Newman v. Commissioner, Docket No. 21295.

Docket No. 21295. | B.T.A. | Mar 2, 1927

Lead Opinion

OPINION.

KoRNER, Chairman:

The petitioners appeal from the notice of September 16,1926, alleging that it constitutes a notice of a deficiency under the provisions of section 318 (a) of the Revenue Act of 1926. They further contend that since more than five years have elapsed since the due date of the estate tax on the estate, of the decedent, the respondent is without power or authority to assess the deficiency asserted in the notice by reason of the provisions of sections 1106 and 1109 of the Revenue Act of 1926.

The respondent contends that the notice of September 16, 1926, was not a notice of deficiency within the meaning of section 318 (a) of the Revenue Act of 1926, and that the Board is without jurisdiction in the -premises because there has not been, since the enactment of the Revenue Act of 1926, a determination of a deficiency by the Commissioner. 'He offered no defense to the petitioners’ plea in respect of the statute of limitations.

Two major elements must first be considered: (1) Do the facts give rise to a deficiency as defined by the statute, and (2) does the notice of September 16, 1926, constitute a statutory notice of the determination of the Commissioner of that deficiency ?

Section 307 of the Revenue Act of 1926 which is made to apply to the assessment of estate taxes by section 318 (a) of the Revenue Act of 1926, defines a deficiency in estate tax as follows:

Sec. 307. As used in this title in respect of a tax imposed by this title the term “ deficiency ” means—

(1)The amount by which the tax imposed by this title exceeds the amount shown as the tax by the executor upon his return; but the amount so shown on the return shall first be increased by the amounts previously assessed (or collected without assessment) as a deficiency, and decreased by the amounts previously abated, refunded, or otherwise repaid in respect of such tax * * *.

The facts set out herein square precisely with the foregoing definition. Let us apply the facts graphically.

(1) Amount imposed-$27,578.03

(2) Shown on return-1_$19,975.55

(3) Increased by amounts assessed or collected_ 9,364.62

29,340.17

(4)Decreased by amount previously refunded_ 7,643.98

- 21,696.19

Amount by which (1) exceeds (2) plus (3) minus (4)_ 5,881.84

We can find no reasonable predicate for holding that under these circumstances the item of $5,881.84 does not constitute a deficiency within the definition of the statute.

We tlien come to the second query. If this be a deficiency, wds the letter o.f September 16, 1926, a statutory notice of the Cominissioner’s determination of it? We are of opinion that it was.. The language employed in the notice is most specific in terms. It notifies the petitioners that the Bureau '(which must mean the Commisr sioner) has redetermined the tax in view'of a decision of the Supreme Court of the United States and of the opinion of the Attorney General, and that the entire value of the community property has been included by that redetermination in'the gross estate.of the decedent. A letter far less specific and pointed in, its terms than the one now under,consideration has been held by,the Court of Appeals of the District of Columbia to be a notice of the determination of a deficiency. Dascomb ex rel. Hilgard Lumber Co. v. Board of Tax Appeals, 16 Fed. (2d) 337, As far as the express language and intendment of the notice of September 16, 1926, is concerned, there can be little doubt that it conveyed to the petitioners a notice of the redetermination of a deficiency.

But the respondent contends that the tax has heretofore been assessed and that the letter of September 16, 1926, can not be considered otherwise than a notice to pay.an unliquidated balance on such assessment. *If it be true that the $5,381.84 is, in fact, under assessment and. unpaid, the contention of the respondent would present serious difficulties. There is no evidence whatsoever in this record on that point, and this would preclude us from making any finding or passing any comment upon it. Again, we doubt seriously if the method of entering debits and credits in the accounts of the collectors can be binding on the taxpayer as to the correctness of the method of entry. If an assessment were made and discharged by payment on the part of the taxpayer, and the payment thus made was subsequently refunded to the taxpayer, it is at least open to grave question whether the assessment is automatically revived in the process. - But we do not deem it necessary to decide that point, because we are on sure ground when we conclude that book entries can not change or modify the statute. The statute says that the taxes returned, and the taxes paid as deficiencies, shall be added together and from the sum thereof there shall be subtracted the amounts previously refunded in respect of such tax, and that, to the extent that the remainder is less than the true tax liability, there is a deficiency. Since this is so, then the notice of September 16, 1926, was not a notice to pay an outstanding assessment, but a notification of the determination of a deficiency. We are convinced that the notice in question was precisely that.

The remaining contention of the respondent is that the notice of September 16, 1926, was not signed by the Commissioner and that, therefore, it does not appear that there has been any determination by the Commissioner within the meaning of the statute. We have observed above that the notice states that “ the Bureau has redetermined the tax in this estate.” Since only the Commissioner can determine taxes under the statute, the notice can only mean that the Commissioner has so determined the tax. If this be not so, then the taxpayers would be under no obligation to pay the amount noticed in the letter of September 16,1926, because without a determination, the matter would stand as closed by the authorization of refund and the payment of that refund on October 25, 1924. We must conclude, therefore, that there was a determination by the Commissioner of the taxes here in controversy, and as we have shown, that determination was the determination of a deficiency.

The Board will take judicial notice of the fact that one of the major divisions of the Bureau of Internal Revenue is the -Estate Tax Unit, and that a Deputy Commissioner is in charge of that division. We must assume that the Deputy Commissioner was acting regularly and under proper authorization' of the Commissioner in this instance, or else be led to the conclusion that the Commissioner could, by the expedient of having notices sent out over the signature of unauthorized persons, defeat the right of appeal given by the statute to the taxpayer. And since deficiencies in tax (except in jeopardy) can be collected only after notice of their determination, we must likewise conclude that the Commissioner has acted regularly and orderly through the Deputy Commissioner — to do otherwise would defeat the collection of the tax, an action we do not attribute to the respondent.

Motion domed. Sixty days from date allowed for answer.