Source: http://openjurist.org/269/us/422/united-states-v-anderson-same
Timestamp: 2013-05-22 10:59:24
Document Index: 679134618

Matched Legal Cases: ['§ 242', '§ 1219', '§ 6336', '§ 38', '§ 210', '§ 6336', '§ 6336']

269 US 422 United States v. Anderson Same | OpenJurist
269 U.S. 422 - United States v. Anderson Same	Home269 us 422 united states v. anderson same
269 US 422 United States v. Anderson Same 269 U.S. 422
46 S.Ct. 131
70 L.Ed. 347
UNITED STATESv.ANDERSON et al. SAME v. YALE & TOWNE MFG. CO.
Nos. 337, 420.
Argued Nov. 20, 1925.
[Argument of Counsel from pages 423-425 intentionally omitted]
Mr. John W. Davis, of New York City, for appellees Anderson and others.
[Argument of Counsel from pages 426-433 intentionally omitted]
Mr. Louis H. Porter, of New York City, for appellee Yale & Towne Mfg. co.
The appellees in both cases brought suit in the Court of Claims to recover payments of corporate income taxes alleged to have been erroneously exacted. From judgments in their favor the government brings the cases to this court on appeal. Judicial Code, § 242 (Comp. St. § 1219), before amendment of 1925.
For the purpose of discussing the main question raised by both appeals, No. 420 will first be considered, and such additional questions as are involved in No. 337 will then be taken up.
The correctness of the determination of the Commissioner depends upon the construction of the Revenue Act of 1916 and its application to the particular method employed by the taxpayer in keeping its books of account and in making return for income tax for 1916. The pertinent provisions of the statute are sections 10, 12(a), 13(a) and (d), and 300 of the Revenue Act of 1916, c. 463 (39 Stat. 756, 765, 767, 768, 770, 771, 780, 781 (Comp. St. § 6336j, 6336l, 6336m, 6336 1/4 a)). The act imposes a tax on net income and profits ascertained as provided by section 12(a), by deducting from gross income, expenses paid, losses sustained, interest and taxes paid during the calendar year. Section 13(d), however, provides that:
'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. * * *'
It is not denied by the appellee that its method of keeping its accounts and setting up a reserve for munitions taxes reflected its true income for 1916 or that its amended return on that basis accurately reflects it income and profits for the year. But it contends that the munitions tax was deductible only in 1917 because under the Revenue Act of 1916 only taxes actually paid during the year were deductible in determining net income for the year; and that in any case the provisions of that act and the regulations made by the Commissioner, authorizing the taxpayer to make his returns on an 'accrual' basis if his books are so kept, could have no application to tax deductions, since a tax does not accrue until it is due and payable.
So interpreting the statute, the Commissioner, with the approval of the Secretary of the Treasury, on January 8, 1917, before appellee made its income tax return for 1916, promulgated Treasury Decision 2433 which provides in part that under section 13(d) it—
'will be permissible for corporations which accrue on their books monthly or at other stated periods amounts sufficient to meet fixed annual or other charges to deduct from their gross income the amounts so accrued, provided such accruals approximate as nearly as possible the actual liabilities for which the accruals are made, and provided that in cases wherein deductions are made on the accrual basis as hereinbefore indicated, income from fixed and determinable sources accruing to the corporations must be returned, for the purpose of the tax, on the same basis.'
The Revenue Acts of 1909 (36 Stat. 11) and 1913 (38 Stat. 114) authorized a method of computing the income of corporations, which did not differ materially from that provided by section 12(a) of the Act of 1916. They required in terms that net income should be ascertained by deducting from gross income received, interest, expenses and taxes actually paid and losses actually sustained, but contained no provision corresponding to section 13(d) of the Act of 1916 by which a return might be made on the basis of the taxpayer's books of account. Corporation Excise Tax Act Aug. 5, 1909, c. 6, § 38, 36 Stat. 11, 112; Corporation Income Tax Act Oct. 3, 1913, c. 16, § II, subd. G, 38 Stat. 114, 172.
It was pressed upon us in argument by appellees that it was found impracticable to comply strictly with the requirements of the 1909 and 1913 acts for computing income on the basis of receipts and disbursements and that under both acts the administrative practice was established, by appropriate Treasury Regulations, permitting the use of inventories and authorizing deduction of expenses constituting a liability of the taxpayer, whether paid or not, in ascertaining net income, but that those regulations did not permit the deduction of taxes except in the year when paid. From this it is argued that Congress, by reenacting in section 12(a) of the Act of 1916 the corresponding provisions of the earlier acts, adopted the settled administrative practice, and that accordingly under that act, as well as under the earlier acts and Treasury Regulations, taxes could be deducted only in the year when paid.
