
    369 F. 2d 724
    GENERAL ELECTRIC COMPANY v. THE UNITED STATES
    [No. 228-62.
    Decided December 16, 1966]
    
      
      Herbert L. Awe for plaintiff; John P. Lipscomb, attorney of record. O. Rudolph Peterson, of counsel.
    
      Philip R. Miller, with, whom was Assistant Attorney General Mitchell Rogovin, for defendant. Lyle M. Turner and David D. Rosenstein, of counsel.
    Before Cowen, Chief Judge, Laramore, Dureee, Davis and Collins, Judges.
    
   Laramore, Judge,

delivered the opinion of the court:

This is an action to recover $205,447.77 which plaintiff paid as interest on excess profits tax deficiencies for the taxable year 1944. In issue is the proper method of computing interest on deficiencies under section 292(a) of the Internal Revenue Code of 1939. 26 U.S.C. § 292(a) (1952 Ed.). The facts have been stipulated.

On March 15,1945, plaintiff filed a tentative return showing a 1944 excess profits tax of $128,000,000. Pursuant to section 56 (b) (2) (A), it elected to pay this tax in four quarterly installments, the first $32,000,000 to be paid as of March 15,1945, the last on December 15,1945. After paying the second installment, but before paying the third, plaintiff recomputed its 1944 liability and filed a “final” return on September 14, declaring a tax of $79,213,845.41. The Collector divided this amount into quarters and credited $59,-410,384.04 (three-quarters of the “final” declared tax) of plaintiff’s prior payments of $64,000,000 against the 1944 excess profits tax liability, accrued through the third installment. Plaintiff paid the balance of $19,803,461.36 on December 14,1945. On March 5,1946, plaintiff filed an application for a tentative additional amortization allowance of $5,339,-772.98 to reduce 1944 taxable income. Section 124(j). Under this so-called “quickie refund” provision, the Commissioner of Internal Eevenue made a summary examination of the return and tentatively granted the additional allowance. This reduced plaintiff’s 1944 excess profits tax by $4,565,505.90, which amount was refunded to plaintiff on May 27, 1946. The refund was augmented by six percent interest of $109,321.97 computed from December 15, 1945 (the last installment payment date) to May 9,1946 (the date preceding the date of the refund check by not more than 30 days).

Presumably, the Commissioner started interest running on the last installment date because section 3771 (b) (2) provides for interest on overpayments “from the date of. the overpayment” and the courts have held that the date of overpayment of taxes paid on the installment method is the date the total amount paid first exceeds the amount due. Blair v. United States ex rel. Birkenstock, 271 U.S. 348 (1926); Matson Navigation Co. v. United States, 131 Ct. Cl. 199, 201-202, 130 F. Supp. 357, 358-359 (1955). There is no question that before December 15, 1945 plaintiff’s installment payments did not exceed the total amount finally due, either as established by plaintiff’s “final” return or ultimately after all deficiency computations.

Thereafter, in December 1946 and again in April 1953, the Commissioner determined deficiencies in plaintiff’s 1944 excess profits tax totaling $6,764,669.67, which plaintiff accepted and paid. In computing interest against plaintiff on the deficiencies, the Commissioner used March 15, 1945 as the starting date. This was thought to be required by section 292(a) providing for six percent interest on deficiencies “from the date prescribed for the payment of the tax (or, if the tax is paid in installments, from the date prescribed for the payment of the first installment).” The effect of the Commissioner’s calculations of interest on the tentative adjustment and the deficiencies has been to charge plaintiff six percent interest on $6,764,669.67 from March 15, 1945 and credit plaintiff with six percent interest on $4,565,505.90 only from December 15, 1945. Thus, for the 9-month period March 15 to December 15, 1945, plaintiff has not been credited with interest on the amount of the tentative adjustment to which it was entitled, although it has been charged interest on the amount of the deficiency to which defendant was entitled. Plaintiff here claims interest on the tentative adjustment for this period.

