Court Opinion

ID: 4595805
Source: CourtListenerOpinion
Date Created: 2020-11-20 19:15:46.778139+00
Date Added: 2024-06-11T07:51:30.408131
License: Public Domain

ADOLPH B. SPRECKELS, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.Spreckels v. CommissionerDocket Nos. 94621, 95639.United States Board of Tax Appeals41 B.T.A. 1204; 1940 BTA LEXIS 1090; May 21, 1940, Promulgated *1090  1.  Petitioner was engaged in the business of purchasing and selling stocks, bonds, and commodities for profit.  Held, selling commissions paid to brokers were properly deducted as business expense.  Neuberger v. Commissioner, 104 Fed.(2d) 649. 2.  Prior to determination of deficiency, petitioner filed a claim for refund of taxes paid, on the ground that he had not taken deduction for stamp taxes paid.  In determining the deficiency, the stamp taxes were allowed as deductions, but other items resulted in determination of a deficiency.  Stipulations show an overpayment of tax.  At the hearing, more than three years after the last payment of tax, an amendment was filed, the effect of which was to claim, on new grounds, refund of overpayment.  Held, the claim of overpayment is barred by limitations.  Sec. 322(d), Revenue Act of 1934; Commissioner v. Rieck, 104 Fed.(2d) 294, and Commissioner v. Dallas, 110 Fed.(2d) 743 (Mar. 25, 1940), followed.  Walter Slack, Esq., for the petitioner.  T. M. Mather, Esq., for the respondent.  DISNEY*1205  These proceedings, consolidated for*1091  hearing, involved originally deficiencies in income tax in the amount of $1,254.11 for the year 1934 and in the amount of $4,675.17 for the year 1935.  All of the errors raised in the original petition were disposed of by stipulation at the trial, will be reflected in computation under Rule 50, and need not further be considered herein.  The issues to be examined were raised by amended petition filed in each proceeding at the hearing on June 8, 1939.  Two questions are presented - first, whether a trader in securities may deduct as ordinary and necessary expense of business selling commissions paid by him, and, second, whether claim for overpayment set forth in an amended petition filed more than three years after payment of the last installment of tax is timely.  The first proposition involves both taxable years; the second only 1934, in proceeding No. 95639, in which the amended petition asks for refund of overpayment of $4,087.61.  In proceeding No. 94621, for 1935, the amended petition asks for refund of overpayment of $1,323.70.  A part of the facts were stipulated at trial, but since the stipulation is brief it will be incorporated in the findings of fact, which we make as*1092  follows: FINDINGS OF FACT.  The petitioner, an individual who resides in San Francisco, California, filed his income tax returns for the years in question with the collector for the first district of California.  During the taxable years he maintained an office, with employees keeping a complete set of books, which were kept and the income tax returns were made upon the basis of cash receipts and disbursements.  Petitioner was engaged in the business of purchasing and selling stocks, bonds, and commodities for profit.  He paid to brokers selling commissions in connection with such sales as follows: In 1934, $23,692; in 1935, $2,246.25.  Petitioner did not deduct the selling commissions in computing income in making his income tax returns for the taxable years.  Upon petitioner's books the selling commissions were deducted from the selling price, before net profit or loss was determined.  Petitioner's income tax return for 1934, filed on May 9, 1935, showed a net taxable income of $121,593.86 and a tax of $37,897.60, which was paid in installments, the last payment being made December 16, 1935, in the amount of $9,474.40.  On December 23, 1937, petitioner filed a claim for refund*1093  of income tax in the amount of $4,087.61, on the ground that certain stamp taxes were paid that had not been claimed as deductions in the return.  With the exception of $80, this claim was allowed in the determination of the Commissioner in the deficiency letter, which was dated July 20, 1938.  Petition to the Board *1206  was filed September 26, 1938, in proceeding No. 95639.  It was stipulated that $7,828.51 may be excluded from income for 1934 as determined by the Commissioner, and that the amount of dividend credit should be reduced by $7,828.51.  Petitioner's income tax return for 1935, filed April 15, 1936, showed a net taxable income of $141,146.57 and a tax of $48,554.03, which was paid, the last installment, $12,138.50, being made December 11, 1936.  Deficiency letter was dated April 7, 1938.  After the filing of the petition for 1935 in proceeding No. 94621 on July 6, 1938, petitioner on March 9, 1939, filed with the collector of internal revenue at San Francisco, California, a claim for refund of income tax of $1,323.70 by reason of petitioner's failure to deduct commissions on sales of bonds, commodities, and stocks.  It was stipulated that income as determined*1094  by the Commissioner for 1935 may be reduced by $9,437.24, with a reduction in the same amount in dividend credit.  Petitioner reported on his income tax return for 1934 losses of $114,249.38 from sale of stocks and commodities, and took as a deduction $2,000; also, for 1935 the losses on commodity and stock transactions were reported as $8,009.69, and loss deducted was $2,000.  OPINION.  DISNEY: 1.  Are selling commissions paid by a trader in securities deductible as business expense?  After the decision of the Circuit Court in , we allowed selling commissions as well as purchasing commissions, in . On appeal to the Circuit Court our decision as to selling commissions was affirmed. . Certiorari was not applied for by the Commissioner.  We think the dicta in , and in , referred to by respondent, are not decisive of the point here presented.  We hold therefore that the respondent upon*1095  the point is in error, and that the selling commissions are allowable deductions.  The result, as to the year 1935 and in proceeding No. 94621, is that we find there is no deficiency and that there is an overpayment of tax by the petitioner in the amount of $1,323.70 paid on December 11, 1936, both within three years before the filing of claim therefor by amendment to the petition filed on June 8, 1939, and within three years before the filing of the claim for refund on March 9, 1939.  As to the year 1934, in proceeding No. 95639, a different situation is presented.  