Opinion · United States Court of Claims
Osborn v. United States
54 F.2d 824
- Type
- Opinion
- Court
- United States Court of Claims
- Jurisdiction
- Federal
- Date
- 1931-12-07
- Topic
- general
WHALEY, Judge. The sole question involved in this ease is the fair market value of a tract of land as of March 1, 1913. Prior to 1913 the plaintiff was the owner of certain real property on the outskirts of the city of Lansing, Mich., more particularly described in the special findings of fact. During the year 1919 the plaintiff sold the tract of land and made his income tax return for that year in which he placed the fair market value of the property as of March 1, 1913, at $100,000. Upon an audit of the income tax return of the plaintiff, the Commissioner of Internal Revenue reduced the fair market value of the property to $57,-400, and with other minor adjustments, conceded to be correct, assessed and collected, under protest, from February 2,0, 1925, an additional tax with interest in the sum of $14,066.14.
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OSBORN v. UNITED STATES,54 F.2d 824(Ct.Cl. 1931)
OSBORN v. UNITED STATES.
No. L-289.
Court of Claims.
December 7, 1931.
Judgment for plaintiff.
This is a suit for the recovery of income taxes for the calendar year 1919 in the sum of $15,241.07, alleged to have been erroneously and illegally assessed and collected by the Commissioner of Internal Revenue, and involves the question of the fair market value as of March 1, 1913, of real property purchased before that date.
This case having been heard by the Court of Claims, the court, upon the report of a commissioner and the evidence, makes the following special findings of fact:
1. Plaintiff during all of the period mentioned in his petition was, and is, a citizen and resident of Sault Ste. Marie, Mich.
2. In the year 1911 plaintiff purchased the following three parcels of real property, consisting of 167 acres of land, described as follows:
A. "The west half of the northwest quarter (W. ½ of N.W.¼) of section seventeen (17), township four (4) north, range two (2) west, Ingham County, Michigan, excepting therefrom a strip of land along the west side thereof containing three (3) acres heretofore deeded as a railway right of way," consisting of 77 acres.
B. "The north fifty (50) acres of the east half (½) of the northeast quarter (¼) of section eighteen (18), town. four (T. 4) north of range two west (2 W.), Ingham County, Mich."
C. "The northeast quarter of the northwest quarter (N.E. ¼ of N.W. ¼) of section seventeen (17) town. four (4) north, range two (2) west, Ingham County, Michigan," consisting of 40 acres.
3. Plaintiff purchased said parcels of land from H.A. Haze and the other heirs of William H. Haze, to whom he paid in the purchase thereof the sum of $33,000. The property was then known as the "Haze" farm, and was used for farming purposes. After acquiring the property, plaintiff installed a dairy, put up additional farm buildings, and continued to use the property as a farm. None of the parcels were subdivided during plaintiff's ownership. On March 1, 1913, the property consisted of vacant land, except for the farm buildings thereon.
About 7 or 8 acres in the northern part of parcel B were swampy. This portion could be walked upon without difficulty, but it would be difficult to lay a foundation upon it. The rest of the land was well drained and desirable land, either for farming or development purposes. The southern part of parcel B and the northwestern part of parcel A were low-lying lands, but not swampy.
4. On October 10, 1919, plaintiff sold to Edward Ver Linden for the sum of $100,000 the property identified and described as parcel A in finding 2 hereof.
On September 20, 1919, plaintiff sold to Edward Ver Linden, for the sum of $30,000,Page 825the property identified and described as parcel B in finding 2 hereof.
The plaintiff also sold the parcel identified and described as parcel C in finding 2 hereof for the sum of $53,325, and the parties have stipulated and agreed that the profit or loss resulting from this sale shall be considered as income or loss to plaintiff for the calendar year 1919.
5. Plaintiff expended in improving the property described in finding 2 hereof the total sum of $54,130, of which $7,430 was expended prior to March 1, 1913, and $46,700 was expended subsequent to March 1, 1913, but prior to the sale of same. The expense incurred during the calendar year 1919 in selling said property was $15,442.60.
6. On March 12, 1920, plaintiff filed a federal income tax return for the year 1919 with the collector of internal revenue at Grand Rapids, Mich., in which he placed a valuation on the property in question of $100,000. On that date plaintiff paid to said collector the income tax disclosed to be due by said return in the amount of $1,174.93, which amount is now barred from recovery by the applicable statute of limitations.
7. Upon an audit and review of the return thus filed, the Commissioner of Internal Revenue determined that an additional tax was due in the sum of $14,066.14. This additional assessment was based on the following changes made by the Commissioner of Internal Revenue:
(1) The deduction disclosed by plaintiff in his income tax return in the total amount of $10,648.80 was reduced by the Commissioner of Internal Revenue in the amount of $652.
