Source: https://openjurist.org/348/us/254
Timestamp: 2019-04-26 06:04:34+00:00

Document:
KOPPERS COMPANY, Inc., Successor on Merger to Koppers United Company and Subsidiaries. PREMIER OIL REFINING COMPANY OF TEXAS, Petitioner, v. UNITED STATES of America.
Argued Nov. 10, and 12, 1954.
Rehearing Denied March 14, 1955.
See 348 U.S. 965, 75 S.Ct. 521.
Mr.Hilbert P. Zarky, Washington, D.C., for the United States.
Mr. Wm. A. Sutherland, Washington, D.C., for petitioner, Premier Oil Refining Co. of Texas.
Mr. David W. Richmond, Washington-D.C., for respondent Koppers Company, Inc.
The issue in these cases is whether, for the years 1940 through 1945, abatements of federal excess profits taxes, through application of I.R.C. § 722,1 are retroactive. For the reasons hereafter stated, we hold that they are not and that they relieve taxpayers from the payment of interest on deficiencies in such taxes from the time of the abatements, rather than from the original due dates of the taxes abated.
After extended investigations and negotiations conducted under authority of § 722, the Commissioner and the taxpayer agreed upon a 'constructive average base period net income' which fixed the excess profits credits for the years in question and, as a result, the relief available under § 722. After this agreement was approved by the Excess Profits Tax Council of the Bureau of Internal Revenue, the Commissioner determined that the above-stated deficiencies, with the benefit of § 722, should be reduced to $260,554.39 for 1940, and to $95,749.33 for 1941. The taxpayer consented to the assessment of these deficiencies, with interest as provided by law. Whereupon, the Commissioner issued a formal determination of them and assessed them against the taxpayer. He also assessed the above-stated interest charges, based upon the full amount of the original deficiencies.
The taxpayer paid the deficiencies and interest so assessed but claimed refunds of $94,358.71 for 1940, and $178,784.48 for 1941. Those sums represented the interest on the abatements in its excess profits taxes made under § 722. When the Commissioner disallowed the claims, the taxpayers sued in the Court of Claims to recover their amounts. With one judge dissenting, that court deducted a setoff and rendered judgment in favor of the taxpayer for $270,216.34. 126 Ct.Cl. 847, 117 F.Supp. 181. To resolve the resulting conflict with United States v. Premier Oil Refining Co., 5 Cir., 209 F.2d 692, we granted certiorari, 347 U.S. 965, 74 S.Ct. 775, 98 L.Ed. 1122.
DEFICIENCIES WITHOUT THE APPLICATION OF § 722.
In the meantime, the taxpayer had applied for relief under § 722, seeking acceptance of a 'constructive average base period net income' of $357,000 for each of the years at issue. The Excess Profits Tax Council approved that figure as a credit in lieu of $93,150.36 for each of the years 1943 and 1944, and of $116,437.95 for 1945. This credit so far reduced the taxpayer's taxable excess profits as to abate its excess profits tax deficiencies for 1943 and 1944 entirely, and that for 1945 to $366.52.7 Accordingly, the Commissioner's assessment of the remainder of the taxpayer's deficiencies in excess profits taxes was for only $366.52. However, as in the Koppers case, supra, he assessed against the taxpayer the full amount of the interest charges based upon the original deficiencies.
As the underlying issue is the same in each case and for each year, we shall discuss it in relation to the 1940 taxes in the Koppers case. There, the taxpayer, under the usual procedure, computed and paid the excess profits tax of $6,512.76 shown on its return for 1940. In due course the Commissioner, without the application of § 722, determined that the payment should have been $466,921.67, and, therefore, that a deficiency of $460,408.91 was due the United States, with interest from March 15, 1941. I.R.C. §§ 53(a), 56(a). If the taxpayer had made no application for relief under § 722, there is no doubt that such interest would have remained due the United States until paid and that, when paid, it would not have been refundable. The same would have been true if the taxpayer's application for relief under § 722 had been finally denied. The taxpayer contends, however, that, because the Commissioner has abated the taxpayer's deficiency from $460,408.91 to $260,554.39 under § 722, such reduction is necessarily retroactive to March 15, 1941, and that the taxpayer, accordingly, is entitled to a refund of the interest on the sum abated. The Commissioner, on the other hand, contends that the determination under § 722 is not retroactive but is a current abatement effective when made.
Congress could have prescribed either treatment but did not expressly specify either. Our answer is determined from our consideration of the statutory scheme as a whole the related provisions of the statute, the legislative history of § 722 and the administrative interpretation that has been given the statute.
