Brief for Respondents — Commissioner v. Lane-Wells Co.

IN THE,

supreme Court af the United States

Octobet Term, 1943.

No. 115

COMMISSIONER OF INTERNAL REVEN CE

a

Pertroner

LANE-WELLS COMPANY, a col ‘poration, and Pronto art

oe NGINEERING CORPORATION, , %

Responderits

BRIEF FOR THE RESPONDENTS.

~~ -

* RAPHAEL DECHTER,

* 633 Subway Terminal’ Building. los \ngeéles,

\ . ;

‘ Ittoriiey fer : Kespondei i)

HaAkry .\. PINEs,

Of C ournsel,

Parker & Baird Company, Law Printers, Los Angeles

é

TABLE, OL \UTHORITIES CITED.

CasESs. y

Beam v. Hamilton, 289 ‘Fed. 9...... RL Oe oe

> Burnet v. Commonwealth’ hnprovement Co., 53 S. Ct. 198, 287

“UL S. 418,77 Lt Ed. 399... RAD et ni

Credit Alliance Co. v. Helvering, 210.U. S. 107, 86 L. Edt 1307,

Florsheim Bros. v. United States, 280 baa | eee 19, 20

Gerard Investment etc., 122 Fed. +) e | * Gee aeemeeecn 24

Germantown Trust Co. v. Comm., 309 U.S. 304, dace,

12.13. 14. 15, 16, 17, 19, 20, 21, 23, 25, 27; 28

Gould v. Gould, 38 S. €t. 53, 245 U. 5. 151, 68 L. Ed. 201 2

‘Logan Coal etc. v.. Helvering, 122 Fed. (2d) 848.0... 24

Lone Pine v. Helvering, 121 Fed. (2d) SERRE aparece 24

Noteman v. Welch, 108 Fed: (2d) ee fiends 24

(Sullivan Rubber Co. v. ¢ ommissioner, 120 Fed. (2d) $45. :22, 24

Ozawa v. United States, 200 U. S. 178, 43 S. Ct. 65, 67 L Ed.

199 :..:...:

Porto Rico Coal ete. v. Commissioner, 120 Fed. (2d) 212 24

United: States v. Atchison, T: @ 5. F; R. Co, 20'U. > > a

S. Ct. 302, 55 L. Ed. SOL... epee sschipsencbaios ee 3 Ore

United States v., Updike, 281 U. 5. 489, 74. Ed. 984, 505

ge Aen PRL ea) ccoehaanlable POAT Re

Zellerbach Paper Co. v. Helvermy, 203 LU. S. 172, 79 L.. Ed

- 204,55 S. Ct. 127........-.-. iicasennet sscemanieota san aati cinema Or

MISCELLANEOUS.

House Finance Report 1385, 73d Cong.. 2d Sess.’ p.20 f 7

Keport of the Senate Finance Committee, 73rd Cong. 2d Sess.,

5. Ret SB... | + §

Senate Finance Committee Report, 73d Cong., 2d Sess.->. Rept

1938-1861, p. S94... eee eeeeetet ete fadeaainces , Samcnnabninpoaents Paes = 3

. Be PAGE

Senate Finance Committee Report, 73d Con., 2d Sess. S. Rept.

ates iain aiaatih sh alee liek aoe dust aaantalgia silignticeeuhnclonnnatatemnies a PO

Ways and Means Conamittee Report. 73d Cong.. 2d Sess...H.

‘STATUTES.

Jnternal Revenue Act of 1934, Sec. 351 .......ccccccecceeeeeeee eee

a tee SS. ee te eee

Judicial Code, Sec, 240( a) oo... ce. -csscssssessesesessseessesssssensvueesseceesevee 2

Revenue Act of 1918, Sec. 239 . ic cabdshgesubaabondlenietasiiatceseiacieitatiat aa

Revenue Act of 1926, Sec. 296 ec caieadicaleucn ae

_ Revenue Act of 1926, Sec. 1002(a/ ./..83, 14, 21

Reventie Act of 1932, See. 275 13. 21. 26

Revenue Act of 1934. See 13 9

Revenue Act of 1YF. See Zhe 9

Revenue Act of 1934. See 02 &. 9. 11

Revenue Act of 19¢6. See I05 7)

Revenue Act of 19M. Se ; y

Kevenue \ct of TOM, See i)

Revenue Act of [9 See Be 9

Revenue Act of 19.44. See 2 Zz i lo ol. 22

Keven Act of IDM See OF i4

Revenue Act ot 1434, See 57% 13

Revenue Act of 19M. See 7 par 5

Revenue Act of 1935. Sec 405 2

Kevenue Act of 1936, Sec 2?I 12, 26

Revenue Act of 1936, Sec 231 bi 22

Revenue Act of 1936, Sec. 503, para. ¢b) ; t

fa

IN THE |

Supreme Court of the United sats

Ouiaher Terni, 1043,

No. 115

COMMISSIONER OF INTERNAL REVENUE, .

, pice Petitioner,

US.

he Aine ELLS COMPANY, a corporation, and TECILNICRAFT

ENGINEERING CorPorATION,

eapenilents:

BRIEF FOR THE RESPONDENTS.

Opinions Below.

The opinion of the Board of Tax Appeals [K. 47, 85]

is reported at 43 B.T. A. 403. The original opinion ot

the Circuit Court of Appeals was withdrawn and does net

appear in the record. The opinion of the Circuit Court

of Appeals on petition for .rehearing [R. 277, 283], is re-

ported at 134 Fed. (2d) 977.

Jurisdiction.

The judgment of .the Circuit Court of Appeals tor the

Ninth Circuit was entered February 10, 1943 {.R. 276-

277|. A petition for rehearing was denied March 22,

1043 |R. 277]. The petition for writ of certiorari was

filed on June 22, 1943 and granted October 11, 1943. The

i

—-2—-

petitioner. relies upon section 240(a) of the Judicial Code

as amended by the Act. of February 13, 1925 in support

of the Court’s jurisdiction. sc

Statement of the Case.

The statement contained: in petitioner’ s briet appears to

be a fair statement ot -the facts, except “that it omits a

recitation of some of the findings which are pertinent to

an understanding ot the instant case. Without reiterating

the facts stated by petitioner, we shall supplement the same

with the relevant matter that is not contained in peti--

tioner’s statement.

The returns of Technicraft Engineering Corporation

(hereinafter referred to as Technicraft) for the. years

1934. 1935, 1936 and 1937 filed on Form 1120 within the

time required by law, contained a full disclosure of: its

gross income and deductions and resulting net income for

. those years |R. 49-50). Technicraft’s, income tax Te-

turns. were prepared by its accountant. a certified public

accountant, engaged -in tax work, who gave Technicratt

his opinion that it was not a personal holding company

|R. 64]. This accountant had conferences with repre=.

sentatives of the Bureau of Internal Revenue and gave

On ‘June "19,. 1937, Technicratt received a. refund, of,

$278.37 in respect of income and excess profits taxes paid

by it for the year 1035 and at that time the Conmissioner

made no. claim that Technicratt Was a personal holding,

company [R. O65].

.

them access to Technitraft’s books and records [R. 03]. -

- Technicraft did not file any returns on . Form 1120

because, in good faith, it did not believe it was a personal

holding company’ | R. 79}.

