A. B. Frank Co. v. United States

Littleton, Judge,

delivered the opinion of the court:

Plaintiff is engaged in the business of selling at wholesale and in fabricating or manufacturing cotton goods. Pursuant to the provisions of section 16 of the Agricultural Adjustment Act of May 12, 1933, and the Treasury regulations, plaintiff filed a floor-stocks tax return of the cotton goods on hand on August 1, 1933 and paid the tax of $36,735.16 shown to be due thereon. After the act of May 12, 1933, supra, had been declared invalid in United States v. Butler et al., Receivers, 297 U. S. 1, Congress, in sections 901 to 916, inclusive, Title VII of the Kevenue Act of 1936 approved June 22, 1936, provided for the filing of claims for refund and for the refund of processing taxes and floor-stocks taxes paid upon proper proof, and stated broadly that the taxpayer bore the burden of the tax and did not directly or indirectly pass it on.

The question raised and presented by defendant’s plea in bar and plaintiff’s answer thereto is whether under Title VII, and more particularly sections 902 and 903 thereof, and the *64Treasury regulations issued under section 916 plaintiff is entitled in this proceeding to submit evidence in support of and to substantiate its claimed refund, which evidence was not submitted to the Commissioner of Internal Revenue in connection with and in support of refund claim filed with and decided adversely to plaintiff by the Commissioner.

Sections 902 and 903 are as follows:

Sec. 902. Conditions on allowance of Refunds.
No refund shall be made or allowed, in pursuance of court decisions or otherwise, of any amount paid by or collected from any claimant as tax under the Agricultural Adjustment Act, unless the claimant establishes to the satisfaction of the Commissioner in accordance with regulations prescribed by him, with the approval of the Secretary, or to the satisfaction of the trial court, or the Board of Review in cases provided for under section 906, as the case may be—
(a) That he bore the burden of such amount and has not been relieved thereof nor reimbursed therefor nor shifted such burden, directly or indirectly, (1) through inclusion of such amount by the claimant, or by any person directly or indirectly under his control, or having control over him, or subject to the same common control, in the price of any article with respect to which a tax was imposed under the provisions of such Act, or in the price of any article processed from any commodity with respect to which a tax was imposed under such Act, or in any charge or fee for services or processing; (2) through reduction of the price paid for any such commodity; or (3) in any manner whatsoever ; and that no understanding or agreement, written or oral, exists whereby he may be relieved of the burden of such amount, be reimbursed therefor, or may shift the burden thereof; or
(b) That he has repaid unconditionally such amount' to his vendee (1) who bore the burden thereof, (2) who has not been relieved thereof nor reimbursed therefor, nor shifted such burden, directly or indirectly, and (3) who is not entitled to receive any reimbursement therefor from any other source, or to be relieved of such burden in any manner whatsoever.
Sec. 903. Filing of claims.
No refund shall be made or allowed of any amount paid by or collected from any person as tax under the Agricultural Adjustment Act unless, after the enact*65ment of this Act, and prior to July 1, 1937, a claim for refund has been filed by such person in accordance with regulations prescribed by the Commissioner with the approval of the Secretary. All evidence relied upon in support of such claim shall be clearly set forth under oath. The Commissioner is authorized to prescribe by regulations, with the approval of the Secretary, the number of claims which may be filed by any person with respect to the total amount paid by or collected from such person as tax under the Agricultural Adjusment Act, and such regulations may require that claims for refund of processing taxes with respect to any commodity or group of commodities shall cover the entire period during which such person paid such processing taxes.

The pertinent provisions of Treasury Regulations 96, issued under Title VII, are as follows:

ART. 202. Facts and evidence in support of claim.— Each claim shall set forth in detail and under oath each ground upon which the refund is claimed. It is incumbent upon the claimant to prepare a true and complete claim and to substantiate by clear and convincing evidence all of the facts necessary to establish his claim to the satisfaction of the Commissioner; failure to do so will result jn the disallowance of the claim.
The provisions of these regulations require that certain specific facts shall be stated in support of any claim for refund. The claimant is privileged to prove those facts in any manner available to him and to submit such evidence to that end as he may desire.
H* * * * *
Art. 204. Conditions as to tace bwrden with respect to amount of refund allowable. — A refund may be allowed to the person who paid the tax, only of that amount paid as tax as to which the claimant establishes to the satisfaction of the Commissioner (1) that he bore the burden of such amount and has not been, or may not be, relieved thereof nor reimbursed therefor, and has not shifted such burden, directly or indirectly, through or by any of the means set forth in subsection (a) of section 902 of the Act; or (2) that he has repaid such amount unconditionally to his vendee who bore the burden thereof, as provided in subsection (b) of section 902 of the Act.
*66Art. 302. Limitation as to nwriber of claims. — Only one claim shall be filed by any person for refund of floor stocks taxes. The claimant shall include in such claim the total amount of refund claimed with respect to the total amount of all floor stocks taxes paid by him.
!{♦ «I» H»
Art. 305. Facts and evidence respecting tax burden.— If the claim involves floor stocks taxes paid with respect to more than one commodity, the facts and evidence as to the amount of tax burden borne with respect to articles made from each such commodity shall be set out separately ; e. g., if the claim is for refund of amounts paid as cotton floor stocks tax and as wheat floor stocks tax, the facts and evidence concerning the tax burden with respect to cotton articles shall be set forth separately from the like facts and evidence with respect to wheat articles. (See article 202.)

Plaintiff insists that under the statute and the regulations the plea in bar should be denied and that plaintiff should be permitted to submit to the court and have considered on its merits such evidence as it may have to offer and submit in support of the claimed refund as stated in the petition. It contends (1) that evidence was, in fact, submitted to the Commissioner of Internal Revenue in support of several, if not all, of the bases of its claim, and (2) that the jurisdiction of this court is not limited to consideration of the same evidence that was submitted to the Commissioner of Internal Revenue.

The defendant contends that the provisions of the applicable statutes and regulations, as well as express instructions printed as part of the refund claim form, intended and required that all facts and evidence which any taxpayer had to submit in support of a claim for refund of floor-stocks tax were to be presented to the Commissioner as part of that claim; that the evidence and facts by which plaintiff seeks to prove its claim from its books, records, audit schedules, invoices, and data showing the prices prevailing both before and after August 1,1933, and by the testimony of witnesses, are irrelevant and immaterial in that such proof relates to matters and evidence not theretofore presented to the Commissioner of Internal Revenue as required by applicable *67law and regulations; that, except to the extent shown in the .claim for refund filed April 10, 1989, none of this evidence was ever presented or offered to the Commissioner when he was considering the claim for refund, at which time it either was available or could have been more readily obtained than after this suit was filed.

We cannot agree with that part of the contention of defendant which broadly asserts that although a taxpayer has submitted evidence to the Commissioner in support of his claim for refund he may not, under the statute and the regulations concerning the filing of the refund claim, submit other or further evidence in court in a suit upon a rejected claim for refund unless he had submitted that same evidence and the facts sought to be established thereby to the Commissioner of Internal Bevenue with and as a part of his claim for refund. Plaintiff says that is the only issue in this case but, as we will attempt to show, we think the important issue in the case is whether plaintiff submitted any evidence to the Commissioner to substantiate its claim for refund.

Neither section 902 nor 903 states specifically that all evidence that can be introduced before the Commissioner in connection with the claim, or in court if the claim is rejected, must be included in the claim for refund and filed with and as a part of the claim. We do not read the regulations as imposing this strict requirement. The Commissioner’s action and procedure in this case, as well as certain of the provisions of section 902 and Kegulations Art. 202, disclose a purpose to allow a separate submission of evidence and proof to establish the grounds and statement of facts set forth by the taxpayer in the claim.. Of course, as in the case of any claim for refund of an internal revenue tax, all the evidence to be relied upon by the taxpayer in support of the claim may be set forth in and as a part of the claim at the time it is filed under sections 902 and 903. Section 903, which relates to the filing of claims for floor stocks and processing tax, contains the provision that “All evidence relied upon in support of such claim shall be clearly set forth under oath,” but a reading of all the provisions of Title VII as a whole shows, we think, that this provision *68does not mean that all evidence that may be submitted must be set forth in and as a part of the claim at the time it is filed, nor that in the event of the rejection of the claim by the Commissioner further and additional evidence cannot be introduced in “the trial court,” in the case of a floor-stocks tax, in support of the claim to show that the Commissioner’s decision of rejection was erroneous. The provisions of Title YII do show, however, that with respect to these particular refunds, it was the purpose to require the taxpayer to attempt to prove his right to a refund before the Commissioner, and he cannot stand on a summary of facts set forth in his claim and refuse to offer or submit evidence to establish such facts and such other evidence as the Commissioner may desire, and, upon rejection of the claim for the lack of such evidence, seek to submit such evidence to the court.

