
    JOHN S. KERNACHAN v. THE UNITED STATES
    [No. E-28.
    Decided June 6, 1927]
    
      On the Proofs
    
    
      Income tax; value of land as of March 1, 1913; finality of finding Tyy Commissioner of Internal Revenue. — A finding of the Commissioner of Internal Revenue of the value of a taxpayer’s land as of March 1, 1913, for the purpose of determining the amount of profit, if any, under the income-tax laws resulting from a sale thereof, is not conclusive upon the Court of Claims.
    
      
      The Reporter’s statement of the case:
    
      Mr. Oscar W. Underwood, jr., for the plaintiff. Underwood <& Kilpatrick were on the briefs.
    
      Mr. Thaddeus G. Benton, with whom was Mr. Assistant Attorney General Herman J. Galloway, for the defendant.
    The court made special findings of fact, as follows:
    I. The plaintiff, John S. Kernachan, is a citizen of the. United States and a resident of Florence, Ala. This action, has been brought by the plaintiff to recover from the United States the sum of $3,678.32, with interest, being an income tax which he alleges was erroneously and illegally collected from him.
    II. About 44 years ago the plaintiff acquired by inheritance the fee simple title to 1,800 acres, more or less, of land in Colbert County, Ala., abutting the Tennessee River and contiguous to Little Muscle Shoals. On August 12,. 1918, the plaintiff sold to the United States 908.43 acres of said 1,800 acres, more or less, at the price of $72,000.00.
    III. The plaintiff on March 15, 1919, filed his income-tax return under the revenue act of 1918, Title II (40 Stat. 1058, et seq.), for the calendar year 1918 and in so doing declared neither gain nor loss from the sale of said 908.43 acres. Said return disclosed a net income of $3,383.95 and a tax liability of $83.04, which amount the plaintiff paid on March 15, 1919.
    IY. The Commissioner of Internal Revenue under date of November 16, 1923, addressed a letter to the plaintiff, claiming an additional tax for the calendar year 1918, above that paid by the plaintiff under his aforesaid return, of $4,790.01, and stating that the plaintiff’s net income had been increased from $3,383.95 to $29,772.20, under the plaintiff’s amended return, filed on or about October 10, 1923. The amended return was filed not by the plaintiff but by the deputy collector of internal revenue. Under date of December 19,. 1923, the Deputy Commissioner of Internal Revenue advised the plaintiff that the proposed additional assessment of $4,790.01 wras correct, and that the same was occasioned by the placing of a valuation of $50 per acre as of March. 1, 1913, on the said land sold to the United States in 1918, upon which basis a profit to the plaintiff of $25,678.50 had resulted from said sale. Thereafter the collector of internal revenue at Birmingham, Ala., on or about February 1, 1924, made demand upon the plaintiff for the payment of $4,790.01 and on February 6, 1924, the plaintiff paid that sum to the Collector.
    V. Thereafter, on April 7, 1924, the plaintiff, on Treasury Department, Internal Bevenue Service, Form 843, filed a claim for refund of said $4,790.01 with the Commissioner of Internal Bevenue, according to the provisions of law in that regard and the regulations of the Secretary of the Treasury ■ established in pursuance thereof. In said claim the plaintiff contended that the said 908.43 acres of land sold by him on August 12, 1918, to the United States had a fair market value on March 1, 1913, of $100 per acre, and that since said property was worth on that date more than the $72,000 he had received for it in 1918 from the United States, he had made no taxable profit through the transaction, and, therefore, demanded the return to him of said $4,790.01 and interest. With his claim for refund the plaintiff filed evidence in affidavit form.
    VI. Thereafter, on December 5,1924, the Commissioner of Internal Bevenue, acting by and through one J. G. Bright, deputy commissioner, by letter dated that date and mailed to the plaintiff, rendered a decision on said claim by allowing a part of said claim to the extent of $961.55, and authorizing the refund of that amount to the plaintiff, and by disallowing a part of said claim, namely, the balance of the amount claimed by the plaintiff above $961.55, and it is to the disallowed part of such claim that this suit relates.
    This refund was not based upon an increase by the Commissioner of Internal Bevenue of the valuation he placed upon the land in question as of March 1, 1913, but was based upon an allowance by the commissioner for certain improvements existing upon said land on March 1, 1913.
    VII. In rendering the decision set forth in Finding VI the commissioner determined that the value on March 1, 1913, of the said 908.43 acres was $50 per acre ($45,421.50). The commissioner therein allowed $6,000 as the cost of improvements placed on the property subsequent to March 1, 1913, but deducted therefrom $1,160 as depreciation on said improvements at the rate of 4 per cent per anum for 4% years. The buildings and improvements placed upon the land subsequent to March 1, 1913, and which the plaintiff could not remove, but sold to the United States as a part of the property conveyed for the consideration of $72,000, were worth net, on August 12, 1918, when said sale was made, at least the amount of $4,840 allowed by the commissioner therefor, wholly apart from the value of his 908.43 acres, as agricultural land.
    VIII. The reasonable and fair value of the fsaid 908.43 acres ■of land as of March 1, 1913, was $75 per acre, with a total value of $68,122.25, exclusive of the value of any buildings and improvements thereon. The land- was of the kind known as river-bottom land and was kept in a highly developed state of cultivation by the plaintiff.
    IN. The plaintiff admits that a tax of $150.14 was due the United States, arising as follows: In filing his return for 1918 the plaintiff declared a net taxable income of $3,383.95. There should have been deducted from that sum $207.45 as interest on United States obligations. The commissioner allowed this deduction. There should have been added to plaintiff’s taxable income $709.75, which comprised other items than those involved in this suit and which the plaintiff conceded when a revenue agent audited his return. The commissioner’s said letter of November 16, 1923, was based on figures which included said $709.75 in the plaintiff’s net income. The plaintiff’s correct net income was therefore $3,886.25, which was subject to a normal tax of 6 per cent, namely, $233.18. The plaintiff paid $83.04 under his return as aforesaid, and the United States is entitled to retain $150.14 in addition thereto out of the amount paid by the plaintiff under the collector’s demand as aforesaid. Credit has been given the United States for said $150.14, and the amount claimed in this petition, $3,678.32, is the balance collected from the plaintiff above and beyond the said amount of $150.14.
    
