Lewis v. Commissioner , 23 T.C. 538 ( 1954 )

Mary Frances Lewis, Petitioner, v. Commissioner of Internal Revenue, Respondent. A. B. Lewis, Petitioner, v. Commissioner of Internal Revenue, Respondent

Lewis v. Commissioner

Docket Nos. 45576, 45577

United States Tax Court

23 T.C. 538; 1954 U.S. Tax Ct. LEXIS 12;

December 28, 1954, Filed

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Decisions will be entered under Rule 50.

The A. B. Lewis Co. reported its income as a partnership, which included petitioners' two minor children, and filed its returns on a fiscal year basis. The final fiscal year of its existence, for which it filed a return, ended July 1, 1947. Petitioners A. B. Lewis (A. B.) and Mary Frances Lewis (Mary) were husband and wife in a community property State, kept no books recording their individual income, and filed separate individual income tax returns for the calendar year 1947 reporting therein a part of the alleged partnership's net income for its final fiscal year ending July 1, 1947. Held, not only were petitioners' two minor children not partners in the business as conducted by respondent, but as contended by petitioners in their alternative assignment of error, neither was Mary a partner in the business. The A. B. Lewis Co. was in fact, a sole proprietorship conducted by A. B. Inasmuch as there was no partnership petitioners must report their community shares of the income from that sole proprietorship on a calendar year basis.

Edward L. Potter, Esq., for the petitioners.

M. Clifton Maxwell, Esq., for the respondent.

Black, Judge.

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BLACK

The Commissioner has determined the following deficiencies in petitioners' income taxes for the calendar year 1947:

Docket
No.	Petitioner	Deficiency
45576	Mary Frances Lewis	$ 5,063.69
45577	A. B. Lewis	5,063.69

The Commissioner's adjustments in net community income which are here in issue as a result of appropriate assignments of error are explained in the statements accompanying the applicable deficiency notices as follows:

(d) It is held for Federal tax purposes that your minor children, Joel Jack Lewis and Gail Lewis, are not to be recognized as members of the alleged partnership of A. B. Lewis Company for the period beginning August 1, 1946 and ending June 30, 1947. Accordingly, the entire income of that entity for that period has been included in your community income for the calendar year 1947.

* * * *

(f) As of June 30, 1947, the A. B. Lewis Company reduced its closing inventory of 38 used cars from a book cost of $ 23,072.00 to $ 14,122.00, or by the amount of $ 8,950.00. The reduction, not being in accordance with existing regulations, has been restored to taxable income. Your community income for the calendar year 1947 has accordingly been increased by the sum of $ 8,950.00.

Petitioners contend (a) that for the period in issue A. B. Lewis Co. was a valid partnership for income tax purposes consisting of the marital community of A. B. and Mary Frances Lewis, and their minor children, Gail and Joel Jack Lewis, and (b) that the reduction of the A. B. Lewis Co.'s June 30, 1947, closing inventory by $ 8,950 was proper. In the alternative, petitioners contend that if the minor children are not recognized as partners then A. B. Lewis Co. was a sole proprietorship conducted by A. B. Lewis and each petitioner's community share of the income from that business must be computed on a calendar (rather than fiscal) year basis. Such a calendar year computation, petitioners contend, results in the conclusion that there are no deficiencies and that they overpaid their income taxes for 1947.

FINDINGS OF FACT.

During all times here material, petitioners Mary Frances Lewis (hereinafter sometimes referred to as Mary) and A. B. Lewis (hereinafter sometimes referred to as A. B.) were husband and wife and resided in Houston, Texas. They filed separate income tax returns for the calendar year 1947 with the collector of internal revenue for the first district of Texas.

