*2618 On April 1, 1918, decedent filed his income-tax return for the year 1917. On March 20, 1923, the Commissioner assessed an additional tax on such return. On March 29, 1923, a claim for the abatement of the assessment was filed with the collector, and on October 21, 1925, the Commissioner informed the executors of his adjudication of such abatement claim. Held, that the collection of any additional tax for 1917 is barred by the statute of limitations.
*328 This is a proceeding for the redetermination of deficiencies in income tax for 1917 in the amount of $182,329.38 and for 1920 in the amount of $37,471.42. The petitioners admit liability for the deficiency for 1920 but claim that if any deficiency exists for the year 1917 it is barred by the statute of limitations.
*329 FINDINGS OF FACT.
The petitioners are the executors of the estate of Lewis Emery, Jr., who deceased November 19, 1924. Lewis Emery, Jr., was during all of the calendar year 1917 a citizen of the United States and a*2619 resident of Bradford, McKean County, Pa. On April 1, 1918, he made and filed with the collector of internal revenue for the twenty-third district of Pennsylvania his individual income-tax return, together with his return of individual excess-profits tax for the calendar year 1917 on the respective Forms 1040 and 1101, prescribed by the Treasury Department, office of the Commissioner of Internal Revenue, which said returns showed a total income and profits-tax liability for 1917 of $218,042.75. This tax was duly assessed against the decedent.
On March 20, 1923, the Commissioner notified Lewis Emery, Jr., that there was due and owing by him a further sum of alleged income and profits tax for the calendar year 1917 in the amount of $181,688.03. The Commissioner assessed this amount forthwith and the decedent received from the collector of his district on March 29, 1923, a notice and demand for payment of the said alleged additional income and profits tax for the year 1917 in the amount of $181,688.03.
The Commissioner notified the decedent that he had assessed the alleged additional tax for the calendar year 1917 of $181,688.03 by what is known as a "jeopardy" assessment without*2620 granting to the decedent the statutory right of appeal provided for in section 250(d) of the Revenue Act of 1921. The demand for payment of the alleged additional tax of $181,688.03 was met by the decedent by filing with the collector for his district on March 29, 1923, a claim for the abatement of the alleged additional tax in which he alleged, contended, and insisted that no additional tax whatsoever was legally due from him.
Thereafter, on January 12, 1925, after hearings thereon, the claim was allowed in part and rejected in part and the Commissioner notified the decedent that the correct amount of the alleged additional tax for the calendar year 1917 was $122,043.51.
Thereafter, on October 21, 1925, the Commissioner again altered his determination with respect to the claim in abatement and the amount of the alleged additional income and profits tax due from the decedent for the calendar year 1917, and upon said date mailed to Lewis Emery, Jr., a letter reading as follows:
The claim filed in behalf of Lewis Emery, Jr., for refund of $65,000.00 and abatement of $181,688.03, a total of $246,688.03, individual income tax for the year 1917, has been examined. The claim is*2621 based upon the statement that insufficient deduction for mining expenditures and for depreciation and depletion were not allowed and that with reference to the amount asked to be abated the taxpayer was not granted the usual thirty-day notice. It is further stated *330 that profit on the sale of stock of the Pure Oil Company was incorrectly computed.
As a result of consideration of information furnished in protests filed under dates of February 6, 1925, and June 26, 1925, at a conference held in this office on April 13, 1925, the following adjustments have been made:
| 1917 | ||
| Invested Capital and Excess Profits Tax | ||
| Invested capital as shown in office letter of January 12, 1925 | $888,151.45 | |
| Plus: Additions to cost of North Dakota Farm | 24,161.68 | |
| Invested capital adjusted | 912,313.13 | |
| Net income from business, shown in prior audit | 414,027.56 | |
| Less: Additional depreciation on tank cars allowed | 4,141.92 | |
| Income from business, adjusted | 409,885.64 | |
| Deduction: | ||
| 7% of invested capital plus $6,000.00 | 69,861.92 | |
| Excess profits tax at graduated rates | 138,903.06 | |
| Net Income Subject to Income Tax | ||
| Net income shown in office letter of January 12, 1925, taxable at 1917 rates | $471,076.84 | |
| Less: | ||
| Depreciation on tank cars, adjusted | $8,283.24 | |
| Depreciation on tank cars, prior audit | 4,141.92 | |
| Income decreased | 4,141.92 | |
| 466,934.92 | ||
| Plus: | ||
| Excess profits tax deducted, prior audit | $144,190.96 | |
| Excess profits tax as adjusted | 138,903.06 | |
| Income increased | 5,287.90 | |
| Net income adjusted | 472,222.82 | |
| Computation of Tax | ||
| Net income | $472,222.82 | |
| Less: | ||
| Dividends | $57,060.97 | |
| Tax on bank Stock | 266.94 | |
| Personal Exemption | 2,000.00 | |
| 59,327.91 | ||
| Net income subject to normal tax at 2% | 412,894.91 | |
| Less: Additional exemption | 2,000.00 | |
| Income subject to normal tax at 2% | 410,894.91 | |
| Normal tax at 2% | 8,257.90 | |
| Normal tax at 2% | 8,217.90 | |
| Total Normal Tax | 16,475.80 | |
| Surtax at 1917 rates | $160,022.50 | |
| Excess Profits tax (Form 1101) | 138,903.06 | |
| Surtax at 1916 rates | 31,343.73 | |
| Total tax | 346,745.09 | |
| Tax previously assessed | 411,103.74 | |
| Overassessment | 64,358.65 |
*2622 *331 Inasmuch as the total overassessment is $64,358.65, the claim will be rejected for $182,329.38.
