
    H. B. ZACHRY COMPANY v. THE UNITED STATES
    No. 169-56.
    Decided December 3, 1958
    
      
      Mr. Robert J. Bird for the plaintiff. Messrs. Johnson and Thompson were on the briefs.
    
      Mr. John A. Rees, with whom was Mr. Assistant Attorney General Charles K. Rice, for the defendant. Mr. J ames P. Garland, Mr. David A. Wilson, Jr. and Mr. H. 8. Fessenden were on the brief.
   Madden, Judge,

delivered the opinion of the court:

This is a suit to recover income and excess profits taxes for the year 1943. The petition also contains alternative claims which we do not find it necessary to consider. The troublesome question in this case is whether certain refund claims filed by the plaintiff were adequate foundations for its present suit.

The plaintiff kept its accounts and filed its tax returns on a calendar year basis, and used the accrual method of accounting. Its returns for 1941, 1942 and 1943 were audited by the taxing authorities in 1945. The examining agent raised many issues and proposed tbe assessment of many deficiencies, to which, the plaintiff objected. The principal subject of controversy was the rate of depreciation which the plaintiff had used in its returns. Agreement was reached in the autumn of 1945 and the plaintiff executed and filed a Form 874 wherein it agreed to the assessment of excess profits tax deficiencies in the amount of $5,639.13 for 1941, and $283,046.24 for 1943, with appropriate interest. Form 874 was executed by the plaintiff and mailed to the examining agent on December 11, 1945. The accrual of the taxes shown by this agreement was recorded in the plaintiff’s accounts in 1945.

Section 122 (d) (6) of the Internal Revenue Code of 1939 provided that a taxpayer, in computing its excess profits income for a given year, could deduct excess profits taxes “paid or accrued” during that year. The Supreme Court of the United States in the cases of United States v. Olympic Radio and Television, Inc., 349 U. S. 232, reversing 124 C. Cls. 33, and Lewyt Corp. v. Commissioner, 349 U. S. 237, held on May 23, 1955, that an accrual basis taxpayer such as the plaintiff may take the section 122 (d) (6) deduction only in the year in which it accrued the tax which it desires to deduct, and not in the year in which it paid it. The plaintiff says that it accrued the 1941 and 1943 excess profits tax deficiencies in 1945 when it agreed to them and charged them on its books. The Government, not very vigorously, denies this. It says there was no dispute about these taxes. There was, however, a very vigorous dispute which was ironed out only after lengthy negotiations. See Landers, Frary & Clark v. United States, 137 C. Cls. 870; Rev. Rule 57-105, C. B. 1957-1,193.

The plaintiff was, then, entitled to deduct the excess profits taxes, accrued on its books in 1945, from its 1945 income. That gave it a net operating loss for 1945. Under section 122 (b) (1) the plaintiff was entitled to carry that 1945 net operating loss to the second preceding taxable year, which was. 1943. That meant that it had overpaid its taxes for 1943 and was entitled to a refund, if it took the necessary steps, within the prescribed time, to obtain the refund.

The plaintiff did not file a claim for refund until June 29, 1953. To one unlearned in the mysteries of excess profits tax proceedings, it would seem that the claim was filed too late. But the plaintiff had executed valid consents extending until June 30, 1953, the time within which the Commissioner of Internal Revenue could assess tax deficiencies for the years 1944, 1945, 1946, and 1947. These consents not only kept those years open for claims for refund, but also kept open any other years to which net operating losses from those years could be carried back. See section 322 (b) (6).

The plaintiff on June 29, 1953, the day before the waiver period expired, filed claims for refund for the years 1942, 1943, and 1944. The claim for 1943 was based upon the fact that the plaintiff in 1944 had paid excess profits taxes, presumably those which it had shown on its return for 1943; that it was entitled to deduct from its 1944 income these taxes paid in 1944; that with that deduction there was a net operating loss for 1944 which could be carried back, first to 1942, and the part of it not used up for 1942 could be carried forward to 1943. The plaintiff, in preparing these claims for refund, relied upon this court’s decision in Olympic Radio, supra, to the effect that even an accrual basis taxpayer could take the excess profits tax deduction in the year in which the tax was paid, even though it had been accrued in another year.

