Hoosac Mills Corp. v. Commissioner

MORTON, Circuit Judge.

This is a petition to review a decision by the Board of Tax Appeals. It involves the liability of the petitioner, as transferee of property formerly owned by the Nemasket Mill, for deficiency income and profits taxes assessed against the former owner for the year 1919. The Nemasket Mill transferred its assets to the Butler Mill in 1923; and the Butler Mill, in 1931, transferred the property in question as part of its assets to the petitioner.

There is no controversy as to the amount of the tax, the only question being whether the assessment was outlawed. The re,turn was filed on June 8, 1920, and under the statutes assessment was barred by limitation after five years, i. e. on June 8, 192S. Waivers were filed, however, by the Nemasket Mill which extended the time for assessment at least until December 31, 1926. The provisions of these waivers as far as here material were as follows:

“This waiver of the time for making any assessment as aforesaid shall remain in effect until December 31, 1926, and shall chen 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.”

On February 20, 1926, ten months before the final date fixed by the waivers, the Commissioner sent a deficiency letter notifying the Nemasket Mill of the deficiency tax in question. Thereupon the taxpayer appealed to the Board of Tax Appeals. Under the waivers the appeal tolled the statute of limitation until final decision by the Board. This resulted in an extension of the time within which the assessment might be made for 4 years, 3 months, 9 days, or to April 9, 1931. The parties are in agreement that the date of final decision was May 29, 1930, when the Board, upon the stipulation of parties, entered a decision affirming the Commissioner’s action. The tax in question was accordingly assessed against the Nemasket Mill on July 26, 1930.

Nothing further appears to have been done in the matter until May 18, 1932, a delay of nearly two years, when the Commissioner sent a “sixty day” letter or notice of deficiency to the petitioner as transferee, from which the appeal was taken to the Board of Tax Appeals which is now before us. As the law then stood, where property of a person liable for a tax was transferred subsequent to the accrual of the liability, the tax might be assessed against the transferee at any time up to one year after the final date on which it could be assessed against the original owner, or in this case up to April 9, 1932. The parties agree that the petitioner is liable if the statute of limitation has not barred the enforcement of liability against it.

The question before us is therefore whether the right of assessment against the petitioner had become barred on or before May 18, 1932. According to the terms of the waivers the time as against the Nemasket Mills expired on April 9, 1931; the time for the assessment against the petitioner expired a year later; and the assessment of May 18, 1932, was too late.

But while the waivers were in force the Revenue Act of 1926 became effective. A question at once arises' whether Congress by statute could affect the plain language of the waivers to the extent for which the government contends. It is unnecessary to decide it because we are unable to agree with the Commissioner’s interpretation of the statute. The statute provided, in section 274 (a), 26 USCA § 1048, that the Commissioner should be prohibited from assessing or collecting any tax in case of an appeal until the decision of the Board of Tax Appeal became final, though he could still make a jeopardy assessment under section 279 (26 USCA §§ 1051, 1063). It was further provided in section 277 (b), 26 USCA § 1057 note, in effect, that the period provided in that section, or under section 274 (a), or under section 278 (26 USCA §§ 1058, 1059, 1060 note, 1061 note, 1052), for assessing a tax, should in case of an appeal be suspended until 60 days after the decision of the Board became final.

The government contends that these provisions have' the effect of suspending the waivers so for as they relate to the tolling the statute( afid of extending the time within which 'the tax might be assessed by an additional period as long as' that during which the waivers were thus suspended. In other words, this period, amounting to four years, three months, and nine days, is to be added, according (o the government’s .contention, to .the.date,-when'the decisipn^of th,e Board became final,' and 60 days thereafter, or until' Npvember 6,"1934, or. against the.petitioner-until November, 6, 1935.. As an .alternative, the government urges, that at •least the period of 10 months and. 11 days between February 20, 1926, when the deficiency letter was sent, and December 31, 1926, to which .date the waiver .by its .terms •unquestionably-extended, the .period for asr •sessment, .should ¡be added to rthe statutory period within which the tax ..might be assessed under section 277 (b)..s -,

Under the government contention, the casé turns ón whether sections 274 (a); 277 (b), and 278 of the 1926 Act operate to extend.'the period for assessment beyond May 1.8, 1932. - When Congress provided in section 277 (b) of the 1926 Act that the statute of limitations, was suspended until 60 days after the decision of the Board became final, it does not follow that the Commissioner could take no action .during that 60 days. The law authorizing the assessment of a tax was not suspended during that 60 days’ period. It merely gaye the Commissioner time tó assess á’tax in'case a waiver had not extended the time for assessment beyond the date when the decision of the Board became final. If it meant that the waiver was suspended until the expiration'.of'the 60 day period after the decision of,”the, Board became final, and that any ungxpired part of the. waiyer period was then added, the addition of 4 years, 3 months, and 9 days is the only logical construction; but ‘such a construction would be absurd..

We think Congress, when it provided by section 277 ‘(b) of the 1926 Act, that the running of the statute of limitations was suspended during the period in which the Commissioner was prohibited from assessing a deficiency tax, and for 60 days thereafter, did not thereby intend to extend the time for assessing a deficiency .tax beyond the 60 days therein mentioned, by adding the unexpired period of a waiver, if any, after the notice of a deficiency tax was mailed;- but merely to suspend the tolling of the statute of limitations provided in sections 274 (a), 277, and 278 for 60 days after the decision of the Board became final. Ample time to assess a deficiency tax is given by this construction, if the period as extended by a waiver is insufficient in any case. The Commissioner did not act in this case within the time permitted by the statute or the waiver, and the tax against this petitioner was barred.

The decision of the Board of Tax Appeals is reversed.