Demonstrative of the good faith of Technicratt in be

lieving it ‘was not a personal holding company is the en-

tire record upon which that issue hinged [R. 116-262,

inclusive]. It must be noted that the determination “of.

the Board of Tax Appeals that Technicrait was taxable

as-a personal holding company was not due to a finding

that 80% % or more of its income was from personal hold-

ing company .income as defined’ by the statute, but ‘that

Technicraft had failed to make such.a segregation or

"apportionment . in its’ presentation -of evidence beiore the

Board as to segregate that which was personal holding

company income from that which was not pers mal holding

company income (R. 68, 70,-283]. It was the: failure of

the Circuit Court ot Appeals to remand the case back

to the Beard ‘to permit respondents to’ present such evi-

dence that would have shown that over 20% ‘of the taxed

-income was not “royalty” iricome. that wa’ responsible

for respondents seeking a petition for writ of certiorari -

herein. Respondents’ petition for, a writ of certiorari was

denied. Had the opportunity to present the evidence been

given to.the respondents, it would have, disclosed that tar

less than 80% of its taxed income was pers: mal holding

. company income. This is. important here because it makes

it obvious that Technicraft had a right to. believe, in good

faith. that’ it was not a personal holding company.

4

‘ | Argument.

The returns filed by the taxpayer in ‘this case were

sufficient to start the running of the statute of limitations

and to avoid the imposition of penalties. In. his. brief,

the petitioner refers‘to his brief in Xx. Simpson & Co.,.Ine.

+» Commissioner ‘of Internal Revenue, No. 1, this Term.

Petitioner asserts therein that it was Congressional intent

that the perdorial holding company tax constitute a “wholly -

separate tax” from the income taxes prov ided by -Title- 1

( Commissioner’ s Brief. Simpson case, p. 32.) - A survey

of the legislative history fails to sustain this conclusion.

All of the quotations cited by the petitioner and gleaned |

from Committee Reports are consistent with the theory

that Section 351 of the Revenue Act of 1934 constituted

a surtax or“an additional income tax. The Congressional

commentary as well as the -\ct itself is entirely inconsistent

with treatinent of section 331 asaw holly inde pe ident tax.

As originally submitted by the House Ways and Means

Committee. the heading of section 351 read as tollows:

"Tax on Persqnal Holding Companies.” This heading

was ‘revised by the Senate Finance Committee and, when

enacted, read: “Surtax on-Personal Holding Companies.”

Seidman's Levislatizc History of Federal Income

Tax Law, 1938-1861, p. 394.

The distinctiveness of the description asa “Tax” was

_ shunned by the Congress in favor of the description “Sur-

tax,” which co nomine suggests interdependence upon an-

other or primary tax. As originally submitted by the

House Ways and Means Committee, subdivision (a) of

section 351 referred to the personal holding company tax

liability as a “Tax.” This designation was reformed,

*

a -

however, by the Senate Finance Committee and when.

finally enacted such tax liability was referred to as a “Sur-

tax.” (Seidman’s Legisiative History, vte.,- p: 394.)

Whether section ‘351 was to be a wholly * ‘scparaiie tax —

as contended by the petitioner, or whether it was to be an

“additional or surtax”’ as we contend, is made plain by the

report of the Senate Finance Committee, 73rd Congress,

, 2nd Session, S >. Rept. 558, in the following language:

“In view of this situation, your Committee has re-

written’ the section’ dealing with ~ personal holding

companies and has placed it in Title I(a), section 331 |

and it has been’ made plain that. this is an additional ,

graduated mcome tax, or surtax, on pe rsonal holding g

companies.” (Italics ours. )

Respondent assumes that because paragraph (c) of see-

tion 351 makes applicable to Title 1A the administrative

provisions of Title 1, that such paragraph has the infer-

ential effect of ‘providing for a. separate return to be filed

by personal holding companies. We cannot agree with

this conclusion.

‘The fallaciousness of respondents’ theory is revealed by

_an examination of other portions of the Revenue Act of

1934 and subsequent acts. From such examination it be-

comes evident that Congress could-not have mtemplated

that paragraph (c) of section 351 would have the effect

of requiring a separate return.

It will be noted that paragraph (b) of section 702 of ©.

the samc Revenue Act of 1934 respecting capital stock

"Section 102 of the Revenue \ct of: 1934.

taxes (Title \V) is in words identical to paragraph (c) of

section 351.’ Yet, paragraph oid of section 701 specifically :

reads as follows:

*( d) Every corporation liable for tax under .this

section ‘shall make a return-under oath w ithin one .

month after the close of the year with respect to

which such tax is imposed, to the Collector fer the

District in which is located its principal place of busi-

ness, or, if it’ has no. principal place ‘of business in -

the United’ States then to the Collector at Baltimofe,

Maryland. Such return shall Sntain such informa-

tion and be made in such manner as the Commis-

- sioner, with the approval of the Secretary. may by’

regulations prescribe .*.

By the same ‘hen: the Rev — Act of 1936 in provid-

‘ing for a tax on unjust enrichmegts (Title 111) contains

a provision practically identical, t, paragraph (cy

section 351. Paragraph (2) of’ section 503. of the ee

nue Act of 1936, in almost identical language to paragraph

(c) of section 351, makes applicable with ‘respect to- the

‘taxes imposed by. Title III. the provisions of . law ap.

plicable to Title 1. That this provision was not intended

to be a substitute fer a provision. requiring the filing ol

a separate return is evident from paragraph (1) ef section -

503 of the: Act_of 1936, which requires every person sub-

ject to tax under Title II] to “make a return under this .

Title, which rerurn shall c mtain such information and be

made ‘in such manner. as the Commissioner; with the aj-

preval of the Secretary. shall. prescribe.”

| — ue

“In the case of United States v. Atchison, T. & S. F. R.

Co.,’ 220 U. S$. 37,318 Ct 302, 55 L. ed. 301. this Court

"+" said:

“The presence of such a provision in the one part

5 4 Y . . . : Fas!

and its absence in tke other is an argument against

reading it as implied.” | ced:

It is noted that the Conference Report (House Finance

Report, 1385, 73rd Congress, 2nd Session, p. 20) recites

that “the Senate amendment provides: for a separate return ~

ior the purpose of this surtax on personal holding com- -

panies. All provisions of law in respect to the taxes im-

posed by Title 1 are applicable to this return except that

the foreign-tax credit imposed by section 131° is: not al-

lowed.” The fact that the Aci, as enacted, did not con-

tain a specific provision fora sepafate return, necessarily

points to the conclusion that’ any such provision which

‘was contained in the Senate amendment was purposely

stricken prior to the enactment of section 331.

. The very fact that Congress made the provisions: of

Title 1 applicable to Title IA is in itself indicative -of

the fact that Congress .did not intend to isolate Title IA

from Title I. - The heading “Additional Income Taxes”

‘reveals an intent to supplement by addition rather than to

create a category of distinctiveness. The use of the word

“surtax” rather than “tax” reveals an intent to cregte’

Ss supplementary © or additional tax rather than .an_ inde-

7 pendent and separate tan. The selection of the letter

‘A™ to- be added to Title’ i thus naming the new chapter’

TN

Title IA rather than the use of a separate and wholly

integral nuinber such as VII or VIII for the new tax,

reveals an intention to create an interrelationship with

Title I other than the wholly separateness that the Com--

missioner now ‘seeks to read into the: séction.