In defending against this claim, the government argues that overpayment and underpayment interest procedures are clearly provided for by statute, and that whatever the equities, the Commissioner properly followed the statutory mandate. Section 271(a) defines a “deficiency” as “the amount by which the tax imposed by this chapter [] exceeds the excess of — (1) the sum of (A) the amount shown as the tax by the taxpayer upon his return * * * over — (2) the amount of rebates, as defined in subsection (b)i(2), made.” “Rebate” is defined as “an abatement, credit, refund, or other repayment, as was made on the ground that the tax imposed by this chapter was less than [the amount shown in the return plus any deficiency].” Applying these provisions to the facts, defendant notes that the Commissioner correctly computed plaintiff’s deficiency, i.e., he determined after audit that the correct tax was $81,413,009.18 which, was $6,764,669.67 more than the $74,648,839.51 which plaintiff had paid after giving effect to the 1946 tentative adjustment “rebate.” The deficiency having been correctly determined, the defendant argues that the interest calculation was crystal clear; section 292 (a.) says interest “shall be paid [upon the amount determined as a deficiency] * * * from the date prescribed for the payment of the first installment,” here March 15,1945.

Neither party questions the correctness of the Commissioner’s determination of interest on the rebate, even in the light of the subsequent determination of the “correct” deficiencies, so our sole task is to determine whether the government is correct in its position that the Commissioner properly applied sections 271 and 292. The plaintiff appears to have two arguments, each a facet of what it calls “the fundamental principle for the allowance of interest.” The “fundamental principle” is: interest accrues to the person who has the right to the use of the funds. Plaintiff asserts this is made clear by Manning v. Seeley Tube & Box Co., 338 U.S. 561 (1950) and United States v. Koppers Co., 348 U.S. 254 (1955). In both, the Court held that interest should accrue to the government on taxes to which it was entitled even though those taxes were subsequently abated by relief provisions. In the present context, the first argument is that for purposes of computing interest for the period from March 15 to December 15, 1945, the real underpayment or deficiency was $2,199,163.77 and not $6,764,669.67. This is a kind of “net” deficiency analysis, and is arguably a proper approach because before plaintiff got the “quickie refund” in 1946, the actual deficiency (as subsequently determined) was the $81,413,009.18 correct tax, less the $79,213,845.41 tax declared and paid in installments. Under a use-of-money theory, the government could not be entitled to interest on any more than the $2,199,163.77 to which it retroactively became entitled by virtue of the deficiency determination. This was essentially the thinking of the District Court in Central Fibre Products Co. v. United States, 115 F. Supp. 147 (N.D. Ill. 1953), which plaintiff urges us to follow. The difficulty with this approach is that it has no footing in the statute. This was pointed out in a later District Court case and by implication in a Court of Appeals case reversing the relevant part of the lower court decision relied upon in Central Fibre Products Co., sufra. Standard Oil Co. v. United States, 175 F. Supp. 670 (N.D. Ohio 1959); Babcock & Wilcox Co. v. Pedrick, 98 F. Supp. 548 (S.D.N.Y. 1951), rev'd in fart (on the interest determination), 212 F. 2d 645 (2d Cir. 1954), cert. denied, 348 U.S. 936 (1955). While we would agree with plaintiff that these two cases may be distinguished from Central Fibre Products, we do not find the distinctions meaningful. It is true that the court in Standard Oil inferred from the special nature of the “quickie refund” procedure that Congress might have intended interest to be different on deficiencies from that on overpayments resulting from “quickie refunds.” 175 F. Supp., at 672. And, in the present case, plaintiff’s “quickie refund” survived the audit, almost hi its entirety. However, we do not feel that the result there turned on the fact that tbe plaintiff’s “quickie refund” bad to be returned after audit. Tbis fact was mentioned only as a possible justification of tbe result dictated by statute. The Babcock & Wilcox case may be distinguished as involving two different taxes and not two computations of tbe same tax. In fact, in an apparent effort not to conflict witb tbe District Court in Central Fibre Products, tbe Second Circuit mentioned in a footnote that tbis was a distinction. N. 4, 212 F. 2d, at 650. We do not find tbis distinction helpful, again because nothing turns on it. Tbe sense of both Standard Oil and Babcock Sc Wilcox was that the statute controls, and it does not permit tbe kind of contention plaintiff makes here.

