Source: http://ny.findacase.com/research/wfrmDocViewer.aspx/xq/fac.19560313_0040218.C02.htm/qx
Timestamp: 2017-06-29 02:01:14
Document Index: 486168011

Matched Legal Cases: ['§ 275', '§ 275', '§ 272', '§ 272', '§ 275', '§ 276', '§ 276']

| Phoenix Coal Co. v. Commissioner of Internal Revenue
Phoenix Coal Co. v. Commissioner of Internal Revenue
PHOENIX COAL COMPANY, INC., PETITIONER,v.COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
It is petitioner's contention that this assessment for 1946 is barred by the statutory provision requiring that the amount of the income tax "shall be assessed within three years after the return was filed," § 275(a) of the Internal Revenue Code of 1939, 26 U.S.C. § 275(a), because it is based upon an adjusted computation of income for the barred year 1945. But here there was no actual assessment of tax deficiency for 1945; nor under the facts presented could there have been such a deficiency. We are clear that the limitation statute, in prohibiting reassessment within three years after the filing of the return, refers to the return in question, i. e., the 1946 return, not the 1945 return. This conclusion is buttressed by § 272(g)*fn1 of the Internal Revenue Code of 1939, 26 U.S.C. § 272(g), giving the Tax Court jurisdiction to consider facts relating to taxes of other taxable years in order correctly to determine the amount of taxes for the years in question, but not to determine whether the tax for any other taxable year has been overpaid or underpaid. This is in line with the general theory of income taxation to treat each separate year as a unit to itself, as we are again holding in Norda Essential Oil & Chemical Co., Inc., v. United States, 2 Cir., 230 F.2d 764; and see also Rosenthal v. C.I.R., 2 Cir., 205 F.2d 505.
The recent case of C.I.R. v. Van Bergh, 2 Cir., 209 F.2d 23, is directly in point.This involved a suit for a refund of an overpayment of tax for the year 1945 based upon the application of a net operating loss incurred in 1946, which the taxpayer elected to carry back to the year in question. Although the three-year statute of limitations on assessment of deficiency for 1945 had run, the Commissioner was permitted to recompute the taxpayer's tax liability for 1945 as a means of creating a setoff against the claim for refund. We pointed out that, unless the loss carry-back could be treated as though it had in fact occurred in the earlier year, the taxpayer would be placed in a better position, when the loss occurs in a later year, than when it occurs in the year when it is allowed as a deduction. Therefore the Commissioner was not required to deduct the carry-back from the net income shown on the return, but could recompute the whole income for the earlier year using the loss as a credit. The sound policy embodied in this case is controlling here, and we see no reason to extend the bar of § 275 of the Internal Revenue Code of 1939 to years other than those for which an actual assessment of deficiency is made.
Edward J. Leuthesser, 18 T.C. 1112, and Ione P. Bouchey, 19 T.C. 1078, cases cited by petitioner here, were distinguished in the Van Bergh case, for in both the Commissioner was undertaking to determine a deficiency for the very years against which the statute had run. So Deakman-Wells Co. v. C.I.R., 3 Cir., 213 F.2d 894, also urged by petitioner, is clearly inapposite for the same reason. There the year 1947, for which the Commissioner sought to claim a deficiency, was barred by the running of the three-year period. The court held that additional assessments with respect to the disallowance of a carry-back loss from the following year were the only additional assessments for 1947 open to the Commissioner to make under § 276(d), 26 U.S.C. § 276(d).Thus the conclusion of each of these cases is entirely consistent with our holding here, where we are concerned not with additional assessments for a barred year, but only with review of an earlier computation for the purpose of correctly determining the tax liability for a year not barred.
Petitioner in its complaint did in fact allege injury to its good will, as well as loss of profits. But according to the testimony of petitioner's trial attorney - as the Tax Court noted in its opinion - neither he nor the defendants in the suit ever indicated that any part of the proposed settlement was attributable to claims based on injury to good will.
Some evidence was introduced by petitioner to show expenditures made on its behalf in its early days to establish good will with potential customers and mine operators; Mr. Keay also gave a number of parties to entertain people in the coal business in 1916 and 1917 prior to its organization. But, since there was no evidence that persons for whom such expenditures were made were its customers in 1947 and 1948, such evidence was properly not given weight by the Tax Court. The court on the basis of all the evidence concluded that petitioner had not sustained its burden of proving that any of the $5,000 was allocable to good will. Upon this question of fact, we cannot find the court's determination to be clearly erroneous. See C.I.R. v. Scottish American Investment Co., 323 U.S. 119, 65 S. Ct. 169, 89 L. Ed. 113; Molnar v. C.I.R., 2 Cir., 156 F.2d 924; Forbes v. C.I.R., 2 Cir., 204 F.2d 777, certiorari denied 346 U.S. 872, 74 S. Ct. 121, 98 L. Ed. 381.
Durkee v. C.I.R., 6 Cir., 162 F.2d 184, 173 A.L.R. 553, cited by petitioner, contains suggestions that allegations in the complaint of damage to good will are controlling in determining the nature of the recovery sought and hence of the settlement. But this case involved facts from which damage to good will might reasonably be inferred; it was there alleged that the taxpayer had earned from $8,000 to $10,000 a year, with a reasonable anticipation of increasing this income to about $15,000 or $20,000. Such allegations of consistent or substantial earnings, with prospects for future increase attributable to good will, were lacking here. A mere allegation in the complaint of injury to good will is not sufficient in itself to establish that the settlement represented at least in part a recovery for that damage in the face of a substantial showing that the recovery was, on the contrary, entirely for lost ...