B-28367, DECEMBER 15, 1942, 22 COMP. GEN. 538

B-28367, DECEMBER 15, 1942, 22 COMP. GEN. 538

INTEREST - REFUNDS OF INTERNAL REVENUE TAX OVERPAYMENTS AN EXCESS PAYMENT OF INTERNAL REVENUE TAXES WHICH IS MADE TO AN INTERNAL REVENUE OFFICER ON THE BASIS OF A TENTATIVE RETURN, A MATERIALLY INCOMPLETE RETURN, OR IN ANTICIPATION OF AN ADDITIONAL ASSESSMENT, AND WHICH IS NOT REQUIRED BY THE GOVERNMENT AT THE TIME, IS NOT TO BE REGARDED AS AN ,OVERPAYMENT IN RESPECT OF ANY INTERNAL REVENUE TAX" ON WHICH INTEREST IS PAYABLE UNDER SECTION 3771 (A), INTERNAL REVENUE CODE, UPON REFUND OF THE EXCESS PAYMENT TO THE TAXPAYER, IRRESPECTIVE OF WHETHER IT FINALLY IS DETERMINED THAT ANY TAX WAS PAYABLE.

COMPTROLLER GENERAL WARREN TO THE SECRETARY OF THE TREASURY, DECEMBER 15, 1942:

REFERENCE IS MADE TO LETTERS OF OCTOBER 14, 1942, AND NOVEMBER 17, 1942, IT:C1:CC:4-ALG, FROM THE COMMISSIONER OF INTERNAL REVENUE, REQUESTING A DECISION WITH RESPECT TO THE PAYMENT OF INTEREST ON A REFUND TO THE PITTSBURGH JOINT STOCK YARDS COMPANY ON THE AMOUNT OF $2,127.24 REFUNDED TO THE SAID COMPANY ON SCHEDULE IT-CR-79776 AS AN EXCESS PAYMENT OF INCOME TAX FOR THE YEAR 1939. AS INDICATED IN THE SAID LETTER OF NOVEMBER 17, 1942, THIS OFFICE ALLOWED THE CLAIM OF THE SAID COMPANY FOR INTEREST IN THE AMOUNT OF $235.75 BY SETTLEMENT NO. 10696857, DATED SEPTEMBER 30, 1942. THE COMMISSIONER STATES THAT A NUMBER OF REQUESTS HAVE BEEN RECEIVED FROM TAXPAYERS AS TO THE PAYMENT OF INTEREST ON REFUNDS UNDER SIMILAR CIRCUMSTANCES AND REQUESTS A DECISION ON THE MATTER AS CONTEMPLATED BY SECTION 3 OF THE ACT OF DECEMBER 29, 1941, 55 STAT. 876.

WITH RESPECT TO THE SAID CLAIM OF THE PITTSBURGH JOINT STOCK YARDS COMPANY, IT APPEARS THAT THE SAID COMPANY WAS GRANTED AN EXTENSION OF TIME TO JUNE 15, 1940, FOR FILING ITS INCOME TAX RETURN FOR 1939, CONDITIONED ON THE FILING OF A TENTATIVE RETURN ON OR BEFORE MARCH 15, 1940, AND PAYMENT OF ONE-FOURTH OF THE TAX SHOWN THEREON TO BE DUE. ON MARCH 15, 1940, THE TAXPAYER FILED A TENTATIVE RETURN AND MADE A PAYMENT OF $8,000, BEING ONE-FOURTH OF THE TAX SHOWN. A COMPLETED RETURN WAS FILED MAY 29, 1940, SHOWING A TAX LIABILITY OF $5,872.76, AND A FINAL AUDIT OF THE RETURN ESTABLISHED $5,821.20 AS THE CORRECT TAX LIABILITY. THE BUREAU OF INTERNAL REVENUE REFUNDED, WITH INTEREST, THE SUM OF $51.56 ($5,872.76 LESS $5,821.20). THE BALANCE, $2,127.24 ($8,000 LESS $5,872.76), WAS REFUNDED BY THE BUREAU WITHOUT INTEREST, INASMUCH AS THE AUDIT DIVISION OF THIS OFFICE HAD DECLINED TO PREAUDIT APPROVE THE REFUND WITH INTEREST, IN THE ABSENCE OF A SHOWING AS TO THE DATE OF FILING THE RETURN. THE TAXPAYER SUBSEQUENTLY FILED CLAIM WITH THIS OFFICE FOR INTEREST ON THE SAID AMOUNT OF $2,127.24, WHICH CLAIM WAS ALLOWED BY SETTLEMENT OF SEPTEMBER 30, 1942, AS ABOVE STATED, AFTER RECEIPT OF A REPORT DATED MAY 15, 1942, FROM THE BUREAU OF INTERNAL REVENUE, SHOWING THE FACTS AS ABOVE SET OUT WITH RESPECT TO THE FILING OF RETURNS.