"Section 351 is in effect merely another surtax on cor-

poration income. It is sister to Section 102 of the Reve-

“eo Act of 1934 (Title I) governing surtax on the incame

of corporations improperly accumulating surplus. Thus

paragraph (e) of Section 102 provides: “For surtax on

personal holding companies, see section 351. 4 |

Similarly, paragraph (e) of Section 351 provides : “For °

surtax on corporations which accumulate wae to avoid

‘surtax on stockholders, see section 102.

Both section 102 under T itle I and section 351 ie

Title IA-refer* to surtax on corporations. The object

of doth sections was to avoid the withholding by corpo-

rations of distribution of earnings to their stockholders

and thereby avoid the payment by stockholders of, taxes

on earnings that would otherwise be distributed to such ”

stockholders. . Section 102 is: designed to cover both hold-

ing companies and other corporations.. Section 351 was

‘merely designed to make conclusive instead of prima facie,

-evidence-that a company was a holding company, by the

legal effect given to certain definitions’i inv olving stockhold: ;

7 ings and nature of earnings.

Report—Ways and Means Committee (73d Cong,. 2d

Sess., H. Rept. 704) : aa |

-“Your conmtmittee therefore reconimends that the

present section 104 be divided into two parts, one

dealing with the personal holding company and the

other with ‘all. other corporations which accumulate

‘ io i\

unreasonable surpluses. The part:dealing with per-

~ sonal holding companies is new, while the present

law .has .been retained with a few modifications to

reach the other companies. | (See secs. 102 and 103

of the bill.)” ,

Report—Senate Finance Committee (73d Cong., 2d

Sess., S. Rept. 558): .

“The effect of this system is to provide for. a tax

which will be automatically levied upon the holding

company without any necessity for proving a purpose

of avoiding’surtaxes. It is believed that the majority

of these corporations are in fact formed for the sole

purpose of avoiding the imposition of the surtax upon -

the stockholders.- i :

_ “The fact that some companies, such as real estate

companies, have been placed outside: the scope of this

provision does not result in a‘ serious opportunity for

~ tax avoidance. Such companies, and, in fact, all other

- corporations, are still subjeet ‘to section 102 of the

bil. That section is similar to section 104 of: exist-

“ing. law and applies a surtax to any corporation”

_ formed or availed of for the purpose of preventing

‘imposition of surtaxes upon its shareholders. Pe cei

| Subdivision (d) of Section 102 under Fitle Tis verbatim

the same as subdivision (d) of Section 351 under Title

IA.- This is. another circuttistance to indicate that the

same type of surtax, was involved as .is provided under

Title I. |

Wholly inconsistent with the theory that Title LA. is

_ wholly separate and independent of Title 1. is the rgpeated

cross-reférences in Title JA to provisions contained in:

Title 1. Thus Section 351 refers to Sections 13, 2(4,

115, 23(0),-117(d), 131, and 102, all contained in*Title I.

«

—10— |

The only logical conclusion to. be drawn from : these

facts is that the division into separate titles was simply

a design-for ready reference to the provision rather -than

intentional creation of a new category of taxation. This

_ Honorable Court was confronted with a somewhat eget

‘situation in the case of Osawa v. United States, 260 U.

178, 43 S. Ct. 65, 67 L.. ed. 190. There as here an unin-

_ tended significance was sought to be attached to a statute ©

which was placed by ‘Congress in a title apart from other

sections bearing upon the same subject matter. ~ There, as

here; the statute referred to “this title.” This Court said:

“The division of the Revised Statutes into titles

and chapters is. chiefly a matter of convenience, and

reference to a given title or chapter is simply a ready

method of identifying the particular provisions which .

are meant.” ,

Were there atty doubt, then ae . doubt. ds erased by the

comments ‘of Congressional Committees referring_to the

tax as a surtax and as. an additional tax and not as a—~\

wholly separate. tax. That the use of the word “surtax”

was intentional and advised -is without doubt, ‘after con-

sidering that when originally submitted ‘by the Hose, -

Ways and Means Committee the. word used was “tax”, 7

/ and subsequently abandoned in favor of the use. of the -

_ word “surtax.”. The Commissioner’s attempt to strain the

natural meaning of the language of the Act and the legis--

lative commentaries bespeaks of ingenuity but not of logic.

‘Iti is a plain case of an attempt by the C onmnissioner and _

. the Secretary of the Treasury’to legislate for purposes of

‘ convenience beyond the limitations of regulations perimit-

‘ted. * The Commissioner and the ‘secretary could haye

easily prescribed. instead of the requirement of a separate

—§l—

return, the adding of two or three questions to the regular

"corporate income tax return, which ‘would have been ade-

quate to disclose all the information needed by the Com-

. missioner to enforce the provisions ‘of section 351.’

‘cannot logically be contended that a corporation coming

within the provisions of section 102 would be subject. to.

. had provided for-a separate return. for corporations em-

_ braced by’ section 102 notwithstanding the filing of a

regular return of: the corporation: containing- the informa

tion ypon which the tax under section 102 could be com-

are in agp hocngoye In the case of Credit Alliance v.

this. Court held ite the regulation of the Commissioner

in that case in fact constituted legislation on a matter

- which was reserved to Congress. Just as the information

- under ‘section 351 could have. been secured by a few addi-

could be secured pertaining to section 102 on the one regu-

lar form. No separate return was required by the Com-

missioner under section 102. If the Commissioner had

s

“Form 1120 contains the question: - “Is the corporation a per-

sonal holding company within the meaning of section 354 of the

Revenue Act of 1934?" Two other or further questions could

have provided all information needed, such as (1) Ts 50%. ar more

more of the income of ‘this: corporatfon derived from royalties,

dividends, interest, annuities and (except in cases of regular deal-

ers in stock or securities) gains from the sale of stock or securities ?

- To further illustrate how illogical the contention pf the

Commissioner is that a separate return was necessary: it o

a penalty and also be disentitied to take advantage of the *

statute .of limitations under Title 1] if the Commissioner.

puted. The Commissioner cannot adopt regulations which -

Helvering, 316 U. S.107, 86 L. Ed. 1307, 62 S. Ct. 989,”

tional questions to Form 1120, so the same information |

of the stuck owned by five or less persons? (2) Was 80% or

°

| ore +: on

: 3

réquired a separate return aind the taxpayer in good faith

had not filed such a separate return, but had-merely filed .

a tegular return urider Form 1120, the situation would be.

no different than the one-in Germantown Trust Co. v.

Comm., 309 U. S. 304, where the taxpayer filed a fiduciary

return instead’ of filing a corporate return.

