*2496 The petitioner offered to compromise an additional assessment asserted against him and tendered $500 with said offer prior to the expiration of the period of limitation, which offer was rejected, but the amount so tendered was not returned to him. In December of 1924, after the period of limitation had expired, the petitioner authorized the respondent to apply the $500 toward the payment of a portion of his liability. Held, it was not until after the period of limitation that the said amount became "paid" within the meaning of section 607 of the Revenue Act of 1928, and it, therefore, constitutes an overpayment within the meaning of that section.
*881 This proceeding is for the redetermination of a deficiency in income tax and penalties of $512.20 for the taxable year 1918.
After the abandonment of two other issues raised by the pleadings, the errors urged by the petitioner are:
(1) The holding of the respondent that any part of the alleged deficiency and penalty for 1918, aggregating $1,012.20, *2497 which sum *882 was assessed in 1921, might be lawfully collected notwithstanding that more than five years had elapsed since the filing of the return; and
(2) Failure of the respondent to hold that the petitioner had overpaid in 1918 income taxes in the amount of $500 paid on or credited to the said alleged deficiency of $1,012.20 more than five years after the date of filing of the return for 1918.
FINDINGS OF FACT.
The petitioner is an individual and resides in Springfield, Mass.
The petitioner duly filed his 1918 income-tax return, Form 1040, with the proper collector of internal revenue on March 15, 1919.
In July, 1921, the respondent assessed against the petitioner a deficiency in income tax for 1918 in the amount of $964, and in addition a 5 per cent negligence penalty of $48.20, a total of $1,012.20.
In December, 1922, the petitioner submitted to the respondent an offer to compromise such additional tax, penalty and the accrued interest thereon for the sum of $500, which amount was tendered with said offer. On February 6, 1924, the respondent rejected such offer in compromise but did not refund to petitioner the said $500.
The field attorney at the*2498 office of the collector wrote the following letter to Harold L. Clark, attorney, on November 28, 1924, respecting the petitioner's bond and the payment of the $500 aforesaid:
Enclosed herewith you will find a bond to be executed by the taxpayer and a bonding company as surety for the balance of tax due over and above the amount of $500, which was originally submitted by this taxpayer as a compromise offer.
Also enclosed is Form 627 which form we would request that you have the taxpayer sign for the purpose of having this amount transferred from the compromise offer to a credit of the amount of tax due.
There is also enclosed a statement to be signed by the taxpayer authorizing the transfer of the amount from the compromise offer to a credit of the tax outstanding.
Kindly have these three papers executed and return same to this office.
On November 28, 1924, the petitioner signed and on December 8, 1924, filed with the respondent a letter as follows:
I, Morris Metcalf, do hereby authorize and empower the Treasury Department of the United States Government to transfer the amount of five hundred dollars ( $500.) paid by me on December 1922 as an Offer in Compromise for*2499 the outstanding tax in the amount of ten hundred twelve dollars and twenty cents ($1012.20) appearing on the Washington additional list July 1921, page 86, line 1 and July consolidated list page 599, line 5, as a credit against the above tax.
On February 19, 1925, the collector credited the $500, paid as aforesaid, against the said assessment of $1,012.20.
*883 The petitioner on December 8, 1924, filed with the proper collector the following bond:
KNOW ALL MEN BY THESE PRESENTS, that Morris Metcalf, of Springfield, Mass. c/o American Bosch Magneto Company, individually, as principal and the ROYAL INDEMNITY COMPANY, a New York corporation, as surety, is held and firmly bound unto the United States of America, in the sum of Eight Hundred Dollars ($800.00) lawful money of the United States, for the payment whereof we bind ourselves, our heirs, executors, administrators, successors and assigns, jointly and severally, firmly by these presents.
WHEREAS, the Collector of Internal Revenue at Boston, Massachusetts, has levied and assessed against the above bounded principal, Morris Metcalf, 1918 Income Tax under the provisions of Section 250 of the Revenue Act of 1918 in the*2500 amount of five hundred twelve dollars and twenty-cents ($512.20) plus a 5% penalty of fifty dollars and sixty-one cents ($50.61) and accrued interest, from the date of notice of assessment, November 17, 1922.
WHEREAS, the above bounden principal, Morris Metcalf, has filed a claim by correspondence for the abatement of a portion of this tax with the Commissioner of Internal Revenue and has filed a brief with the Commissioner of Internal Revenue protesting against said assessment, and praying that a decision be rendered on this case by the Treasury Department before a final payment, and
WHEREAS, it appears that the amount of this bond is sufficient to cover the deficiency of tax plus penalty and interest.
Now, THEREFORE, the condition of the foregoing obligation is such that if the principal shall on notice and demand by the Collector of Internal Revenue at Boston, Massachusetts, duly pay such deficiency in tax found to be due by the Commissioner, plus penalty and interest on or before one year from date of this bond, and shall otherwise well and truly perform and observe all the provisions of law and the regulations, then this obligation is to be void, but otherwise to remain*2501 in full force and virtue.
No claim in abatement of the said additional tax and/or penalty was filed by petitioner prior to March 16, 1924.
