#### AMERICAN WOOLEN COMPANY v. THE UNITED STATES

[Nos. 42459 and 42904.

Decided April 5, 1937;

motion for new trial overruled October 4, 1937; on rehearing February 7, 1938]

*103
      *Mr. Melville F. Weston*for the plaintiff. *Mr. John W. Townsend*and *Powers (& Hall*were on the briefs.

*Mr. John W. Hussey,*with whom was *Mr. Assistami Attorney General Robert H. Jackson,*for the defendant. *Messrs. Robert N. Anderson, Fred K. Dyar,*and *F. F. Korell*were on' the brief.

*108Geeen, Judge,

delivered the opinion of the court:

By agreement of parties two cases, Nos. 42459 and 42904, of the *American Woolen Company*v. *United*States, have been submitted to the court under one finding of facts and one argument. Plaintiff’s petitions set out alternative causes of action for the calendar years of 1922 and 1923 upon which it bases claims for refund. Certain proceedings *109with reference to plaintiff’s tax for 1917 become important in determining the cases now before the court but no refund is claimed for 1917.

Plaintiff duly filed its income and profits tax returns for 1917 and paid the amount of taxes thereby shown to be due. As a result of subsequent audits an overassessment in the amount of $138,492.16 was allowed and plaintiff on March 14, 1923, filed a claim for credit thereof against the assessment for 1922. About July 2, 1923, a certificate of overassessment of $138,492.16 for the year 1917 was issued to plaintiff showing that the amount of the overassessment was credited to the tax for 1922 on the June 1923 list. This was duly allowed August 1, 1923. The cash payments made by plaintiff in 1923 together with this credit made a total of $1,292,058.94 which was the assessment for 1922 as it then stood.

June 15, 1924, plaintiff filed its completed return of income for 1923 indicating a tax thereon of $1,465,483.39 which was assessed and paid in full December 15, 1924, and later the plaintiff paid interest in the sum of $245.57 on a deficiency in the first quarterly payment.

January 27, 1925, the Commissioner advised plaintiff that its 1917 tax liability had been reaudited with the result that a barred deficiency was developed in the amount of $1,829,223.03, and on January 30, 1928, the credit of' $138,492.16 which had been made on the taxes of 1922 from an overassessment of 1917 which the Commissioner had determined to be erroneous was “reversed” on the collector’s, books by direction of the Commissioner indicating that amount as collectible for 1922.

March 15, 1928, the plaintiff filed a claim for refund of $213,996.15 of taxes for the year 1923. Later in the same year proceedings were begun to collect the amount of $138,-492.16 then shown by the collector’s books to be outstanding on the taxes of 1922 by issuing a warrant of distraint and on April 12, 1928, the plaintiff under protest paid this-amount together with interest in the sum of $42,170.86, a total of $180,663.02. '

On December 14, 1928, the plaintiff filed a further claim for refund in the sum of $299,967.23 for the year 1923 and *110on April 10, 1930, plaintiff filed a claim for refund of the sum of $180,663.02 collected April 12, 1928, stating it in tbe alternative as applicable to the year 1917 or 1922 as the case might be.

About December 17, 1930, the Commissioner sent plaintiff a sixty-day deficiency letter showing deficiencies of $154,-819.50 for 1922 and $88.50 for 1923 and stating that the refund claims for the year 1923 had been carefully considered. Annexed to the letter was an elaborate statement and calculation of the method by which the Commissioner’s office reached this result which was set forth in more than thirty pages of explanatory matters and figures. It contained a summary of the tax liability of the plaintiff as follows:



It will be observed that this statement is made as if the “tax previously assessed” had been paid, but there was nothing in the statement as to the manner in which the original assessment for 1922 had been satisfied. It is plain, however, that the credit of $138,492.16 originally made from an overassessment for 1917 was not allowed in the statement submitted.

About December 29, 1930, the plaintiff was formally notified by the Commissioner that its refund claim of $180,-663.02 would be rejected both as to the year 1917 and the year 1922, and shortly after on January 12,1931, the plaintiff filed a petition with the Board of Tax Appeals for redeter-mination of its tax liability for 1922 and 1923. The proceedings before the Board of Tax Appeals will be narrated further on. In the meantime, the plaintiff brought suit in the District Court of Massachusetts against the collector to recover with interest the sum of $180,663.02 collected from it on the taxes of 1922 as stated above. This suit ultimately resulted in a dismissal without prejudice and has no bearing on the issues now before us.