_ Where a corporate taxpayer, in good faith, files a re-

turn on Form 1120 but for .reasonable cause does not

file a “personal holding company re. can it be said

that there was a “failure to,file a return” within the mean-

ing of sections 276(a) and 291 of the Revenue Acts of

1934 and 1936? The information called for by Form

1120H is information that ‘could have been called for by -

Form 1120. The means of determining tax liability under

Title IA was by section 351(c) Chifted to such returns

as were required under Title I. Can it therefore be said

that a return required by Title 1 which would disclose in-

come tax liability under Title IA and which is filed on —

the wrong form of return (in absolute good faith and for

reasonable cause) is a. failure to file a, return within the

meaning of Sections 276(a) and 291 of the Revenue Acts

- of 1934 and 1936? The answer has been heretofore ex-

pressed by the United States Supreme Court in German-

town Trust Company v. Commissioner, 309 U. Ss. 304.

which the cease now inéffectively seeks to distin-

| guish. In the Germantown .case-a fiduciary filed a return

on Form 1041-instead of Form 1120 designed by the

Treasury Department for associations taxable as corpora-

tions. The Commissioner contended that the filing of Form...

1041 dii not set the statute of limitations in operation.

_ The Circuit Court of Appeals for the Third Circuit upheld

the Commissioner's contention, which was similar to his’

=i d—

contention in this case to the effect that, the filing of a

_ wrong. form of prescribed return was not sufficient to start-

the operation of the statute of limitations: —On-February au

. 26, 1940, this court reversed the judgment of the Circuit «|

Court of Appeals. The Court construed. sections 275 and

276 of the Revenue Act of 1932. (not changed in the Reve-

nue Act of 1934 ,which is applicable. herein ) in the light

of the meaning of séction 1002(a) of the Revenue Act |

of 1926 as amended by section 579 of the Revenue Act of

1934, which governs the jurisdiction of a Circuit Court of»

Appeals to review a decision of the Board of Tax Ap-.

peals. Section 1002(a) as amended, reads as follows:

“Except, as provided in subdivision (b). such deci-

sion may be reviewed: by the Circuit Court of Ap-

peals for the Circuit in which is located the Collector’s

office to which was made the return of tax in.respect .

of which the liability arises, or, if no return was

-. made, then by the Court of Appeals of the District of

Columbia.” |

—~... At was the decieioin of this court in the Germantown case +

: that a return which is sufficient to invoke the jurisdiction

of the Circuit Court of Appeals, is a return within the

meaning of section 276(a), providing that there. shall be

“no period of limitations in the event no return is filed. . To

properly distinguish the Germantown case froni the-instant

case, the Commissioner must direct his argument to the

inapplicability of the reasonmg in the Germautown case to

the facts of the instant case. This Ite has not done. We

” + respectfully submit that he cannot “lo this. . In respondent’s

"petitions to the . United States Circuit Court of Appeals,

for the Ninth Circuit, for a review, of the decision of the

Board of Tax Appeals. the taxpayer recited:’ “The tax-

ar

payer filed income tax returns for the taxable years 1934,

__1935,4936-and 1937, with the Collector or Internal Reve- —

nue for the Sixth Collection District of the State of-Cali-

fornia, whose office is located w ithin the Ninth Judicial

Circuit wherein the taxpayer did reside.” _{R. 107. See

also petition of taxpayer's transferee, R. 96.] The re-

- cital of the foregoing jurisdictional fact was to invoke the

jurisdiction of the Ninth Circuit Court of Appeals. It will

__be-noted_that-the Gommissioner-did-not deny the fact that

the filing of these returns was sufficient to vest the Circuit

Court of Appeals for the Ninth Circuit with jurisdiction

to. review the decision of the United States Board of Tax

Appeals. . In. fact, in a separate petition for review ‘(later

dismissed ). the Commissioner himself ‘invoked the juris-

diction of the Ninth Circuit Court.of Appeals to rev iew

the same decision of the Board of Tax Appeals thereby

recognizing the effectiveness of these returns as sufficient

to vest the Circuit Court of Appeals for the Ninth. Circuit

with jurisdiction. No contention is being made herein that

the returns were not sufficient under section 1002(a) of ©

the Revenue Act of 1926 as. amended by section 519 of -

the Revenue Act of 1934 to empower the Circuit Court

of Appeals for the Ninth Circuit to entertain a review be-

~ cause the “return of the ‘tax im-respect to which the ha-

bility arises” was made in the “Circuit in whichis located:

the collector’s office ‘to which was made the return of the-

oa

tax.” The determining factors thereupon correspond on

all fours with the principles involved ‘in the Germantow

case. This Court. speaking through Mr. Justice Roberts

said: te re es

“We are of the opinion that if the return filed. by

the petitioner was such as. to create venue of the

proceedings for review in the court below, it was also

< ;

<iff=

a re return: oie the ternis-of section 273(a), so that

“the two year period of enktatlons imposed by that

section is applicable.”

Petitioners contend that the Germantown case is dis-

tinguishahle because the court therein recited that the

fiduciary form filed by the taxpayer in that case on Form _

1041 instead of Form 1120 was- trevertheless | sufficient —

auise it “contained all of ‘the data from which a tax -

could be computed. and assessed, although it did not pur-.

port’to state any amount due as tax” (Commisisoner’s

Brief in- Simpson case, p. 38. See also Petitioner's Brief,

pp. 13 to 17). The Commissioner contends that the in-

stant case presents a situation different from that of the

-Germantown case, inferring that in the instant case the

-Form 1120H .did not contain “all of the data from which

a tax could be computed and assessed.” It is appropriate

first to examine the difference between Forms 1120 and

1041, which were invol$ed in the Germantown case. Form

1120, which was not filed in that case called for informa-.

tion not called for by Form 1041, and the omissions of

such information are far more substantial than any omis-

sions that might be attributable to failure of a corporation

_ filing Form 1120 and failing to file Form-1120H. By

filing Form 1041 in lieu of Form 1120 in the Germantown

case the taxpayer there gave no information concerning

the value of capital stock declared for purposes of capital

stock tax, the net income from excess profits tax compu-

tation, the information required with respect to date of

-incorporation, location of the corporation’s beoks, the kind

of business the corporation was engaged in, compensation

of officers, type of business conducted, history of -affilia-

tion with other corporations, and other information par-

ticularly ‘identified- with. corporations. Nevertheless even

though Form 1041 was not designed for corporations and

_ did not disclose the information upon which it could be...

determined -that the taxpayer w was a corporation or ‘taxable

asa corporation, it contained sufficient information from

which the tax could be computed.. Having been filed in

good faith this’ Court held that it was a return within the

meaning of section 276(a) sufficient to start the running

of the statute of limitations.

In the instant case,it cannot be said as inferred by the .

Commissioner, that the returns of the taxpayer did not

contain all of the data from which a tax could ‘be com-

- puted and assessed. The finding of the Board.of Tax

Appeals, unchallenged by the Commissioner was that the

returns fully reported gross income and fotal deductions.

It was undisputed that the taxpayer file/returns on Form

1120 for the calendar years involved, Which were full and

complete aside from such-minor ad justments by ‘the Com-

missioner made in his determination of the deficiency [R. .

78, 79|., The Commissioner argues ‘that the failure to

file:-Form 1120H was the cause of the ‘Commissioner not

having information from which he could determine that a.

