
    UNITED STATES PIPE & FOUNDRY CO. v. THE UNITED STATES
    [No. 510-52.
    Decided October 9, 1957.
    Defendant’s motion for correction of judgment overruled March 5, 1958]
    
      
      Mr. H. Cecil Kilpatrick for the plaintiff. Kilpatrick, Bollard <& Beasley, and White, Bradley, Arant, All de Bose, were on the brief.
    
      Mr. Herbert 8. Fessenden, with whom was Mr. Assistant Attorney General Charles K. Bice, for the defendant. Mr. James P. Garland was on the brief.
   Littueton, Judge,

delivered the opinion of the court:

The plaintiff sues to recover from the defendant interest alleged to be due it on overpayments of income and excess profits taxes for 1941 and 1942 in the amount of $22,341.01. Defendant in its brief and on oral argument concedes that $10,223.38 of the amount sought is properly payable to plaintiff. We, therefore, will omit any reference to this portion of the claim.

The facts necessary to a determination respecting the validity of the claim for the remaining interest of $12,117.63 which relates only to 1941, are briefly as follows:

On June 7, 1944, the taxpayer filed claims for the refund of the full amount of excess profits taxes paid for 1941 and 1942 on the ground that it had an excess profits credit carry-back for the year 1943 in the amount of $709,149.71, which was more than sufficient to result in a refund of the entire 1941 and 1942 excess profits taxes paid. As a result of a subsequent audit by the Internal Revenue Service of these and other years, it was found that the taxpayer had a similar carryback for the year 1942 also, in the amount of $78,833.55. The Commissioner of Internal Revenue, on the theory that this 1942 carryback should be applied to 1941 before the 1943 carryback could be applied, determined that the 1942 carry-back entitled the taxpayer to a refund or credit of $43,412.94 of the 1941 excess profits tax it had paid, and that the 1943 carryback entitled the taxpayer to a refund or credit of the balance of such 1941 excess profits tax paid. The Commissioner allowed no interest whatever on the $43,412.94 refund attributable to the 1942 carryback, on the ground that no claim for refund of that amount as required by section 3771 (e) of the 1939 Internal Revenue Code had been filed. The only issue now before the court is whether plaintiff is entitled to interest on this portion of the refund.

Section 3771 (e) in pertinent part provides as follows:

If the Commissioner determines that any part of an overpayment is attributable * * * to the inclusion in computing the unused excess profits credit adjustment for the taxable year of any part of the unused excess profits credit for a succeeding taxable year, no interest shall be allowed or paid with respect to such part of the overpayment for any period before the filing of a claim for credit or refund of such part of the overpayment or the filing of a petition with the Tax Court, whichever is earlier,; * * *

Section 710 (c) (1) provides:

The unused excess profits credit adjustment for any taxable year shall be the aggregate of the unused excess profits credit carry-overs and unused excess profits carry-backs to such taxable year.

Plaintiff argues that since its claim for refund based on the 1943 carryback alone was sufficient to refund all 1941 excess profits taxes paid notwithstanding the 1942 carryback, later determined and about which plaintiff did not know at the time, a valid claim for refund was made within the scope of section 3771 (e) and it is thus entitled to interest.

We feel the facts and law of the case sustain the plaintiff’s position and we so hold.

The defendant, however, argues that before interest can be paid upon a refund or credit of a tax overpayment attributable to the carryback of an unused excess profits credit for a succeeding year it is necessary for the plaintiff to file a claim for refund grounded upon a request for that specific carryback, in this case the 1942 carryback upon which year plaintiff did not specifically ground its claim, notwithstanding that the plaintiff made claim specifically for the identical refund of excess profits tax for 1941 and based its claim on a carryback for another year (1943) which it proved at that time it had and which carryback was legally sufficient to refund all the tax paid for 1941. We do not think that defendant’s position is a correct interpretation of the statute as it is written. Nor has defendant pointed to any legislative history which would indicate that Congress intended or desired such a result. See section 710 (e) (1) which must be read along with section 3771 (e).