Since 1919, A. B. has been engaged in the used car sales and automobile financing business in Houston. He married Mary in 1926. At various times prior to 1943, Mary either sold advertising and real estate in order to obtain money for use in A. B.'s business or performed regular duties as A. B.'s collections manager. She also accompanied him on buying trips to New York, aiding in arranging for transportation to Houston of the used cars purchased on those trips. Mary received no salary for any of her services to the business. Rather, A. B. withdrew funds from the business and deposited them in a joint checking account upon which Mary could draw. Petitioners regarded A. B.'s withdrawals, and any profits the business made, as their joint community income.

A. B.'s business was conducted as a sole proprietorship at all times prior to 1943, except for a short period during which he was in partnership with a person not a member of his immediate family. Capital was important in the business but the greater part of it was borrowed, rather than invested, capital.

On December 9, 1940, A. B. opened an account in the business in the names of his two children, Gail and Joel Jack. The account was captioned "Gail, J. J." From time to time he credited sums of money to that account which he stated were saved by him for the children and put into the business in their names. Those sums were invested in the business rather than deposited in a bank because the business needed capital. Although there are a number of debit entries in the account none of the money therein appears to have been withdrawn for the children's benefit and the children did not even know that the account existed. The account showed a balance of $ 1,324.77 as of January 1, 1943. On that same date there was $ 17,619.18 balance in an account of the sole proprietorship labeled "A. B. Lewis Net Worth."

In 1943, the following deed of gift was executed:

State of Texas

County of Harris

Know All Men By These Presents:

That in answer to my urge and desire to make a substantial gift to my two children, Joel Jack Lewis and Gail Lewis, to insure to some extent their care, education and general economic security, and being further of the opinion that my business known as "A. B. Lewis and Company" has after many years become established and an interest in that business will be a better investment for my children than any other that I might make through the investment of a cash gift to them;

Now, Therefore, for and in consideration of the premises and in consideration of the love and affection I bear toward my two children, Joel Jack Lewis and Gail Lewis, I do hereby grant, give and convey unto each of my said two children, Joel Jack Lewis and Gail Lewis, an equal one-fourth (1/4th) interest in and to my said business, including all property of every kind wherever situated and used by me in connection with said business, this conveyance to be effective as of January 1, 1943.

As a result of this deed of gift, my wife and I will own and retain one-half (1/2) of the business and my children together one-half (1/2), the said Joel Jack owning one-fourth (1/4th) and the said Gail owning one-fourth (1/4th).

The property herein partitioned is located at 1020 and 1023 Polk Avenue, Houston, Texas. The net value as of January 1, 1943 is Eighteen Thousand Nine Hundred Forty-three and 96/100 Dollars ($ 18,943.96). The net value of the interest hereby deeded to Joel Jack Lewis is Four Thousand Seven Hundred Thirty-five and 99/100 Dollars ($ 4,735.99), and the net value hereby deeded to Gail Lewis is Four Thousand Seven Hundred Thirty-five and 99/100 Dollars ($ 4,735.99).

Witness my hand this 2nd day of January, 1943.

(Signed) A. B. Lewis/A. B. Lewis

I, Mary F. Lewis, wife of A. B. Lewis, hereby join my husband in the execution of the foregoing deed of gift and fully concur in and adopt said instrument as my own act, and hereby agree to be fully bound and obligated by said conveyance in all of its terms and provisions.

Witness my hand this 2nd day of January, 1943.

(Signed) Mary F. Lewis/Mary F. Lewis

The $ 18,943.96 net value placed on the business in the deed of gift represented the sum of the $ 17,619.18 balance in the sole proprietorship's "A. B. Lewis Net Worth" account plus the $ 1,324.77 balance in the "Gail, J. J." account. ^{*20 On September 12, 1943, A. B.'s accountant sent him a letter, the pertinent part of which is quoted below:}

I hand you under separate cover estimated income tax and victory tax returns for yourself and your wife, Joel and Gail. Your total estimated tax liability for 1943 is $ 10,276.74, closing the partnership at July 31, 1943. On your old basis estimated tax liability would be $ 39,630.32, a difference of $ 29,253.58. I have prepared exhibits and schedules for your inspection which set out the computation in detail and show you how the tax saving is effected. We will examine your records as soon as time will allow, probably immediately after September 15, and any adjustment necessary will be made at that time. Please feel free to call on me at any time.

