The opinion of the court was delivered by: CAMPBELL
CAMPBELL, District Judge.
This case was brought on the law side of this court, under the provisions of section 24, par. 20, of the Judicial Code, as amended by the Act of February 24, 1925, c. 309, 43 Stat. 972 (28 USCA § 41 (20), to recover income and excess profits taxes alleged to have been overpaid by the plaintiff for the year 1918.
Such taxes were the result of an additional assessment levied by the Commissioner of Internal Revenue, and collected in 1926, 1928, and 1929.
On November 16, 1933, an order was made by another judge of this court transferring the case to the equity calendar.
The case was heard before me on April 30, 1934, and the last brief submitted on June 21, 1934.
This case was tried on a stipulation of facts and oral and documentary evidence offered on the trial.
The facts are as follows:
At all the times hereinafter mentioned and at the time of the trial, the plaintiff was a domestic corporation, organized and existing under the laws of the state of New York, with its principal place of business at No. 23 Gordon street, Stapleton, Staten Island, borough of Richmond, city and state of New York, and Eastern judicial district of New York, and at such time was engaged in the manufacture, sale, and distribution of ice.
On June 16, 1919, plaintiff filed with the Collector of Internal Revenue for the First Collection District of New York, its corporation income and profits tax return for the calendar year 1918, which return showed an income tax of $8,278.84, and an income and profits tax of $765.45.
The sum of $480 was paid on account of said tax on March 20, 1919, and the balance of $285.45 was paid on June 16, 1919.
During the year 1919, plaintiff pursuant to chapter 4 of the Laws of 1918, as amended by chapter 81 of the Laws of 1918 of the State of New York, paid to Benjamin B. Odell, Ice Comptroller of the State of New York, the sum of $4,336.75. Plaintiff contended that this sum was ordinary and necessary in the operation of its business of manufacture of artificial ice, and deducted it from the income reported in the return filed by plaintiff on June 16, 1919.
Plaintiff during the year 1918 expended the sum of $4,622.27, which it contends was for certain repairs and replacements to its plant.It contends that no part of that sum was taken as a deduction when reporting income for the year 1918, in the return filed June 16, 1919.
Plaintiff during the year 1918 paid $3,720 dividends on its capital stock.
It contends that no part of the sum paid as dividend was taken as a deduction by plaintiff in its return filed June 16, 1919.
In 1924, a review and audit of plaintiff's said return for 1918 was had, and the Commissioner of Internal Revenue determined that the plaintiff was liable for additional income and profits taxes for that year in the sum of $5,303.83, and notice of this determination by the Commissioner was sent to plaintiff under date of January 3, 1924.
Plaintiff contends that the additional tax was arrived at by disallowing as a deduction the sum of $4,336.75 paid to the Ice Comptroller, and by further increasing income by $4,622.27 replacement costs, and $3,720 dividends, on the ground that such replacement costs and dividends had been deducted from income when they were not proper deductions.
The total additions to income were $10,214.08.
On May 13, 1924, the Commissioner of Internal Revenue assessed against plaintiff an additional tax for the year 1918, in the sum of $5,303.83, as detailed in his letter of January 3, 1924.
Under date of June 4, 1924, plaintiff communicated with the Commissioner of Internal Revenue, protesting against the assessment, pointing out that the charges incurred for replacements and dividends had never been deducted, or the result would have been a loss, and that the payment to the Ice Comptroller represented a proper deduction.
At the time of the 1918 assessment, viz., May 13, 1924, the Revenue Act of 1921 (42 Stat. 227) was in force.
On January 25, 1924, plaintiff filed an income and profits tax waiver for the years 1917 and 1918.
No part of the additional tax so assessed was paid on or before January 25, 1925.
During the year 1926, five payments, totaling $1,000, were made by plaintiff on account of this tax assessment; such payments being based on an arrangement entered into between plaintiff and two government representatives, Abe Doischen and Mr. Johnson, deputy collectors of internal revenue, who had demanded payment of that tax under threat that if such payment were not made, the plant would be closed up.
Under date of May 27, 1926, plaintiff communicated with the Commissioner of Internal Revenue requesting a re-examination of the books, and indicating that the additional tax was erroneous, since plaintiff had not been allowed all it was supposed to be allowed.
In July, 1927, an officer of the plaintiff read in the newspapers about the statute of limitations, and under date of July 28, 1927, inquired from the collector of internal revenue whether the tax collection in question was barred.
Under date of February 4, 1928, plaintiff communicated with the Commissioner of Internal Revenue, to the effect that it had been requested to sign waivers for the years 1918 and 1919; that it had refused to sign such waivers, on the ground that the government claim was unjust, and that it had requested a correct audit by the government office and had been unable to get it, and requested that the Commissioner do everything he could to help plaintiff out.
Under date of February 18, 1928, the collector of internal revenue wrote the plaintiff stating: "The tax question had been gone into very carefully and that plaintiff is advised that all of the taxes are legally due; that this statement is made lest plaintiff has a misapprehension as to one or two older items."
Under date of February 28, 1928, plaintiff wrote to the Treasury Department calling attention to the 1918 and 1919 tax assessment, and to payments previously made, and insisting that only the expenses for conducting the business were deducted, and requesting help by having an auditor sent to plaintiff's plant to go over the matter thoroughly and to make a correct return. Thereafter, the government representative, Abe Doischen, a deputy collector of internal revenue, came to the office of plaintiff and stated that they would not accept any more installments but that the payment had to be made in full; that unless such payment is made, the plant would be closed.
Throughout the entire period under review, plaintiff employed no one, either attorney or accountant, who was familiar with tax laws, and the president of the plaintiff had no experience or special knowledge, or anything similar, in connection with the tax law, other than the regular routine of business man's knowledge of the tax laws.
Plaintiff relied upon the statements made in the said letter of February 18, 1928, as well as on the explanations furnished by the government representative, Abe Doischen.
After September, 1926, and until March 28, 1928, no payments were made by plaintiff on account of the alleged 1918 tax liability, and on March 28, 1928, some $4,000 with interest thereon was unpaid.
On March 28, 1928, the plaintiff paid the government $5,000, which was allocated $4,303.83 to the balance of the tax unpaid, and $696.17 toward interest, at the rate of 12 per cent. per annum from date of assessment.
Further payments of interest were made on August 14, 1928, and January 18, 1929, so that the total interest paid by plaintiff was $1,979.60, representing interest at the rate of 12 per cent. per annum on the additional tax of $5,303.83.
During 1929, the government representative, a deputy collector of internal revenue, came to plaintiff for additional payments. The president of the plaintiff had believed that payments had been made in full, but was informed that plaintiff still owed some interest or penalty.
The government representative and the president of the plaintiff had quite an argument, the president of the plaintiff contending that it did not owe the money, and the government representative contending that it did, and the government representative stated, "If you give me $25, that will straighten out the whole business." He also stated, Sign that paper and ...