Birmingham Corp. v. Commissioner of Internal Revenue ( 1943 )

McCORD, Circuit Judge.

The petition is for review of a decision sustaining a deficiency of $11,904.76 in personal holding company surtax assessed against Birmingham Corporation for the year 1935. The opinion of the Tax Court is reported, 1 T.C. 808.

Birmingham Corporation is a personal holding company. The corporation’s five stockholders agreed that there would be no distribution of earnings for the year 1935, and that each shareholder would include his pro rata share of the adjusted net income of the corporation in his individual tax return, thereby allowing the corporation to take advantage of Section 351(d) of the Revenue Act of 1934, 26 U.S.C.A. Int.Rev.Acts, page 759, which provides that the personal holding company surtax levied by Section 351(a) “shall not apply if all the shareholders of the corporation include (at the time of filing their returns) in their gross income their entire pro rata shares, whether distributed or not, of the ‘adjusted net income’ of the corporation for such year.” Also see Art. 351-7, T.R. 86, 1934.

In returns timely filed each of the corporation’s shareholders, except Henry M. Marx, included in their gross income their entire pro rata share of the adjusted net income of the corporation for the year 1935. On February 20, 1936, Henry M. Marx filed a return but did not include his pro rata share of such income. Fie filed an amended return on March 7, 1936, and again did not include such income. On March 8, 1936, he was informed by the secretary of the company of the amount of his pro rata share of the adjusted net'income. His share was $5,444.67 of the total of $43,997.36. Thereafter, Henry Marx failed and neglected to report and include his share until March 28, 1936, thirteen days after the final day for filing returns, when he filed with the collector a second amended return including his pro rata share of the corporation’s adjusted net income for 1935.

We agree with the Commissioner and The Tax Court that the second amended return of Henry M. Marx did not measure to compliance with the requirements of Section 351(d). This section allows a personal holding company to escape the rigors of the surtax levied by Section 351(a) on condition that “all” shareholders include in their gross income their pro rata share of the adjusted net income of the corporation. If any shareholder fails to include his pro rata share of such income, the corporation may not reap the benefits of Section 51(d), but must pay the surtax levied by Section 351(a). Moreover, there is the further strict requirement that such pro rata share must be included by the shareholder “at the time of filing” his return. The “time of filing” of a return means a filing on or before the due date which is, in the absence of a duly granted extension of time, March 15th of the year following the close of the tax year. Sec. 53, Revenue Act of 1934, 26 U.S.C.A.Int.Rev.Acts, page 683; Arts. 53-1, 53-4, T.R. 86, 1934. The shareholder, Henry M. Marx, had neither applied for nor been granted an extension of time for the filing of his return. His second amended return filed March 28, 1936, thirteen days. after the due date, therefore came too late. Under no proper view of the case can it be considered that the inclusion of his pro rata share of the adjusted net income in his second amended return was a timely inclusion — an inclusion “at the time of filing” his return.

In Section 351(d).Congress has by clear and unambiguous language required that certain conditions be complied with before a personal holding company may be relieved of the surtax levied by Section 351 (a). The courts have no power to relax these strict requirements of the statute, and although this case on its face appears to be one of hardship caused by the neglect and oversight of only one shareholder, it must be recognized nevertheless that the plain requirements of the statute have not been met. Since these strict requirements were not met, the petitioner must pay the tax. Ita lex scripta est. Riley Inv. Co. v. Commissioner, 311 U.S. 55, 61 S.Ct. 95, 85 L.Ed. 36.

The decision of The Tax Court is affirmed.