Hind v. Commissioner

*96 The taxes in controversy are excess-profits taxes for the calendar year 1917, in the amount of $199,611.29. The taxes were assessed *97 against, and notice of said assessment sent to, Hind Rolph & Co. Petitioner alleges that the Commissioner has erred in failing to compute the tax liability of*2133 Hind Rolph & Co. for the year 1917 under the provisions of section 209 of the Revenue Act of 1917, and pleads the statute of limitations as a bar to the collection of the entire proposed deficiency.

FINDINGS OF FACT.

Hind Rolph & Co. was a partnership organized in 1898 and dissolved in September, 1921. During its entire existence it was composed of two partners - George U. Hind and James Rolph, Jr., each owning a one-half interest. Its principal office was in San Francisco, Calif., and its business was that of broker, agent, and commission merchant. Upon its organization each partner contributed $2,500 capital.

The partnership ran its business largely on letters of credit, borrowed money and deposits and balances left with it by concerns with which it did business. It owned some real estate and vessels and had debts due it which drew interest. It carried no inventories and sold its goods and merchandise before they were purchased. Upon making a sale it would draw on the one to whom the goods were sold, discounting the draft at the bank, and with the proceeds thereof purchase the goods specified.

The partnership filed an income-tax return for 1917 on Form 1065 on April 1, 1918. *2134 On July 20, 1918, respondent assessed a tax thereon of $23,794.48. The tax assessed was subsequently paid by the partnership. In September, 1921, said partnership was dissolved. Upon reaudit of the partnership return, respondent, in December, 1921, assessed an additional tax of $199,611.29. The collector of internal revenue at San Francisco, on or about January 14, 1922, notified the partnership of said assessment and demanded payment thereof. Thereupon, the partnership filed an abatement claim which, on June 11, 1926, was denied in full by respondent. The petition herein was filed with the Board August 9, 1926.

On February 25, 1926, a so-called "Income and Profits Tax Waiver" was executed by George U. Hind on behalf of Hind Rolph & Co., reading as follows:

S. F. Feby. 25/1926.

(Date)

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 Hind Rolph & Co. of San Francisco, covering any income, excess-profits or war-profits tax assessed against the said taxpayer under the existing or prior *98 Revenue Acts for the year(s), 1917, and to prevent*2135 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 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, 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.

HIND ROLPH & CO.

Taxpayer.

By GEO. U. HIND,

Member of firm.

If this waiver is executed on behalf of a corporation, it must be signed by such officer or officers of the corporation as are empowered under the law of the State in which the corporation is located to sign for the corporation, in addition to which, the seal, if any, of the corporation must be affixed.

On December 8, 1926, a so-called "Tax Collection*2136 Waiver" was executed by George U. Hind, acting for Find Rolph & Co., and John C. McLaughlin, acting for the Commissioner of Internal Revenue, reading as follows:

TAX COLLECTION WAIVER.

DECEMBER 8, 1926.

It is hereby agreed by and between Hind Rolph & Co., of 230 California, St., San Francisco, Calif., party of the first part, and the Commissioner of Internal Revenue, party of the second part, that the amount of $199,611.29, representing an assessment of income/(kind of tax) tax for the year(s) 1917 made against the said party of the first part, appearing on the 1921 Dec. assessment list, page 52, Line 2, for the First district of California, may be collected (together with such interest, penalties, or other additions as are provided for by law) from said party of the first part by distraint or by a proceeding in court begun at any time prior to December 31, 1927.

(Signed) HIND ROLPH & CO.

(Taxpayer)

By GEO. U. HIND, Partner.

Commissioner of Internal Revenue.

By JOHN C. MCLAUGHLIN,

Collector of Internal Revenue.

If this waiver is executed on behalf of a corporation, it must be signed by such officer or officers of the corporation as*2137 are empowered under the laws of the State in which the corporation is located to sign for the corporation, in addition to which, the seal, if any, of the corporation must be affixed.