1. The statutory scheme as a whole.
From the beginning, the statute also provided, in § 722, a means of subsequent adjustment of the tax in special instances where the normal computation of the tax was found to result in inequity. The adjustment could be made only after administrative action and, pending its consideration, it did not eliminate the tax return or the tax payment otherwise required. Until 1942, it did not permit even the postponement of the payment of any part of the standard tax. Indeed, the full payment of that tax soon was made an express condition of the application for adjustment. I.R.C. § 722(d). In 1943, Congress stated that if overpayments for either of the taxable years 1940 or 1941 were found to be attributable to § 722, no interest on such overpayments was to be paid the taxpayer.11 At least to that extent, Congress expressly recognized that the funds paid as excess profits taxes, when due and without the benefit of § 722, were funds owed to and usable by the Government.
The significance of this statutory scheme further appears when it is applied to the instant case. If the instant taxpayer had paid its required tax in 1941, the Government would have received an additional $460,408.91 at that time. Accordingly, it would have had the use of that money, without charge, during the crucial war years. Correspondingly, the taxpayer would have been without that money during the same period. Instead, the taxpayer, in fact, retained the funds for its own use and now contends that it need not compensate the Government for such use of a substantial part of it.
While in the instant case the taxpayer did not underpay any amount actually shown on its return, as contemplated by I.R.C. § 294(a), it understated its tax and thus withheld the amount in question. The detriment to the Government and benefit to the taxpayer was the same—the use of $460,408.91 for eight years. The above distinction, emphasized by the taxpayer, may have helped it in initiating its application for relief under § 722(d) because it could establish that, at least, it had paid 'the tax shown on its return'. The distinction, however, supplies no ground for different results once the deficiencies have been determined. We find no implication that a self-serving error in the understatement of its tax on its tax return entitles the taxpayer to a greater ultimate tax advantage than does a self-serving error of the same size in the underpayment of the same tax. A fortiori we find nothing to justify a greater tax advantage to any taxpayer that underpays its correct tax, over one that pays such tax in full when due.
In cases where the Government has authorized refunds of excess profits taxes overpaid to it by reason of the abatement of taxes attributable to § 722, § 3771(g) expressly precludes the payment of interest by the Government upon the amounts abated. This treats the Government as entitled to the use of the abated amounts between the time of their overpayment and that of their abatement. Equity demands a comparable result in the case of underpayments. Where unpaid taxes are abated by reason of § 722, the taxpayer then receives a release from its existing obligation to pay the amount abated. However, the Government having been entitled, up to that time, to collect and use the sum abated, the Government should receive interest, on the abated sum, for the period during which the Government was entitled to have its use. This is the natural counterpart of the Government's freedom from paying interest on refunded overpayments.
5. The legislative history of § 722.
The excess profits tax was initiated in 1940. 54 Stat. 975 et seq. It provided for prompt payment of large taxes computed on income reflecting unusual profits. Computation of the tax on the basis of the taxpayer's prior income or invested capital was prescribed in §§ 713 and 714. A standardized treatment of abnormalities was provided in § 721. In addition, § 722 authorized the Commissioner 'to make such adjustments as may be necessary to adjust abnormalities affecting income or capital'. 54 Stat. 986. The procedure under § 722 was formalized by the Excess Profits Tax Amendments of 1941, 55 Stat. 23—25, and put in its final form by the Revenue Act of 1942, 56 Stat. 914—917, as amended, 57 Stat. 601—602. The technical and discretionary nature of the adjustment was emphasized by the provision that the determination of most computations under § 722 was reviewable only by a special division of the Tax Court constituted for the occasion and by no other court or agency. 55 Stat. 26, as amended, 56 Stat. 917, 59 Stat. 295, 673, 26 U.S.C. § 732, 26 U.S.C.A. § 732. A taxpayer never was permitted to file a return of its own under § 722. S.Rep. No. 75, 77th Cong., 1st Sess. 13; H.R. Rep. No. 146, 77th Cong., 1st Sess. 13.
For the foregoing reasons, we conclude that the Government, in each case, is entitled to retain the interest now in controversy. Therefore, in No. 29, the judgment of the Court of Claims is reversed and, in No. 41, the judgment of the Court of Appeals is affirmed.
Mr. Justice REED and Mr. Justice DOUGLAS dissent.
'Sec. 722. General Relief—Constructive Average Base Period Net Income.