While there are apparently no cases which specifically construe section 3771 (e) in this respect, the parties have cited several cases which should be considered in reaching a decision. Those cases, however, deal generally with whether a valid claim for refund had been made pursuant to section 322 of the 1939 Internal Revenue Code, or whether certain of the Commissioner’s regulations promulgated under section 322 had been waived by him, rather than whether a valid claim for refund had been made pursuant to section 3771 (e) which would entitle the claimant to interest on a subsequent refund or credit. Especially noteworthy among these cases are those which deal with waiver by the Commissioner of his regulations. Those regulations relating to specific refunds under section 322 require each ground upon which a refund is claimed to be set forth in detail and, as well, require that the claim contain facts sufficient to apprise the Commissioner of the exact basis thereof, Regs. Ill, sec. 29.322-3. The claim here in question specifically stated the ground, i. e., a refund based on a carryback whether aggregate or not. The cases hold that where the Commissioner determines and applies newly discovered or different grounds in computing the actual tax liability for the year put in question by the claimant’s claim for refund, or, to state it differently, if the Commissioner considered the claim on its merits notwithstanding its form, he waives his regulations as to specificity, is precluded from thereafter denying the refund because the claim was incompatible with his regulations, and must pay any additional amount reflected by his computations. Wilmington Gasoline Corporation v. Commissioner, 27 T. C. 500 (1956) ; Martin Weiner Corp. v. Commissioner, 26 T. C. 128 (1956). See also Angelus Milling Co. v. Commissioner, 325 U. S. 293 (1945), in which the Court denied, because of lack of proof, petitioner’s assertion that the Commissioner waived his regulations, but recognized that consideration of a claim for refund on its merits waives defects in form; United States v. Felt & Tarrant Manufacturing Co., 283 U. S. 269 (1931), in which the Court held that a defective claim for refund will not supply a basis for a suit against the Government when there has been neither waiver by the Commissioner nor proper amendment by the taxpayer; Tucker v. Alexander, 275 U. S. 228 (1927), involving waiver of Commissioner’s regulations by stipulation of the parties.

On the basis of these cases the Commissioner in the case before us must be conclusively deemed to have waived his regulation as to specification of the 1942 carryback as a ground for refund since he not only computed the overpayment for the year in question, 1941, by using the 1942 carryback, but actually made a credit of the amount that the application of that ground reflected. At any rate, this point is not in issue as the Government is not here contesting the overpayment or the refund but only the payment of interest on part of it. The Government in effect concedes that there was a claim sufficiently valid to make a refund under section 322 and the regulations promulgated thereunder, which govern the filing of claims for refund in general.

In the instant case we must interpret section 3771 (e), a statute regulating the payment of interest, and determine whether because of it plaintiff is deprived of interest to which, without the section, it would clearly be entitled. To do so we must look primarily to that section and not to cases construing section 322 or dealing with the waiver of regulations. If certain additional requirements or restrictions are made by section 3771 (e) they cannot be waived, as the Commissioner does not have the authority to waive statutory impositions. Angelus Milling Co. v. Commissioner, supra at 296. There is, however, necessarily a close interrelation between section 322 and section 3771 (e). Section 3771 (e), inter alia, relates specifically to an unused excess profits credit carryback and says, substantially, that before interest can be paid on a refund or credit for overpayment based on a carryback, a claim for refund must first have been made therefor. No date is fixed by statute as to just when the claim must be filed, and since it was grounded on the carryback statutory provisions, we think the Commissioner eannoi say that it must be fixed after all carrybacks which might be used have been finally determined. Limitations might run in such a case. It necessarily follows, therefore, that to determine just what is meant by the claim for refund referred to in 3771 (e) we must look to that section of the code dealing specifically with claims for refund and the cases construing that section. By so doing, as noted above, there is no doubt that a valid claim for refund has been made and, unless section 3771 (e) has imposed other limitations, interest must be paid. As we construe the section, there are no such other limitations, at least insofar as would affect the right of plaintiff herein to the interest claimed. All the statute requires is that in order for the claimant to be entitled to interest on a refund based on an unused excess profits credit carryback a claim for refund according to section 322 must have been made therefor.

The claim for refund submitted by plaintiff complied with the above statutory requirements. It sought the refund of all taxes paid in 1941 based on an unused excess profits credit carryback. The subsequent audit for 1941 and several subsequent years proved that plaintiff was entitled to the refund or credit of all that was claimed. That is all the statute required for the payment of interest on the refund to be made. When plaintiff filed its claim for refund of the 1941 taxes based on a ground legally sufficient to refund the taxes claimed it perfected a right, given by statute, to interest. The statute does not say that if the Commissioner of Internal Bevenue found in the audit made as the result of the claim for refund a fact that would further benefit the taxpayer that that fact should defeat plaintiff’s already perfected right to interest.