(2) The income disclosed by plaintiff in his income tax return in the total amount of $2,846.36 was increased by the Commissioner of Internal Revenue in the amount of $746.55.
(3) The profit from the sale of the property in question in the amount of $13,752.40, as claimed by the plaintiff in his return, was increased by the Commissioner of Internal Revenue in the amount of $50,030. This increase arose because the Commissioner of Internal Revenue decreased the March 1, 1913, value of the property in question from $100,000 to $57,400; and also because the commissioner reduced the costs of improvements expended by plaintiff subsequent to March 1, 1913, and prior to the sale of said property from $54,130 to $46,700.
8. Thereafter for the year 1919 said additional assessment was levied in the amount of $14,066.14, which, after notice and demand accompanied by threats to impose penalties, levy distraint, and seize plaintiff's property in default of payment of said assessment, was on February 20, 1925, paid under protest to the collector of internal revenue at Grand Rapids, Mich.
9. On January 26, 1928, plaintiff filed a claim for refund of $14,066.14, "or such greater amount as is legally refundable," for the calendar year 1919, including interest. The ground of this claim was that the Commissioner of Internal Revenue had used an erroneous March 1, 1913, value for property sold in 1919, and stated "the March 1, 1913, value of land, as described in line 1, Schedule (D), Form 1040, [returned for] year 1919, was stated, at its true value."
Thereafter, on August 1, 1928, the said claim was rejected and no refund of the amount claimed, or any part thereof, has been made to plaintiff.
10. Plaintiff concedes that the changes made by the Commissioner of Internal Revenue, numbered (1) and (2) in finding 7 hereof, are correct, and that the change made by said commissioner in decreasing the amount expended for improvements on the property from $54,130 to $46,700 as set forth in item (3) of finding 7 is correct, and these adjustments are not now in controversy.
11. The property in question was on March 1, 1913, a continuous tract, the eastern parcel bordering on the western city limits of Lansing, Mich. The property was bounded on the north by Saginaw street and on the south by Michigan avenue. Saginaw street outside of the city limits was a good hard-surfaced gravel road, open winter and summer, and was the principal highway leading to Grand Ledge, Grand Rapids, and other points in western Michigan. Michigan avenue outside the city limits was just an ordinary road. A city street-car line ran within three-eighths of a mile of the eastern boundary of plaintiff's property. The property was located about one mile from the capitol building in Lansing and was a little more than a mile from the business center of the city. The city of Lansing to the north of plaintiff's property, as of March 1, 1913, had developed westward, beyond the eastern line of parcel C and up to the southeastern corner of this parcel.
The Lansing Manufacturers' Railroad, which was constructed in 1904-05, for the purpose of opening the property adjacent to it for manufacturing purposes, ran directly through plaintiff's property and constitutedPage 826a dividing line between parcels A and B, making both parcels valuable for industrial purposes. This railroad was a belt line, connecting with all of the principal railroads leading into the city of Lansing. No sewerage, water, electric light, or gas service were furnished to the land in question. It was possible, however, to secure these services by paying for their installation and extension to the land, and when the investment of the gas company, electric light company, or water company showed a return of 7 per cent., then the money advanced was refunded.
12. The owner of the land adjoining parcel C on the east and on the south, which is similar to the land in parcel C, has, in computing his income tax on gains from sales of such lands, regularly returned such land as worth $1,000 per acre on March 1, 1913, and such valuation has never been contested. The owner of the land parcel lying immediately south and west of parcel A and south of parcel B, in computing profit on the sale of the property in 1919, returned such land as worth $300 per acre on March 1, 1913, and after some dispute with the federal authorities, and the submission to the government of affidavits of local real estate men, the taxpayer's figure of $300 per acre was accepted for that value. This parcel was in 1913 vacant land, very similar to the land in parcel A, which adjoined part of it on the north, and similar to parcel B on the west side of the Lansing Manufacturers' Railroad, extending as it did approximately an equal distance with parcel B on the west side of the said railroad.
13. Local real estate experts held that as of March 1, 1913, plaintiff's land could not be termed as strictly farm land; that parcel C had a potential value for residential subdivision purposes, and parcels A and B for both residential and industrial development, and valued the parcels as of that date at figures varying between the following extremes: Parcel C, $350 to $1,200; parcel A, $250 to $1,000; parcel B, $150 to $300.
14. On March 1, 1913, parcel C contained 40 acres, had a potential value for residential subdivision purposes, and the fair market value of the parcel was $900 per acre; parcel A contained 77 acres, had a potential value for residential subdivision purposes and for industrial development, and the fair market value of the parcel was $800 per acre; and parcel B contained 50 acres, had a potential value for residential subdivision purposes and for industrial development, and the fair market value of the parcel was $250 per acre. The fair market value of the three tracts of land, as of March 1, 1913, was $110,100.