“personal holding company was involved. This is different

from the information which weuld enable him to compute

the tax. It should be noted that in the Gérmantown case

the return filed was sufficient to enable the Commissioner

to compute the tax although obviously it was. not sufficient !

to enable the Commissioner to determine that an associa-

tion taxable as a corporation was involved. In this case

both the Board and the Circuit Court definitely found

that the return as filed contained all of the information

‘necessary for the computation of the tax except the mere

matter 6f-mathematical computagion by applying the rates. :

to the income reported on pte return already filed [R.

278}. Here. again the Constissioner’ s attempt to distin-

guish the Germantown case is ineffectual.

As this = stated in Zellerbach Paper Co v. Helver-

ing, 293 U. S. 172,79 L. Ed. 264, 55 S. Ct. 127:

Doe "ee ae or completeness is not necessary

to. rescue return from nullity, and if it purports to °

-be a revirn, is sworn to as such * * * and evinces

ot aa and genuine, endeavor to satisfy the law. ;

This is so though at the time of filing the omissions

or inaccuracies are such as to make amendment neces-

res aie ,

-The Commissioner, hgwever, contends that the return °

which Technicraft filed on Form 1120, in addition to not

disclosing - that it was a personal holding company, also

did not ‘ ‘permit. of ‘an- acc urate computation of that tax” |

( Petitioner’s . Brief, p. 13). The use of the word “ac-

curate’ by the Honorable- Attorney General isa signifi-

cant admission. It would ‘be impossible for the Commis-

sioner to contend that the returns filed herein did not per-

amit of a computation. of the tax. The return had all of

. the information necessary ‘for the ‘determination of the °

tax. . The only omissions which would affect the amount

of tax were omissions of information which would have

had the effect of lowering the pérsonal holding company

tax liability. Thys Form 1120H would have supplied: in-

formation as to contributions or gifts not‘deducted in com-

puting Title I het income for income tax paid toa foreign

_, country _or- United States possession, dividends received

from persona! holding companies, and amounts used or. set

aside to retire indebtedness, all of which are deductible.

. upon “undistributed adjusted net income.’ The term “ad-

a

This information was Tor the benefit of the taxpayer. The

taxpayer had the right not, to claim these deductions. The -

computation of personal holding cameeey taxes is based

| justed net income” is defined by section 351(b) (3) as.

net income ‘computed w ithout allow ance of the dividend

deduction. otherwise allowable, but minus the sum of the :

deductions heretofore mentioned. Section 351 b)(4) pro-

vides that the terms used in the section shall have the same

_ meaning as when used in Title I. It is, therefore, apparent

_ that the computation of the tax is based upon the iriforma-

tion contained in Forni 1120. ‘The’ information, required

to fully compute the tax: without ‘deductions to the tax--

payer was fully disclosed to the Commissioner by the re-

turn [R. 49]. This finding was accepted by the Circuit.

Court of Appeals, the couft ‘stating that the Board had:

found that the taxpayer’s “returns” showed “all the facts

necessary for the respondent (Commissioner ) to compute

the taxes as a personal holding company obligation” [R.

.278|. The attempted challenge of the finding contained in-* -

the footnote 4, page 16 of the petitioners’: brief is the first

- attempt of: the Commissioner to challenge the finding of

the. Board. It is significant .that*no challenge to the suff-

_ ciency of the evidence to support the Board’s findings is.

contained in the specifications of errors to be urged at the |

hearing beforé this Court. No such error was assigned ’

to the Circuit Court of ‘Appeals. Petitioners’ Brief ‘on

page 5 sets forth specifications of errors to be urged in |

this case without specifications that any finding of the

‘Board of Tax Appeals was unsupported by the evidence.

It is elementary that a point not raised by an appellant in

the lower courts cannot, for the first time. be raised in this

.

—s—

Court on‘certiorari. (Burnet v. Commonwealth Improve- —

ment Co., 53 S. Ct. 198, 287 U.S. 415, 77 L. Ed. 399.)

‘We note that the Commissioner's unspecified .¢rror raised

in connection with the statement of the Circuit Court of

Appeals 3 is that the finding does not imply that the tax-

payer (1), disclosed it was a personal holding. company or

(2) furnished information from which personal holding

company tax could be correctly ‘computed. -From the rule

applied in the Germantown case it will be apparent that

; such return, if filed in good’ faith, starts the running of the —

Statute of limitations although it did not ‘disclose that

- taxpayer was a personal holding company. If it furnished

> information from which the personal -holding-company iax’ |

~ could be computed,’ the fact that: the computation might

not: be entirely correct* would not have the effect of con-’

gs this as'a no return case. o's eae

oa

U.S. 453, held that a mere estimate of tax he fiot con-

stitute a return sufficient to start the statute of limitations

running, the Court nevertheless recognized that the. Flor-:

sheim case did not involve. the rule that holds that the filing .

of a return which is defective or incomplete is neverthe-

oa

/ less sufficient to start’ the running of the statute of lim-

itations. In the Florsheim: case the document filed did not :

purport to'constitute a ‘return, but merely a tentative form

for the-estimation of a tax. | Petitioner refers to the re-

turn filed in the Florsheint case as having been made under

similiar circumstances to the instant case ‘(Petitioner's

3In this case the omitted information was for the benefit of the:

taxpayer:, not for the benefit of the Government—since the

enumerated information was for the purpose of providing tax-.

payer with additional deductions.

though this Court in Florsheim Bros. v. U.-S.; 280° :

‘Brief, p. 14). ‘A reading m the Florsheim case, Sciatinas

— will, reveal that the circuinstances. were not in any way

"similar to the instant case. Form 1031T filed in that case,

was not intended to be a: return, but was in compliance

with section 239 of the Revenue Act-of 1918 whereim pro-

~ vision was made for a tentative return, showing an estimate

of taxes only. :

It will be apparent that the “filing of rae 1120 has

the effect of supplying the information for the determina-

_ tion of the surtax provided for hy section +351 in a far

greater manner. than the filing of Form 1041 which had

the effect of supplyi ing similar information to, the de-

termination of a eae ‘income. ‘tax, as held in- the

Germantowm case.

-That the Commissioner lied not squarely meet this —

problem in his attempt to distinguish the Germantown case,

is apparent. from the ‘following excerpt from page 41 of

. Commissioner’ s brief in the Simpson case: ¢

“In the first place the return in that case contained .

all the data necessary for the assessment of the tax

“by the Commissioner. In the. present case the return

which was filed was. insufficient to advise the Com-

missioner that any liability existed for. the personal

holding company tax.’

The. petitioner ‘dots not say, that in the prese nt case

the return which was filed ‘did not contaiti all the data

-- necessary for the assessment of the tax by. the Commis-

sioner, or using. the veords of the Court; the data

“from w hich a tax couig be computed and assessed.” .\s

we Have heretofore #tatéd, to distinguish the Germantow!

‘case it would be gecessary for the petitioner to ‘establish

that the return filed in the’ ‘present case did not contain

data necessary for the computation of the tax by the,

Commissioner. : To assert as’a distinguishing feature that-

the return filed in. the present case was insufficient because

it did not disclose the existence of.a personal holding

- company liability. is to ascribe to the Germantowif case |

ratio decidendi, which is absent from that decision. This

- Court was unconcerned in the Germautown case that the

form therein filed did not disclose the character of the

taxpayer as an association taxable as a corporation.