It has been hereinabove shown that after the account of plaintiff for 1922 had been balanced by a credit of $138,-*111492.16 and after tbe statute of limitations bad run against the collection of the tax for 1917, the Commissioner “reversed” his holding that there was an overassessment for 1917 and held instead that there was a deficiency for that year of $1,829,223.03; also that this left $138,492.16 outstanding against the plaintiff and unpaid for 1922. In his directions to the collector given about January 1928, under which this so-called reversal was made, the Commissioner, after stating that a large deficiency had been found in the taxes for 1917 instead of an overassessment, said:

> It therefore will be necessary for you to reverse the overassessment of $138,492.16 applied to the June 1923 List, account No. 424000, and to immediately collect the tax left outstanding as a result of this adjustment.

By this, he meant that the collector should cancel the over-assessment for 1917 and the credit made therefrom on the taxes of 1922, and that was what the collector did. The plaintiff strenuously contends that the Commissioner had no right to “reverse” the credit, especially as the statute of limitations had then run against the collection of taxes for 1917, and also argues that the reversal of the credit was never ordered by the Commissioner but only by the deputy commissioner without authority. The plaintiff also says that the record does not disclose any facts which would justify the finding of the deficiency for 1917 instead of an over-assessment and that the burden of proof on this point rested with-the defendant. We are inclined to think the Commissioner had authority to reverse the credit, but in view of what took place subsequently, we do not consider it necessary to discuss these' contentions.

Taking up next the proceedings before the Board of Tax Appeals to determine the taxes of plaintiff for 1922 and 1923, we find that the parties filed a stipulation in which it was agreed—

> that for the year 1922 there is a deficiency in income tax of $154,819.50, and that for the year 1923 the following is a statement of the petitioner’s income-tax liability:

> Tax assessed and paid-$1,465,483.39

> Correct tax liability-'- 1,240,681. 79

> Overpayment- 224,801. '60

*112and it was further agreed that the Commissioner might assess and collect the deficiencies immediately upon the issue by the Board of Tax Appeals of its order of redetermination. Accordingly, on January 12, 1932, the Board entered an order of deficiency for 1922 of $154,819.50 and an overpayment of $224,801.60 for 1923. No appeal was ever taken from this decision and it therefore became final as a statement of plaintiff’s account for taxes for these two years on the date last mentioned. No question was raised before the Board of Tax Appeals as to the manner in which the original assessment for 1922 had been satisfied. Under the statute and the rulings which we have made in several decisions the order of the Board became *res adjudicaba*not only as to such matters as were submitted to the Board but as to all other matters with reference to the taxes for these two years which might have been presented. (See quotation from case of *Ohio Steel Foundry Co.*v. *United States,*69 C. Cls. 158, set out later on in this opinion.)

February 13, 1932, the Commissioner assessed against plaintiff the deficiency of $154,819.50 for 1922 found by, the Board and interest thereon to February 11, 1932, of $79,258.04, total $234,077.54. March 7, 1932, the Commissioner signed a schedule of overassessments showing $224,-801.60 overassessed for 1923. The collector credited that sum March 14, 1932, upon the additional taxes for 1922 with interest, which action was approved by the Commissioner March 15, 1932, and that left, after another minor adjustment, $9,030.37 unpaid for 1922. The law expressly required the Commissioner to make this credit. See section 284 (a), act of 1926, and section 322 (a), act of 1928. We have held to that effect in *Standard Oil Co.*v. *United*States, 78 C. Cls. 714, 740, and several other cases which were complicated by surrounding circumstances. In the case at bar, there are no such complications. It is a clear case for the application of the statutory provision that “where there has been an overpayment of any tax * * * the amount of such overpayment shall be credited against any income, war profits, or excess profits tax, or installment thereof then due from the taxpayer.” In the case last cited we went so far as to hold that the overpayment must be so applied although such ap*113plication was not consistent with the instructions of the taxpayer. In March 1932, the collector demanded and received from plaintiff $9,030.37, being the amount unpaid on the taxes of 1922, after the deficiency for that year and interest thereon had been credited with the overpayment for 1923, together with a small item of interest and shortly after paid plaintiff $96,612.34 interest on the overpayment for 1923. This balanced and closed the accounts for both years (see Finding 17).

