The opinion of the court was delivered by: CAMPBELL
CAMPBELL, District Judge.
This is an action at law for the recovery of the sum of $15,964.40 together with interest thereon paid on income received by R. Fulton Cutting during his life time for the taxable year 1929.
The said R. Fulton Cutting departed this life prior to the commencement of this action and will hereinafter be designated as the decedent.
The decedent, in the taxable year in question, had made charitable contributions in the amount of $127,645.68 and on his income tax return deducted this amount in the computation of his taxable net income. The Commission of Internal Revenue erroneously determined that the decedent was entitled to deduct only $59,282.40 by reason of his charitable contributions. Helvering v. Bliss, and Helvering v. Harbison, 293 U.S. 144, 55 S. Ct. 17, 79 L. Ed. 246, 95 A.L.R. 207.
To the difference between the amount claimed and the amount allowed $88,363.28 is attributable a very great part of the overpayment of taxes which the Commissioner subsequently demanded and the decedent paid.
The action was tried on an agreed stipulation of facts on November 30th, 1938, and finally submitted to this Court on briefs on January 31st, 1939.
The following are the facts:
On or about March 15th, 1930, R. Fulton Cutting, the decedent, duly filed his income tax return for the calendar year 1929, under the Revenue Act of 1928, 45 Stat. 791, wherein he showed ordinary net income of $250,318.30, and a capital net gain of $480,567.84 and a total tax due thereon of $99,578.75, which tax the decedent duly paid to the Collector of Internal Revenue in quarterly installments on March 15th, June 15th, September 15th, and December 15th, 1930.
On May 3rd, 1932, the decedent received from the Commissioner of Internal Revenue an audit letter proposing an additional tax of $26,703.50. Of this sum $13,868.54 was due to items other than the deduction for charitable contributions. Relative to the adjustment for contributions, the defendant was advised that pending the results of an appeal by the Commissioner from the decision in the case of Elkins v. Commissioner, 24 B.T.A. 572, the Bureau took the position that the deduction for contributions was limited to 15% of the ordinary net income excluding capital net gain. In this letter the Commissioner stated: "If it is not your desire to protest to the determination of your tax liability as to the items other than that relating to the limitation of contributions allowable, further action on the latter will be postponed pending final court decision, providing you execute the enclosed form consenting to the assessment of $13,868.54 and forward it to the Commissioner of Internal Revenue, Washington, D.C. for the attention of IT:Ar:A:3-MMP."
In answer to this letter the decedent, on May 16th, 1932, wrote to the Commissioner stating that he would greatly appreciate a postponement of further action on the item relating to the limitation of contributions allowable, pending a final Court decision. On May 20th, 1932, the Commissioner acknowledged the receipt of the decedent's letter. On May 28th, 1932, the Commissioner conceded that he had made certain errors in the computation of the proposed deficiency, which are set forth in his letter of May 3rd, 1932, and proposed a deficiency of $14,743.08. The deficiency proposed in this letter of May 28th, 1932, covering items other than those relating to charitable contributions, amounted to $1,404.20, and the Commissioner again wrote stating that he would postpone collection of a deficiency, if any was due, relating to the limitation of contributions, provided the decedent executed Form 870.
In his letter of May 28th, 1932, the Commissioner adjusted the taxpayer's ordinary net imcome to $395,216.03, and his capital net gain to $465,011.95, and allowed contributions of $59,282.40, being 15% of $395,216.03.
On July 18th, 1932, the Commissioner issued to the decedent a statutory notice of deficiency is accordance with Section 272 of the Revenue Act of 1928, 26 U.S.C.A. § 272, claiming a deficiency of $14,743.08. In this letter it was stated that since the decedent had not returned Form 870 agreeing to the assessment of $1,404.20, which resulted from adjustments other than the adjustment for charitable contributions, it was necessary for the Commissioner to issue this deficiency letter. Immediately upon receipt of this letter the decedent wrote to the Commissioner stating that he was definitely under the impression that he had filed Form 870, but if he had not, that he was enclosing an executed Form 870 with this letter. This form the Bureau did receive immediately, but it was never signed by the Commissioner, because the Commisioner had issued the statutory notice of deficiency.
In reply to the decedent's letter of July 19th, 1932, the Commissioner, on July 23rd, 1932, wrote that the agreement on Form 870, which the taxpayer had enclosed in his letter of July 19th, 1932, would have been acceptable for the purpose of postponing the assessment of the remaining deficiency if it had been received by the Bureau prior to the issuance of the statutory notice of deficiency. In view of the foregoing the Commissioner advised the decedent that unless a petition was filed with the Board of Tax Appeals, within the sixty day period the entire deficiency would have to be assessed and collected, amounting to $14,743.08.