Capital accounts for each of the children and for A. B. (reflecting the division of interests stated in the aforementioned deed of gift) were then, for the first time, set up and back-dated to January 1, 1943. Moreover, certain debit and credit entries which had been made in the aforementioned "Gail, J. J." account of the proprietorship between January 1 and July 31, 1943, were stricken therefrom. On October 13, 1943, the alleged partnership filed a return for its first fiscal year January 1-July 31, 1943, and continued thereafter to keep books and file returns on a fiscal year basis.

Petitioners' children, Gail and Joel Jack, were ages 12 and 9, respectively, when the alleged partnership was formed in 1943, and were 16 and 13, respectively, during the 1947 fiscal year involved in these proceedings. They were told by A. B. that they were being made partners because the business would someday be theirs, but A. B. did not consider that giving them partnership interests would result in any particular benefit to the business. Neither the economic relationship of the family nor the conduct of the business was in any way altered following the formation of the alleged partnership. In other words, A. B. continued to support the family as before and remained in complete control of all business operations. Policy matters were sometimes discussed with Mary and she continued to accompany A. B. on buying trips to New York but, as before, received no compensation for those services.

The children did not participate in the management or supervision of the business and performed no regular duties although occasionally they did work of a minor nature after school or during vacations from school. No trusts were set up or legal guardians appointed to handle their interests, nor were their disabilities as minors ever removed. They had no authority to sign business checks or withdraw money from any bank account maintained for the business. They had no control over the income attributable to their alleged capital interests in the business and such income was never distributed to them or used for their benefit, but, rather, was reinvested in the business. Income tax returns were filed for them, and taxes paid from the amounts credited to their capital accounts, for each year of the alleged partnership's existence but neither child ever saw any of those returns, personally signed them, or even knew of their filing and the tax payments.

On various Employer's Quarterly Contribution Reports filed during the 1943 calendar year with the Texas Unemployment Compensation Commission, A. B. checked the box, under "Type of [business] Organization," marked "Individual" rather than the one marked "Partnership," stated that there had been no change in the type of the business organization, and signed the reports as "Owner." The only capital account shown on balance sheets, dated January 31, April 30, and June 30, 1943, and submitted to the Citizens State Bank, Houston, was A. B.'s account. Moreover, on applications for credit filed with the Pacific Finance Corporation on June 30, 1943, December 31, 1943, and May 31, 1945, A. B. indicated that he was the sole owner of the business and, in two of those applications, checked the box characterizing the business organization as an "Individual Venture," rather than the box captioned "Partnership." (He did not check any of the boxes pertaining to a business organization in the May 31, 1945, application.) Although the applications required the signatures of all partners, if the business was operated as a partnership, A. B. was the only signer. It also appears that A. B. never notified his employees that Gail and Joel Jack were partners in the business, nor was the alleged partnership ever registered under the Texas Assumed Name Statute.

The final fiscal year of the alleged A. B. Lewis Co. partnership, which is the year involved in these proceedings, ended on July 1, 1947. A partnership return on Form 1065 was filed in which it was stated that it was for the fiscal year beginning August 1, 1946, and ending July 1, 1947. In this return the partners' capital accounts were listed as follows:

(a) A. B. Lewis	$ 49,007.92
(b) J. J. Lewis	37,162.35
(c) Gail Lewis	37,162.35

In "Schedule 1. -- Partners' Shares of Income and Credits," appears the following:

A. B. Lewis, share of income was listed as	$ 36,492.04
J. J. Lewis, share of income was listed as	4,496.02
Gail Lewis, share of income was listed as	4,496.02

In all but the 1947 fiscal year the business income was allocated to the capital accounts of A. B. and the children, without A. B. first withdrawing any salary. However, since no funds were ever withdrawn from the children's capital accounts except to pay taxes, whereas A. B. drew funds to support the family, this practice would have eventually resulted in the children's account balances exceeding that of A. B. Therefore, for 1947 A. B. first drew a salary of $ 27,500, then allocated the remaining income to the three capital accounts. This was done without first consulting the children (or any representatives thereof) and obtaining their consent in their capacity as partners. On July 2, 1947, the business was incorporated and A. B. received a salary from the corporation which totaled $ 12,499.98 for the remainder of the 1947 calendar year.