All these proceedings were strictly in accordance with law. Some question may arise as to whether the Commissioner rejected the last claim for refund for 1923 filed December 14, 1928, but we do not think this is material and it is not treated as material in the argument of plaintiff’s counsel in support of a refund of the overassessment finally determined for 1923 by both the Board and the Commissioner, the argument being based on the decision of the Board of Tax Appeals. We have held that when a taxpayer has a decision of the Board in his favor he can bring suit thereon. But this does not mean that where the Commissioner has applied an overpayment found by the Board in the manner required by law, the taxpayer can still recover by suit the amount thereof. When the Government shows, as it has in this case, that the amount of the overassessment was credited on a deficiency then due under the decision of the Board, it is a complete defense.

No logical theory can be framed under which plaintiff can now maintain a suit on the ground that there is due it $138,492.16 with interest, for the proceedings of the Commissioner subsequent to the decision of the Board of Tax Appeals were based upon the order of the Board and are not in conflict but in accord therewith. It is argued on behalf of the plaintiff that the Board of Tax Appeals, after its determination had been made, did not have jurisdiction to decide anything with reference to the interest charged on the deficiency for 1922 and the application of the overpayment for 1923 which left a balance of $9,030.37 to be paid by the plaintiff. This argument obliges us to repeat in a little different form some matters already stated, the consideration of which will show that the *114Board’s decision left nothing further to adjudicate. The net amount due the plaintiff under the determination of the Board of the taxes of 1922 and 1923 and the law with reference to credits was merely a matter of mathematical calculation in which interest was charged according to law on the deficiency for 1922 and from the resulting total of $234,077.54 due for 1922, there was deducted the overpayment of $224,801.60 on taxes for 1923 and another small interest payment as to which there is no controversy. This made no disposition of the interest on the overpayment for 1923. The Commissioner might have satisfied the $9,030.37 out of this interest due the plaintiff on the overpayment. Instead of so doing, he collected this sum from plaintiff and certified for payment the whole amount of interest due on the 1923 overassessment. But there is nothing in this of which the plaintiff can complain. The ultimate result was the' same.

■ The form of the stipulation is such that it must be presumed-that all matters of controversy between the parties with reference to the taxes for 1922 and 1923 were covered thereby and disposed of by the final order of the Board. Moreover, the tax liability of $1,446,878.44 fixed by the Board for 1922 is utterly inconsistent with the allegations upon which plaintiff bases its claim for refund for 1922 as last filed.

The case of *Ohio Steel Foundry Co.*v. *United*States, 69 C. Cls. 158, is cited by plaintiff in support of its position. We think the opinion therein is to the contrary. In the first place the basic facts in the *Ohio Steel case*were altogether different from those in the case at bar and a different question was presented to the court. The issue in that case was whether after a suit had been commenced in this court to recover taxes, the determination of a deficiency by the Commissioner and the institution by the taxpayer of a proceeding before the Board of Tax Appeals in relation to the same matters deprived this court of jurisdiction, and the court held that it did not. In that case it appeared as in the case at bar that the Commissioner had determined and notified the taxpayer of a deficiency in respect to a taxable year and the taxpayer instituted a pro*115ceeding before the Board of Tax Appeals for the .redeter-mination of such deficiency. Among other things, the court held that in such a case the Board of Tax Appeals and the appellate courts had “exclusive power ultimately and finally to decide all questions, both as to deficiencies and overpay-ments, that could arise between the taxpayer and the Government in connection with the tax liability for the year or years involved in such proceedings”; that under such circumstances the law “contemplated that no suit should be instituted by a taxpayer for the recovery of a tax”; and further that—

> Under such circumstances it would be incumbent upon the taxpayer to raise all questions relating to his tax liability for the taxable year, in respect of which the commissioner had determined the deficiency, before the Board of Tax Appeals and to pursue his remedy with respect both to the deficiency and to any claimed overpayment to a conclusion under the provisions of the revenue act of 1926, either by accepting the decision of the board, which has become final by the expiration of the time for filing of a petition for review of such decision, or by prosecuting such. review to a conclusion as provided by law.

The court, however, went on to hold that the statutory provision that “no suit by the taxpayer for the recovery of any part of such tax liability shall be instituted in any court” applied only to suits begun *after*the mailing of the deficiency notice and institution of a proceeding before the Board of Tax Appeals such as is found in the case now before us, and that it had no application to a case commenced prior to the proceedings before the Board of Tax Appeals, which was the situation in the case cited.

