National Paper Products Co. v. Commissioner

*92 The Commissioner determined the following deficiencies for the fiscal year ended April 30, 1925:

The only assignment of error is that the statute of limitations had barred assessment and collection of any additional taxes for this fiscal year prior to the day on which the notice of deficiency was mailed.

FINDINGS OF FACT.

The two petitioners are California corporations, having their principal place of business in San Francisco.

On July 15, 1925, the Zellerbach Paper Company filed a consolidated income-tax return on behalf of itself and its subsidiaries, the National Paper Products Company and Sanitary Products*1368 Corporation, under the provisions of the Revenue Act of 1924. It included the income of all three companies. This was not a false or fraudulent return filed with intent to evade tax. The amount of tax shown to be due on this return, to wit, $158,374.05, was duly assessed by the Commissioner. This return, as the affidavit states, was a return made pursuant to the Revenue Act of 1924.

*93 The Revenue Act of 1926 was approved February 26, 1926. On February 28, 1926, the Commissioner of Internal Revenue issued Treasury Decision 3843, which was as follows:

Any corporation which has filed a return for a fiscal year ending in 1925 and paid or become liable for a tax computed under the Revenue Act of 1924, and is subject to additional tax for the same period under the Revenue Act of 1926, must file a new return covering such additional tax on or before May 15th, 1926. Payment of the additional tax may be made at the time the return is filed or if installment payments are desired, such installments must be paid at the time they would be due if based upon a return for the fiscal year ended February 28th, 1926.

A copy of this decision was mailed to the Zellerbach Paper Company*1369 by the collector of internal revenue at San Francisco in a letter advising the corporation to give its immediate attention to the matter of filing new returns and paying additional tax under the Revenue Act of 1926 for its fiscal year ending in 1925.

On May 14, 1926, after the receipt of this letter, the Zellerbach Paper Company filed a return on behalf of itself and its subsidiaries on Form 1120A, showing additional tax due in the amount of $2,111.65. This amount was thereafter duly assessed. This return, as the affidavit states, was a return made pursuant to the Revenue Act of 1926. No schedules were attached to this last mentioned return, and no data were set forth therein except that in line 25 net income of $1,266,992.39 was set forth. This was the same as the amount of net income shown on the return filed July 15, 1925.

The notice of deficiency was mailed to the petitioners on October 10, 1928.

OPINION.

MURDOCK. The notice of deficiency was sent within four years of the date of filing of the first return, within three years from the date of which the Revenue Act of 1926 was approved, and within three years from the date upon which the last return was filed, but*1370 more than three years after the date upon which the first return was filed. The petitioners concede that the Commissioner may proceed to assess and collect the deficiencies unless the three-year period of limitation provided by the Revenue Act of 1926 applies the began to run on July 15, 1925, the date upon which the first return was filed.

We agree with the Commissioner that the return filed May 14, 1926, was the original return required under the 1926 Act to start the three-year period of section 277(a)(1). We held in John Wanamaker Philadelphia,8 B.T.A. 864, and in Hutchinson Company,14 B.T.A. 367, that a return filed under one act would not start the period of limitation provided in a later act if additional *94 tax was due under the new act for the period covered by the return. Other Board decisions to the same effect are Valentine-Clark Co.,14 B.T.A. 562 (reversed, 52 Fed.(2d) 346); Gus Holstine Dry Goods Co.,16 B.T.A. 1124; Isaac Goldmann Co.,17 B.T.A. 1103 (reversed, *1371 51 Fed.(2d) 427); Myles Salt Co., Ltd.,18 B.T.A. 742 (reversed, 49 Fed.(2d) 232); Adams, Cushing & Foster, Inc.,19 B.T.A. 89; G. Corrado Coal & Coke Interests, Inc.,19 B.T.A. 691; and E. J. Lorie et al.,21 B.T.A. 612. Cf. Hill Goldwater,21 B.T.A. 73. We refer to our discussion of the question in the cited cases. The circumstances under which the additional tax arises in this case are different from those under which the additional taxes arose in the cases just mentioned, but perhaps the difference is not material. We have, however, some additional reasons for our position not expressed in those cases. We want to again call particular attention to the discussion of a similar issue in United States v. Updike, 1 Fed.(2d) 550, and in Updike v. United States, 8 Fed.(2d) 913 (certiorari denied, 271 U.S. 661), affirming the above decision. That case differs from the present one only in degree. See also *1372 Davis Feed Co.,2 B.T.A. 616, and Covert Gear Co.,4 B.T.A. 1025.

