
    THE MIDVALE COMPANY v. THE UNITED STATES
    [No. 643-53.
    Decided January 31, 1956]
    
      Mr. Joseph H. Sheppard for the plaintiff. Messrs. J. Marvin Haynes, N. Barr Miller, F. Eberhart Haynes, Oscar L. Tyree and Messrs. Haynes & Miller were on the briefs.
    
      
      Mr. Gilbert E. Andrews, with, whom was Mr. Assistant Attorney Generad H. Brian Holland, for the defendant. Mr. Andrew D. Sharpe was on the brief.
   Littleton, Judge,

delivered the opinion of the court:

The plaintiff sued to recover $624,922.52, with interest, representing excess profits tax and deficiency interest for the years 1940-1945, inclusive, (The Midvale Company v. United States, 129 C. Cls. 483). The plaintiff contended that the Commissioner of Internal Revenue erroneously computed its excess profits credit under section Ill (b) (1) of the Excess Profits Tax of 1940, as amended (26 U. S. C. 110-184, note 1946 ed.; repealed November 8, 1945, 59 Stat. 568), because the Commissioner erroneously reduced its base period net income by excluding certain amounts received in those years but subsequently repaid to the Government under the Vinson-Trammell Act (48 Stat. 503, 505, as amended, 34 U. S. C. 496, 1940 ed.). The plaintiff contended that the income to be used was that shown on the returns for those years, with certain adjustments which did not include an adjustment excluding Vinson Act excessive profits.

This court, in its opinion on October 5,1954, held that the Vinson Act excessive profits should be excluded from the base period years because section Ill (b) (1) required the use of the correct income for the base period years, regardless of what was shown on the return, in the computation of the excess profits credit. We held that the allowance of the tax .credit on the money repaid under the Vinson Act automatically and retroactively reduced the income previously reported. In computing this credit the Commissioner determined the amount of taxes paid on the excessive profits in the base period years on the basis of the completed contract method, whereas the plaintiff had reported the income on the percentage of completion method. This was erroneous. In order to ascertain the correct income for the base period years and therefore the proper excess profits credit, judgment was suspended pending the filing of a stipulation showing the correct computation of the plaintiff’s income for the base period years, or upon the failure of such stipulation then the case was to be remanded to a commissioner of this court. The case was subsequently remanded.

The commissioner of this court submitted his report with alternative computations. The alternative computations arise as a result of an error made by a revenue agent in the audit made in 1943, in failing to correctly compute the plaintiff’s Declared Value Excess Profits (D. V. E. P.) taxes for the base period years. Two revenue agents made audits and reports on plaintiff’s claims for refund. In the first report the revenue agent did not exclude the Vinson Act excessive profits and determined plaintiff’s D. V. E. P. taxes for the base period years on that basis. In the second report another revenue agent excluded the excessive profits but used substantially the same D. V. E. P. taxes, which is conceded by defendant to have been incorrect. Since the D. V. E. P. taxes are a deduction from income in determining the excess profits net income, plaintiff’s excess profits net income was understated in the base period years by this error.

The defendant contends, however, that this court lacks jurisdiction to award plaintiff anything in this case because plaintiff’s claims for refund do not specifically set forth, as a ground for recovery, that the Commissioner erroneously used the completed contract method in determining the Vinson Act excessive profits tax credit. The defendant further contends that the revenue agent’s error cannot be corrected because plaintiff’s claims for refund do not specifically set forth the error as a ground for recovery.