Plaintiff’s counsel quote the following from the opinion in the last named case as supporting their argument:

> With respect to the question of interest and credits over which the board has held it has no jurisdiction, we find nothing in the statute which would preclude the taxpayer from bringing suit in this court upon any alleged improper credit or alleged failure properly to compute and pay interest upon any overpayment found by the board.

*116When we consider this statement in connection with the remainder of the opinion, it is quite plain that the court had reference to credits made and interest allowed *after the decision of the board*to which the board’s decision manifestly would not apply, but there is no claim in the case at bar that the subsequent proceedings as to interest and credit were settled by the Board’s decision. The interest charged on the deficiency for 1922 was fixed by the law with reference to interest on deficiencies. The credit of the overassessment for 1923 upon the amount due for 1922 was positively required by the statute. The rest, as we have said, was merely a matter of mathematical calculation. It is evident that no proper objection can be made to the proceedings of the Commissioner subsequent to the decision of the Board of Tax Appeals.

It follows from what is said above that the plaintiff has no valid claim for a refund and its petitions in the two cases before us must be dismissed.

Whaley, *Judge;*Williams, *Judge;*and Booth, *Chief*Justice, concur.

Littleton, *Judge:*

I concur in the decision dismissing the petitions on the ground that the judgment of the United States Board of Tax Appeals is res, *adjudicata*as to all questions affecting the tax liability for 1922 and 1923. *Peerless Woolen Mills*v. Commissioner, 13 B. T. A. 1119, and *T. W. Warner Co.v. United States,*83 C. Cls. 495, 15 Fed. Supp. 160.

MEMORANDUM ON MOTION FOR NEW TRIAL

Per Curiam :

The opinion of the court held that the decision of the Board of Tax Appeals was conclusive as to the amount of plaintiff’s liability for the taxes of 1922 and 1923. Contending that this holding was erroneous, the plaintiff has filed a motion for new trial and reargument.

It is urged that plaintiff is entitled to reargument for the reason that the question decided by the court was not argued on the submission of the case. This is an error. It was explicitly stated on pages 114 and 115 of defendant’s brief, and in any event would not be sufficient ground for a new *117trial although it might be a reason for the court to order reargument in doubtful cases.

The argument of the plaintiff is in effect that the decision of the Board fixing a deficiency in a certain amount did not preclude the taxpayer from afterwards claiming that it was entitled to a refund on the ground that the Commissioner had improperly “reversed” a credit when computing the tax. We think it clear that under the statute as well as the decisions of this court and the Board of Tax Appeals the argument is not well founded.

The purpose of the law was plainly to authorize the Board of Tax Appeals to determine on appeal the amount of the taxpayer’s liability for the year in question. This was the issue between the parties in the proceedings before the board and any matter material to the determination of this issue, such as the credit in controversy in the instant case, not only could but must be presented to the board. In the case of *Peerless Woolen Mills*v. Commissioner, 13 B. T. A. 1119, 1126, it is said:

> Both the petitioner and the Commissioner were privileged to raise [any] issue affecting the tax liability for the year in question and on the basis of all evidence presented, the Board might determine the extent to which the petitioner was liable for a deficiency.

In *Ohio Steel Foundry Co.*v. *United*States, 69 C. Cls. 158, we held that it was “incumbent upon the taxpayer to raise all questions relating to his tax liability for the taxable year.”

Moreover the 1928 statute expressly provides that where a notice of deficiency has been given and an appeal taken to the Board, the taxpayer has no right to file claims for credit or refund except in conformance with the decision of the Board of Tax Appeals.

Having reached the conclusion that the Board of Tax Appeals had authority to determine the extent of plaintiff’s tax liability for the years in question, it follows that plaintiff’s claim as to the credit upon which it bases its argument that it is entitled to a refund is entirely inconsistent with the decision of the Board and is now *res adjudieata.*

The motion for new trial must be overruled.

*118ON REHEARING

Geeen, Judge,

delivered the opinion of the court:

A rehearing having been granted, the contentions made in argument by plaintiff seem to us so much broader than were originally made as to require some further statements as to the position of the court.

The court can not agree with counsel for plaintiff in the narrow construction which they give to the statutory definition of a deficiency. A “deficiency” is defined in section 273 of the revenue act of 1926 as “the amount by which the tax imposed by this title exceeds the amount shown as the tax by the taxpayer upon his return,” increased and diminished as further specified. But the words “the tax imposed by this title” refer to and include all of the provisions relating to the assessment and collection • of the tax including the acts of the Commissioner, if in accordance with law, instead of being limited merely to the consideration of what was shown in the return, as argued in behalf of plaintiff. If the jurisdiction of the Board of Tax Appeals were- so limited that it could not pass upon the question of whether the taxpayer was entitled to a credit, it would be a very inept body and one which has often exceeded its authority.

