A-38751, NOVEMBER 19, 1931, 11 COMP. GEN. 197

A-38751: Nov 19, 1931

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PROVIDING THAT NO CREDIT OR REFUND SHALL BE ALLOWED OR MADE AFTER TWO YEARS FROM THE TIME TAX WAS PAID. UNLESS BEFORE THE EXPIRATION OF SUCH PERIOD A CLAIM THEREFOR IS FILED BY THE TAXPAYER. THERE IS NO AUTHORITY OF LAW FOR THE ALLOWANCE OF A CREDIT TO BE APPLIED TO ADDITIONAL TAXES ASSESSED AFTER THE EXPIRATION OF THE 2-YEAR PERIOD. EVEN THOUGH THE ASSESSMENT PROPOSED TO BE APPLIED AS A CREDIT WAS DETERMINED PRIOR TO THE EXPIRATION OF THE LIMITATION PERIOD. THE DATE OF ALLOWANCE OF A CREDIT BEING NOT THE DATE UPON WHICH THE DETERMINATION OF THE OVER-ASSESSMENT IS MADE. WHICH AMOUNT APPEARS TO HAVE BEEN APPLIED AS A CREDIT AGAINST AN ADDITIONAL ASSESSMENT OF TAXES FOR THE CALENDAR YEAR 1927.

A-38751, NOVEMBER 19, 1931, 11 COMP. GEN. 197

INCOME TAX - REFUNDS AND CREDITS - PERIOD OF LIMITATION - DATE OF ALLOWANCES UNDER SEC. 322 (B) OF THE REVENUE ACT OF 1928, 45 STAT. 861, PROVIDING THAT NO CREDIT OR REFUND SHALL BE ALLOWED OR MADE AFTER TWO YEARS FROM THE TIME TAX WAS PAID, UNLESS BEFORE THE EXPIRATION OF SUCH PERIOD A CLAIM THEREFOR IS FILED BY THE TAXPAYER, THERE IS NO AUTHORITY OF LAW FOR THE ALLOWANCE OF A CREDIT TO BE APPLIED TO ADDITIONAL TAXES ASSESSED AFTER THE EXPIRATION OF THE 2-YEAR PERIOD, THE TAXPAYER NOT HAVING MADE CLAIM WITHIN SUCH PERIOD, EVEN THOUGH THE ASSESSMENT PROPOSED TO BE APPLIED AS A CREDIT WAS DETERMINED PRIOR TO THE EXPIRATION OF THE LIMITATION PERIOD, THE DATE OF ALLOWANCE OF A CREDIT BEING NOT THE DATE UPON WHICH THE DETERMINATION OF THE OVER-ASSESSMENT IS MADE, NOT ANY OTHER DATE INTERVENING, BUT THE DATE UPON WHICH THE COMMISSIONER OF INTERNAL REVENUE APPROVES THE ACTION OF THE COLLECTOR OF INTERNAL REVENUE, APPLYING THE AMOUNT OF OVERASSESSMENT TO OTHER TAXES DUE.

COMPTROLLER GENERAL MCCARL TO THE SECRETARY OF THE TREASURY, NOVEMBER 19, 1931:

THERE HAS BEEN SUBMITTED BY THE BUREAU OF INTERNAL REVENUE, FOR PREAUDIT, SUPPLEMENTAL SCHEDULE OF OVERASSESSMENTS IT-41393, IN FAVOR OF MRS. MARY L. BARTON, TRUSTEE, TRUST U/W OTIS BARTON, COVERING THE ALLOWANCE OF INTEREST IN THE SUM OF $4.02 DETERMINED BY THE COMMISSIONER OF INTERNAL REVENUE TO BE DUE THE TAXPAYER ON AN OVERPAYMENT OF $32.18 INCOME TAX FOR THE CALENDAR YEAR 1928, WHICH AMOUNT APPEARS TO HAVE BEEN APPLIED AS A CREDIT AGAINST AN ADDITIONAL ASSESSMENT OF TAXES FOR THE CALENDAR YEAR 1927.

