American Vineyard Co. v. Commissioner , 15 B.T.A. 452 ( 1929 )

AMERICAN VINEYARD CO., PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

AMERICAN SEEDLESS RAISIN CO., PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

American Vineyard Co. v. Commissioner

Docket Nos. 15725, 16817.

United States Board of Tax Appeals

15 B.T.A. 452; 1929 BTA LEXIS 2854;

February 15, 1929, Promulgated

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1. A corporation filed a return including its income for a portion of its taxable year, and later there was filed a joint return with a corporation which acquired its property and business which included its income for the subsequent portion of its taxable year. Held that neither of the returns started the running of the period of limitations with respect to a deficiency against the former corporation, and also held that the joint return did not start the running of the period of limitations with respect to a deficiency against the latter corporation.

2. Where a corporation should have filed its return on a fiscal year basis but erroneously filed it on a calendar year basis and in addition covering a period beyond the end of the fiscal year, held, that the return started the running of the period of limitations with respect to a deficiency for the fiscal year.

James A. Taylor, Esq., for the petitioners.

John D. Foley, Esq., and Lloyd W. Creason, Esq., for the respondent.

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TRAMMELL

These proceedings, which were consolidated, are for the redetermination of deficiencies for the periods and in the amounts as follows:

	Docket No.	Period	Amount
American Vineyard Co	16817	Aug. 1, 1916-July 31, 1917	$12,397.35
American Seedless Raisin Co	15725	May 1, 1917-Dec. 31, 1917	685.84
		Jan. 1, 1918-July 31, 1918	47,619.12

The hearing was limited to the question of whether the deficiencies are barred by the statute of limitations. From a stipulation and oral evidence, we make the following findings of fact.

FINDINGS OF FACT.

The American Vineyard Co. and the American Seedless Raisin Co. are Maine corporations, with their principal offices as San Francisco, Calif., and were engaged in the processing, packing and marketing of grapes for raisins. The American Vineyard Co. had been in business for many years prior to 1915, while the American Seedless Raisin Co. was incorporated on March 16, 1917.

In August, 1915, the American Vineyard Co. filed a notice with the collector of internal revenue at San Francisco that it desired to file its Federal tax returns on the basis of a fiscal year ended July 31, consequent to which the American Vineyard Co. filed a Federal tax return for the fractional part of the year represented by the 7-month period from January 1 to July 31, 1915, and later, September 25, 1916, filed a return for the full fiscal year ended July 31, 1916.

On February 21, 1917, the board of directors of the American Vineyard Co. adopted the following resolution:

TAX FISCAL YEAR: A discussion followed upon the advisability of changing the Fiscal year for the purpose only of making returns and paying taxes under the Federal Income Tax laws. This is necessary in order to avoid the injustice to the Company, which will ensue, in case the proposed excess income tax law be enacted, because the Company's present Fiscal year does not coincide with the first tax year under the proposed law and the income will probably be prorated as if it had been earned in equal amounts each month, whereas it was, in fact, all earned during the Autumn months.

On motion duly seconded, it was thereupon resolved:

RESOLVED: That, for the purpose of making returns and paying taxes under the Federal Income Tax Laws, the Company's Fiscal year be changed so as to begin January 1st, and end on December 31st, each year, this change to be effective as of January 1st, 1917, and the period from August 1st, to December 31st, 1916, to constitute one fiscal year.

The American Vineyard Co. did not request, nor receive, permission of the Commissioner to change the basis for filing its tax returns from a fiscal year to a calendar year basis beginning with the calendar year 1917.

The American Vineyard Co. prepared and filed on March 1, 1917, a return covering five-twelfths of the calendar year ended December 31, 1916, to wit, August 1 to December 31, 1916. The return showed on its face that it was for five-twelfths of the calendar year 1916, and was accepted by the collector. The tax shown on the return as $3,321.95 was assessed and paid.

The American Seedless Raisin Co. was incorporated to acquire, and as of May 1, 1917, did acquire, all the property and business of the American Vineyard Co. The said American Seedless Raisin Co. proceeded thenceforth, without change in the former management of the American Vineyard Co. or otherwise, to conduct the business formerly conducted by the American Vineyard Co. and that company thereupon ceased business of any character.