It is for the above reason that we find plaintiff’s second argument more persuasive; it looks to tbe precise words of the statute. Again proceeding from its use-of-funds theory, plaintiff asserts that we must look to tbe meaning of tbe word “interest” in section 292. Tbe statute authorizes tbe government to collect “interest” and nothing else on tbe deficiency, so inquiry must be made to determine whether the plaintiff, or the government, should have bad tbe use of tbe funds on which tbe six percent charge has been made. Plaintiff points out that it elected to pay its 1944 tax in installments as was its right under section 56 (b), and that by paying its installments in timely fashion it gave tbe government tbe use of the funds on tbe dates prescribed by Congress. We think plaintiff’s case might 'be strengthened by a refinement. By virtue of the Internal Revenue Service’s action of charging plaintiff interest on the full $6,764,669.67 deficiency from March 15, 1945, it seems to us that the government has constructively been given the use of plaintiff’s $4,565,505.90 “quickie refund” from the first installment date; it is as though plaintiff in fact paid its correct tax plus the amount of the “quickie refund” on March 15, 1945. In other words, the government has received something to which it would not have been entitled had plaintiff paid the correct tax on the installment method. However, we do not see in this apparent conflict between sections 56 and 292, the installment payment and interest provisions, any compulsion to look behind the word “interest” as it is used in section 292. Plaintiff concedes that the government is entitled to interest from March 15 to December 15, 1945 on the $2,199,-163.77 difference between the correct tax and the amount reported, which is tantamount to conceding that section 292 overrides the installment payment election provision for one purpose. We think that it also overrides section 56 as to the amount of the “quickie refund.” In so holding, we do not think we are doing anything at variance with plaintiff’s use-of-money cases. E.g., Manning v. Seeley Tube & Box Co., supra; United States v. Koppers Co., supra. Those cases involved “potential deficiencies” subsequently abated by relief provisions; the question was whether there was a deficiency upon which interest would run and' the Court held that for interest purposes the deficiency existed until abated. Here the inquiry is different, for the statutory definition of “deficiency” clearly comprehends the $6,764,669.67. We do not find room in section 292 for an interpretation that would give “interest” a special meaning as applied to a certain period.

In so holding, we realize the criticism can be made that the amount of interest depends on the order of rebate and deficiency. Where rebate precedes deficiency, the taxpayer gets no interest for the period from the first to the last installment, but where rebate succeeds deficiency, the taxpayer can set the rebate off against the deficiency, thereby achieving mutuality of interest. In theory at least, the Commissioner could exact additional interest by giving a refund one day and assessing a deficiency the next. That is not the case here, however, nor is it likely ever to be the case. Plaintiff’s dilemma stems from its use of the “quickie refund” provision, which can give the effect of an overpayment and a deficiency for the same tax. That is exceptional as the provision by its own terms makes clear. In the usual situation, the Commissioner will determine a net deficiency or overpayment after audit, thereby precluding both an overpayment and deficiency for the same tax. Even where the Commissioner audits two different tax computations or the same tax for two different years, the practice is to credit overpayment items against refund items before making refunds.

See e.g., Jewel Shop, Inc. v. United States, 178 Ct. Cl. 466, 352 F. 2d 526 (1965). We have no reason to believe that the Commissioner will henceforth alter standard procedure and make refunds preliminary to deficiency assessments simply to exact additional interest. The Jewel Shop case illustrates another point which is that plaintiff’s injury results from an inadequacy built into the statute. Here, as there, the remedy must come from Congress.

The petition is dismissed.

FINDINGS OE FACT

The court, having considered the facts as stipulated by the parties, and the briefs and argument of counsel, makes findings of fact as follows:

1. This petition is filed against the defendant pursuant to the provisions of section 1491, Title 28 of the United States Code, for the recovery of taxes collected as interest as part of excess profits tax deficiencies for the year 1944.

