*2095 A consent in writing signed by a taxpayer prior to the passage of the Revenue Act of 1926, but not by the Commissioner until after the enactment of the Revenue Act of 1928, is not effective for extending the period for collection of taxes otherwise barred when the 1926 Act was passed.
*605 This proceeding is for the redetermination of the petitioner's tax liability for 1918 and 1919. For the year 1918 the respondent has determined an overassessment of $4,251.59. The overassessment represents *606 the proposed partial allowance of a claim for the abatement of $2,303,680.46 additional taxes assessed on July, 1923. The remainder of the claim, or $2,299,428.87, represents the deficiency determined for 1918. For 1919 the respondent has determined a deficiency of $266,421.11 in addition to proposing to reject an abatement claim for $350,587.38 filed in connection with additional taxes assessed in July, 1923. The hearing was limited to questions involving the expiration of the period of limitations. *2096 The petition as amended contains the following allegations of error with respect to the expiration of the period of limitations:
(1) The respondent is erroneously seeking to collect from the petitioner an alleged deficiency in income and profits taxes of $2,299,428.87 for the year 1918, although the five-year period provided by the Revenue Act of 1918 and/or subsequent Revenue Acts for the collection of income and profits taxes for that year has expired and any liability therefor has been extinguished.
(2) The respondent on October 27, 1925 erroneously and illegally collected from the petitioner under threat of distraint as income and profits taxes for the year 1918 the sum of $1,044,024.10 after the expiration of the five-year period provided by the Revenue Act of 1918 and/or subsequent Revenue Acts for such collection.
(3) The respondent is erroneously seeking to collect from the petitioner $350,587.38 for the year 1919, representing the unpaid portion of an assessment of additional income and profits taxes for that year of $2,100,587.38 made July 25, 1923, although the statutory period for such collection provided by the Revenue Act of 1918 and/or subsequent Revenue Acts*2097 has expired and any liability therefor has been extinguished. Another error assigned in the petition was withdrawn by the petitioner at the hearing.
FINDINGS OF FACT.
The petitioner is a New Jersey corporation, organized in 1906 and having its principal office in New York, N.Y. During the years here involved the petitioner was affiliated with the following subsidiary companies: National Starch Company, Crystal Car Line, Novelty Candy Company, St. Louis Syrup & Preserving Company, Chicago, Peoria & Western Railway Company of Illinois, Chicago, Peoria & Western Railway Company of Iowa, Illinois Valley Belt Railroad Company, and Granite City, Alton & Eastern Railroad Company.
On March 15, 1919, the petitioner on behalf of itself and its subsidiaries filed, with the Collector of Internal Revenue for the Second District of New York, Form 1031-T, entitled "Tentative Return and Estimate of Corporation Income and Profits Taxes and *607 Request for Extension of Time for Filing Return," showing an estimated tax of $12,150,000 and requesting an extension of 45 days for filing a completed return.
The above mentioned return did not contain a statement of the items of the petitioner's*2098 gross income, deductions and invested capital and the credits allowed by the Revenue Act of 1918, nor did it contain any statement of the consolidated net income and invested capital of the petitioner and its subsidiaries.
On September 15, 1919, and within the time allowed in a letter of extension from the Bureau dated July 22, 1919, the petitioner on behalf of itself and subsidiaries filed with the Collector a consolidated corporation income and profits-tax return on Form 1120 for the calendar year 1918, showing a tax of $11,105,975.90. This return does not show separately the items of the gross income and deductions of the subsidiary railroad companies.
The tax of $12,150,000 shown by the return filed on March 15, 1919, was assessed on a March 1919 list, signed by the Commissioner of Internal Revenue on November 10, 1919. The tax of $11,105,975.90 shown to be due by the return filed on September 15, 1919, was not separately assessed by the Commissioner of Internal Revenue, but was treated by him as included in the assessment of $12,150,000. The tax of $11,105,975.90 shown to be due by the return filed by the petitioner on September 15, 1919, was paid during 1919 as follows: *2099
| March 15, 1919 | $3,037,500.00 |
| June 17, 1919 | 2,523,806.70 |
| Sept. 15, 1919 | 2,770,675.30 |
| Dec. 18, 1919 | 2,773,993.90 |
The payment of December 18, 1919, in the amount of $2,773,993.90 was the balance of tax shown to be due in a communication addressed to the petitioner by the Collector on or about December 9, 1919, notifying the petitioner that its account was being credited by way of revision with $1,044,024.10. This amount was the difference between the assessment of $12,150,000 assessed on the tentative return and the $11,105,975.90 shown to be due by the return filed on September 15, 1919. Thereafter and about December 19, 1919, the Collector sought by means of a supplemental assessment list to have the Commissioner of Internal Revenue allow as a credit the amount of $1,044,024.10 which the Collector had advised the petitioner was being credited to its account. By means of a "statement of differences," the Commissioner disapproved the Collector's proposed allowance of the credit to the petitioner with the explanation "Tentative return has been filed and assessed for an amount more than shown by final return, said final return shall be treated as amended. See*2100
On March 15, 1920, the petitioner on behalf of itself and subsidiary companies filed with the Collector a tentative return on Form 1120 for the year 1919, showing estimated consolidated income and invested capital and also showing a total estimated tax of $4,083,576.74. This return was accompanied by a transmittal letter requesting an extension until May 15, 1920, for the filing of completed returns. The tentative return does not show the items of the petitioner's gross income and invested capital, nor does it show the deductions and credits allowed by the Revenue Act of 1918.
On September 15, 1920, and within the extension of time granted by Bureau letter of July 30, 1920, the petitioner on behalf of itself and subsidiary companies filed with the Collector a consolidated income and profits-tax return on Form 1120 for 1919, showing a tax for the year of $3,967,926.63, which was assessed by the*2101 Commissioner in 1920 and paid by the petitioner in that year. This return shows the items of the consolidated gross income, the items of deductions in arriving at the consolidated net income and the computation of the consolidated invested capital. It does not, however, show separately the items of gross income and deductions and the net income and invested capital either of the petitioner or of any of the subsidiary companies.