Income tax and profits-tax returns for the calendar year 1917, which embraced and reflected the operations of the American Seedless Raisin Co. for that part of the calendar year it was in business, and the operations of the predecessor corporation, the American Vineyard Co., for that part of the calendar year it was in business, each of which returns showed upon its face that it was the joint return of the American Seedless Raisin Co. and the American Vineyard Co., were filed on March 30, 1918. In the space on the income-tax return for the name of the taxpayer appears "AMERICAN VINEYARD CO. and AMERICAN SEEDLESS RAISIN CO." In the corresponding space on the profits-tax return appears "AMERICAN VINEYARD CO. AMERICAN SEEDLESS RAISIN CO." The returns did not show separately for each company the items of income or deductions for those portions of the calendar year 1917 in which they were in business. These returns were executed by A. C. Wyckoff, vice president and Frank D. Stringham, treasurer. During the calendar year 1917 Wyckoff was vice president of both petitioners, and Stringham was assistant treasurer and treasurer, respectively, of the American Vineyard Co. and the American Seedless Raisin Co.

The income and profits-tax returns for the calendar year 1917 were filed jointly by the two petitioners in accordance with advice and instructions received from the attorney for the petitioners after he had conferred with the office of the collector of internal revenue at San Francisco. The returns were not and did not purport to be consolidated returns. Subsequent to the filing of the returns, the petitioners received a notice from the collector at San Francisco advising that an assessment had been made against them for 1917. Thereafter, they paid the amount of the assessment.

Two separate field agent's investigations and reports relating to the American Vineyard Co. and the American Seedless Raisin Co., both of which reports bore the date of August 31, 1920, were made by an authorized representative of the Income Tax Unit, and forwarded through usual and regular channels to the Commissioner of Internal Revenue. One of the reports purported to determine separately and in detail the income derived by the American Vineyard Co. for the periods covered by the deficiency letter issued against the American Vineyard Co., and the other report purported to determine separately and in detail the income derived by the American Seedless Raisin Co. for the periods covered by the deficiency letter issued against the American Seedless Raisin Co.

During the period from 1912 to May 1, 1917, the American Vineyard Co. kept its accounts on a monthly basis, taking from the books each month a profit and loss statement and a balance sheet. After May 1, 1917, the same procedure was followed by the American Seedless Raisin Co. Under dates of July 31, 1917, and July 31, 1918, respectively, the profit and loss account of the American Seedless Raisin Co. was closed and the balance shown in that account was transferred to the surplus account.

The American Seedless Raisin Co. filed a tentative income and profits-tax return for the calendar year 1918 on March 15, 1919, and on July 23, 1919, filed its final return for the calendar year 1918.

Each and all of the aforesaid tax returns prepared and filed by each of the petitioners for all taxable periods involved in either or both of the above entitled proceedings were filed within the periods prescribed for filing without delinquency.

The deficiency letter issued by respondent against the American Vineyard Co., which is the basis for the above entitled proceeding, is dated April 13, 1926, and determines a deficiency for the taxable year ended July 31, 1917, in the amount of $12,397.35, which amount was assessed against this petitioner under the provisions of section 279(a) of the Revenue Act of 1926, on March 15, 1926.

The deficiency letter issued by respondent against the American Seedless Raisin Co., which is the basis for the above entitled proceeding, is dated March 15, 1926, and determines deficiencies for the periods May 1 to December 31, 1917, and January 1 to July 31, 1918, in the amounts of $685.84 and $47,619.12, respectively, which amounts have not been assessed.

OPINION.

TRAMMELL: The question in this case is whether the statute of limitations now bars the assessment or collection of the deficiencies asserted by the respondent. In the case of the American Vineyard Co. the period involved is from August 1, 1916, to July 31, 1917, and the period of limitations so far as it affects that company for that period will be discussed first.

