Consolidated Edison Company of New York, Inc. v. United States

ceiving paying final load

whiskey have been must on terms spoke agreement, subject agree- convincingly of an eloquently and important be an with Parmenter illegal possession and sale actor in the whiskey. more nontaxpaid No case

needed to warrant submission therefore must jury. verdict Its

be sustained. by appel- urged remaining points prejudicial error.

lants do not constitute judgment is affirmed. COMPANY EDISON

CONSOLIDATED YORK, INC., Plaintiff- OF NEW Appellant, Clark, Judge, Circuit dissented. America, STATES UNITED Defendant-Appellee. 298, Docket 26041. No. Appeals Court of States

United Circuit. Second 13, 1960. April

Argued 25, 1960. May

Decided

153 on an ac- and files its returns books tax year It crual and basis. calendar brought U.S. present under 28 suit large alleged (a) C.A. 1346 to recover an § overpayment for taxes federal income year answer 1951. Defendant’s general complaint interposed denial an and estoppel. affirmative defense collateral judg- summary Á motion for defense ment based on the affirmative by Judge was denied Palmieri F.Supp. D.C., opinion reported Thereafter, upon plead- amended ings stipulation and a which eliminated party for issues, all factual summary judgment. moved each judge, The district Judge Sugarman, mo- before whom argued, plaintiff’s mo- tions were denied granted defendant’s, tion, and dismissed complaint. ap- is the order This pealed from. questions The ultimate decided two, (1) whether, namely,