The case of the *Girard Trust Co.*v. *Helvering, 301*U. S. 540, is cited by plaintiff in support of its contentions. We think on the contrary that it supports the holding of the court as expressed in the original and supplemental opinion. The principal controversy in that case was as to whether, when the Board of Tax Appeals had determined an overpayment, the taxpayer was entitled to a mandamus to compel a refund of the overpayment so determined. The Supreme Court said that the Board had no authority to order a refund or a credit, but “its decision.is *res adjudicaba*as to the questions involved in the computation and assessment of taxes for which a deficiency is claimed.” When the Supreme Court said that the Board had no authority to order a refund or a credit, it manifestly had reference to proceedings for the enforcement of the decision of the Board and not to what was or could be considered by the Board in making its deter*119mination either as to an overpayment or a deficiency. This is shown by the subsequent statement of the court that “when the determination of overpayment by the Board becomes final, the statute provides that such amounts shall be refunded or credited” by the Commissioner. Further, the words “computation and assessment of taxes” are not used in the narrow sense attributed to them by plaintiff. The computation of taxes must be made in accordance with all the provisions of the taxing act and is not confined to making a calculation in accordance with the return, as plaintiff claims. It will be observed that the *Old Colony Trust Co.*v. *Commissioner,*279 U. S. 716, 726-27, cited by the Supreme Court in support of this language holds—

> By § 1005, the decision of the Board is to become final in respect to all the numerous instances which in the course of the review may naturally *end further litigation.*[Italics ours.]

In the *Girard case,*supra, the court also cited in support of its decision the case of *Ohio Steel Foundry Co.*v. *United*States, 69 C. Cls. 158, in which we said:

> * * * the clear and manifest purpose of the act [is] to vest in the Board of Tax Appeals and the appellate courts upon petition for review exclusive power ultimately and finally to decide all questions, both as to deficiencies and overpayments, that could arise between the taxpayer and the Government in connection with the tax liability for the year or years involved;

and in support of this holding we cited the report of the committee bringing in the bill which became the revenue act under consideration. The report stated—

> But if he [the taxpayer] does elect to file a petition with the board his entire tax liability for the year in question is finally and completely settled by the decision of the board when it has become final.

Plaintiff seems to concede and the *Girard Co. case*holds that the Board may decide whether there has been an overpayment, but how could the Board decide whether there was an overpayment without considering all of the plaintiff’s tax account including what the evidence shows with reference to credits, if any ?

*120We have considered tbe Board of Tax Appeals cases cited by plaintiff as being to the contrary of its decision in the case of *Peerless Woolen Mills*v. *Commissioner,*13 B. T. A. 1119, and find that they have no application.

Plaintiff’s counsel state that they admit that the decision of the Board determining a deficiency is correct. But this is an incomplete statement of their position because it is based upon their claim that the deficiency determined by the Board does not mean the entire tax liability of the taxpayer for the year involved but only his liability as shown by his return — a claim that we have shown is not well founded. Plaintiff’s counsel also submit a computation to show that its taxes are overpaid but in so doing include the credit which the Commissioner reversed and struck out. By this kind of a calculation they contend they have shown that plaintiff overpaid its taxes. We think it is merely an assumption that the matter in controversy has been decided in favor of plaintiff.

The reargument has not changed our conclusion that the Board of Tax Appeals had authority to and did determine the extent of plaintiff’s tax liability for the years in question and the decision made in the former opinion must be reaffirmed.

Further argument, however, has convinced us that the Commissioner had the right to reverse the credit. The collection of the tax was not barred at the time he made this change in his entries. We think the right of the Commissioner to change his records is sustained by the decision of the Supreme Court in the case of *Daube*v. *United*States, 289 U. S. 367, 372, wherein it was held that after the Commissioner had signed a schedule of refunds and credits and had sent a check to one of his subordinates to be delivered to the claimant he could revoke all of these actions and collect the deficiency which then resulted.

Our conclusion is, therefore, that the defense to these actions must be sustained on both grounds and that the judgment heretofore entered including the overruling of the motion for new trial must stand.

Whalet, *Judge;*Williams, *Judge;*Littleton, *Judge;*and Booth, *Chief*Justice, concur.