With reference to that part of the amount rejected, which is occasioned by the adjustment of the profit from the sale of Pure Oil Company stock based on a March 1, 1913 valuation of $15.25 per share, you are advised that no information has been submitted which would warrant this office making a change in the valuation previously established on the basis of all available information. This action will in no way prejudice the rights of the estate in the event that a different determination of the March 1, 1913 value of the stock is made at a subsequent date, at which time a reopening of the claim will be permitted upon filing formal request.
The overassessment shown herein will be made the subject of a Certificate of Overassessment which will reach you in due course through the office of the Collector of Internal Revenue for your district. If the tax in question has not been paid, the amount will be abated by the Collector. If the tax has been paid, the amount of overpayment will first be credited against unpaid income tax for another year or years and the balance, if*2623 any, will be refunded to you by check of the Treasury Department. It will thus be seen that the overassessment does not indicate the amount which will be credited or refunded since a portion may be an assessment which has been entered but not paid.
The Collector of Internal Revenue for your district will be officially notified of this adjustment at the expiration of thirty days from the date of this letter.
Under no circumstances should payment of the amount of the abatement claim rejected be made until a bill is received from the Collector of Internal Revenue for your district, and remittance should then be made to him.
On November 24, 1924, the petitioners, Earle C. Emery and Lewis Emery, were appointed executors of the last will and testament of Lewis Emery, Jr., deceased, such appointment having been duly and regularly made by the Orphans Court of McKean County, Pennsylvania. Both of the petitioners have accepted their respective appointments, given bond, taken the prescribed oath of office, and entered upon their duties as such executors and have not yet been discharged.
On February 11, 1924, Lewis Emery, Jr., and the Commissioner entered into the following written*2624 consent:
In pursuance of the provisions of subdivision (d) of section 250 of the Revenue Act of 1921, Lewis Emery, Jr., of Bradford, Pa., and the Commissioner of Internal Revenue, hereby consent to a determination, assessment, and collection of the amount of income, excess-profits, or war-profits taxes due under any return made by or on behalf of the said Lewis Emery, Jr., for the year 1917 under the Revenue Act of 1921, or under prior income, excess-profits, or war-profits tax Acts, or under section 38 of the Act entitled "An *332 Act to provide revenue, equalize duties, and encourage the industries of the United States, and for other purposes," approved August 5, 1909. This waiver is in effect for one year from the date it is signed by the taxapyer.
LEWIS EMERY, Jr.
Taxpayer.
By .
D. H. BLAIR,Commissioner.
SMY.
No suit or other proceeding in court for the collection of the tax here involved has been taken in the United States District Court for the Western District of Pennsylvania, the district in which the decedent resided and these petitioners reside.
The petitioners admit that the additional tax alleged to be due for the year 1920 is due*2625 and that the Board may enter an order determining such deficiency accordingly.
OPINION.
SMITH: The petitioners herein, treating the notice addressed to the decedent by the Commissioner under date of October 21, 1925, as a deficiency notice, appealed to this Board on December 8, 1925, from the deficiency found by the Commissioner for the year 1917. The Board has jurisdiction of the appeal by virtue of section 283(f) of the Revenue Act of 1926. No question is raised as to the jurisdiction of the Board with reference to the deficiency determined for the year 1920 which was communicated to the petitioners in a deficiency notice dated October 21, 1925.
The petitioners admit the correctness of the deficiency determined for the year 1920. They further contend that there is no deficiency for the year 1917 but choose to rest their defense with reference to the deficiency upon the statute of limitations.