The result of a stipulation entered into at the hearing is that there was an overpayment for the year 1934, but the respondent *1207  objected to the filing of the amendment to the petition, on the ground that the claim of overpayment thereby advanced was not timely, being presented for the first time on June 8, 1939, more than three years after the payment of the last installment of tax.  Respondent relies on ; certiorari denied, *1096 , and the cases therein cited, and says that case bars consideration of the selling commissions as new grounds for claim of overpayment, because set up by amendment after the statute had run.  Petitioner refers us to . In the latter we followed our decision in , which was reversed by In both cases we had entertained and allowed claims for overpayment on new grounds set up in amended petitions, on the theory that such amendments related back to the filing of the original petition, and were therefore not within the bar of the statute.  This theory is untenable since the decision of the Circuit Court in the Rieck case.  Petitioner, however, seeks to avoid the effect of that decision by a contention that "The new error assigned in the amended petition does not give rise to this overpayment, but serves to prevent its reduction on account of other adjustments." He also argues: * * * petitioner is not asking for a refund of any taxes paid by reason of his failure to deduct selling commissions in preparing his 1934*1097  income tax return, but is asking for the full allowance of a timely refund claim resulting from a failure to claim a deduction for stamp taxes paid during that year, the amount of which the respondent seeks to reduce by asserting other errors in the return.  Petitioner claims the right to offset these other errors by the amount of selling commissions paid and thereby secure the full amount of his timely refund for the stamp taxes.  In other words, petitioner in effect contends that he is utilizing the claim as to deductible selling commissions, not as new ground for claim of overpayment, but merely to offset the offset which the Commissioner, by other items, set up against the original claim of overpayment on grounds of stamp taxes paid but not deducted.  Thus, petitioner seems to argue, the original claim for refund, timely filed, is left alive and undiminished, and he now claims thereunder.  Thus petitioner seeks by indirection to accomplish what can not be done directly.  We think there is no essential difference between the situation here and in the Rieck case, for we think that petitioner is in fact relying upon new grounds for the overpayment.  The amended petition, after*1098  reciting the facts as to payment of selling commissions of $23,909.29 and alleging thus deductibility, concludes: WHEREFORE, petitioner prays that this Board may hear the proceeding and determine that there is no deficiency in income tax due from petitioner for the *1208  calendar year 1934, and that petitioner has overpaid his income tax for said year in the sum of $4,087.61, and that the amount of said overpayment was paid within three years before the filing of a claim for refund of said overpayment on December 23, 1937, and within three years before the filing of the original petition herein and that this petitioner is entitled to a refund of $4,087.61.  It thus appears that claim of overpayment is in fact set up anew in the amended petition, and that the only reason therefor lies in the new facts recited - the selling commissions.  We think it apparent that the selling commissions are the ground of claim of overpayment.  That there is new claim of overpayment is demonstrated by the fact that the claim is for $4,087.61 instead of $3,650.36, the amount of overpayment claimed in the original petition.  Also, it is noteworthy that the $4,087.61 overpayment claimed in the*1099  amendment is the amount of the original refund claim, filed with the Commissioner prior to determination of deficiency.  Thus it appears that petitioner is now relying, not upon his original claim of overpayment of $3,650.36, but instead upon the refund claim.  But that refund claim was in effect allowed by the Commissioner, for in determining the deficiency he agreed (except as to $80) that the payment of stamp taxes, pressed as ground of the refund claim, was a deductible item, and therefore gave credit, in effect, against the deficiency otherwise appearing, of the amount of the refund claim, with the small exception of $80.  In , a very similar situation appears.  There a claim for refund was, as here, filed prior to determination of deficiency because of claim that nontaxable stock dividends had been reported as income.  After examination of the taxpayer's books the Commissioner gave the taxpayer credit for the dividends, but found a deficiency because of other matters.  The taxpayer appealed to the Board, alleging that there was no deficiency, but an overpayment.  He also filed an action in the Federal court.  The question*1100  was as to jurisdiction of the court.  On appeal the Circuit Court said, as to the overpayment: "He was simply entitled to have the overpayment credited against his other tax liability." This seems exactly what the Commissioner did herein.  We think it disposed of the original refund claim, that the petitioner here should not now be heard to rely upon that claim, and that he is in fact relying upon the new grounds as to selling commissions, barred by the statute.  We find no material distinction between the situation here and that in Moreover, that case has lately been approved and followed in , wherein the facts were similar to those in the Rieck case.  The court held that a refund of the overpayment was barred, under section 322(d) of the *1209  Revenue Act of 1932, by the lapse of more than two years before the filing of the amended petition which first set up the grounds of overpayment. On April 30, 1940 (), we reconsidered the decision entered in *1101 , and, following , and , held that an amended petition filed more than three years after payment of tax does not relate back to the time of filing of original petition so as to authorize the crediting or refunding of an overpayment in tax attributable to a new issue raised in the amended petition, under section 322(d) of the Revenue Act of 1934, as amended.  It appearing, from evidence adduced since the filing of the amendment to the petition, that the last payment of tax had been made more than three years before the amendment, we conclude and hold that the petitioner's claim for refund of overpayment is barred by the statute of limitations.  Sec. 322(d), Revenue Act of 1934.  Decision will be entered under Rule 50.