#### GARNET I. McMAHON, INC., v. THE UNITED STATES

[No. D-38.

Decided February 1, 1926]

*On the Proofs*

*Bale for tacoes; proof of fraudulent returns.*— Where plaintiff’s property is sold for failure to pay additional income taxes assessed and penalties imposed for alleged fraudulent returns, and plaintiff produces satisfactory evidence to show said returns were honest and complete, it may recover.

*560
      *The Reporter’s*statement of the case:

*Mr. L. L. Hamby*for the plaintiff.

*Mr. J. H.*Sheppard, with whom was *Mr. Assistant Attorney General Herman J.*Galloway, for the defendant.

The court made special findings of fact, as follows:

I. The plaintiff, during the calendar years 1918, 1919, and 1920, was a corporation existing under and by virtue of the laws of the District of Columbia, having its place of business in the city of Washington in said District.

II. The Commissioner of Internal Revenue assessed against the plaintiff additional income and excess-profits taxes for the year 1918 in the amount of $1,489.91; in the amount of $1,144.86 for the year 1919; and in the amount of $2,632.62 for the year 1920. In each instance the said commissioner added to the said additional taxes and assessed as a part thereof as and for a penalty for the alleged filing of false and fraudulent returns for said years 50 per centum of said additional taxes, the aggregate amounts of said additional taxes and penalties so imposed and assessed being respectively as follows: For the year 1918, $2,284.81; for the year 1919, $1,111.29; and for the year 1920, $3,948.93; the total amount of said additional taxes and penalties so assessed and imposed being the sum of $1,901.09.

III. The assessment of the aforesaid additional taxes and penalties was in each instance predicated upon the assumption or finding by the said commissioner that the plaintiff had made sales in each of said years in an amount in excess of that reported by plaintiff upon its returns for the said years. The increase or additional sales so asserted or found to have been made and unreported for said years were as follows: For the year 1918, $4,881.25; for the year 1919, $6,890.10; and the year 1920, $9,693.21. The several amounts of the said additional sales were added to the plaintiff’s income for each of said years respectively and resulted in the assessment of the aforesaid additional taxes and penalties.

IY. The plaintiff made no such additional sales nor anj^ additional sales to those reported upon its said returns for *561the said years, but correctly reported on its respective returns for said years the correct amount of gross sales which it made; and none of its returns for any of said years were-false and fraudulent.

Y. Pursuant to the assessment of the aforesaid additional taxes and penalties, and on certification thereof to him by the said commissioner, the collector of internal revenue for the District of Maryland duly made demand of plaintiff for the payment thereof, with which demand plaintiff failed to comply and at the same time protested against the assessment or collection thereof. The collector, upon failure of the plaintiff to make payment of the said additional taxes and penalties within the time required by his notice, thereupon issued a warrant of distraint against the property of the said plaintiff; thereafter seized the same, and on the 6th day of March, 1923, sold the property of the plaintiff at public auction in the city of Washington, D. C., and received therefor the sum of $1,775.00, which amount was thereafter by the said collector paid into or covered in the Treasury of the United States’.

YI. Subsequent to the aforesaid sale of plaintiff’s property and the payment of the proceeds therefrom into the United States Treasury, the plaintiff duly filed its claim for refund of the amount so realized from said sale and paid into the Treasury as aforesaid. Prior to the institution of this suit by the plaintiff more than six months had elapsed since the filing of the said claim without any action having been taken thereon by the said commissioner.

The court decided that plaintiff was entitled to recover $1,775.00 with interest thereon from March 6, 1923, to date of judgment.

Hat, Judge,

delivered the opinion of the court:

The only question in this case is whether the plaintiff in making and filing its income-tax returns for the years 1918,. 1919, and 1920, failed to report the amount of gross sales which it made in each of those years.

The Commissioner of Internal Revenue in assessing additional taxes against the plaintiff asserted that the plaintiff' *562had made sales for these years in excess of the amount reported by it, and assessed the additional taxes and unpaid penalties for an alleged filing of false and fraudulent returns ; and upon the failure of the plaintiff to pay these additional taxes and penalties, sold the property of the plaintiff at public auction, and paid into the Treasury of the United States the proceeds of said sale which amounted to the sum of $1,775.

The commissioner acted upon certain reports made to him by agents of the Government. These reports inferred that the president of the plaintiff corporation had deposited in her own name, and to her individual credit in a bank certain sums, which these reports alleged had been taken from the sales of the corporation.

But when the plaintiff brought this suit and produced evidence to show that it had made a full, complete, and honest return of its sales when it made its income-tax return for the years 1918, 1919, and 1920, the Government produced no evidence to sustain its claim that the plaintiff had filed false and fraudulent returns, or that the plaintiff had made additional sales which it failed to report. The Government did not call any witnesses, but seemed to rely upon the reports of the Treasury agents. The agents themselves were not called. Manifestly such reports are not evidence. The plaintiff proved its case, and must be awarded a judgment for the amount set out in the conclusion of law.

It is so ordered.

Gkaham, *Judge;*Dowhey, *Judge;*Booth, *Judge;*and Campbell, *Chief Justice,*concur.