*3374 STATUTE OF LIMITATIONS. - The filing of a bond with an abatement claim does not satisfy the provision of section 250(d) of the Revenue Act of 1921 requiring a consent in writing by both the Commissioner and the taxpayer as a condition precedent to the postponement of the collection beyond five years after the date the return was filed.
*1244 In this proceeding petitioner seeks a redetermination of the income and profits taxes for the years 1917, 1918, 1919, and 1920, for which the Commissioner has determined deficiencies of $153,815.30, $4,482.92, $1,934.30, and $928.17, respectively. The deficiency for the year 1917 is represented by the rejection of a claim for abatement by letter dated May 12, 1926.
Petitioner alleges error on the part of the Commissioner (1) in disallowing deductions for all years involved as amortization of the *1245 cost to petitioner of the lease of certain iron ore properties held by the petitioner in the name of the Clinton Mining Co., a corporation*3375 affiliated with the petitioner; (2) in disallowing for all years involved a reasonable amount as a deduction to the Clinton Mining Co. for the depletion of the iron ore leasehold, based upon the March 1, 1913, value thereof; (3) in reducing the invested capital of petitioner for the year 1917 on account of the acquisition by it of certain of its outstanding stock on January 2, 1915, in an amount greater than the cost to petitioner of the stock so acquired; and (4) in failing to determine that the collection of any part of the deficiency for the year 1917 was barred by the statute of limitations FINDINGS OF FACT.
The petitioner is a corporation organized on November 1, 1913, under the laws of the State of Delaware, with its principal office at Birmingham, Ala.
On March 28, 1918, it filed its income and excess-profits-tax returns for the calendar year 1917 with the Collector of Internal Revenue for the District of Alabama. The returns showed a tax due of $989,790.57, which was paid on June 25, 1918. Thereafter the returns were examined by the Commissioner, which examination resulted in the assessment by him in April, 1921, of an additional tax of $153,815.30. On or about May 6, 1921, the*3376 petitioner filed with the collector a claim for the abatement of the additional tax on the ground that for reasons stated in the claim the alleged deficiency did not exist. Between the date of the filing of the claim and May 4, 1926, several documents in the nature of protests in support of the claim were filed by the petitioner with the Commissioner and several hearings were granted in the Bureau. Three bonds have been executed and filed with the collector. The first was on March 13, 1923, and was in response to a demand in writing from the collector for the additional tax. This bond is in the following language:
STATE OF ALABAMA,
COUNTY OF JEFFERSONUNITED STATES OF AMERICA
We, Gulf States Steel Company, a corporation, organized under the laws of the State of Delaware, as principal, and The American Surety Company of New York, a corporation organized under the laws of the State of New York, and duly qualified to transact business in the State of Alabama, as surety, are held and firmly bound unto W. E. Snead, as Collector of Internal Revenue, District of Alabama, in the penal sum of One hundred and seventy-five thousand, three hundred and fifty dollars ($175,350.00), for*3377 the payment of which well and truly to be made, we, and each of us, bind ourselves, our successors, heirs, executors and administrators, jointly and severally, by these presents.
Signed and sealed this the 13th day of March, 1923.
The condition of the above obligation is such that, if the said Gulf States Steel Company will indemnify the said W. E. Snead as collector as aforesaid, *1246 or his sucessor in office, against all loss, cost, damage, and expense to which he may be put by reason of having allowed the said Gulf States Steel Company to withhold the payment to him, as such Collector, of the sum of One Hundred and fifty-three thousand eight hundred fifteen and 30/100 Dollars ($153,815.30) claimed of it under the War Revenue Act of 1917, pending the filing, by said Gulf States Steel Company of additional facts and information in support of a claim for the abatement of said amount heretofore filed by it, then this obligation to be null and void, otherwise, to be and remain in full force and effect.
GULF STATES STEEL COMPANY,
(Signed) By A. R. FORSYTH,
Vice President.
Attest:
(Signed) W. M. MOORE, Secretary.
AMERICAN SURETY COMPANY ON NEW YORK,
*3378 (Signed) By FRANK L. JONES,
Resident Vice President.
Attest:
(Signed) WILLIAM B. WHITE, Resident Secretary.
The seals of the petitioner and the surety were both imprinted on the face of the bond.
On March 11, 1925, the petitioner's board of directors met and passed a resolution authorizing Calvert Brewer, Assistant Secretary of the petitioner to deposit with the Federal Reserve Bank of New York, United States Liberty Loan bonds of the par value of $200,000 and to authorize the said Bank to hold said bonds for the benefit of the collector for the District of Alabama "to assure him of the payment by the duly authorized officers of this company of such taxes, interest and penalties as may be demanded from this company should the claim filed by this company for the abatement of an additional income and excess-profits tax assessment of $153,815.30 for the year 1917 be denied in whole or in part." The resolution further provided that Brewer was "authorized and directed to do any and all things necessary and proper to fully and effectively carry out the instructions hereby given."