As we have said, the plaintiff’s claim for refund for 1943 was filed on June 29, 1953. On May 23, 1955, the Supreme Court reversed our Olympic Radio decision. It followed that the 1943 taxes shown on the 1943 return and paid in 1944 could be taken as a deduction only in 1943, the year in which they were accrued on the plaintiff’s books. But the year 1943 had long since been closed for claims for refund, except, as we have seen, for overpayments resulting from carry-backs to 1943 from a subsequent year which was still open. When, on June 29,1943, the plaintiff had filed its claim for refund, the year 1945 was still open because of the waiver. But by the time of the Supreme Court’s decision in Olympic Radio, that year was closed. On December 12, 1955, the plaintiff filed what it called an amended and supplemental claim for refund for 1943, based upon a carry-back of a net operating loss from 1945, the loss having resulted from the deduction which the plaintiff was entitled to take in 1945 for the 1943 deficiencies agreed to and accrued on its books in that year. The December 12, 1955, date of the filing of this claim was, of course, not within three years of the filing of the return, nor within two years of the payment of the tax, nor within the prescribed period relating to consents to assessments. See section 322 (b) (1) and (3). Since the 1955 claim was untimely, the plaintiff relies upon its original claim of June 29, 1953, and, alternatively, upon that claim as, the plaintiff claims, effectively amended in 1955.

The plaintiff’s 1953 claim covering the years 1942, 1943, and 1944 said, in its first two paragraphs :

This claim is filed for the purpose of protecting the rights of the taxpayer under Section 122 (d) (6) of the Internal Bevenue Code prior to the tolling or the statute as provided by Section 322 (b) (3) of the Internal Beve-nue Code.

In determining the amount of net operating loss deduction, Section 122 (d) (6) reads in part as follows:

There shall be allowed as a deduction the amount of tax imposed by subchapter E of Chapter II paid or accrued within the taxable year subject to the following rules:

If the plaintiff’s claim had stopped with these generalities, it would, unless and until rejected by the Commissioner of Internal Bevenue for lack of specificity, have been amendable in the way in which the plaintiff sought to amend it in 1955. United States v. Memphis Cotton Oil Co., 288 U. S. 62, 71. However, the plaintiff, in its 1953 claim, went on to explain that it was relying on this court’s decision in Olympic Radio, supra, and was claiming, as we have seen, a 1943 loss resulting from a deduction of excess profits taxes paid in 1944- producing an operating loss in that year, carried back to 1943.

The plaintiff’s 1953 claim was considered by an Internal Bevenue agent who recommended that it be disallowed on the basis of the Tax Court’s decision hi Lewyt, 18 TC 1245, contrary to this court’s decision in Olympic Radio. The controversy then went to the Appellate Division of the Regional Commissioner’s Office. The Commissioner’s representative suggested that since Lewyt and Olympia Radio were both then pending before the Supreme Court, discussion of the claim should be postponed. The plaintiff agreed and the discussion was postponed. Next came the Supreme Court’s decisions in the two cases. Then the plaintiff filed an amended claim for 1944 based upon the mistaken view that the 1943 deficiencies had been accrued in 1946. Then the plaintiff discovered its mistake and filed the December 12, 1955 “amended and supplemental” claim for 1943.

There are serious discrepancies between what the plaintiff claimed in its 1953 claim, and what it seeks to recover in this suit. It is, in fact, not the same money. The money that was paid in 1944, causing an asserted operating loss and a carry-back to 1943, which was the subject of the 1953 claim, was a wholly different item from the deficiency agreed to and accrued in 1945, and carried back to 1943, which is the subject of this suit.

The plaintiff says that in auditing its original 1953 claim the Commissioner would have been obliged to take into account not only the year 1943 but the two preceding and the two following years, because of the carry-over and carry-back provisions. It points to section 23 (s), and to 122 (c) which provides that:

The amount of the net operating loss deduction shall be the aggregate of the net operating loss carry-overs and net operating loss carry-backs to the taxable year * * *.

It points to Income Tax Regs. Ill, paragraph 29.122-1 (b) prescribing “steps in computation of net operating loss” which require the consideration of the carry-overs and carry-backs, as well as the experience of the taxable year itself.