Perhaps no revenue act specifically required the taxpayer to compute the tax as a part of his return. (See, however, section 240(a), Revenue Act of 1926.) Yet, a study of the various revenue acts, the rules and regulations of the Commissioner, the forms regularly used for making returns, and the way taxpayers themselves have interpreted the laws and regulations in making their returns, shows that a complete return is required and is understood to include a computation of the tax by the taxpayer himself. The acts gave the Commissioner authority to make and publish necessary rules and regulations. He required taxpayers to make their returns on certain forms which he furnished. These are called income-tax returns. They provided a place for a computation of the tax by the taxpayer. The tax thus shown to be due on the return becomes due and payable within nine months. No further assessment is necessary. If the Commissioner determines that more tax is due than that shown on the return, he must assess the additional tax within a prescribed time. This is the assessment which must be*1373 made within the period of limitation. If Congress has not specifically provided that the taxpayer shall make the computation and show on his return the amount of tax he believes is due, it has at least given clear indication that it intended to impose this duty upon each taxpayer. For example, in section 273 of the Revenue Act of 1926, "deficiency" is defined to be:

(1) The amount by which the tax imposed by this title exceeds the amount shown as the tax by the taxpayer upon his return; but the amount so shown on the return shall first be increased by the amounts previously assessed (or *95 collected without assessment) as a deficiency, and decreased by the amounts previously abated, credited, refunded, or otherwise repaid in respect of such tax; * * * [Italics supplied.]

The petitioners did not compute, on the return filed in 1925, the tax which they believed to be due under the 1926 Act. Such a computation was impossible at the filing date. We think Congress intended that each corporation affected by the 1926 Act should file a return after the passage of that act, showing all required information, including the tax it believed to be due, and this return would*1374 start the three-year period for assessment. Furthermore, the Commissioner was required to make all needful rules and regulations for the enforcement of the act (section 1101); he required this taxpayer to file a new return; this rule was reasonable; and it must be given the force and effect of law. Maryland Casualty Co. v. United States,251 U.S. 342. The petitioners complied with the law and the ruling by filing the required return on May 14, 1926. Cf. section 1102(a) and (b). This return, filed under the 1926 Act, could not amend the return filed under the 1924 Act so that the latter would become a return under the 1926 Act. The petitioners, in filing their return under the 1926 Act, adopted as a part thereof so much of the return theretofore filed under the 1924 Act as was appropriate and useful. There was perhaps no necessity for them to duplicate the computation of net income and the supporting schedules already on file. But they knew that additional tax was due under the new act and they had not made an income tax return under the new act until they filed a return showing what tax they honestly believed was due. The computation under the 1924*1375 Act was quite a different thing from the computation under the 1926 Act, as is apparent from an examination of the two returns in evidence in this case. The statutory period for assessment began to run on May 14, 1926, when the original return under the 1926 Act was filed.

Reviewed by the Board.

Judgment will be entered for the respondent.

VAN FOSSAN, dissenting: The principle announced in the decisions of the Board on which the prevailing opinion in these cases is predicated has been considered by the Court of Appeals of the District of Columbia and the Circuit Courts of Appeal in three of the cases cited and in each instance the Board has been reversed. Valentine-Clark Co.,14 B.T.A. 562; reversed, 52 Fed.(2d) 346; Isaac Goldmann Co.,17 B.T.A. 1103; reversed, 51 Fed.(2d) 427; Myles Salt Co.,18 B.T.A. 742; reversed, 49 Fed.(2d) 232. On further consideration of the merits of the issue involved, I am convinced that the *96 Board has been in error in all of these cases and that the petitioners should prevail.

GOODRICH agrees with this dissent.