Jackson Iron & Steel Co. v. Commissioner , 19 B.T.A. 1208 ( 1930 )

JACKSON IRON & STEEL CO., PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Jackson Iron & Steel Co. v. Commissioner

Docket No. 14361.

United States Board of Tax Appeals

19 B.T.A. 1208; 1930 BTA LEXIS 2243;

May 28, 1930, Promulgated

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The petitioner filed a return which showed the tax as computed under section 301 of the Revenue Act of 1918, and attached to it or accompanying it were a statement and application for special assessment showing the tax at a stated lesser amount. The respondent denied the application for special assessment and dtermined the petitioner's tax liability to be less than that shown on the return, but greater than that shown in the accompanying statement and application. Held that the respondent has not determined a deficiency and that the Board does not have jurisdiction.

R. S. Doyle, Esq., for the petitioner.

F. R. Shearer, Esq., for the respondent.

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TRAMMELL

The respondent having sent the petitioner a notice of the determination of a deficiency against it for 1919 and in the same notice having advised the petitioner of a determination of an overassessment for 1918, the petitioner filed a petition with the Board in which, in addition to appealing from the determination of the deficiency for 1919, it appealed from the determination of the overassessment, alleging that the Board had jurisdiction to entertain the same. In his answer the respondent, among other things, denied the Board's jurisdiction as to 1918. The Board of its own motion set the proceeding down for hearing on the question of its jurisdiction as to 1918. An amended petition and an answer thereto having been filed, hearing was had on the question of the Board's jurisdiction as to 1918. From the testimony, documentary evidence, and a stipulation, we make the following findings of fact.

FINDING OF FACT.

The petitioner is an Ohio corporation with its principal place of business at Jackson. On March 13, 1919, the petitioner filed with the collector of internal revenue at Columbus, Ohio, a tentative return and estimate of its income and profits taxes for the calendar year 1918 in which the estimated tax was shown as $174,500. On March 21, 1919, the petitioner paid the collector $42,625 as the first installment of such tax.

On June 14, 1919, the petitioner filed with the collector its income and profits tax return for 1918, to which was attached certain supporting schedules referred to therein. In the spaces provided therefor in the return the net income for the taxable year was shown as $343,692.28, the total war-profits and excess-profits tax computed under section 301(a) as $221,417.53 and the total tax liability as $235,646.33. There was also attached to the return an application for assessment under the provisions of section 328 of the Revenue Act of 1918, together with a report dated June 10, 1919, from Nau, Rusk & Swearingen, certified public accountants, wherein they stated that the books and records of the petitioner did not furnish sufficient data by which the true invested capital could be determined and under the circumstances recommended that the petitioner make application for the assessment of its 1918 taxes under section 328. Transmitting the return and the documents attached thereto was the following letter addressed to the collector:

Enclosed please find Income and Profits Tax Return of The Jackson Iron &

Enclosed please find Income and Profits Tax Return of The Jackson Iron & A-2, A-3, A-4, A-13, A-18, A-19, A-24, Exhibit C. Comparative Balance Sheet, Exhib't D. Analysis of Surplus, Application for Assessment of our Taxes under Section 328 of Income Tax Law of 1918, and report of Messrs. Nau, Rusk and Swearingen, Public Accountants.

Also, you will find our check No. 2089 on the Oak Hill Savings Bank Company of Oak Hill, Ohio, in the sum of $42,298.07 in payment of balance of our Income and Profits Tax for the first half of 1918 as follows:

Total Income and Profits Tax for 1918 as shown	$171,846.14
One half of same, due in two equal installments, March 15, 1919
and June 15, 1919	85,923.07
Less payment of March 15, 1919	43,625.00
Balance due June 15, 1919 and covered by the enclosed check	42,298.07

In attaching the schedules, the application for assessment under section 328 and the report of the accountants to its return the petitioner was acting pursuant to instructions contained in a letter to it dated June 10, 1919, from its attorney, who was also one of its directors and who had advised with it and the accountants in the preparation of the 1918 return. The letter from the attorney is in part as follows:

There should be filed with the Collector of Internal Revenue your tax return, together with the Schedules and Exhibits, which should be attached to the return, and also the application for the determination of the tax under Section 328 and the supporting statement of Messrs. Nau, Rusk & Swearingen, which, it seems to me, should be fastened together and then attached to the tax return, so that there will be no danger that they will be separated from the tax return and thus possibly lost.

