Court Opinion

ID: 4480921
Source: CourtListenerOpinion
Date Created: 2020-01-16 21:14:35.771161+00
Date Added: 2024-06-11T08:48:28.672794
License: Public Domain

Smith, J., dissenting: Petitioner’s income tax return for its fiscal year ended February 28, 1943, shows a net loss of $95,404.88. The return was filed in good faith. It filed no excess profits tax return on Form 1121, since the law did not require the filing of such return where its excess profits net income for the year was not greater than $5,000. The instructions contained on Forms 1120 and 1121 are to that effect. The preparation of an excess profits tax return is a complicated and difficult task, and especially difficult in the case of this petitioner. The work is usually performed by a skilled accountant, employed for such purpose. The law does not require a corporation which operates at a net loss for a given taxable year to incur such an expense. Where no excess profits tax is due, the returns needlessly encumber the Commissioner’s files. The filing of an excess profits tax return in the circumstances of this petitioner is not mandatory. In fact, the law specifically provides that where the excess profits net income is not greater than $5,000 no such return is required. The question presented here is whether the failure to file a return on Form 1121 was due to a reasonable cause. I think it was. The case would, of course, be different if the petitioner had acted in bad faith. In Spies v. United States, 317 U. S. 492, the taxpayer had not filed a required tax return. He had been convicted of attempting to defeat and evade income tax in violation of section 145 (b) of the Revenue Act of 193G. Passing upon the question as to whether he was correctly convicted, the Supreme Court covered the whole field of penalties imposed by the revenue acts, including the delinquency penalty. The Court stated: Sanctions to insure payment of the tax are even more varied to meet the variety of causes of default. It is the right as well as the interest of the taxpayer to limit his admission of liability to the amount he actually owes. But the law is complicated, accounting treatment of various items raises problems of great complexity, and innocent errors are numerous, as appear from the number who make overpayments. It is not the purpose of the law to penalize frank difference of opinion or innocent errors made despite the exercise of reasonable care. Such errors are corrected by the assessment of the deficiency of tax and its collection with interest for the delay. * * * [Emphasis supplied.] Just what constitutes a reasonable cause for failure to file a required return in the absence of willful neglect, where there is no suggestion made that the petitioner willfully neglected to file an excess profits tax return, is such a cause as appeals to a man of judgment. In exercising such judgment a person must be guided by the facts in a particular case. It has been adverted to above that the petitioner’s income tax return for the taxable year, filed in good faith, shows a net loss of $95,404.88 and no excess profits net income. Surely if such a return were correct in all particulars no excess profits tax return was required to be filed. Errors made in the filing of the income tax return were innocently made. Does' the law mean that, where a corporation makes an innocent error in computing its net income and if no such error had been made the excess profits net income would be shown to be more than $5,000, the 25 percent penalty is incurred for failure to file an excess profits tax return? I do not think so. The petitioner’s contention that it had no excess profits tax net income for the taxable year should save it from a penalty for failing to file such a return where, as here, the income tax return was made in good faith and the error was an innocent error. I can not doubt but that the petitioner had a reasonable cause for failing to file an excess profits tax return for the taxable year. In my judgment the imposition of the delinquency penalty in this case is not justified. Arundell, Murdock, Mellott, and Arnold, //., agree with this dissent.