Petitioner seeks also to distinguish the Germantown case

on the ground that it did not involve -the. statute imposing

' ‘penalties for failure to file the prescribed return, but in-

volved only the statute of limitations on" “making “assess-

- ments (Commissioner’s Brief, ‘Simpson case, p. 41). Peti- -

tioner, however, does not point out, any reason why a re-

_turn which is sufficient to start the running of the statute

of limitations. is not sufficient also to avoid penalties. The

decision of the Court in the Germantown. case gave effect

to sections 275 and 276 of the Revenue Act in the same

manner as the venue provision of section” 1002 of the

Revenue Act of 1926 as aménded. We. know of no reason

_why: the same reasoning does not lead to the conclusion

that a return for the 4 of sections 1002. 273, >, 270,

and 296, are not identical. |

a>

Strenuous argument is made by the Commissioner

“that the Commissioner’ | functions would be impeded

if the Court in the present case followed its deci-

sion in the Germantown case. The argument assumes

an intentional evasion by the ‘taxpayer for the pur-

pose of deceiving the Commissioher. . If this were true.

then the Commissioner would have a case of a’ false or

fraudulent return, ‘which would avoid the rutining of the

.

~——_=

- statute of limitations. .It must’ be remembered that the :

| instant case presents an innocent taxpayer who, in good

faith, chooses an erroneous ferm of return, which form,

nevertheless, supplies. all of ‘the information upon which

the tax liability can be computed. It is not true that a

premium would be placed upon: taxpayers choosing the

‘ wrong form. ‘li an intentional selection of the w vrong form © -

of return is made,-this would be a clear case of a fraudu-

lent: or false return, thus. invoking to the Commissioner

the protection afforded by section 276(a). In so far as

penalties are concerned, the Commissioner could invoke the

" even greater penalty of section 293(b) which provides for

50% of the total deficiency where the deficiency is due to

fraud with intent to evade the tax. ©

Nor is’ the conyeniente of the Commissioner a reason

‘for writing into the statute something that is not there..

In the words of justice Léarned Hand of the Second Cir-

cuit dissenting in ‘the case of O'Siwdlivan Rubber .Co. 7.

Commissioner, 120 Fed. (2d) 845: 7 he

“The justification for’ this section is that Sec.

- 351(c) makes applicable to the surtax all the admin-

istrative provisions of Title I: and since that Title

requires ; a return, so must Title TA. -Therefore there

must be two returns, as the Commissioner has

ruled. I raise no dovbt as to the propriety of his

ruling: but the statute did not compel it. If he had

merely added to the return required by Title | ‘the *

questions necessary for .Title IA it would clearly

have been a compliance with section 351(c¢): and

certainly no penalty could have been then imposed.

\We are imposing one only because he has found it

a

administratively convenient to make two bites to this

‘particular cherry. .The penalty was not’ meant for

that; it was imposed to punish delinquents; those who

either deliberately, or from indifference. made no ef-

fort at all to pay their taxes, not those who ‘merely

‘misunderstood duties which they tried to discharge.

By recourse to what even gramugatically .is.a bit of

by no means an inexorable’ verbal reasoning we are

__ perverting it from that purpose.” é'

os .

Ya %

The Commissioner will not be hurt by a decision of this

Court consistent with its decision in the Germantown

Trust Co. case. As indicated by Justice Hahd. the Com-.

* missioner can easily solve his problem by adding to the

form of return required by Title I the questions necessary

for Title 1A." It will not require an act of Congress

to accomplish this purpose.. But even if such an act were.

necessary. the Commissioner should not be enabled to: avoid

the necessity thereof by substituting his regulations for

legislation by the Congress.

Credit Alliance Co. wv. Helvering, 216:U. S. 107, 86

L.. Ed. 1307, 62.S. Ct. 989.

At page #0 of the Gielenenint’s Brief. in the Simpson

case, the Commissioner states that with the exception ot

the decision of the Circuit Court of Appeals in the Ninth

Circuit in the present case, it has been uniformly held that,

a taxpayer who fails to file a personal holding company

return on Form 1120H even though a corporation income

tax return on Form 1120 has been filed is. subject ‘to the

prescribed ‘statutory penalties for failure to file a return.

=o

The statemeht is followed by a citation of the following

cases : : | | .

-Noteman v. Welch, 108 Fed. (2d) 208. C. C. A. 1:

' O’Sulivan Rubber Co. v. ese ath 120 Fed.

(2d) 845, C. C. A. 2;

Lone Pine 7 . Helvering, 121 Fed. 20) 935, C. c

-

Logan Coal etc. v. . Melweting, 122 Fed. (20 848,

co omy ery

Gerard Investment éte., 122 Fed. (2d) 843.6.

A. 3

Porto Rico Coal etc. v. Cgmmussioner, 120 Fed.

as 212,.C. C. A. 2.

le examining + ioe cases it is interesting to note that

the courts therein became invglved in considerable diffi-

culty ‘in trying to sustain the result reached. In the case

of O'Sullivan Rubber Co. v. Commissioner, supra, the

Court arrived at the same result as the first C ircuit Court

gi Appeals in Noteman v. Welch, supra, but disagreed on

reasoning: The Second Circuit Court pointed’ out that

the basis of the decision in Noteman 7. Welch, supra‘svas-

' that an incomplete return did not start the statute of lim-

itations running. The Circuit Court of Appeals for the

Second Circuit realized that this was error and refused to

| predicate its decision upon that ground. It therefore

engaged itself in’ the fiction of the separateness of

- Title I and Title IA in order to uphold the Commis-

sioner’s position. This was no easy task, and Jus-

ticé Learned Hand refused to follow his brothers

on ~ the bench and in a most able dissenting opinion

- pointed dut the error of the majority decision. Justice

Hand noted w ith approv al the unanimous deciston of the

Ninth Circuit in this case. It should be noted also that ~

‘ the Board of Tax Appeals itself was not in agreement in

the instant. .case. The Honorable Van Fosen, a member

of the Board, basing a dissenting opinion on his helief

that this case is controlled by the decision of the Supreme

Court in the Germantown case [R. 85].

Petitioner cites Beam v. Hamilton, 289 Fed. 9, C.C.A.

6,.and a number of cases followi ing that decision (c ommis-

sion’s Brief, Simpson case, pp. 43-44). In so far as the

Sixth Circuit Court of Appeals i in 1923 in the ‘case ot

Beam wv. Hagnilton, supra, is inconsistent with the decision

_ of this Curt in the Germantown case, we are not per-

- suaded by its determination on such issues. We ‘note

various dissimilarities in fact between the cited case and

_ the instant case, particularly that as in the Germantown

case the present case involved the filing of a return in a

form sufficient from which the tax eould be computed, a

circumstance which was not present in Beam 7. Hamilton,

; supra, Also, in the latter cited case the court specifically

points out that the statute as well as the regulations in ex-

press and formal terms require separate arid distinct re-

turns.

Apparently the Commissioner attempts to persuade this .’