A. B. and Mary kept no books recording their individual income. The only books kept were of the alleged partnership. On September 15, 1948, they filed separate individual income tax returns for the 1947 calendar year in which they each reported adjusted gross income of $ 48,992.02 for the community and specified their "Com. [community] 1/2" as $ 24,496.01. The $ 48,992.02 was composed of $ 36,492.04 from the alleged partnership (A. B.'s "salary" of $ 27,500 plus $ 8,992.04 partner's share of the balance of the income) and his $ 12,499.98 salary from the successor corporation. On the same date that petitioners filed their returns for 1947 (September 15, 1948), they each paid $ 4,177.68 in income taxes for that year. On December 27, 1950, the Commissioner and each petitioner executed an agreement pursuant to section 276 (b) of the Internal Revenue Code of 1939, extending the time within which the Commissioner might assess such petitioner's income taxes for 1947 to June 30, 1952; on March 13, 1952, a second such agreement was executed with each petitioner extending the time for assessment to June 30, 1953. The deficiency notices in this case were mailed to petitioners on September 11, 1952.

During the period here in issue neither the petitioners themselves, nor the petitioners and their children, intended in good faith and acting with a business purpose to join together as partners in the present conduct of the A. B. Lewis Co. used car and auto financing business. The business was in fact conducted by A. B. as a sole proprietorship and there was no partnership. Petitioners and respondent stipulated at the hearing of this case that, if no partnership is recognized for tax purposes, then the net business income of A. B.'s sole proprietorship for the period January 1-July 1, 1947, is $ 26,500.

OPINION.

Two major issues are raised by the pleadings in this case. The first is whether the A. B. Lewis Co. was operated by A. B. as a sole proprietorship during the period in issue or whether it was a partnership composed of A. B., his wife, Mary, and his two minor children, Gail and Joel Jack. In their original petitions, petitioners alleged that the Commissioner erred in his determination that their two minor children were not partners in the business, thus questioning the Commissioner's determination only in that respect. Later they were permitted to amend their petitions so as to allege in the alternative that if our Court should find and hold that the two minor children were not partners in the business, then there was no partnership at all and A. B. Lewis Co. was operated as a sole proprietorship by A. B. and each petitioner's community share of the income from that business must be computed on a calendar year basis rather than a fiscal year basis.

The second issue concerns the propriety of the alleged partnership's reduction in the value of its used car closing inventory at the end of its 1947 fiscal year. It will be seen, however, that because of our decision on the first issue explained hereafter discussion of the inventory question is unnecessary.

The family partnership problem may be described as follows: Petitioners A. B. and Mary filed separate returns reporting their community income for 1947 on the calendar year basis. The total community adjusted gross income reported (one-half each) by petitioners included net business income of $ 36,492.04 from the alleged partnership for its final fiscal year *29 ending July 1, 1947. *30 no books recording their individual income. The books which were maintained were of the alleged partnership. Consequently, we think that under such a state of facts petitioners are correct in their contention that, should it be found that no partnership existed, then only the income of the business for the period January 1-July 1, 1947, is reportable by them for 1947. Sec. 41, I. R. C. of 1939; *32 Regs. 111, sec. 29.41-4; Russell Giffen, 14 T. C. 1272, 1282, affd. 190 F. 2d 188, certiorari denied 342 U.S. 918">342 U.S. 918. In the Giffen case, we said:

It is true that if we had held that Russell Giffen & Co. was not to be recognized by us for tax purposes, then the provisions of section 188 would have no application and the income reported on a partnership basis would have to be adjusted to the calendar year basis used by each of the petitioners. But respondent did not challenge the validity of the partnership of Russell Giffen & Co. for tax purposes. He recognized it to the extent of petitioners, but gave no recognition to the partnership status of the four children therein. Necessarily, our determination in this case was limited to whether the young Giffens were bona fide members of the partnership. It follows that the partnership was still in existence taxwise. Therefore, the provisions of section 188 apply and we uphold respondent's computation of petitioners' income from the farming business based on the fiscal year which was elected by Russell Giffen & Co. in keeping its books and filing its returns.

It is true that in the instant case respondent, as in the Giffen case, supra, has not challenged the validity of the partnership insofar as to whether it existed between husband and wife. But, in the instant case, unlike the Giffen case, petitioners by appropriate amendments to their petitions have alleged in the alternative that if we should hold that the minor children are not members of the partnership then no partnership existed at all and the A. B. Lewis Co. was being operated as a sole proprietorship and petitioners' tax liability should be treated accordingly. For reasons which we shall state more at length later in this Opinion, we hold that Gail and Joel Jack were not members of the alleged partnership and in fact there was no partnership at all but that the business was being operated as a sole proprietorship. This being our holding, it follows, as we said in the Giffen case, supra, that "then the provisions of section 188 would have no application and the income reported on a partnership basis would have to be adjusted to the calendar year basis used by each of the petitioners."

Inasmuch as respondent and petitioners stipulated at the hearing that the business net income of A. B. Lewis Co. for January 1-July 1, 1947, was $ 26,500, a holding by us that no partnership existed renders it unnecessary to consider the question raised by the second issue regarding the propriety of the aforementioned reduction in the alleged partnership closing inventory. We do not understand there is any disagreement between the parties as to this. If only the stipulated $ 26,500 in business income is to be included in petitioners' taxable income for 1947, rather than the $ 36,492.04 actually reported by them (and on which they paid taxes), is is obvious that they overpaid their taxes for that year. Since it is clear from our findings that each petitioner paid $ 4,177.68 in taxes for 1947 within the 3-year statutory period of limitations prescribed in section 322 (d) (1) (B) of the 1939 Code, *35 The results described above all turn upon our holding that the A. B. Lewis Co. was conducted not as a partnership between A. B. and either Mary or the children but, rather, was conducted by A. B. as a sole proprietorship. We have so held for the reasons which follow.

It is clear from the decided cases that the existence of a partnership for Federal tax purposes depends on the intent of the parties, which is a question of fact. This intent test was stated in Commissioner v. Culbertson, 337 U.S. 733">337 U.S. 733, as follows:

The question is * * * whether, considering all the facts -- the agreement, the conduct of the parties in execution of its provisions, their statements, the testimony of disinterested persons, the relationship of the parties, their respective abilities and capital contributions, the actual control of income and the purposes for which it is used, and any other facts throwing light on their true intent -- the parties in good faith and acting with a business purpose intended to join together in the present conduct of the enterprise.

As regards Gail and Joel Jack, the minor children, the establishment of the alleged partnership was a unilateral matter in which the children were passive parties; they were simply told by A. B. that they were being made partners. Batman v. Commissioner, (C. A. 5) 189 F. 2d 107, affirming a Memorandum Opinion of this Court, certiorari denied 342 U.S. 877">342 U.S. 877. Moreover, the very manner in which the alleged partnership was established raises substantial doubts as to its bona fides, it appearing from the failure to set up capital accounts for the children until after the receipt of the September 12, 1943, letter from A. B.'s accountant (quoted in our findings), although the partnership was purportedly formed on January 1, 1943, that the final decision to conduct the business as a partnership was not made until after the tax effects for 1943 were determined. Further, the absence of a partnership agreement plus the fact that, as noted below, the conduct of the parties does not clearly evidence an understanding that the business be conducted as partners is another factor of importance. See L. C. Olinger, 10. T. C. 423; compare Weizer v. Commissioner, (C. A. 6) 165 F.2d 772">165 F. 2d 772.