We think that both contentions of defendant are without merit. It is undisputed that a taxpayer cannot recover in court on a ground different from that asserted in the claim for refund, unless there is some action of the Commissioner which amounts to a waiver or estoppel. The plaintiff’s claim for refund, inter alia, stated:

The Internal Eevenue Bureau has erroneously determined this taxpayer’s excess profits tax payable in the amount stated in Item 6, Form 843, by failing to compute correctly its excess profits tax credit based on its average base period net income.
In the determination of this taxpayer’s average base period net income for the years 1936 to 1939, inclusive, the Internal Eevenue Bureau has erroneously and illegally reduced the same by the following payments which this taxpayer made to the U. S. Treasury Department under the Vinson Act: * * *

The above statements, along with the detail furnished in the claims for refund,- are sufficient to support the refunds in this case, which are predicated on the ground that the Commissioner of Internal Revenue erroneously computed plaintiff’s excess profits credit because of his incorrect treatment of the repayments of the Vinson Act excessive profits. Both errors of the Commissioner are covered generally in the grounds set forth in the claims for refund and are directly related to the specific issue of whether the excessive profits should be included or excluded from the base period years.

The plaintiff is entitled to recover the amounts set forth in Table VIII in finding 8, less the amounts shown in Table IX of that finding.

Judgment will be entered for plaintiff for overpayment of excess profits taxes and deficiency interest, less the income tax deficiencies, as follows: For 1940, $7,848.36 and $4,133.26; for 1941, $13,494.74 and $6,297.19, less $4,039.73; for 1942, $18,212.81 and $6,970.77, less $8,811.15; for 1943, $35,685.16 and $5,935.16, less $17,622.30, and for 1944, $37,667.67 and $4,004.83, less $17,622.30, with appropriate interest as provided by law on the respective amounts.

It is so ordered.

Laramqre, Judge; Maddek, Judge; Whitaker, Judge; and JoNes, Chief Judge, concur.

FINDINGS OE PACT

The court, having considered the evidence, the briefs and argument of counsel, and the report of Commissioner Roald A. Hogenson, makes the following findings of fact:

1. The court, in its decision of October 5, 1954, held that plaintiff’s income for the base period years 1936-1939 should not include, for purposes of determining its excess profits net income, excess profits under the Vinson-Trammell Act but suspended the entry of judgment and remanded the case pending the filing of a stipulation showing the proper allocation of the Vinson Act excess profits over the years that the income and expenses on the contracts involved in the litigation were reported and the correct computation of the income for the base period years as indicated in the opinion, or in the event the parties were unable to stipulate, then the establishment of such income by proof before a commissioner.

2.The defendant has redetermined the Vinson Act excess profits of the base period years 1936-1989 on the basis of the percentage-of-contract-completion method of accounting, as directed by the court. A comparison of the Vinson Act excess profits under the completed contract method and the percentage of completion method, and the adjustment of net-income which should be made under the court’s decision in that regard appear in the following table:

3.The adjustment in plaintiff’s base period net income by the amounts set forth in Column 3 of the above table necessitated a change in plaintiff’s Pennsylvania income taxes and Declared Value Excess Profits taxes in the amounts set forth in the table below.

4.There are two reports of revenue agents, covering the excess profits tax taxable years, in which the income of the base period years 1936-1939 is computed for purposes of determining the excess profits credit. In the second report dated April 13, 1943, the revenue agent reduced base period net income by the amounts of excess profits under the Vinson Act for tbe respective years on the completed contract basis. By reason of these reductions the agent should have recomputed the Declared Value Excess Profits taxes for the base period years. This he failed to do. He used the same amounts of Declared Value Excess Profits taxes as were used by the agent in the first report of September 15,1942, wherein net income for the base period years was not reduced by the Vinson Act excess profits. The report of the agent, dated April 13, 1943, resulted in the reduction of base period net income as follows:

Table III
The additional amount of D. V. E. P. taxes deducted in the agent’s
Lear: l9ís report
1936___$4,403.40
1937_ 18, 899.06
1938_ 1,658.43
1939_13, 512.23

As a consequence, plaintiff’s excess profits net income for the base period was reduced, and in turn plaintiff’s excess profits credit for the years 1941 through 1945 (the year 1940 was not affected) was correspondingly reduced.

Photostatic copies of schedules 4 (a) (1) and 4-A-l of the respective reports above referred to are in evidence as Exhibits 1 and 2.