IN SO FAR AS HERE MATERIAL, THE ESSENTIAL FACTS, AS DISCLOSED BY THE RECORD IN CONNECTION WITH THE MATTER, APPEAR TO BE IN SUBSTANCE AS FOLLOWS:

ON FEBRUARY 10, 1931, THE COMMISSIONER OF INTERNAL REVENUE SIGNED SCHEDULE OF OVERASSESSMENTS IT-41393 ON WHICH THIS OVERASSESSMENT WAS INCLUDED AND FORWARDED THE SCHEDULE TO THE COLLECTOR OF INTERNAL REVENUE, DISTRICT OF MASSACHUSETTS, FOR ADJUSTMENT. ON FEBRUARY 25, 1931, THE COLLECTOR LISTED THE OVERASSESSMENT IN QUESTION AS REFUNDABLE AND RETURNED THE SCHEDULE TO THE BUREAU OF INTERNAL REVENUE, FOR ADMINISTRATIVE ACTION. THE BUREAU, UPON RECEIPT OF THE SCHEDULE FROM THE COLLECTOR, DREW A LINE THROUGH THE ITEM MAKING A NOTATION IN THE "REMARKS" COLUMN OF THE SCHEDULE "HELD FOR EVIDENCE.' THE SCHEDULE, WITH THE REMAINING ITEMS, WAS THEN FORWARDED TO THE DISBURSING CLERK FOR PAYMENT AND THE CHECKS WERE ISSUED THEREON MARCH 19, 1931. ON APRIL 11, 1931, THE COMMISSIONER ASSESSED AN ADDITIONAL TAX AGAINST THIS TAXPAYER FOR THE YEAR 1927. SEE APRIL, 1931, PAGE 0, LINE 4-P. NO. 2 LIST. THEREAFTER, THE COMMISSIONER AGAIN RETURNED TO THE COLLECTOR THE OVERASSESSMENT FOR ADJUSTMENT ON SUPPLEMENTAL SCHEDULE OF OVERASSESSMENTS IT-41393. THE COLLECTOR APPLIED THE OVERPAYMENT FOR 1928 AS A CREDIT TO THE ADDITIONAL TAX ASSESSED AGAINST THE YEAR 1927. THE SUPPLEMENTAL SCHEDULE ON WHICH THE CREDIT WAS LISTED WAS SIGNED BY THE COLLECTOR JULY 2, 1931, AND IS NOW BEFORE THIS OFFICE FOR APPROVAL OF THE CREDIT AND CERTIFICATION OF THE INTERESTS ACCRUED ON THE OVERPAYMENT.

SECTION 322 OF THE REVENUE ACT OF 1928, 45 STAT. 861, PROVIDES, IN PART:

REFUNDS AND CREDITS

(A) AUTHORIZATION.--- WHERE THERE HAS BEEN AN OVERPAYMENT OF ANY TAX IMPOSED BY THIS TITLE, THE AMOUNT OF SUCH OVERPAYMENT SHALL BE CREDITED AGAINST ANY INCOME, WAR-PROFITS OR EXCESS-PROFITS TAX OR INSTALLMENT THEREOF THEN DUE FROM THE TAXPAYER, AND ANY BALANCE SHALL BE REFUNDED IMMEDIATELY TO THE TAXPAYER.

(B) LIMITATION ON ALLOWANCE.

(1) PERIOD OF LIMITATION.--- NO SUCH CREDIT OR REFUND SHALL BE ALLOWED OR MADE AFTER TWO YEARS FROM THE TIME THE TAX WAS PAID, UNLESS BEFORE THE EXPIRATION OF SUCH A PERIOD A CLAIM THEREFOR IS FILED BY THE TAXPAYER.

(2) LIMIT ON AMOUNT OF CREDIT OR REFUND.--- THE AMOUNT OF THE CREDIT OR REFUND SHALL NOT EXCEED THE PORTION OF THE TAX PAID DURING THE TWO YEARS IMMEDIATELY PRECEDING THE FILING OF THE CLAIM, OR IF NO CLAIM WAS FILED, THEN DURING THE TWO YEARS IMMEDIATELY PRECEDING THE ALLOWANCE OF THE CREDIT OR REFUND.

