Source: http://www.chanrobles.com/usa/us_supremecourt/286/290/case.php
Timestamp: 2017-12-13 20:45:28
Document Index: 101358765

Matched Legal Cases: ['§ 204', '§ 204', '§ 209', '§ 5', '§ 209', '§ 204', '§ 209', '§ 209']

CONTINENTAL TIE & LUMBER CO. V. UNITED STATES, 286 U. S. 290 (1932) - US SUPREME COURT DECISIONS ON-LINE
US Supreme Court Decisions On-Line> Volume 286 > CONTINENTAL TIE & LUMBER CO. V. UNITED STATES, 286 U. S. 290 (1932)
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3. An award under § 204 held taxable as income for 1920, although it was not determined by the Commission and paid until 1923, since the railroad kept its books upon the accrual basis and had data, in 1920, from which it could have made a reasonably approximate estimate in its tax return for that year, subject to future adjustment by amended return, claim for refund, or additional chanroblesvirtualawlibrary
Certiorari, 284 U. S; 615, to review the denial of a claim based on an alleged overpayment of income tax. chanroblesvirtualawlibrary
For the year 1920, the petitioner filed a consolidated income tax return for itself and the Cimarron and Northwestern Railway Company and paid the tax shown as due. Subsequently, a claim for refund was prosecuted, whereupon the Commissioner made a reaudit and added to the railway's income some $27,000. The refund granted was diminished by the amount of the additional tax resulting from the increase in income so determined. The petitioner objected to this reduction and brought suit chanroblesvirtualawlibrary
What we have said in Texas & Pacific Ry. Co. v. United States, ante, p. 286 U. S. 285, is determinative of the first contention. Section 209 of the Transportation Act guaranteed the payment of any deficiency below a chanroblesvirtualawlibrary
The petitioner kept its accounts upon the accrual basis. The government insists, and the Court of Claims held, that, the right to payment having ripened in 1920, the taxpayer should have returned the estimated award under § 204 as income for that year. The petitioner replies that a determination whether it would receive any award under the section, and, if so, the amount of it, depended on so many contingencies that no reasonable estimate could have been made in 1920, and that the sum ultimately ascertained should be deemed income for 1923, the year of the award and payment. chanroblesvirtualawlibrary
The petitioner says that, at the date of the passage of the act, it was impossible to predict that any award would be made to the railway, and, assuming one would eventuate, its amount could not be estimated, for the reason that the principles upon which awards were to be made had to be settled by the Commission, and were not finally formulated until 1923. The government insists that, while adjustments or settlement of principles by the Commission might vary the amount to be awarded, the petitioner's case presented problems not differing from those confronting many business concerns which keep accounts on an accrual basis and have to estimate for the tax year the amount to be received on transactions undoubtedly chanroblesvirtualawlibrary
The carriers kept their accounts according to standards prescribed by the Commission, and these necessarily were the source of information requisite for ascertainment of the results of operation in the two periods to be compared. In the calculation for two such brief periods, allowance had to be made for the fact that certain operating charges entered in the books would not accurately reflect true income. Such, for instance, were maintenance charges and those to reserve accounts. The enormous increase in labor and material costs after the expiration of the test period had also to be considered in comparing charges for costs of repairs and renewals in the two periods. Section 204 incorporated by reference the terms of § 209 applicable to the method of treating such items, and the latter in turn referred to the relevant provisions of § 5(a) of the standard operating contract between the Director General and the various railroads. As might have been expected, the general principles thus formulated did not cover in detail questions of fact, the solution of which required in some degree the exercise of opinion and judgment. Thus, difference might fairly arise as to when reserve chanroblesvirtualawlibrary
accounts ought to be closed out, as to how much of the sum actually expended for maintenance within a given time was properly allocable to that period, and how much to later years; at what price renewals and replacements should be charged in view of the rapidly mounting cost of material; what factor of difference should be allowed for the efficiency of labor in the pre-war and postwar periods. The petitioner points to the fact that these questions were raised by the railroads under § 209, that the Commission gave extended consideration to them, and that, as respects sundry of them, the applicable principles were not settled until 1921, 1922, and 1923. Petitioner might have added that the Commission, while attempting as far as possible to formulate general principles applicable to large groups of carriers, found it necessary in addition to consider the peculiar conditions and special circumstances affecting individual carriers in order in each case to do justice to the carrier and to the United States. [Footnote 2] But, in spite of these inherent difficulties, we think it was possible for a carrier to ascertain with reasonable accuracy the amount of the award to be paid by the Government. Subsequent to its order of June 10, 1920, the Commission made no amendment or alteration of the rules with respect to the information to be furnished under § 204. Obviously the data had to be obtained from the railway's books and accounts and from entries therein all made prior to March 1, 1920. These accounts contained all the information that could ever be available touching relevant expenditures. Compare United States v. Anderson, 269 U. S. 422. The petitioner was promptly informed by the terms of § 209, as supplemented by the instructions issued by the Commission, of the method to be followed in allocating charges to operation during periods under inquiry. chanroblesvirtualawlibrary
Much is made by the petitioner of the fact that, as a result of representations by the carriers, the Commission from time to time during 1921, 1922, and 1923 promulgated rulings respecting the method of adjusting book charges to actual experience, and it is asserted that petitioner could not, in 1920, have known what these rulings were to be. But it is not clear that, if the taxpayer had acted promptly, an award could not have been made during 1920, or at least the principles upon which the Commission would adjust the railway's accounts to reflect true income have been settled during that year sufficiently to enable the railway to ascertain with reasonable accuracy the amount of the probable award. The reports of the Interstate Commerce Commission show that it was possible for a carrier whose claim arose under § 209 to obtain a final award early in 1921, prior to the time for preparing its income tax return. [Footnote 3] From the record, it would seem that, in spite of the fact that its teturn was not made until November, 1922, the petitioner made up its claim by taking maintenance charges as appearing in its books, without attempt at allocation as between the limited periods in which they were entered and the probable useful life of the installations. Petitioner must have known that the entire amounts charged to maintenance during the respective periods would not be properly allowable in ascertaining true income for each period. The books and accounts fixed the maximum amount of any probable award, and, if petitioner had endeavored to make reasonable adjustments of book figures, it could have arrived at a figure to be accrued for the year 1920. Any necessary adjustment of its tax could chanroblesvirtualawlibrary