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APRIL 13, 1940. JOHN W. KERNAN,

Superintendent, Park Department, City Hall, Lowell, Mass. Dear Mr. KERNAN: In reply to your letter of April 10, with reference to your inquiry relative to a proposed playground on Walker Street, I wish to state that it is my opinion that there is no liability on the part of the city of Lowell, and in rendering this opinion I have not only considered what you have set forth in your letter but I have read the letter that was enclosed with your letter.

By the enclosed letter it appears that Mrs. Rogers is seeking certain information from Mr. Healy to aid in having special legislation sponsored for the purpose of paying a claim because of injury sustained by his daughters, but as to the facts requested I am not in any position to aid you for there is no record, as I understand it, of the case in this office.

I trust that the foregoing answers your inquiry, but if there is anything further you desire from me concerning this matter you are at liberty to call upon me. Very truly yours,

HUBERT L. McLAUGHLIN, City Solicitor.

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FEBRUARY 9, 1945.-Committed to the Committee of the Whole House and

ordered to be printed

Mr. McGEHEB, from the Committee on Claims, submitted the

following

REPORT

[To accompany H. R. 1239)

The Committee on Claims, to whom was referred the bill (H. R. 1239) conferring jurisdiction upon the Court of Claims of the United States to consider and render judgment on the claim of the CubanAmerican Sugar Co. against the United States, having considered the same, report favorably thereon without amendment and recommend

A similar bill was favorably reported by this committee in the The facts will be found fully set forth in House Report No. 85, Seventy-eighth Congress, which is appended hereto and made a part

that the bill do pass.

Seventy-eighth Congress.

of this report.

(H. Rept. No. 85, 78th Cong., 1st sess.)

The purpose of the proposed legislation is to confer jurisdiction upon the Court of Claims to hear, determine, and render judgment on the claim of the CubanAmerican Sugar Co. for the refund of taxes erroneously and illegally assessed and collected as excess-profits taxes for the period from January 1, 1917, to September 30, 1917. Section 2 provides that the Court of Claims shall not avail itself of the defense that the General Counsel for the Bureau of Internal Revenue acted without legal authority in making such stipulation of settlement. Section 3 provides that suit may be instituted at any time within 6 months after the date of enactment of this act, notwithstanding the lapse of time, laches, the form or any content, or the time of filing of claims for the refund and alleged'amendments

STATEMENT OF FACTS

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Your committee, before reciting, for the information of the House, the facts of this case, wish to call to its attention that the accrual date of this claim is not September 30, 1917, the period for which tax refund is asked, but May 1, 1939, the date the case was dismissed by the Court of Claims, for the reason that the statute of limitations had run against them.

The Cuban-American Sugar Co. was organized in 1906, immediately thereafter acquiring the outstanding capital stock of the Chaparra Sugar Co., the Tinguara Sugar Co., the Cuban Sugar Refining Co., the Unidad Sugar Co., and the Mercedita Sugar Co. In May 1908, the Cuban-American Sugar Co. acquired the capital stock and bonds of the Colonial Sugar Co.; in 1909, it acquired the capital stock of the San Manuel Sugar Co.; in the year 1910, the Chaparra Railroad Co. was formed and its capital stock acquired. Most of the companies in the group were engaged in the growing and production of raw sugar. In addition to the growing of sugarcane with the assistance of their own hired labor, the taxpayers entered into contracts with local planters for the growing of sugarcane. The taxpayers financed to a large extent the operations of the local planters. Loans would be extended from time to time in increasing amounts with the progress of each crop until a maximum was reached at harvest time. To finance their crops and those of the local planters, the taxpayers made extensive borrowings ring each growing season.

The gross income of the taxpayers was derived primarily from the growing and production of raw sugar. Other income was derived from interest and rentals. The principal deductions claimed were for ordinary and necessary expenses, repairs, interest, taxes, depreciation, and amortization of war facilities.

The Cuban-American Sugar Co. filed income and excess-profits tax returns for its fiscal year, January 1, 1917, to September 30, 1917, for itself and subsidiaries on March 30, 1918, shortly after Congress passed the Revenue Act of 1917, which, for the first time, imposed excess-profits and war-profits taxes and before there had been any decisions or interpretation of the meaning of the act, and there was much confusion among taxpayers and Treasury officials concerning its application.

These returns showed the consolidated invested capital of the companies as $26,774,367.90, its excess-profits taxes as $1,975,180.94, and a total income and excess-profits taxes for the period of $2,306,928.74.

Shortly thereafter it filed amended income and excess-profits tax returns for the same period, showing a consolidated invested capital of $24,314,160.57 and $1,949,577.21 as its excess-profits taxes for the period. At the time of filing the amended returns, the company filed two abatement claims and a claim for refund of excess-profits taxes overpaid in the amount of $24,058.88, or such other amount as was legally refundable. This claim was based on the grounds that the invested capital was more than that shown in the original return. Thereafter the returns were audited and considered by the Commissioner of Internal Revenue, and the claimant submitted data and evidence pertaining thereto and had numerous conferences with the representatives of the Commissioner relative to the proper amount of tax due from the claimant.