On December 14, 1925, the petitioner executed and on March 20, 1926, filed with the proper collector a claim for refund, Form 843, of $500 of the said additional tax and penalty, the ground for refund being stated therein as follows:
The original return was filed in the 2nd District of New York and showed a tax liability of $510, which was paid when due; an additional assessment was made in May, 1921, for $964. This was based on $6200 received by the taxpayer as a gift or bonus from his employer, American International Steel Corporation, 120 Broadway, New York City, not reported on the return. This receipt was a gift not covered by his employment contract and is claimed to be not taxable. An offer of compromise for $500 was filed in December, 1922, which was rejected Feb. 6, 1924. (SOL - 1:11:JMM - 195936). Distraint was threatened by the Collector at Boston in December, 1924, and the $500 paid in with the offer of compromise was then reclaimed on Public Voucher 627 and applied against the alleged tax liability, but under specific protest, *2502 both on the ground that the tax was illegally assessed and because the time within which collection may be enforced had expired. Revenue Act of 1924, Sec. 277e Revenue Act of 1921 Sec. 250-d.
Such claim was rejected by the respondent on February 12, 1927.
*884 On September 30, 1926, petitioner filed with the proper collector a claim in abatement, Form 843, of $512.20 of said additional tax and penalty, the ground of such claim being stated therein as follows:
The original return was filed in the 2nd District of New York and showed a tax liability of $510, which was paid when due; an additional assessment was made in May, 1921, for $964 principal plus 5% panalty, amounting to $48.20 and interest. This was based on $6200 received by the taxpayer as a gift or bonus from his employer, American International Steel Corp., 120 Broadway, New York City, not reported on the return. This receipt was a gift not covered by his employment contract and is claimed to be not taxable. An offer of compromise for $500 was filed in December, 1922, which was rejected Feb. 6, 1924. (SOL - 1:11:JMM - 195936). Distraint was threatened by the Collector at Boston in December*2503 1924, and the $500 paid in with the offer of compromise was then re-claimed in Public Voucher 627 and applied against the alleged tax liability, but under specific protests, both on the ground that the tax was illegally assessed and because the time within which collection may be enforced had expired. Revenue Act of 1924, Sec. 277e. Revenue Act of 1921 Sec. 250-d. Abatement is requested both on the ground that the additional tax was illegally assessed, being assessed on an untaxable gift, and because the time within which collection thereof may be enforced either by proceeding in court or by distraint, had expired before said $500 payment was made as aforesaid.
This was the first formal claim in abatement filed by the petitioner which was considered by the respondent and rejected in accordance with his letter of December 4, 1926, which action was sustained by his letter of January 26, 1927.
No distraint or proceeding in court for the collection of any part of any said additional assessment of $1,012.20 was instituted within five years after the petitioner's 1918 return was filed and no part of said assessment has been paid or satisfied other than by the credit*2504 of the $500 as hereinbefore set forth.
OPINION.
MORRIS: The petitioner contends that not only is the $512.20 shown in the respondent's deficiency notice barred by the statute of limitations, but that the $500 applied as a credit on account of the total assessment of $1,012.20 was an overpayment of tax and that we should so find. The respondent concedes that the collection of the tax is barred by the statute and, furthermore, that the sole question for determination is whether there was an overpayment of $500 within the meaning of section 607 of the Revenue Act of 1928, which provides that:
Any tax (or any interest, penalty, additional amount, or addition to such tax) assessed or paid (whether before or after the enactment of this Act) after the expiration of the period of limitation properly applicable thereto shall be considered an overpayment and shall be credited or refunded to the taxpayer if claim therefor is filed within the period of limitation for filing such claim.
*885 The petitioner's return for 1918 was filed on March 15, 1919, and, therefore, according to section 250(d) of the Revenue Act of 1918, the respondent was obliged to determine and assess the*2505 tax due within five years thereafter, and according to that section "no suit or proceeding for the collection of any tax shall be begun after the expiration of five years after the date when the return was due or was made." Hence, the collection of the tax here was barred after March 15, 1924, for the reason that no suit or proceeding was brought. .
If the amount in question was either "assessed or paid * * * after the expiration of the period of limitation * * *," then there was an overpayment within the meaning of section 607, supra. The assessment having been made in July, 1921, it was within the statutory period and we must, therefore, determine whether the amount in question was "paid" after the expiration of the period of limitation as provided in that section. It appears from the record that the petitioner offered to compromise the additional tax, penalty and interest in December of 1922, and that he tendered the sum of $500 with his offer, which offer was rejected by the respondent on February 6, 1924, the amount of money so tendered, however, was not returned to the petitioner. In December, *2506 1924, after the period of limitations had expired, the petitioner agreed in writing that the respondent transfer the amount of $500 to the credit of the outstanding liability then appearing against him, to wit: $1,012.20, and thereafter on February 19, 1925, the collector credited that amount against said liability.
While the respondent had full and complete possession of the amount in question prior to the expiration of the five-year period, it was there for the purpose of compromising the entire tax liability asserted against the petitioner, and for that purpose only. The compromise offer having been rejected, the purpose for which the tender was made was thereby nullified and the respondent had two normal courses to pursue, namely, return the amount to the petitioner or obtain his permission to apply it as a credit to his tax liability, the latter of which he did. It was not until December, 1924, after the five-year period had expired, that the petitioner authorized the respondent to apply the $500 toward the payment of a portion of his liability, and it was then, and only then, that the tax became "paid" within the meaning of section 607, supra. We are of the opinion, *2507 therefore, that there was an overpayment of $500.
Reviewed by the Board.
Judgment will be entered for the petitioner.