5. Table IV below shows a comparison of Declared Value Excess Profits taxes as they appeared in the 1942 and 1943 reports and as they have been recomputed by the defendant in schedules in evidence as Exhibit 3:

6. When the adjustments set forth in Table II and Column 3 of Table I, appearing in findings 2 and 3, are made, plaintiff’s excess profits net income for the base period years, which is used for the purpose of computing plaintiff’s excess profits tax credit, is either the amounts set forth in Column 1 or Column 3 of Table V below:

7. If the revenue agent’s error is not corrected a refund should be made to plaintiff by the use of the excess profits net income shown in Column 3 of Table V in finding 6, and the overpayments of excess profits taxes and deficiency interest for the years 1940 to 1944, inclusive, are as follows: .

The parties have agreed that statutory interest should be added to the respective total amounts.

The plaintiff concedes that the defendant may offset against the above overpayments of excess profits taxes and deficiency interest thereon, plus statutory interest on that total amount, the following income taxes, plus appropriate statutory interest thereon:

Table YII
Year: Income taw deficiencies
1941_ $3,151.73
1942_ 6,684.15
1943_ 13,407.30
1944_ 13,407.30

8. The court determines that a refund should be made to plaintiff by the use of the excess profits net income shown in Column 1 of Table Y in finding 6, and that the overpayments of excess profits taxes and deficiency interest for the years 1940 to 1944, inclusive, are as follows:

The parties have agreed that statutory interest should be added to the respective total amounts.

The plaintiff concedes that the defendant may offset against the overpayments of excess profits taxes and deficiency interest thereon, plus statutory interest on those respective total amounts, the following income taxes, plus appropriate statutory interest thereon:

Table IX
Year: Income tax deficiencies
1941. $4, 039. 73
1942. 8, 811. 15
1943. 17, 622. 30
1944. 17, 622. 30

9. In evidence as Exhibit 4 is a copy of plaintiff’s claim for refund duly filed for the year 1941. This exhibit is typical of plaintiff’s claims for refund duly filed with the Commissioner of Internal Revenue for the years 1940, 1942, 1943, 1944, and 1945, the only difference being in the years involved and tbe amounts claimed. In Exhibit 4, plaintiff stated:

The Internal Eevenue Bureau 'has erroneously determined this taxpayer’s excess profits tax payable in the amount stated in Item 6, Form 843, by failing to compute correctly its excess profits tax credit based on its average base period net income.
In the determination of this taxpayer’s average base period net income for the years 1936 to 1939, inclusive, the Internal Eevenue Bureau has erroneously and illegally reduced the same by the following payments which this taxpayer made to the U. S. Treasury Department under the Vinson Act: * * *

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 entitled to recover, and it is therefore adjudged and ordered that it recover of and from the United States as follows: For 1940, seven thousand eight hundred forty-eight dollars and thirty-six cents ($7,848.36) and four thousand one hundred thirty-three dollars and twenty-six cents ($4,133.26); for 1941, thirteen thousand four hundred ninety-four dollars and seventy-four cents ($13,494.74) and six thousand two hundred ninety-seven dollars and nineteen cents ($6,297.19), less four thousand thirty-nine dollars and seventy-three cents ($4,039.73); for 1942, eighteen thousand two hundred twelve dollars and eighty-one cents ($18,212.81) and six thousand nine hundred seventy dollars and seventy-seven cents ($6,970.77), less eight thousand eight hundred eleven dollars and fifteen cents ($8,811.15); for 1943, thirty-five thousand six hundred eighty-five dollars and sixteen cents ($35,685.16) and five thousand nine hundred thirty-five dollars and sixteen cents ($5,935.16), less seventeen thousand six hundred twenty-two dollars and thirty cents ($17,622.30) and for 1944, thirty-seven thousand six hundred sixty-seven dollars and sixty-seven cents ($37,667.67) and four thousand four dollars and eighty-three cents $4,004.83), less seventeen thousand six hundred twenty-two dollars and thirty cents ($17,622.30), with interest on the respective amounts as provided by law.  