On April 3, 1925, the petitioner executed and filed with the collector the following instrument*3379 or bond in place of the first bond filed March 13, 1923:
KNOW ALL MEN BY THESE PRESENTS, that, the Gulf States Steel Company, of the city of Birmingham, and State of Alabama, as obligor, is held and firmly bound unto W. E. Snead, Collector, in the penal sum of two hundred thousand dollars ($200,000.00), lawful money of the United States, for the payment of which sum, well and truly to be made to W. E. Snead, Col., without relief from valuation or appraisement laws, the Gulf States Steel Company binds itself, its successors, and assigns, firmly by these presents.
The condition of the above obligations is such that, whereas the Gulf States Steel Company did execute a bond in the penal sum of one hundred seventy-five thousand, three hundred and fifty dollars ($175,350.00) and in favor of W. E. Snead, Collector of Internal Revenue, for the district of Alabama, which said bond was signed by the American Surety Company of New York, as surety, under date of the 13th day of March, 1923, and was given in support of a claim for the abatement of assessments, penalties and interests, under the Revenue Act of 1917. Being desirous of relieving the above bound security *1247 company*3380 and further securing the payment of any amount found to be due the United States Government under the above Revenue Act, now, therefore, if the undersigned Gulf States Steel Company shall pay to W. E. Snead, Collector, or his successors in office, such amount of the claim as is not abated, together with all costs, damages, penalties, interest, or other expense connected therewith, then this obligation shall be void, otherwise it shall remain in full force and effect.
The above-bounden obligor, in order the more fully to secure W. E. Snead, Collector in the payment of the aforesaid mentioned sum, hereby pledges as security therefor bonds of the United States in the principal sum of two hundred thousand dollars ($200,000.00) which said bonds are in the following numbers and amounts, and are otherwise more particularly described as follows:
United States, Fourth Liberty Loan 4 1/4 Gold Bonds of 1933-8, interest dates April and October 15th, par value $200,000.00 (coupons), numbers F00190566; J00090739; B00010452/F56; D00223644; C00232273/H78; A00225521/C23; F00225526/H28 at $10,000.00 each, which said bonds were deposited with Federal Reserve Bank of New York on March 24, 1925, for*3381 the account of W. E. Snead, Collector of Internal Revenue, for the district of Alabama.
Contemporaneously herewith the undersigned has also executed and delivered a power of attorney and agreement in favor of W. E. Snead, Collector, authorizing and empowering said officer as such attorney to collect/or sell the above-described bonds so deposited, or any part thereof, in case of any default in the performance of any of the above mentioned conditions or stipulations.
IN WITNESS WHEREOF this Corporation has caused this instrument to be signed by its Assistant Secretary and its corporate seal to be hereunto duly affixed by order of its Executive Committee this 3rd day of April, 1925.
GULF STATES STEEL COMPANY,
(Signed) By CALVERT BREWER,
Assistant Secretary.
The second bond also contained the imprint of the petitioner's seal.
On September 9, 1925, in order to obtain the release of the $200,000 of Liberty bonds deposited with the second bond the petitioner and the National Surety Co. as surety executed and filed with the collector a third bond, which is now in effect and reads as follows:
Surety Bond
Bonding Company Form
STATE OF ALABAMA
COUNTY OF JEFFERSON*3382 UNITED STATES OF AMERICA.
We, Gulf States Steel Company, as principal, and National Surety Company, a corporation organized under the laws of the State of New York, and duly qualified to transact business in the State of Alabama, as surety are held and firmly bound unto W. E. Snead, as Collector of Internal Revenue, District of Alabama, in the penal sum of Two Hundred Thousand Dollars ($200,000.00) for the payment of which well and truly to be made, we and each of us, bind ourselves, our successors, heirs, executors and administrators, jointly and severally, by these presents.
Signed and sealed this the 9th day of September, 1925.
