Source: https://supreme.justia.com/cases/federal/us/302/528/
Timestamp: 2019-04-20 09:05:37+00:00

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Justia › US Law › US Case Law › US Supreme Court › Volume 302 › United States v. Garbutt Oil Co.
United States v. Garbutt Oil Co.
1. An oil operating company made timely claim for refund of an additional income tax, basing it upon the specific grounds that proper deduction for amortization had not been made, and that, in respect of excess profits tax, it invested capital had been understated. While this claim was pending, it sought to amend by setting up as a further ground that, during the tax year, it had received no income taxable, because its entire production of oil had been distributed in kind to its lessors and to its shareholders. Held not a permissible amendment, but a new claim untimely filed. United States v. Andrews, ante, p. 302 U. S. 517. P. 302 U. S. 531.
2. The Commissioner of Internal Revenue is without power to waive the bar of the statute of limitations against a claim for a tax refund. P. 302 U. S. 533.
Certiorari, post, p. 671, to review the reversal of a judgment for the United States in an action to recover an alleged overpayment of income tax.
taxes for 1919. There is no controversy as to the facts found by the trial court. The respondent, a California corporation, acquired a lease of oil property October 3, 1907. April 10, 1911, the directors resolved that all oil produced after January 1 of that year should be transferred in kind to the lessors to the extent of their royalty interest and to the company's stockholders pro rata to their respective holdings, so long as the latter should pay calls for money necessary to defray the company's expenses. The resolution remained in effect to and including the year 1919 and distribution of all oil produced was made accordingly. In its books of account and its return for income tax, the respondent recorded at market value the oil produced and treated the difference between that value and the cost of production as income. The Commissioner of Internal Revenue followed the same method in computing taxable income. In its 1919 return, the respondent disclosed a net income of $16,928.61 and a tax liability of $2,072.68 which was paid during the year 1920. The Commissioner, as the result of an audit, assessed an additional tax of $3,105.65 which was paid April 3, 1925.
March 30, 1929, within the four-year period of limitations prescribed by the applicable statute, [Footnote 1] the respondent filed a claim for the return of the additional tax so paid, based upon two grounds: first, that the respondent was entitled to an additional deduction of $12,500 for the amortization of the cost of a drilling contract with Union Oil Company by which the latter, in consideration of $250,000 par value of respondent's stock, agreed to provide expenses of developing the leased oil property, reimbursement to be made only out of oil produced; and, second, that, in respect of excess profits tax, its invested capital had been understated by failure to include the unrecovered cost of the same contract in the sum of $109,375.
"Statement of Garbutt Oil Company . . . for the purpose of perfecting and completing claim for refund covering alleged overpayment of income tax for the calendar year 1919."
Therein the respondent asserted that it "now develops that a further reason exists in support of" the pending claim, since, by distribution of oil in kind, the respondent realized no taxable income during 1919, and that "it therefore follows that, even though the specific grounds set forth in the claim for refund are denied said claim should, nevertheless, be allowed in full," for the reasons set forth in the statement. Refund was demanded of the entire tax paid for 1919 ($5,178.33) "or so much thereof as is properly refundable within the statute of limitations." August 12, 1929, the Commissioner wrote the respondent, concerning the merits of the original claim and the amendment, stating that a refund of $3,105.65 would not be allowed, but that a hearing could be had upon the proposed rejection if requested in writing. On October 4, 1929, a conference was held, but it does not appear whether the merits of the amendment were discussed. November 13, 1929, the Commissioner advised the respondent that the claim would be rejected on the merits and that the new contention embodied in the statement filed would be rejected as it was not referred to in the timely claim and was presented only after the expiration of the period of limitations and after the expiration of the time allowed to perfect informal claims, pursuant to a Treasury decision. Formal rejection of the claim was made November 21, 1929.
claim originally filed were abandoned, and recovery was sought upon the basis of the statement filed after the expiration of the statutory period of limitation. The court held that the latter did not constitute an amendment of the claim originally filed, and came too late, although it also found that the Commissioner had considered the late contention on its merits. Judgment was entered in favor of the United States. The Circuit Court of Appeals reversed, holding the statement filed as an amendment was germane to the original refund claim and that both were grounded in substantially the same facts. [Footnote 2] We granted certiorari to resolve alleged conflict of decision.
In view of what has been said in United States v. Andrews, supra, it is necessary only to inquire in the instant case whether the original claim was specific, and the so-called amendment completely shifted to a totally different ground for refund.
The transactions of the taxpayer which gave rise to its tax liability were exceedingly simple, due to the fact that it had resorted to distribution of all the oil produced, partly to its lessors as royalty and partly to its stockholders in return for their advancing the corporate expenses. If it was liable for income tax, the method of calculation it adopted was apparently the correct one.
claim directed the Commissioner's attention to these two items only. It gave him no notice that the taxpayer claimed not to have been in receipt of any income whatever for the taxable year. The documents would not naturally suggest any such claim, for, as in United States v. Henry Prentiss & Co., Inc., 288 U. S. 73, the ground asserted in the later demand was totally inconsistent with, and involved a negation of, that specified in the claim for refund. Before the Commissioner had acted on the claim for refund, the respondent, in an effort to evidence continuity and identity of claim, filed its so-called statement perfecting and completing the claim for refund. This abandoned the grounds originally alleged in support of the claim. The position taken in the amendment was that the taxpayer had no income whatever, and that, if the Commissioner refused refund on the basis of a rejection of the deductions claimed from gross income in the original demand, he should find that the taxpayer's operations were not productive of any income to it.
of the question whether the taxpayer's transactions gave rise to income. On the contrary, the grounds advanced assumed the receipt of income. The claim being thus specific, the Commissioner was entitled to take it at face value and to examine only the points to which it directed his attention. It would be to disregard the natural course of procedure in the Bureau to suppose that grounds thus specifically asserted would direct attention to another at war with them.
"The line of division must be kept a sharp one between the function of a statute requiring the presentation of a claim within a given period of time and the function of a regulation making provision as to form. The function of the statute, like that of limitations generally, is to give protection against stale demands. The function of the regulation is to facilitate research."
which otherwise would not exist -- consequences which do not attach to the waiver here."
The statement filed after the period for filing claims had expired was not a permissible amendment of the original claim presented. It was a new claim untimely filed, and the Commissioner was without power, under the statute, to consider it.
Revenue Act of 1926, c. 27, § 284(a)(b)(1)(2), 44 Stat. 9, 66.

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