Court Opinion

ID: 4591749
Source: CourtListenerOpinion
Date Created: 2020-11-20 19:06:29.187236+00
Date Added: 2024-06-11T07:50:44.615893
License: Public Domain

BALKAN NATIONAL INSURANCE COMPANY, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.Balkan Nat'l Ins. Co. v. CommissionerDocket No. 76608.United States Board of Tax Appeals36 B.T.A. 1183; 1937 BTA LEXIS 615; December 22, 1937, Promulgated 1937 BTA LEXIS 615">*615  Throughout the year 1918 the petitioner's business was being liquidated by a license under the direction of the Alien Property Custodian.  In January 1919 all of the petitioner's assets were turned over to the Alien Property Custodian.  Pursuant to instructions of the Commissioner of Internal Revenue, the Alien Property Custodian caused an income tax return for 1918 to be prepared by his agents, which return was filed with the collector in New York City on June 27, 1919.  The return was not signed or sworn to by anyone.  The Commissioner made an assessment of $6,261.34 on the basis of the return in 1919, but abated the assessment on April 9, 1920.  On April 10, 1934, notice of a deficiency in tax for 1918 of $83,709.57 was mailed to the petitioner at Sofia, Bulgaria.  Held, that the assessment and collection of the deficiency are not barred by the statute of limitations.  Allen H. Gardner, Esq., for the petitioner.  John F. Greaney, Esq., and Leslie H. Rushbrook, Esq., for the respondent.  SMITH 36 B.T.A. 1183">*1184  This is a proceeding for the redetermination of a deficiency in income and profits tax for 1918 in the amount of $83,709.57.  The petitioner1937 BTA LEXIS 615">*616  alleges errors in the determination of the deficiency and claims that the assessment and collection thereof are barred by the statute of limitations.  The proceeding has been submitted to the Board solely upon the issue of the statute of limitations.  FINDINGS OF FACT.  1.  The petitioner is a corporation, organized and existing under the laws of the Kingdom of Bulgaria.  2.  In the year 1910 the petitioner obtained from the insurance departments of several of the states in the United States licenses to transact a fire reinsurance business, and thereupon opened up a branch in the United States, with its principal office at Hartford, Connecticut.  From 1910 until the latter part of the year 1917, the petitioner's United States branch was engaged in a reinsurance business in the United States.  3.  On November 27, 1917, the Secretary of the Treasury, acting under the provisions of the Trading with the Enemy Act and proclamations and executive orders pertaining thereto, issued to the petitioner and its United States manager, Wm. C. Scheide & Co., a license superseding all state licenses.  This license prohibited the writing and acceptance of new insurance or reinsurance after1937 BTA LEXIS 615">*617  12 days from the issuance of the license, and in effect directed the liquidation of the petitioner's business.  It was provided in the license that all disbursements, with one stated exception, must be approved by the Alien Property Custodian, or by some person duly authorized by him; that statements of all income or outgo and of all assets and liabilities should be rendered to the Custodian, or his agent, whenever required by him; that all costs or expenses incurred by the Custodian should be borne by the petitioner; and that no communication of any kind be sent out of the United States by the licensee except with the permission of the Treasury Department.  4.  W.m. C. Scheide & Co. proceeded under the license to liquidate the petitioner's business and was thus engaged during the year 1918.  36 B.T.A. 1183">*1185  It submitted to the Alien Property Custodian, approximately once a week during 1918, reports disclosing receipts and disbursements of the petitioner's liquidation.  5.  On January 15, 1919, the Treasury Department, acting under Executive Order of November 12, 1918 (No. 2,991), revoked the said license.  Thereafter, all the properties of the petitioner, including Statutory deposits1937 BTA LEXIS 615">*618  with the insurance departments of the several states in which it had been licensed and the books of account and records, were delivered to the Alien Property Custodian.  6.  After January 15, 1919, the Alien Property Custodian designated William C. Scheide as his manager of enemy insurance companies and directed him to complete liquidation of the petitioner corporation as one of many enemy and ally of enemy insurance companies.  7.  During the period of possession of petitioner's property by the Alien Property Custodian, the liquidation was within the sole control of said Custodian and of his agent, the manager of enemy insurance companies.  The officers of the petitioner had no power respecting the liquidation and were not permitted to see the books of account or the reports of liquidation.  8.  Prior to June 13, 1919, the Alien Property Custodian, after a conference between his office and the Treasury Department, instructed Scheide, the manager of enemy insurance companies, to employ Josephh Froggatt & Co., auditors, to prepare Federal income and profits tax returns for each of the enemy and ally of enemy insurance companies for 1918.  9.  On May 26, 1919, Joseph Froggatt1937 BTA LEXIS 615">*619  & Co., which had in the meantime been employed by Scheide to prepare tax returns for the enemy insurance companies, wrote the Treasury Department at Washington asking for information respecting income and excess profits tax returns of such companies.  On July 1, 1919, the Income Tax Unit, in a letter from Deputy Commissioner Callan, advised Joseph Froggatt & Co. that it should file income and profits tax returns for the enemy and ally of enemy insurance companies, and that, at a later date, the profits taxes would be computed.  