are 23(c) under § of the Internal Revenue Code 23(c), contested 26 U.S.C.A. § real estate in the accrued litigation year settled, in a year when the contested involuntarily paid protest; under (2) partial whether the re- of a involuntarily fund of the contested and paid tax, constituted income to the tax- year payer in settlement. reaching Before of these the merits issues, it is desirable consider defend- estoppel ant’s contention collateral Whitman, Coulson, Ransom New & upon a decision based City, plaintiff-appellant. York James adjudicated Claims the identical Noneman, Polk, K. Harold and Julius F. issues with to contested real es- Jacobs, City, York of counsel. M. New years. tate of earlier Consolidated taxes Atty., Gillespie, Jr., Hazard U. S. S. Y. States, Edison of N. Co. United City, defendant-appellee. York New 133 Ct.Cl. certiorari Savage, Atty., Arthur V. Asst. U. S. New denied 351 U.S. S.Ct. City, of counsel. York 1444. The Court of Claims held LUMBARD, Judge, Before Chief the contested were deductible Judges. CLARK, SWAN Circuit they in the were aas York, New and that the Judge. SWAN, Circuit refunded was income to tax- amount Plaintiff-appellant payer in the it was received a well-known utility public corporation City.1 keeps its judicata pre question 1. The of res mentioned above or collateral appeal right estoppel served the Government’s to raise on taken herein. estoppel estoppel both not control that collateral does the issue of collateral On legal sec- rely Internal in the issues “which recur parties Commissioner Sunnen, ond case.” Revenue they did when also as To con- presentation and the facilitate in legal Palmieri in- issue before issues that sideration of facts and was the adversely to volved, issue He the mentioned 1958. decided the above agree conclu- with his example defendant. set forth an which We illustrative entirely the applicable years satisfied sion and are involved to all the herein reported in 162 reasoning opinion of his and reads as follows: opinion As the Sunnen 854. “(a) year plaintiff for the at page in at states notified, January was on page 721: 1949, of a assessment tentative “ * * * very same if the And in the amount of............$100. in are involved facts and no others by (b) plaintiff duly filed relating case, to case the second 15, 1949, March fide bona judg- year, diiferent tax admitting liability 85. protest, of . ment will conclusive be hearing duly (c) after held legal appear, as- which same suming issues May 25, and on or about intervening no doctrinal final in was made assessment change. facts the relevant But if 100. amount of.............. separable, even in two cases (d) on or Oc- thereafter about identical, though they similar or be 1, 1949, protest tober under govern estoppel does not collateral purpose and for avoiding the stated legal recur in the issues seizures, levies, liens, pro- Thus the second second case. etc., penalties, interest, re- and ceeding may involve an instrument serving rights, payment all with, in identical but or transaction 100. was made of............... separable the one dealt form from (e) 25, 1949, cer- October proceeding. In that inwith the first duly proceedings tiorari were situation, is free in the sec- a court instituted in York the New Su- independ- proceeding make an ond to preme admitting liabili- legal matters of the ent examination ty of, denying liability in and may then differ- at issue. It reach a excess of.................. consistency or, in deci- result ent if (f) December, 1951, in desirable, just sion is considered and proceedings certiorari were may upon placed reliance the ordi- be fixing settled, the tax nary rule of stare decisis.” ........................ establishing overpay- and York law as to real estate Under New duly refunded, was taxes, the valuation and the tax assessed 5.” in the amount of.......... $ given parcel imposed on land for a government claims, given year separate from, independent in terms of of, example, re- and unconnected with assessed the imposed parcel quired its and to the entire valuation on that deduct $100 year; gross in which other and the is true income in same respect money in paid, and to include its with judicial the administrative and to ag- gross proceedings refunded which an income for 1951 $5 year. grieved tax- in that owner seeks review of the con- position required payer’s valuation is that it was tested assessed and the tax on year. given only $85, amount of parcel Hence we’ to deduct paid it obvious that “the uncontested think relevant facts” real estate tax permitted deduct in the Court of Claims it should case and be though separable, $10, portion of the case at bar “are even an additional they ultimately identical,” disputed determined similar $15 sought appellant rec The overall was less than assessed. had properly have been would be over.2 similar was con taxpayer’s position A settlement effect greater tax require cluded the contest December 1951 of proceedings government instituted in is due claims than year years deduc- 1946-1950. of the smaller because tion, and a lesser We turn of the issues now the merits deduction because additional $10 presented by example. the illustrative in- absence accrued then and the The sections Code which are of the 1939 gross income. clusion of the refund $5 41, 42, 23(c), involved are 48. §§ gov- Having under its gross Section 23 from allows a deduction theory, taxpayer claims the ernment’s paid income to be taken for “taxes or ac refund. that entitled to a it now year” crued within the taxable ex —with legal ceptions not the issues here material. Section 41 states prescribes herein, illustrative that net shall be com raised in terms of the income puted “in example, the method of accordance with follows: accounting regularly employed keeping in "(a) plaintiff is whether entitled taxpayer,” the books the unless of such $10, which to a deduction in 1951 of represents employed clearly method does not reflect portion the dis- that of recognizes the income. that Section 42 in puted was determined which $15 though income, normally items of assessed, properly 1951 to have been gross included in year income in the taxable and receipt, of “under methods of (b) erroneous- whether was there accounting permitted under section 41” ly plaintiff’s 1951 taxable included in properly accounted for as of a differ $5, represents that income which period. says ent Section that deduc portion disputed which of $15 tions and