A-17692, JANUARY 25, 1928, 7 COMP. GEN. 433

A-17692: Jan 25, 1928

Additional Materials:

Contact:

Edda Emmanuelli Perez
(202) 512-2853
EmmanuelliPerezE@gao.gov

 

Office of Public Affairs
(202) 512-4800
youngc1@gao.gov

FOR SAME IS NOT BARRED BY SECTION 250 (D) OF THE REVENUE ACT OF 1921. WAS APPLIED IN PART SETTLEMENT OF A CLAIM OF THE GOVERNMENT AGAINST THE COMPANY FOR UNPAID TAXES FOR THE YEAR 1917. IT IS CONTENDED THAT THE GOVERNMENT'S CLAIM FOR TAXES IS BARRED BY SECTION 250 (D) OF THE REVENUE ACT OF 1921. THAT THE SET-OFF SHOULD NOT HAVE BEEN MADE. AFTER THE ASSESSMENT WAS MADE THE BUREAU OF INTERNAL REVENUE MADE A FIELD INVESTIGATION TO DETERMINE THE TAXABLE INCOME OF THE COMPANY FOR THE YEAR 1917. AS A RESULT OF THE INVESTIGATION IT WAS DETERMINED BY THE COMMISSIONER THAT DEDUCTIONS HAD BEEN CLAIMED AND TAKEN IN THE RETURNS WHICH WERE IN EXCESS OF AMOUNTS PROPERLY ALLOWABLE. CONTAINING FULL DETAILS OF THE ASSESSMENT WAS SENT BY REGISTERED MAIL ON MARCH 22.

A-17692, JANUARY 25, 1928, 7 COMP. GEN. 433

SET-OFF - CLAIM FOR INCOME TAXES A SET-OFF MAY BE MADE AGAINST SUMS OTHERWISE DUE FROM THE GOVERNMENT OF A CLAIM FOR TAXES FOR THE YEAR 1917 OF WHICH THE RECEIVER OF THE TAXPAYER HAD DUE NOTICE WITHIN FIVE YEARS FROM THE DATE OF THE FILING OF THE RETURN, FOR SAME IS NOT BARRED BY SECTION 250 (D) OF THE REVENUE ACT OF 1921, 42 STAT. 265.

DECISION BY COMPTROLLER GENERAL MCCARL, JANUARY 25, 1928:

REVIEW HAS BEEN REQUESTED OF SETTLEMENT NO. 0118865, DATED SEPTEMBER 14, 1926, OF THIS OFFICE, BY WHICH THE SUM OF $97,139.50 ALLOWED THE AMERICAN MANGANESE MANUFACTURING CO. BY THE SECRETARY OF THE INTERIOR UNDER THE ACT OF MARCH 2, 1919, 40 STAT. 1274, WAS APPLIED IN PART SETTLEMENT OF A CLAIM OF THE GOVERNMENT AGAINST THE COMPANY FOR UNPAID TAXES FOR THE YEAR 1917.

IT IS CONTENDED THAT THE GOVERNMENT'S CLAIM FOR TAXES IS BARRED BY SECTION 250 (D) OF THE REVENUE ACT OF 1921, 42 STAT. 264, AND, THEREFORE, THAT THE SET-OFF SHOULD NOT HAVE BEEN MADE.

THE COMMISSIONER OF INTERNAL REVENUE REPORTED IN LETTER DATED OCTOBER 14, 1927, THAT FOR THE YEAR 1917 THE AMERICAN MANGANESE MANUFACTURING CO. EXECUTED ITS RETURN ON MARCH 28, 1918, AND FILED SAME WITH THE COLLECTOR ON MARCH 29, 1918. IN THIS RETURN THE COMPANY SHOWED A NET INCOME OF $912,199.82 AND A TAX LIABILITY OF $141,323.58. AFTER THE ASSESSMENT WAS MADE THE BUREAU OF INTERNAL REVENUE MADE A FIELD INVESTIGATION TO DETERMINE THE TAXABLE INCOME OF THE COMPANY FOR THE YEAR 1917, AND AS A RESULT OF THE INVESTIGATION IT WAS DETERMINED BY THE COMMISSIONER THAT DEDUCTIONS HAD BEEN CLAIMED AND TAKEN IN THE RETURNS WHICH WERE IN EXCESS OF AMOUNTS PROPERLY ALLOWABLE. THE ADJUSTMENT OF THESE DEDUCTIONS CLAIMED BY THE TAXPAYER RESULTED IN AN ASSESSMENT OF ADDITIONAL TAXES AGAINST THE COMPANY AMOUNTING TO $236,633.01. A LETTER DATED MARCH 21, 1923, CONTAINING FULL DETAILS OF THE ASSESSMENT WAS SENT BY REGISTERED MAIL ON MARCH 22, 1923, TO THE COMPANY AT ITS PHILADELPHIA ADDRESS. THE COMPANY HAD GONE INTO THE HANDS OF A RECEIVER IN DECEMBER, 1922, AND THE SAID LETTER OF MARCH 21, 1923, ADDRESSED TO THE COMPANY, WAS RECEIVED BY THE RECEIVER ON MARCH 23, 1923. THUS THE RECEIVER WAS FORMALLY AND OFFICIALLY APPRISED OF THE TAX LIABILITY FOR THE YEAR 1917 ON MARCH 23, 1923. THE ASSESSMENT APPEARS TO HAVE BEEN FURTHER INVESTIGATED BY THE BUREAU OF INTERNAL REVENUE WITH THE RESULT THAT BY LETTER DATED JUNE 23, 1925, THE COMMISSIONER INFORMED THE RECEIVER THAT THE PREVIOUS FINDINGS HAD BEEN CONFIRMED AND AGAIN ADVISED THAT THE AMOUNT OF THE UNPAID TAXES FOR YEAR 1917 WAS $236,633.01, EXCLUSIVE OF PENALTIES AND INTEREST. UNDER DATE OF DECEMBER 16, 1925, IT IS STATED THAT THE PROPER COLLECTOR REPORTED THE AMERICAN MANGANESE MANUFACTURING CO. AS BEING INDEBTED TO THE GOVERNMENT IN THE SUM OF $778,220.93 FOR INCOME TAXES NOT PAID FOR THE YEARS 1917 AND 1918, AND A 5 PERCENT PENALTY THEREON IN THE SUM OF $38,901.15. SAID TAXES, INTEREST, AND PENALTY WERE STILL UNPAID AT THE TIME THE SETTLEMENT HERE IN QUESTION WAS MADE.

