Newport Industries, Inc. v. United States

                    UNITED STATES COURT OF CLAIMS

Plaintiff seeks to recover $ 3,624.03, with interest, an admitted overpayment of income tax for 1936. Refund was denied on the ground that the claim for refund of January 8, 1941, was not filed in time. Plaintiff contends that a timely informal claim was filed in the form of amended depreciation schedules in October 1939, which was perfected by the formal claim.

The court made special findings of fact as follows:

1. Plaintiff, a Delaware corporation with principal place of business at Pensacola, Florida, filed its income tax return for 1936 on March 15, 1937. This return showed a tax of $ 101,002.25 which was paid during 1937 in four installments of $ 25,250.57 on March 16, and $ 25,250.56 each on June 16, September 17, and December 17. In this return a deduction of $ 169,305.65 was claimed for depreciation of plants and equipment. Plaintiff employed the accrual method of accounting.

The statutory periods of limitation for making a refund for 1936 without a claim and for the filing of a claim for refund were three years from the date the return was filed or two years from the date of payment of the tax to be refunded.

2. In June 1939 a revenue agent of the Bureau of Internal Revenue came to the office of plaintiff and began an examination and audit of its 1936, 1937, and 1938 returns. In the course of that examination and audit the agent requested plaintiff to furnish depreciation schedules in conformity with Treasury Decision 4422 to support the deductions for depreciation claimed in its 1936 and 1937 returns. The agent also asked that the schedules be reconciled with the property and depreciation accounts of the plaintiff's general ledger and that they reflect prior depreciation adjustments that had been agreed to between the Bureau of Internal Revenue and the plaintiff for its 1935 tax year.

3. Pursuant to and in accordance with this request and in October 1939, plaintiff filed with the examining revenue agent the detailed schedules requested by him. These schedules were prepared to set out in detail the asset accounts of the taxpayer on which it was claiming depreciation, as well as setting out the depreciation accounts in detail and including adjustments to reconcile the 1936 depreciation accounts with the adjusted accounts of 1935. In these schedules plaintiff claimed that the deduction for depreciation taken in its return for 1936 had been understated in the amount of $ 13,332.61, as shown by the summary sheet attached to the detailed schedules as follows:

                                           Year 1936     Year 1937

4. February 1, 1940, plaintiff, at the request of the revenue agent, filed with him an executed waiver on Form 872, extending until June 30, 1941, the statute of limitations for assessing any additional taxes against the plaintiff that might be determined to be due for 1936.

In February 1940 the examining agent, while engaged in his examination and audit, anticipated an additional tax for 1936 of approximately $ 5,000, and so advised plaintiff. Plaintiff entered in the reserve accounts of its books for 1936 the amount of additional taxes estimated by the agent at that time.

5. The examinations and audits of the 1936, 1937, and 1938 returns were prolonged from the summer of 1939 until June 14, 1940. This was occasioned by frequent interruptions of the examining agent's work by his superior in assigning him to other special work during that period. On June 14, 1940, the agent completed his examination and audit of plaintiff's returns for the three years, including a recomputation of the depreciation allowable for 1936 and 1937 on the basis of the detailed schedules furnished him by plaintiff.

The audit report prepared by the agent was dated June 14, 1940, and disclosed an overassessment in plaintiff's income tax of $ 4,359.23 for 1936, and in income and excess profits taxes of $ 4,414.22 for 1937. On that date plaintiff accepted in writing the proposed overassessments for 1936 and 1937 on the printed form (873) of the Bureau of Internal Revenue supplied by the examining agent. Plaintiff's first intimation of the determination of an overassessment for 1936 was on June 14, 1940, when the examining agent advised plaintiff that his report so indicated.

A copy of the agent's report (plaintiff's exhibit 3) was sent by the office of the revenue agent in charge at Jacksonville, Florida, to the plaintiff on July 25, 1940.