The children were 12 and 9 years old when they were purportedly made partners; no trustee or legal guardian was appointed to look after their interests nor were their disabilities as minors removed; they took no part in the management or supervision of the business, A. B. remaining in complete control thereof; they performed no regular duties in the business; they had no authority to sign business checks; they exercised no control over the income attributable to their alleged capital interests and, in fact, none of that income was distributed to them or used for their benefit but was, instead, reinvested in the business; they did not even know that tax returns were being filed for them and taxes paid on the income attributable to their capital interests. A. B., in addition, had complete control over the distribution of profits. His unilateral action in drawing a salary (during the alleged partnership's 1947 fiscal year) prior to the distribution of profits to the partners' accounts without obtaining the other partners' consent is evidence of that. Lieber v. United States, 128 Ct. Cl. 128">128 Ct. Cl. 128, 119 F. Supp. 951">119 F. Supp. 951. Moreover, A. B. continued to represent the business as a sole proprietorship to creditors and to an official body of the State, Maxwell v. Commissioner, (C. A. 4) 208 F. 2d 542, certiorari denied 347 U.S. 1013">347 U.S. 1013, apparently did not notify his employees that the children had been made partners, and never registered the partnership under the Texas Assumed Name Statute.

We think it clear from the above that, upon consideration of all the facts, the parties did not "in good faith and acting with a business purpose," Commissioner v. Culbertson, supra, intend that the business of A.B. Lewis Co. be conducted as a partnership in which petitioners' minor children were included as partners. As was said by the Court of Appeals in Batman v. Commissioner, supra, "here is only a family scheme for tax avoidance by anticipatory assignment of income under the pretense of forming and conducting a partnership."

Considering next the question raised by petitioners in the alternative as to whether Mary was a partner with A. B. in the conduct of the business, we are compelled to reach the same conclusion. Although Mary at various times prior to 1943 (the year in which the alleged partnership was formed) sold real estate and advertising in order to obtain capital for A. B.'s business, and also performed certain duties in the business itself, there is no contention that Mary was then a partner. Rather, it is conceded by all parties that prior to 1943 the business was a sole proprietorship conducted by A. B. And, in 1943 itself, we think the only action attempted was to make the children partners; we see no evidence of any effort or intent to change Mary's status in relation to the business.

The deed of gift dated January 2, 1943, itself indicates this. It purports to make gifts of interests in the business only to the children, was joined in by Mary, and states in part that "As a result of this deed of gift, my wife and I will own and retain one-half (1/2) of the business." We think this language reveals that Mary was intended to have no different interest in the business than theretofore, which in fact means that she had no partnership interest (it being conceded, as aforementioned, that prior to 1943 the business was a sole proprietorship). The fact that Mary was mentioned in the deed at all, and that she joined in its execution, resulted, we think, only from the belief that Mary had some sort of an interest in the business as a consequence of the community property laws of Texas.

When tested by the general rules governing partnerships under the Federal statutes as interpreted by the courts, particularly the Supreme Court in the Culbertson case, supra, we think the facts clearly show that Mary was not a partner in the business nor was it intended that she should be. Close analysis of the testimony, considered in the light of all the surrounding circumstances, convinces us that both petitioners regarded Mary's interest in the business as springing from her community property rights under the Texas statutes, rather than as the result of any agreement, either oral or written, that she should be a partner in the business of A. B. Lewis Co. Merely because a wife under Texas community property laws owns a one-half interest in her husband's profits in a business which he is conducting as a sole proprietorship does not make her a partner in the business. We think it is unnecessary to cite any authority on that point.