15. On the basis of the fair market value of the property as of March 1, 1913, of $110,100, and of the changes made by the collector of internal revenue, conceded by the plaintiff to be correct, the plaintiff is entitled to recover the sum of $14,066.14, with interest from February 20, 1925.
Bradley B. Gilman, of Washington, D.C., and Charles B. Rugg, Asst. Atty. Gen., for the United States.
Before BOOTH, Chief Justice, and GREEN, LITTLETON, WILLIAMS, and WHALEY, Judges.
During the year 1919 the plaintiff sold the tract of land and made his income tax return for that year in which he placed the fair market value of the property as of March 1, 1913, at $100,000. Upon an audit of the income tax return of the plaintiff, the Commissioner of Internal Revenue reduced the fair market value of the property to $57,400, and with other minor adjustments, conceded to be correct, assessed and collected, under protest, from February 20, 1925, an additional tax with interest in the sum of $14,066.14. A timely claim for refund was filed by plaintiff and rejected by the Commissioner of Internal Revenue on August 1, 1928.
Section 202(a) of the Revenue Act of 1918,40 Stat. 1057, 1060, provides: "That for the purpose of ascertaining the gain derived or loss sustained from the sale or other disposition of property, real, personal, or mixed, the basis shall be — (1) In the case of property acquired before March 1, 1913, the fair market price or value of such property as of that date. * * *"
This case was referred to a commissioner of this court to take the testimony of witnesses who were familiar with the values ofPage 827real estate in and around the city of Lansing, Mich., and he has filed a report in which the fair market value of the property, as of March 1, 1913, is placed at $110,100. Neither side has taken exception to the report of the commissioner. We have carefully examined the evidence and are of the opinion that a preponderance of the evidence clearly justifies the fair market value of the property as of March 1, 1913, to be $110,100, the amount found by a commissioner of this court.
With the tax computed on this valuation, and allowing for the adjustments made by the Commissioner of Internal Revenue in the audit of the tax return of the plaintiff, which are admitted to be correct by the plaintiff, the plaintiff is entitled to recover the amount which he had to pay as additional assessment on February 20, 1925.
The defendant contends that if the March 1, 1913, value of the property in question of $57,400 used by the Commissioner of Internal Revenue in his determination of the additional tax, which is here sought to be recovered, was too low, the plaintiff is limited to the amount which he may recover in this suit to $12,639.71 on the ground that the March 1, 1913, value of the property was stated in the return filed by him for 1919 at $100,000 and that the claim for refund contained the statement that the value was correctly stated in the return. It is urged by the defendant that the amount which may be recovered in this suit must be limited by the terms of the claim for refund. We find no merit in this contention of the defendant. A taxpayer is not precluded in a suit from recovering the true overpayment of tax merely because he may have made a mistake in arriving at the figure in the return, or because, upon information available to him at the time, he may have stated a value for property in the determination of gain or loss that was below its true value. Nor is a taxpayer limited in a suit to recover an overpayment computed upon a value which may have been stated in the return and repeated in the claim for refund where the Commissioner of Internal Revenue refuses to allow the claim and determines a smaller value. Neither the statute nor the regulations with reference to a claim for refund require that figures stated therein in support of the claim shall be set forth with absolute accuracy. It would be going far beyond the purpose and intent of the statute and the regulations relating to claims for refund to hold that, when a taxpayer files a claim for refund and sets as the basis thereof the March 1, 1913, value of certain property, he is forever thereafter barred from recovering a refund in excess of the amount resulting from a value which may be set forth in the claim in support of the grounds thereof. This taxpayer in his claim for refund, after stating the basis thereof, submitted to the commissioner as the facts in support of the grounds of the claim a number of affidavits of other persons relative to the March 1, 1913, value. When the Commissioner of Internal Revenue rejected the claim for refund and the taxpayer brought suit to recover the overpayment, "or such greater amount as may be legally refundable," the question of the correct fair market value of the property on March 1, 1913, was entirely open to be determined on the basis of the proof submitted by the taxpayer; there being no question made as to the basis or grounds of the claim for refund upon the rejection of which this suit is predicated. Electric Storage Battery Co. v. McCaughn (D.C., E.D. Pa.)54 F.2d 814, decided October 10, 1931, P-H Fed. Tax Service, vol. 2, 1931, par. 2080. This suit is based upon the ground as set forth in the claim for refund, to wit, the March 1, 1913, value of property.
Plaintiff is entitled to judgment in the sum of $14,066.14, with interest at 6 per cent. per annum from February 20, 1925, in accordance with section 177(b) of the Judicial Code, as amended by the Revenue Act of 1928 (28 USCA § 284(b).
It is so ordered.Page 948