On May 10, 1923, the Commissioner mailed to the petitioner a letter wherein he proposed the assessment of additional taxes of $2,303,680.46 and $2,100,587.38 for 1918 and 1919, respectively, and allowed the petitioner thirty days within which to file an appeal and show cause why the taxes should not be paid. The additional taxes which resulted from adjustments based on a Travel Unit auditor's report on inventories dated February 17, 1923, were computed as follows:
| 1918 | ||
| Total tax | $14,453,401.46 | |
| Previously assessed: | ||
| On tentative return | $12,150,000.00 | |
| Less claim allowed | 279.00 | |
| 12,149,721.00 | ||
| Additional tax to be assessed | 2,303,680.46 | |
| 1919 | ||
| Total tax | 6,068,514.01 | |
| Previously assessed | 3,967,926.63 | |
| Additional tax to be assessed | 2,100,587.38 | |
*2102 The proposed additional taxes shown by the letter of May 10, 1923, were assessed on a July, 1923, assessment list signed by the *609 Commissioner on July 25, 1923. About December 10, 1923, the petitioner paid $1,750,000 on account of the $2,100,587.38 so assessed for 1919 and filed a claim for the abatement of the remainder of the assessment or $350,587.38. On the same day the petitioner filed a claim for the abatement of the $2,303,680.46 additional taxes assessed for 1918.
On March 14, 1924, a letter was mailed to the petitioner by the Commissioner, in which it was stated that consideration had been given to the claim for abatement in the amount of $2,303,680.46 for 1918 and that the claim "will be rejected" and the Collector notified at the expiration of thirty days from the date of the letter, unless prior to that date evidence was furnished showing that the adjustment was incorrect. Protest to the proposed action was made by the petitioner on April 7, 1924.
On July 2, 1924, the Commissioner sent to the petitioner by registered mail a letter which reads as follows:
Form NP-2
July 2 1924
IT:CR:D
HL
CORN PRODUCTS REFINING COMPANY,
17 Battery Place,*2103 New York, N.Y.
SIRS: An examination of your income tax returns and those of your affiliated companies has been made and the results thereof are outlined in the attached statement and accompanying schedules.
In accordance with the provisions of Section 274 of the Revenue Act of 1924, you are allowed 60 days from the date of this letter within which to file an appeal to the Board of Tax Appeals contesting in whole or in part the correctness of this determination.
Where a taxpayer has been given an opportunity to appeal to the Board of Tax Appeals and has not done so within the 60 days prescribed and an assessment has been made, or where a taxpayer has appealed and an assessment in accordance with the final decision on such appeal has been made, no claim in abatement in respect of any part of the deficiency will be entertained.
If you acquiesce in this determination and do not desire to file an appeal, you are requested to sign the enclosed agreement consenting to the assessment of the deficiency and forward it to the Commissioner of Internal Revenue, Washington, D.C., for the attention of IT:CR:D-HL. In the event that you acquiesce in a part of the determination, the agreement*2104 should be executed with respect to the items agreed to.
Respectfully,
(Signed) J. G. BRIGHT
Deputy Commissioner.
Enclosures:
Statements
Agreement - Form A
Schedules - Original 1-A, 2-A, 6-A and 7-A
Schedules - Revised 1 to 10
*610 The deficiencies shown in the attached statement and schedules were for income and profits taxes in the amount of $544,546.05 for 1918 and $573,314.20 for 1919, and were computed as follows:
| 1918 | ||
| Total tax | $14,997,947.51 | |
| Previously assessed: | ||
| Original | $12,150,000.00 | |
| Additional | 2,303,680.46 | |
| 14,453,680.46 | ||
| Less claim allowed | 279.00 | 14,453,401.46 |
| Additional tax to be assessed | 544,546.05 | |
| 1919 | ||
| Total tax | $6,641,828.21 | |
| Previously assessed: | ||
| Original | $3,967,926.63 | |
| Additional | 2,100,587.33 | 6,068,514.01 |
| Additional tax to be assessed | 573,314.20 | |
The statement attached to the letter contains the following: "The Travel Auditor's report dated July 12, 1923 has been made the basis of adjustments which are fully explained in the attached original schedules 1-A, 2-A, 6-A, and 7-A and revised schedules 1 to 10. This letter supersedes Bureau letter to you dated May 10, 1923."
The petitioner*2105 did not within sixty days after the letter was mailed, or at any time, file with this Board an appeal from the determination of the deficiencies set forth in the letter.
After receipt of this letter and on or about July 31, 1924, the petitioner's tax representative conferred with one Kane, a technical advisor to the Deputy Commissioner of Internal Revenue, and informed him that the petitioner had received a so-called sixty-day letter proposing deficiencies for 1918 and 1919, that apparently the letter had been issued in error, inasmuch as the usual procedure of first issuing a thirty-day letter had not been complied with and that if the letter was to be treated as a sixty-day letter the petitioner would be obliged to file a petition with the Board of Tax Appeals within the sixty-day period. Kane informed the petitioner's representative that the auditors in the Income Tax Unit had apparently become confused because of the recent passage of the Revenue Act of 1924, that the instant case was one of several instances where errors had been made by issuing sixty-day letters when it was intended to issue thirty-day letters, that the letter might be considered void as far as being a sixty-day*2106 letter was concerned and that it would not be necessary for the petitioner to file a petition with the Board of Tax Appeals within the sixty-day period. Kane further *611 stated that the petitioner might consider the letter to be a thirty-day letter and upon the request of the petitioner's representative granted an extension of thirty days within which the petitioner might file an appeal to the Income Tax Unit on this letter. At this conference Kane requested that a waiver be filed. At the conference the petitioner's representative requested a copy of the travel auditor's report upon which the additional taxes were based, but was advised that a copy could not be obtained as the report was made in pencil and there were no copies available.
Pursuant to Kane's request the following instrument signed by the petitioner on August 14, 1924, was filed with the Commissioner on August 15, 1924, and thereafter duly signed by and on behalf of the Commissioner:
INCOME AND PROFITS TAX WAIVER
In pursuance of the provisions of subdivision (d) of Section 250 of the Revenue Act of 1921, Corn Products Refining Company, of 17 Battery Place, N.Y., and the Commissioner of Internal Revenue, *2107 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 Corn Products Refining Company for the year 1918 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 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 from the date it is signed by the taxpayer and will remain in effect for a period of one year after the expiration of the statutory period of limitation, or the statutory period of limitation, as extended by any waivers already on file with the Bureau, within which assessments of taxes may be made for the year or years mentioned.
