Connecticut Light & Power Co. v. Commissioner

Opper, /.,

dissenting: This is apparently only one more grudging step on an endless road. Having at last accepted the jurisdictional command of the first Fendrich1 case and its numerous progeny, we now boggle at the corollary enunciated in the second Fendrich case that—

it is clear from the statutory provisions and legislative history that Congress established a procedure for the proper determination of the entire tax, and that such determination of the whole tax involves a single procedure which began with the timely filing of the application under § 722 and included the rejection thereof by the Commissioner and the petition to the Tax Court.
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We think all pertinent issues bearing upon the tax liability under Chapter 2 Subchapter E could be raised by the taxpayer. However, this is a two-way street. Had a deficiency been found, such deficiency could have been assessed and collected. The original application suspended the Statute of Limitations and thereafter, the entire excess profits tax liability was open for determination. (Emphasis added.)

H. Fendrich, Inc. v. Commissioner, 242 F. 2d 803, 807 (C.A. 7, 1957), reversing 25 T.C. 262 (1955).

In arriving at its conclusion, the court relied upon and cited with approval American Stand. Watch Co. v. Commissioner, 229 F. 2d 672 (C.A. 2, 1956).

Adopting the reasoning of Fendrich, supra, May Broadcasting Co. v. Commissioner, 299 F. 2d 84 (C.A. 8, 1962), reversing 33 T.C. 1007 (1960), after a dissent in which seven members of the present Tax Court concurred, declares that (p. 89)—

[a] valid basis exists for a Congressional desire to suspend the statute of limitations upon the filing of a § 722 application. The excess profits law presents many complex problems. The record here shows that the taxpayer’s application * * * was not acted upon until more than 9 years after its filing * * *

Of course, as in any statute of limitations situation, the Commissioner could have protected himself. But of what avail to the parties or to this Court would a premature denial of section 722 relief be?

Nor is Commissioner v. F. W. Poe Mfg. Co., 245 F. 2d 8 (C.A. 4, 1957), affirming on other grounds 25 T.C. 691 (1956), any authority for the present result. Quite the contrary. Judge Parker makes it clear (pp. 9, 11)—

that the reasoning of the Tax Court was erroneous and that the correct rule is that stated by the 7th Circuit [in Fendrich]. * * * Only the invoking of relief under section 722 could free the matters embraced in the standard issues from the bar of the statute of limitations * * *.
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[This] case is just as though no relief under that section had been asked.

Only the comparatively early case of Commissioner v. S. Frieder & Sons Co., 247 F. 2d 834 (C.A. 3, 1957), affirming a Memorandum Opinion of this Court, superficially appears to hold to the contrary. But on examination it is apparent that the holding is in accord with F. W. Poe Mfg. Co., supra, for in Frieder (p. 838) “the taxpayer * * * has agreed to withdraw its [sec. 722] claim if the Tax Court is sustained on the statute of limitations issue.” And Frieder must be compared with the most recent and interesting of all the authorities in this field. In Overland Corporation v. Commissioner, 316 F. 2d 777 (C.A. 6, 1963), reversing 34 T.C. 1001 (1960), both the Commissioner and the taxpayer were contending for standard-issue consideration despite the bar of the statute of limitations. The court held, after quoting at length from Fendrich and May Broadcasting Co.:

From consideration of the applicable statutes and the foregoing authorities we conclude: * * * (4) that the decision of the Tax Court should be reversed and these cases remanded to that court for determination on the merits of all claims of Overland for relief and refund of taxes and the Commissioner’s claims for deficiency assessments.

Of course, invocation of the doctrine of Lewis v. Reynolds, 284 U.S. 281 (1932), would mitigate somewhat the detriment to respondent of the effect of the statute of limitations if we were not also granting relief under section 722. But it is not clear to me whether this theory applies also to section 722 refunds;2 nor whether we are saying here that taxpayers too will be barred when they are seeking to avoid the statute.

I would follow the four circuits which have repudiated the present reasoning.

As to section 722 itself, I respectfully dissent on the commitment issue. It seems to me that under the interchange agreement petitioner was committed prior to the end of 1939 to take and pay for an indefinite but ascertainable amount of energy to be generated by the 25,000-kilowatt steam unit to the construction of which the Connecticut Power Company had in turn become committed on December 27,1939. This was a change in capacity deemed to be a change in the character of petitioner’s business on December 31, 1939. Studio Theatre Inc., 18 T.C. 548 (1952). It may be that we should have to determine from the applicable evidence what the amount to be added would be, but this is a familiar task under section 722. See Blaisdell Pencil Co., 16 T.C. 1469 (1951).

H. Fendrich, Inc. v. Commissioner, 192 F. 2d 916 (C.A. 7, 1951).

“We do not reach the question whether the taxpayer could find refuge In the statute of limitations If the government were claiming equitable diminution of a refund otherwise payable to the taxpayer. Cf. Stone v. White, 1937, 301 U.S. 532 * * *; Lewis v. Reynolds, 1932, 284 U.S. 281 * * Commissioner v. S. Frieder & Sons Co., 247 F. 2d 834, 838.