2. Plaintiff, General Electric Company, is a New York corporation with its principal place of business in Schenectady, New York.

3. On March 15, 1945, plaintiff filed a tentative excess profits tax return for the year 1944. It submitted to the Collector at that time a remittance of $32,000,000 in connection therewith. On June 15,1945, plaintiff submitted to the Collector a second remittance of $32,000,000 in connection therewith. Plaintiff filed a timely Federal excess profits tax return for the year 1944 on September 14, 1945, disclosing thereon an excess profits tax liability of $79,213,845.41. The Collector, on September 18,1945, applied $59,410,384.05, of the amount previously remitted, to plaintiff’s excess profits tax liability. This amount represented 75 percent of the declared excess profits tax liability. The balance of said tax liability, or $19,803,461.36, was paid by plaintiff on December 14,1945.

4. On March 5, 1946, plaintiff filed an application for an additional amortization allowance of $5,339,772.98, or $4,565,-505.90 in tax. The application was allowed on April 26,1946 and a refund check in the amount of $4,565,505.90 plus interest was issued to plaintiff on May 27, 1946. The interest amounted to $109,321.97, measured by the period December 15,1945 to May 9,1946.

5. Thereafter, on December 20, 1946, certain standard issues were adjusted which created a deficiency in excess profits tax for the year 1944 in the amount of $1,996,229.47. This amount plus interest of $211,244.83 was paid on December 20, 1946. The interest collected on the said deficiency was computed from March 15, 1945 to December 20, 1946'. No adjustment was made to the amortization allowance claimed for said year.

6. On April 28,1947, credit in the amount of $48,521,607.39 was allowed plaintiff for a tentative adjustment of 1944 excess profits tax attributable to carryback of unused 1946 excess profits credit. On May 8,1947, plaintiff received payment of this amount, less $3,945,085.20 representing relinquishment of deferment of 1944 excess profits tax under section 710(a) (5) of the Internal Eevenue Code of 1939.

7. A further deficiency in excess profits tax for the year 1944 in the amount of $202,934.30 was determined against plaintiff in April 1953. This deficiency represented:

Determined tax liability_$81,413, 009.18

Tax per return_ 79,213, 845.41

Deficiency_ 2,199,163.77

Assessed 12/20/46- 1,996,229.47

Net deficiency_ $202,934. 30

However, since plaintiff had been refunded the tentative amortization allowance of $4,565,505.90, this meant that the total tax deficiency was $4,768,440.20. Of this amount, $3,945,085.20 represented deferment under section 710(a) (5) previously relinquished by offset against the tentative unused 1946 excess profits credit carryback adjustment allowed April 28, 1947 and paid May 8, 1947. The balance of $823,355.00, less an overassessment of $49,736.53 attributable to a section 710(c)(3) carryback from 1946, or $773,618.47, was assessed on April 3, 1953 and paid. The interest assessed as a consequence of this adjustment was as follows:

On $3,994,821.73 from 3/15/45 to 3/15/47, or $479,378.61 On $24,673.96 from 3/15/45 to 9/18/45, or $752.39 On $746,557.02 from 3/15/45 to 12/30/49, or $214,609.58 On $2,378.49 from 3/15/45 to 6/23/51, or $898.45

8. In its original excess profits tax return for the year 1944, plaintiff claimed an amortization allowance of $9,950,540.56. As stated above, on March 5, 1946 plaintiff claimed an additional tentative amortization allowance of $5,389,772.98. This was allowed and $4,565,505.90 of tax plus interest was refunded to plaintiff on May 27, 1946. The only adjustment that has been made to the total amortization allowance claimed in the total amount of $15,290,313.54 for the year 1944 occurred in April 1953. The amortization allowance claimed was reduced by the amount of $1,914.94, which resulted in a tax adjustment of $1,637.27.