IN THE PRESENT CASE THE OVERPAYMENT OF 1928 TAXES APPEARS TO HAVE BEEN MADE ON MARCH 12, 1929, AND SINCE NO CLAIM FOR REFUND APPEARS TO HAVE BEEN FILED, THE 2-YEAR PERIOD UNDER THIS ACT WITHIN WHICH THE COMMISSIONER OF INTERNAL REVENUE COULD MAKE AN ALLOWANCE, EITHER FOR A REFUND TO THE TAXPAYER OR FOR APPLICATION AS A CREDIT AGAINST OTHER TAXES DUE, EXPIRED MARCH 12, 1931, AND IT SHOULD BE NOTED THAT WHILE THE COMMISSIONER OF INTERNAL REVENUE SIGNED THE SCHEDULE OF OVERASSESSMENTS ON FEBRUARY 10, 1931, THE ITEM WAS MARKED AS HELD FOR EVIDENCE WHEN THE SCHEDULE WAS RETURNED BY THE COLLECTOR INDICATING, APPARENTLY, THAT FURTHER CONSIDERATION WAS TO BE GIVEN THE MATTER OF REFUNDING THE AMOUNT. FURTHERMORE, THE ADDITIONAL ASSESSMENT AGAINST WHICH THIS OVERPAYMENT WAS APPLIED AS A CREDIT WAS NOT MADE UNTIL APRIL 11, 1931, AND THE CREDIT WAS NOT APPLIED THEREON UNTIL JULY 2, 1931, WHICH ACTION APPARENTLY WAS APPROVED BY THE COMMISSIONER SUBSEQUENT TO THAT DATE.

THE QUESTION AS TO THE DATE ON WHICH CREDITS AND REFUNDS ARE ALLOWED HAS BEEN THE SUBJECT OF VARIOUS DECISIONS OF THE SUPREME COURT OF THE UNITED STATES UNDER THE REVENUE LAWS IN EFFECT PRIOR TO THE REVENUE ACT OF 1928. AS TO REFUNDS, IT WAS HELD IN THE CASE OF GIRARD TRUST COMPANY V. UNITED STATES, 270 U.S. 163, THAT UNDER SECTIONS 250 (B), 252, AND 1324 (A) OF THE REVENUE ACT OF 1921, THE DATE OF ALLOWANCE TO WHICH INTEREST IS PAYABLE ON THE REFUNDS IS THE DATE OF FINAL APPROVAL BY THE COMMISSIONER AND NOT THE DATE WHEN THE COMMISSIONER FIRST DETERMINES THAT AN OVERASSESSMENT HAS BEEN MADE, NOR THE DATE OF FINAL PAYMENT. WITH RESPECT TO CREDITS, THE DECISION IN THE CASE UNITED STATES V. SWIFT AND COMPANY, 282 U.S. 468, HELD THAT THE DATE OF ALLOWANCE WAS THAT ON WHICH THE COMMISSIONER FINALLY APPROVED THE ADJUSTMENTS AS MADE BY THE COLLECTOR. IT SHOULD BE NOTED THAT SAID DECISION WAS RENDERED UNDER SECTION 252 OF THE REVENUE ACT OF 1921 AND SECTION 244 (B) (1) OF THE REVENUE ACT OF 1926. WITH REFERENCE TO REFUNDS, APPARENTLY WITH A VIEW TO OVERCOMING THE QUESTION INVOLVED IN THE GIRARD TRUST COMPANY CASE, SUPRA, THEN PENDING, IT WAS PROVIDED UNDER SECTION 1116 (B) (2) OF THE REVENUE ACT OF 1926 (44 STAT. 119), THAT THE TERM "DATE OF ALLOWANCE OF REFUND" MEANT "THE FIRST DATE ON WHICH THE COMMISSIONER SIGNS THE SCHEDULE OF OVERASSESSMENT IN RESPECT THEREOF.' NO SUCH SPECIFIC PROVISION IS CONTAINED IN THAT ACT WITH RESPECT TO CREDITS AND THERE APPEARS TO BE NOTHING IN THE REVENUE ACT OF 1928 DEFINING THE DATE OF ALLOWANCE EITHER AS TO REFUNDS OR CREDITS EXCEPT THAT AS TO ALLOWANCE OF INTEREST--- SECTION 614 (A) OF THE ACT OF 1928 PROVIDES:

INTEREST ON OVERPAYMENT

(A) INTEREST SHALL BE ALLOWED AND PAID UPON ANY OVERPAYMENT IN RESPECT OF ANY INTERNAL-REVENUE TAX, AT THE RATE OF 6 PERCENTUM PER ANNUM, AS FOLLOWS:

(1) IN THE CASE OF A CREDIT, FROM THE DATE OF THE OVERPAYMENT TO THE DUE DATE OF THE AMOUNT AGAINST WHICH THE CREDIT IS TAKEN, BUT IF THE AMOUNT AGAINST WHICH THE CREDIT IS TAKEN IS AN ADDITIONAL ASSESSMENT OF A TAX IMPOSED BY THE REVENUE ACT OF 1921 OR ANY SUBSEQUENT REVENUE ACT, THEN TO THE DATE OF THE ASSESSMENT OF THAT AMOUNT.

(2) IN THE CASE OF A REFUND, FROM THE DATE OF THE OVERPAYMENT TO A DATE PRECEDING THE DATE OF THE REFUND CHECK BY NOT MORE THAN 30 DAYS, SUCH DATE TO BE DETERMINED BY THE COMMISSIONER.

IN THE DECISION OF THE SWIFT AND COMPANY CASE, SUPRA, UNDER DATE OF FEBRUARY 2, 1931, AS TO THE DATE OF ALLOWANCE OF CREDITS, THE COURT SAID:

WHEN HE EXECUTES THE SCHEDULE OF OVERASSESSMENTS THE COMMISSIONER HAS NO KNOWLEDGE AS TO WHAT THE COLLECTOR'S ACCOUNT WITH THE TAXPAYER SHOWS. DOES NOT KNOW WHETHER THE OVERASSESSMENT WILL BE ENTIRELY USED UP IN ABATEMENTS, OR WHETHER, IF AN OVERPAYMENT IS SHOWN, IT WILL HAVE TO BE APPORTIONED PARTLY AS A CREDIT AND PARTLY AS A REFUND. IT IS TRUE THAT THE COMMISSIONER'S DIRECTIONS TO THE COLLECTOR ARE THAT THE LATTER SHALL EXAMINE THE ACCOUNTS AND MAKE THE PROPER ALLOCATIONS, AND IT IS TRUE THAT THE COLLECTOR'S ACTION IN SO DOING IS MINISTERIAL. BUT AFTER THAT CLERICAL WORK IS PERFORMED THE PRACTICE REQUIRES THE RETURN TO THE COMMISSIONER OF A STATEMENT OR SCHEDULE OF THE ALLOCATIONS, THE APPROVAL OF THAT SCHEDULE BY HIM, AND THE MAILING OF THE CERTIFICATE OF OVERASSESSMENT, EXECUTED ON HIS BEHALF, TO THE TAXPAYER. THERE IS NOTHING IN THE RECORD TO INDICATE THAT THE COMMISSIONER MIGHT NOT ORDER CORRECTIONS TO BE MADE IN THE ACCOUNTS OF THE TAXPAYER PRIOR TO THE MAILING OF THIS CERTIFICATE. THE PROOFS DO NOT DISCLOSE THAT HE HAS NOT IN PRACTICE DONE SO. AS THE SOLE DISCRETION AND AUTHORITY TO ALLOW A CREDIT RESTS WITH THE COMMISSIONER, WE THINK THAT, IN THE LIGHT OF THE PROCEDURE ABOVE OUTLINED, HIS APPROVAL OF THE SCHEDULE OF CREDITS AND REFUNDS MUST BE TAKEN TO BE THE FINAL EXERCISE OF THAT DISCRETION AND THE ALLOWANCE OF THE CREDIT. THIS CONSTRUCTION OF THE ACT BRINGS ABOUT UNIFORMITY IN ADMINISTRATION, AS IT MAKES THE ALLOWANCE OF CREDITS AND REFUNDS SIMULTANEOUS.