As I figure it, the amount of tax which is payable on each of the quarterly periods is one-eighth of our total taxable net income. This is on the basis that inasmuch as we are applying for a determination of our tax under Section 328 the amount of taxes originally due is fifty per cent, of our total taxable net income, payable in equal amounts in each of four separate periods. Our total taxable income appears to be $343,692.28, so that the amount due on June 15, 1919, is one-eighth of this amount, or $42,961.53. It is my understanding that in your return for the last quarter you based the amount paid upon an estimate of taxable net income a little below what your tax return now shows, so that your check was for something less than $42,961.53, which should have been paid. If such be the case, you should now send a check for this difference, together with interest at six per cent. from March 15, 1919, to June 15, 1919. In your letter to the Collector of Internal Revenue it might be well to explain the reason why your payment is in excess of one-fourth of fifty per cent. of your net taxable income.

On June 14, 1919, the petitioner paid to the collector $42,298.07 as the second installment of its 1918 taxes and on September 3, 1919, it paid the amount of $42,961.53 as the third installment.

On September 29, 1919, the respondent made an assessment of income and profits taxes against the petitioner for 1918 in the amount of $235,646.33, which was the amount entered on the petitioner's return as the total war-profits, excess-profits, and income taxes.

On December 15, 1919, the petitioner paid to the collector $42,691.53 as the fourth installment of its taxes for 1918, making a total payment of $171,846.13, which lacks one cent of being 50 per cent of the amount of net income for the taxable year as entered on the petitioner's return. On the same day, the petitioner filed with the collector a claim in abatement in the amount of $106,991.02. The claim contains the following as the reasons for asking abatement of the said amount:

That the Assessment of the Income, War Profits and Excess Profits Taxes of the claimant for 1918 should be on the basis of Section 328 of the Revenue Act for 1918, and that on the basis of the standard set forth in that section, namely - the tax to be assessed and paid by the claimant should bear the same ratio to its net income in excess of the specific exemption of $3000 as the average tax of representative corporations engaged in a like or similar trade or business bears to their average net income in excess of such specific exemption, the amount of the assessment $106,991.02 should be abated.

The Income, War Profits and Excess Profits Taxes of Claimant for 1918 should be based on and determined by Section 328 of the Revenue Act of 1918 for the following reasons: (1) It is not possible accurately to determine the invested capital of claimant under Section 326 of the act. (2) The tax as determined without the benefit of this section would owing to abnormal causes affecting the capital and income of the corporation work on the corporation an exceptional hardship, evidenced by gross disproportion between the tax as computed without the benefit of this section and the tax computed by reference to representative corporations specified in Section 328. The case of claimant does not fall within any of the exceptions mentioned in Section 327, in which its provisions are not to apply. The claimant requests the privilege of an oral hearing on this claim at which facts and evidence supporting it may be presented in the form of affidavits and exhibits and such additional written or oral evidence as the Board may desire or care to hear.

On March 14, 1922, the respondent addressed a letter to the petitioner, wherein he advised it of having computed its 1918 net income as $322,589.56, its total excess-profits and war-profits tax as $220,228.18, and its total tax liability as $232,067.38. While in this letter the respondent proposed an additional tax of $60,203.25, this amount was determined by subtracting from the $232,067.38, the amount of $171,864.13 as the tax previously assessed, whereas the amount theretofore assessed was $235,646.33. The letter concluded by informing the petitioner that it would be given 20 days to prepare exceptions to the statutory net income and invested capital as determined therein; that the additional taxes as computed therein were tentative only, as the petitioner's claim for assessment under section 328 of the Revenue Act of 1918 had not yet been adjudicated, and that, unless exceptions were taken within the time prescribed, the income and invested capital shown therein would be used as the basis for determining whether or not relief was allowable under the law and, if so, for computing the taxes in accordance with the relief sections.

On or about April 3, 1922, the petitioner filed with the respondent a letter wherein a request for a conference was made and certain exceptions stated to the holding of the respondent as set out in the letter of March 14, 1922. The petitioner's letter also contained the statement: "It is understood, of course, that we do not waive our claim to consideration under Sections 327 and 328 by the Special Assessment Division."

