Tobin v. Tomlinson

             UNITED STATES COURT OF APPEALS FIFTH CIRCUIT

The taxpayer again reported his royalties as ordinary income in his tax return for the year 1952. He again brought suit and the district court dismissed the cause. Tobin v. Tomlinson, D.C.S.D.Fla. 1961, 192 F.Supp. 159. The same questions were raised as were presented on the former appeal. As to those questions we adhere to the former opinion of the Court and we need not again state the reasons for the conclusions there reached.

A further question not before the Court on the former appeal is whether or not a letter sent by the taxpayer to the Collector of Internal Revenue on March 10, 1953 ⁵ Constitutes an informal claim for refund which was perfected by the filing of the formal claim on Treasury Form 843 on October 11, 1956, so as to avoid the running of the statute of limitations. An Internal Revenue Agent replied to the taxpayer's letter of March 10, and correspondence continued for several months, the last letter from the Agent to the taxpayer being dated July 1, 1955. The Agent took and adhered to the position that the royalties were ordinary income. There the matter rested until October 5, 1956, when the taxpayer signed a claim for refund on Form 843, which was filed in the office of the District Director at Jacksonville, Florida, on October 11, 1956.

The claim on Form 843 does not purport to amend or perfect any prior informal claim, and contains no reference to any other claim. The Form 843 claim for refund refers to an attached 'statement of Reasons for Allowance of Claim, ' in which it is stated:

     'In support of the foregoing contents, Claimant relies on the

     '* * * That on or about October 11, 1956, Plaintiffs filed a

That position the district court 'found to be without substance.' 192 F.Supp. 160.

Section 7422(a) of the 1954 Internal Revenue Code prohibits the maintenance of a refund suit in any court 'until a claim for refund or credit has been duly filed with the Secretary or his delegate, according to the provisions of law in that regard, and the regulations of the Secretary or his delegate established in pursuance thereof.'

The applicable regulations, thus sanctioned, provide as follows (Treasury Regulations 118, Sec. 39.322-3):

'Sec. 39.322-3. Claims for refund by taxpayers.

See also United States v. Felt & Tarrant Co., 1931, 283 U.S. 269, 272, 51 S.Ct. 376, 377, 75 L.Ed. 1025.

'* * * But it is not enough that somewhere under the Commissioner's roof is the information which might enable him to pass on a claim for refund. The protection of the revenue authorizes the Commissioner to demand information in a particular form, and he is entitled to insist that the form be observed so as to advise him expeditiously and accurately of the true nature of the claim.' Angelus Milling Co. v. Commissioner, 1945, 325 U.S. 293, 299, 65 S.Ct. 1162, 1165, 89 L.Ed. 1619.

In United States v. Kales, 1941, 314 U.S. 186, 196, 62 S.Ct. 214, 219, 86 L. Ed. 132, there was 'consistent administrative treatment of respondent's letter of March 23, 1925, and the later amendment as a claim for refund.' 314 U.S. at 196, 62 S.Ct. at 219, 86 L.Ed. 132. The Court held: and regulations, has often held that and regulations, has ofter held that a notice fairly advising the Commissioner of the nature of the taxpayer's claim, which the Commissioner could reject because too general or because it does not comply with formal requirements of the statute and regulations, will nevertheless be treated as a claim, where formal defects and lack of specificity have been remedied by amendments filed after the lapse of the statutory period. United States v. Memphis Cotton Oil Co., 288 U.S. 62 (53 S.Ct. 278, 77 L.Ed. 619); United State v. Factors & Finance Co., 288 U.S. 89 (53 S.Ct. 289, 77 L.Ed. 633); Bemis Bro. Bag Co. v. United States, 289 U.S. 28 (53 S.Ct. 454, 77 L.Ed. 1011); Moore Ice Cream Co. v. Rose, 289 U.S. 373, 384 (53 S.Ct. 620, 77 L.Ed. 1265). This is especially the case where such a claim has not misled the Commissioner and he has accepted and treated it as such. Bonwit Teller & Co. v. United States, 283 U.S. 258 (51 S.Ct. 395, 75 L.Ed. 1018); United States v. Memphis Cotton Oil Co., supra (288 U.S. 62), 70 (53 S.Ct. 278, 281, 77 L.Ed. 619). ' 314 U.S. at 194, 62 S.Ct. at 218, 86 L.Ed. 132.