      The court decided that plaintiff was entitled to recover the sum of $3,678.32 with interest thereon from February 6,1924-, to date of judgment, an aggregate of $4,413.98.
   Hat, Judge,

delivered the opinion of the court:

This is a suit brought by the plaintiff to recover from the-United States the sum of $3,678.32, which he claims was illegally and erroneously collected from him by the Commissioner of Internal Eevenue. The sole question involved in this case is what was the value of 908.43 acres of land owned by the plaintiff on March 1,1913. On that date the plaintiff was the owner of said land, and had been the owner thereof for many years before that date.

On August 12, 1918, the plaintiff sold said land to the United States at the price of $72,000. The plaintiff on March 15,1919, filed his income-tax return under the revenue act of 1918 for the calendar year 1918, and in so doing declared neither gain nor loss from the sale of the said 908.43’ acres. Thereafter on November 16, 1923, the Commissioner of Internal Eevenue claimed that the plaintiff owed an additional tax for the calendar year 1918, claiming that the additional assessment was occasioned by the placing of a valuation of $50 per acre as of March 1, 1913, on the 908.43 acres of land sold to the United States in August, 1918. Under protest the plaintiff paid the additional assessment on February 6, 1924. On April 7, 1924, the plaintiff filed his claim for the refund of the amount so paid. -The commissioner allowed a part of said claim, to wit, the sum of $961.55, and disallowed the balance of the amount above the $961.55. The part of the claim allowed was based on the cost of improvements .placed on the land since March 1, 1913, but the commissioner adhered to his decision that the land was only of the value of $50 per acre as of March 1, 1913.

The statute under which the Commissioner of Internal Eevenue acted in this case reads as follows:

“ Sec. 202. (a) That for the purpose of ascertaining the gain derived or loss sustained from the sale or other disposition of property, real, personal, or mixed, the basis shall be: (1) In the case of property acquired before March 1, 1913, the fair market price or value of such property as of that date.”

We are of opinion that the reasonable value of the 908.43 acres sold by the plaintiff to the United States in August, 1918, was on March 1, 1913, $75 per acre. It follows therefore that a judgment must be awarded the plaintiff for the amount for which he sues.

The Government, however, contends that this court can not alter, modify, set aside or disregard the finding of the Commissioner of Intesnal Revenue of the value of plaintiff’s land as of March 1,1913, unless it is affirmatively shown that the commissioner in fixing the value of the land proceeded upon an erroneous principle, or adopted an improper mode of estimating the value of the land, or unless fraud appears, or unless a perfectly clear and unquestioned preponderance of the evidence shows that the commissioner committed gross error.

This contention has been repeatedly made in these cases, and this court has passed upon it in a great many cases. It is not necessary to again give the reasons for our former rulings. It is sufficient to say that the contention is not tenable.

Judgment will be awarded the plaintiff for the sum with interest for which he sues. It is so ordered.

Moss, Judge; Booth, Judge; and Campbell, Chief Justice^ concur.

Graham, Judge, took no part in the decision of this case.  