*1248 The condition of the above obligation is such that, whereas, an additional income tax has been assessed for the year 1917 in the sum of One Hundred Fifty Three Thousand Eight Hundred and Fifteen Dollars and Thirty Cents ($153,815.30), with penalty and interest against the Gulf States Steel Company of Birmingham, Alabama. A claim for the abatement of the additional tax was filed with the Collector of Internal Revenue for the District of Alabama at Birmingham. On the third day of April, 1925, the Gulf States Steel*3383 Company did execute its bond securing the payment of so much of the additional assessment, penalties and interest as is not abated. In lieu of surety on the above bond the said company did deposit with the Federal Reserve Bank of New York, under Section 1029 of the Revenue Act of 1924, the following described United States, Fourth Liberty Loan 4 1/4 Gold Bonds of 1933-8 series, being of the par value of $200,000.00 (coupons), numbers F00190566; J00090739; B00010452/F56; D00223644; C00232273/H78; A00225521/C23; F00225526/H28 at $10,000 each. The above bonds were deposited on account and subject to the orders of W. E. Snead, Collector of Internal Revenue for the District of Alabama. Now, therefore, if W. E. Snead, Collector of Internal Revenue, shall release and surrender the said bonds to the said company, and the principal, or sureties, either or both, shall pay to said Collector so much of the amount of the claim as is not abated, together with penalties and interest thereon as provided by Law, then this obligation shall be of no effect. Otherwise it shall remain in full force.
GULF STATES STEEL COMPANY,
(Signed) By A. R. FORSYTH, [L.S.]
(Principal) Vice-President.*3384
NATIONAL SURETY COMPANY [L.S.]
(Surety),
(Signed) By T. A. WHITE,
Resident Vice-President.
(Signed) By N. EWING, [L.S.)
(Surety) Resident Asst. Secty.
Both companies' seals were imprinted on the last bond.
More than five years have elapsed since the returns for 1917 were filed, and the alleged deficiency has not been collected from the petitioner. No suit or proceeding for the collection of the alleged deficiency for 1917 was begun before the expiration of five years after the date the returns were filed.
The allowance for each of the years 1918 to 1920 for depletion or exhaustion of the leasehold of the Clinton Mining Co., based upon the March 1, 1913, value thereof, has been stipulated by the parties as follows:
| Year | Allowance |
| 1918 | $10,946.52 |
| 1919 | 8,790.23 |
| 1920 | 6,346.40 |
The respondent disallowed a deduction of $55,987.10 as depreciation on stock, whereas the deduction taken on this item in the return was $39,987.49.
The above stipulation disposes of issues 1 and 2 by agreement of the parties.
*1249 OPINION.
GREEN: The petitioner raises the question of the statute of limitations and contends that the respondent*3385 is now barred by statute from collecting any portion of the additional tax of $153,815.30 assessed by him in April, 1921.
The respondent contends that at all times he has been fully protected by means of the several bonds which were executed and filed with the collector. He argues that the petitioner is estopped from pleading the statute of limitations and that the effect of the bonds was to waive any limitations provided for by statute. He points out that the words determination, assessment and collection in the phrase "unless both the Commissioner and the taxpayer consent in writing to a later determination, assessment and collection of the tax" contained in section 250(d) of the Revenue Act of 1921 are in the conjunctive and not the disjunctive; that since both the determination and assessment were already made on November 23, 1921, the date of the passage of the 1921 Act, the parties could not have consented to a later determination and assessment thereof; that the Act did not provide for a waiver as to collection only; and that, therefore, the Commissioner was legally justified in accepting through the collector any form of waiver recognized by law. He further*3386 contends that even if the Act be held to provide for a waiver as to collection where the determination and assessment had already been made the words "consent in writing" did not contemplate that both parties actually sign the consent and that the filing of the first bond 15 days prior to the expiration of the 5-year period for collection operated to completely satisfy the statute requiring that "both the Commissioner and the taxpayer" should "consent in writing" if the tax were to be collected after 5 years from the date of filing the returns.
Prior to the passage of the Revenue Act of 1918 there was no limitation upon the right of the Government to sue for and recover unpaid taxes. Dollar Savings Bank v. United States,19 Wall. 227">19 Wall. 227. Section 250(d) of that Act provided for the first time that:
Except in the case of a false or fraudulent return with intent to evade the tax, the amount of tax due under any return shall be determined and assessed by the Commissioner within five years after the return was due or was made, and no suit or proceeding for the collection of any tax shall be begun after the expiration of five years after the date when the return was*3387 due or was made. * * *
The 1918 Act did not provide for any waiver of the time within which the amount of tax due could be determined, assessed and collected. In the case of false or fraudulent returns, the tax could be determined and collected "at any time after it becomes due."
*1250 Upon the passage of the Revenue Act of 1921, Congress provided in section 250(d) that the amount of any income, excess-profits or war-profits taxes due for any of the taxable years under any of the prior acts -
shall be determined and assessed within five years after the return was filed, unless both the Commissioner and the taxpayer consent in writing to a later determination, assessment, and collection of the tax; and no suit or proceeding for the collection of any such taxes * * * shall be begun, after the expiration of five years after the date when such return was filed * * *. (Italics ours.)
The only other exceptions to the running of the statute of limitations contained in section 250(d) of the 1921 Act, none of which the respondent contends are applicable here, are (1) in the case of false or fraudulent returns with intent to evade taxes, (2) failure to file the required*3388 return, (3) cases coming within the scope of paragraph (9) of subdivision (a) of section 214 or paragraph (8) of subdivision (a) of section 234, or (4) cases of final settlement of losses contingently, allowed by the Commissioner pending a determination of the exact amount deductible.