9. Consents extending the applicable statutory period of limitations for the assessment and collection of excess profits tax for the year 1944 had been executed from time to time by plaintiff and the Commissioner of Internal Revenue. The last such consent extended the statutory period of limitations for filing claims for refund until March 31, 1960.

10. Within the time prescribed by law, plaintiff filed a claim for the refund of interest paid with respect to excess profits tax for the year 1944 on March 30, 1960 with the District Director of Internal Revenue at Albany, New York. On July 7, 1960, the Commissioner of Internal Revenue issued a statutory notice of disallowance of said claim.

CONCLUSION OE LAW

Upon the foregoing findings of fact, which are made a part of the judgment herein, the court concludes as a matter of law that the plaintiff is not entitled to recover and the petition, therefore, is dismissed. 
      
       See n. 5, infra, for a possible alternative argument under section 3771, the overpayment interest provision.
     
      
       All section references are to the Internal Revenue Code of 1939, 26 U.S.C. (1952 Ed.), unless otherwise indicated.
     
      
       It is not strictly accurate to say that plaintiff was “entitled” to the full $4,565,505.90 tentative adjustment. The sipulation shows that in April 1953, plaintiff’s total amortization allowance for 1944 (as claimed in the original return and augmented by the 1946 tentative adjustment) was reduced by $1,914.94. This resulted in a tax adjustment of $1,637.27. This is, of course, a negligible percentage of the tentative adjustment.
     
      
       Section 271(a) is part of chapter 1; the excess profits tax is found in chapter 2. The procedural provisions of chapter 1 are made applicable to excess profits taxes by sections 603 and 729 (a).
     
      
       As explained in the text, the Commissioner used December 15, 1945 as the starting date for interest on the rebate. This was proper because the date of overpayment was the final installment date. It seems that plaintiff could have argued that by virtue of its paying the deficiencies with interest running from March 15, 1945, the first installment date, it constructively overpaid its tax, at least to the extent of the rebate, as of the earlier date. In other words, this view of the transactions with defendant would make March 15, 1945 “the date of the overpayment” for purposes of the interest computation under section 3771(b) (2). A similar argument was made in Matson Navigation Co. v. United States, 131 Ct. Cl. 199, 201, 130 F. Supp. 357, 358 (1955), and rejected for reasons which are not present here. See United States v. Koppers Co., infra, for an analogous theory. We do not pass on the merits of this argument, however, other than to note that it may run afoul of the rule that the date of overpayment is the date the total amount paid first exceeds the amount due- — i.e., the deficiency payment could be considered simply an addition to the first installment thereby still leaving the last installment the date of overpayment — and to observe that any theory of “constructive overpayment” may confuse the already difficult “payment” area that has grown out of Rosenman v. United States, 323 U.S. 658 (1945). See Northern Natural Gas Co. v. United States, 173 Ct. Cl. 881, 354 F. 2d 310 (1965) ; Charles Leich & Co. v. United States, 165 Ct. Cl. 127, 329 F. 2d 649 (1964). We are especially reluctant to consider such an argument without briefs or argument in view of the latter aspect.
     
      
       In relying on Central Vibre Products Co. v. United States, 115 F. Supp. 147 (N.D. Ill. 1953), perhaps plaintiff implicitly argues that section 3771, the overpayment interest provision, should be “read into and interrelated with the deficiency interest provisions of” section 292. That was the way the District Court characterized the identical issue there. 115 F. Supp., at 148.
     
      
       In Manning v. Seeley Tube & Box Co., supra, the 1941 taxes were completely abated by a 1943 tax loss carry-back. Sections 12*2 (income tax) ; 710, 728, 729 (excess profits tax). In United States v. Koppers, supra, excess profits taxes for 1940 through 1955 were abated by section 722 relief. See also Northern Natural Gas Co. v. United States, supra at n. 5.
     
      
       See n. 3, supra.
     
      
       Section 124(j) provides only for application for a tentative adjustment. The last sentence states: “An application under this subsection shall not constitute a claim for credit or refund.”
     