Opinion ID: 259355
Heading Depth: 1
Heading Rank: 2

Heading: Final Determination

Text: 21 Section 3801(a) (1) of the 1939 Code defines determination as follows: 22 (1) Determination. The term `determination under the income tax laws' means — 23 (A) A closing agreement made under section 3760; 24 (B) A decision by the Board of Tax Appeals or a judgment, decree, or other order by any court of competent jurisdiction, which has become final; 25 (C) A final disposition by the Commissioner of a claim for refund. For the purposes of this section a claim for refund shall be deemed finally disposed of by the Commissioner — 26 (i) as to items with respect to which the claim was allowed, upon the date of allowance of refund or credit or upon the date of mailing notice of disallowance (by reason of offsetting items) of the claim for refund, and 27 (ii) as to items with respect to which the claim was disallowed, in whole or in part, or as to items applied by the Commissioner in reduction of the refund or credit, upon expiration of the time for instituting suit with respect thereto (unless suit is instituted prior to the expiration of such time). 28 Such term shall not include any such agreement made, or decision, judgment, decree, or order which became final, or claim for refund finally disposed of, prior to August 27, 1938. 29 Section 1313(a) of the 1954 Code is substantially the same as Section 3801. 30 The Commissioner argues that the district court erred in finding there was any final determination: (1) Government Form 870, evidencing the allowance in part of appellee's claims for refunds for the years 1948, 1949, and 1950, was not the closing agreement made under section 3760, which is required by Section 3801(a) (1) (A); (2) the revenue agent's report of May 1, 1954, was not a closing agreement nor a final disposition; and (3) a district court's order of dismissal entered February 24, 1958, in a suit for refunds involving 1951 was not a determination. 31 The taxpayer does not argue that Form 870 is a closing agreement or even that subsection (A) applies; rather, he urges that, in allowing the claims for 1948 and 1949, in part, the Commissioner was concurrently making a final determination on the portions of the claims disallowed. Since the entire claim for each year was based upon the inventory readjustments, allowance of that part of each claim not barred by the statute of limitations was a determination by the Commissioner accepting the correctness of the readjusted inventories. Thus, Form 870, evidencing the allowance of three claims for refund, and Form 1331, evidencing payments of these claims for refunds, constituted a final disposition by the Commissioner of a claim for refund within the statutory definition. Here the particular items finally disposed of when the Commissioner allowed appellee's claims for refunds for 1948, 1949, and 1950 were the adjusted cattle inventories upon which the refunds were based. The disposition with respect to an item as to which the claimant's contention is sustained usually becomes final on the date of allowance of the refund or credit. Note, Section 820: Equity in the Administration of the Revenue Act, 39 Colum.L.Rev. 460, 470 (1939). See 2 Mertens, Law of Federal Income Taxation § 14.14 (1961 Revision). Thus, in H. T. Hackney Co. v. United States, 1948, 78 F.Supp. 101, 110, 111 Ct.Cl. 664, the Court of Claims stated that there was a final determination within the language and intent of subsection (a) (1) (C) (i) of Section 820 [Section 3801(a) (1) (C) (i) of the 1939 Code], when the Commissioner, in a final determination of the claim for refund for 1938, gave authoritative sanction to the inconsistent treatment by plaintiff in its amended returns for 1938 and 1939 with that which had occurred in the years 1933 to and including the fiscal year ending June 30, 1938. Similarly, the Third Circuit has held in First Nat'l Bank of Philadelphia v. Commissioner, 3 Cir., 1953, 205 F.2d 82, 84, n. 3, that 32 [d]etermination under the income tax laws is defined in Section 3801 (a) (1) as including `[a] final disposition by the Commissioner of a claim for refund.' A claim for refund is there deemed final when the Commissioner allows refund or credit as to the items with respect to which the claim was allowed. 33 In the present case the items with respect to which the claim was allowed were the adjusted cattle inventories, and the Commissioner finally disposed of these inventories, under the terms of Section 3801(a) (1) (C), when he paid appellee's claims for refund in 1954. 34 There is no doubt that the revenue agent's report was not a closing agreement nor a final disposition of a claim for refund; further administrative action is required. Louis Pizitz Dry Goods Co. v. United States, N.D.Ala. 1960, 185 F.Supp. 186, 188. We consider it unnecessary to discuss the district court's order dismissing the taxpayer's claim for refunds for 1951. As we see it, a payment of a refund is a final determination. The Commissioner, by adjusting cattle inventory for the years 1948 through 1952 allowed the taxpayer's claims for refund for 1948 and 1949. When he paid these claims on June 16, 1954, he made a final disposition, determination, of the items of adjustment.