Sections 902 and 903 relate to the grounds and the proof necessary to obtain refunds and to the filing of claims for both the processing tax and the floor-stocks tax. Under its general jurisdiction this court had unlimited jurisdiction of suits for the recovery of an overpayment of tax based on a rejected claim for refund and Title VII modified this jurisdiction only as to the processing tax; and section 905 gave the District Courts unlimited concurrent jurisdiction of suits for recovery of floor-stocks tax upon the denial of a claim for refund thereof. Other than the requirement that the taxpayer must submit evidence to the Commissioner for the purpose of establishing certain facts required by section 902 and that all evidence relied upon in support of such claim shall be clearly set forth under oath, the statute does not indicate an intent or purpose to depart from the general rule in suits for the recovery of overpayments of taxes where the claims have been rejected in whole or in part, that the taxpayer may offer and submit further and additional evidence to show that the Commissioner’s decision was erroneous on the facts or the law and that he is entitled to a refund of the overpayment claimed.

Jurisdiction to hear and determine claims of taxpayers for the return of the processing taxes collected, upon rejection *69of claims for refund by the Commissioner, was vested in the “Board of Review” established in the Treasury Department with the right of appeal to the appropriate U. S. Circuit Court of Appeals, and no limitation was placed upon the jurisdiction of this Board to receive and consider evidence in support of the claim in addition to such evidence as may have been submitted to the Commissioner. On the contrary section 906 provides at length for a hearing before the Board and the taking of such evidence as may be offered by the taxpayer and the Commissioner. In other words, the Board of Review was made the trial court as to rejected claims for refund of the processing tax and it was not limited to the evidence set forth in the refund claim nor to the evidence submitted to the Commissioner. We think no such jurisdictional limitation may be implied as to the courts in suits with respect to the floor-stocks tax.

Section 902 provides as conditions to a refund or recovery of a floor-stocks tax or a processing tax that the taxpayer “must establish [in the manner stated in subdivisions (a) and (b)] to the satisfaction of the Commissioner in accordance with regulations established by him, * * * or to the satisfaction of the trial court, or the Board of Review, * * * as the case may be,” that the taxpayer bore the burden of the amount of refund claimed. It will be seen from this that this court, the District Courts, and the Board of Review are treated alike and placed in the same position with respect to a suit or proceeding for the recovery of the tax and the submission of evidence in support of a refund claim which has been rejected in whole or in part by the Commissioner. These statutory provisions mean, of course, that in any case a taxpayer’s right to maintain a suit or proceeding for and to obtain a refund depends upon proper compliance with reasonable regulations promulgated under authority of section 916. Angelus Milling Company v. Commissioner, 325 U. S. 293, decided May 12, 1945. For the reasons stated we are of opinion that the right given by sections 902, 904 and 905 to litigate the matter of a refund in court, or in the Board of Review under section 905, was not to be limited solely to the record and evidence set forth in *70the refund claim filed or submitted to the Commissioner in support of such claim, or solely to questions of law arising on the record before the Commissioner.

We are of opinion, however, that the statute and the regulations definitely require the taxpayer to submit evidence to the Commissioner, either with the claim or later, in support of the statutory and printed grounds therein and the statement of facts alleged therein in support of such grounds; and that if the taxpayer does not submit or offer to the Commissioner any such evidence, as we think plaintiff did not, he cannot afterwards and for the first time submit in court evidence to establish the allegations of the claim for refund. The taxpayer must make, or attempt to make, a substantial showing before the Commissioner.

