 23, 1921, are made retroactive to January 1, 1921, and the petitioners' return was filed after that date. We believe, however, that this is a false quantity in the matter for if by relation of the Act of 1921 to a date prior to the filing, the petitioners' return can be said to be a return "under the Act" the fact that it did not comply with the act (not yet passed) and did not conform to its requirements (not yet known) show that it could not be a return "under the Act" within the meaning of the new Revenue Act requiring other and different statements than were contained in the return on file. It might be said that by the retroactive provisions of the Act of 1921 the return filed by the taxpayer before the act was passed was a return, after it was passed, but not that it was a return "under the Act," because it did not conform to or comply with the act.
The Commissioner rendered a decision March 6, 1922 (T. D. 3305), requiring the taxpayers who had filed a return for the taxable year 1921 (that is, any fiscal year ending in the calendar year 1921) to file a "new return" where under the Revenue Act of 1921 an additional tax was required. This was in accord with his practice under prior revenue acts, particularly when the Revenue Act of 1917 was replaced by the Revenue Act of 1918 (T. D. 2797). In the latter case the rule (T. D. 2797) referred to the return filed under the Revenue Act of 1917 (40 Stat. 300) as the "original return" and the return required by the decision as an "amended return."
It is clear from what has been stated that the Revenue Act of 1921 required a return from the petitioners stating, among other things, their deductions, and that the rule of the Commissioner also required a return from the petitioners. They made no such return. It is thought that there is some significance in the use by the Commissioner of the terms "original" return, and "new return" in the decision requiring a "new return" and that therefore the "original return" should be regarded as "the return," or the return "under the Act," within the meaning of the limitation provisions of the Revenue Act of 1921, § 250 (d), 42 Stat. 265, the Revenue Act of 1924, § 277 (a) (2), 26 USCA § 1057 note, and the Revenue Act of 1926 § 277 (a) (2), 26 US CA § 1057 (a) (2). These terms are wholly unknown to the Revenue Acts. The fact that the Commissioner happened to refer to the return required by the new act as a "new" return, or as an "amended" return is wholly without significance in determining the statute of...
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