Opinion · Court of Appeals for the Fourth Circuit
Inland Products Co. v. Blair
31 F.2d 867
- Type
- Opinion
- Court
- Court of Appeals for the Fourth Circuit
- Jurisdiction
- Federal
- Date
- 1929-04-09
- Topic
- bankruptcy
PARKER, Circuit Judge (after stating the facts as above). There is but one ques *868 tion in the case, and that is whether- the government, after returning to a taxpayer’ money which through mistake he has paid as taxes, may readjust his income tax returns, so as to eliminate the deduction claimed from his gross income on account of such payment. The government contends that it can. The taxpayer controverts this position, and says that the deduction should he allowed to remain as it is, and that the refund should be returned as income for the year in which it is received. Since in this ease the tax rate of that year was much lower than the rate of the years for which the deductions are claimed, it is clear that the taxpayer will realize quite a profit from the mistake, if its contention is allowed.
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- Cited by
- 19 opinions
INLAND PRODUCTS CO. v. BLAIR,31 F.2d 867(4th Cir. 1929)
INLAND PRODUCTS CO. v. BLAIR, Commissioner of Internal Revenue.
No. 2811.
Circuit Court of Appeals, Fourth Circuit.
April 9, 1929.
Proceeding by the Inland Products Company against David H. Blair, Commissioner of Internal Revenue, to review a decision of the Board of Tax Appeals. Decision affirmed.
This is a petition to review a decision of the Board of Tax Appeals, which approved the assessment against petitioner of deficiencies in income and profits taxes for the years 1919 and 1920 in the respective amounts of $5,364.86 and $1,016.19. The only question involved is whether the taxpayer is entitled to deduct from his gross income on his return for these years certain amounts paid in error to the collector of internal revenue as taxes and later refunded. The facts were stipulated by the parties, and as found by the Board of Tax Appeals they are as follows:
"The petitioner is a Washington corporation, with its principal office at Spokane. During the years 1919 and 1920 it was engaged in the manufacture and sale of sweet apple cider and other beverages and food products.
"In the year 1919 the petitioner paid the collector of internal revenue for the district of Washington, the amount of $360.11 as beverage taxes on sweet apple cider, under the provisions of section 313(b) of the Revenue Act of 1917 (40 Stat. 312), and article 31 of Regulations 44; in the same year it paid to such collector the amount of $14,097.26 as beverage taxes on sweet apple cider, under the provisions of section 628(a) of the Revenue Act of 1918 (40 Stat. 1116), and of article 13 of Regulations 52. In the year 1920 it paid the amount of $10,097.26 in the same manner, for the same purposes, and under the same provisions of the law and the regulations of the Commissioner.
"The petitioner made the above specified payments of beverage taxes voluntarily without protest without separate notice and demand, threat or duress by the collector of internal revenue. The portions of article 31 of Regulations 44 and of article 13 of Regulations 52, relating to the taxability of sweet apple cider were in error of law.
"In its income and profits tax return for the years 1919 and 1920 the petitioner deducted from its gross income for each of such years the amounts erroneously so paid. Such deductions were disallowed by the respondent and the deficiencies here involved were asserted on June 22, 1925.
"The amounts of beverage taxes erroneously but voluntarily paid in the taxable years were refunded to the petitioner in the year 1924."
Millar E. McGilchrist, Sp. Asst. to Atty. Gen. (Mabel Walker Willebrandt, Asst. Atty. Gen., Sewall Key, Sp. Asst. to Atty. Gen., and C.M. Charest, Gen. Counsel, and Allin H. Pierce, Sp. Atty., Bureau of Internal Revenue, both of Washington, D.C., on the brief), for respondent.
Before WADDILL and PARKER, Circuit Judges, and McDOWELL, District Judge.