credits be taken for the “shall have been was determined in to ‘paid taxable in or which accrued’ or improperly which was assessed and * ** ‘paid incurred’, dependent or plaintiff.” refunded upon the of basis the net income which greatly example has illustrative This ” * * * computed, Section 48 directs necessary to be stated simplified facts “paid “paid that or incurred” and or ac say that sufficeto appeal. It will on this according crued” shall be construed many es of parcels real appellant owns accounting upon the method the basis respect City with New York in tate computed. which the net income is each taxes for corporate real estate which year involving by applying rates In a number of cases assessed were counterparts sections, City final by of these Su- Council established City by preme explained Tax a one that tax lia- fixed has valuations assessed years 23(c), bility deductible under becomes § In each Commission. taxpayer keeping exception of a its books on the ac- with basis, in man crual when all events have appellant contested by part of occurred determine fact and which local law prescribed ner liability. proceed imposed. The contest amount of the tax This “all- so taxes ings years rule,” announced in United 1938-1940 events States in Anderson, by settlement a concluded were very clearly 70 L.Ed. was restated a lower somewhat fixed which figure Commissioner, assessed, Dixie Pine Co. and the the taxes than although 364, 365, refunded, 88 L.Ed. this 270: was difference example same as their counter- identical 3. These illustrative 2. An prior above, except parts and in the in the 1954 Oode for dif- forth set one stipulated by dates, Revenue Acts. Reference will be made was ference n terms by adopted of the 1939 Oode. parties the Court involving in the suit Claims years 1938-1940. liability, questioned contested item of “It never been a usually accountants ac- who on the indicate the existence a accounts of contest by showing should, contingent, by may, deduct the item as crual basis or gross liability footnote. Ten dollars income of the contested year. liability really taxable became a fixed liti- accrues when the $15 gation that, long in order terminated in It has been held and became given remaining truly year. deductible in reflect the income of year, all never $5 the events must occur became a tax- payer. amount and Nor was fix the taxpayer’s of that sum City from the in 1951 fact income the tax- ; payer for items of indebtedness deducted it was the of an realization asset though contingent paid; purchased this cannot be value the tax- payer liability is con- where the when it case $15 tingent contesting. payment may tax- and is contested A consti- payer. capital expenditure, exchange Here the tute a contesting liability strenuously assets, prepaid expense, deposit, time, and, expense. de- the courts at the same current When the exact nature ducting tax, payment on immediately the amount of the of is not ascer- theory depends that exaction con- the state’s tainable because it fu- some liability. event, litiga- stituted a and certain fixed ture tion, such as the outcome of must, in This it not It pur- could do. its treatment for income tax circumstances, poses await event of must await that Thus in event. might litigation Doyle Commissioner, the state court Cir., v. F.2d 2 110 157, claim a deduction taxa- court held this that the tax income year liability ble for the payments which its treatment of forfeited received adjudicated.” finally tax was under a contract to sell real estate was by, be determined and was to be Security reflected This was reaffirmed in Flour year events, subsequent of the Commissioner, Mills Co. v. year rather pay- than the which the page L.Ed. 725. 64 88 received; ments were see Lewyt Commissioner, also Bressner Corp. And 349 Radio, Commissioner, Inc. Cir., 2 242-243, 267 F.2d 520. concept that “the 1029 states ‘ac- accounting crued’ embodies the annual Supreme It is true that the Court cases principle,” and amount of the tax ac- did taxpayer above cited not involve crued within taxable “is during pend- who a contested tax determined with the normal ac- accord ency question of the contest. That counting concepts relevant accrual presented in the Consolidated Edison case basis.” Claims, supra, in the Court of and that Court followed Applying its cases earlier decision in is States, presented example Chestnut the illustrative Securities Co. v. United sues it is clear that the uncontested 104 Ct.Cl. 489 which $85 “Accrual, held that tax accrued and was deductible from the debtor’s $100 standpoint, Indeed, precedes payment, is this admitted both and does equally respect parties. not survive it.” agree We think it clear With due we dis liability was, Indeed, with tax this the contested view. find $15 ings contingent purposes, respect of applicable fact with income tax lia ac counting might might bility principles which liability depending upon become which the Court of Claims made in fixed out the Consolidated Edison litigation. of the State In cases of case are come inconsistent with such decision.4 Findings inclusive, part, Nos. 35 to 38 which is See denied whole or in accounting principle particularly charges against which reads as follows: pay- accounting, payment accrual when would be income the same “Under as if liability made; made with to a had not been such would accounting appropriately hos set been of accrual sioner principles The findings precepts pitable ac A of are correct. accrual in those forth counting judicial applaud prevent a supporting will tentative them decision taking steps accepting precepts. toward the inconsistent such See, Behren, contesting Prepaid g., and at e. Incom e —Ac positions of counting Law, claiming Concepts for it. a deduction and the time Tax the same urges government discussing (1960), Bress Tax L.Rev. position general Radio, Cir., R., ner with the C. us Inc. v. I. seems to inconsistent largest my part of obtaining dis policy amount F.2d 520. For agree would not of possible date. and think that limits earliest within revenue at the govern- accounting cases, of trend to desir run ideas is In the follow usual bringing prac take able as that the tax and business insistence ment's paying mutually under tices But feel it in the into line. I do his deduction protest delivering result in stop will must short control contested in others) the counting revenue revenue ac less to the accountants. For (among science; year. reason