American Coast Line, Inc. v. Commissioner

OPINION.

Murdock, Judge:

The excess profits tax here in question (sub-chapter E) was first imposed by section 710 (a) of the Internal Revenue Code. See section 201, Second Revenue Act of 1940. It was imposed “for each taxable year beginning after December 31, 1939.” The petitioner is endeavoring to show that it had a fiscal year beginning prior to December 31, 1939, and ending on June 30, 1940. It would thus avoid most, if not all, excess profits tax liability, since it operated only seven days after June 30, 1940. It requested permission to file its tax reports upon a fiscal year basis. Permission was granted effective June 30, 1940, but the petitioner never took advantage of that permission. The reason is clear. The permission was upon condition that it file a return for the calendar year 1939 and a return for the short period January 1, to June 30, 1940. That latter period would be a period beginning after December 31, 1939, and would be subject to the excess profits tax of section 710 (a). The petitioner never obtained permission to file a tax return for a fiscal year beginning prior to December 31, 1939, and ending on June 30, 1940. Obviously, what the petitioner wanted was permission to file a return for a period from the beginning of its operations in 1939 and ending on June 30, 1940. Its application was made on May 2, 1940. That request was not timely under the Commissioner’s regulations (see Regulations 103, sec. 19.46-1), and the Commissioner acted reasonably and within his regulations in granting the request effective June 30, 1940, and upon the conditions which he imposed. Furthermore, and this in itself is determinative, the petitioner never filed a tax return for a period beginning prior to December 31, 1939, and ending thereafter, but, instead, filed its excess profits tax return for the calendar year 1940 in accordance with the period for which it closed its books. Thus, it does not have a leg to stand on in opposing the Commissioner’s determination of its excess profits tax liability on the basis of the calendar year 1940. Since the deficiency determined by the Commissioner is not otherwise attacked, it must be approved.

The next contention of the petitioner is that it is entitled to relief under section 722. The Commissioner contends that the proceeding should be dismissed in so far as it seeks relief under section 722. He cites Uni-Term Stevedoring Co., 3 T. C. 917, and Pioneer Parachute Co., 4 T. C. 27. Solution of this question requires consideration of the legislative history of section 722 (d) (formerly (e)) and of section 732 of the code. Section 732 is the section which expressly confers jurisdiction on this Court (formerly the Board of Tax Appeals) over issues relating to relief under section 722. The principal purpose of section 722 (d) has been to fix a period of limitations within which claims for relief must be made, but it may also have conferred upon this Court jurisdiction in certain cases not covered by section 732. Therefore, the two sections should be considered together.

The original subchapter E excess profits tax provisions came into the Internal Bevenue Code through section 201 of the Second Revenue Act of 1940. The only reference to the Board of Tax Appeals was in section 722. which was as follows:

SEC. 722. ADJUSTMENT OF ABNORMALITIES IN INCOME AND CAPITAL BT THE COMMISSIONER.
For the purposes of this subchapter, the Commissioner shall also have authority to make such adjustments as may be necessary to adjust abnormalities affecting income or capital, and his decision shall be subject to review by the United States Board of Tax Appeals.

There was no elaboration to show how the relief system was to work. Those provisions were in effect until March 7, 1941, at which time the Excess Profits Tax Amendments of 1941 replaced the original with a wholly new section 722. Those amendments were made effective as of the date of the enactment of the Excess Profits Tax Act of 1940. The only reference to the Board of Tax Appeals in the new section 722 occurred in paragraph (e) thereof. That provision fixed a period of limitations within which applications for relief had to be made. It first required the taxpayer to compute its tax and file its excess profits tax return without the application of section 722, and then provided a general rule that the benefits of the section could not be obtained unless the taxpayer applied to the Commissioner for those benefits within six months from the date of filing the return. An exception was provided to this general rule allowing a taxpayer to claim the benefits of the section in its petition to the Board of Tax Appeals if the Commissioner mailed a notice of deficiency without having issued a preliminary notice thereof or if he mailed a notice of deficiency within 90 days after the date of his preliminary notice. One important purpose of the exception was that a taxpayer who asked for no relief from the tax shown on its return had to be given some time within which to make an application for relief after it had been notified that a deficiency was going to be or had been determined. But where the application was thus filed and was not filed within six months after the date for filing the return, the benefits of the section were limited to the amount of the deficiency.

Section 722 was further amended by section 222 of the Revenue Act of 1942, approved October 21, 1942. The only change material here, aside from changing the provisions from paragraph (e) to paragraph (d), was the additional requirement that the taxpayer “pay” its excess profits tax computed without the application of section 722.

That new paragraph (d) was further amended by Public Law 201, 78th Cong., ch. 346, 1st sess., approved Dec. 17, 1943. It entirely changed the period for filing applications or claims for relief and was made applicable with respect to taxable years beginning after December 31,1939. That part of it material hereto was as follows:

(d) Application foe Relief Under This Section. — The taxpayer shall compute Its tax, file its return, and pay the tax shown on Its return under this subchapter without the application of this section, except as provided in section 710 (a) (5). The benefits of this section shall not be allowed unless the taxpayer within the period of time prescribed by section 322 and subject to the limitation as to amount of credit or refund prescribed in such section makes application therefor in accordance with regulations prescribed by the Commissioner with the approval of the Secretary.

Section 322 is the general section authorizing refunds and credits “where there has been an overpayment of any tax.” The period of limitation for the filing of claims for refund fixed in that section is within three years from the time the return was filed or within, two years from the time the tax was paid, whichever period expires later.

