Angus McDONALD, Plaintiff-Appellant, v. UNITED STATES of America, Defendant-Appellee.
No. 14765.
United States Court of Appeals Sixth Circuit.
April 6, 1963.
315 F.2d 796
Crombie D. Garrett, Dept. of Justice, Washington, D. C., for appellee.
Louis F. Oberdorfer, Asst. Atty. Gen., Lee A. Jackson, Robert N. Anderson, Charles B. E. Freeman, Attys., Dept. of Justice, Washington, D. C., Bernard T. Moynahan, Jr., U. S. Atty., Lexington, Ky., on the brief.
Before WEICK and O‘SULLIVAN, Circuit Judges, and LEVIN, District Judge.
O‘SULLIVAN, Circuit Judge.
Angus McDonald, plaintiff-appellant, appeals from a District Court judgment dismissing his action to recover a federal excise tax paid by him. The tax was a 20% levy on a $1,000.00 bond purchased by him in 1947 from the Idle Hour Country Club of Lexington, Kentucky. The government claimed that the amount paid for the bond was “an initiation fee”
McDonald purchased the bond in 1947; the Commissioner assessed the tax in 1960. McDonald denies liability for the tax on two grounds: First, that the $1,000.00 paid for the bond was not an “initiation fee“; and, second, that the assessment is barred by the four year limitation provided in
1. Did the bond purchased amount to payment of an initiation fee?
The Idle Hour Country Club was organized as a Kentucky Corporation in 1946. Pertinent parts of its Articles of Association are set forth below.2
“Certificate members shall be persons who are elected by the Board of Governors and who personally own a membership certificate in the Idle Hour Country Club and who pay the dues fixed by the Board of Governors for such members. Exclusive voting privileges shall be vested in the Certificate Members.”
It is apparent from the stipulated facts that the issuance of bonds, as authorized by Article VII, was a part of the original plan of the Club‘s organization. The bond purchased by McDonald was issued as of December 1, 1946, and he purchased it in 1947. By his purchase, he received a Certificate of Membership in the club. It was stipulated that no Certificate of Membership (Class A) has ever been issued by the Club except to a holder of one of the first mortgage bonds. Although Article VI provided that any Certificates of Membership, within the fixed limit of 350, not taken up by bond purchasers, “shall be issued by it (the corporation) from time to time for such consideration as the Board of Governors may determine” it is apparent that no plan was ever devised for admitting anyone to Class A membership except through the purchase of a bond. McDonald‘s bond, with others, was secured by a mortgage on the Club‘s assets, had a maturity date (December 1, 1996) and carried non-cumulative contingent interest. No interest has ever been paid. We think that any view of the substance of what was done discloses that the only way McDonald could become a Certificate Member (Bylaws, §§ 1, A) in the Club was by the purchase of a bond—making a loan to it. Because by statutory definition an initiation fee “includes any payment, contribution, or loan, required as a condition precedent to membership,” we are of the opinion that the 20% excise levy was payable on the $1,000.00 which McDonald paid for his bond.
Prior to the Revenue Act of 1928, which, by its § 413, amended the predecessor to
We find no decision which considered a plan of club organization and membership fitting precisely the one involved here. However, since 1928 it has been held that where ownership of a share of stock is necessary to membership in a club, the amount paid therefor is subject to the excise levy. Vitter v. United States, 279 F.2d 445, (C.A.5, 1960) cert. denied 364 U.S. 928, 81 S.Ct. 353, 5 L.Ed.2d 266; Munn v. Bowers, 47 F.2d 204 (C.A.2, 1931); Knollwood Club v. United States, 48 F.2d 971, 74 Ct.Cl. 1 (C.Cl., 1931); Wild Wing Lodge v. Blacklidge, 59 F.2d 421 (C.A.7, 1932).