not an exact For this gov- case, corporate must deal the Chestnut Securities balance sheets position opposite many representing to that took course items, ernment fluid government urged. information, lost cer here much but also a factual following hope, Claims prophecy, case. In tain amount of discussing this, principles argumentation. in- without volved, Because of sheer Judge Sugarman fell we think does owe because also the accountant conformity duty loyalty In with those client, into error. result of his to summary judgment principles naturally should de will reflect the needs and plaintiff-appel- appro for the have been entered sires of the client more than the priate collector, who lant. of the tax demands due, only not collect all the revenue must suggested in our It is criticism of de- fairly and but must hold balance open cision that opportunities leaves to it among taxpayers. discrimination without through manipulation for goes present holding, And be self-serving appraisals. opportuni- Such yond anything yet books, seems greater payment no ties are when proper in com to me to exceed mitting bounds protest prevent been made under to adjudication to reve final as seizure, attachment liens or when of than corporate nue accountants. made, payment has not been as problem Dixie of Pine case. The deter- actual herein. It Consider the decision mining liability whether the contest is a bona fide for is that deductions local tax present one is in either made, liability situation. is are be when criticism, think, really years we is directed paid, when some later due and but against (not of Dixie Pine line decisions. dispute parties includ- and after ing representative rev- of federal judgment Accordingly the is reversed together get adjust enue) dif- their and the cause remanded with directions to enter suggests opinion no limita- ference. The summary judgment plaintiff- for opera- otherwise on the tion of time or appellant pursuant paragraphs 12 and principle broadly an- tion of the nounced; thus parties. 13 of the of upon can see reflection I CLARK, (dissenting). Circuit any operative none actual It of effect. asserting Apparently taxpayer, accountants and at would seem that a least agree paid, lawyers dispute for some that the as Commis a payment represents not affect of an amount esti- treatment accruals. ultimately principle applies equally pay- This is recovered and mated debit, payment chargeable suspense, of admitted deferred taxes. of The latter estimated ultimate constitutes or other receivable account. deposit payment represents charge an asset —a of current or ex- item n which is pense operations expected of to be recovered.” and the balance of substantially corporate may postpone as income is the use of such practically in- revenue taken out of the hands of the au- deduction an income tax thorities; expedient to between tax- definitely it it discrimination until finds accomplished payers the basis dispute without with or settle the employed; presume dispute must astuteness the accountants I refund. federal tax honestly perhaps some of annual sound rule be asserted with possibility accounting perhaps cornerstone success. But indicated — collecting repudiated requirements as federal revenue such minimal —is great vitally large important cor- detail. tax liabilities of meaningless prac- porations be Moreover, of the his- an examination Obviously dispute can tice. a local tax tory plaintiff’s real estate contro- years; prolonged extrinsic be City York with the of New versies reorganiza- corporate as a such factors years indicates that here involved fiscal might prolong yet More- further. tion majority does the result reached principle over, do not see how the can accepted generally even accord payments; limited it would to tax accounting principles. This shown pay- applicable disputed to other seem following generally. clearly by table: ments ascertainment Thus Amount of Tax % Payment Amount Claim Fiscal Year Contested Refunded 292,250.27 132,290.00 45.3 1946-47 $ .......... $ 2,925,546.94 1,020,232.50 34.9 1947- 3,239,580.43 764,162.50 23.6 1948- 3,156,256.61 465,522.50 14.7 1949-50 343,745.00 3,270,292.22 10.5 1950- serving appraisals. accepting My the view that The date and amount brothers viewing accountant, payment, appear however, the tax an me example, year, represent standard, for 1950-51 fiscal fixed and definite for $3,270,292.22, adopted prefer- amount should be which exclude here would expense claim, ac- corporation to the from the tax ence amount which the notwithstanding unilaterally contest, period, determines of that or to counts guess experience that the an uncertain indicates estimate or educated likely recover as amount of corporation was not refund which of its claim. per 20 cent more than about be secured at some unknown future date. overlooking Michigan would also be The accountant See Automobile Club of v. C. I. R., 180, presenting 707, claims based the fact L.Ed.2d disputed property Moreover, why assessments a upon there is little reason generally his claim inflate who will has suffered an out-of- strategic expenditure pocket bar- more satisfaction in order secure a aof correspond- gaining penalized position. I see little assessment should tax merely the funda- such result and denial of a between deduction ence because he accounting upon of accrual which embarks aim the uncertain and mental often expenses unrewarding contesting with the match course of is to revenues producing such revenues. amount assessment. incurred Supreme Certain refund Court the amount of claimed decisions are When forcing relied on as cor- made determinative federal result here thus reached; they purposes, open but at invitation most subscribe porate through above, manipulation as to the trend I have done self- and do extended principle limits, for decision stated correct so try what to establish “Accrual, inevitable, necessary here that debtor’s obviously will government’s standpoint Security Flour [and Roberts be. Justice 286, well], precedes 281, payment, and does R., U.S. Mills v. C. Co. I. goes 725, survive it.” indeed 598, 596, S.Ct. taking disparagingly speak toas so far affirm. I would alia, the an- “out of payments, inter cash and, system bene- accounting nual taxpayer, or the fit of the Government is nei- [ing on basis treat them] basis, nor an accrual ther cash basis given would, in- in a do because so to equitable supposedly more stance, work a the tax- the Government

