Source: https://openjurist.org/287/us/32
Timestamp: 2019-04-25 22:29:58+00:00

Document:
GULF STATES STEEL CO. et al.
Messrs. John W. Drye, Jr., of New York City, James P. McGovern, of Washington, D.C., and John M. Perry, of New York City, for petitioners.
[Argument of Counsel from page 33 intentionally omitted] for the United States.
In the District Court for Alabama—August 25, 1930—the United States sued the Gulf States Steel Company, principal, and National Surety Company, surety, petitioners here, upon a bond dated September 9, 1925, whereby they agreed to pay Snead, collector of internal revenue, so much of the additional income and profits taxes for 1917 assessed by him against the principal in 1921 'as is not abated.' Judgment on a verdict went for plaintiffs; the Circuit Court of Appeals affirmed; the matter is here by certiorari.
March 28, 1918, the Steel Company filed its income and excess profits tax return for 1917, and shortly thereafter paid the amount apparently due. In April, 1921, the Commissioner made a deficiency assessment of $153,815.30; May 6, 1921, the company filed claim and demand for abatement of this entire sum upon the ground that the additional assessment was unwarranted and illegal in so far as it resulted (1) from the failure to compute the invested capital by including the actual cash value of claimant's property on January 1, 1914; (2) from the action of the examiners in deducting only 7 per cent. of invested capital, instead of 8 per cent.; and (3) from disallowance of certain interest payments as part of invested capital.
'(c) That the petitioner be allowed $11,000,000.00 in computing its invested capital for 1917, on account of the property paid in for stock on December 1, 1913.
By an amended petition, March 2, 1927 (after Bowers v. New York & Albany Lighterage Co. (February, 1927) 273 U.S. 346, 47 S.Ct. 389, 71 L.Ed. 676), the Steel Company renewed its request for 'a redetermination of the deficiency set forth by the respondent in his notice of deficiency' dated May 12, 1926.
Bowers v. New York & Albany Lighterage Co. (February 21, 1927) 273 U.S. 346, 47 S.Ct. 389, 71 L.Ed. 676, construed the provision, Revenue Act 1921, prohibiting suit or proceeding for the collection of income or excess profits taxes, after five years subsequent to the return and held it applied both to suits in court and to distraint proceedings. Prior to this tax officers went upon the view that the statute of limitations did not apply to distraint.
United States v. John Barth Co., 279 U.S. 370, 49 S.Ct. 366, 73 L.Ed. 743, May 13, 1929, ruled that the limitation in Revenue Acts 1918, 1919, 1921, and 1924 upon the time within which income and excess profits taxes may be assessed and suits begun to collect is inapplicable where the suit is upon a bond given to secure payment of taxes theretofore returned and assessed, in order to obtain postponement of payment pending decision upon claim for abatement; also, that a bond made in such circumstances affords a cause of action separate and distinct from one to collect the tax.
Prior to 1924, in order to contest the Commissioner's assessment, the taxpayer had to pay the sum demanded and bring suit to recover. Graham v. Du Pont, 262 U.S. 234, 258, 43 S.Ct. 567, 67 L.Ed. 965.
The original complaint in the present cause alleges that the Steel Company's claim for abatement of the additional assessment for the year 1917 was rejected by the Commissioner May 12, 1926, 'for the full amount thereof, whereby there remained unpaid and unabated of the said assessment One Hundred Fifth-three Thousand, Eight Hundred Fifteen Dollars and Thirty Cents $153,815.30), which said finding and determination of the Commissioner of Internal Revenue rejecting said claim for abatement has remained and now is in full force, vigor and effect, unvacated, unreversed and unmodified and is subject to no credits, set-offs or counterclaims other than hereinafter set forth.' Petitioners denied this allegation. They maintained that the Commissioner's action had been reversed and the additional taxes abated by the opinion and ruling of the Board of Tax Appeals, and this seems to have been the only point relied upon in the Circuit Court of Appeals which rejected petitioners' theory and approved the challenged judgment on the bond.
The bond in suit must be construed in the light of surrounding circumstances. U.S., for Use of Hill v. American Surety Co., 200 U.S. 197, 203, 204, 205, 26 S.Ct. 168, 50 L.Ed. 437. They are narrated above.
