Arundel Corp. v. United States

delivered the opinion of the court:

Although we are of opinion on the facts and under the decided cases that the controverted item in the net amount of $12,649.40 was taxable income for 1936 under the accrual method of accounting, it is not necessary to discuss in this connection the facts and the decided cases for the reason that the facts show the suit was barred by the statute of limitation of two years at the time the petition was filed.

During 1926 plaintiff made and performed a contract with the City of New York. Upon completion, a controversy arose between the parties as to the number of cubic yards of sand for which plaintiff should be paid under the contract at the agreed rate of fifty-eight and four-tenths cents a cubic yard. It was admitted that plaintiff had furnished 118,935 cubic yards but the city contended and the engineer who was given authority to decide held that 94,500 cubic yards, or 5 percent more than the contract estimated quantity, was all that was required and permitted by the contract to be paid. The controversy continued and plaintiff brought suit in June 1929. The trial court rendered a decision on September 7, 1935, in plaintiff’s favor for the principal sum of $11,058.04, with interest from December 30, 1928, the opinion concluding with the following provision: “Thirty days’ stay and sixty days to make a case.” The City appealed and the decision of the trial court was affirmed October 16,1936, and the judgment and interest was *746thereafter paid during that year. No portion of the total amount received was ever reported by plaintiff for income tax purposes and no tax was ever paid on the net amount of $12,649.40 thereof until the decision of the Commissioner in May 1941 holding that it was taxable income for 1936 and that a tax of $1,869.71 was due thereon for that year. Plaintiff did, however, disclose in its 1936 return the receipt of the net amount of $12,649.40 and claimed that it was taxable in prior years.

In a claim for refund filed February 16, 1940, plaintiff claimed an overpayment and refund for 1936 based on an additional deduction in that year of $14,137.30 which had erroneously been taken in 1937 and 1938, and in this claim called specific attention to its written protest against the proposed assessment of an aditional tax for 1936 on the net judgment item of $12,649.40. In May 1941 the Commissioner of Internal Revenue allowed the deduction of $14,-137.30 for 1936, and the overpayment resulting therefrom, but reduced the amount refundable by offsetting against it the tax of $1,869.71 determined by him at that time to be due for 1936 on the judgment item mentioned. He, therefore, by the offset, collected the tax in question at that time and so advised plaintiff, and he also notified it on May 8, 1941, as required by the statute, that this claim for refund, except as to the amount of $250.87 ($223.17 tax and $27.70 interest collected), was disallowed and rejected. As a result of that action and that notice, and the rejection of the claim for refund of March 17, 1941, for 1937 and. 1938, this suit was instituted on September 3, 1943, more than two years after notice of May 8, 1941 as to the year 1936 (see sec. 1103, Revenue Act of 1932). The suit as to the year 1936 was therefore barred when the petition was filed.

In these circumstances we need not discuss the question whether, under the statute, plaintiff was required as a condition to bring suit to file a claim for refund of the additional tax of $1,869.71 after it was collected for 1936 by the offset made in May 1941.

The claim for refund of $498.45 for 1936 filed by plaintiff on March 17,1941, and rejected September 12,1941, does not *747help plaintiff on the jurisdictional question. That claim related only to a net deduction of $3,823 for 1936 for attorneys fees paid in that year in connection with the net judgment of $12,649.40, mentioned in the claim of February 16, 1940. The Commissioner allowed that deduction in determining and collecting by offset the additional tax of $1,869.71 in May 1941. The item covered by the refund claim for 1936 of March 17, 1941, is therefore not in question in this suit. Since plaintiff is not entitled to recover for 1936, no overpayment results for 1938. See finding 13.

Plaintiff is not entitled to recover and the petition is dismissed. It is so ordered.