result in Dixie nor in that case

payer.” Neither R., C. I. Products Co. v. Pine Huey CASH, Fuller and Arthur Cash prin- also 88 L.Ed. Reagan, Jr., Appellants, holding on, is cipally there relied already paid should liabilities America, UNITED STATES of all until for taxwise accounted not be Appellee. put at rest.1 disputes been have somehow No. 17991. hand, only actual other On Appeals United States issue, precise presenting the cases Fifth Circuit. opinions, in reasoned Court of Claims 10, 1960. June considering noting the obstacles Rehearing Aug. Denied above, op- reached the have discussed Judge Sugarman result, be- posite per- properly followed. quite See low colleague opinion oft-times suasive our Judge Co. Securities Madden in Chestnut F.Supp. States, 62 United this Littleton Ct.Cl. and of years. very Consolidated ease in earlier States, 135 United Edison Co. N. Y. v. 133 Ct.Cl. certiorari 694, 909, U.S.

denied 351 Mertens, Law also 2 See 106, 12.67, p. Taxation Income §

Federal though Cum.Supp.). Even (1959

n. 94 by my summarily rejected

has been

brothers, Madden in the think supra, case, Securities Co.

Chestnut 574, 576, 489, Ct.Cl. R., been declared invalid I. had Co. v. C. Products Dixie Pine 1. In repayments 364, to deduct as of 88 L.Ed. allowed 64 S.Ct. 320 U.S. Lewyt original Corp. tax. Accrual basis was the date R., I. 75 S.Ct. state taxes which v. C. deduct not allowed paid. cited, contesting also concerns had No 99 L.Ed. he was accruing profits of a federal excess question to taxes raised as pay paid. earlier than previous had been suggests Security R., None of these cases ment. Mills Co. C. I. Flour In long possibility that accrual occur 88 L.Ed. making payment. late reim after who was processing of a federal bursement

Case Details

Case Name: Consolidated Edison Company of New York, Inc. v. United States

Court Name: Court of Appeals for the Second Circuit

Date Published: May 25, 1960

Citation: 279 F.2d 152

Docket Number: 26041_1

Court Abbreviation: 2d Cir.