The sentence in section 903, which section relates to the filing of claims, that “All evidence relied upon in support of the claim shall be clearly set forth under oath,” had reference, we think, to the character of evidence required and the only kind of evidence that would be considered, that is, only evidence which was given under oath would be admissible and properly considered, — whether it was submitted with the claim or in support of it after it had beeen filed. In either event, such evidence would be or become a part of the claim. In a suit upon the rejection of the claim the case must be tried de novo. There is no provision in the statute for the record before the Commissioner to come before the courts or the Board of Review. We do not think that Congress in the statute, or the Commissioner in Article 202 of Regulations 96, intended to impose as a condition to the consideration and allowance of a refund by the Commissioner or the courts the technical requirement that all evidence that could or would be admissible and considered must be submitted and filed with and at the time of the filing of the refund claim.

In Title VII Congress was dealing with the refund on special grounds of a special tax in a very large number of cases, the right to which refund, if it could be established, arose as soon as the act of June 22, 1936 was enacted. The specified grounds for a refund and the types and kinds of evidence or facts necessary to establish those grounds consisted, of necessity, of extensive audits, computations, determina-*71lions as to costs and sales prices over certain periods, margins of profits over long periods, business practices, etc. All of these matters were peculiarly susceptible of administrative investigation, consideration, and determination, and Congress obviously intended that these claims for refund of the floor-stocks tax and the processing tax be adjusted and settled, so far as possible, administratively. Sections 914, 915 and 917 gave the Commissioner of Internal Revenue broad and extended authority to hold hearings; to summon and examine witnesses; to call for records and reports, and to employ additional personnel, experts and economists to aid him in the administration of the statute. In view of these provisions and purposes of Title VII and the regulations, it may not be said that a taxpayer may, ás plaintiff did, rest on a summary statement of facts and figures set out in the claim for refund; refuse to submit or offer the necessary and available detailed evidence to support and establish, or in an attempt to support and establish, such facts and figures to the satisfaction of the Commissioner, or to submit such other evidence as the Commissioner may request and, later, after his claim has been rejected for want of proper evidence, seek to prove his case in court by the submission, for the first time, of any real evidence.1

Plaintiff’s claim for refund before the Commissioner was in the nature of a petition in court, the allegations of which it was required by statute and the regulations to attempt to establish by evidence under oath. If plaintiff had submitted evidence to the Commissioner to establish the grounds and allegations of the claim for refund, as set forth on the first page thereof and in Schedule D of the claim, and the Commissioner had rejected the claim because it had not been established to his satisfaction that plaintiff was entitled to a refund, plaintiff would not be barred here from submitting the same and further additional evidence along the same line and pertinent to the grounds to establish to the satisfaction *72of the court the allegations of the claim and its right under the statute to the refund.2 However, as we have said, plaintiff ' did not offer or submit such evidence to the Commissioner, although the Commissioner advised plaintiff of his views on the statements in Schedule D of the claim and called upon plaintiff on a number of occasions to furnish certain evidence which plaintiff declined to furnish. As a result, the claim was rejected. The plaintiff having failed and refused to submit any evidence to the Commissioner in support of its claim for refund is now barred from submitting in court the evidence which was available and which could and should as readily have been offered to the Commissioner.

The plea in bar is therefore sustained, and the petition is dismissed. It is so ordered.

Whitaker, Judge; and Whaley, Chief Justice, concur. MaddeN, Judge; and JoNes, Judge, took no part in the decision of this case.

Sumara v. United States, 129 Fed. (2d) 594; Weiss v. United States, 135 Fed. (2d) 889 ; Morristown Knitting Mills v. United States, 95 C. Cls. 552 556 ; Jaubert Bros. V. United States, 141 Fed. (2d) 206, 207 ; New Norte Handkerchief Mfg. Co. v. United States, 141 Fed. (2d) 111, 112, 113; 18th Street Stores v United States, 142 Fed. (2d) 113, 114; Louis F. Hall & Co., Inc. v. United States, 148 Fed. (2d) 274, 276.

Bethlehem Baking Co. v. United States, 129 Fed. (2d) 490, affirming 40 Fed. Supp. 936; New York Handkerchief Mfg. Co. v. United States, supra, p. 113; Interwoven Stocking Co. v. United States, 144 Fed. (2d) 768 ; Root & McBride Co. V. United States, 136 Fed. (2d) 907; Hutsler Bros. V. United States, 33 Fed. Supp. 801; Ney v. United States, 33 Fed. Supp. 554.