IN MY DECISION TO YOU DATED FEBRUARY 21, 1942, B-23415, RELATING TO THE CLAIMS OF THE COMMONWEALTH AND SOUTHERN CORPORATION AND OTHERS FOR INTEREST ON INTERNAL REVENUE REFUNDS, IT WAS STATED:

FOR THE REASONS ABOVE SET OUT, THE POLICY OF THIS OFFICE HEREAFTER WILL BE TO WITHHOLD APPROVAL OF PAYMENTS OF INTEREST ON REFUNDS OF EXCESS PAYMENTS SUCH AS THOSE HEREINABOVE REFERRED TO, WHERE THE EXCESS PAYMENTS, NOT BEING REQUIRED BY THE GOVERNMENT AT THE TIME, WERE MADE TO INTERNAL REVENUE OFFICERS IN MATTERS WHERE IT FINALLY HAS BEEN DETERMINED THAT NO TAX WAS PAYABLE, IRRESPECTIVE OF THE RELATIVE TIME OF FILING RETURNS OR THE KIND OF RETURNS FILED, IF ANY. IT MAY BE STATED, ALSO, THAT THERE WILL BE CONTINUED THE PRESENT POLICY OF THIS OFFICE OF WITHHOLDING APPROVAL OF PAYMENTS OF INTEREST ON REFUNDS OF EXCESS PAYMENTS WHICH WERE MADE TO INTERNAL REVENUE OFFICERS PRIOR TO THE MAKING OF ANY RETURN; * *

IN THIS AND OTHER SIMILAR CASES, PAYMENT OF INTEREST ON REFUNDS HAS BEEN APPROVED FOR THE REASON THAT TENTATIVE RETURNS WERE FILED BY THE TAXPAYERS AT THE TIME OF MAKING THE EXCESS PAYMENTS OR PRIOR THERETO AND IT FINALLY WAS DETERMINED THAT SOME TAX WAS DUE, THE FACT THAT THE RETURNS WERE TENTATIVE BEING REGARDED AS PROBABLY INSUFFICIENT TO WARRANT REFUSAL BY THE GOVERNMENT TO PAY INTEREST ON THE AMOUNTS REFUNDED IN CASES WHERE SOME TAX WAS DUE. B-27002, AUGUST 29, 1942 ( WILSON AND COMPANY, INCORPORATED). HOWEVER, IN VIEW OF THE PRESENT STATE OF THE AUTHORITIES, THE MATTER OF ALLOWANCE OF INTEREST ON REFUNDS OF EXCESS PAYMENTS TO INTERNAL REVENUE OFFICERS MADE ON TENTATIVE RETURNS, MATERIALLY INCOMPLETE RETURNS, OR IN ANTICIPATION OF ADDITIONAL ASSESSMENTS, IN CASES WHERE IT FINALLY IS DETERMINED THAT SOME TAX WAS DUE, APPEARS TO BE FOR RECONSIDERATION. IN THIS CONNECTION, ATTENTION IS INVITED PARTICULARLY TO THE CASE OF BUSSER V. UNITED STATES, 130 F. (2D) 537, DECIDED BY THE CIRCUIT COURT OF APPEALS, THIRD CIRCUIT, AUGUST 28, 1942. IN THAT CASE, REVERSING THE COURT BELOW, THE COURT HELD THAT INTEREST WAS NOT PAYABLE ON AN EXCESS PAYMENT OF ESTATE TAX MADE PRIOR TO THE FILING OF ANY RETURN, EVEN THOUGH SOME TAX WAS DUE. AT PAGE 539, THE COURT SAID:

* * * AT THE TIME THE CHECK WAS SENT HERE, THERE WAS NOTHING DUE. TIME FOR TAX SETTLEMENT HAD BEEN EXTENDED; THE REMITTANCE, WHILE AN ENTIRELY PROPER THING TO MAKE, AND A SAFEGUARD AGAINST INTEREST CHARGES AGAINST THE TAXPAYER, WAS ENTIRELY VOLUNTARY. THE GOVERNMENT WAS NOT DEMANDING MORE THAN WAS DUE FROM A TAXPAYER; HE WAS OFFERING AHEAD OF THE DUE DATE AN AMOUNT BASED ENTIRELY ON HIS OWN ESTIMATE. UNTIL THE TAXPAYER'S RETURN IS FILED AND CHECKED, THE TAXING AUTHORITIES CAN HAVE NO IDEA WHETHER A SUM REMITTED TO THEM IN ADVANCE IS LESS THAN, CLOSE TO, OR MANY TIMES LARGER THAN THE TAX ULTIMATELY FOUND TO BE DUE. THIS FACT ITSELF HAS PRACTICAL CONSEQUENCES RELEVANT IN THE DETERMINATION OF THE EFFECT OF LANGUAGE IMPOSING AN OBLIGATION UPON THE GOVERNMENT. IN THIS CASE THERE IS NOT THE SLIGHTEST QUESTION CONCERNING THE GOOD FAITH OF THE TAXPAYER OR HIS COUNSEL. BUT IF VOLUNTARY REMITTANCES TO THE COLLECTOR CAN BE MADE INTEREST BEARING, AN INVITING OPPORTUNITY IS OFFERED TO DEPOSIT MONEY WITH THE GOVERNMENT AT ATTRACTIVE RATES CONSIDERABLY HIGHER THAN CAN BE SECURED ELSEWHERE.

SEE, ALSO, THE SIMILAR DECISION OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK IN THE CASE OF MOSES V. UNITED STATES, 28 F. SUPP. 817, WHEREIN THE COURT SAID:

5. ON THE DAY WHEN THE TAXPAYER DELIVERED HIS MONEY TO THE COLLECTOR, THE FACT WAS KNOWN TO BOTH THAT THE TAXPAYER'S TESTATOR'S ESTATE WAS SUBJECT TO THE INCIDENCE OF AN ESTATE TAX. WHETHER OR NOT IT ACTUALLY WAS SUBJECT TO ANY TAX, OR WHETHER AN ESTATE TAX IN ANY AMOUNT WHATEVER ACTUALLY WAS DUE, HOWEVER, WAS APPARENTLY NOT THEN KNOWN TO THE PLAINTIFF AND CERTAINLY NOT KNOWN TO THE DEFENDANT. THE AMOUNT OF THE TAX WHICH ACTUALLY EXISTED AS A DEBT ON THAT DAY WAS SUBSEQUENTLY ESTABLISHED. SO MUCH OF THE MONEY THEN TRANSFERRED AS EXCEEDED THE AMOUNT OF THE TAX FIXED BY THE LATER COMPUTATION WAS A WHOLLY VOLUNTARY ADVANCE BY THE TAXPAYER AND WAS NOT INTENDED TO BE DELIVERED BY HIM NOR WAS IT ACCEPTED BY THE COLLECTOR AS PAYMENT OF ANY DEBT WHATEVER FOR NO CORRESPONDING DEBT THEN OR EVER ACTUALLY EXISTED, NOR WAS ANY SUCH INDEBTEDNESS RECOGNIZED EVEN IN ERROR BY THE PARTIES. WHEN A TAXPAYER SUBMITS A RETURN AND ACCOMPANIES IT BY PAYMENT, THE COLLECTOR IS PUT ON NOTICE THEN OF THE FACTS UPON WHICH THE EXISTENCE OF A TAX DEBT DEPENDS. HE MAY, AT THAT TIME, IMMEDIATELY CHECK IT. IF HE DOES NOT, HE ACCEPTS THE TAXPAYER'S STATEMENT OF THE AMOUNT DUE AND THE PARTIES ARE THEN IN AGREEMENT AND THE WHOLE AMOUNT RECEIVED IS GIVEN AND TAKEN AS PAYMENT AND IT IS FOR THAT REASON THAT ANY EXCESS CONTAINED IN THE AMOUNT SO PAID BEARS INTEREST BECAUSE THE GOVERNMENT'S INTERESTS REQUIRE TIME FOR INVESTIGATION AND CONSIDERATION OF THE FACTS. IN THIS CASE THE GOVERNMENT WAS POWERLESS AT THE TIME THE MONEY WAS DELIVERED TO IT TO DETERMINE HOW MUCH, IF ANY, WAS ACTUALLY DUE. THE EXCESS CONTAINED IN THIS TAXPAYER'S DEPOSIT WAS, IN NO SENSE, EITHER PAYMENT OR OVERPAYMENT BUT A DEPOSIT MADE TO SUIT HIS OWN CONVENIENCE. THIS IS TRUE BEFORE AND AFTER ASSESSMENT. ALTHOUGH THE REGULATIONS DO NOT EXPLICITLY AUTHORIZE THE COLLECTOR TO ACCEPT UNLIQUIDATED AMOUNTS IN PAYMENT OF ESTATE TAXES, WE SEE NO REASON WHY ANY CITIZEN SHOULD NOT HAVE THE RIGHT TO DEFEAT THE ADDITION OF INTEREST, 26 U.S.C.A. SEC. 493 (A), BY PAYMENT IF HE SO DESIRES. NEITHER DO WE SEE WHY THE GOVERNMENT, FOR SO ACCOMMODATING HIM, SHOULD BE REQUIRED TO PAY INTEREST ON THE MONEY IT MAY THUS ACCEPT. THE TAXPAYER HAS ALL THE ADVANTAGE; THE COMPUTATION OF THE DEBT IS HIS OWN, AND HE IS DONE NO INJUSTICE BY INSISTENCE ON HIS OWN ACCURACY.

ALTHOUGH THE SAID COURT DECISIONS INVOLVED MATTERS WHERE NO RETURNS WERE FILED AT THE TIME OF PAYMENT OR PRIOR THERETO, THE REASONING OF THE COURTS AS DISCLOSED BY THE LANGUAGE ABOVE QUOTED APPEARS EQUALLY APPLICABLE TO CASES INVOLVING PAYMENTS MADE ON TENTATIVE RETURNS, MATERIALLY INCOMPLETE RETURNS, OR IN ANTICIPATION OF ADDITIONAL ASSESSMENTS. IN ALL SUCH CASES, JUST AS IN CASES WHERE PAYMENT IS MADE WITHOUT THE FILING OF ANY RETURN, THE GOVERNMENT IS "POWERLESS AT THE TIME THE MONEY WAS DELIVERED TO IT TO DETERMINE HOW MUCH, IF ANY, WAS ACTUALLY DUE.'

THERE HAS NOT BEEN OVERLOOKED THE FACT THAT IN A CASE INVOLVING EXCESS PAYMENTS MADE IN ANTICIPATION OF ADDITIONAL ASSESSMENTS, THE GOVERNMENT USUALLY IS IN POSSESSION OF A PURPORTEDLY COMPLETE AND FINAL RETURN; BUT THE TAXPAYER, UPON LEARNING THAT THE COMPLETENESS OR CORRECTNESS OF THE RETURN IS BEING QUESTIONED, ESTIMATES THE AMOUNT OF ADDITIONAL TAX WHICH THE GOVERNMENT MAY REQUIRE AND MAKES PAYMENT ON THE BASIS OF THE ESTIMATE WHILE THE GOVERNMENT IS STILL INVESTIGATING THE CORRECTNESS OF THE RETURN.

