Dothan Oil Mill Co. v. Commissioner

DOTHAN OIL MILL CO., PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Dothan Oil Mill Co. v. Commissioner

Docket No. 25565.

United States Board of Tax Appeals

19 B.T.A. 933 ; 1930 BTA LEXIS 2294 ;

May 13, 1930 , Promulgated

*2294 The petitioner reported income and paid taxes for a portion of 1921 and for 1922 on a calendar year basis, but kept its books on a fiscal year basis ending May 31; respondent, after adjusting petitioner's income to a fiscal year basis ending May 31, 1922, reduced petitioner's total tax liability for the fiscal year by the amount of tax paid for the calendar year 1922, but made no adjustment with respect to the tax paid by the petitioner for the seven-month period in 1921. Held that in computing the deficiency for the fiscal year 1922 petitioner's total tax liability should be reduced by the taxes paid for the period in 1921 and by five-twelfths of the taxes paid for the calendar year 1922.

J. Robert Sherrod, Esq., J. C. Ristine, Esq., and O. H. Chmillon, C.P.A., for the petitioner.

F. R. Shearer, Esq., for the respondent.

MORRIS

*934 This proceeding is for the redetermination of a deficiency of $9,688.49 income and excess-profits taxes for the fiscal year ended May 31, 1922. The amended petition sets forth the following allegations of error:

(a) The Commisioner erred in allocating to that portion of the fiscal year falling within *2295 the calendar year of 1921, seven-twelfths of the total income for the twelve-month period ending May 31, 1922, whereas the actual net income earned from March 17, 1921, to December 31, 1921, was only $12,706.92.

(b) The Commissioner erred in issuing a deficiency letter against the petitioner more than four years after the return was filed in violation of the provisions of section 277(a) of the Revenue Act of 1926.

(c) The Commissioner erred in including in the net income for the alleged fiscal year ending March 31, 1922, all the income for the period from March 17, 1921, to May 31, 1922, a period of more than twelve months.

At the hearing the petitioner waived the above allegations of error and substituted in the place thereof the following allegation of error:

(d) That respondent erred in determining the deficiency for the fiscal year ended May 31, 1922, in that he failed and refused to credit against the total tax liability the taxes paid on the basis of the return filed for the period June 1, 1921, to December 31, 1921, amounting to $1,860.55, the income of said period from June 1, 1921, to December 31, 1921, having been included in its entirety in the taxable net income *2296 for the fiscal year ended May 31, 1922, and in failing and refusing to credit against and total tax liability for said fiscal year ended May 31, 1922, five-twelfths of $2,281.53, the amount of taxes assessed and paid by the petitioner on the basis of the calendar year return ending December 31, 1922.

FINDINGS OF FACT.

The proceeding was submitted for determination by counsel upon the following stipulated facts:

(1) That the petitioner, the Dothan Oil Mill Company, was organized under the laws of the State of Alabama, under date of March 17, 1921 and commenced operations on June 1, 1921.

(2) That the notice of deficiency from which this petitioner appealed to your Honorable Board was mailed to the petitioner on February 26, 1927 and an original petition was filed with your Board within sixty days thereafter.

(3) That the taxes in controversy are income and profits taxes for the fiscal year ended May 31, 1922 and for $9,688.49, of which approximately $600,00 is in dispute.

(4) That the question involved in this proceeding is the determination of the amount of tax previously assessed and paid which is to be used as a credit in determining the deficiency for the fiscal *2297 year ended May 31, 1922.

*935 (5) That on March 18, 1922 petitioner filed with the Collector of Internal Revenue, Birmingham, Alabama, Form 1120, purporting to be a corporation income and profits tax return for the calendar year 1921, reporting thereon a net income for the period June 1, 1921 to December 31, 1921, of $12,706.92 and showing a tax liability for said period of $1,860.55, which amount was duly assessed by the respondent upon the basis of said return and which amount was duly paid by the petitioner to the said Collector of Internal Revenue, Birmingham, Alabama, and no part of which has been abated, refunded, credited, or returned to the taxpayer in any way whatsoever; it is further stipulated that the return above referred to was signed and sworn to by E. L. Marbury, President, and J. H. Bryson, Manager, and was not signed or sworn to by the Treasurer or Assistant Treasurer of the petitioner.

(6) That on March 1, 1923, the petitioner filed with the Collector of Internal Revenue at Birmingham, Alabama, Form 1120, purporting to be a corporation income tax return for the calendar year 1922 reporting thereon a net income of $20,252.27 and indicating a tax liability *2298 of $2,281.53 which amount was duly assessed by respondent upon the basis of said return and has been duly paid by the petitioner to the said Collector of Internal Revenue, and no part thereof has been abated, refunded, credited, or returned to the petitioner in any way except as hereinafter stated under paragraph 9; it is further stipulated that the return above referred to was signed but not sworn to by E. L. Marbury, President and J. H. Bryson, Manager, and was not signed nor sworn to by the Treasurer or Assistant Treasurer of the petitioner.

(7) That the petitioner kept its books of account and records on a fiscal year basis and that on May 31, 1922 and on May 31 of each year thereafter, it ruled off and closed its books of account.