On August 3rd, 1932, the decedent addressed a communication to the Board of Tax Appeals, stating that he concurred in the determination as reflected in the Commissioner's "final statement", that he agreed to the assessment of $1,404.20 covering the other adjustments and praying that the Board grant the postponement of that portion of the deficiency relating to the adjustment for contributions pending a final Court decision. The defendant alleges and contends that this letter or simulated petition, is a petition within the meaning of the statute, that its filing conferred jurisdiction upon the Board of Tax Appeals and that thereby an appeal was taken to the Board of Tax Appeals from the Commissioner's determination of tax liability.
On July 26th, 1932, the decedent's representative, William C. Schmidt, wrote the Commissioner stating that he had filed a petition with the United States Board of Tax Appeals from the deficiency notice dated July 18th, 1932, and further requested that the matter be referred to the Special Advisory Committee. The Commissioner acknowledged receipt of this communication on August 3rd, 1932, and stated that he would give the request careful consideration.
On August 31st, 1932, the General Counsel for the Bureau of Internal Revenue, who represents the Commissioner before the Board of Tax Appeals, moved to dismiss the alledged petition of the decedent, on the ground that: (1) The appeal does not relate to any matter as to which the Board had jurisdiction under the statute; (2) that it was not an appeal from a final determination of deficiency in tax by the Commissioner; (3) that the petition contains no assignments of error, and has no copy of any 60 day letter attached, as required by the Board's Rules of Practice, and (4) that the petition is not verified, as required by the Board's Rules of Practice.
On September 13th, 1932, the decedent again wrote to the Commissioner requesting that the matter be referred to the Special Advisory Committee, and on September 22nd, 1932, the General Counsel, acting for the Commissioner, replied that his office took the position that the Board was without jurisdiction, and accordingly the matter could not be referred to the Special Advisory Committee while the jurisdictional question was pending before the Board.
On October 3rd, 1932, the decedent wrote to the General Counsel, requesting that the matter be referred to the Special Advisory Committee, if the motion to dismiss, be granted.
On October 4th, 1932, the Board entered its order of dismissal, stating that the petition did not properly state a cause of action, and had no copy of any 60 day letter attached thereto, and that, consequently, "The Board is unable to determine from the record the amount of the deficiency determined by the Commissioner".
On October 10th, 1932, the General Counsel wrote to the decedent stating that his office considered the case closed, and that further correspondence should be addressed to the Commissioner. In line with the suggestion contained in the General Counsel's letter of October 10th, 1932, the decedent wrote to the Commissioner requesting that the matter be referred to the Special Advisory Committee, and on October 25th, 1932, the Chairman of that Committee wrote the decedent, advising him that the Committee could not take jurisdiction, unless the order of dismissal of the Board of Tax Appeals was vacated. The General Counsel refused to consent to the vacation of the decision of the Board of Tax Appeals, unless the decedent had the consent of the Special Advisory Committee, which refused to lend aid, unless the decedent had the aid of the General Counsel.
On November 11th, 1932, pursuant to the notice and demand, the decedent paid the Collector of Internal Revenue the sum of $17,062.19 which represented the additional tax of $14,743.08 together with legal interest thereon. Proper claims for refunds of the amount of $13,950.36 and $17,019.78 were timely filed, asserting the right of the decedent to a deduction from his gross income for charitable contributions made by him to an amount equal to 15% of his net income including capital net gain, before deductions for such contributions.
The Commissioner did not assert, and the Department of Justice does not now contend, that there is any dispute on the merits. There can be no doubt, therefore, that the taxpayer is entitled to recover these sums, if the Board of Tax Appeals had no jurisdiction.
On September 28th, 1932, the decedent filed his claim for the refund of $294.66 upon the ground that dividends received by him from two companys during 1929, and reported by him in his return for that year, were to the extent of $1,733.29 paid out of capital and not out of earnings.The Commissioner concedes that there has been an overpayment in this amount, and the Department of Justice does not now contend that there was no such overpayment.
The decedent is entitled to recover, if the Board of Tax Appeals had no jurisdiction.
On November 21st, 1934, the Commissioner wrote to the decedent, stating that he proposed disallowing these three refund claims, above referred to, on the ground that the taxpayer had filed a petition with the Board of Tax Appeals, and that, therefore, the decision of the ...