That company, keeping its books on the fiscal year basis ending July 31, filed its return on that basis previous to 1917, but on February 21, 1917, its board of directors passed a resolution pursuant to which it changed its basis for filing income-tax returns to the calendar year basis. It did not request or receive permission from the Commissioner to do so, nor did it give the collector any notice of such change other than that which might be inferred from the filing on March 1, 1917, of a return covering the period from August 1, 1916, to December 31, 1916. After the close of 1917 and after the American Vineyard Co. had transferred all of its assets to the American Seedless Raisin Co. and had entirely ceased business, a joint return was filed by the two companies for the calendar year 1917. The American Vineyard Co. ceased business on May 1, 1917, and while apparently the corporation had not been dissolved it had no assets and transacted no business after that date. The return filed by the two companies for the calendar year 1917 included the income of the American Vineyard Co. from January 1, 1917, to May 1, 1917, and of the American Seedless Raisin Co. from May 1, 1917, to December 31, 1917. The two corporations were not affiliated and it is not contended that they were. They did not file a consolidated return, and it is not contended that they were entitled to file such a return. The return simply included the income of one corporation for one portion of the calendar year 1917 and of the other corporation for the remainder of the year, but made no segregation or separation of the income, gains, profits or deductions of the two corporations. This return did not specify nor give any information by which the income of either of the companies could be determined. There was no specification as to what proportion of the income was received by one or the other.

Did either the return filed by the American Vineyard Co. for the five-month period ended December 31, 1916, or the inclusion of its income for the period from January 1, 1917, to May 1, 1917, in the joint return constitute the return required by statute and start the period of limitations running? We think not. With respect to the return for the five-month period ended December 31, 1916, it was for only a portion of the American Vineyard Co.'s fiscal year as previously established by it in accordance with the statute, and as such did not start the running of the period of limitations. ; . With respect to the inclusion by the American Vineyard Co. of its income during 1917 in the joint return, the statute does not provide for or warrant the filing of joint returns by two corporations for a taxable year when one retires from business at some time during the period. This is not a case of consolidated returns and is not covered by the principles of law applicable to such returns. In our opinion, the joint return was not the return required by law with respect to either company and the inclusion by the American Vineyard Co. of its income in this return did not start the running of the period of limitations. In view of the foregoing, we do not think that collection of the deficiency determined against the American Vineyard Co. for the period from August 1, 1916, to July 31, 1917, is barred by the statute of limitations.

Since the joint return filed for the calendar year 1917 was not a return with respect to either company as required by law, the inclusion by the American Seedless Raisin Co. of its income from May 1, 1917, to December 31, 1917, in such return did not start the period of limitations running against the assessment and collection of the deficiency determined against that company for the period from May 1, 1917, to December 31, 1917.

With respect to the deficiency determined against the American Seedless Raisin Co. for the period from January 1, 1918, to July 31, 1918, the company erroneously filed its return for the calendar year 1918, whereas the return should have been on the fiscal year basis. We have heretofore held under such circumstances that we will look to the last return in which any income for the period is included to determine when the period of limitations begins to run. See , and

The return which was filed on the calendar year basis for the calendar year 1918 included all the income and covered all of the period from January 1, 1918, to December 31, 1918. The income for the period from January 1, 1918, to July 31, 1918, was thus included. Under the authority of the above cited cases the period of limitations must begin to run when the 1918 calendar year return was filed. This calendar year return for 1918 was filed in 1919, and more than five years having elapsed prior to the sending of the deficiency notice, the statute of limitations now bars the assessment and collection of the deficiency for the period from January 1, 1918, to July 31, 1918.

While consents in writing were introduced in evidence, the respondent states in his brief that they were not relied on by him, and we have therefore not incorporated them in the findings of fact. They had by their terms expired before the mailing of the deficiency notices.

In view of the foregoing, the proceedings will be set down for further hearing upon their merits with respect to the deficiency against the American Vineyard Co. and against the American Seedless less Raisin Co. for the period from May 1, 1917, to December 31, 1917. The statute bars the assessment and collection of the deficiency against the American Seedless Raisin Co. for the period from January 1, 1918, to July 31, 1918.

Judgment will be entered for the petitioner with respect to the period from January 1, 1918, to July 31, 1918.