*1851 1. Where a corporate taxpayer filed no income and profits-tax return for the fiscal year ended March 31, 1920, the statute of limitations has not run to bar assessment and collection even though the deficiency notice is mailed more than five years after the date when the return should have been filed.
2. From 1895 to 1914, inclusive, the petitioner spent large amounts of money in the advertising of its product. Held, that the amounts so spent and charged to expense in the years in which spent are not includable in invested capital.
3. Where the Commissioner has given credit to a taxpayer for payments of tax for the calendar years 1918 and 1919 against tax due for the fiscal year ended March 31, 1919, the Board will not hold that any part of such credit should have been applied against the tax liability for the fiscal year ended March 31, 1920.
*605 This proceeding involves a deficiency in income and profits tax for the fiscal year ended March 31, 1920, in the amount of $63,679.57. The*1852 issues raised by the pleadings are (1) has the bar of the statute of limitations operated to prevent the assessment and collection of the tax proposed by the Commissioner in his deficiency notice; (2) the amount to be included in invested capital, representing the cost of developing and placing on the market a patent medicine, known as Hills Cascara Bromide Quinine; (3) the proper allocation of taxes previously paid on income reported on a return filed for the calendar year 1919 to the total tax found due for the fiscal year ended March 31, 1920; (4) a recomputation of the tax liability under the Revenue Act of 1918, to be determined from comparatives engaged in the same or similar business to that of the petitioner.
The report of the Division of the Board which heard this proceeding was promulgated on April 29, 1931, and was published at . Within thirty days from the entry of decision thereon it was referred to the Board for review and is adopted as the opinion of the Board.
FINDINGS OF FACT.
1. Petitioner's books of account were kept upon the basis of a fiscal year ended March 31, but it filed calendar year returns for years prior to and including*1853 the calendar year 1919. It filed a *606 return for the fiscal year ended March 31, 1921. Shortly after the return for the fiscal year ended March 31, 1921, had been prepared and filed, a revenue agent from the office of the Internal Revenue Agent in Charge at Detroit, Mich., called at the petitioner's office for the purpose of investigating its books and records to determine the correct tax liability of the petitioner for the years 1917 to 1921, inclusive. He discovered that no return had been filed for the period beginning January 1, 1920, and ended March 1, 1920. He thereupon prepared returns for the petitioner covering the fiscal years ended March 31, 1918, March 31, 1919, and March 31, 1920. These returns were presented to the proper officers of the company for signature, and signed by them. He promised the officers that he would attend to the filing of the returns. He forwarded such returns to the revenue agent in charge, together with a report on his examination; a copy of the report dated July 16, 1921, was forwarded by the revenue agent in charge to the petitioner under date of July 16, 1921, attached to which were copies of the returns which had been prepared*1854 by the revenue agent. Under date of August 25, 1926, the Commissioner mailed the statutory deficiency notice to the petitioner.
2. The petitioner was organized during the year 1895 for the purpose of selling and marketing a patent medicine known as Hills Cascara Bromide Quinine. During the period from 1895 to 1914, the corporation carried on an extensive advertising campaign in order to develop and build up the trade name and establish a market for the patented product.
It was the policy of the company during this period to make a house-to-house canvass throughout the various States of the Union for the purpose of placing in every home a sample of the patented medicine. The samples were manufactured by Parke Davis & Company, of Detroit, and the cost of manufacturing them from October 28, 1895, to March 31, 1913, amounted to $754,151.77, and from October 28, 1895, to December 31, 1914, to $864,517.75.
By 1914 the house-to-house distribution of samples had practically covered the whole of the United States and it was determined to change the method of advertising to general publicity in newspapers and magazines. During 1914 it was determined that the business was on a paying*1855 basis and the advertising method was changed in order to increase current year's profits. The first dividend of the company was paid in 1909. In 1911 the company began paying dividends and has continued to pay dividends to the present time.
The W. H. Hill Company was offered by responsible purchasers, in 1913, $500,000 for the trade name "Hills Cascara Bromide Quinine." *607 The offer was rejected because the petitioner considered its value to be far in excess of $500,000.
3. Upon the petitioner's tax returns covering the calendar years 1918 and 1919, there were assessed and paid $21,835.79 and $46,357.68, respectively. The Commissioner determined that the petitioner had no taxable income for the fiscal period January 1 to March 31, 1918, and that there had been an overassessment on the calendar year return for 1918 of $21,835.79. He further determined that the total tax liability of the petitioner for the fiscal year ended March 31, 1919, was $74,586.34. The Commissioner credited against the tax liability of $74,586.34 the tax paid upon the 1918 and 1919 returns filed, totaling $71,193.47, and rejected the petitioner's abatement claim for the excess of the assessment*1856 made against the petitioner for the tax liability for the fiscal year ended March 31, 1919, in the amount of $3,392.87. The Commissioner has refused to credit against the tax liability of the petitioner for the fiscal year ended March 31, 1920, in the amount of $63,679.57, any part of the taxes paid by the petitioner for the calendar years 1918 and 1919.
4. The tax for the fiscal year ended March 31, 1920, as disclosed by the deficiency notice attached to the petition, was determined under the provisions of sections 327 and 328 of the Revenue Act of 1918.
