The opinion of the court was delivered by: PALMIERI
Plaintiff has brought this motion for summary judgment; defendant has cross-moved for an order dismissing the amended complaint to the extent that it seeks a refund in excess of a stated amount. The single disputed issue is whether plaintiff's amended claim for refund for the year 1949, filed after the expiration of the applicable period of limitations on refund claims for that year,
sets forth new grounds unrelated to those previously advanced in the timely filed original claim refund.
See United States v. Andrews, 1938, 302 U.S. 517, 58 S. Ct. 315, 82 L. Ed. 398. This issue is before the court for a second time; it was first presented in connection with plaintiff's motion to amend its complaint. Leave to amend was granted by Judge Dawson pursuant to an opinion filed on July 24, 1959. The relevant and undisputed facts appear in a detailed stipulation signed by both parties. It is identical to that submitted to Judge Dawson on the prior motion.
The Basis of the Original Claim for Refund
In its original claim, filed on January 16, 1953, plaintiff alleged that the Commissioner had erroneously disallowed a portion of the percentage depletion deduction
itemized in plaintiff's 1949 tax return. Plaintiff challenged the Commissioner's determination that net income for percentage depletion purposes included only income allocable to sales of metals produced from newly mined ore and not income allocable to sales of metals produced from chat.
Plaintiff claimed as subject to percentage depletion all of the income realized from its sales of metals extracted at the specified mining properties, i.e., metals extracted from chat as well as from newly mined ore. In other words, plaintiff's timely filed original claim for an administrative refund was premised upon the contention that for percentage depletion purposes, no distinction could be made between chat and newly mined ore.
In January 1958, over a year after this action was commenced and some five years after the filing of the original refund claim, defendant notified plaintiff that the Commissioner had determined to consider the merits of plaintiff's claim. Accordingly, and at defendant's request, a Revenue Agent was assigned to examine plaintiff's 1949 return to ascertain whether the amount demanded by plaintiff accurately represented the percentage depletion deduction alleged to have been wrongfully disallowed. The agent commenced his assignment by computing plaintiff's net income from the mining operations of the specified properties for the year 1949.
Determination of this basic figure would indicate whether the amount of the deduction itemized in plaintiff's 1949 return fell within the maximum allowable statutory limit for percentage depletion, i.e., 50% Of plaintiff's net income from the specified mines. In accordance with the change of position considered by the Commissioner with respect to depletion on chat,
the agent included sales attributable to chat as well as to newly mined ore in his computation of net income from the mines.
In the course of his review, the agent discovered that plaintiff had made computation errors which resulted in a substantial understatement of the basic figure i.e. net income from the mining properties, and a corresponding understatement of the maximum percentage depletion deduction which plaintiff could have claimed for the year 1949. These errors were disclosed to plaintiff whereupon plaintiff investigated the matter, found an additional error affecting the amount of its net income subject to percentage depletion, and filed an amended administrative claim correcting the erroneous computation originally submitted.
Plaintiff concedes that the refund now sought encompasses more than the amount attributable to the Commissioner's disallowance of percentage depletion on chat. However, plaintiff maintains that the scope of its original claim, resting upon the proposition that chat and newly mined ore are not to be distinguished for percentage depletion purposes, is sufficient to entitle plaintiff to relief on the basis of the facts set forth in the amended complaint -- facts which affect depletion on newly mined ore as well as chat.
Defendant has urged that the papers submitted on the motion for leave to amend were inadequate to reflect with proper clarity the fact that the proposed amended complaint and the amended administrative claim on which it was based included a claim for additional depletion on newly mined ore. In defendant's opinion, the inadequate prior presentation led the court to grant leave to amend on the mistaken assumption that plaintiff's motion involved nothing more than a request to increase the amount of the refund sought based upon a corrected computation of the portion of the depletion deduction allocable to chat. Whatever deficiencies may have existed in the prior presentation, the defendant has now clearly placed before the court its contention that plaintiff is entitled to relief only to the extent of its claim for percentage depletion on chat. In other words, according to defendant, plaintiff is timebarred from any relief which would affect depletion on newly mined ore.
The Amendment Does Not Constitute a New Claim
Under the applicable legal rules, a taxpayer may not set up a new and unrelated ground for refund under the guise of an amendment after the time for filing a new claim has elapsed. See United States v. Garbutt Oil Co., 1938, 302 U.S. 528, 58 S. Ct. 320, 82 L. Ed. 405. However, when the Commissioner considers the merits of the original claim, as he did here, the taxpayer, despite the expiration of the limitations period, may file 'any amendment which would not amount, under the rules of pleading in actions at law, to an alteration of the cause of action and would not require the Commissioner to make a new and different inquiry than that which he was called upon to make' in connection with the original claim. United States v. Andrews, 1938, 302 U.S. 517, 521, 58 S. Ct. 315, 318, 82 L. Ed. 398; see Emmanuel, Federal Tax Refund Procedure, 5 U.Fla.L.Rev. 133, 145 (1952).
In the present case, it is apparent that, in the normal course of administrative procedure, investigation of the ground asserted in the original claim was not only likely to, but did in fact lead to disclosure of the matters set forth in the amended claim. Cf. Addressograph-Multigraph Corp. v. United States, 1948, 78 F.Supp. 111, 122, 112 Ct.Cl. 201. The amendment did not call for an inquiry into factors not germane to the pending claim. For it is clear that as a necessary preliminary step in determining the allowable amount of depletion attributable to chat, the Commissioner had to ascertain plaintiff's net income from the specified mining properties. See Stipulation 10; Affidavit of Revenue Agent James S. Park, P14, p. 7, Oct. 13, 1960. The mathematical process involved brought to his attention the inadequacy of the amount of depletion previously allowed with respect to newly mined ore. The amended claim incorporated the corrections made by the Commissioner's agent; it is limited in scope to an adjustment of the errors contained in the originally filed computation of net income for depletion purposes.
I conclude that the adjustments introduced by amendment affect the amount of but not the ground for refund previously advanced,
and that the new facts relate to matters which the Commissioner had necessarily to ascertain in passing upon the merits of the original claim. I therefore hold that the statute of limitations is not a bar to any portion of the claim for additional percentage depletion set forth by plaintiff in its amended complaint. See Pink v. United States, 2 Cir., 1939, 105 F.2d 183; Westchester Fire ...