IT IS CONTENDED THAT THE ITEM OF $97,139.50, ALLOWED BY THE SECRETARY OF THE INTERIOR UNDER THE ACT OF MARCH 2, 1919, SUPRA, MAY NOT BE USED IN PARTIAL LIQUIDATION OF THE TAX LIABILITY BECAUSE THE TAX LIABILITY IS BARRED UNDER SECTION 250 (D) OF THE REVENUE ACT OF 1921, SUPRA, AS FOLLOWS:

* * * NO SUIT OR PROCEEDING FOR THE COLLECTION OF ANY SUCH TAXES * * * SHALL BE BEGUN, AFTER THE EXPIRATION OF FIVE YEARS AFTER THE DATE WHEN SUCH RETURN WAS FILED. * * *.

THE ASSESSMENT OF TAXES IN THIS INSTANCE WAS MADE, AND THE RECEIVER HAD DUE NOTICE OF THE AMOUNT OF THE LIABILITY THEREUNDER, WITHIN THE FIVE-YEAR PERIOD FOLLOWING THE FILING ON MARCH 29, 1918, OF THE INCOME TAX RETURN FOR 1917. SHORTLY AFTER APRIL 1, 1923, THE PROPER COLLECTOR OF INTERNAL REVENUE FILED WITH THE RECEIVER--- OR WITH THE STATE COURT WHEREIN THE INSOLVENCY PROCEEDINGS WERE PENDING--- PROOF OF THE GOVERNMENT'S CLAIM FOR TAXES DUE, AND IT IS CONTENDED ON THE PART OF THE RECEIVER AND THE TAXPAYER THAT THE FILING OF PROOF OF CLAIM, BEING SUBSEQUENT TO THE EXPIRATION OF THE FIVE-YEAR PERIOD FROM DATE OF FILING THE RETURN, WAS INOPERATIVE BECAUSE OF THE BAR IN THE ACT OF 1921. HOWEVER, IT IS WELL SETTLED THAT IN BANKRUPT CASES THE GOVERNMENT IS NOT REQUIRED TO FILE PROOF OF A CLAIM FOR TAXES. UNITED STATES V. EYGES, 286 FED.REP. 683; IN RE ASHLAND EMERY AND CORUNDUM CO., 229 FED.REP. 829. AS STATED IN IN RE CHANDLER MOTORS OF NEW ENGLAND, INC., 17 RED.REP./2D) 998," THE TRUSTEE HOLDS THE ESTATE IN TRUST FOR VARIOUS PURPOSES, ONE OF THEM BEING TO PAY LAWFUL TAXES. NO PROCEEDINGS BY THE GOVERNMENT WITH RESPECT TO THIS TAX WERE REQUIRED, EXCEPT SUCH AS MIGHT BE NECESSARY IN ORDER TO FIX THE PROPER AMOUNT OF IT.' A SIMILAR CONCLUSION WAS REACHED IN THE CASE OF IN RE MCCLURE CO., BANKRUPT, DECIDED AUGUST 31, 1927, BY THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF GEORGIA. SEE ALSO SECTIONS 3466 AND 3467, REVISED STATUTES. SINCE THE RECEIVERSHIP PROCEEDINGS WEREINSTITUTED PRIOR TO THE EXPIRATION OF THE LIMITATION PERIOD FOR COLLECTION AND SINCE THE RECEIVER HAD FORMAL NOTICE OF THE AMOUNT OF LIABILITY FOR TAXES, THE STATUTE OF LIMITATIONS WITH RESPECT TO PROCEEDINGS TO COLLECT THE TAX IS FULLY SATISFIED. THE CITED DECISION IN NEW YORK AND ALBANY LIGHTERAGE CO. V. BOWERS, 273 U.S. 346, HAS NO APPLICATION FOR THE REASON THAT SECTION 250 (D) OF THE REVENUE ACT OF 1921 WAS SATISFIED IN THE PRESENT CASE BY THE NOTIFICATION OF THE RECEIVER OF THE INCOME TAX LIABILITY OF THE COMPANY WITHIN THE PERIOD OF FIVE YEARS FROM THE DATE OF FILING OF THE RETURN.

UPON FURTHER CONSIDERATION THE SETTLEMENT OF SEPTEMBER 14, 1926, MUST BE AND IS AFFIRMED.