Considering the state of the record, it is only necessary now to pass on one point: Were 'the additional assessments, penalties and interest' 'abated' by the Board of Tax Appeals' final determination, within the meaning of the bond in suit? Unless this is answered in the affirmative, the judgment below must stand. There is no suggestion that it should be upset upon any other ground.
As the provisions of section 906(e) first came into the law after execution of the bond, they could not then have been within contemplation of the parties. The bond of 1925, like the two preceding ones, was given to protect the United States against loss; it referred to the tax liability existing March 13, 1923, $153,815.30, and was intended to guarantee payment of that sum unless reduced or annulled by some future action of the Commissioner. Payment might have been enforced; but the taxpayer claimed the amount assessed was too high and procured further delay for investigation by executing the bond. The possible abatement—partial reduction or annulment—there referred to depended upon the future decision of the Commissioner.
On appeal to the Board, the taxpayer challenged the assessment as erroneous; also, because under the statute of limitations there remained no right to enforce the tax. As to the first ground, the Board found nothing. It declared only that the statute had run against the right to collect the tax—this upon the taxpayer's prayer. In no proper sense was there a redetermination of the deficiency assessed in 1923. The anticipated bar of the tax by the statute could not affect the controversy—was not the point in issue, was not disputed. The bond required payment of a stated sum under the assessment already made, unless this should be abated by the Commissioner. What abatement should be allowed was the matter before him, and a re-examination of his determination was necessarily limited to those matters which might have been presented to him. By the prayer based on the statute of limitations, the taxpayer defeated a determination of the real controversy.
The existence of the bar under the statute, as against the lien or right to enforce the tax as such, was never the subject of controversy—was not denied. And, as the present suit is not to enforce the tax as such, but an obligation given in contemplation of the loss of right to enforce, a decision proclaiming this loss is but announcement of something expected by all parties—an unfruitful pronouncement upon an immaterial point. United States v. John Barth Co., supra. See United States v. Martin Hotel Co. (C.C.A.) 59 F.(2d) 549. As the Board failed to pass upon the Commissioner's refusal to reduce the amount of the assessment, that sum, with interest, etc., now represents what is due upon the bond. The Board expressly disclaimed purpose to rule concerning this obligation—the question was not present. It might, with propriety, have examined the objections to the amount of the 1923 assessment; but the taxpayer asked another course.
Section 906(e) may find proper application on an ordinary appeal, as for example, where the Commissioner's right to assess is challenged because the statute of limitations had run, or where, as in Bowers v. New York & Albany Lighterage Co., supra, the collector asserts the right to enforce payment by distraint after the statutory bar. It can have no application to what may have been said or done by the Board when undertaking to redetermine a deficiency having no possible relation to the statute of limitations.
'Sec. 274. (a) If in the case of any taxpayer, the Commissioner determines that there is a deficiency in respect of the tax imposed by this title, the Commissioner is authorized to send notice of such deficiency to the taxpayer by registered mail. Within 60 days after such notice is mailed (not counting Sunday as the sixtieth day), the taxpayer may file a petition with the Board of Tax Appeals for a redetermination of the deficiency. Except as otherwise provided in subdivision (d) or (f) of this section or in section 279, 282, or 1001, no assessment of a deficiency in respect of the tax imposed by this title and no distraint or proceeding in court for its collection shall be made, begun, or prosecuted until such notice has been mailed to the taxpayer, nor until the expiration of such 60-day period, nor, if a petition has been filed with the Board, until the decision of the Board has become final. Notwithstanding the provisions of section 3224 of the Revised Statutes the making of such assessment or the beginning of such proceeding or distraint during the time such prohibition is in force may be enjoined by a proceeding in the proper court.
'(b) If the taxpayer files a petition with the Board, the entire amount redetermined as the deficiency by the decision of the Board which has become final shall be assessed and shall be paid upon notice and demand from the collector. No part of the amount determined as a deficiency by the Commissioner but disallowed as such by the decision of the Board which has become final shall be assessed or be collected by distraint or by proceeding in court with or without assessment.' (26 USCA §§ 1048, 1048a).

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