*667 Pursuant to section 602 of the Revenue Act of 1936, petitioner, which was on an accrual basis, was reimbursed in 1938 for the processing tax burden borne by it on account of the floor stock tax. Held, the payment received by petitioner in 1938 accrued in 1936, because the right to the payment ripened when the statute authorizing it was enacted. Continental Tie & Lumber Co. v. United States,286 U.S. 290">286 U.S. 290.
*640 Respondent determined a deficiency in income tax of $1,554.96 against petitioner for the taxable year ended June 30, 1938. The question presented for our determination is whether the amount of $6,260.86, representing reimbursement of the processing tax burden borne by petitioner on account of the floor stock tax, was income to petitioner in 1936 when the statute authorizing this reimbursement was enacted, or in 1938 when petitioner was actually reimbursed.
FINDINGS OF FACT.
We adopt as findings of fact the following stipulation of the parties:
The petitioner is a corporation organized on December 19, 1923, under*668 the laws of the State of New York and having its principal place of business at No. 78 Worth Street, City, County, and State of New York, and is engaged in the textile business.
A notice of deficiency in the petitioner's income tax liability for its taxable year ended June 30, 1938, was mailed to the petitioner on January 22, 1941.
On September 13, 1938, the petitioner filed with the collector of internal revenue for the second collection district of New York its corporation income and excess profits tax return, Form 1120, for the fiscal year ended June 30, 1938, which return was made on the accrual basis.
The taxes in controversy are normal and surtax income taxes for the taxpayer's taxable year ended June 30, 1938, and the amount thereof set forth in such notice of dificiency is the sum of $1,554.96.
The determination of tax set forth in such notice of deficiency is based on the inclusion by the Commissioner of Internal Revenue as income to the taxpayer during its taxable year ended June 30, 1938, of the sum of $6,260.86, described in such notice as Stock Tax.
During the taxable year ended June 30, 1938, the Commissioner of Internal Revenue allowed and paid to the taxpayer*669 the sum of $6,260.86 under the provisions of section 602 of the Revenue Act of 1936, and not as a
At the close of the fiscal year ended June 30, 1936, the petitioner opened an account on its books denominated as receivable account, which account shows the following entries:
| LEDGER ACCOUNT | |||||
| Floor Stock Tax | |||||
| 1936 | Dr. | 1936 | Cr. | ||
| June30 | J13 | $11,654.68 | Aug. 31 | J23 | $8,461.44 |
| Aug. 31 | J23 | 3,669.10 | Feb. 21/38 | Cash | 6,260.86 |
| June 30 | JI 53 | 601.48 | |||
| $15,323.78 | $15,323.78 |
*641 Supported by the following journal entries:
| June 30, 1936 | ||
| Floor Stock Tax | $11,654.68 | |
| To Surplus | $11,654.68 | |
| To set up claim for refund from U.S. Govt. covering processing tax paid on merchandise on hand Jan. 1936 | ||
| Aug. 31, 1936 | ||
| Floor Stock Tax | $3,669.10 | |
| To Surplus | $3,669.10 | |
| To correct original claim $11,654.68 to $15,323.78 | ||
| Aug. 31, 1936 | ||
| Processing Tax | $8,461.44 | |
| To Floor Stock Tax | $8,461.44 | |
| Transferring refunds from mills applicalble to merchandise In. 1/6/36 | ||
| Feb. 21, 1938 | ||
| Cash | $6,260.86 | |
| Floor Stock Tax | $6,260.86 | |
| Taken from Cash Book Folio 120 | ||
| June 30, 1938 | ||
| General Expense | $2,442.74 | |
| N.Y. State Franchise Tax Prepaid | $1,836.71 | |
| N.Y. State Franchise Tax Accrued | 4.55 | |
| Floor Stock Tax | 601.48 |
*670 Under date of December 24, 1936, the petitioner filed with collector of internal revenue for the second collection district of New York, claim for payment :under the provisions of section 602, Revenue Act of 1936, approved June 22, 1936), with respect to articles held elsewhere than in retail stocks for sale or other disposition at the first moment of January 6, 1936, P.T. Form 71, in which payment in the net amount of $6,862.34 was claimed as the tax burden with respect to articles processed from cotton, which amount represented the claimed tax burden passed on to claimant of $15,323.78, less reimbursement received or to be received from processor or vendor in the amount of $8,461.44. Under date of December 20, 1937, the petitioner filed with such collector of internal revenue an amended claim for payment, P.T. Form 71, in which the amount claimed was $6,260.86, representing claimed tax burden passed on to claimant of $15,170.59, less deductions for reimbursement received or to be received from processor or vendor, in the amount of $8,461.44, and the sum of $448.29 passed on to vendees or included in sales prices. After investigation, the Commissioner of Internal Revenue, on January 14, 1938, allowed*671 the aforesaid claim filed on December 24, 1936, for the amount of $6,260.86 and rejected it in the amount of $601.48, which payment in the amount of $6,260.86 was received by the petitioner on February 21, 1938.