At the time the above waiver was filed the Bureau did not have on file any other waiver for 1918 signed by the petitioner.
On September 17, 1924, the Commissioner mailed to the petitioner a letter which reads in part as follows:
An examination of your income tax returns and those of your affiliated companies has been made and*2108 the results thereof are outlined in the attached statement.
You are granted 30 days from the date of this letter within which to present a protest, supported by additional evidence or brief, against this determination of a deficiency. Upon request submitted within the period mentioned, you will also be granted a hearing in the Bureau with reference to the matter.
* * *
If, after consideration of any additional evidence submitted and any arguments advanced by you, a deficiency is finally determined by the Bureau to be due from you, you will, in accordance with the provisions of Section 274 of the Revenue Act of 1924, be advised by registered mail of the final determination of Commissioner as to the amount of the deficiency, and allowed 60 days from the mailing of the letter in which to file an appeal to the United States Board of Tax Appeals in the event you do not acquiesce in such final determination.
*612 In the attached statement the proposed deficiencies were shown as being $544,546.05 for 1918 and $573,314.20 for 1919, the same amounts as shown in the deficiency notice of July 2, 1924. The statement contains the following:
The adjustments producing the above-stated*2109 results were contained in schedules attached to Bureau letter to you dated July 2, 1924.
This letter supersedes Bureau letters dated May 10, 1923 and July 2, 1924.
It is noted that a waiver duly executed by you, consenting to the assessment of additional taxes for 1918, is on file at this office.
On January 6, 1925, the petitioner signed and on or about that date it filed with the Commissioner the following instrument, which was thereafter duly signed for and on behalf of him:
INCOME AND PROFITS TAX WAIVER
In pursuance of the provisions of subdivision (d) of Section 250 of the Revenue Act of 1921, CORN PRODUCTS REFINING COMPANY of New York, N.Y., 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 CORN PRODUCTS REFINING COMPANY for the year 1919, 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 Act to provide Revenue, equalize duties, and encourage the industries of the United States, and for other purposes," approved*2110 August 5, 1909, irrespective of any period of limitations.
At the time of the execution and filing of the foregoing waiver dated January 6, 1925, there was pending before the Bureau a claim in abatement in respect to the unpaid portion of the assessment for 1919 appearing on the July, 1923, list. There was also pending and undisposed of in the Bureau the petitioner's protest and brief dated November 11, 1924, in respect of a proposed additional deficiency for 1919. Concurrently with the filing of the waiver the petitioner prepared and filed with the Bureau additional data pertaining to the determination of its income and excess-profits taxes for 1919, stating therein, in part, "We are filing Income and Profits Tax Waiver by Corn Products Refining Co. * * * for the year 1919." The petitioner filed with the Bureau further communications in respect to the determination of its tax liability for 1919 under dates of March 9, 1925, June 11, 1925, July 7, 1925, September 15, 1925, February 11, 1926, and October 22, 1926.
On April 17, 1925, the Commissioner mailed to the petitioner a letter which reads in part as follows:
Reference is made to request contained in your brief dated*2111 November 11, 1924 that your excess profits and war profits taxes for 1917, 1918 and 1919 be computed under the provisions of Section 210 of the Revenue Act of 1917 and Sections 327 and 328 of the Revenue Act of 1918, respectively.
Before consideration can be given your request there must be a final determination of your net income; it will therefore be necessary for you to advise *613 this office within thirty days from the date of this letter of your acquiescence in the determination of your net income as shown in the attached statements and accompanying schedules.
In the accompanying schedules the additional tax proposed to be assessed for 1918 was $119,595.30 and for 1919 was $290,433.57 instead of $544,546.05 for 1918 and $573,314.20 for 1919 as shown in Bureau letters of July 2, 1924, and September 17, 1924.
The following instrument signed by the petitioner on August 7, 1925, was filed with the Commissioner on August 10, 1925, and was thereafter duly signed for and on behalf of the Commissioner:
INCOME AND PROFITS TAX WAIVER
(For taxable years ended prior to March 1, 1921)
In pursuance of the provisions of existing Internal Revenue Laws CORN PRODUCTS*2112 REFINING COMPANY AND AFFILIATED COMPANIES, a taxpayer of NEW YORK, NEW YORK, and the Commissioner of Internal Revenue hereby waive the time prescribed by law for making any assessment of the amount of income, excess-profits, or war-profits taxes due under any return made by or on behalf of said taxpayer for the year 1918 under existing revenue acts, or under prior revenue acts. This waiver of the time for making any assessment as aforesaid shall remain in effect until December 31, 1925, and shall then expire except that if a notice of a deficiency in tax is sent to said taxpayer by registered mail before said date and (1) no appeal is filed therefrom with the United States Board of Tax Appeals then said date shall be extended sixty days, or (2) if an appeal is filed with said Board then said date shall be extended by the number of days between the date of mailing of said notice of deficiency and the date of final decision by said Board.
Thereafter and on August 26, 1925, the Commissioner mailed a letter to the petitioner in which reference was made to the petitioner's request for a computation of its excess-profits and war-profits taxes for 1917, 1918, and 1919 under the provisions*2113 of section 210 of the Revenue Act of 1917 and sections 327 and 328 of the Revenue Act of 1918, and informing the petitioner that it would be necessary for it to advise the Commissioner's office within thirty days of its acquiescence in the determination of its net income as shown in an attached statement and accompanying schedules. In the attached statement the petitioner was advised that the information submitted in briefs dated November 11, 1924, January 6, 1925, June 11, 1925, and July 7, 1925, and at conferences held December 8, 1924, and June 29, 1925, had been made the basis of the adjustments resulting in the net income shown therein and that this letter superseded Bureau letter of April 17, 1925. The accompanying schedules showed not only no additional tax for 1918, but an overassessment of $4,251.59. An additional tax to be assessed of $266,421.11 was shown for 1919.
*614 On October 3, 1925, the Commissioner mailed the following letter to the petitioner:
Receipt is acknowledged of your brief dated September 15, 1925, wherein you disagree with the Unit's elimination of intercompany profits in your inventory at December 31, 1917, in computing 1918 income subject*2114 to excess and war profits taxes and in computing 1918 invested capital, and request another conference if your contentions cannot be allowed.