It is asserted that, because there were other classes of membership in the Idle Hour Club, for some of which McDonald might have qualified without buying a bond, the purchase of a bond was not a condition precedent to membership. McDonald, however, chose to become a full fledged Class A member with voting and ownership rights, and paid what he had to pay for these privileges. We agree with the Treasury interpretation of its Regulation that “it is not material to the application of the tax that the payment be a prerequisite to all classes of membership in the club. The essential question is whether such a payment is made as a prerequisite for any type of membership therein.” (S.T. 387, 1-2 Cum.Bull. 291 (1922))
2. Was the assessment barred by the statute of limitations?
McDonald purchased the bond in 1947. The Commissioner assessed the 20% levy thereon thirteen years later, May 6, 1960. The Commissioner concedes that there was no fraud committed by McDonald or his Club in failing to pay or collect the tax. The taxpayer asserts that the assessment in question was barred by
“All internal revenue taxes shall * * * be assessed within four years after such taxes become due * * *”
The government claims that no return reporting the taxable event which gave rise to the tax was ever made and, therefore, the above limitation does not apply. It relies on subparagraph (b) of said
“In case of * * * failure to file a return within the time required by law, the tax may be assessed * * * at any time.”
By
In 1947, the month in which it received the $1,000.00 for McDonald‘s bond purchase, the Idle Hour Club made and filed a timely excise tax report, using the form provided by the government (Treasury Department Form 729) for making a report of “Tax on Admissions, Dues and Cabarets, Roof Gardens, etc.” Under a column headed “Character of Tax” spaces are provided for reporting taxes collected for (g) Club dues and (h) Club initiation fees. While the report made showed amounts collected for club dues and initiation fees, neither the $1,000.00 received from McDonald nor a tax thereon was included in the report. Such items were not disclosed in the return because neither the club nor Mc-
The limitation statute before us (
Clear guidance as to what will be held to be a valid return to start the running of the statute in income tax cases cannot be obtained from decided cases (see annotation 3 A.L.R.2d 647), but it may be said generally that the return must comply with the requirements prescribed by the Commissioner. Lucas v. Pilliod Lumber Co., 281 U.S. 245, 50 S.Ct. 297, 74 L.Ed. 829; Florsheim Bros. Drygoods Co. v. United States, 280 U.S. 453, 50 S.Ct. 215, 74 L.Ed. 542; Commissioner v. Lane-Wells Co., 321 U.S. 219, 64 S.Ct. 511, 88 L.Ed. 684; John D. Alkire Investment Co. v. Nicholas, 114 F.2d 607 (C.A.10, 1940); Paso Robles Mercantile Co. v. Commissioner, 33 F.2d 653 (C.A.9, 1929); National Contracting Co. v. Commissioner, 105 F.2d 488 (C.A.8, 1939). This is not to say, however, that perfect accuracy and completeness are essential to meeting such requirements.
“Perfect accuracy or completeness is not necessary to rescue a return from nullity, if it purports to be a return, is sworn to as such (Lucas v. Pilliod Lumber Co., 281 U.S. 245 [50 S.Ct. 297, 74 L.Ed. 829, 67 A.L.R. 1350]), and evinces an honest and genuine endeavor to satisfy the law. This is so though at the time of filing the omissions or inaccuracies are such as to make amendment necessary.” Zellerbach Paper Co. v. Helvering, 293 U.S. 172, 180, 55 S.Ct. 127, 131, 79 L.Ed. 264, 269.