The principal purpose of section 722 (d), as shown by its legislative history, was to provide a reasonable period of limitations within which applications or claims for relief under section 722 had to be made. The period was extended from time to time, and, finally, when it included a two-year period after payment of the tax, there was no necessity for any reference to petitions to the Board of Tax Appeals, and, consequently, all reference to the Board or to the Tax Court was eliminated.

The Excess Profits Tax Amendments of 1941, referred to earlier, added to the code for the first time section 732, entitled “Review of Abnormalities by Board of Tax Appeals.” It parallels, to a degree, section 272, which conferred jurisdiction in deficiency cases but not in 722 cases. Uni-Term Stevedoring Co., supra. Section 732 expressly conferred jurisdiction on this tribunal in certain cases under section 722. Paragraph (a) thereof provides, inter alia: “If a claim for refund of tax under this subchapter for an;r taxable year is disallowed in whole or in part by the Commissioner” he shall send a notice thereof by registered mail and the taxpayer may file a petition with the Board of Tax Appeals for a redetermination of the excess profits tax. That amendment likewise was made effective as of the date of the enactment of the Excess Profits Tax Act of 1940. No changes material hereto have been made in those provisions.

The petition herein was filed on December 26,1942, which was prior to Public Law 201, approved December 17, 1943, the last amendment of section 722 (d). However, that amendment was expressly made applicable to taxable years beginning after December 31, 1939. The year here involved is such a taxable year, the calendar year 1940. Section 722 (d) as thus amended makes no reference to the Board of Tax Appeals or to the Tax Court, and the only subchapter E excess profits tax provisions conferring jurisdiction upon this Court m 722 cases are contained in section 732. Those provisions, standing alone, do not give this Court jurisdiction over the 722 issue in this proceeding. Prerequisites to such jurisdiction are computation and payment of the excess profits tax without reference to section 722, the filing of a claim for refund of that tax, in accordance with section 322, and a proper notice of the rejection in whole or in part of that claim. The petitioner has never paid any excess profits tax for the year here in question. It has never filed any claim for refund of excess profits taxes paid for the year, and it has never been notified by the Commissioner of his denial in whole or in part of any claim for refund of excess profits taxes for that year. Thus, the Tax Court, under the law as it now exists, does not have jurisdiction to consider the question of wliether or not the petitioner is entitled to relief under section 722. There is no hardship in this. It simply treats all taxpayers alike. Cf. Pioneer Parachute Co., supra. If the petitioner pays the deficiency, it will then be entitled to file a claim for refund, and if that claim is denied in whole or in part, it will have a right to contest that action of the Commissioner in this Court, but at present the section 722 issue is not within the statute giving this Court jurisdiction.

The provisions of section 732 at the time this petition was filed were, so far as they are material hereto, exactly the same as they are now. However, it might be argued that section 722 (d), as it existed at the time this petition was filed, conferred jurisdiction upon this Court in certain cases not covered by section 732, and jurisdiction thus acquired was never taken away or lost. There is a general rule which may be found in 15 C. J. 825 that jurisdiction over pending cases is ousted by the repeal of the statute upon which it wholly depends unless the repealing act contains a clause saving pending actions from the operation of the repeal or contains a substantial reenactment of the provisions under which the action was brought. Mr. Chief Justice Waite, in Railroad Co. v. Grant, 98 U. S. 398, expressed the rule as follows: “It is equally well settled that if a law conferring jurisdiction is repealed without any reservation as to pending cases, all such cases fall with the law.” Congress apparently had this rule in mind when it enacted section 283 (a) of the Revenue Act of 1926, in which it expressly continued the jurisdiction of the Board of Tax Appeals over cases filed with it prior to the enactment of the Revenue Act of 1926. The amendment to section 722 (d) contained in Public Law 201, supra, was an effective repeal of section 722 (d) as it existed at the time the petition in this case was filed. The new law provided that “section 722 (d) of the Internal Revenue Code (prescribing the time for filing applications for general relief under the excess-profits tax) is amended to read as follows,” and the amendment was a wholly new provision, complete in itself. It was expressly made effective for all years for which the subchapter E excess profits tax was imposed. It completely superseded the old paragraph (d). There was no need for the amendment to contain any provisions saving the jurisdiction which the Board of Tax Appeals or the Tax Court might have obtained by reason of petitions having been filed with it under the former provisions of the paragraph and it did not contain any saving clause. It would follow that if this Court ever had section 722 jurisdiction ,in this case, it has been lost. Cf. Pioneer Parachute Co., supra, in which a similar argument was advanced.

However, this petitioner has never brought itself within the provisions of section 722 (d) as they existed at the time its petition was filed. It had made a claim to the Commissioner for relief under section 722 before it ever filed its petition. No suggestion is made that that claim tras not timely. Thus, the petitioner did not have to rely, and did not rely, upon the exception contained in section 722 (d). Furthermore, there is nothing to indicate that the notice of deficiency was mailed without a preliminary notice having been mailed or that it was mailed within 90 days after the date of a preliminary notice. Thus, if the provisions of section 722 (d), in effect at the time this petition was filed, were intended by Congress to give the Tax Court jurisdiction in. certain cases not covered by section 782, nevertheless, this petition does not come within those provisions of the law. We had no jurisdiction of the section 722 issue under section 272. Uni-Term Stevedoring Co., supra. It follows that the Tax Court never acquired any jurisdiction over the section 722 issue in this proceeding.

Reviewed by the Court.

Decision wilt be entered for the respondent as to the deficiency, and the proceeding is dismissed as to the section 7M issue for lack of jurisdiction.

Black, J., concurs only in the result.