It is noted that your question of intercompany profits in the December 31, 1917, inventory was one of the issues discussed at conferences held December 8, 1924 and June 29, 1925, it is not deemed advisable to grant a further conference on the same question.
Your request for relief under the provisions of Section 210 of the Revenue Act of 1917 and Sections 327 and 328 of the Revenue Act of 1918 will be given due consideration.
On September 1, 1925, there was issued by the office of the Commissioner of Internal Revenue "A & C Mimeograph, Coll. 3341," entitled "Protection of Government's interests in Connection with Unpaid Income Tax Assessments on Old Lists." This mimeograph was signed "C. R. Nash, Acting Commissioner." It was marked "Confidential" and was not then or thereafter made known to taxpayers generally by publication in the bulletin service of the Bureau of Internal Revenue or in other Government publications. Among other things, the mimeograph contained instructions to Collectors as follows:
A waiver may be obtained from*2115 the taxpayer where an unadjusted abatement or credit claim is pending in the Bureau. Form of waiver which should be used for this purpose is attached hereto.
The mimeograph with the form of waiver attached was received by the Collector of Internal Revenue for the Second District of New York on September 2, 1925.
Thereafter, on October 22, 1925, the following instrument prepared on the form prescribed in "A & C Mimeograph, Coll. 3341" was signed by F. T. Fisher, treasurer of the petitioner, and delivered to the Collector:
INCOME AND PROFITS TAX WAIVER.
In order to enable the Bureau of Internal Revenue to give thorough consideration to any claims for abatement or credit filed by or on behalf of Corn Products Refining Co. of New York City, N.Y., covering any income, excess-profits or war-profits tax assessed against the said taxpayer under the existing or prior Revenue Acts for the year(s) 1917 or 1918 an to prevent the immediate institution of a proceeding for the collection of such tax prior to the expiration of the six year period of limitation after assessment within which a distraint or a proceeding in court may be begun for the collection of the tax, as provided*2116 in Section 278(d) of the existing Revenue Act, the said taxpayer hereby waives any period of limitation as to the time within which distraint or a proceeding in court may be begun for the collection of the tax, or any portion thereof, *615 assessed for the said year(s) and hereby consents to the collection thereof by distraint or a proceeding in court begun at any time prior to the expiration of this waiver.
This waiver is in effect from the date it is signed and will remain in effect until December 31, 1926.
(Signed) CORN PRODUCTS REFINING CO.
Taxpayer.
By F. T. FISHER, Treasurer.
Dated this 22nd day of October, 1925.
The foregoing waiver was placed in an envelope by the secretary to the Chief Field Deputy in the Collector's office and forwarded to the Commissioner in Washington on November 30, 1925, unaccompanied by a letter of transmittal. The waiver was signed by the Commissioner (Robert H. Lucas) on February 26, 1930.
On October 27, 1925, the petitioner paid to the Collector under threat of distraint the amount of $1,044,024.10, representing the difference between the assessment of November 10, 1919, in the amount of $12,150,000 as shown by the*2117 petitioner's tentative return for 1918 and the $11,105,975.90 shown on the return filed September 15, 1919, and paid by the petitioner during 1919.
On October 15, 1929, the petitioner filed with the Collector a claim on official Form 843 for the refund of the $1,044,024.10 paid on October 27, 1925, the basis of the claim being that the amount was illegally collected, inasmuch as the period provided by the Revenue Act of 1918 and subsequent revenue acts within which the income and profits taxes of the petitioner for 1918 could be legally collected had expired prior to October 27, 1925. There was attached to and made a part of the claim a copy of the amended petition filed in this proceeding.
On December 18, 1925, the Commissioner mailed to the petitioner a letter, concerning the petitioner's tax liability for 1918, and which is in part as follows:
Reference is made to your protest dated April 7, 1924, against the denial of your application for assessment of your profits tax under the provisions of Section 328 of the Revenue Act of 1918, for the year 1918, as set forth in Bureau letter dated March 14, 1924.
After a careful review of your protest and of all the evidence submitted*2118 in support of your contentions, you are advised that the Bureau holds that no abnormality affecting either your capital or income has been disclosed which would bring your case within the scope of Section 327(d) of the Revenue Act of 1918. Accordingly, the denial of your application for assessment under Section 328 of the Revenue Act of 1918 as set forth in the above-mentioned Bureau letter is substained.
Reference is made to your protest dated September 15, 1925 against the net income and invested capital shown in Bureau letter dated August 26, 1925.
After a careful review of your protest and of all the evidence submitted in support of your contentions, you are advised that the Bureau holds that the invested capital should be reduced by the proration of Federal income taxes and *616 bases its decision on Article 845 of Regulations 45, which states in part that "amounts payable on account of such taxes for the preceding year may be included in the computation of invested capital only until such taxes become due and payable."
You are further advised that the items in the inventory at December 31, 1917, representing sales of one affiliated company to another, should be*2119 eliminated for 1918 invested capital for excess and war profits tax purposes, and the Bureau bases its decision on the Solicitor's Memorandum #3384 (IV-26-2248), wherein it is stated that "Intercompany transactions in 1917 being disregarded for 1917 excess profits tax purposes, consistently require that they should be eliminated in determining consolidated invested capital for 1918 excess profits tax purposes."
The overassessments of $515,664.25 and $4,251.59 for 1917 and 1918, respectively, as shown in Bureau letter dated August 26, 1925 are, therefore, sustained.
In accordance with the above conclusions, your claims for the abatement of $716,423.35 and refund of $2,250,000.00, $54,520.00 and $682,880.27, aggregating $3,703,823.62, covering the year 1917, will be rejected for $3,188,159.37 and your claims for the abatement of $2,303,680.46 and refund of $4,000,000.00 and $1,195,877.06, aggregating $7,499,557.52 covering the year 1918, will be rejected for $7,495,305.93.
The Collector of Internal Revenue for your district will be officially notified of the rejection.
Upon receipt of notice and demand from that official, payment should be made to his office in accordance*2120 with the conditions of his notice.
The overassessments shown above will be made the subject of Certificates of Overassessment which will reach you in due course through the office of the Collector of Internal Revenue for your district, and will be applied by that official in accordance with Section 281(a) of the Revenue Act of 1924.
On the same day the Commissioner also mailed to the petitioner a letter concerning the petitioner's tax liability for 1919, which is in part as follows:
An audit of your income and profits tax return for the calendar year 1919 has resulted in the determination of a deficiency in tax of $266,421.11, as shown in Bureau letter dated August 26, 1925.