'(d) Application for relief under this section. The taxpayer shall compute its tax, file its return, and pay the tax shown on its return under this subchapter without the application of this section, except as provided in section 710(a) (5). The benefits of this section shall not be allowed unless the taxpayer within the period of time prescribed by section 322 and subject to the limitation as to amount of credit or refund prescribed in such section makes application therefor in accordance with regulations prescribed by the Commissioner with the approval of the Secretary. If a constructive average base period net income has been determined under the provisions of this section for any taxable year, the Commissioner may, by regulations approved by the Secretary, prescribe the extent to which the limitations prescribed by this subsection may be waived for the purpose of determining the tax under this subchapter for a subsequent taxable year.' (Emphasis supplied.) 56 Stat. 914—915, as amended, 57 Stat. 601—602, 26 U.S.C. § 722(a, d), 26 U.S.C.A. § 722(a, d).
The above provisions of § 722(d) apply to taxable years beginning after December 31, 1939. 57 Stat. 602.
Koppers Company, Inc., is, in fact, the successor to Koppers United Company and its subsidiaries, which filed consolidated excess profits tax returns for the years in question. For convenience, all of such corporations are referred to as the taxpayer.
This tax was computed and paid pursuant to the Excess Profits Tax Act of 1940, 54 Stat. 975, as amended. See I.R.C. § 710 et seq. On November 8, 1945, these provisions became inapplicable to any calendar year beginning after 1945. 59 Stat. 568.
Two methods of computation of the excess profits credit were authorized: the invested capital method under I.R.C. § 714, or the base period income method under I.R.C. § 713.
By timely consents, the Commissioner and the taxpayer agreed that the amount of any income, excess profits, or war profits tax due for 1940 and 1941 could be assessed at any time on or before June 30, 1951.
The interest on the 1940 tax ran from March 15, 1941, to January 28, 1949, which was treated as the date of its payment; that on the 1941 tax ran from March 15, 1942, to March 16, 1951, which was 30 days after the filing of a waiver consenting to the assessment and collection of the deficiencies finally determined. See I.R.C. § 292(a), infra, note 12.
ABATEMENT OF EXCESS PROFITS TAX DEFICIENCIES UNDER § 722.
By reducing that part of the taxpayer's income that was subject to excess profits taxes, this application of § 722 automatically left more of the taxpayer's income subject to the normal tax and surtax. Those increases in the taxpayer's income taxes and their consequences are not before us.
The original judgment for $56,855.41 was modified to $52,292.40 to reflect several adjustments, including the deduction of $49.72, representing interest on the unabated deficiency of $366.52 upon which the taxpayer conceded that interest was chargeable.
"Where a deficiency in excess profits tax, based on the income and credits as shown in the taxpayer's return, would have existed except for the subsequent application of Section 722 of the Internal Revenue Code, 26 U.S.C.A. § 722, is the taxpayer liable for interest on the amount of such deficiency (hereinafter called the 'potential deficiency') which would have existed had it not been extinguished by the application of Section 722?" 347 U.S., at page 988, 74 S.Ct. at page 851.
I.R.C. § 713—on the basis of income, or I.R.C. § 714—on the basis of invested capital. I.R.C. § 721, authorized standard allowances for specified abnormalities. No return by the taxpayer under I.R.C. § 722, was permissible.
I.R.C. § 3771(g), infra, note 15, discussed at 75 S.Ct. 274, infra.
'Sec. 292. Interest On Deficiencies.
'(a) General rule. Interest upon the amount determined as a deficiency shall be assessed at the same time as the deficiency, shall be paid upon notice and demand from the collector, and shall be collected as a part of the tax, at the rate of 6 per centum per annum from the date prescribed for the payment of the tax (or, if the tax is paid in installments, from the date prescribed for the payment of the first installment) to the date the deficiency is assessed, or, in the case of a waiver under section 272(d), to the thirtieth day after the filing of such waiver or to the date the deficiency is assessed whichever is the earlier.' 53 Stat. 88, as amended, 57 Stat. 602, 26 U.S.C. § 292(a), 26 U.S.C.A. § 292(a).
'Sec. 710. Imposition Of Tax.
'(5) Deferment of payment in case of abnormality. If the adjusted excess proffits net income (computed without reference to section 722) for the taxable year of a taxpayer which claims on its return, in accordance with regulations prescribed by the Commissioner with the approval of the Secretary, the benefits of section 722, is in excess of 50 per centum of its normal tax net income for such year, computed without the credit provided in section 26(e) (relating to adjusted excess profits net income), the amount of tax payable at the time prescribed for payment may be reduced by an amount equal to 33 per centum of the amount of the reduction in the tax so claimed. For the purposes of section 271, if the tax payable is the tax so reduced, the tax so reduced shall be considered the amount shown on the return.' 54 Stat. 975, as amended, 56 Stat. 917, but see also, later amendment indicated by 26 U.S.C. § 710(a)(5), 26 U.S.C.A. § 710(a)(5).