10.  Joseph Froggatt & Co. on June 13, 1919, forwarded to Scheide income and profits tax reports on the prescribed statutory forms for various enemy and ally of enemy insurance companies, including the petitioner corporation, with the statement that in preparing these reports they had used annual statement figures of foreign companies as of December 31, 1917, and December 31, 1918, and that a copy of the 1918 annual statement accompanied each report.  11.  On June 16, 1919, Scheide sent the forms received from Joseph Froggatt & Co. to the Alien Property Custodian at Washington.  On 36 B.T.A. 1183">*1186  June 20, 1919, the Alien Property Custodian returned the forms1937 BTA LEXIS 615">*620  to Scheide with instructions that they should be filed with the proper authorities.  12.  On June 27, 1919, Scheide forwarded the forms to the collector of internal revenue for the second district of New York and the collector receipted for them on the same day.  13.  The report in the case of the petitioner company contained schedules of income and disbursements and was on the regular return form prescribed by the Treasury Department.  The form was not signed.  Joseph Froggatt & Co., as agents for the manager of enemy insurance companies under the Alien Property Custodian, refused to sign any of these reports.  14.  Subsequently, and during the year 1919, the respondent signed an official assessment list in which he made an assessment of $6,261.34 of income and profits taxes against the petitioner for 1918.  15.  On November 20, 1919, Scheide, in response to a letter from the collector of internal revenue regarding the failure to sign the income reports for 1918 of the petitioner company and other companies, wrote the collector that the "returns were prepared under instructions from the Alien Property Custodian's office in Washington after a conference between that office1937 BTA LEXIS 615">*621  and the Treasury Department." 16.  In or about the month of December 1919 the collector of internal revenue issued to the petitioner a notice and demand for payment of the assessment of 1918 income tax amounting to $6,261.34.  This assessment was abated by the respondent on April 9, 1920.  17.  Petitioner's books of account and records were held by the Alien Property Custodian and were available for inspection by Federal revenue agents.  Two of these agents made an examination in 1921 of the books and records for the years 1917 to 1920.  Upon the basis of their report the respondent determined that no tax was due for the calendar year 1918.  18.  During the year 1921 the Alien Property Custodian turned over to a representative of the petitioner all property, excepting the books of account and records for the period of license and liquidation, belonging to the petitioner in his (the Custodian's) hands.  Since that time no assets of the petitioner have been held by the Alien Property Custodian other than the books of account and records aforesaid.  19.  By an amendment, adopted March 4, 1923, to the Trading with the Enemy Act, the Alien Property Custodian was authorized to pay1937 BTA LEXIS 615">*622  all internal revenue taxes due from the foreign corporations out of property held by him.  36 B.T.A. 1183">*1187  20.  No income and profits tax return for the year 1918 signed by any officer of the petitioner corporation has ever been filed with the collector.  21.  An income and profits tax return for the year 1918 was prepared for the petitioner by the respondent under the provisions of section 3176, Revised Statutes, as interpreted by him, on March 9, 1934.  The return showed the computations of net income and tax liability as appear in the deficiency notice from which this appeal was taken.  The computations appearing therein were based upon an audit by and audit review division, "A.P.C. Auditor", of Alien Property Custodian records.  The deficiency notice was mailed to the petitioner on April 10, 1934.  It stated that a computation of the tax liability had been made in 1922.  OPINION.  SMITH: As the record stands in this case there is a deficiency in income and profits tax due from the petitioner for 1918 in the amount of $83,709.57.  The petitioner does not contest the correctness of the determination of the tax liability.  It contends, however, that the assessment and collection1937 BTA LEXIS 615">*623  of the deficiency are barred by the statute of limitations.  This is its sole contention.  As grounds for this contention it alleges, first, that the deficiency notice was mailed more than five years after the return for the taxable year was filed, and, second, that an assessment of tax was made more than six years prior to the mailing of the deficiency notice.  When the petitioner's properties were taken over by the United States, the United States took them as its own.  ; . In the last named case the Court of Claims stated: Plaintiffs' suit is based upon the claim that all of the provisions of the revenue laws with reference to assessment and collection of federal taxes together with all of the provisions with reference to refunds of taxes illegally or erroneously collected are applicable to their cause of action.  We think that this theory cannot be sustained when the peculiar facts of the situation are considered in connection with the special statutes applicable.  The petitioner contends that, inasmuch as its properties during 1918 were1937 BTA LEXIS 615">*624  in the custody of the United States, it was the duty of the proper officer having charge of the properties to make any required return for the assessment and collection of income and profits tax due for the year 1918; that pursuant to such duty the United States caused a return to be made by its agent, the Alien Property Custodian.  