On or about October 23, 1923, the petitioner filed with the respondent a brief in which it is stated on the first page: "We also stated that we did not waive our claim to consideration under Special Sections 327 and 328."

Under date of July 31, 1924, the respondent addressed a letter to the petitioner, in which he advised that before consideration could be given to the application for special assessment there must be a final determination of the petitioner's net income. The petitioner was also advised that it would be necessary for it to inform the respondent within 10 days from the date of the letter of its acquiescence in the determination of its net income as disclosed by a statement attached and accompanying schedules, or inform the respondent of the exceptions, if any, which it might make thereto. As shown in this communication, the petitioner's 1918 net income was $321,370.65; its total excess-profits and war-profits tax, $212,129.56; its total tax liability, $224,794.23; and an overassessment for the year of $10,852 was shown. In computing the amount of the overassessment, the amount of tax previously assessed was shown as $235,646.33, which was the amount which had theretofore been assessed.

Under date of February 11, 1925, the respondent addressed a letter to the petitioner, in which he again advised the petitioner that before consideration could be given to the application for special assessment there must be a final determination of its net income. The petitioner was also advised that it would be necessary for it to inform the respondent within 30 days from the date of the letter of its acquiescence in the determination of its net income as disclosed by schedules attached or inform the respondent of the exceptions, if any, which the petitioner might wish to make. In this communication the petitioner's 1918 net income was shown as $319,172.12, its total excess-profits and war-profits tax as $209,223.71, and its total tax liability as $221,973.35, and an overassessment of $13,672.98 was shown. With respect to the amount of this overassessment the respondent advised the petitioner that its claims for the abatement of $64,029.49 and refund of $42,961.53, corporation income and profits taxes for 1918, had been considered.

Under date of September 28, 1925, the respondent addressed a letter to the petitioner, wherein he advised it of a determination of a deficiency in tax of $25,953.97 for 1919 and an overassessment of $13,672.98 for 1918 and granted the petitioner 30 days within which to present a protest and request a hearing. In this letter he advised the petitioner that its application under the provisions of section 327 for the determination of its profits tax under section 328 of the Revenue Act of 1918 had been denied for reasons therein stated. He also advised the petitioner that its claims for abatement of $106,991.02 and $64,029.49 and its refund claim for $42,961.53, aggregating $213,981.04, for 1918 had been rejected for $200,309.06.

On or about October 12, 1925, and in reply to the respondent's letter of September 28, 1925, the petitioner filed with the respondent a protest and brief in which exception was taken to the action of the respondent in denying special assessment for 1918 and 1919.

Under date of January 22, 1926, the respondent mailed a latter to the petitioner in which he advised it of a determination of a deficiency in tax of $25,953.97 for 1919 and an overassessment for 1918 of $13,672.98 and informed the petitioner of its right of appeal to this Board, stating that the right of appeal referred only to the deficiency in tax.

After making reference in the letter to the petitioner's protest of October 12, 1925, the additional information submitted at a conference on November 3, 1925, and supplemented by briefs dated November 28, 1925, and December 18, 1925, and informing it of the consideration given thereto, the respondent advised the petitioner that the conclusions set forth in his letter of September 28, 1925, were sustained. From the notice of determination the petitioner filed its petition with this Board on April 24, 1926.

On or about March 16, 1926, the respondent addressed a letter to the petitioner denying a rehearing on the tax liability for 1917, 1918, and 1919.

On June 19, 1929, the collector mailed a letter to the petitioner enclosing a certificate of overassessment for $13,672.98 for 1918, notice and demand for the payment of $50,356.51 tax and $29,864.56 interest for 1918, together with a schedule showing the computation of the interest. On August 14, 1929, the petitioner filed a petition with this Board respecting the notice from the collector. This petition, which was docketed as No. 45447, was, on motion of the respondent, dismissed by order of the Board on January 9, 1930, for lack of jurisdiction.

OPINION.

TRAMMELL: The petitioner contends that the respondent has determined a deficiency for 1918 and that we accordingly have jurisdiction for that year. On the authority of our decisions in , and , which are applicable and controlling here, the petitioner's contention must be denied. The facts in , and in , are different from those in the instant case and our decision in those cases is not applicable here.

An order will be entered dismissing the proceeding in so far as the year 1918 is involved and restoring the proceeding to the calendar for hearing in due course on the merits for 1919.

Reviewed by the Board.