OPINION.
SMITH: 1. The first contention made by the petitioner is that the statute of limitations has operated to bar the assessment and collection of the deficiency found to be due for the fiscal year ended March 31, 1920. The petitioner contends that a return for this fiscal year was executed by the officers of the petitioner and delivered to the revenue agent at his request; that he promised to file the return, and that the execution and lodgment of the return with the revenue agent meets the requirements of the statute. There is no merit in this contention. Under the heading "Time and Place for Filing Returns," *1857 section 241(b) of the Revenue Act of 1918 provides:
Returns shall be made to the collector of the district in which is located the principal place of business or principal office or agency of the corporation, or, if it has no principal place of business or principal office or agency in the United States, then to the collector at Baltimore, Maryland.
It is no part of the duties of an internal revenue agent or of an internal revenue agent in charge to file returns for taxpayers. That is the duty which law places on the shoulders of the taxpayers. The petitioner did not file a return for the fiscal year ended March 31, 1920. Since no return has been filed covering the income of such period, the statute of limitations has not begun to run as to this *608 fiscal year. ; affd., ; ; .
2. In its petition the petitioner claims that the Commissioner has failed to include as a part of its invested capital an amount of $1,200,000 representing the cost of developing and placing*1858 on the market a patent medicine known as Hills Cascare Bromide Quinine. At the hearing of his proceeding the petitioner was able to show by its books that from October 28, 1895, to March 31, 1913, it had spent $754,151.77 in sample advertising and that the total to December 31, 1914, was $864,517.75. It admits that possibly only a part of this amount should properly go into invested capital, since the profits of the years prior to 1915 were largely predicated upon such advertising, and to the extent that such profits are based upon it the amounts should properly be charged to expense. Petitioner does insist, however, that upon the evidence of record $500,000 of the advertising expenses should be capitalized and added to the invested capital found by the respondent.
In the years in which the amounts were spent for advertising they were charged to expense. To what extent the prosperity of the petitioner's business for the fiscal year ended March 31, 1920, is attributable to the sample advertising is at most a matter of conjecture. The matter of computing invested capital is clearly outlined in the statute. (Sec. 326, Revenue Act of 1918.) We fail to see wherein the amounts spent*1859 for advertising and charged to expense in years prior to the taxable year are includable in invested capital under the terms of the statute.
The situation which obtains with respect to this petitioner is substantially the same as that which obtained in ; ; affd., ; certiorari denied, ; and . Those decisions are determinative of the present issue.
3. The third contention made by the petitioner is that the fiscal year before the Board covers a 12-month period ended March 31, 1920, and that nine-twelfths of that period is comprehended by the return filed for the calendar year 1919; that therefore a portion of the tax which has been paid for the calendar year 1919 must be credited against the deficiency found to be due for the fiscal year under review.
We fail to see wherein the petitioner has any ground for complaint with respect to the application of credits for taxes paid upon the calendar year returns for 1918 and 1919. As shown by our findings, the amounts paid have*1860 been credited by the Commissioner against the petitioner's tax liability for the fiscal year ended March 31, *609 1919. The petitioner is not entitled to a second credit of any part of those payments. The matter of the application of the credits is generally within the sound discretion of the Commissioner. . We can not see how he has in any wise incorrectly applied the credit. The contention of the petitioner upon this point is not sustained.
4. The final point made by the petitioner is that improper comparatives have been used by the respondent in the determination of the deficiency for the fiscal year ended March 31, 1920. The petitioner has submitted no evidence upon this question and in brief the petitioner states that it is "at least entitled to a constructive capital in excess of a million dollars," due to large expenditures for advertising and new comparatives should be selected in line with such fact. For reasons stated under the second point, we are of the opinion that there is no merit in the petitioner's contention. The correctness of the net income computed by the respondent is not attacked. Neither*1861 is any attack made upon the specific comparatives used. This contention is not sustained.
Reviewed by the Board.
Judgment will be entered for the respondent.
TRAMMELL, dissenting: The Board has adopted this opinion on the theory that this case is distinguishable from the Paso Robles Mercantile Co. cases on the principle that the amount had already been credited by the Commissioner of the previous fiscal year return, that is, for the year ended in the calendar year. In my opinion, however, this case is not distinguishable in principle from our previous decisions in the above cases. When the Commissioner asserts a deficiency we have the authority to determine whether or not that deficiency is correct. If the correctness of the amount claimed to be due rests upon the method of crediting the amount shown on the defective calendar year return (which above is not considered a return) we should determine whether the Commissioner properly made the credit. It seems to me that the amount of tax shown on the defective calendar year return should be allocated in accordance with the period over which the income came in. In other words, the income*1862 and the tax thereon should go together. This was our view in the Paso Robles cases. If this view is followed here a different result would be reached. If the credit had not been made, apparently the Board's opinion is that it should be made in accordance with the Paso Robles decisions, but if actually made otherwise, the Board now holds that this action will not be considered erroneous. My view is that if the credit was not made as it should have been made, we have the right to say that it was erroneous.
*610 MURDOCK, dissenting: I dissent for the reason that I can not distinguish the present case from the cases of , and , which have not been overruled.
MATTHEWS agrees with this dissent.