Austin Co. v. Commissioner of Internal Revenue , 35 F.2d 910 ( 1929 )

MOORMAN, Circuit Judge.

In April, 1918, the petitioner made its income tax return for the year 1917, showing an income and excess profit tax amounting to $367,430.-78. Thereafter, upon examination by the commissioner, an additional tax was assessed against the petitioner, making the total of such taxes for the year $558,009.78. This tax was duly paid. In June of 1923, the petitioner filed with the commissioner its application for a determination of its income and profit taxes for 1917 under section 210 of the Revenue Act of 1917, 40 Stat. 307. In August of 1923, the commissioner allowed the application, determined the amount of tax liability, and allowed the petitioner a refund of taxes, with interest, amounting to $327,593.74. This refund was paid. Later, on March 19, 1924, the commissioner, without being requested to do so, and without making any further examination of the petitioner’s books, assessed an additional tax liability against the petitioner for 1917 in the sum of $39,938.79: The Board of Tax Appeals on appeal thereto by petitioner affirmed the action of the commissioner, and the ease is here on petition to review the action of the Board.

The petitioner' contends that when the commissioner allowed its application for a special assessment under section 210, and determined its liability thereunder, making a refund of taxes that it had theretofore paid, there was a final and conclusive assessment binding upon the government and the taxpayer, and the commissioner was thereafter without power to make any further assessment. In Woodworth v. Kales, 26 F.(2d) 178 (6 C. C. A.), relied upon by the petitioner, it affirmatively appeared that the aetion of the commissioner was not based upon any fraud or mistake of law or fact, but upon a changed inference of fact from the same evidentiary facts, or what the commissioner thought was “a new and better view of the same facts.” Additional considerations were that the reassessment there complained of was made by a succeeding commissioner and after two actions approving the original. Giving to that case the broadest possible construction, it is yet true, as there held, that the action of the commissioner here relied upon was subject to revision for fraud or mistake of faet. If either of these elements entered into the original assessment, we do not doubt that upon discovery thereof by the commissiener he had the right to correct it by making a reassessment.

The original assessment here, made under section 210, was riot based entirely upon facts contained in the taxpayer’s return, but depended also upon comparative earnings of representative corporations engaged in a like or similar business, tbe data for which the commissioner either had in his office or was obtaining as such other corporations made their returns. There was no evidence before the Board to show upon what the commissioner acted in making the additional assessment — whether upon new and further facts which he conceivably received from later reports of comparative corporations, upon a corrected view of the law which should control his conclusion, or upon a different fact-inference from the same evidentiary facts. He had the right to make such an assessment under the first two contingencies, and having that right, the question arises: What effect is to he given to his action in the absence of any evidence of the facts or as to the law upon which he acted, that- is, was the burden on the commissioner to show that the reassessment was made because of mistake o-f fact or law in the first assessment, or was it on the petitioner to show that it was made upon a new and different view of the same facts?

It is settled by the decisions of the Supreme Court that the findings of the commissioner are prima facie correct, and that the taxpayer' who complains of them has the burden before the Board of Tax Appeals of showing that they are wrong. Wickwire v. Reinecke, 275 U. S. 101, 48 S. Ct. 43, 72 L. Ed. 184. It is said, however, that the presumption which arose from the fact of this additional assessment was overcome by a like presumption attaching to the. original assessment, and that the burden was on the commissioner to show that his later action was taken for reasons authorized in the Wood-worth Case. We cannot concur in that view. The question before the Board concerned the additional assessment, not the earlier one. The action of the commissioner in making it was under attack. The law gave him the right to make it under certain circumstances. There is a presumption that he performed his duty, that is, that he acted upon all the facts before him, including new and different ones. United States v. Chemical Foundation, 272 U. S. 1, 14, 47 S. Ct. 1, 71 L. Ed. 131. This presumption of the existence of such new facts is not inconsistent with the presumption attaching to the first assessment, that the commissioner acted upon all the facts then before him. Moreover, it was within the power of the petitioner to obtain the facts of both assessments through the processes of the Board of Tax Appeals. Blair v. Oesterlein Machine Co., 275 U. S. 220, 48 S. Ct. 87, 72 L. Ed. 249. It did not do this, but relied upon lack of authority in the commissioner to make any further assessment. Even though there was lack of authority to make such assessment upon a changed view of the same facts, there was not lack of authority to make it where there was fraud or mistake of law or fact in the original assessment. In this situation the burden was on the petitioner to show that the commissioner’s action grew out of circumstances which did not warrant it.

A question made in this court but not presented to the Board of Tax Appeals is that the assessment is barred by the statute of limitations. Reliance is placed on Russell v. United States, 278 U. S. 181, 49 S. Ct. 121, 73 L. Ed. 255. We do not think that decision applicable. What it holds is that section 278 of the Aet of 1924 (26 USCA § 1061 note), fixing a limitation of six years for collecting a tax by “distraint or a proceeding in court,” does not apply to assessments made before the passage of that aet. This is not a proceeding in distraint or in court to collect a tax, and admittedly the limitations of the Act of 1918, 40 Stat. 1057, continued by the Act of 1921, 42 Stat. 227, are applicable. Those acts provide that the tax shall be assessed by the commissioner within five years after the return, and that “no suit or proceeding for collection of any such tax shall be begun” after the expiration of the five years. Except for a waiver which petitioner executed and filed with the commissioner, limitation would have expired, under these statutes, April 1, 1923. The waiver was executed February 15,1923, and was unlimited, but an order of the commissioner issued April 11, 1925, directed that all such waivers should be held to expire April 1, 1924. Giving full effect to this order of the commissioner, he nevertheless had the right to make the assessment at any time prior to April 1, 1924. The assessment was made March 19, 1924. Whether the government could have collected this tax after the expiration of the five years, and what effect is to be given the action of the petitioner in appealing from the ruling of the commissioner to the Board of Tax Appeals, are questions that are not before us. The petitioner did appeal after the expiration of the five years, and did not raise before the Board any question of limitation or of the collectibility of the tax. The Board passed upon the only question presented to it, that is, the validity of the-action of the commissioner in assessing the tax. The propriety of that action is the question before us, and we repeat that we are not here concerned with the power or means to collect the tax, but only with, whether the commissioner acted within his authority and according to law in making the assessment. On the record before us we cannot say that he did not.

Petition dismissed.