We seriously doubt whether, in considering the plaintiff’s 1953 claim, the taxing authorities could have been expected to discover that the plaintiff had a different and better claim than the one which it specified. The fact that the plaintiff had accrued the agreed 1943 deficiencies in 1945 would not have been disclosed on the returns for any of the five relevant years.

With considerable hesitation, we conclude that the plaintiff’s claim for refund, at least as amended, was, in the circumstances, sufficient to lay a foundation for this suit. The law on the subject of the excess profits tax deduction was unclear. The plaintiff relied upon this court’s decision in Olympic Radio. The Commissioner naturally preferred the Tax Court’s contrary decision in Lewyt. The plaintiff would have done better for itself if it had analyzed its situation more carefully and had filed alternative claims covering both legal theories. However, the plaintiff did timely claim a section 122 (d) (6) deduction, which is what it is here suing for, the parties postponed decision on its claim until the Supreme Court should clarify the law, the plaintiff after the Supreme Court’s decision and while the claim was still under consideration, amended its claim and based it upon the theory on which this suit is based. The Government was not in any sense prejudiced by the plaintiff’s change of its theory to bring it into accord with the Supreme Court’s decision.

This court in recent decisions in National Forge and Ordnance Company v. United States, 139 C. Cls. 222 (decided July 12, 1957), and Continental Foundry & Machine Company v. United States, 141 C. Cls. 604 (decided March 5, 1958), has dealt with comparable problems and has held that the rule of striotissimi jw-is is not applicable to taxpayers’ claims for refund. We apply that doctrine here and conclude that the plaintiff, as a matter of law is entitled to recover. Further proceedings under Buie 38 (c) will be required to determine the amount of the judgment.

It is so ordered.

McLaughliN, District Judge, sitting by designation; and JoNes, Chief Judge, concur.

Whitakee, Judge,

dissenting:

I am compelled to disagree.

The 1953 refund was based on a carry-back to 1943 of a loss incurred in 1944 as the result of the deduction of the payment in that year of excess profits taxes for 1943. I agree that tbat claim put the Commissioner on notice that the taxpayer was seeking a deduction of the excess profits taxes for 1943, and the Commissioner should have allowed their deduction in the proper year, even though the taxpayer had claimed the deduction in the wrong year. The correct year was 1943, but, of course, the deduction in that year is pointless, as we said in Olympic Radio and Television, Inc., v. United States, 124 C. Cls. 33.

Now the so-called amended claim for refund of December 12, 1955 has no relation at all to the deduction of the excess profits tax for 1943, or the carry-back of a 1944 loss.

The only similarity between the original claim and the amended claim is that both relate to carry-back of losses; but, of losses occasioned by entirely different causes and for different years. The original claim was for the carry-back of a loss for ldíJh occasioned by the payment of excess profits taxes for 1943. The amended claim was for the carry-back of a loss for 19I¡£, occasioned not by the payment of excess profits taxes for any year, but by the taxpayer’s agreement in that year to deficiencies previously asserted by the Commissioner for the years 1941 and 1943, arising from causes having no relation to the payment of excess profits taxes.

The two claims seem to me to have no relation one to the other. If they do not, one cannot be an amendment of the other.

FINDINGS OF FACT

The court, having considered the evidence, the report of Commissioner Wilson Cowen, and the briefs and argument of counsel, makes findings of fact as follows:

1. The plaintiff, H. B. Zachry Company, is a Delaware corporation with its principal place of business located at San Antonio, Texas.

2. At all times material herein, plaintiff has kept its books of account and prepared its Federal tax returns by using the accrual method of accounting, which returns were prepared by the accounting firm of Ernst & Ernst.

3. On March 15, 1944, plaintiff filed its Federal income and excess profits tax returns for the calendar year 1943 with the Collector of Internal Revenue at Austin, Texas, reporting thereon an income tax liability of $24,824.52 and an excess profits tax liability of $218,683.93, which amounts were paid in installments during the year 1944. On May 15, 1944, plaintiff filed amended income and excess profits tax returns for the year 1943, reporting thereon additional tax liability of $1,925.08 income tax and $76,133.15 excess profits tax, which were paid in installments during the year 1944. The excess profits tax was later reduced by the postwar credit provided in Section 780 of the Internal Revenue Code of 1939.