No portion of the aforesaid payment of $6,260.86 was included *642 in the gross income reported on the income tax return filed by the petitioner for the taxable year ended June 30, 1938.
On or about September 12, 1936, the petitioner filed with the collector of internal revenue for the second collection district of New York its corporation income and excess profits tax return for the taxable year ended June 30, 1936, which return was made on the accrual basis.
Such return for the year ended June 30, 1936, reported a net loss in the amount of $46,063.29, and after examination thereof and of the books of account on which the same was based by an internal revenue agent, said return was accepted by the Commissioner of Internal Revenue as filed.
On or about September 15, 1937, the petitioner filed with the collector of internal revenue for the second collection district of New York, its corporation income and excess profits tax return for the taxable year ended*672 June 30, 1937, which return was made on the accrual basis.
Such return for the year ended June 30, 1937, reported a net income in the amount of $30,687.72, and after examination thereof and of the books of account on which the same was based by an internal revenue agent, said return was accepted by the Commissioner of Internal Revenue as filed
The petitioner kept and maintained its books of accounts during each of such taxable years ended respectively on June 30, 1936, June 30, 1937, and June 30, 1938, on the accrual basis.
In addition to the stipulated facts, we find from an exhibit filed herein that under date of May 4, 1936, petitioner filed with the collector of internal revenue for the second collection district of New York a claim on P.T. Form 24 for $11,654.68, which claim contained this statement:
The claimant herein is entitled to a refund of the amount above stated as the equivalent of the floor stocks tax collected with respect to the goods on hand as of the close of business, January 4, 1936, the date of the termination of the Agricultural Adjustment Act, as provided in Section 16(a) and (b) and Section 21:d):2) of said Act.
The claimant herein believes it*673 can establish to the satisfaction of the Commissioner, after due notice by the Commissioner to the claimant and an opportunity for hearing, that the amount of the tax paid upon the processing of the commodity used in the floor stocks with respect to which this claim is made, was included by the processor or other persons who paid the tax in the price of such stocks :or of material from which such stocks were made).
By letter dated July 31, 1936, the collector of internal revenue for the second collection district of New York returned the claim under date of May 4, 1936, giving in his letter the following reason:
Section 602 of the Revenue Act of 1936, provides for the refund of tax on Floor Stocks held on January 6, 1936 and that such claim must be filed in *643 accordance with the rules and regulations as prescribed by the Commissioner of Internal Revenue with the approval of the Secretary of the Treasury and on the prescribed form, which in this instance is P.T. Form 71, which form has recently been mailed to you for this purpose.
OPINION.
VAN FOSSAN: This proceeding raises the issue whether payments made under section 602 of the Revenue Act of 1936 1 were income*674 accruing in 1936 when this section was enacted, or in the year when the payments were actually received by the taxpayer. Petitioner contends that because it was on an accrual basis the payments it received under this section were income in 1936. Respondent, on the other hand, argues that the payments were income in 1938 since they were not determined to be due petitioner until that year.