(8) That the respondent has held that the petitioner's books of account were kept on a fiscal year basis and that the first fiscal year ended May 31, 1922 and has determined a total tax liability for said fiscal year in the amount of $11,970.02.

(9) That in determining the deficiency for the fiscal year 1922 in the amount of $9,688.49 as shown in the deficiency notice dated February 26, 1927 respondent has credited against the total tax liability *2299 as determined by him in the amount of $11,970.02, $2,281.53, being the amount shown as the tax on the return filed for the calendar year 1922 mentioned in paragraph 6 above, but has not allowed any credit for all or any portion of the $1,860.55 shown as the tax on the return filed for the period June 1, 1921 to December 31, 1921 mentioned in paragraph 5 above.

(10) That the net income for the fiscal year ended May 31, 1922, is as found by the respondent, $46,951.99.

(11) That the invested capital for the fiscal year ended May 31, 1922 is, as found by the respondent, $93,850.00.

(12) That the total tax for the fiscal year ended May 31, 1922 is, as found by the respondent, $11,970.02.

(13) That the petitioner waives all other issues raised in the petition with the exception of the issue mentioned in paragraph 4 above, and that the pleadings may be taken to have been amended in conformity with the facts herein stipulated.

OPINION.

MORRIS: The petitioner herein has erroneously reported income on a calendar year basis while keeping its books of account on a fiscal year basis ended May 31. For the period June 1 to December *936 31, 1921, it reported income and paid *2300 a tax of $1,860.55; for the calendar year 1922 it reported income and paid a tax of $2,281.53. The respondent refused to accept returns on a calendar year basis and adjusted petitioner's income to a fiscal year basis ended May 31, 1922. As a result of this adjustment respondent determined petitioner's total tax liability for the fiscal year 1922 to be $11,970.02. He then reduced this amount by $2,281.53, representing the tax paid by petitioner for the calendar year 1922, and determined a deficiency for the fiscal year 1922 in the amount of $9,688.49.

The petitioner admits that respondent has correctly determined its total tax liability for the fiscal year, but contends that respondent should reduce the amount thereof, first, by $1,860.55, being the amount of tax reported and paid by petitioner for the seven-month period in 1921, and, second, by five-twelfths of the tax paid for the calendar year 1922, or $950.64. By this computation the petitioner arrives at the figure of $9,158.83, which it concedes to be the correct deficiency for the fiscal year 1922.

The petitioner cites as authority for its contention our decisions in *2301 ; affd., ; certiorari denied, ; and . The facts in the Paso Robles Mercantile Co. case are very similar to the facts in the instant case. In that case the petitioner kept its books on the basis of a fiscal year ended January 31, but filed returns on a calendar year basis from 1918 to 1922, inclusive. Later, amended returns were filed on the fiscal year basis from 1920 to 1922, inclusive. In the instant case the petitioner filed its return for 1921 covering income for the first seven months of its operations, and its 1922 return for the full calendar year. The stipulated facts make no mention of amended returns having been filed.

The first question decided in the Paso Robles Mercantile Co. case was that, where a taxable period falls within two calendar years, for which returns were filed, the statute does not run until the period of limitation as to both returns has expired. The other question presented in the Paso Robles Mercantile Co. case was "the extent to which the petitioner is entitled *2302 to credit against taxes shown due on a fiscal year basis on account of taxes which were assessed on returns which were erroneously filed on a calendar year basis." In determining this question we stated that:

In our opinion, a tax erroneously determined on a calendar year basis should be credited on the tax shown due on a fiscal year basis in proportion to the months in the respective calendar years making up the fiscal year. By this method eleven-twelfths of the tax shown on the basis of the calendar year 1920, for instance, should be credited to the fiscal year 1921, since eleventwelfths of the calendar year 1920 is in the fiscal year 1921. (p. 754.)

*937 The respondent contends that, if the above quoted language be literally applied to the stipulated facts herein, petitioner is entitled to receive only seven-twelfths of the 1921 tax, because the first return of a corporation is considered a full year return regardless of the period for which income is reported; whereas, petitioner is contending that the full amount paid on its 1921 return should be subtracted from the total tax liability of $11,970.02. Respondent urges that the effect of the petitioner's contention *2303 is to take our decision in the Paso Robles Mercantile Co. case one step further, since it seeks to deduct twelve-twelfths of the tax paid for 1921 while the express language of that decision limits it to seven-twelfths.

Respondent's application of the language used in the Paso Robles Mercantile Co. case is, in our opinion, unnatural and strained. The only justification therefor is the peculiar fact that the petitioner's first return reported income for the first seven months of its existence, rather than for a full taxable period of twelve months. It is our opinion that this fact should receive but little consideration in determining the true deficiency against petitioner. Certainly it is insufficient to justify an exception to the general rule laid down in the Paso Robles Mercantile Co. and the Lowenstein Brothers Garment Co. cases, supra. We hold, therefore, that the correct deficiency for the fiscal year ended May 31, 1922, is $9,158.83.

Decision will be entered accordingly.