4. In the spring of 1945, Mr. John Hernandez, the local internal revenue agent, began an audit of the tax returns of H. B. Zachry Company for the years 1941, 1942, and 1943. This audit was conducted over a period of several months. J. L. Gulley of the accounting firm of Ernst & Ernst represented the taxpayer during this period and held many conferences with Mr. Hernandez during the course of the audit. As a result of these conferences, many issues were raised and additional deficiencies in income and excess profits taxes were proposed by the Internal Revenue Service.

The major item of controversy and the major increase in taxable income proposed by the Internal Revenue Service resulted from changes in the depreciation rates claimed by the taxpayer in its return. Because of the heavy service which the taxpayer’s construction equipment had seen during the year 1943 and because of a large volume of war construction work, the taxpayer felt it was entitled to additional depreciation and had claimed an accelerated depreciation rate in its 1943 tax return. During the audit made by Mr. Hernandez in 1945, he challenged the depreciation deductions claimed by the taxpayer and proposed to disallow them. The taxpayer objected to these adjustments when first proposed and, in the course of attempting to persuade the revenue agent of the soundness of its position, had prepared and submitted to him during numerous conferences various schedules substantiating its claim. After numerous discussions with Mr. Hernandez and the preparation of numerous schedules, substantial agreement was reached on all items of the audit between Mr. Hernandez and the taxpayer’s representative.

During the summer of 1945, however, a Mr. Morris, the engineering agent from the San Antonio office of the Internal Eevenue Service, objected to the accelerated depreciation claimed and proposed to allow only the straight line method of depreciation. The controversy was again renewed. Again, numerous conferences were held with the engineering agent and Mr. Hernandez, and schedules were again prepared, submitted and discussed by Mr. Gulley. Eventually, the controversy was settled by agreement in the fall of 1945 with internal revenue agents disallowing a part of the increased depreciation rates and acceptance of the adjusted rates by the taxpayer. This settlement was evidenced by an agreement between the parties, pursuant to which the taxpayer executed and filed with the Internal Eevenue Service a Waiver of Eestriction on Assessment and Collection on the Proposed Income and Excess Profits Tax Deficiencies for the years 1941,1942, and 1943.

5. The plaintiff’s consent to the assessments of an excess profits tax deficiency of $5,639.15 for 1941 and of $283,046.24 for 1943 was dated December 12, 1945, but it was duly executed by A. Cavazos, secretary-treasurer of H. B. Zachry Company on December 11, 1945, and transmitted by letter on the same date to J. W. Hernandez, Agent, Internal Eeve-nue Service, Laredo, Texas. A date stamp on this document shows that it was received January 8, 1946, by “Int. Eev. Agt. in charge, Dallas, Texas.”

6. The tax adjustments set forth in the waiver referred to above and agreed to by the plaintiff on December 11, 1945, were reflected in plaintiff’s books of account, tax returns and audited financial statements for the year 1945.

7. The waiver referred to in a preceding finding covered an excess profits tax deficiency of $283,046.24 for the taxable year ended December 31, 1943, and an excess profits tax deficiency of $5,639.15 for the taxable year ended December 31,1941.

The excess profits tax deficiency of $283,046.24 with interest computed thereon of $32,031.13 for the year 1943 was assessed on September 13, 1946, and satisfied as follows:

Date Amount

9/27/46_$28, 304. 62 Post-war Credit

10/21/46_ 43, 201.49 Abated.

10/31/46_ 11, 649. 74

10/31/46_ 866.89

2/26/47_ 68,240.12

7/15/47_ 67, 234.46

10/2/47_ 57, 533.51

Not shown_ 38,157.54 Credit.

The interest of $32,031.13 was claimed as a deduction from income on plaintiff’s return for tire year 1946, which was allowed by the Commissioner as a deduction and thereby plaintiff received a tax benefit for such year.

The first item in the foregoing tabulation to wit: $28,304.62 “Post-war Credit” is the post-war credit provided for in Section 780 of the Internal Eevenue Code of 1939.

The excess profits tax deficiency for the calendar year 1941 in the amount of $5,639.15, plus interest in the amount of $1,327.14, was paid by credit.