*675 Income accrues to a taxpayer on an accrual basis when the right to receive the income becomes fixed and not when the income is actually *644 received. . The statute provided that:
There shall be paid to any person who, at the first moment of January 6, 1936, held for sale or other disposition * * * any article processed * * * from a commodity subject to processing tax, an amount computed as provided in subsection :b), * * *
Thus, the payment under this section was mandatory if petitioner held any article within the scope of the section. The right to receive the payment was not contingent on any future event. Everything had happened which could have happened from which to determine the amount of the payment. There remained only the necessity of filing the claim and proving the facts to the Commissioner of Internal Revenue for petitioner to become entitled to the payment. These requirements, obviously, had no bearing on when the payment accrued since they did not affect the amount.
This situation is strikingly similar to the one in *676 , which involved a payment received by a taxpayer in 1923 pursuant to an award in that year by the Interstate Commerce Commission under section 204 of the Transportation Act of 1920 providing for compensation to railroads operated by the Federal Government from December 28, 1917, to June 3, 1918. Under the act the Commission was directed to compare the results of the operation of the railroad while under Federal control with those of a test period from June 30, 1914, to June 30, 1917, and if these results were less favorable during the period of Federal control than during the test period to award an amount calculated as prescribed by the section. In that case the position of the parties was exactly the reverse here found. The Government contended for the conclusion here asked by petitioner. The Supreme Court decided that the award to the taxpayer had accrued in 1920 and therefore was taxable income in that year instead of in 1923, the year the award was made, stating as follows:
* * * The petitioner correctly states that at the date of the act's adoption no railroad had a vested right in any amount; *677 until the Commission made an award nothing could be paid, no proceeding was available to compel an allowance, or to determine the elements which should enter into the calculation. In short, says the petitioner, the carrier had no rights, but was dependent solely upon the Commission's exercise of an unrestrained discretion, and until an award was made nothing accrued. But we think that the function of the Commission under the act was ministerial, to ascertain the facts with respect to the carrier's operating income by a comparison of the experience during the test period with that during the term of federal control. The right to the award was fixed by the passage of the Transportation Act. What remained was mere administrative procedure to ascertain the amount to be paid. Petitioner's right to payment ripened when the act became law. What sum of money that right represented is, of course, a different matter.
*645 The petitioner says that at the date of the passage of the act it was impossible to predict that any award would be made to the railway, and, assuming one would eventuate, its amount could not be estimated, for the reason that the principles upon which awards*678 were to be made had to be settled by the Commission and were not finally formulated until 1923. The government insists that, while adjustments or settlement of principles by the Commission might vary the amount to be awarded, the petitioner's case presented problems not differing from those confronting many business concerns which keep accounts on an accrual basis and have to estimate for the tax year the amount to be received on transactions undoubtedly allocable to such year. Admitting there might be differences and discrepancies between the railway's estimate and the amount awarded by the Commission, these, says the government, could, as in similar cases, have been adjusted by an additional assessment or a claim for refund after final determination of the amount due.
* * * But in spite of these inherent difficulties we think it was possible for a carrier to ascertain with reasonable accuracy the amount of the award to be paid by the Government. Subsequent to its order of June 10, 1920, the Commission made no amendment or alteration of the rules with respect to the information to be furnished under section 204. *679 Obviously the data had to be obtained from the railway's books and accounts and from entries therein all made prior to March 1, 1920. These accounts contained all the information that could ever be available touching relevant expenditures. Compare . The petitioner was promptly informed by the terms of section 209 as supplemented by the instructions issued by the Commission of the method to be followed in allocating charges to operation during periods under inquiry. It does not appear that a proper effort would not have obtained a result approximately in accord with what the Commission ultimately found.
The above quotation answers the argument of respondent that the payment did not accrue until 1938 because final action upon the claim was entirely within the discretionary powers of the Commissioner of Internal Revenue. The Supreme Court held that the function of the Commission was ministerial. So we believe was the function of the Commissioner in the instant case. It was his duty to ascertain the amount of the burden of the processing taxes actually borne by petitioner in the price he had*680 paid for articles held by him. This was purely a matter of computation under the express direction of the statute.