You are granted 30 days from the date of this letter within which to present a protest, supported by additional evidence or brief, against this determination of a deficiency.
On December 7, 1926, the petitioner filed with the Collector a letter dated December 6, 1926, which reads as follows:
In compliance with your recent request, we enclose Tax Collection Waivers for years 1917-1918, properly signed and sealed.
Enclosed therewith in duplicate was an instrument which except for directions as*2121 to the execution thereof reads as follows:
TAX COLLECTION WAIVER
, 192
It is hereby agreed by and between Corn Products Refining Co. of 17 Battery Place, N.Y.C. party of the first part, and the Commissioner of Internal Revenue, party of the second part, that the amount of $ representing an *617 assessment of income tax for the year(s) 1917-1918 made against the said party of the first part, appearing on the assessment list, page , line , for the district of , may be collected (together with such interest, penalties or other additions as are provided by law) from said party of the first part by distraint or by a proceeding in court begun at any time prior to 192 .
(Signed) CORN PRODUCTS REFINING COMPANY
(Taxpayer)
By F. T. FISHER, Sect'y & Treas.
Commissioner of Internal Revenue
By
Collector of Internal Revenue.
On June 24, 1930, the foregoing waiver was signed on behalf of the Commissioner by a Deputy Collector of Internal Revenue in the office of the Collector of Internal Revenue for the Second District of New York. The Deputy Collector was authorized to sign waivers on behalf of the Commissioner by a letter dated*2122 January 27, 1930, signed by the Commissioner and addressed to the Collector of Internal Revenue, Custom House, N.Y.
Under dates of February 11, 1926, and October 22, 1926, protests were made to the two letters of December 18, 1925, and conferences were held in the Bureau of Internal Revenue. On December 20, 1926, the deficiency notice from which this appeal was taken was mailed to the petitioner proposing an overassessment of $4,251.59 for 1918 and a deficiency in the amount of $266,421.11 for 1919.
The petitioner's abatement claims filed December 11, 1923, in the amount of $2,303,680.46 for 1918 and in the amount of $350,587.38 for 1919 have not as yet been allowed or rejected either in whole or in part by the Commissioner. Of the additional assessment for 1918 of $2,303,680.46 made in July, 1923, no part has been paid except an amount of $233.42, which, it is stated in the respondent's answer, was collected by credit on or about April 26, 1927. Of the additional assessment for 1919 of $2,100,587.38 made in July, 1923, $350,587.38, or the amount for which an abatement claim was filed, is still unpaid. No suit, distraint or proceeding for the collection of the taxes here*2123 involved, other than the instant proceeding, was ever begun.
OPINION.
TRAMMELL: This proceeding has been limited to questions involving the expiration of the periods of limitation. On this question three issues are presented: (1) with respect to the deficiency of $2,299,428.87 for 1918, (2) with respect to the amount of $1,044,024.10 for 1918, (3) with respect to the amount of $350,587.38 for 1919.
The $1,044,024.10 was collected on October 27, 1925.
*618 With respect to the deficiency for 1918 still unpaid, four waivers were signed by the taxpayer, the first dated August 14, 1924, which was filed August 15, 1924, and duly signed by the Commissioner. This waiver provided for an extension of time for the "determination, assessment and collection" of taxes for 1918 and extended the period for one year after the expiration of the statutory period. The statute would have expired on September 15, 1924, if not extended by proper consent in writing.
The second consent in writing with regard to taxes for 1918 was filed by the taxpayer on August 7, 1925, and filed with the Commissioner on August 10, 1925, and was thereafter duly signed for and on behalf of the Commissioner. *2124 This consent extended the time for the "assessment" of any taxes due for the year 1918 to December 31, 1925, unless a notice of deficiency was sent within that time. Under the decision of the Supreme Court in the case of
A third so-called waiver was filed by the taxpayer on October 22, 1925, with the Commissioner, but was not signed by or in behalf of the Commissioner until February 26, 1930, after the notice of deficiency had been mailed and long after this proceeding had been instituted.
A fourth so-called consent in writing was filed by the taxpayer on December 7, 1926, which was not signed by or in behalf of the Commissioner until June 24, 1930.
The Commissioner takes the position that the mailing of the deficiency notice on July 2, 1924, extended the period for 60 days thereafter and that this 60 days should be added to the period as extended by the so-called consents in writing subsequently executed. In short, the respondent contends that the waiver*2125 signed by the taxpayer on August 7, 1925, instead of extending the time to December 31, 1925, as therein provided, actually extended the period until 60 days thereafter and thus beyond the date of the passage of the 1926 Act, so that the collection would not be barred by section 278(a) of that act. This so-called notice of deficiency was entirely disregarded by the Commissioner and treated by him as a 30-day letter. Subsequent hearings were had and another notice of deficiency was mailed based upon which this proceeding was instituted. The petitioner at the request of the Bureau disregarded the deficiency notice of July, 1924. But in any event we do not think that this deficiency notice, however it may be regarded, has the effect of extending the time specifically set forth in a subsequent waiver. The *619 waiver of August 7, 1925, specifically provided for a time limit. It may well be that this notice extended the time for assessment and collection for 60 days from the time it was mailed, but this fact becomes immaterial and unimportant with respect to those waivers filed after the expiration of this 60-day period, when those waivers contained a definite and specific*2126 expiration date. The August 7, 1925, waiver, by its terms, extended the time to December 31, 1925, and provided that "It shall then expire" unless in the meantime notice of deficiency were mailed, which was not done. This waiver, therefore, extended the time only to December 31, 1925, and the 60-day period should not be added thereto. No notice of deficiency was mailed within the time provided in this waiver and there is no statutory authority for adding 60 days to the time agreed upon in the waiver where the Commissioner does not act within the period provided in the waiver.
As to the effect of this first deficiency notice upon our jurisdiction, we think that in any event we have jurisdiction to hear and decide this proceeding based upon the deficiency notice mailed after the passage of the 1926 Act. Only one letter was mailed after that date, and we therefore have jurisdiction of this cause. See
Since the notice of deficiency mailed under the 1924 Act did not have the effect of extending by 60 days the period for assessment and collection definitely agreed to in writing after the*2127 expiration of the 60-day period, the question then presents itself as to whether the consents in writing extended the time for the assessment and collection of the taxes for 1918 up until such time as the notice of deficiency was mailed under the 1926 Act, that is, December 20, 1926.