8.On June 29, 1951, an internal revenue agent made a report of his examination of the plaintiff’s income and excess profits tax returns for the years 1942 and 1943.

The tax liabilities shown in the report for the year 1942 were assessed and paid by credit. The excess profits tax liability shown in the report for the year 1943 amounting to $44,452.39, together with interest in the sum of $17,629.96, was assessed on March 28, 1952, and satisfied as follows:

Date Amount

4/1/52_$4, 445.25 Post-war Credit.

4/10/52_ 33,296.78 Credit.

4/14/52_ 20, 052. 07 Paid in cash.

8/19/52_ 4,288.25 Credit.

9. The plaintiff, as common parent, filed consolidated income and excess profits tax returns for the calendar year 1945 and reported thereon a net consolidated loss of. $951.09 on the income tax return and no tax liability on either return. These tax returns were prepared by the accounting firm of Ernst & Ernst.

10. Plaintiff’s consolidated income and excess profits tax returns for the year 1945 were duly audited by agents of the Internal Eevenue Service. The adjustments proposed by the internal revenue agent and accepted by the plaintiff increased its net income for the year 1945 to $118,577.45 and the consolidated net income for that year to $115,619.47. Plaintiff’s income tax liability as finally determined by the Internal Revenue Service for the taxable year 1945 amounted to $48,532.45 which was assessed in April 1952, together with interest thereon of $17,846.93. Plaintiff paid $50,793.60 on May 1,1952, and $15,585.78 on June 26,1952.

11. Plaintiff’s separate income tax return for the taxable year 1946, as finally determined by the Internal Revenue Service, showed a net operating loss of $1,343.96. This loss did not result in a carry-back deduction for the year 1944 due to an adjustment for depletion.

12. Plaintiff’s net income for the taxable year 1944 as determined by the revenue agent’s report of June 29, 1951, amounted to $81,169.11 and its income tax liability thereon amounted to $34,053.04.

13. The plaintiff and duly authorized agents of the Commissioner of Internal Revenue executed valid consents extending the time within which the Commissioner of Internal Revenue might assess tax deficiencies for the taxable year 1943 until June 30, 1952, and for the taxable years 1944, 1945,1946 and 1947 until June 30,1953.

14. After the decision in Olympic Radio and Television, Inc. v. United States by this court on November 4, 1952, 124 C. Cls. 33, plaintiff’s treasurer requested its accountants, Ernst & Ernst, to investigate the possibilities of the application of that decision to plaintiff. After Ernst & Ernst had made an investigation and report, that accounting firm was instructed to prepare protective claims for refunds for all open years in order to preserve plaintiff’s rights under Section 122(d) (6) of the Internal Revenue Code of 1939. Pursuant to such instructions, three claims for refund were prepared by Ernst & Ernst, signed by.plaintiff’s treasurer and filed June 29,1953. The first was a claim for refund of income and excess profits taxes in the amount of $102,806.42 for the year 1942; the second was a claim for refund of income and excess profits taxes in the amount of $52,668.37 for the year 1943, and the third was a claim for the refund of income taxes for the year 1944 in the amount of $33,596.14.

Each of the three claims for refund read in part as follows:

This claim is filed for the purpose of protecting the rights of the taxpayer under Section 122 (d) (6) of the Internal Revenue Code prior to the tolling of the statute as provided by Section 322 (b) (3) of the Internal Revenue Code.
In determining the amount of net operating loss deduction Section 122 (d) (6) reads in part as follows:
“There shall be allowed as a deduction the amount of tax imposed by Subchapter E of Chapter 2 paid or accrued within the taxable year subject to the following rules

All of the claims stated that they were based on this court’s decision of November 4, 1952, in Olympic Radio and Television, Inc. v. United States.

In computing the refund claimed for the year 1942, plaintiff asserted that the excess profits taxes reported on its 1943 return and paid during the year 1944 were deductible in computing an operating loss for the year 1944, which under section 122 (d) (6) should be carried back to the year 1942 and that the unused balance should be carried forward to the year 1943. The claim for refund for the year 1943 asserted a refund was due by reason of carrying forward from 1942 that portion of the claimed 1944 operating loss which was not applied and used in the claim for refund for the year 1942. The claim for refund for the year 1944 asserted that a refund was due to the carry-back of a net operating loss for the year 1946.

