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years, assigning as error, among others, the failure of the Commissioner to com. pute claimant's taxes under the special assessment provisions of the 1917 and 1918 acts. The question of the correct amount of claimant's taxes for the fiscal year 1917 was still under consideration by the Commissioner when the petitions were filed with the Board of Tax Appeals for a redetermination of the taxes for the years 1918, 1919, and 1920. After the petitions were filed, the representative of the claimant and the representative of the Commissioner of Internal Revenue agreed to postpone any further action or consideration of the claims for the year 1917 until the question of the liability for the years 1918, 1919, and 1920 was determined by the Commissioner or the Board of Tax Appeals, and no further action was taken on the 1917 taxes until March 15, 1933.
While the aforesaid petitions were pending before the Board of Tax Appeals, the representative of the claimant and the representative of the Commissioner had conferences and negotiations looking to the settlement of the taxes for the years involved without the necessity of trial before the Board of Tax Appeals.
These negotiations resulted in -a stipulation being signed by the respective parties whereby the claimant's excess-profits taxes for the years 1918, 1919, and 1920, would be finally determined by adding $11,000,000 to the invested capital for each of the years 1917, 1918, 1919, and 1920, and the taxes then computed on the statutory basis by using the determined net income and invested capital as increased by the $11,000,000, which computations showed overassessments for 1918 and 1919 and deficiencies for 1920. This stipulation was filed with the United States Board of Tax Appeals and on December 16, 1932, the Board entered its order in accordance therewith, which order became final on June 16, 1933, finally closing the taxes for those years.
On February 21, 1933, the claimant requested the Commissioner to advise it of its claims for refund filed for the year 1917, to which request the Commissioner did not respond, and on April 4, 1933, the claimant filed another claim for refund for the year 1917, on the grounds stated in its former claims and that the taxes for that year should be recomputed on a statutory basis by adding $11,000,000 to the invested capital for that year, in accordance with the decision of the Board of Tax Appeals for the years 1918, 1919, and 1920.
On June 8 and 16, 1933, the Commissioner notified the claimant by letter that its claim for refund filed April 4, 1933, would be rejected because it was filed subsequent to March 15, 1933, the date final action was taken on its claim for refund filed December 23, 1927, and subsequent to the expiration of the statute of limitations. This was the first notice the claimant had that any final action had been taken on any of the claims for refund filed for the year 1917.
Thereafter, the claimant protested the action of the Commissioner in refusing to refund the overpayments made for 1917, and on December 28, 1935, filed & suit in the United States Court of Claims for the recovery of the excess-profits taxes claimed to have been erroneously and illegally' assessed and collected.
The case was considered by the Court of Claims on the petition and Government's special answer and plea in bar, and on May 1, 1939, the United States Court of Claims made findings of fact and conclusions of law and a judgment dismissing the petition. The Court of Claims did not pass on the merits of the claim or consider whether or not the tax was overpaid, but held that because the Commissioner had determined the taxes by the special-assessment method and the claims for refund filed were technically insufficient, the court was without jurisdiction to consider the case. Thereafter, claimant filed a motion for a new trial with the Court of Claims, which motion was denied. A petition for a writ of certiorari was filed with the Supreme Court of the United States to review the judgment of the Court of Claims, which petition was denied by the Supreme Court.
There is no question but that the claimant overpaid its taxes for the year 1917, as shown by the determination of the Commissioner of Internal Revenue on January 23, 1921, and the decision of the United States Board of Tax Appeals on December 16, 1932, which overpayment was caused by the Commissioner's erroneous application of the statute. The claimant was diligent and did everything possible to procure a proper determination of its taxes and a refund of the overpayment by timely claims and suit in court, despite which the Commissioner denied it a proper hearing or consideration and disposed of the claims without notice or hearing. The court refused to consider the claim on its merits, and relief upon the erroneous and illegal action of the Commissioner to deprive the court of jurisdiction to consider the case.
Therefore, the claimant has been denied its day in court or consideration of its just claim on the merits and the only means by which claimant can procure a redress of these wrongs is by the passage of this bill, giving the United States Court of Claims jurisdiction to hear and consider the claim on the merits.
The Treasury Department, in a report dated April 29, after reporting on the facts of this case, sets forth, "The claimant has, therefore, litigated its case to a conclusion, and the proposed legislation, if enacted into law, would, in effect, nullify the decision of the Court of Claims of the United States in the matter, and would serve to stimulate the introduction of other bills with similar objectives."
Your committee can give only one answer to the above statement, and that is, that justice is an undying thing. It knows no time and no date. Justice is not less justice because it comes 5 years after the due date, or 10 or 20 years, or even in the life of a great country like this.
Appended hereto is the report of the Treasury Department, together with other pertinent evidence.
Washington, April 29, 1941. Hon. Dan R. McGEHEE, Chairman, Committee on Claims,
House of Representatives, Washington, D. C. MY DEAR MR. CHAIRMAN: Reference is made to your letter of recent date requesting a report on bill (H. R. 3079, 77th Cong., 1st sess.) conferring jurisdiction upon the Court of Claims of the United States to consider and render judgment on the claim of the Cuban-American Sugar Co. against the United States.