*99 OPINION.

LITTLETON: Since the year 1917 only is before us, and since it appears that the statute of limitations question is determinative of petitioner's liabilty for the entire proposed deficiency for that year, we have omitted from our findings many of the facts relating solely to the question of the correctness of the Commissioner's computation.

The statute of limitations issue before us involves an additional tax for 1917 which was assessed in December, 1921, but which has not yet been collected, and our question is whether the collection of this tax is barred. At the time the assessment was made, the Revenue Act of 1921 was in effect, which provided in section 250(d) for a five-year period for the assessment of taxes for 1917 and since this assessment was made in December, 1921, it was timely made. Collection, however, was not made at that time, and no agreement in writing was entered into between the petitioner and the Commissioner prior to February 25, 1926, extending the time*2138 when collection might be made. An instrument was executed on February 25, 1926, when collection had not yet been made, which purported to extend the time for collection, but prior to its execution we have a situation parallel to that existing in the case of , wherein a valid assessment was made under the 1921 Act and collection was sought after the passage of the 1924 Act, under the provisions of section 278(d) of the latter Act, which provided for a six-year period for collection after assessment. The aforementioned case held that section 278(d) of the Revenue Act of 1924 had no application to assessments made prior to the enactment of the 1924 Act, and that since the tax in question had not been collected within the five-year period provided in the 1921 Act (there being no question as to the execution of consents to a later collection), the collection of the tax was barred.

The case of , differs from the case at bar only in that, prior to the enactment of the Revenue Act of 1926, the petitioner executed an instrument which purported to extend the time*2139 for collection to December 31, 1927, and our question is as to the effect of this instrument. In disposing of the question thus presented, it is pertinent to observe that the 1924 Act made no provision for an agreement in writing between the taxpayer and the Commissioner for a later collection of tax (), and that the provisions governing the collection of taxes assessed prior to the 1924 Act and while the 1921 Act was in effect would be those provided for *100 by the latter Act (). The 1921 Act, section 250(d) provides, in so far as here pertinent, that taxes for 1917 "shall be determined and assessed within five years after the return was filed, unless both the Commissioner and the taxpayer consent in writing to a later determination, assessment, and collection of the tax; and no suit or proceeding for the collection of any such taxes due under this Act or under prior income, excess-profits, or war-profits tax Acts, or of any taxes due under section 38 of such Act of August 5, 1909, shall be begun, after the expiration of five years after the date when*2140 such return was filed * * *." (Italics supplied.) Leaving out of consideration the sections dealing with false and fraudulent returns and other special situations, none of which are here applicable, it would follow that the collection of the deficiency involved in this proceeding is barred unless the instrument executed on February 25, 1926, satisfied the requirement for a later collection. We are of the opinion that it does not meet the specific test laid down by the statute for the reason that it is only a consent in writing by the petitioner and not by the petitioner and the Commissioner. On its face it does not purport to be more than an instrument in which the petitioner would consent to a later collection without any signing or "writing" on the part of the Commissioner. And there is no evidence that there was a written request on the part of the Commissioner that the petitioner sign the instrument, but, on the contrary, the best recollection of the individual who signed for the petitioner was that a representative of the Commissioner called at his office, requested that the instrument be signed and later came to get it after the petitioner's signature was attached thereto. *2141 In our opinion, an instrument thus signed only by the taxpayer does not meet the requirements of the statute for a consent in writing between the taxpayer and the Commissioner, and the collection of the deficiency is accordingly barred.

; . See sec. 284(g), Revenue Act of 1926.

The agreement executed on December 8, 1926, and set forth in our findings is, of course, ineffective, since at the time of its execution the Revenue Act of 1926 was in effect, which provided in section 1106(a) that "The bar of the statute of limitations against the taxpayer in respect of any internal-revenue tax shall not only operate to bar the remedy but shall extinguish the liability." ; . See, also, .

Reviewed by the Board.

Judgment will be entered for the petitioner.