The first two consents in writing, those dated August 14, 1924, and August 7, 1925, being valid, it is only necessary to discuss the waiver signed by the taxpayer October 22, 1925, and the fourth waiver, dated, December 27, 1926, which were not signed by the Commissioner until long after this proceeding had been instituted, and after the statutory period as extended by the previous waivers had long expired. We do not think it necessary to discuss the contention of the petitioner that the period of limitations began to run on the filing of the tentative return instead of on the filing of the original return. This question has been decided by the United States Supreme Court adversely to the contention of the petitioner in the case of
We have held in the case of *2130
The requirement in section 250(d) of the Act that the Commissioner sign the consent was inserted to meet exigencies of administration and not as a grant of authority to contract for waivers.
* * *
While section 250(d) first specified that a waiver be in writing and signed by the Commissioner there is nothing in that section that invalidated waivers made prior to its enactment * * *. (Italics supplied.)
In the Stange case, supra, the Court said:
* * * the provision requiring the Commissioner's signature was intended for purely administrative purposes * * *. (Italics supplied.)
The fact that the signature of the Commissioner was required for purely administrative purposes and not to convert a consent into a contract, to our mind seems not material, if the signature of the Commissioner was in fact required. Both the Stange and Aiken cases cited as authority the case of
It is also urged that, unless a contract was intended there is no reason why the consent of the Commissioner should have been required. But an otherwise plain meaning should not be distorted merely for the sake of finding a purpose for the administrative requirement. If a reason must be found, it exists in the *622 general desirability of the requirement as an administrative matter. It serves to keep the Commissioner in closer touch with the matters he is charged to administer. It avoids claims of improvident execution of waivers and unauthorized exactions by subordinates of the department * * * and it provides a formal procedure which is generally desirable * * *.
* * * section 278(c) [1926 Act] re-enacted the provision as to extension of time by consent of the Commissioner and the taxpayer and constituted the sole statutory authority for the waiver of the period of limitation for taxes under the 1918 and 1921 Acts. It unquestionably applied to waivers thereafter to be executed * * *.
Clearly the Court in the Florsheim case did not hold that it was not necessary for the Commissioner to sign consents in writing as specifically*2134 required by the statute, and the Stange and Aiken cases merely relied on that case and did not in any way modify it. While the requirement as to the Commissioner's signature was for administrative reasons, still it was a statutory requirement and is not to be ignored. Many of the provisions of the revenue acts are for administrative purposes. If a thing is required for administrative reasons we are not warranted in saying that it is not required at all. The provision as to the assessment of taxes by the Commissioner, the making of returns by taxpayers, the proceedings before the Board and other provisions affecting the rights and duties of taxpayers and the Government might be said to be requirements for administrative reasons. The filing of a claim for refund and the rejection thereof or failure to act thereon for a certain period is an administrative requirement which the Supreme Court has not ignored, however formal the required action was, because it was an administrative requirement. See
In our opinion, the agreement in writing as to the extension of time for the assessment and collection*2135 of taxes is not essentially different in character, that is, whether it is for administrative purposes or not, from the compromise agreement authorized in the revenue acts. In other words, if the provision relating to the Commissioner's signature is merely for administrative purposes in one case, it would seem that the requirement for the Secretary's approval in the case of compromise agreements would also be an administrative requirement. The Supreme Court in the case of
Section 3239 authorizes the Commissioner of Internal Revenue to compromise tax claims before suit with the advice and consent of the Secretary of the Treasury and requires an opinion from the Solicitor of Internal Revenue. In the case of
That the question whether such an informal adjustment of taxes as was made in this case is binding on the taxpayer, is submitted for decision in deference to the opinion of the Court of Claims and the importance of the question - but on argument is made in support of the Government's previous contention that the Mills was estopped from questioning the settlement. And, on the contrary, it is stated that, "before and since the date of the alleged settlement in this case the Commissioner has evidently proceeded on the*2137 theory that no adjustment of a tax controversy between representatives of the Bureau of Internal Revenue and a taxpayer is binding unless made with the formalities and with the approval of the officials prescribed by statute".
The Supreme Court said:
Independently of these concessions, we are of the opinion that the informal settlement made in this case did not constitute a binding agreement. Section 3239 authorized the Commissioner of Internal Revenue to compromise tax claims before suit with the advice and consent of the Secretary of the Treasury * * *. Here the attempted settlement was made by subordinate officials in the Bureau of Internal Revenue. And although it may have been ratified by the Commissioner in making additional assessment placed thereon, it does not appear that it was assented to by the Secretary, or that the opinion of the Solicitor was filed in the Commissioner's office.
We think that Congress intended by the statute to prescribe the exclusive method by which taxes could be compromised * * * and prescribing the formality with which, as a matter of public concern, it should be attested in the files of the Commissioner's office; and did not intend to*2138 intrust the final settlement of such matters to the informal action of subordinate officials in the Bureau. When a statute limits a thing to be done in a particular mode, it includes the negative of any other mode * * *.
The Court held that the Mills was not precluded by the settlement, as contended by the Commissioner, from recovering any portion of the tax to which it may otherwise have been entitled, and that the taxpayer was not estopped by its course of conduct to rely on the fact that the provisions of the statute had not been complied with.
The filing of returns is an administrative requirement and the requirement that in the absence of an agreement between affiliated corporations as to how the tax shall be assessed, the statute provides that it must be assessed according to income, etc., is purely for *624 administrative purposes, yet in Essex Coal Co. v. Commissioner, the Circuit Court of Appeals in
We know of no rule of statutory construction to the effect that because an act required by statute is for administrative*2139 purposes it is not required at all. The real question is whether the statute is directory or mandatory, not whether it is administrative or not. The fact that the requirement of the Commissioner's signature is for administrative purposes has no relation whatever as to whether it is mandatory or directory. When a particular provision of a statute relates to some immaterial matter as to which compliance with the statute is a matter of convenience rather than substance, it may be said to be directory only and not mandatory, but in the case of waivers, while the Commissioner's signature is required for administrative purposes, there is nothing to indicate that it was not a material matter and that Congress intended that the provision should be complied with to the same extent that the approval of the Secretary was required in the case of compromises. This is indicated by the language of the Florsheim case, where the Court discussed the reasons for the requirement.