It was held, however, in 32 Ops.Atty.Gen. 249, that the Alien Property Custodian was not such a trustee as was required by law to make income tax returns or pay income taxes; that he was merely an official 36 B.T.A. 1183">*1188  or agent of the Government.  We are of the opinion that the return prepared by an agent of the Alien Property Custodian and filed with the collector of internal revenue, which was not sworn to by anyone, was not a return contemplated by the statute and that the filing of it gave no basis for the claim that time may be computed therefrom within which the respondent may assess and collect a deficiency in tax due from the petitioner.  As was pointed out by the Court of Claims in , there is no statute of limitations with respect to the collection of tax due from alien enemies or allies of alien1937 BTA LEXIS 615">*625  enemies whose property was seized by the Alien Property Custodian where no return was filed by such alien enemies, as required by the income tax law.  The stipulation of facts in this case is that the petitioner has never filed an income and profits tax return for the year 1918.  In , the Court of Claims stated, in answer to the plaintiffs' contention that the general tax statutes, including the specific provisions relating to the assessment and collection of taxes, were applicable to aliens whose property was seized by the Alien Property Custodian, as follows: * * * This is clearly an erroneous conclusion.  We have already shown that until the War Claims Act became a law the former owners of the property seized had no enforceable rights whatever therein, and when this act was passed they acquired no rights except those granted thereby.  The War Claims Act made provision for the payment of taxes and the government having complete right to retain the property, none of the taxing statutes had any application except as specially stated in the act itself.  * * * We think the wording of subdivision (b) [Trading with the Enemy Act, 1937 BTA LEXIS 615">*626  as amended] requires that where taxes were due from the aliens whose property had been seized they should be computed and withheld without regard to the statute of limitations.  If it should be conceded for the sake of the argument that the statute was ambiguous, the surrounding circumstances clearly show that such must have been the intent of Congress.  This money or property was turned over purely as an act of grace.  In so doing, the United States was not standing upon its war-time rights, but placed the matter on a moral and equitable plane highly favorable to the claimants.  Having done this, it seems hardly conceivable that it was intended to turn this property back to the former owners without collecting taxes justly due from them.  Our government was intending to do exact justice to the alien claimants, and it would exact no more than justice in requiring these taxes to be paid.  Where the intent is manifest and the language ambiguous the intent must control.  This was likewise the ruling of the Board in , in which the Board held that where no returns of income had been filed by or on behalf of the taxpayer for the years 1918 and1937 BTA LEXIS 615">*627  1921, during which time his property was in the custody of the Alien Property Custodian, the assessment and collection of a deficiency 36 B.T.A. 1183">*1189  determined by the respondent in 1935 were not barred by the statute of limitations.  The petitioner also makes the contention that, inasmuch as an assessment was made against it on the unverified return filed at the instance of the Alien Property Custodian in 1918, although the assessment was afterwards abated, no collection of a deficiency could be made more than six years after such assessment.  It relies upon the provisions of section 278(d) of the Revenue Act of 1924, which provides: (d) Where the assessment of the tax is made within the period prescribed in section 277 or in this section, such tax may be collected by distraint or by a proceeding in court, begun within six years after the assessment of the tax.  Nothing in this Act shall be construed as preventing the beginning, without assessment, of a proceeding in court for the collection of the tax at any time before the expiration of the period within which an assessment may be made.  In support of its contention it cites 1937 BTA LEXIS 615">*628 . In that case the Supreme Court held that where an assessment had been made against a transferor no suit for the collection of the assessment could be brought against a transferee after the collection of the tax was barred under section 278(d) of the statute of limitations.  We are of the opinion that the ruling announced by the Supreme Court in the above entitled case is not applicable to the situation which prevails here.  The respondent is not attempting to collect from the petitioner an assessment which was made against it.  He is attempting to collect a tax liability which, so far as the record shows in the case, is legally due.  His predicate for the proposed assessment is an income and profits tax return for the year 1918 prepared for the petitioner by the respondent under the provisions of section 3176 of the Revised Statutes on March 9, 1934.  Since the petitioner filed no return for that year, we are of the opinion that the assessment was made within the time required by the applicable statutes.  Cf. 1937 BTA LEXIS 615">*629 ; certiorari denied, . Reviewed by the Board.  Judgment will be entered for the respondent.LEECH concurs solely on the authority of .