'Although it is believed advisable to require a taxpayer seeking relief under section 722 to compute and pay its tax without the benefit of such section, there are some cases in which it would be inequitable to compel the taxpayer to pay the entire amount of such tax. Section 710(a) is therefore amended to provide * * * (as above quoted).' S.Rep.No.1631, 77th Cong., 2d Sess. 205.
Section 722(d) looks forward when it provides that if a constructive base period net income has been determined under § 722 for any taxable year, the Commissioner may, by regulations approved by the Secretary, permit waivers of the section's limitations for the purpose of determining excess profits taxes for a subsequent taxable year. Even this effect is not automatic, whereas it might have been expected to be so if the adjustment were a retroactive correction of the standard excess profits credit.
permits a taxpayer, seeking relief under § 722, to defer a part of its existing excess profits taxes where its adjusted excess profits net income exceeds 50% of its normal tax net income.
'Sec. 3771. Interest On Overpayments.
'(g) Claims based upon relief under section 722. If any part of an overpayment for a taxable year beginning prior to January 1, 1942, is determined by the Commissioner to be attributable to the final determination of an application for relief or benefit under section 722 for any taxable year, no interest shall be allowed or paid with respect to such part of the overpayment. If any part of an overpayment for a taxable year beginning after December 31, 1941, is determined by the Commissioner to be attributable to the final determination of an application for relief or benefit under section 722 for any taxable year, no interest shall be allowed or paid with respect to such part of the overpayment for any period prior to one year after the filing of such application, or September 16, 1945, whichever is the later.' 53 Stat. 465, as amended, 57 Stat. 602, 26 U.S.C. § 3771(g), 26 U.S.C.A. § 3771(g).
The same Act added I.R.C. § 292(b), containing comparable provisions prohibiting the assessment of interest upon deficiencies attributable to the final determination of an application for relief under § 722. 53 Stat. 88, as amended, 57 Stat. 602, 26 U.S.C. § 292(b), 26 U.S.C.A. § 292(b). This applied, for example, to deficiencies in the payment of ordinary income taxes resulting from an abatement under § 722 of excess profits taxes. Such an abatement automatically would leave a larger portion of a corporation's taxable income subject to the normal income tax and surtax. This increase, however, was not made retroactive any more than the decrease in the excess profits tax which caused it was made retroactive. Congress thus appropriately charged no interest on the resulting deficiency just as it had allowed none on the belated overpayment.
When Congress, in a later Act, authorized deferment of payments of comparable taxes pending determinations of applications for relief, it did so unequivocally. The relief provisions in the Excess Profits Tax Act of 1950, 64 Stat. 1137, adding I.R.C. §§ 430—472, prescribed formulas for determining a substitute average base period net income, §§ 442—446, and permitted the taxpayer to adjust its base period net income at the time the return was filed, § 447(e). See S.Rep. No. 2679, 81st Cong., 2d Sess. 17—21, discussing the general relationship between these provisions and the experience gained under § 722 now before us.
See legislative history outlined in American Coast Line v. Commissioner, 2 Cir., 159 F.2d 665, and Pohatcong Hosiery Mills v. Commissioner of Internal Revenue, 3 Cir., 162 F.2d 146.
'* * * there is no doubt a difference between a tax, conceded to be due in the corporation's own return, and a tax assessed against it in invitum. This argument might perhaps be persuasive, if the denial of 'benefits' under § 722 were regarded as a constituent factor of the tax itself, as for example are the conditions detailed in § 721. We do not so regard § 722; on the contrary it was a favor; it presupposed that, even after taking into account the ameliatory conditions of § 721, the tax was due unless ex gratia the blow was softened; it was a tempering of the wind to the shorn lamb.' Circuit Judge Learned Hand, for the court, 159 F.2d at page 668. See also, Ideal Packing Co. v. Commissioner, 9 T.C. 346, 349; Uni-Term Stevedoring Co. v. Commissioner, 3 T.C. 917, 918.
'In each instance the section (722) provided that a hypothetical base period earnings credit be 'tailor made' for the particular taxpayer and that certain assumptions be made in connection with the case. Each case was a problem in recase. and the legal or tax result generally was intertwined with complicated accounting and economic problems. Almost every factor which had any influence on the particular business was pertinent to the case and the time and expense involved in reconstructing the average base period earnings credit were tremendous.' S.Rep.No. 2679, 81st Cong., 2d Sess. 17.
See also, Standard Roofing & Material Co. v. United States, 10 Cir., 199 F.2d 607; Rodgers v. United States, 123 Ct.Cl. 108 F.Supp. 727; Cumberland Portland Cement Co. v. United States, D.C., 101 F.Supp. 577, affirmed, 6 Cir., 202 F.2d 152.
See Rodgers v. United States, supra; Cumberland Portland Cement Co. v. United States, supra.

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