15. Subsequent to the filing of the above-described claims for refund and sometime during the year 1953, a representative of Ernst & Ernst briefly discussed the claims with a revenue agent, who stated that he intended to recommend the disallowance of the claims in view of the decision of the Tax Court in Lewyt Corporation v. Commissioner (18 T. C. 1245). The agent with whom this discussion was had examined the three claims for refund and prepared a report dated December 9,1953, in which he recommended rejection of all three claims. The report stated that plaintiff’s claims for refund were based on the decision of this court in the Olympic Radio and Television case, that the decision did not follow the Tax Court’s decision in the Lewyt case, and that in the opinion of the agent the claims for refund should be rejected on the basis of the decision in the latter case.

18. The revenue agent’s report of December 9, 1953, was mailed to plaintiff on January 22, 1954, with a letter from the District Director, Internal Revenue Service, stating that if plaintiff did not agree with the findings contained therein it should file a written protest within 30 days, and that if the protest were filed, it would be given careful consideration. The letter also stated that a conference would-be granted by the Appellate Division of the Regional Commissioner’s office if the plaintiff so requested.

Upon the receipt of the report, plaintiff’s officers discussed it with representatives of Ernst & Ernst, who at plaintiff’s direction prepared a written protest on each of the rejected claims. The protest was signed by C. A. Barlow, manager of the San Antonio office of Ernst & Ernst and transmitted to the District Director of the Internal Revenue Service at Austin, Texas, by letter of February 18,1954. Under date of February 19,1954, plaintiff received a letter from the office of the District Director at Austin, Texas, stating that the protest had been received and that after the examining officer had been given an opportunity to comment on the issues raised by plaintiff, the protest would be carefully reviewed and plaintiff would be advised of further procedures.

17. In accordance with the request contained in plaintiff’s protest, the three claims were transferred to the Appellate Division of the Regional Commissioner’s office in Houston, Texas, and on November 30, 1954, officials of plaintiff and representatives of Ernst & Ernst met with the conferee of the Appellate Division to discuss the status of plaintiff’s claims. At the beginning of the conference, the conferee stated that both the Olympic case and the Lewyt case were before the Supreme Court and suggested that there was little to discuss until those cases had been decided.

This proposal was agreed to and consideration of the pending claims was postponed until the Supreme Court handed down its decision in both cases.

18. On June 3, 1955, plaintiff received a letter from the associate chief of the Appellate Division, stating that the Supreme Court bad rendered its decisions in the Olympic and Lewyt cases, and requesting that plaintiff advise his office of the disposition plaintiff desired to make of the pending 1942,1943, and 1944 claims. Plaintiff acknowledged the letter and replied that it would review the matter. Ernst & Ernst then prepared an “amended” claim for refund of income taxes for the year 1944, together with claims for refund of income taxes for the years 1945 and 1947. These claims were signed by plaintiff’s treasurer and filed with the District Director of the Internal Revenue Service on August 5,1955. In the claims, plaintiff stated that its computations were based upon the Supreme Court’s decision in the Lewyt case.

19. The three claims for refund were dated July 27, 1955, and mailed to the Appellate Division of the Internal Revenue Service, which forwarded them to the District Director, Austin, Texas, for entry and, as stated above, they were filed in his office on August 5, 1955. Under date of August 4, 1955, the associate chief of the Appellate Division wrote plaintiff that the claims had been received and forwarded to the District Director; that a further discussion of the claims was required, and that a conference would be scheduled at an early date for that purpose.

20. The conference with the Appellate Division was set for December 12, 1955, and in preparation therefor plaintiff’s officers noticed that the Waiver of Restrictions on Assessment and Collection of Deficiency in Tax and Acceptance of Overassessment (finding 4) had been executed by plaintiff on December 11,1945. On December 9, 1955, an “Amended and Supplemental” claim for refund of income and excess profits taxes for the year 1943 was prepared and signed for plaintiff by its treasurer. In the claim, plaintiff referred to and relied upon the Supreme Court’s decision in the Lewyt case. The claim was for $355,760.50 and was based on the carry-back of a net operating loss for the year 1945 to the year 1943.

