Opinion ID: 1549711
Heading Depth: 1
Heading Rank: 4

Heading: The Payments by the Railroads.

Text: From August 1, 1905, until March 31, 1914, the taxpayer did its own car spotting within its plant. Learning that the railroads performed this service for other iron-founders as part of the rate, the taxpayer protested and got an order from the Interstate Commerce Commission compelling them to spot cars for it as for others. It then after much delay, procured a reparation order from the Commission in the sum of about $140,000 for unjust discrimination over the period mentioned. That was on April 9, 1917, but the railroads still resisted. The taxpayer then sued them, but settled the actions before they were reached for trial, receiving $70,863.88 during its fiscal year, 1921. Throughout the period when it was spotting its own cars it deducted the cost of the work in its return; that is for the years when it made any returns, but it charged itself on its 1921 return with no part of the money received in settlement. The Commissioner surcharged its income with the whole fund, and the last issue is as to the correctness of his action. The propriety of charging such items to income at all depends upon their deduction in earlier years. If a taxpayer paid the expense and got the reimbursement in the same taxable year, the two items would cancel; if on the other hand he has used the deductions in one year, and the reimbursement comes in in the next, he must surcharge his income correspondingly. The rationale of this is explained in Burnet v. Sanford & Brooks Co., 282 U. S. 359, 51 S. Ct. 150, 75 L. Ed. 383. Since Congress has always computed income by annual periods, correlative items which would cancel, may enter into opposite sides of two returns, although the receipt be only to repay an outlay. The right to keep books on an accrual basis in some measure corrects the artificiality of this result, as Justice Stone observed; but accrual will not serve to accelerate a claim which is inherently too contingent to be counted. Lucas v. American Code Co., 280 U. S. 445, 50 S. Ct. 202, 74 L. Ed. 538, 67 A. L. R. 1010; Lucas v. North Texas Lumber Co., 281 U. S. 11, 50 S. Ct. 184, 74 L. Ed. 668; North American Oil Consol. v. Burnet, 286 U. S. 417, 52 S. Ct. 613, 76 L. Ed. 1197. And so the fact that this taxpayer kept its books on an accrual basis, and accrued these sums upon them is not conclusive. We think that the claim was never certain enough for accrual, until it was finally settled. That depends upon how much was settled by the order of the Interstate Commerce Commission, and how far the issues were open in the courts. Had the actions been to recover damages from giving rebates, no preliminary resort to the Commission was necessary at all. Pennsylvania R. Co. v. International Coal Mining Co., 230 U. S. 184, 33 S. Ct. 893, 57 L. Ed. 1446. The same is not true of an action to recover for discrimination, if the issues involve what is a fair car distribution, or similar administrative questions. Morrisdale Coal Co. v. Pennsylvania R. Co., 230 U. S. 304, 33 S. Ct 938, 57 L. Ed. 1494. But if the action is for disregard of a published rate or rule or practice whose validity is not in question, the action may be brought without preliminary inquiry. Baltimore & Ohio R. Co. v. Brady, 288 U. S. 448, 53 S. Ct. 441, 77 L. Ed. 888. So far as here appears, these actions raised no administrative questions; the claim was that the same services were not in all cases included in the same rate. Of course, that might involve administrative questions, but it need not. If the published rate were for example the same over a given zone, and the railroads spotted the cars of all iron-founders except the taxpayer, a court and jury were quite competent to pass upon the issues without the assistance of the Commission. As the shipper need not in that event have gone to the Commission, so the Commission's findings would be no more than prima facie valid; the carriers were free to dispute all the facts, as they did. Meeker v. Lehigh Valley R. Co., 236 U. S. 412, 430, 35 S. Ct. 328, 59 L. Ed. 644, Ann. Cas. 1916B, 691. In liability therefore the claim was still contingent. We think it was contingent as well in amount. It is true that the taxpayer's books contained all the items, but they were not conclusive. They may have included many items not properly allowable as part of spotting expenses; overhead and other general items apportioned, and the like. The line is hard to draw, (Continental T. & L. Co. v. U. S., 286 U. S. 290, 52 S. Ct. 529, 76 L. Ed. 1111); but when the claim was open to such contest both as to existence and amount, and especially when the taxpayer accepted a settlement of about half its face, it was not accruable. Commissioner v. Southeastern Express Co., 56 F.(2d) 600 (C. C. A. 5). With so much of it as is properly apportioned against the period from March 1, 1913, to March 31, 1914, we think that the income should have been surcharged and that the Commissioner was right. Not so, however, as to the period from August 1, 1905, to March 1, 1913. The unlawful discrimination of the roads, if it existed, was a tort which gave rise to a cause of action as soon as the taxpayer was damaged; that is, when it was forced to spot the cars. The fact that the claim might be contingent is here irrelevant; the important point is that the transaction as a whole took place before the date when an income tax became constitutional. As the taxpayer could not deduct any part of the expense from its income before March 1, 1913, there was no reason for surcharging its income in later years; both items must be possible of entry in an income tax return. To put it in another way, there can be no charge in such cases except as a gain. The taxpayer entered the income tax zone, so to say, with certain claims against the railroads for past torts. Park v. Gilligan (D. C.) 293 F. 129; Safety C. H. & L. Co. v. U. S. (D. C.) 5 F. Supp. 276. So far as these were eventually paid at a greater amount than their value on March 1, 1913, it might be possible to surcharge the income. There is no such proof here, and it would be fantastic to hold the taxpayer on the theory that it had not shown the value of the claims on March 1, 1913. So far as the Board surcharged the income with that portion of the settlement properly apportionable to the period before March 1, 1913, we think it was wrong. It may be that the apportionment cannot be made on the record as it stands. The order must be reversed as to this item and the cause remanded. Order reversed; cause remanded for further action in accordance with the foregoing.