We think that Congress intended to require the signature of both the Commissioner and the taxpayer in the case of waivers. The language of the 1924, 1926, and 1928 Acts refers to consents in writing of "both" *2140 the Commissioner and the taxpayer. Congress must have recognized that prior to the 1921 Act, when provision was first made for the extension of time for the assessment and collection of taxes by consents in writing of the Commissioner and the taxpayer, the Commissioner could legally accept waivers signed only by the taxpayer; that the Commissioner had, as a matter of practice, been accepting such waivers signed by the taxpayer under all of the income tax acts previous to the 1921 Act. See S.O. 60, C.B. 3, p. 295, as to waivers under Acts 1909 to 1913; articles 38, 50, and 230 of Regulations 33, Revised, under the 1916 Act and that act as amended and O.D. 234, C.B. 1, p. 252, as to waivers under the 1918 Act. Waivers signed by taxpayers previous to the 1921 Act were perfectly good as common law waivers, as said by the Supreme Court in the Stange case, supra. At common law waivers were not required to be signed by both the Commissioner and the taxpayer, but they were recognized as good and effective. The Revenue Act of 1921, section 250(d), changed the common law rule on the subject of waivers to require the consent in writing of both the Commissioner and the taxpayer, and*2141 this provision has been continued in all subsequent acts. If Congress had intended that it was not necessary for both the Commissioner and the taxpayer to sign waivers, the question *625 arises as to why the provision was put in the statute when before that time they were good when signed only by the taxpayer. After all is said on the question of whether a statutory provision is directory or mandatory, the true test is the intention of the legislature. See
In this respect it is of some significance that the Revenue Act of 1921 for the first time prescribed a definite period of limitation for the collection of taxes by suit or otherwise. Prior to the Revenue Act of 1921 there was no limitation upon the collection of taxes by suit, the limitation applying merely to assessment and collection by administrative processes. This being true and the Government, in any event, having an unlimited time to collect by suit if necessary, it was doubtless considered by Congress sufficient if the taxpayer waived the period for assessment or collection through administrative means, the*2142 Commissioner, in any event, having the right to collect, but when the 1921 Act contained a provision limiting absolutely the period for assessment and collection through any process, Congress saw fit to change by statutory provision the common law rule then in effect with respect to the extension of time by waiver signed by the taxpayer alone and provided that the period could be extended by a consent in writing of both the Commissioner and the taxpayer. It seems clear that the purpose of the legislation was to abrogate or modify the common law rule with respect to waivers. The United States Supreme Court, in the case of
It is also a rule of construction so well established that it is not necessary to cite authorities to support it, that every phrase or word of the statute is to be given effect if possible. See
On the question as to whether the provision with respect to consents in writing of both the Commissioner and the taxpayer are directory or mandatory, it is to be observed that in all of the revenue acts, beginning with the 1921 Act, the provisions relating to waivers are placed in the acts as exceptions to the general rule of the application of the statute of limitations. The period of limitations *626 for the assessment and collection of taxes is preceded by the language "except as provided by," the language relating to waivers contained in the following*2144 section. This being true, the statutory rule of construction applicable to exceptions and provisos in the statute should be applied, that is, they should be strictly complied with. See
That the provisions relating to the consents in writing are mandatory and not directory merely is clearly indicated by the provisions of sections 277 and 278 of the Revenue Acts of 1924, 1926, and 1928 as amended. The authority of the Commissioner to proceed to collect the tax depends upon the proper execution of a waiver. The Act requires that certain things be done before the power of the Commissioner can be exercised. We think that an instrument of such significance and importance which so affects the substantial rights of both the Government and taxpayer and which is necessary in order to enable the Commissioner to perform his public duty of collecting taxes, should be in the form prescribed by the statute and that the statutory provisions relating thereto are mandatory. We think that any doubt as to whether the provision is mandatory or directory is removed*2145 by the Supreme Court. Whenever it referred to the execution of waivers it referred to the requirement of the Commissioner's signature.
We must also consider the rule of statutory construction laid down by the Supreme Court with respect to the statutes of limitations which are affected by waivers. The rule is now clearly established that statutes of limitations should be liberally construed in favor of the taxpayer.
This leaves for consideration the question as to whether, when the waivers were signed after the period of limitation had expired and after the Revenue Act of 1926 and also the 1928 Act had been enacted, they are effective as in the cases of waivers under prior revenue acts, as were involved in the Stange and Aiken cases. The 1926 Act contains section 278(e), which provides that that section 278 (the section providing for waivers) shall not authorize the assessment or collection*2146 of a tax if at the time of the enactment of the 1926 Act assessment or collection was barred by the statutory period of limitations properly applicable unless prior to the enactment of that act the Commissioner and the taxpayer agreed in writing thereto. The Commissioner and the taxpayer did not so agree, prior to the passage of the 1926 Act, to extend the time until or subsequent to the passage *627 of that Act. On that date, if the waiver of August 22, 1925, was not effective in the absence of the Commissioner's signature, the tax was barred. Under such circumstances we have held that the statute of limitation bars the collection.
(b) Section 278 of the Revenue Act of 1926 is further amended by adding at the end thereof a new subdivision to read as follows:
"(f) Any agreement which would be within the provisions of subdivision (c) or (d) of this section but for the fact that it was executed after the expiration of the period of limitation extended by such agreement, shall be valid and effective according to its terms if entered into after the enactment of the Revenue Act of 1928 and before January 1, 1929." [Sec. 506.]
The provision of the 1928 Act relative to waivers uses the language "where before the expiration of the time prescribed in section 277 * * * both the Commissioner and the taxpayer have consented in writing * * *." Regardless of the law as to waivers prior to the passage of the 1928 Act as laid*2148 down by the Supreme Court, under the 1928 Act a waiver was not valid and effective if executed after the passage of that act after the expiration of the statute of limitations unless executed before January 1, 1929. When the Commissioner signed the waiver after the passage of the 1928 Act, his signature being required, it is governed by that act to the same extent as if both parties had signed it after the 1928 Act. When two things are required to be done to give effect to an instrument, it is clearly not effective until both are done. It must follow that the collection of the tax for 1918 is now barred.
