DocketNumber: No. 9693
Citation Numbers: 172 F.2d 77, 37 A.F.T.R. (P-H) 853, 1948 U.S. App. LEXIS 3969
Judges: Goodrich
Filed Date: 12/20/1948
Status: Precedential
Modified Date: 10/18/2024
This is a suit by a taxpayer to get back some money from the Government. The taxpayer was entitled to a refund for taxes paid in 1941.
The point of the case can best he understood if non-technically stated, leaving statutory references and the like for footnote elaboration. The taxpayer paid the tax it thought due for income and excess profits for 1941. Later deficiencies on both income and excess profits taxes were asserted by the Commissioner. Because the taxpayer had gone into bankruptcy the assessments were perfected in the accelerated fashion provided for in the statute.
It is argued on behalf of the Commissioner that the money was due when the deficiency was asserted.
We think the argument here is overwhelmingly on the side of the taxpayer. It should be noted at the outset that the tax
Interest not contracted for by the terms of an agreement between parties is generally described as damages for the detention -of money to which another is entitled.
Both sides admit there is little decided case law that is very helpful. The taxpayer certainly has analogous authority in its favor in one line of cases. These decisions allowed the recovery by the taxpayer against the Government of interest paid on a tax by the taxpayer in a situation where it developed that the assessment was erroneous. The taxpayer was allowed to recover the interest he had paid in spite of a compromise agreement made with the Government at the time he paid the interest. Big Diamond Mills Co. v. United States, 8 Cir., 1931, 51 F.2d 721; Colorado Milling & Elevator Co. v. Howbert, 10 Cir., 1932, 57 F.2d 769; Phelps v. United States, 2 Cir., 1939, 105 F.2d 904. It also cites a previous ruling by the Commissioner which tends to support this point of view.
After reviewing the authorities and reading the legislative history cited to us by each side we conclude to reverse. And the basis for that reversal, simply stated, is that the interest on nothing (what taxpayer owed the Government), is necessarily
The judgment will be reversed with directions to order judgment for the plaintiff.
The taxpayer’s fiscal period involved here is from January 1, 1941 to September 30, 1941. It filed its tax returns and paid taxes covering this period, and it is these payments to which the carry-back provisions are applicable.
Internal Revenue Code § 274, 26 U.S. C.A. § 274, provides:
“§ 274. Bankruptcy and receiverships— (a) Immediate assessment.
“Upon the adjudication of bankruptcy of any taxpayer in any bankruptcy proceeding or the appointment of a receiver for any taxpayer in any receivership proceeding before any court of the United States or of any State or Territory or of the District of Columbia, any deficiency (together with all interest, additional amounts, or additions to the tax provided for by law) determined by the Commissioner in respect of a tax imposed by this chapter upon such taxpayer shall, despite the restrictions imposed by section 272 (a) upon assessments be immediately assessed if such deficiency has not theretofore been assessed in accordance with law. In such cases the trustee in bankruptcy or receiver shall give notice in writing to the Commissioner of the adjudication of bankruptcy or
The applicable provision of the Internal Revenue Code reads as follows:
Ҥ 122. Net operating loss deduction
“ (b) Amount of carry-back and, carryover — (1) Net operating loss carry-back. If for any taxable year beginning after December 31, 1941, the taxpayer has a net operating loss, such net operating loss shall be a net operating loss carry-back for each of the two preceding taxable years, except that the carry-back in the case of the first preceding taxable year shall be the excess, if any, of the amount of such net operating loss over the net income for the second preceding taxable year computed .(A) with the exceptions, additions, and limitations provided in subsection (d) (1), (2), (4), and (6) and (B) by determining the net operating loss deduction for such second preceding taxable year without regard to such net operating loss.” 26 U.S.C.A. § 122(b).
The applicable sections of the Revenue Act of 1938, §§ 271, 292, 52 Stat. 534, 541, 26 U.S.C.A. §§ 271; 292, provide;
Ҥ 271. Definition of deficiency
“As used in this chapter in respect of a tax imposed by this title ‘deficiency’ means—
“(a) The amount by which the tax imposed by this title exceeds the amount shown as the tax by the taxpayer upon his return; but the amount so shown on the return shall first be increased by the amounts previously assessed (or collected without assessment) as a deficiency, and decreased by the amounts previously abated, credited, refunded, or otherwise repaid in respect of such tax; or
“(b) If no amount is shown as the tax by the taxpayer upon his return, or if no return is made by the taxpayer, then the amount by which the tax exceeds the amounts previously assessed (or collected without assessment) as a deficiency^ but such amounts previously assessed, or collected without assessment, shall first be decreased by the amounts previously abated, credited, refunded, or otherwise repaid in respect of such tax.”
Ҥ 292. Interest on deficiencies
“Interest upon the amount determined as a deficiency shall be assessed at the same time as the deficiency, shall be paid upon notice and demand from the collector, and shall be collected as a part of the tax, at the rate of 6 per centum per annum from the date prescribed for the payment of the tax (or, if the tax is paid in installments, from the date prescribed for the payment of "the first installment) to the date the deficiency is assessed, or, in the case of a waiver under section 272 (d), to the thirtieth day after the filing of such waiver or to the date the deficiency is assessed whichever is the earlier.”
“It was only by reason of the permitted retrospective deduction for the taxable period * * * of the so-called ‘net operating loss carry-back’ from the later year, as provided by Section 122 (b) (1), that the taxpayer eventually became entitled to an abatement of the deficiency taxes. This, however, was after they had already been in existence for some considerable time, as already shown. Hence, the only amount the Commissioner was legally permitted to refund was the aggregate sum of the taxes paid, less the statutory interest on the deficiencies which had accrued between the due date of the payment of the taxes on December 15, 19-11, and the date of the deficiency assessments on August 2, 1943 (Section 292 (a)), no interest being refundable except that which accrued after the refund claims were filed on March 15, 1944 (Section 3771 (c)). Consequently, the Commissioner had no alternative than to refuse to refund the interest in question. The exaction of interest from the Government requires specific statutory authority * * * and it may be computed only according to (lie statutory provisions in force at the time of the allowance of a refund or credit. * * * ” Brief foi Appellee, pp. 13-14.
15 Am.Jur., Damages § 159 (1938); Restatement, Contracts § 337 (1932).
Referring to penalties and interest collected without aulhority, this ruling states “ * * * that interest and penalties are in the nature of accretions to the tax and should be considered as a part thereof in connection with any refund or credit of the tax.” I.T. 1447, 1-2 C.B. 220 (1922).