6. Of the overassessment for 1936 of $ 4,359.23 shown in the agent's report, $ 3,624.03 results from an increase in the deduction for depreciation claimed by plaintiff in its 1936 return to $ 183,368.30, or an increase of $ 14,062.65 over the deduction claimed in the return and an increase of $ 730.04 over the deduction claimed by plaintiff in the schedules referred to in finding 3.

7. In October 1940 the Commissioner of Internal Revenue audited and approved as correct the depreciation determination of the examining revenue agent for 1936 but refused to allow the resulting overassessment for 1936 on the ground that allowance was barred by the applicable statute of limitations.

The overpayment of $ 4,414.22 for 1937 was approved by the Commissioner of Internal Revenue and since it was not barred the amount thereof was refunded in October 1940.

8. December 10, 1940, the Internal Revenue Agent in Charge at Jacksonville, Florida, wrote to plaintiff as follows with respect to the 1936 overassessment:

     In reference to report covering investigation of your income tax

     Revenue Agent's report, dated June 14, 1940, revealed an

The court decided that the plaintiff was not entitled to recover.

On the facts we are of opinion that the depreciation schedules prepared by plaintiff did not constitute an informal claim for refund filed within three years from the time the return was filed on March 15, 1937, or within two years from the last payment on the 1936 tax on December 17, 1937. Moreover, if it could be assumed that the depreciation schedules prepared in October 1939 for the revenue agent for use in connection with his audit amounted to an informal claim for refund, such claim had been rejected as insufficient by the Commissioner in October 1940 when he refused to make a refund for 1936, and plaintiff had been notified on December 10, 1940, by the agent in charge that any refund for 1936 was barred before plaintiff undertook by a formal claim of January 8, 1941, to amend or perfect this alleged informal claim. A refund claim, informal or formal, cannot be amended or perfected as a matter of right after it has been denied or rejected, and after the period of limitation has expired. Sugar Land Railway Company v. United States, 71 C. Cls. 628, 635; Cuban-American Sugar Company v. United States, 89 C. Cls. 215, 225. Cf. B. Altman & Company v. United States, 69 C. Cls. 721.

We cannot say that the preparation of the depreciation schedules requested by the agent was considered or intended by plaintiff at the time as a claim for refund. The evidence indicates that it did not regard these schedules as an informal claim for refund until after the statute of limitations had run. At that time, October 1939, plaintiff did not know whether an overassessment or a deficiency would result for 1936 from the audit and the depreciation schedules furnished. If plaintiff had believed at that time that it had made an overpayment on the basis of the additional depreciation shown on the schedules it could and probably would have asserted its right to a refund, either in such schedules or separately. Subsequently in February 1940 plaintiff signed a waiver of the statute of limitation on assessment of any deficiency that might be found to be due, and again did not assert an overpayment. Also, in February, plaintiff instead of asserting that the tax had been overpaid added $ 5,000 to its reserve for taxes in anticipation of an additional assessment for 1936. Since the object and purpose of a claim for refund are to put the Commissioner on notice that it is believed by the taxpayer that the tax has been overpaid, so as to enable him to correct errors made by the taxpayer in the return, or by him in his audit thereof, a document relied upon to constitute an informal claim for refund must at least contain a statement that is sufficient to be regarded as an assertion by the taxpayer that he believes the tax has been overpaid. We think the documents relied upon did not meet this test.

The facts show that the first intimation plaintiff had that its tax for 1936 had probably been overpaid was on June 14, 1940, when the revenue agent requested it to sign Form 873 accepting the proposed overassessments as shown in his audit report for 1936 and 1937 (finding 6). At that time the statute of limitation on a refund of three years from the filing of the return and two years from the date of the last paymenthad run (49 Stat. 1648, 1731).

We do not think in the circumstances that the depreciation schedules prepared in October 1939 amounted to an informal claim for refund. Plaintiff is therefore not entitled to recover, and the petition is dismissed. It is so ordered.