This argument would have force had Congress stopped with the enactment of section 12(a). By thus adopting, without material change, the corresponding provisions of earlier acts, Congress might have been deemed to have recognized and adopted the established practice of the Department interpreting and applying them. National Lead Co. v. United States, 252 U. S. 140, 40 S. Ct. 237, 64 L. Ed. 496. But, in the Act of 1916, Congress added section 13(d), which did not have its counterpart in earlier legislation. This section went further than any previous regulations by authorizing the tax return to be made on the basis on which the taxpayer's books were kept, provided only that the basis was one reflecting income and the return complied with regulations made by the Commissioner.
Treasury Decision 2433, to which reference has been made, was in harmony with this view of section 13(d). It recognized the right of the corporation to deduct all accruals and reserves, without distinction, made on its books to meet liabilities, provided the return included income accrued, and, as made, reflected true net income. If the return failed so to reflect income, the regulation reserved the right of the Commissioner to require the return to be made on the basis of receipts and disbursements.
Only a word need be said with reference to the contention that the tax upon munitions manufactured and sold in 1916 did not accrue until 1917. In a technical legal sense it may be argued that a tax does not accrue until it has been assessed and becomes due; but it is also true that in advance of the assessment of a tax, all the events may occur which fix the amount of the tax and determine the liability of the taxpayer to pay it. In this respect, for purposes of accounting and of ascertaining true income for a given accounting period, the munitions tax here in question did not stand on any different footing than other accrued expenses appearing on appellee's books. In the economic and bookkeeping sense with which the statute and Treasury decision were concerned, the taxes had accrued. It should be noted that section 13(d) makes no use of the words 'accrue' or 'accrual' but merely provides for a return upon the basis upon which the taxpayer's accounts are kept, if it reflects income-which is precisely the return insisted upon by the government. We do not think that the Treasury Decision contemplated a return on any other basis when it used the terms 'accrued' and 'accrual' and provided for the deduction by the taxpayer of items 'accrued on their books.'
United States v. Woodward, 256 U. S. 632, 41 S. Ct. 615, 65 L. Ed. 1131, relied upon by appellees, arose under the Income Tax Law of 1918, c. 18, title 2, §§ 210-214, 219, 1405, 40 Stat. 1062-1067, 1071, 1151 (Comp. St. Ann. Supp. 1919, §§ 6336 1/8 e-6336 1/8 g, 6336 1/8 ii, 6371 3/4 c). Section 213(a) and (e) of that act (Comp. St. Ann. Supp. 1919, § 6336 1/8 ff) provided that taxes 'paid or accrued' within the taxable year imposed by authority of the United States, except income, war profits and excess profits taxes, might be deducted in ascertaining income. The claim of the taxpayer of the right to deduct estate taxes levied under that act for the year when due, although paid in a later year, was upheld. It did not appear whether, as here, the taxpayer kept his books on the accrual basis or whether, as here, events had occurred before the tax became due which fixed the amount of it; for it did not appear whether the deductions to be made from the testator's gross estate were ascertainable for the purpose of determining the estate tax. The question which we now have to determine was not raised, considered or decided in that case.
It was argued in behalf of the appellees in No. 337 that the taxpayer did not keep its books on an accrual basis; that consequently its case was not controlled by section 13(d) and Treasury Regulations made under it, and that by section 12(a) it was authorized to deduct the amount assessed for munitions taxes only in 1917, the year when paid. On this point we are concluded by the findings. They show that in the year 1916 the taxpayer accrued on its books expenses, whether paid or not, including 'insurance reserves,' 'freight reserves,' 'bonus reserves,' and depreciation charged off, aggregating more than $2,500,000, which it deducted from accrued gross income, whether actually received or not, in making its income tax return for the year. It charged on its books and deducted in its income tax return, interest accrued and paid during the year. So far as appears no other interest accrued during the year and there was no reserve for interest. No charge or deduction was made for bad debts. It also set up on its books for that year a monthly reserve of $35,000 for the payment of munitions taxes beginning with September, the month of the passage of the Revenue Act of 1916 taxing munitions. On December 31, 1916, this reserve account was closed out and a charge was made on its books against the corporate surplus for account of munitions taxes of $86,541.95. No deduction was made by the taxpayer for munitions taxes in its income tax return for the year 1916. In 1917 the munitions tax was returned and ultimately assessed and paid in the sum of $112,419.54.
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