Section 250(d) of the Revenue Act of 1921 provides:
The amount of income, excess-profits, or war-profits taxes due under any return made under this Act for the taxable year 1921 or succeeding taxable years shall be determined and assessed by the Commissioner within four years*2626 after the return was filed, and the amount of any such taxes due under any return made under this Act for prior taxable years or under prior income, excess-profits, or war-profits tax Acts, or under section 38 of the Act entitled "An Act to provide revenue, equalize duties, and encourage the industries of the United States, and for other purposes," approved August 5, 1909, 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 due under this Act or under prior income, excess-profits, or war-profits tax Acts, or of any taxes due under section 38 of such Act of August 5, 1909, shall be begun, after the expiration of five years after the date when such return was filed, but this shall not affect suits or proceedings begun at the time of the passage of this act: Provided, That in the case of *333 income received during the lifetime of a decedent, all taxes due thereon shall be determined and assessed by the Commissioner within one year after written request therefor*2627 by the executor, administrator, or other fiduciary representing the estate of such decedent: Provided further, That in the case of a false or fraudulent return with intent to evade tax, or a failure to file a required return, the amount of tax due may be determined, assessed, and collected, and a suit or proceeding for the collection of such amount may be begun, at any time after it becomes due: Provided further, That in cases coming within the scope of paragraph (9) of subdivision (a) of section 214, or of paragraph (8) of subdivision (a) of section 234, or in cases of final settlement of losses and other deductions tentatively allowed by the Commissioner pending a determination of the exact amount deductible, the amount of tax or deficiency in tax due may be determined, assessed, and collected at any time; but prior to the assessment thereof the taxpayer shall be notified and given a period of not less than thirty days in which to file an appeal and be heard as hereinafter provided in this subdivision.
If upon examination of a return made under the Revenue Act of 1916, the Revenue Act of 1917, the Revenue Act of 1918, or this Act, a tax or a deficiency in tax is discovered, *2628 the taxpayer shall be notified thereof and given a period of not less than thirty days after such notice is sent by registered mail in which to file an appeal and show cause or reason why the tax or deficiency should not be paid. Opportunity for hearing shall be granted and a final decision thereon shall be made as quickly as practicable. Any tax or deficiency in tax then determined to be due shall be assessed and paid, together with the penalty and interest, if any, applicable thereto, within ten days after notice and demand by the collector as hereinafter provided, and in such cases no claim in abatement of the amount so assessed shall be entertained: Provided, That in cases where the Commissioner believes that the collection of the amount due will be jeopardized by such delay he may make the assessment without giving such notice or awaiting the conclusion of such hearing.
This provision of the law was before the Supreme Court of the United States in . One question in that case was whether distraint was a "proceeding" within the purview of the above quoted section 250(d) of the 1921 Act. The court*2629 held that it was and that collection was barred 5 years after the date the return was filed even though the taxes were duly assessed within the five-year period provided. The principle laid down in the New York & Albany Lighterage Co. case, supra, has been followed in ; Ehrlich v. Nichols Co. (U.S.D.C.Mass.), decided March 4, 1927. A question similar to the one involved herein was before the Board in , and in . In the former case it appeared that the petitioner filed its income and profits-tax return for 1917 on May 1, 1918. In March, 1923, an additional assessment for the year 1917 was made by the Commissioner. A claim for abatement was then filed which was rejected in part on March 9, 1925. On April 6, 1925, an appeal was taken to this Board and the Board held that the collection of any additional tax for the year 1917 was barred by the *334 statute of limitations and that consequently there was no deficiency. In the Reliance Manufacturing Co. case, *2630 supra, it appeared that the final return for 1918 was filed on June 16, 1919. A jeopardy assessment was made against the taxpayer in 1924, and on February 29, 1924, a claim for the abatement of the assessment was filed. On July 30, 1925, the claim for abatement was rejected in part and on August 6, 1925, a petition was filed with this Board. The Board held that the collection of the tax for the year 1918 was barred by the statute of limitations and, consequently, that there was no deficiency.
The only factor which would differentiate this case at all from the two Board cases above referred to is that on February 11, 1924, Lewis Emery, Jr., the decedent, and the Commissioner entered into a consent for a "determination, assessment, and collection" of the amount of income, excess-profits and war-profits taxes due for the year 1917, such consent to be in effect for one year from the date it was signed by the taxpayer. This consent had expired prior to the date when the Commissioner finally adjudicated the claim for abatement. It is, therefore, without effect so far as the present issue is concerned. Since the petitioner's case is in all material respects the same as those*2631 of the , and , it must be held that there is no deficiency for the year 1917.
Judgment of no deficiency will be entered for the petitioners so far as the year 1917 is concerned and judgment for the respondent will be entered for the admitted deficiency of $37,471.42 for the year 1920.
Considered by LITTLETON, TRUSSELL, and LOVE.