Source: https://supreme.justia.com/cases/federal/us/282/92/
Timestamp: 2019-04-22 06:49:29+00:00

Document:
"A corporation . . . keeping accounts upon any basis other than that of actual receipts and disbursements, unless such other basis does not clearly reflect its income, may, subject to regulations made by the Commissioner of Internal Revenue, with the approval of the Secretary of the Treasury, make its return upon the basis upon which its accounts are kept, in which case the tax shall be computed upon its income as so returned."
A Treasury ruling with respect to returns under §§ 12(a) and 13(d) contemplated that income and authorized deductions should be computed and accounted for on the same basis, and that the same practice should be consistently followed year after year. The returns of a taxpayer for 1916 and 1917 stated that they were made on the basis of actual receipts and disbursements. Each return, however, included bills and accounts receivable and payable and employed the inventory basis -- a practice which would have been authorized by Treasury regulations if the returns had been governed by earlier Acts which contained provisions like those of § 12(a), supra, but which lacked the new provisions of §§ 13(b) and 13(d). A munitions tax, which accrued in 1916, and was paid in 1917, was deducted by the taxpayer under § 12(a), in the 1917 return.
1. That the regulations mentioned, which required the use of inventories in proper cases and permitted the deduction of accounts payable when accounts receivable were brought into the income account, were supplementary to the provisions of the earlier Acts, and do not have the effect of classifying items receivable and payable as cash receipts and disbursements when the like provisions of § 12(a) are to be construed with the new provisions, §§ 13(d) and 13(b), of the 1916 Act. P. 282 U. S. 97.
2. Although, by § 12(a), taxes are required to be deducted only in the year when paid, § 13(d), in the light of its legislative history, plainly indicates that the returns contemplated by it are to be dealt with as a separate class, distinct from those based on actual receipts and disbursements alone described by § 12(a). Id.
3. The filing of a return under § 13(d), where the taxpayer is able to comply with its requirements, is optional if he is also able to prepare a return on the basis of actual receipts and disbursements; but if true income cannot be arrived at on the latter basis, the return must be filed on the accrual basis. P. 282 U. S. 98.
4. A taxpayer's declaration in his income tax return as to whether it is made on the accrual basis or on that of actual receipts and disbursements is not conclusive. P. 282 U. S. 99.
5. The use of inventories, and the inclusion in the returns of accrual items of receipts and disbursements appearing on the taxpayer's books, indicate the general and controlling character of the account, and support the finding of the trial court in this case that books and returns were on the accrual basis. Id.
6. It was competent for the Commissioner -- the record not disclosing that the taxpayer offered to make a return for 1917 on the basis of actual receipts and disbursements, or could do so -- to correct the return for 1917 to conform it to the system of accounting in fact adopted by excluding from it the munitions tax which had accrued in 1916, whether appearing on the books for that year or not. Id.
Certiorari, 280 U.S. 540, to review a judgment of the circuit court of appeals affirming a judgment of the district court, 24 F.2d 230, for the Collector in an action to recover income and excess profits taxes assessed and paid for 1917.
correctly deducted from gross income in petitioner's tax return for that year. The Commissioner, rejecting this contention, deducted the tax from gross income for 1916, the year when it accrued, see United States v. Anderson, 269 U. S. 422, and collected a correspondingly increased income and profits tax for 1917, which is involved in the present suit.
The district court, finding that petitioner kept its books and filed its tax returns for 1916 and 1917 on the "accrual basis," gave judgment for the Collector, 24 F.2d 230, which the Court of Appeals for the Sixth Circuit affirmed, 31 F.2d 669. Both courts held, on the authority of United States v. Anderson, supra, that, as the books were kept and returns made on the accrual basis, the munitions tax which accrued in 1916 could not be deducted in the return for 1917.
as receipts and disbursements." In both returns, bills and accounts, payable and receivable, in fact were treated as actual receipts and disbursements, and both were based on inventories taken at the beginning and end of the taxable year. The munitions tax deducted in the 1917 return first appeared on the taxpayer's books in that year.
Petitioner contends that its returns were made as "cash receipts and disbursements" returns under § 12(a), and not under § 13(d), and that, since, by § 12(a), taxes are required to be deducted only in the year when paid, its munitions tax was rightly deducted in the 1917 return. In support of this contention, it is pointed out that § 12(a) of the 1916 Act does not differ materially from corresponding provisions of the Revenue Acts of 1909 and 1913 (Corporation Excise Tax Act of Aug. 5, 1909, c. 6, § 38, 36 Stat. 11, 112; Corporation Income come Tax Act of Oct. 3, 1913, c. 16, § II, subdiv. G, 38 Stat. 114, 172), and, as petitioner's returns for 1916 and 1917 would have been authorized under these earlier Acts, and Treasury Regulations supplementing them, it is argued that petitioner's right to deduct taxes when paid was not altered by the addition to the revenue laws, in the 1916 Act, of § 13(d), which, merely gave to the taxpayer an option, not availed of by petitioner, to make a return on the accrual basis.