For the foregoing reasons, therefore, we hold (a) that A. B. Lewis Co. was during the period in issue operated by A. B. as a sole proprietorship, (b) that the business income therefrom must be reported by petitioners on a calendar year basis and, as a consequence thereof, (c) that petitioners overpaid their income taxes for 1947 and are entitled to credits or refunds of such taxes in amounts to be determined under Rule 50.

Decisions will be entered under Rule 50.

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Footnotes

• 1. Those two figures actually total $ 18,943.95, but 1 cent was added thereto probably so that the division of interests would not be complicated by fractions of a cent.↩

• 2. Internal Revenue Code of 1939.

  SEC. 187. PARTNERSHIP RETURNS.

  Every partnership shall make a return for each taxable year, stating specifically the items of its gross income and the deductions allowed by this chapter and such other information for the purpose of carrying out the provisions of this chapter as the Commissioner with the approval of the Secretary may by regulations prescribe, and shall include in the return the names and addresses of the individuals who would be entitled to share in the net income if distributed and the amount of the distributive share of each individual. The return shall be sworn to by any one of the partners.

  SEC. 188. DIFFERENT TAXABLE YEARS OF PARTNER AND PARTNERSHIP.

  If the taxable year of a partner is different from that of the partnership, the inclusions with respect to the net income of the partnership, in computing the net income of the partner for his taxable year, shall be based upon the net income of the partnership for any taxable year of the partnership (whether beginning on, before, or after January 1, 1939) ending within or with the taxable year of the partner.↩

• 3. On July 2, 1947, the business was incorporated.↩

• 4. SEC. 41. GENERAL RULE.

  The net income shall be computed upon the basis of the taxpayer's annual accounting period (fiscal year or calendar year, as the case may be) in accordance with the method of accounting regularly employed in keeping the books of such taxpayer; but if no such method of accounting has been so employed, or if the method employed does not clearly reflect the income, the computation shall be made in accordance with such method as in the opinion of the Commissioner does clearly reflect the income. If the taxpayer's annual accounting period is other than a fiscal year as defined in section 48↩ or if the taxpayer has no annual accounting period or does not keep books, the net income shall be computed on the basis of the calendar year.

• 5. Sec. 29.41-4. Accounting Period. -- The return of a taxpayer is made and his income computed for his taxable year, which in general means his fiscal year, or the calendar year if he has not established a fiscal year. (See section 48.) The term "fiscal year" means an accounting period of 12 months ending on the last day of any month other than December. No fiscal year will, however, be recognized unless before its close it was definitely established as an accounting period by the taxpayer and the books of such taxpayer were kept in accordance therewith. A person having no such fiscal year must make his return on the basis of the calendar year. Except in the case of a first return for income tax a taxpayer shall make his return on the basis upon which he made his return for the taxable year immediately preceding, unless, with the approval of the Commissioner, he has changed his accounting period. See section 29.46-1↩.

• 6. SEC. 322. REFUNDS AND CREDITS.

  (d) Overpayment Found by Board. -- If the Board finds that there is no deficiency and further finds that the taxpayer has made an overpayment of tax in respect of the taxable year in respect of which the Commissioner determined the deficiency, * * * the Board shall have jurisdiction to determine the amount of such overpayment, and such amount shall, when the decision of the Board has become final, be credited or refunded to the taxpayer. No such credit or refund shall be made of any portion of the tax unless the Board determines as part of its decision (1) that such portion was paid (A) within two years before the filing of the claim, the mailing of the notice of deficiency, or the execution of an agreement by both the Commissioner and the taxpayer pursuant to section 276 (b) to extend beyond the time prescribed in section 275↩ the time within which the Commissioner might assess the tax, whichever is earliest, or (B) within three years before the filing of the claim, the mailing of the notice of deficiency, or the execution of the agreement, whichever is earliest, if the claim was filed, the notice of deficiency mailed, or the agreement executed within three years from the time the return was filed by the taxpayer, * * *