Jacob Bros. Co. v. Commissioner

*315 This is a proceeding for the redetermination of a deficiency in income and profits taxes for the calendar year 1917 in the amount of $2,956.69. The only issue presented is whether the collection of the deficiency is barred by the statute of limitations. The facts were stipulated as follows:

FINDINGS OF FACT.

The petitioner is a corporation organized under the laws of the State of New York and is engaged in the business of manufacturing and selling pianos and other musical instruments. Its principal office is located in New York City.

The petitioner filed its separate income and profits-tax returns for the calendar year 1917 on Forms 1031 and 1103 on May 2, 1918, the time for filing such returns having been extended to that date by proper authority. Upon the basis of the return, tax was assessed *316 *2425 and paid in the amount of $5,667.89. On June 15, 1922, an amended consolidated return was filed by the petitioner and certain other companies with which affiliation was claimed. No assessment was made on this later return and the affiliation claimed was not accepted by the Department.

On March 7, 1923, the Commissioner advised the petitioner that an additional tax for the year 1917 in the amount of $2,956.69 would be assessed, but that a claim for abatement thereof would be entertained if an appeal were filed within 30 days from the date of the receipt by the petitioner of the Commissioner's letter. Such additional tax was assessed in the Mrch, 1923, assessment list. On March 26, 1923, the petitioner filed a claim for abatement of the additional tax so assessed against it.

After several conferences the claim for abatement was rejected in full. The petitioner was notified of the Commissioner's action on the claim for abatement by letter dated May 26, 1926, which provides as follows:

JACOB BROTHERS COMPANY,

539 West 39th Street,

New York, N.Y.

SIRS:

Your claim for abatement of a deficiency in tax amounting to $2,956.69 assessed against you for the taxable*2426 year 1917 has been carefully considered by this office, and it is proposed to allow the said claim for $ None and to reject it for ,956.69, as computed upon the enclosed statement.

In accordance with the provisions of Section 283(e) or Section 283(k) of the Revenue Act of 1926, you are allowed 60 days (not counting Sunday as the sixtieth day) from the date of mailing of this letter within which to file a petition with the United States Board of Tax Appeals, Earle Building, Washington, D.C. contesting in whole or in part the correctness of this determination. If you acquiesce in this determination and do not desire to file such petition, you are requested to execute waiver of your right to file a petition with the United States Board of Tax Appeals on the enclosed Form A and forward it to the Commissioner of Internal Revenue, Washington, D.C., for the attention of IT:CR:D-TGH. In the event that you acquiesce in a part of the determination, the waiver should be executed with respect to the items to which you agree. Respectfully, D. H. BLAIR,

Commissioner.

By C. R. NASH,

Assistant to the Commissioner.

From the determination of the Commissioner*2427 as set forth in the letter of May 26, 1926, the petitioner appealed to the Board on July 24, 1926, claiming that collection of such assessment was outlawed by the statute of limitations.

On December 3, 1927, petitioner executed a collection waiver which expired December 31, 1928. This waiver provided:

*317 TAX COLLECTION WAIVER

DEC. 3, 1927.

It is hereby agreed by and between Jacob Bros. Co. of 539 West 39th Street, New York City, party of the first part, and the Commissioner of Internal Revenue, pary of the second part, that the amount of $2,956.67 representing an assessment of income tax for the year(s) 1917 made against the said party of the first part, appearing on the Wash-Mar. 86 spl. 22/1923 assessment list, page 8, line 6, for the Third District of New York, may be collected (together with such interest, penalties, or other additions as are provided by law) from said party of the first part by distraint or by a proceeding in court begun at any time prior to December 31, 1928.

(Signed) JACOB BROS. CO.

By C. ALBERT JACOB, Treasurer.

DAVID H. BLAIR,

Commissioner of Internal Revenue.

By (Signed) CHAS. W. ANDERSON,

Collector of Internal Revenue*2428

Third District, New York

Except for the foregoing the petitioner never consented in writing to the assessment of any additional income or profits taxes for the year ended December 31, 1917, nor to a determination of the assessment or the collection of additional taxes after the expiration of five years, after the time when the petitioner's 1917 tax return was filed, namely, May 2, 1918.

OPINION.

TRAMMELL: The only question presented is whether the statute of limitations bars the collection of the deficiency.

In this case the assessment of the deficiency was made in March, 1923, prior to the enactment of the Revenue Act of 1924. The five-year period of limitation applicable to the assessment and collection thereof expired on May 2, 1923. At the time of the enactment of the Revenue Act of 1924, both the assessment and collection of the tax were barred by the statute of limitations. .

The notice to the petitioner of the rejection of the claim in abatement was mailed on May 26, 1926, and the petition was filed with the Board on July 24, 1926. On December 3, 1927, the collection waiver*2429 set forth in the findings of fact was executed.

Except for the collection waiver filed as aforesaid, it seems that there could be no question but that the collection was barred. The real question here is the effect of the collection waiver which was filed on December 3, 1927.

The respondent takes the position that the Revenue Act of 1928, which repealed section 1106 of the Revenue Act of 1926, had the *318 effect of removing retroactively section 1106 to the same effect as if it had never been enacted and that this brings the situation within the scope of our decision in the .

We are unable to agree with this position. On this point we think that section 278(e) is controlling. That section provides as follows:

(e) This section shall not bar a distraint or proceeding in court begun before the enactment of the Revenue Act of 1924; nor shall it authorize the assessment of a tax or the collection thereof by distraint or by proceeding in court (1) if at the time of the enactment of this Act such assessment, distraint or proceeding was barred by the statutory period of limitation properly applicable thereto, unless prior to*2430 the enactment of this Act the Commissioner and the taxpayer agreed in writing thereto, or (2) contrary to the provisions of subdivision (a) of section 274 of this Act.

At the time of the enactment of the Revenue Act of 1926 the collection of the tax was already barred by the statutory period of limitation properly applicable thereto and the Commissioner and the taxpayer did not agree in writing prior to the enactment of the Revenue Act of 1926 to any extension of time for the collection of the tax after the expiration of the statutory period. Subdivision (e) of section 278 is a limitation upon all the other provisions of section 278 of the Revenue Act of 1926, and under that subdivision any consent or agreement by the Commissioner and the taxpayer with respect to the assessment or collection of the tax must be made prior to the enactment of that Act in order to have effect, provided at the time of the enactment of the Act the assessment or collection was barred. This being true, it is not necessary for us to discuss the effect of the repeal of section 1106 of the Revenue Act of 1926 by the Revenue Act of 1928, nor is it necessary for us the discuss the applicability of our decision*2431 in the Joy Floral Co. case.

In view of the foregoing, it is our opinion that the collection of the deficiency is barred by the statute of limitations.

Judgment will be entered for the petitioner.