The action of plaintiff in claiming a refund for 1941 would necessarily causé the Government to examine all factors which would enter into the proper determination of the actual tax due or refundable for 1941. In so doing, the Commissioner found a carryback from 1942 to which benefits the plaintiff was also entitled. The plaintiff should not be penalized, and the statute does not say that it should be, merely because under the administration of the law the 1942 carryback should be applied against the 1941 taxes before applying a 1943 carryback. The pertinent section speaks only of the aggregate carrybacks. The application of the 1942 carryback did not change the amount of tax refundable in 1941 as would have been refundable without its application. It simply put the carrybacks into the required sequence by years, as required by law, before the claimed refund could be made. The substance of plaintiff’s claim was for the refund of all 1941 taxes paid on the basis of a carry-back from a subsequent year. The identical amount of money which plaintiff had claimed was legally refundable or creditable to it on the grounds stated in the claim for refund, and was actually subsequently credited to it. Plaintiff has, therefore, met the statutory requirements and is entitled to interest on the entire overpayment for 1941.

Judgment will be entered in favor of plaintiff for additional interest in the amount of $22,341.01.

It is so ordered.

Madden\ Judge, and Jones, Chief Judge, concur.

Whitakee, Judge,

concurring:

Plaintiff filed a claim for refund on June 7, 1944, claiming an overpayment of 1941 taxes, resulting from an excess profits credit carryback from the year 1943. Plaintiff was entitled to the credit claimed, and when this was applied to 1941 taxes, the claimed overpayment resulted.

This overpayment has been allowed. Interest thereon is allowed by law; it is to be computed subject to the limitation of section 3771 (e) of the Internal Bevenue Code, which restricts interest to the period after the claim for refund is filed. Interest is being claimed by taxpayer only for this period. But defendant says plaintiff is not entitled to it because it was entitled to a credit from the year 1942, and that no claim for refund for such credit having been filed, no interest is allowable.

Had plaintiff claimed an overpayment based on a credit from 1942, it would not have been entitled to interest, but this was not its claim. It claimed a credit from 1943, to which it is entitled, and this resulted in an overpayment for 1941. Under the statute it is entitled to interest from the time this claim was filed.

The fact that the Commissioner discovered that plaintiff was entitled to a refund on another ground is certainly no reason to deny its right to the refund on the ground relied upon, which is admittedly valid.

For this reason I concur.

Laramore, Judge, took no part in the consideration and decision of this case.

FINDINGS OF FACT

The court makes findings of fact, based on the stipulation of the parties, the briefs, and argument of counsel as follows:

1. Plaintiff is a New J ersey corporation. It is successor on merger to Sloss-Sheffield Steel and Iron Company which was also a New J ersey corporation and was the taxpayer for the taxable years here involved. The petition was filed by the latter company prior to its merger with plaintiff. The caption of this case was changed pursuant to order of the Court. “Taxpayer” hereinafter refers to Sloss-Sheffield Steel and Iron Company.

2. During the taxable years here involved, the taxpayer was engaged in the production and sale of commercial pig iron, coal, coke and their by-products. Its principal place of business was in Birmingham, Alabama. It kept its accounts and reported its income for federal tax purposes on the accrual method and on the basis of the calendar year.

3. Within the time as extended, the taxpayer, on May 15, 1942, filed its corporation income and declared value excess profits tax return for the calendar year 1941, reporting thereon a normal tax net income of $1,798,196.15 and a tax liability of $557,190.81 which was paid as follows:

March 16, 1942_$141,000. 00
June 8,1942_1- 140,800.00
September 15, 1942_ 13Y, 695.40
December 15, 1942_ 13Y, 695.41
Total_$55Y, 190. 81

After an examination, taxable net income was increased due to various adjustments and on August 13,1943, a deficiency in income tax of $11,490.18 and interest thereon of $880.65 was assessed against the taxpayer for the year 1941 which was paid by cash of $10,410.77 on August 25, 1943, and a credit of $1,960.06 on September 15, 1943. Thereafter, on March 19,1946, there was refunded to the taxpayer $3,213.89 due to adjustment with respect to amortization deduction under Section 124 of the Internal Revenue Code of 1939, as amended.