We think, however, that there can be no doubt that the position of the government is correct. The Revenue Acts in force in 1918 and 1919 did not impose the soft drink tax upon sweet cider, and the regulations of the Revenue Department attempting to impose it were void. Monroe Cider, Vinegar Fruit Co. v. Riordon (C.C.A. 2d 280 F. 624; Casey v. Sterling Cider Co. (C.C.A. 1st) 294 F. 426. The collector, therefore, had no right to demand, and the taxpayer was not required to pay, any tax upon cider, and the payments in question were not payments of tax, but payments made by mistake to the collector of taxes. It is true that these moneys, having been paid voluntarily by the taxpayer under mistake of law, could not have been recovered back (Fox v. Edwards [C.C.A.2d] 287 F. 669); but nevertheless there was a moral obligation upon the government upon discovering the mistake to correct it, and it has made the correction and the taxpayer has accepted the refund. It is elementary that one who seeks to have a mistake corrected must surrender what he has received by reason thereof, and likewise one who accepts the correction of a mistake is estopped to claim a benefit to which he would be entitled if it were not corrected. In this case, the taxpayer, as the result of the payment under mistake, received the deduction from its gross income of the amount so paid. When the mistake was rectified, and it accepted the return of the amount paid, with interest, it ought not to be heard to claim the benefit of the deduction on account of the payment.
The taxpayer insists that we should not consider what happened subsequently to 1918 and 1919 but we think that this is a highly proper subject for consideration. We agree with the contention of the government that the moneys erroneously collected as taxes were not deductible as such from gross income; but, even so, if they had not been returned after having been collected as taxes, the government would not be heard to say that they were not deductible. And on the same principle, the taxpayer, having accepted the return of its money with interest, will not be heard to say that it is entitled to a deduction on account of the payment of such money. The whole question involved is one of correction of mistake; and, having accepted the correction on the part of the government with one hand, the taxpayer will not be allowed to hold on with the other to the benefit which it received by reason of the mistake. To readjust the returns for the years 1918 and 1919, by eliminating the deduction in question, will place both parties to the mistake exactly where they would have been, if it had not occurred. The government, having returned the money wrongfully collected, is entitled to this, and the taxpayer, having accepted the return, is not in position to resist it.
The taxpayer's position is that, as the amount erroneously paid was not recoverable as a matter of right, it should be treated as a loss occurring during the year in which paid, and that the refund should be treated as income of the year in which received. In support thereof it relies particularly upon U.S. v. S.S. White Dental Mfg. Co.,274 U.S. 398,47 S. Ct. 598,71 L. Ed. 1120, in which it was held that the loss of a stockholder in a German corporation arising from the seizure of its property by the German government was deductible in the year in which the loss was sustained, even though in a subsequent year the German government bound itself to repay and an award was made by the Mixed Claims Commission which might result in recovery. But money erroneously paid to the government as taxes is not in any true sense a loss, and is not to be treated as such. Even though payments voluntarily made may not be recoverable at law, the fairness of the government in such matters can be relied upon, and experience has demonstrated, as in this case, that the taxpayer, who by mistake has paid too much, can depend on the government's reimbursing him, whether he has the right to sue for a refund or not. And certainly such erroneous payment is not a loss within the meaning of section 234(a)(4) of the Revenue Act (40 Stat. 1078). See Lewellyn v. Electric Reduction Co.,275 U.S. 243,48 S. Ct. 63,72 L. Ed. 262; Porter v. U.S. (C.C.A. 9th)27 F.2d 882; National Bank of Commerce in St. Louis v. Allen (C.C.A. 8th) 223 F. 472, 477. Furthermore,Page 869in this case we are dealing, not with losses and recoupment of losses in the ordinary business transactions of the corporation, but with the correction of a mistake between the government and the taxpayer, and the principles to be applied are those applicable to the correction of such mistakes. Such cases as that of U.S. v. S.S. White Dental Mfg. Co., therefore, are manifestly not in point.
It is said that the conclusion at which we have arrived will result in injustice to the government in cases where taxes are held unconstitutional and refunded for that reason, and where the right to readjust income tax returns has been barred by the statute. It is urged that in such cases if the refund is not treated as income of the current year, it will escape taxation. Such a case is not before us, and we need not decide it. We will say in passing, however, that in making the refund in such cases, which would be made voluntarily, it would seem that the government might be able to protect itself with respect to the additional income tax due by the taxpayer.
There was no error, and the decision of the Board of Tax Appeals is affirmed.
Affirmed.