Thereafter, on January 3, 1921, the Commissioner advised the claimant by letter, containing extensive schedules, showing his audit of the taxpayer's returns and determination of the amount of taxes due. These schedules of the Commissioner showed a consolidated invested capital for the year 1917 of $28,848,530.85 and excess-profits taxes due of $1,729,541.41, resulting in an overassessment in income and excess-profits taxes for the period of $231,729.55 and an overpayment of $131,554.65. The Commissioner never abated, credited, nor refunded the amount of the overassessment or overpayment to the claimant, although refund claims were on file, which claim was never allowed or rejected by the Commissioner.

Thereafter the claimant, feeling that its taxes had been greatly overpaid for the period in question, and that the determination of the Commissioner of January 3, 1931, was in excess of the taxes properly due, requested the Commissioner of Internal Revenue to compute its taxes under the relief provisions of section 210 of the Revenue Act of 1917, on the basis that the excess-profits taxes determined to be due by the Commissioner were exorbitant and excessive, abnormal and disproportionate to the income of the claimant, and asked that the taxes be computed under the relief provisions of the law by computing them at the same rate as those paid by other corporations engaged in a similar class of business and similar circumstances, reserving its right to augment and increase its invested capital for any reason necessary.

Section 210 of the Rovenue Act of 1917 provided that if the Secretary of the Treasury was unable in any case to satisfactorily determine the invested capital of the taxpayer the deduction and the tax should be computed on the same basis as that used by representative taxpayers engaged in similar trade or business. This method was only to be used by the Commissioner after the Secretary of the Treasury made a decision that he could not satisfactorily determine the amount of the invested capital and the Commissioner had no authority under the law to resort to that section in the absence of such a decision by the Secretary of the Treasury (U. 8. v. Gutzler, 105 Fed. (2d) 188).

The Secretary of the Treasury did not make such a decision, but thereafter, on May 10, 1923, the Deputy Commissioner of Internal Revenue notified the claimant that its taxes had been recomputed by special assessment under the relief provislons of section 210 of the act and that the computation thereunder showed an additional tax liability of $20,577.52 over the amount showed by the claimant's original return. The letter contained a computation showing excess-profits taxes in the amount of $1,990,803.38, being $261,261.97 more than the excess-profits taxes determined by the Commissioner on the statutory basis in his audit and determination letter of January 3, 1921. The claimant duly protested such assessment, which protest was overruled by the Commissioner.

On October 31, 1923, claimant paid an additional tax of $20,577.52 as determined by the Commissioner on May 10, 1923, and on December 27, 1923, paid the sum of $99,941.50, representing the unpaid balance of the amount of tax shown to be due on the original return, making the total income and excess-profits taxes paid by the claimant for the fiscal year 1917 amount to $2,327,560.26.

On December 23, 1927, the claimant filed another claim for refund of taxes overpaid for the fiscal year 1917 for $1 and all other amounts refundable on the grounds that the taxpayer had overpaid its taxes for the year in question and the Commissioner's assessment by the special assessment method under the relief provisions of the act was erroneous and wrong.

The claim for refund filed on January 8, 1920, was still on file with the Commissioner and was never acted on by him. Thereafter, on August 14, 1928, the Deputy Commissioner advised the claimant that its claim for refund would be allowed in part for $19,908.03, due to an erroneous computation, but denied any revision of the assessment by the special assessment method and that a certificate of overassessment would be issued for the amount refundable within 30 days unless protest was filed.

Thereafter, protests were filed against the Commissioner's proposed action on the refund claim and the claimant's représentative and the representative of the Commissioner had many conferences pertaining to the claimant's correct tax liability for the year 1917.

While the correct liability for the year 1917 was under consideration, the Commissioner also had under consideration the tax liability of the claimant for the fiscal years 1918, 1919, and 1920, ending September 30, of each year, with respect to which years the claimant had also made application for assessment of its excessprofits taxes under the relief provisions of section 210 of the Revenue Act of 1917 and sections 327 and 328 of the Revenue Act of 1918.

In considering the claimant's taxes for those years, the Commissioner first computed the taxes under the special assessment provisions of the 1917 and 1918 acts, and thereafter, the claimant filed protests and had hearings with respect to the taxes for those years. Thereafter, on February 14, 1930, the Commissioner sent a registered notice to the claimant of his final determination for the taxes for those Fears, by which determination he reversed his earlier action of computing the taxes for those years by special assessment and computed the taxes on the straight statutory basis on the determined net income and invested capital. This computation resulted in deficiencies and the claimant filed petitions with the United States Board of Tax Appeals for a redetermination of the deficiencies for those

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