4. Also on May 15, 1942, within the time as extended, the taxpayer filed its corporation excess profits tax return for the calendar year 1941 reporting thereon excess profits net income of $2,034,861.81, a specific exemption of $5,000 plus excess profits credit based upon invested capital of $1,569,-320.87 which resulted in adjusted excess profits taxable net income of $460,540.94 and a tax liability of $232,297.52. This tax liability was paid as follows:

March 16, 1942_ $59,560.00
June 8, 1942_ 60, 000.00
September 15, 1942_ 56,368. Y6
December 15, 1942- 56, 368. Y6
Total_$232,29Y. 52

After an examination, the taxpayer’s excess profits tax income for 1941 was increased due to various adjustments and the excess profits credit based upon invested capital was also increased, which adjustments resulted in an excess profits tax deficiency of $31,300. This deficiency, together with interest thereon of $2,398.95, was assessed on August 13, 1943, and paid by the taxpayer on August 25, 1943.

5.Within the time as extended, the taxpayer, on May 15, 1943, filed its corporation income and declared value excess profits tax return for the calendar year 1942 reporting thereon a taxable net income of $1,513,346.28 and a tax liability of $605,338.51. This tax was paid as follows:

March 15, 1943-$164,974.49
June 15, 1943- 146,788.01
September 15, 1943_ 146, 788. 00
December 15, 1943_ 146, 788.01
Total-$605,338.51

On March 19,1946, there was refunded to the taxpayer $22,-394.10 with interest thereon of $3,048.97 due to adjustments with respect to amortization deduction under Section 124 of the Internal Revenue Code of 1939, as amended.

6. Also on May 15, 1943, within the time as extended, the taxpayer filed its corporation excess profits tax return for 1942 reporting thereon an excess profits net income of $1,-514,387.18, a specific exemption of $5,000 plus excess profits credit of $1,507,651.34 which resulted in an adjusted excess profits taxable income of $1,735.84 and an excess profits tax liability of $1,562.26. This tax liability was paid by the taxpayer.

7. Within the time as extended, the taxpayer, on May 15, 1944, filed its corporation income and declared value excess profits tax return for 1943 reporting thereon a normal tax net income of $808,513.62 and an income tax liability of $323,405.45 which was assessed together with interest of $7.71. The taxpayer paid this tax and interest as follows:

March 14, 1944_ $80, 080.00
June 13,1944_ 81, 622. 72
September 14,1944_ 80, 851. 36
December 14, 1944_ 80,859.08
Total_$323,413.16

On March 19, 1946, there was refunded to the taxpayer $61,734.07 together with interest thereon of $4,711.24 due to adjustment with respect to amortization deduction under Section 124 of the Internal Revenue Code of 1939, as amended.

8. Also within the time as extended, the taxpayer, on May 15, 1944, filed its corporation excess profits tax return for 1943 reporting thereon excess profits net income of $798,423.04, a specific exemption of $5,000 plus excess profits credit of $1,534,200.60 and no excess profits tax liability.

9. On June 7,1944, the taxpayer filed claims for refund of excess profits taxes for 1941 and 1942 in the respective amounts of $263,597.52 and $1,562.26. On December 7,1944, taxpayer filed further claims for refund of excess profits taxes for the years 1941 and 1942 in the same aforesaid respective amounts. By two letters dated August 17, 1950, the taxpayer was notified by registered mail of the rejection of these four refund claims to the extent not previously allowed.

10. By letter dated November 12,1948, there ivas forwarded to the taxpayer a copy of the revenue agent’s report dated October 5, 1948, covering the years 1941 to 1946, inclusive. In the determination of taxable excess profits tax net income for each year in that report, such income for 1941 was reduced from $2,100,757.40 to $2,084,749; such income for 1942 was reduced from $1,514,387.18 to $1,399,579.80; and such income for 1943 was reduced from $798,423.04 to $683,402.92. The revenue agent determined therein an excess profits tax credit based upon invested capital of $1,578,659.37 for 1941, $1,478,413.35 for 1942, and $1,495,093.98 for 1943. In determining the taxpayer’s excess profits tax liability for 1941, the revenue agent carried back as a credit the unused excess profits credit of $78,833.55 from the year 1942 and $427,256.08 from the year 1943. The carry back of unused excess profits tax credit to the extent of $78,833.55 produced a reduction in 1941 excess profits tax in the amount of $43,412.94. The excess of such unused credit for 1943 of $384,434.98 was carried forward to the year 1944 by the revenue agent of which $73,691.59 was used as a credit to eliminate the excess profits tax liability for 1944. The excess profits credit for 1945 exceeded the excess profits tax net income for such year. As a result of the various adjustments to taxable income and excess profits tax credits made by the revenue agent, the Commissioner of Internal Revenue determined deficiencies and overassessments as follows:

Tear Kind of Tax Deficiency Over assessment
1941 Income- $79, 969. 62 _
1941 Excess Profits_ $263, 597. 52
1942 Income_ 21, 728. 26
1942 Excess Profits_ 1, 562. 26
1943 Income- 18,443. 02 _
1944 Income- 322, 712. 63 _
1945 Income- 100, 031. 31 _
1946 Income- 303, 623.14 _
Totals-$824, 779. 72 $286, 888. 04

On April 9, 1948, taxpayer filed with the Commissioner of Internal Revenue a signed notice in writing, on Treasury Department Form 874, waiving the restrictions provided in Section 272 (a) of the Internal Revenue Code of 1939 on the assessment and collection of the deficiencies set forth in the foregoing tabulation and consenting to the assessment and collection of the same.

11. On January 25, 1949, the Commissioner assessed the deficiencies listed in finding 10 above. On January 31,1949, the Collector of Internal Revenue at Birmingham, Alabama, sent taxpayer six statements of income tax due on Treasury Form 7658. These statements reflected an overall net tax due from plaintiff of $643,163.86. On February 9, 1949, the taxpayer paid to the Collector that amount. On June 30, 1950, the Commissioner signed a schedule of overassess-ments in respect to the overassessment set forth in finding 10 and credited the aforesaid overassessments against the deficiencies set forth in said finding 10, except that of the $1,-562.26 overpayment of excess profits tax for the year 1942 $1,215.62 was credited against the deficiencies, $156.23 excessive post war credit was recouped, and the balance of $190.41 was refunded to the taxpayer.

12. The Commissioner of Internal Revenue computed interest on the several deficiencies to May 9,1948, thirty days after the execution of the aforesaid waiver Form 874 set forth in finding 10 and this computation is not in dispute.

13. Interest on the overpayments of income and excess profits taxes for 1941 and 1942 as previously allowed and

as now recomputed by tbe Commissioner to tbe list date of tbe assessment of tbe deficiencies against wbicb the over-assessments were credited is as follows:

Year Amount From To Interest
1941 EP $ 5,585.16 cr. 8-25-43 1-25-49 $ 1,815.18
211,240.84 cr. g_ 7.44 *1-25-49 58,716.27
43,412.94 cr. () None
1,114.29 cr. () None
$261,353.23 $60,631.46
2,244.29
$263,597.52 total overassessment
Interest previously allowed.-.-.--- 51,287.74
Additional interest allowable to list date_ $ 9,243.71
Year Amount From To Interest
1942 IT $ 21,728.26 cr. 1 12-15-43 21-25-49 $ 6,662.84
Interest allowed on Schedule IT 161143- 5,735.07
Additional interest allowable to list date___ $ 927.77
Year Amount From To Interest
1942 EP $ 156.23PWO . 13-15-43 12-31-45 $ 26.19
1,215.62 cr. 13-15-43 2 1-25-49 427.46
190.41 ref. 13-15-43 7-17-50 83.84
$ 1,562.26 $ 537.49
Interest allowed on Schedule IT 161143...... 485.59
Additional interest allowable to list date.-----.- $ 51.90

After the deficiencies referred to in finding 10 were assessed tbe Collector, on January 31, 1949, issued the statements of tax due as stated in finding 11. The credits of tbe overpay-ments against the deficiencies were allowed on Schedule IT-161143 dated June 30,1950.

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 plaintiff is entitled to recover.

It is therefore adjudged and ordered that plaintiff recover of and from the United States the sum of twenty-two thousand three hundred forty-one dollars and one cent ($22,341.01). 
      
       The amount of $2,244.29 originally adjusted as a credit on Schedule IT-161143 was reversed and allowed as a refund on Schedule IT-165266. Interest was allowed from the date of overpayment to the refund date in the total amount of $991.12.
     
      
       Dates of overpayment Sec. 3771 (b), 1939 Code.
     
      
       Date of assessment of deficiencies Sec. 3771 (b) (1), 1939 Code.
     
      
       Date of claim Sec. 3771 (e), 1939 Code.
     
      
       No claim filed Sec. 3771 (e), 1939 Code.
     
      
       No interest allowable Sec. 155 (3), 1939 Code.
     
      
       Terminating date Post-war credit Sec. 781 (b), 1939 Code.
     
      
      
         Terminating date on refund Sec. 3771 (b) (2), 1939 Code.
     