A TENTATIVE RETURN DOES NOT--- AND IS NOT INTENDED TO--- PROVIDE ANY BASIS FOR COMPUTATION OF THE TAX DUE AND MAY CONTAIN NO INFORMATION OF ANY PRACTICAL IMPORTANCE. UPON THE FILING OF SUCH RETURN, IT IS UNDERSTOOD BY BOTH THE TAXPAYER AND THE GOVERNMENT THAT THE TAX LIABILITY, IF ANY, IS TO BE DETERMINED AT SOME FUTURE DATE AFTER THE FILING OF A FINAL RETURN. HAS BEEN HELD THAT THE WORD "TENTATIVE," AS APPLIED TO TAX RETURNS, REFERS TO SOMETHING THAT WILL DO OR WILL ANSWER FOR THE TIME BEING BUT NO FURTHER. OAK WORSTED MILLS V. UNITED STATES, 68 C.1CLS. 539 (AFFIRMED, 282 U.S. 409). IN THIS CONNECTION, THERE IS NOTED THE FOLLOWING STATEMENT IN SECTION 17,723 (9) OF THE 1942 EDITION OF THE PRENTICE-HALL FEDERAL TAX SERVICE:

BY A "TENTATIVE RETURN" IS MEANT A RETURN ON THE APPROPRIATE INCOME TAX FORM, SHOWING ONLY THE NAME AND ADDRESS OF THE TAXPAYER AND THE ESTIMATED AMOUNT, IF ANY, OF THE TAX DUE. THE ITEMS AND SCHEDULES SHOWN ON THE FORM NEED NOT BE FILLED IN. (TENTATIVE RETURNS NEED NOT BE VERIFIED. TELEGRAM TO SUBSCRIBER FROM DEPUTY COMMISSIONER, FEB. 28, 1941). THE FILING OF A TENTATIVE RETURN IS FOR THE PURPOSE OF ENABLING THE TAXPAYER TO AVOID PAYMENT OF THE PENALTY TO WHICH HE OTHERWISE WOULD BE SUBJECT FOR DELAY IN FILING A COMPLETE RETURN.

IT HAS BEEN HELD THAT THE FILING OF A TENTATIVE RETURN DOES NOT START THE RUNNING OF THE PERIOD OF LIMITATIONS AGAINST THE MAKING OF A DEFICIENCY ASSESSMENT. FLORSHEIM BROTHERS DRY-GOODS COMPANY V. UNITED STATES, 280 U.S. 543; LUCAS V. PILLIOD LUMBER COMPANY, 281 U.S. 245; UNITED STATES V. NATIONAL TANK AND EXPORT COMPANY, 45 F. (2D) 1005 (CERTIORARI DENIED, 283 U.S. 839); ATKINSON AND COMPANY V. WILLCUTS 52 F. (2D) 1. IN LUCAS V. PILLIOD LUMBER COMPANY, SUPRA, THE COURT HELD, FURTHER, THAT THE FILING OF A RETURN NOT SIGNED AND SWORN TO AS REQUIRED BY STATUTE DID NOT START THE RUNNING OF THE PERIOD OF LIMITATIONS. LIKEWISE, IT HAS BEEN HELD THAT WHERE, UNDER A REGULATION OF THE TAX AUTHORITIES, CORPORATIONS WERE ALLOWED ADDITIONAL TIME FOR FILING INCOME AND PROFITS TAX RETURNS ON CONDITION THAT THEY FILE TENTATIVE RETURNS, THE PERIOD OF LIMITATIONS DID NOT COMMENCE TO RUN FROM THE TIME OF THE FILING OF THE TENTATIVE RETURN, BUT ONLY FROM THE TIME OF THE FILING OF A COMPLETE RETURN. OAK WORSTED MILLS V. UNITED STATES, 68 C. CLS. 539, SUPRA; ROY AND TITCOMB V. UNITED STATES. 69 C. CLS. 614 (AFFIRMED, 282 U.S. 811); MARSHALL WELLS COMPANY V. WILLCUTS, 41 F. (2D) 751.