This argument is, in substance, that considered and rejected by the Court in United States v. Anderson, supra, p. 269 U. S. 439. There, as here, the taxpayer's return for 1917 computed income on the basis of inventories and accrued items, payable and receivable, appearing on the taxpayer's books of account for that year, but deducted from gross income the munitions tax, paid in 1917, which had accrued the year before. The return, as made, would have been permissible under the Revenue Acts preceding that of 1916; but it was held that, under that Act, the tax was required to be deducted in the year when it accrued.
Section 12(a) of the 1916 Act, like its prototypes in the earlier legislation, deals only with the deduction from gross income of amounts paid out or losses sustained. None of them, in terms, permitted the deduction of accounts payable or made any provision for the use of inventories in computing net income. Experience demonstrating that income derived from merchandising and manufacturing businesses could not be computed on the basis of receipts and disbursements alone, treasury regulations were promulgated requiring the use of inventories in proper cases, and permitting the deduction of accounts payable when accounts receivable were brought into the income account. Treasury Regulations 31, Dec. 3, 1909, under the Act of Aug. 5, 1909; 33, Jan. 5, 1914, under the Act of Oct. 3, 1913.
"appropriate and in the option of the commissioner necessary to determine the correctness of the net income returned and to carry out the provisions of this title."
"This ruling contemplates that the income and authorized deductions shall be computed and accounted for on the same basis and that the same practice shall be consistently followed year after year."
This ruling antedated petitioner's 1916 and 1917 returns, and obviously gross income and deductions in its returns were not "accounted for on the same basis." Its income for 1917 could not be ascertained by deducting from gross income, including receivables, some items of cost and expense, attributable to the production of 1917 income, which accrued but were not paid in that year, and the munitions tax, which was paid in 1917 but which accrued and was attributable to the production of income in 1916.
Can Co., 280 U. S. 412; United States v. Anderson, supra; Niles Bement Pond Co. v. United States, supra.
Pending the adoption of regulations applicable to the Revenue Act of 1916, Treasury Decision 2367, Sept. 14, 1916, continued existing regulations in force only so far as not inconsistent with the provisions of the 1916 Act. New regulations applicable to §§ 12(a) and 13(d), adopted in Treasury Decision 2433, Jan. 8, 1917, before petitioner filed its 1916 and 1917 returns, are considered infra, p. 282 U. S. 98.
"As two systems of bookkeeping are in use in the United States, one based on the cash or receipt basis and the other on the accrual basis, it was deemed advisable to provide in the proposed measure that an individual or corporation may make return of income on either the cash or accrued basis, if the basis selected clearly reflects the income."
"In the interpretation of statutes levying taxes, it is the established rule not to extend their provisions, by implication, beyond the clear import of the language used, or to enlarge their operations so as to embrace matters not specifically pointed out. In case of doubt, they are construed most strongly against the government and in favor of the citizen."
Gould v. Gould, 245 U. S. 151, 245 U. S. 153; Crocker v. Malley, 249 U. S. 223, 249 U. S. 233; United States v. Field, 255 U. S. 257, 255 U. S. 262; Smietanka v. First Trust & Savings Bank, 257 U. S. 602, 257 U. S. 606; Shwab v. Doyle, 258 U. S. 529, 258 U. S. 534; United States v. Merriam, 263 U. S. 179, 263 U. S. 188; Hecht v. Malley, 265 U. S. 144, 265 U. S. 156; Reinecke v. Northern Trust Co., 278 U. S. 339, 278 U. S. 348.
We think it impossible properly to say that the statute under consideration, by clear import, laid the questioned tax. The petitioner made its return after the mode long approved by the Treasury Department, and distinctly disavowed any purpose to accept the option granted by § 13(d). Under an interpretation certainly not free from grave doubt, a taxpayer who honestly sought to do what capable counsel well might have advised has been heavily burdened.
United States v. Anderson, 269 U. S. 422, differs materially from the present cause upon the facts, and, we think, is not enough to support the conclusion of the court below.
am bound to follow it in similar cases, and in principle, I think, it controls here. It is true that there are differences in matters of fact between the present case and that case, but they seem to me not to be of a character to affect the pertinence of the Anderson decision and call for the application of a different rule. For that reason alone, I concur in the opinion of the Court just announced. Were it not for the Anderson case, I should join in the dissent.
MR. JUSTICE ROBERTS concurs in this view.

References: § 12
 § 12
 § 12
 § 12
 § 13
 § 12
 § 13
 v. 
 v. 
 § 12
 § 13
 § 12
 § 12
 § 38
 § 13
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 § 13
 v.