The second issue relates to that portion of the tax for 1918 which the petitioner claims was erroneously collected by threat of distraint after the expiration of the five-year period provided in the Revenue Act of 1918 and subsequent acts. This amount of $1,044,024.10 was assessed by the Commissioner upon the petitioner's tentative *628 return for 1918. The tentative return was filed on March 15, 1919. On this tax return the tax was estimated to be $12,150,000. On September 15, 1919, the petitioner filed its completed return showing tax due of $11,105,970.90. The*2149 Commissioner, however, assessed on November 10, 1919, the amount estimated on the tentative return. During 1919 the petitioner paid the amount of tax shown to be due by the original completed return and on October 27, 1925, the taxpayer, under threat of distraint, paid the amount of $1,044,024.10, which was the unpaid portion of the estimated tax shown on the tentative return. No claim in abatement was ever filed by the petitioner for this amount. The petitioner takes the position that the amount paid on October 27, 1925, was an overpayment upon the ground that it was paid after the expiration of the statutory period of limitations. Regardless of whether such a payment might be held to be an overpayment and regardless of whether or not we would have jurisdiction to determine the question of overpayments when we are considering merely the statute of limitations, under previous decisions this payment in any event was timely made. The five-year period of limitations for 1918 began to run on September 15, 1919, the date of the filing of the completed return, and without any consents in writing would have expired September 15, 1924. The consent in writing filed August 15, 1924, extended*2150 for one year the statutory period for determination, assessment and collection. While this consent in writing was still in force and on August 10, 1925, a consent in writing was filed extending the period for assessment until December 31, 1925. Under our previous decisions, a consent for assessment has been held valid for collection of taxes assessed prior to the execution of such consent.
The petitioner having waived the issue as to whether the Commissioner has the right to assess for 1919 an additional tax over *629 that previously assessed in 1923 for 1919, we are brought to the next issue, as to the statute of limitations which relates to the right of the Commissioner to collect the amount of $350,587.38 for 1919 which was assessed in 1923. This amount represents the unpaid portion of an additional assessment made in 1923 for 1919. We disregard the fact that on March 15, 1920, the petitioner filed a tentative return for 1919. See
This proceeding will be restored to the calendar for further hearing on the merits with respect to such matters and*2154 issues as are not disposed of herein.
Reviewed by the Board.
MURDOCK and BLACK concur in the result only.
ARUNDELL, dissenting: I do not agree with so much of the majority opinion as holds that the statute of limitations has run for the year 1918. Petitioner's return which put the statute of limitations in operation was filed September 15, 1919, and the limitation period unless waived expired on September 15, 1924. Waivers of undoubted validity kept the period open until December 31, 1925. On October 22, 1925, the petitioner executed a waiver extending the time to December 31, 1926. This waiver was forwarded to the Commissioner on November 30, 1925, and was signed by him on February 26, 1930. On December 20, 1926, the Commissioner mailed the notice of deficiency upon which this proceeding is based.
For a long period both before and after the waiver in question was given the petitioner and the Commissioner had carried on negotiations, had held conferences, and had written letters back and forth relating to the petitioner's tax liability, involving, as it did, millions of dollars. The findings of fact disclose letters from the Commissioner under*2155 dates of September 17, 1924, April 17, August 26, October 3, and December 18, all in the year 1925; and letters from the taxpayer to the Commissioner under dates of February 11 and October 22, 1926. Conferences were held between representatives of the parties during the year 1926 as well as during earlier years. The waiver itself was on the regular form prescribed by the Commissioner and was of a kind directed by him to be secured pursuant to his instructions to Collectors under date of September 1, 1925. That the petitioner intended to waive the statute of limitations can not be gainsaid. That the waiver induced the delay that followed is clear. That the petitioner received every substantial right that it sought to obtain when it gave the waiver is beyond question. But the waiver itself was not signed by the Commissioner before the statute had run and the majority view is that this failure on the part of the Commissioner to sign before the statutory period has run serves to destroy its effectiveness as a waiver.
*631 The direct question involved here has not been decided by the courts, but the nature of waivers has been recently discussed by the Supreme Court in the*2156 following cases:
* * * a waiver is not a contract, and the provision requiring the Commissioner's signature was inserted for purely administrative purposes and not to convert into a contract what is essentially a voluntary, unilateral waiver of a defense by the taxpayer.
Aiken v. Burnet:
Even after the Act of 1921, a so-called waiver was not a contract. The requirement in Section 250(d) of that Act that the Commissioner sign the consent was inserted to meet exigencies of administration, and not as a grant of authority to contract waivers.
Burnet v. Chicago Railway Equipment Co.:
As we said in Stange v.United States, * * * the Commissioner's signature was required purely for administrative purposes.
*2157
If a reason must be found [for requiring the Commissioner's consent] it exists in the general desirability of the requirement as an administrative matter. It serves to keep the Commissioner in closer touch with the matters which he is charged to administer. It avoids claims of improvident execution of waivers and unauthorized exactions by subordinates of the Department for the purpose of curing their own delinquencies. And it provides a formal procedure which is generally desirable for the Commissioner, collectors, and subordinates in the Department. That other means might have been devised for the same purpose is of no significance.
These cases in my opinion definitely negative the idea that the Commissioner's signature is a necessary prerequisite to the validity of waivers. If as said in the Stange case a waiver is "essentially a voluntary, unilateral waiver of a defense by the taxpayer," obviously the Commissioner's signature can add nothing to the act performed by the taxpayer in waiving the statute. That this is so is clear from the Court's resort to the analogy of limitations provisions*2158 in the case of private debts. No reason is apparent for the adoption of a different rule in tax cases. When the taxpayer signs and returns to the Commissioner a waiver on a form prepared by the Commissioner there is a complete consent in writing. The Supreme Court evidently so regarded the waiver in holding as it did that the Commissioner's signature was required "purely for administrative purposes."
In view of the fact that the Commissioner's signature is required only for administrative purposes, his failure is not a matter that can *632 be attacked by the taxpayer in a proceeding involving the validity of the waiver. If both parties can extend the statute after it has run, it is difficult to see why the taxpayer can not do his part before it runs and the Commissioner complete his administrative duties afterward. There is nothing in the statute that requires the Commissioner's signature to be attached within the effective period of the waiver.
In
MARQUETTE and SEAWELL agree with this dissent.