This proceeding is also like , in that the data from which to determine petitioner's claim had to be obtained from petitioner's books and accounts, which had been closed as of June 30, 1936, and in that contained all the information that could ever be available touching relevant expenditures. of the payment with a fair degree of accuracy for the taxable year in question was shown when petitioner filed a claim for refund prior to the enactment of section 602 and when the amount was estimated by petitioner before it closed its books for the fiscal year in question. That this estimate later turned out to be too large is immaterial, as *646 indicated in , wherein it is stated:
* * * The books and accounts fixed the maximum amount of any probable award, and, if petitioner had endeavored to make reasonable adjustments of book figures, it could have arrived at a figure to be accrued for the year 1920. Any necessary adjustment*681 of its tax could readily have been accomplished by an amended return, claim for refund, or additional assessment, as the final award of the Commission might warrant.
That the Commissioner had the final power to determine the merits of petitioner's claim did not affect petitioner's right to the claim. This right was fixed by the statute, and under the statute it was the Commissioner's duty to make the payment to petitioner if the facts supporting the claim were proved to the Commissioner's satisfaction. Thus, the statute did not give the Commissioner the discretionary power of denying arbitrarily petitioner's claim.
Neither does the fact that the functions of the Commissioner in respect of claims filed under section 602 were of a judicial nature, in that no other remedy was available to claimants, affect our decision. The determination by the Interstate Commerce Commission regarding claims under the Transportation Act of 1920 involved in , was also final and of a judicial nature, but this was regarded by the Supreme Court as unimportant. *682 .
Accordingly, we hold that petitioner's right to receive the payments in question was fully ripened on June 22, 1936, the date section 602 became law, and therefore they were income which accrued in petitioner's fiscal year ended June 30, 1936.
Decision will be entered for the petitioner.
Footnotes
1. SEC. 602. FLOOR STOCKS AS OF JANUARY 6, 1936.
:a) There shall be paid to any person who, at the first moment of January 6, 1936, held for sale or other disposition (including manufacturing or further processing) any article processed wholly or in chief value from a commodity subject to processing tax, an amount computed as provided in subsection (b), except that no such payment shall be made to the processor or other person who paid or was liable for the tax with respect to the articles on which the claim is based.
(b) The amount of the payment under subsection (a) shall be equal to the processing tax which would have been payable with respect to the commodity from which the article was processed, if it had been processed on January 5, 1936, but not in excess of :1) the amount of the burden of the tax with respect to the article which was shifted to the claimant in the price he paid for the article :to the extent that the claimant has not received and is not entitled to receive reimbursement for such burden from the processor or other vendor) and not in excess of :2) the amount of that part of the burden of the tax applicable to the articles held on January 6, 1936, which the claimant has not passed on to his vendees and has not included in the sale price of such articles. In lieu of a detailed schedule of articles, purchases, sale prices, and sales under clauses :1) and :2) of this subsection, the claimant may :subject to the approval of the Commissioner and such investigations as he may cause to be made) submit, as a part of his claim, an affidavit setting forth the total amount of tax burden passed on to him on the articles with respect to which claim is made; the total amount of such burden for which he has received or is entitled to receive reimbursement from the processor or other vendor; the total amount of such burden that he has passed on to his vendees or has included in the sale prices of such articles; and the total amount of such burden that he has borne himself.
:d) No payment shall be made under this section unless the claimant files a claim therefor prior to January 1, 1937, in conformity with regulations prescribed by the Commissioner with the approval of the Secretary, nor unless he establishes to the satisfaction of the Commissioner the facts on which such claim is based.
:e) No claim under this section shall be disallowed on the ground that the tax with respect to the article or the commodity from which processed has not been paid, but no claim shall be allowed in an amount less than $10. No payment shall be made under this section in connection with any article with respect to which a refund has been allowed or credit has been taken under the Agricultural Adjustment Act, as amended, or a refund has been allowed or is allowable under section 601 of this title.
* * *
(h) In the absence of fraud the findings of fact and the decision of the Commissioner upon the merits of any claim under this section, and the mathematical calculation therein shall not be subject to review by any other administrative or accounting officer, employee, or agent of the United States.
:i) The determination of the Commissioner with respect to any payment under this section shall be final and no court shall have jurisdiction to review such determination. ↩