21. At the conference of December 12, 1955, plaintiff presented the amended and supplemental claim for refund of income and excess profits taxes for the year 1943. The date stamp on the claim shows that it was received by the Appellate Division at Houston, Texas, on December 21, 1955. During the meeting, the conferee of the Appellate División stated that plaintiff’s claims for refund of income taxes for the years 1945 anad 1947 were barred by the statute of limitations and that it would be a waste of time to discuss them. With respect to the amended and supplemental claim for the year 1943, he stated that he would like to have time to study the claim and then arrange for another conference between the parties.

22. Pursuant to arrangements made by the conferee, a final conference was held in the Appellate Division on January 9,1956. On that date, the conferee informed plaintiff’s representatives that he doubted whether there had been a controversy between plaintiff and the revenue agents over the excess profits tax deficiencies sufficient to cause a postponement of the accrual of taxes from the year in which the income was earned to the year 1945 as claimed by plaintiff. He also raised a question as to whether there could be a loss carry-back under section 122 (d) (6) from a year in which plaintiff did not otherwise have a loss.

Despite these statements he indicated that he thought plaintiff’s case had some merit.

At the conference of January 9, 1956, there was no discussion between the parties as to the timeliness of plaintiff’s amended and supplemental claim for refund for the year 1943.

23. By four letters dated January 31, 1956, the associate chief of the Appellate Division notified plaintiff that the Appellate Division had concluded that plaintiff’s claims for refund of 1942,1943,1944,1945, and 1947 taxes should be disallowed and that statutory notices of disallowance would be forwarded to plaintiff at a later date.

(a) With respect to plaintiff’s original claim for refund of 1943 income and excess profits taxes, which claim was filed June 29, 1953, the letter gave the following reasons for disallowance of the claim:

* % % #
The excess profits taxes which you contend should be included in computing a net operating loss for the year 1944 are not properly includible in such computation by reason of the fact that you employ an accrual method of accounting; consequently, excess profits taxes are to be taken into account on the accrual basis and not the cash basis as was done in the claims for refund.
* iji # * *

(b) As to plaintiff’s amended and supplemental claim for refund of income and excess profits taxes for the year 1948, which claim was presented to the Appellate División on December 12, 1955, and filed in the Houston office of the Regional Commissioner on December 21, 1955, the letter stated the claim should be rejected because:

(1) The claim for refund was not timely filed within the statutory period as defined in Section 322 (b) (6) of the 1939 Code.
(2) In any event the excess profits taxes which you contend should be included in computing a net loss carry-back from the year 1945 are not properly in-cludible in such computation by reason of the fact that the deficiencies in excess profits taxes for the year 1943 did not accrue in 1945.

(c) With respect to plaintiff’s original and amended claims for refund of income taxes for the year 1944, which claims were filed respectively on June 29, 1953, and on August 5, 1955, the letter stated that such claims should be rejected for the following reasons:

The original claim was based upon a net operating loss carry-back by reason of certain excess profits taxes paid in the year 1946 for the year 1943. Because you employ the accrual method of accounting, excess profits taxes paid in 1946 for the year 1943 are not to be included as a deduction in computing net operating loss carry-back. The amended claim was based upon the contention that certain deficiencies in excess profits taxes for the year 1943 accrued during the year 1946. However, under the circumstances the deficiencies in question did not accrue in 1946; consequently, you are not entitled to a net operating loss carry-back from 1946 to 1944 as set forth in the amended claim.

24. As of the date of the filing of plaintiff’s petition plaintiff had not received statutory notices rejecting any of the claims for refund.

25. The trial of this case was limited to the issues of law and fact relating to the right of plaintiff to recover.

CONCLUSION OF 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 plaintiff is entitled to recover and judgment will be entered to that effect. The amount of recovery will be determined pursuant to Eule 38 (c).

In accordance with the opinion of the court and on a memorandum report of the commissioner as to the amount due thereunder, it was ordered on March 27,1959, that judgment for the plaintiff be entered for $90,459.06, together with interest thereon as provided by law. 
      
       All references herein are to the Internal Revenue Code of 1939.
     
      
       while the claim was for the carry-back of a loss, it was a loss occasioned by the deduction of the excess profits tax for 1943.
     