THERE APPEARS TO BE NO QUESTION AS TO THE APPLICABILITY OF THESE ARGUMENTS TO THE PROCEDURE IN EFFECT IN THE BUREAU OF INTERNAL REVENUE PRIOR TO THE REVENUE ACT OF 1926. FOLLOWING THE ENACTMENT OF THIS LAW, HOWEVER, IN VIEW OF ITS PROVISIONS DEFINING THE DATE OF ALLOWANCE OF REFUND, A NEW PROCEDURE WAS ADOPTED FOR SCHEDULING ITEMS TO THE COLLECTOR, THE SUBSTANTIAL DIFFERENCE BEING THAT UNDER SUCH NEW PROCEDURE ONE SCHEDULE (FORM 7920) INSTEAD OF TWO, IS USED FOR ALL ADJUSTMENTS, THIS SCHEDULE OF OVERASSESSMENTS BEING SIGNED BY THE COMMISSIONER AT THE TIME IT IS SENT TO THE COLLECTOR FOR ADJUSTMENT, NO PROVISION BEING MADE ON THIS FORM OR UNDER THE NEW PROCEDURE FOR THE SIGNATURE OF THE COMMISSIONER APPROVING THE ADJUSTMENTS AS AND AFTER MADE BY THE COLLECTOR. SECTION 1116 OF THE REVENUE ACT OF 1926 WAS SPECIFICALLY REPEALED BY SECTION 614 (C) OF THE ACT OF 1928 SO THAT THE DATE OF ALLOWANCE OF A REFUND IS NO LONGER THE DATE DEFINED IN SAID ACT OF 1926, AND SINCE THIS FEATURE HAS BEEN ELIMINATED UNDER THE REVENUE LAWS NOW IN EFFECT, IT WOULD APPEAR THAT THE DECISIONS RENDERED BY THE COURTS AS TO THE DATE OF ALLOWANCE OF REFUNDS AND CREDITS ARE FOR APPLICATION UNDER THE PRESENT LAW. ALSO, AS UNDER SUCH DECISIONS THE FINAL DATE OF APPROVAL OF THE ACTION TAKEN BY THE COLLECTOR IN CASES OF CREDITS IS THE CONTROLLING DATE, THAT IS TO SAY, THE DATE OF ALLOWANCE OF THE REFUND OR CREDIT, A PROPER SHOWING SHOULD BE MADE ON THE SCHEDULE AS TO THE DATE ON WHICH THE FINAL ACTION OF THE COMMISSIONER IS TAKEN.

WITH RESPECT TO THE PRESENT CASE, IT APPEARING THAT THE ACTION OF THE COMMISSIONER APPROVING THE ADJUSTMENTS MADE BY THE COLLECTOR AS TO THE ITEM OF $32.18 WAS NOT TAKEN UNTIL AFTER JULY 2, 1931, AND, THEREFORE, AFTER MARCH 12, 1931, THE DATE ON WHICH THE PERIOD OF LIMITATION EXPIRED, THERE WOULD APPEAR TO HAVE BEEN NO AUTHORITY FOR CREDITING THE AMOUNT AGAINST THE ADDITIONAL ASSESSMENT FOR 1927 TAXES, WHICH WAS MADE ON APRIL 11, 1931. IT FOLLOWS, ALSO, THAT THE PAYMENT OF $4.02 INTEREST ON THIS AMOUNT, AS PROPOSED, IS NOT AUTHORIZED. ACCORDINGLY, THE SCHEDULE HERE IN QUESTION IS RETURNED WITH REQUEST THAT THE PROPER ADJUSTMENTS BE MADE IN CONNECTION WITH THE MATTER.