Court to reverse the Crreuit Court of Appeals. on the pen-

alty issue, even if it does not do so with respect to the

*

running of the statute of limitations (Commissioner's

Brief i in Simpson: case, pp. 41, 44, 45). It appears obvious,

. however, that if the return filed is a return sufficient for

the purposes of section 275 of the Revenue Acts of -1934

and 1936 it would be a return sufficient for the purposes °

of section 291 ‘of the Revenue Acts of 1934 and 1936. In

the Simpson brief, the Commissioner cites section 406 of

the Revenue Act of 1935 as being applicable to the penalty.

assessed in this case. We do not know just exactly how

~ - .he reconciles ‘section 406, which is a part of Title 1V and

®

* apparently has no reference to income tax returns as such,

with section 291 of the Revenue Acts of 1934 and 1936,

respectively. In view. of section 291 which specifically re- _

fers to returns under income tax statutes, it would seem

that section 406 with reference to Internal Revenue tax

returns is not concerned with income taxes.

It is a well established rule as announced ‘by decisions °

of this and other courts that where’ there is any doubt as

to the meaning or interpretation of a statute, it should be

resolved to the. benefit of the taxpayer. (Gould v. Gould,

38 S. Ct. 53, 245 U.S. 151, 68 L. Ed. 211.) This rule

has been applied to tax statutes involving the statute of

limitations. (U-S-e-tpdtke;-281 U.S. 489; 74 1. Ed.

984, 50 S. Ct. 367.)

—27-— | |

Conclusion. — — Se

The. Commissioner in his brief has said the conse-

- quences of the decision below will be to bar forever the

' collection, not only of a penalty, but of. a tax itseif, Ww hich

the taxpayer, contrary | to the plainest mandate, has failed :

to disclose.” Ev ven if such were the result, his plea should |

be directed to the Congress of the United § States for. legis-

‘dation whicn would avoid such an unfair result. |W e can-

not let the statement pass, howev ery without - ‘commenting

- upon its shortsightedness. Penalties are intended as pun-

ishment for fraud, evasion or wilful or intentional neglect.

The Commissioner would extend them beyond such classes

merely to serve his own convenience. The Conimissioner

has undertaken to nullify the decision of this Court in *

Germantown Trust Company v. Commissioner, 309 Vv. &.

304, without benefit of ‘Congress and because he saw

fit to specify separate returns when he could just as easily

: have obtained all the information necessary in one return.

Despite the determination of this Court that where a tax-

payer, in good faith, maKes the mistake of filing an er-

roneous return, -but such return contains all of the in-

formation necessary for the computation of ‘the tax. that

under such circumstances, the statute of limitations is

. not avoided as in the case of the Tailure to file any return,

- the Commissioner has undertaken to substitute his law by *

regulation for decision of this Court. Then to make the

exaggerated statement found on page 17 of -his brie that

in practical effect the consequences of the decision helow

“will be to.bar forever the colleetion, not only ota a penalty,

but of a tax itself,” is to indulge in a conclusion too fanci-

ful to require an answer. The decision of this Court in

the. Germantown ‘case’ has not served ‘to bar forever the

collection” ‘of corporate income taxes. If the Commis-

sioner would more carefully follow the letter of the statute

in the exercise of his power to provide for the return of

information in returns, he will find an easy answer to his

problem. The decision of the Court below was an honest |

- one. It followed the principles enumerated by this Court

despite the implerations of a Commissioner of Internal

Revenue who seeks to ‘have the law distorted to accom-

- plish his‘own convenience.

We respectfully submit that the decision of the lower

court is correct and should be affirmed.

Respectfully submitted,

RAPHAEL DECHTER,

Attorney for Respondents.

>

Harry A. PINEs, *

Of Counsel.

| SUPREME COURT OF THE UNITED STATES.

No. henna heeas, 1943.

a

‘Commissioner: of Internal Revenue,)

Petitioner,

. vs. .

Lane-Wells Company and Techni-

craft Engineering Corporation. - ]

On Writ of Certiorari to the

United States Cireuit Court

of Appeals ‘for the Ninth

Cireuit:

| [February 14, 1944.) _

Mr. Justice Jackson. delivered the opinion of the Court...

The Lane-Wells’ Company is a transferee and successor of the

taxpayer _Technicraft Engineering Corporation and as such is

liable. for its taxes. The Commissioner, the Board of. Tax Ap-

peals,' and the Cireuit Court .of Appeals? have held that Techni-

craft was a personal: holding company in 1934, 1935. and 1936,

and that question is no longer open. ©__ .

For the years named, Technicraft filed the: usual corporation

income tax returns on Treasury Form 1120. On this form the

following appeared: ‘‘Is the corporation a personal holding com-

pany within the meaning of section”351 of the Revenue Act of

1934 [or the appropriate year]? (If so, an additional return

on Form ine must be filed.)’’ To this each year Technicraft

_ answered, **No.’’ In none of the years-in question did it file a

personal holding company return on Form 1120H. It was ad-

vised, and in good faith believed, that it was not a a personal hold-

ing company within the meaning of the Act.

. The Commissiorler relies upon the taxpayer's alleged de fault in

two respects. - First, the deficiency notices were given within three

years of the filing of the corporate return on Form 1120 for the

year 1936, but not within three years of sueh returns for 1934 and

1935 and not within four years (the period as toa transferee) of

the 1934 return. Hence, a part of the tax is barred by the- statute

of limitations if the return filed is the only one required to start

the statute.. Second, the Commissioner has assessed and the Board

has upheld as to each year a 25 per cent penalty for failure to file

the personal holding conipany return.

143 B. To A. 463.

2134 F. 24-977, 980, .

a

°

2 ' Helvering vs. Lane-Wells Co. et al.

?

The Court of Appeals for the Ninth Cireuit reversed the de-

cision of the Board of Tax Appeals. It“held the. one return suffi-

cient to start the running: of, the limitation statute as to both in-

come taxes and personal holding company taxes and held that

there was no default warranting imposition of the penalty. This

: decision conflicted .with that of the Court of Appeals for the Seeoud

Cirenit in Simpson & Co! v. Commissioner, 128 F. 2d 742, and

we ‘granted certiorari.

Prior to 1934, as now, personal , holding companies were liable —

for the regular’ corporation income taxes under Title I of the

Revenue Acts and they, like all other corporations, were subject

to’additiénal tax upon‘an accumulation ef profits where there was

‘present a purpose: of avoiding surtaxes upon shareholders.* The

obseurity of corporate taxpayers ’,purposes and difficulties of proof

made the hatter tax something of a dead letter in practice, arid a

new tax was devised ‘‘to provide for a tax which will be auto-

matically levied upon the holding company without any necessity

for proving a purpose of avoiding surtaxes.’’* The new tax was

included ina separate title of the Revenue Act of 1934, Title I[A—

Additional’ Income Taxes, and constituted Seetion 351, entitled

Surtax on Personal Holding Companies.. As part (c) thereof it

enacted that administrative- provisions. including penalties, ap-

plicable in respect of the taxes imposed by Title I should apply in

respect of the tax imposed by this section.» It seems clear that this

sdéetion created a new tax separate from that.on ificome of ordinary

corporations, igs

- Among the administrative provisions of. Title I incorporated by

reference in the personal holding company tax section are § 54(a)/’

which requires one liable for such tax to ‘‘make such returus. and

comply with such rules and regulations, as the Commissionex vith

=

3E.g., Revenue Act of 1932, § 104, 47 Stat. 195.

