Denholm & McKay Co. v. Commissioner , 15 B.T.A. 225 ( 1929 )

DENHOLM & MCKAY CO., PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Denholm & McKay Co. v. Commissioner

Docket No. 20950.

United States Board of Tax Appeals

15 B.T.A. 225; 1929 BTA LEXIS 2894;

February 6, 1929, Promulgated

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When a return was filed prior to the passage of the Revenue Act of 1921 for a fiscal year ending January 31, 1921, and the provisions of the Revenue Act of 1921 did not increase the tax liability of the petitioner on the income shown in the return filed, and where the Commissioner failed to notify the petitioner that additional tax was due prior to the expiration of four years after the return was filed, or within the period agreed upon, the Commissioner is barred by the statute of limitation from assessing and collecting a deficiency for such fiscal year.

Harry Friedman, Esq., and Harry Schwartz, Esq., for the petitioner.

Albert S. Lisenby, Esq., for the respondent.

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LITTLETON

The Commissioner determined deficiencies in income and profits tax of $23,814.05 for the fiscal year ended January 31, 1921, and $7,615.24 for the fiscal year ended January 31, 1922.

The question is whether the deficiency for the fiscal year ended January 31, 1921, is barred by the statute of limitations.

FINDINGS OF FACT.

The petitioner is a Massachusetts corporation with principal office in Worcester.

The petitioner filed its income and profits-tax return for the fiscal year begun February 1, 1920, and ended January 31, 1921, on April 15, 1921. The return showed a net income of $974.48. No other or further return for such fiscal year was ever filed by petitioner. The deficiency notice of the Commissioner was mailed to petitioner August 31, 1926, and showed a net income as finally determined by the Commissioner of $125,937.05.

During the fiscal year ended January 31, 1921, the petitioner paid dividends in the following amounts:

March 1, 1920	$8,947.75
June 1, 1920	8,895.27
September 1, 1920	8,895.25
December 1, 1920	8,895.25

On March 12, 1926, the taxpayer and the Commissioner entered into the following written consent:

In pursuance of the provisions of existing Internal Revenue laws, Denholm & McKay Company, a taxpayer of Worcester, Massachusetts, and the Commissioner of Internal Revenue hereby waive the time prescribed by law for making any assessment of the amount of income, excess-profits, or war-profits taxes due under any return made by or on behalf of said taxpayer for the fiscal year ended January 31, 1921, under existing revenue acts, or under prior revenue acts.

This waiver of the time for making any assessment as aforesaid shall remain in effect until June 15, 1926, and shall then expire except that if a notice of a deficiency in tax is sent to said taxpayer by registered mail before said date and (1) no appeal is filed therefrom with the United States Board of Tax Appeals then said date shall be extended sixty days, or (2) if an appeal is filed with said Board then said date shall be extended by the number of days between the date of mailing of said notice of deficiency and the date of final decision by said Board.

DENHOLM & MCKAY CO.,

Taxpayer.

By W. E. DARLING,

Asst. Treas. & Clerk.

D. H. BLAIR,

Commissioner.

No other consent was executed.

The petitioner and the Commissioner at no time entered into any agreement under the provisions of section 1312 of the Revenue Act of 1921, or similar provisions of any section of any subsequent revenue act.

The deficiency asserted by the Commissioner for the fiscal year ended January 31, 1921, has not been assessed, nor has any suit or proceeding for the collection of such deficiency, other than this proceeding, been had. The return filed for the fiscal year was not false or fraudulent with intent to evade the payment of any tax.

OPINION.

LITTLETON: In , the Board said:

The only provision in the Revenue Act of 1921 which would result in greater tax than that provided by the Revenue Act of 1918, in so far as petitioner was concerned, was the elimination of the $2,000 credit in respect to net incomes in excess of $25,000 as set forth in section 236(b). The Commissioner's position would appear to be that if he found that a taxpayer's net income was in excess of $25,000 in the above circumstances, the statute of limitations would not run, regardless of when such discovery was made. On the other hand, had the tax been no greater under the Revenue Act of 1921 than under the Revenue Act of 1918, that is, had the net income been less than $25,000, the Board rulings cited would apply.

It does not appear to us that the running of the statute of limitations can be contingent upon whether the net income is above or below $25,000 when ascertained after the four-year period has expired. If such were true, the running of the statute in this case would depend upon the amount of depletion and depreciation allowable.

We are, therefore, of the opinion that since on the basis of the return no additional tax was apparently due under the Revenue Act of 1921 and since the Commissioner did not require an additional return for the fiscal period, and did not ascertain a deficiency until after four years had expired from the date the return was filed, the assessment and collection of any additional taxes for the fiscal year ending July 31, 1921, is barred by the statute of limitations.

The foregoing opinion of the Board in the Palmetto Coal Co. case is controlling here and the deficiency claimed by the Commissioner for the fiscal year 1921 is barred.

In view of our decision as to the fiscal year ending January 31, 1921, petitioner admits the correctness of the deficiency of $7,615.24 for the fiscal year ending January 31, 1922.

Judgment will be entered holding the deficiency for 1921 barred, and finding a deficiency of $7,615.24 for the fiscal year 1922.