It is obvious, also, that if a complete and perfect return was required, there would be no purpose of having a statute of limitations. Myles Salt Co. v. Commissioner, 49 F.2d 232 (C.A.5, 1931); Isaac Goldman Co. v. Burnet, 60 App.D.C. 265, 51 F.2d 427 (1931); Valentine-Clark Co. v. Commissioner, 52 F.2d 346 (C.A.8, 1931). That Congress did not intend to require perfect accuracy is clear from its merely extending the period of limitations where there is omitted from gross income an amount, properly subject to income tax, in excess of 25% of the amount stated in the return. (
The government here contends that excise taxes and income taxes are so dissimilar in nature that we may not employ the reasoning of decisions involving income taxes to find an answer to the question before us. It points out that an income tax is a tax on a net taxable amount computed on the basis of many events occurring during a tax period, usually one year. The amount of such a tax cannot be known until many matters have been considered—deductions, exemptions, marital status, carryovers, carrybacks and many other things. Each receipt of money or money‘s worth does not by itself determine its tax consequences. Conversely, the government argues, an excise tax becomes a taxable event as soon as any money is paid which is subject to the tax—the rate of tax never varies, there are no exemptions or deductions to be considered. Therefore, it argues that there can be no return of such tax unless the taxable event is itself reported. The fact that the Commissioner adopts monthly periods for convenient reporting instead of a separate report for each tax, will not permit a return which fails to disclose an event which calls for imposition of the tax to qualify as a return which will prevent a suspension of the limitation statute. We are constrained to agree with the government‘s position. If, without paying an excise tax, the Club
Having in mind the admitted good faith of McDonald and his Club, and the thirteen years that the government delayed in making the assessment, it would appear that our holding frustrates the traditional purpose of a limitations statute. Such statutes seek repose “designed to protect the citizens from stale and vexatious claims * * *” Guaranty Trust Co. v. United States, 304 U.S. 126, 136, 58 S.Ct. 785, 790, 82 L.Ed. 1224, 1230; 34 Am.Jur. “Limitation of Actions” § 10; Mertens “Law of Federal Income Taxation” Vol. 10, § 57.13. Under the view we express, the door is open for the government to go back, without limit in time, and make assessments against citizens who honestly believed they had made all the returns and paid all the taxes that the law required. We may not, however, extend the statute here involved beyond its clear language. The good faith of the taxpayer in failing to file a return cannot aid them here. Commissioner v. Lane-Wells Co., 321 U.S. 219, 220, 64 S.Ct. 511, 512, 88 L.Ed. 684, 685. Statutes of limitations barring collection of taxes, liability for which did accrue, are strictly construed in favor of the government (Pacific Coast Steel Co. v. McLaughlin, 61 F.2d 73, 75 (C.A.9, 1932)), and their applicability will not be presumed in the absence of clear congressional action. Loewer Realty Co. v. Anderson, 31 F.2d 268, 269 (C.A.2, 1929); Bowers v. New York & Albany Lighterage Co., 273 U.S. 346, 349, 47 S.Ct. 389, 390, 71 L.Ed. 676, 677. The absence of any limitation, under the situation before us, may indeed visit unfair burdens and expense upon innocent taxpayers. If so, Congress can provide the needed remedy.
The government here relies upon the case of Peoples Outfitting Co. v. United States, 58 F.2d 847, 74 Ct.Cl. 419 (1932). While that case appears to support our conclusion, it has the distinguishing fact that the taxpayer was there found to be guilty of fraud in failing to make a return.
The District Judge in this case correctly held that there was no return filed and, therefore, the limitations statute did not apply.
Judgment affirmed.
LEVIN, District Judge (dissenting).
I respectfully dissent from the interpretation of the applicable statute of limitations, 1939 I.R.C.
A composite return, according to the rationale of the opinion of the Court, must be completely accurate in order to start the running of the statute of limitations on all transactions occurring during the period covered by the return.
The Court concedes that a good faith income tax return, although erroneously excluding certain includable items of income, nevertheless suffices to start the running of the income tax statute of limitations. But in refusing to apply that good faith rule to the excise tax statute of limitations, the Court holds that no statute of limitations applies to unreported taxable items erroneously omitted from a composite excise tax return.
Federal excise taxes apply to innumerable goods and services. Literally hun-
Even excise tax experts might disagree as to whether particular items are taxable. For example, the determination of whether the instant bonds are taxable has required a formal opinion by the District Court and a full discussion by this Court. The annotations to the excise tax provisions in Volume 26 of the United States Code Annotated refer to hundreds of decisions determining the taxability of particular goods and services. Yet the Court holds that the filing of a composite return does not start the running of the statute of limitations as to the transactions occurring within the period covered by that composite return unless that return reports every single transaction which might at any future time be held to be taxable.
No practical distinction flows from the variance between the language of the income tax statute of limitations and the excise tax statute of limitations. An income tax return filed prior to the last day for filing is deemed to have been filed on that last day (1939 I.R.C.
I would hold that the filing of a composite return erroneously omitting certain items in good faith constitutes the filing of a “return” within the meaning of 1939 I.R.C.