4 Hen a No. 558, 73d Cong,, 2d Sess., p. 15; 1939-1 Cum. Bull. (Part 2

O86, 596. P . ry

5 § 351(c¢) provides: . ‘All provisions of law (ineluding penalties) ap

plicable in respect of the taxes imposed by Title T of this Act, shall insotar

as not ‘inconsistent with this seetion, be applicable in respect of the tar

imposed by this section, except that the provisions of section , 131 of that tith

shall not be applieable.’’ 48 Stat. 752. .

6 § 54(a) provides: -‘‘Evyery person liable to any tax imposed by this tit

or for the eollection thereof, shall keep sueh recor ds. render under onth. su

- statements, make such returms, and comply with stich rules: and re guiation-

as.the Commissioner, ‘with the approval of the Secretary, may from, time t

time preseribe.’’ 48 Stat 698 . ‘

_ ee

a

Helvering vs. Lane-Wells Co. et a... 5 8

‘the approval of the Secretary may from time to time prescribe,’’

_ and § 62, which directs the Commissioner to prescribe and publish

‘all needful rules and’ regulations for the enforcement of this

¢ title.’’? Pursuant.thereto Treasury Regulations were promulgated

providing unequivocally: ‘‘A separate return is required for the _

surtax imposed under section 351. Such return shall be made on

Form 1120H.’’ ae oes Ad

The taxpayer has not complied with this regulation. It says,

however, that its regular corporation income tax return must be

taken as an equivalent to the separate, return, under our decision

in Germantown ‘Trust Co. v. Commissioner, 309 U. S. 304, both

for starting the period of limitation and for avoiding the- penalty.

The taxpayer in the Germantown case filed a return on a w rong

_ form The return contained, however, ‘‘all of the data from which

a tax could be computed and assessed although it did not purport

: to state any amount due as tax,’’ and the Court said, ‘‘this defect

_ falls ghort of rendering it no return whatever.’’ 309 U.S. at 308,

310. There the only liability involved was for a Title I income

tax, and the return was addressed to that liability, as to which

the court held that it set the statute of limitations running. Here

the taxpayer is under, liabilities for two, taxes and under ati obli- :

gation to file two returris, and it says that one return addressed

to but one of the liabilities answers the purpose of both.

ey contended : by the Govern. nent that the returns in the

present case were insufficient to advise the Commissioner that any

liability existed for the holding-company ‘tax. The Board of Tax

_ Appeals found that the returns filed by the corporation disclosed

_its gross income and deductions and its resulting net income. 43

B. T. A. 470, 471. The Cireuit Court of Appeals construed this

as finding that they ‘showed all the facts necessary for respondent

. to compute the taxes as a personal holding. company vbligation.’

134 F. 24 at 978. But it seems admitted that the returns did not

show thie facts’ on which liability would be predicated. Such

liability was expressly denied by the return, and to obtain data

on whieh. corporations subject to the tax could be identified and

assessed was the very purpose of requiring a separate return ad-

7 62 provides : **The Commissioner, with the approval of the Seeretary,

shall preseribe and publish all needful rules - regulations for the enforce-

ment of this title.’’ 48 Stat.700. y

§ Regulations 86 and 94, Article 351-8.

,

TR.

4° , * Helvering vs. .Lane-Wells Co. et al.

dressed to that liability. Taxpayer says tle* the information

called for by Form 1120H is information that could have been

called for by Form 1120. We assume so, but we do not see how

the fact helps the taxpayer, for the Treasury was fully within the .

statute in requiring that information ii a separate return.

Congress has given diseretion to the Commissioner to preseribe

_ by. regulation forms of ‘returns and has made it the duty of

the taxpayer to comply. It thus implements the system of self-

assessment: which is so largely the basis of our American scheme

of income taxation. - The purpose is not alone to get tax informa-

tion in some form but also to get it with such uniformity, com-

_ pleteness, and arrangement that the physical task of handling and

verifying returns may: be readily accomplished. _ For such pur-

poses the regulation requiring two separate returns for these

ye was a-reasonable and valid one.and the finding of the Board

’ Tax Appeals that the taxpayer’ is in default is correct.

" sflluee no personal holding company returns were filed, the

statute of limitations did not commence. to run, and the _ ASSESS

ment of the tax was not barred. 10 ‘%

Since the taxpayer defaulted in filing a required return for the ”

_ Years 1934 and 193% the 25 per cent penalty in the applicable acts

became mandatory" and was correctly upheld by. the. Board of Tax.

Appeais. * yes

The statute provides: ‘‘In the case of a false or ‘fraudulent return wit!)

‘intent to evade tax or of & failure to file a return. the tax may be assessed,

or a proceeding in court for the collection of such tax may be begun without,

assessment, at any time.’’ § 276(a), 48 Stat. 745. .

10 The Treasury Regulation also, provided: - ‘*The same‘ ‘provisions of Saw

‘ relating to the period of limitation for assessment and collection which govern

_ the taxes imposed by Title I also apply to the surtax imposed under Title IA.

_ However, since the surtax imposed under Title LA is a distinet and -separat«

_, tax from those imposed under Title 1, the making of a return under Title |

will not start the perio. of limitation for assessment of the surtax impose!

under Title IA. If the corporation subjegt to section 351 fails to make «

return, the tax may be assesged at any time.'’ Regulations 86, Art, 351-8.

The Court of Appeals thought this unauthorized. As we -have indicate;

we do not agree that it was beyond tle delegated authority, andl it appears

only to declare what was even otherwise the law.

11 The 1934 statute réads: ‘‘In case of any failure to maké and file a return

required by this title, within thé time prescribed - ‘by law or preseribed b»

the Commissioner in pursuance 6f law, 25 per centum of tho tax shall be adde

to the tax, exeept that when a return is filed after such time and it is shown

, that the failure to file it was due to reasonablé cause and not due to wilifu!

negiect no such addition shall be made to,the tar.’’ § 291, 48 Stat. 746. \

25 per cent penalty is likewise mandatory in this ease under § 406 of th:

ee ne 1, this provision excuses

late filing, for reasonable cause, but not

Re aes failure to file.- ,

_a

Helvering vs. Lane-Wellt Co. et al. 3 5

For 1936 the penalty presents a different question. The statute

applicable provides that it could be lifted if+it were shown that |

such failure’ was ‘‘due to reasonable cause and not due to wilful

neglect. ? Revenue Act of 1936, § 291, 49 Stat, 1727. ‘The Board |

has made no finding on that subject, apparently assuming that

the mandatory provisions applied to all years. The question is one

oi fact in the first. instance for the Board’s determination. Dobson —

y, Commissioner, — U,8.—. The Government does not object to

a remand to the’ Board for the limited purpose of reconsidering .

the imposition of the 25 per cent penalty for the year’ 1936 only,

if the respondent shall seasonably apply to the Board therefor.

Ju all things else the decision of the Board of Tax, Appeals is

_affirined. The judgment of the Court of Appeals is reversed, and

the cause remanded with directions to remand to the Tax Court

for ‘further a: in accordance with this opinion. .

A true copy.

Tet .. Ape ar .

Clerk; , Supreme Court, U.S

4i*