IN CASES INVOLVING TENTATIVE RETURNS, MATERIALLY INCOMPLETE RETURNS, OR PAYMENTS IN ANTICIPATION OF ADDITIONAL ASSESSMENTS, THE TAXPAYERS MERELY ESTIMATE THE TAX AND MAKE PAYMENT ACCORDINGLY, IN ORDER TO AVOID THE PAYMENT OF INTEREST AND PENALTIES. IN THE WORDS OF THE COURT IN THE MOSES CASE, SUPRA:

* * * WE SEE NO REASON WHY ANY CITIZEN SHOULD NOT HAVE THE RIGHT TO DEFEAT THE ADDITION OF INTEREST, 26 U.S.C.A. SEC. 493 (A), BY PAYMENT IF HE SO DESIRES. NEITHER DO WE SEE WHY THE GOVERNMENT, FOR SO ACCOMMODATING HIM, SHOULD BE REQUIRED TO PAY INTEREST ON THE MONEY IT MAY THUS ACCEPT.

IN VIEW OF THE FOREGOING, I AM INCLINED TO THE VIEW THAT AN EXCESS PAYMENT MADE ON A TENTATIVE RETURN, A MATERIALLY INCOMPLETE RETURN, OR IN ANTICIPATION OF AN ADDITIONAL ASSESSMENT, IS NOT AN ,OVERPAYMENT IN RESPECT OF ANY INTERNAL REVENUE TAX" WITHIN THE MEANING OF SECTION 3771 (A), INTERNAL REVENUE CODE, 53 STAT. 465, AND THAT INTEREST SHOULD NOT BE PAID ON REFUNDS OF SUCH EXCESS PAYMENTS. ACCORDINGLY, UNLESS AND UNTIL THERE SHALL COME TO ATTENTION SOME AUTHORITATIVE COURT DECISION OR DECISIONS REQUIRING A CONTRARY CONCLUSION, THIS OFFICE WILL WITHHOLD APPROVAL OF PAYMENT OF INTEREST ON REFUNDS OF EXCESS PAYMENTS WHERE THE EXCESS PAYMENTS, NOT BEING REQUIRED BY THE GOVERNMENT AT THE TIME, WERE MADE TO INTERNAL REVENUE OFFICERS ON TENTATIVE RETURNS, MATERIALLY INCOMPLETE RETURNS, OR IN ANTICIPATION OF ADDITIONAL ASSESSMENTS, IRRESPECTIVE OF WHETHER IT FINALLY IS DETERMINED THAT ANY TAX WAS PAYABLE. THE POLICY OF THIS OFFICE AS SET OUT IN LETTER OF FEBRUARY 21, 1942, B-23415, REFERRED TO ABOVE, IS MODIFIED AND AMPLIFIED ACCORDINGLY, AND IT IS REQUESTED THAT SUCH INFORMATION AS NECESSARY FOR A PROPER AUDIT WITHIN THE SCOPE OF THE SAID POLICY AS EXTENDED SHALL BE FURNISHED THIS OFFICE IN CONNECTION WITH ALL SCHEDULES COVERING PAYMENTS OF INTEREST OR PROPOSED PAYMENTS OF INTEREST ON REFUNDS OF EXCESS PAYMENTS. HOWEVER, IN VIEW OF THE PRACTICE HERETOFORE EXISTING, THIS OFFICE WILL NOT BE REQUIRED TO WITHHOLD CREDIT FOR PAYMENT OF INTEREST IN SUCH CASES WHERE, SOME TAX BEING DUE AT THE TIME OF THE EXCESS PAYMENT, FINAL ACTION TOWARD THE PAYMENT OF INTEREST HAS BEEN TAKEN BY THE BUREAU OF INTERNAL REVENUE PRIOR TO RECEIPT OF THIS DECISION.