The taxpayer's claim for refund on Form 843 does not purport to be an amendment of any informal claim. It cannot be asserted that the Commission has waived the requirement of a formal claim. What was said by Judge Hutcheson in Livermore v. Miller, 5 Cir., 1938, 94 F.2d 111, 114, is applicable here:

     'But, if plaintiff intended these letters as an informal claim

Moreover, the assertions in the taxpayer's letters were rejected in the letters from the Internal Revenue Agent. Even if the letters were treated as a claim, the claim was not in existence after it was rejected and could not be amended after the expiration of the statute of limitations. 10 Merten's Law of Federal Income Taxation, Section 58.18, p. 43, and cases cited in Note 22, including American National Ins. Co. v. Bass, 5 Cir., 1934, 68 F.2d 511.

The judgment of the district court was correct, and it is

Affirmed.

'(A) payable periodically over a period generally coterminous with the transferee's use of the patent, or

'(B) contingent on the productivity, use, or disposition of the property transferred.

'(4) Applicability. -- This subsection shall apply with respect to any amount received, or payment made, pursuant to a transfer described in paragraph (1) in any taxable year beginning after May 31, 1950, regardless of the taxable year in which such transfer occurred.' 26 U.S.C.A. Section 117(q)(1), (4).

² 26 U.S.C.A. (I.R.C.1939) Section 322(b)(1).

³ 26 U.S.C.A. (I.R.C.1954) Section 7422.

⁴ 28 U.S.C.A. Section 2401.

⁵ 'In filing the attached income report for 1952 and the Declaration of Estimated Tax for 1953 may I call your attention to the fact that I have simiritired and will live here from now on. Last year and subsequent years I filed my reports In Chicago, Illinois and have advised that office of the change.

'Further my type of receiving income has been changed. I shall receive a small consulting fee and the balance of my income shall be from patent royalties as a result of exclusive license with the Evans Products Company.

'I have retired because I find no percentage in keeping on and having the government collect the greater part of my income from royalties when they are considered as straight income. I lose and the government loses in taxes.

'I have been advised by competent legal talent that I should under the circumstances treat my royalties as Capital Gain. By the same token I have no idea any more than you do what to estimate as income inasmuch as the inventions are used by the railroads and the armed forces in transportation but I am giving a guess anyway. I have paid the tax on the royalties as straight income and I ask that you arrange a hearing on this matter in the Tax Court and advise me.

'A recent Appeals Court Ruling and opinion of the United States Supreme Court are attached herewith for your information. After it has served your purpose will you kindly return it to me. It was taken for the The New York Times, Sunday, February 1st, 1953.

'I am requesting that my royalties be subject to tax as Capital Gains and that I be refunded the amount of tax being paid on it as ordinary income. I am prepared to furnish all the necessary supporting data.'

JONES, Circuit Judge (dissenting in part).

I am not in agreement with that part of the Court's opinion which holds that the taxpayer's letter which accompanied his return, together with the letters to and from the Internal Revenue Agent, did not constitute an informal claim for refund.

The rule as to informal claims is thus stated:

'Letters and protests ordinarily do not meet the requirements of the statute, but where they are found to constitute 'more than a protest or a statement of an intention to file a claim later, ' they have been accepted as informal refund claims.' Mertens, Law of Federal Income Taxation, Ch. 58, p. 48, Section 58.20.

The rule has been stated and restated by the Supreme Court. United States v. Kales, 314 U.S. 186, 62 S.Ct. 214, 86 L.Ed. 132; Bonwit Teller & Company v. United States, 283 U.S. 258, 51 S.Ct. 395, 75 L.Ed. 1018. See also Rogan v. Ferry, 9th Cir., 1946, 154 F.2d 974; United States v. Lederer Terminal Warehouse Company, 6th Cir., 1943, 139 F.2d 679. The Court of Claims has thus stated the rule and the reasons for it:

     'It has long been recognized that the failure to meet the formal

In his letter the taxpayer said, 'I am requesting that my royalties be subject to tax as Capital Gains and that I be refunded the amount of tax being paid on it as ordinary income.' What more could he have said on printed form, and how could it have been said more clearly? The Internal Revenue Service could not have entertained a doubt but that a claim was being asserted and the basis for it. Believing that the judgment of the district court should be reversed, I dissent.