No part of the additional tax of $153,815.30 assessed in April, 1921, has as yet been collected. Substantially the same provisions regarding a consent in writing as to a later determination, assessment and collection or prior-year taxes as contained in section 250(d) of the Revenue Act of 1921 are contained in section 278(c) of the Revenue Acts of 1924 and 1926.
Since the respondent does not contend that any of the other exceptions to the running of the statute contained in section 250(d) of the Revenue Act of 1921 are applicable and since more than five years have expired from the filing of the return on March 28, 1918, he can justify collection only upon one of two grounds: (1) that he and the petitioner have consented in writing to a later determination, assessment and collection of the tax, or (2) that the effect of the bonds was such as to abrogate the limitation provision contained in the*3389 statute. No "consent in writing" as such has been signed. Upon this the parties agree. The respondent, therefore, fails on his first ground unless the bonds can be construed to satisfy this provision. The effect of filing a bond was thoroughly considered by us in C. B. Shaffer v. Commissioner,12 B.T.A. 298">12 B.T.A. 298, promulgated June 1, 1928, wherein the facts were substantially on all fours with the facts in the instant case. In that case we said:
* * * We conclude that not only the instrument itself, but also the conditions under which it was given show that the bond is not a "consent in writing" prescribed by section 250(d) as authority for extending the five year statute of limitations.
In addition to what we said in the Shaffer case, we might add that there is no express reference to the statute of limitations in any of *1251 the bonds involved herein. The respondent in effect would have us hold that by giving the bonds the petitioner impliedly intended to waive the statute with respect to collection. Such a contention might merit serious consideration were it not for the fact that from September 11, 1922, the date of publication of I.T. *3390 1446 (C.B. I-2, p. 218), until February 21, 1927, the date Bowers v. New York & Albany Lighterage Co.,273 U.S. 346">273 U.S. 346, was decided the respondent believed that if he assessed the taxes within the 5-year period the collector could collect them by means of distraint at any time.
There is no evidence in the record that on March 13, 1923, the date the first bond was given, or any other date, the petitioner was anything but solvent and able to pay all the additional tax assessed. If on March 13, 1923, 15 days prior to the expiration of the 5-year period, it was believed that the collection by distraint could be made at any time, what limitation was there for the petitioner a solvent person, to waive? None except collection by suit, as was said in the Bowers v. New York & Albany Lighterage Co. case, supra, "in fact, distraint is much more frequently resorted to than is suit for the collection of taxes." Under such circumstances, we can not hold that there was an intent to waive the statute implied in the bonds when the expression of such an intent was lacking or that there has been established any basis for the application of the doctrine of estoppel. *3391 Neither do we think it material that prior to the passage of the 1921 Act the Commissioner had already assessed the proposed additional tax. He did not make a final determination until May 12, 1926, the date he proposed to reject the abatement claim. We think a valid consent in writing could have been entered into by the petitioner and the Commissioner to a later determination and collection of the tax, the assessment having already been made. Cf. United States v. John Barth Co., 27 Fed.(2d) 782. In view, however, of section 612 of the Revenue Act of 1928 repealing section 1106(a) of the 1926 Act as of February 26, 1926, we do not regard this case as authority for anything more than the rule that a bond can not be considered as a waiver of the statute of limitations.
None of the bonds in the instant case can be said to constitute a consent in writing by both the Commissioner and the taxpayer to a later determination, assessment and collection of the tax in question, and no other exception to the running of the statute of limitations provided in any of the Acts being present, and no suit or proceeding for the collection of the tax having been begun prior*3392 to the expiration of 5 years from the date of filing the return, and the 5-year period having expired prior to the passage of the Revenue Act of 1924, we hold that the respondent is now barred by statute from collecting any part of the additional assessment made in April, 1921, and that there is no deficiency for the year 1917. Bowers v.*1252 NewYork & Albany Lighterage Co., supra;C. B. Shaffer v. Commissioner, supra;United States v. John Barth Co. supra;Art Metal Works v. Commissioner,9 B.T.A. 491">9 B.T.A. 491. Our decision in this respect in no wise disposes of any questions arising as to liability on the bond.
In view of our conclusions in the foregoing opinion it does not become necessary to consider the third issue relating to invested capital for 1917. Issues 1 and 2 were disposed of by stipulation.
There is no deficiency for the year 1917. The deficiencies for 1918, 1919, and 1920, will be redetermined in accordance with the stipulation of the parties.
Reviewed by the Board.
Judgment will be entered on 15 days' notice, under Rule 50.
MILLIKEN dissents.