The bill, if enacted in the form contemplated, would authorize the Court of Claims, notwithstanding the limitations and other provisions of the internalrevenue laws relating to refunds of overpayments of taxes, to hear, determine, and render judgment on the claim, together with interest thereon, of the abovenamed claimant for a refund of taxes alleged to have been erroneously and illegally assessed and collected as excess-profits taxes for the period from January 1, 1917, to September 30, 1917. The bill would also direct that for the purpose of arriving at the correct determination of the tax for this period, the Court of Claims is to apply the method of computation under sections 201 and 203 of the Revenue Act of 1917, based upon the invested capital of the corporation amounting to $39,848,530.85, which was the invested capital of the Cuban-American Sugar Co. according to decisions of the United States Board of Tax Appeals dated September 16, 1932, which decisions were based upon the stipulation entered into between the Cuban-American Sugar Co. and the Commissioner of Internal Revenue whereby it was agreed that the above-mentioned sum was the invested capital of that corporation for the calendar year 1917.
The claimant filed an excess-profits tax return for the period January 1, 1917, to September 30, 1917, and made application for the determination and computation of its profits tax for 1917 under the special assessment provisions of section 210 of the Revenue Act of 1917. The application was allowed, the tax computed accordingly, and a final determination made. Thereafter during the year 1927 the claimant filed a claim for refund which related to the matter of special assessment and the selection of comparatives used in determining the profits tax for 1917. The claim was formally rejected in a rejection schedule signed and issued March 15, 1933.
On April 4, 1933, claimant filed a claim for refund based entirely upon the computation of the profits tax for 1917 on the basis of statutory invested capital. The claim was rejected and suit was instituted in the Court of Claims of the United States, No. 43206, to recover $790,115.87 profits tax for the fiscal year ended September 30, 1917. The claimant based its claim on the ground that although the Commissioner of Internal Revenue determined and computed the profits tax under the special-assessment provisions of section 210 of the Revenue Act of 1917, it is entitled to have its profits tax for that year determined and computed on the basis of statutory invested capital under the provisions of section 201 of the Revenue Act of 1917 and to include in such statutory invested capital an amount of $11,000,000 in excess of the invested capital of $28,848,530.85
reported in the return and corrected by the Commissioner in an audit letter mailed to the claimant on January 3, 1921.
The suit was dismissed by the Court of Claims of the United States on May 1, 1939 (27 Fed. Supp. 307). The court held that it is without jurisdiction over & suit to recover 1917 excess-profits tax on the ground that the liability should be computed on the basis of 'statutory invested capital, where the claimant has applied for and been granted special assessment in computing the tax for that year; and that the suit may not be maintained for the further reason that the claim upon which it was based was not filed within the time required by law. A petition for certiorari was denied by the United States Supreme Court (309 U. S. 681, 60 S. Ct. 721).
The claimant has, therefore, litigated its case to a conclusion, and the proposed legislation if enacted into law, would, in effect, nullify the decision of the Court of Claims of the United States in the matter, and would serve to stimulate the introduction of other bills with similar objectives.
Under these circumstances the Treasury Department is not in favor of enactment of H. R. 3079.
If further correspondence relative to this matter is necessary, please refer to IR:IT:P: CA-CCA. Very truly yours,
John L. SULLIVAN, Acting Secretary of the Treasury.
That he was the attorney of record for the Cuban American Sugar Co. before the Treasury Department and the Bureau of Internal Revenue in connection with the adjustment of its income taxes for the years ended September 30, 1917, 1918, 1919, and 1920.
That prior to December 21, 1927, the taxpayer filed claims for refund for excessprofits taxes overpaid for the year 1917; that I submitted data and evidence to the Bureau of Internal Revenue and held many conferences with the officials of that office in connection with the claims for refund for 1917; that while the refund claims for 1917 were pending and under consideration by the Commissioner of Internal Revenue and members of his staff, the Commissioner determined deficiencies against the taxpayer for the fiscal years ended September 30, 1918, 1919, and 1920, and mailed to the taxpayer deficiency letters. Thereafter, on February 24, 1930, the taxpayer filed petitions for review of the deficiencies for the years 1918, 1919, and 1920 with the United States Board of Tax Appeals; that the same question was involved in the claims for refund of 1917 as in the deficiencies determined by the Commissioner for 1918, 1919, and 1920.
That after the petitions were filed with the Board of Tax Appeals and while the question of the refund for 1917 was pending before the Commissioner and conferences were being held and evidence being submitted in connection therewith, that on March 18, 1930, at a conference on the refund claims for 1917 with a Mr. Mancil, a conferee in the office of the Commissioner, it was agreed between him and myself that all further conferences or action on the refund claim for 1917 would be indefinitely postponed and held in abeyance until after the United States Board of Tax Appeals or the Commissioner decided the same question in connection with the deficiency for 1918, 1919, and 1920; that on the same day this agreement was confirmed in writing by a letter to the Commissioner of Internal Revenue signed by an associate of mine confirming the oral agreement, and no further action was taken on the claims for refund for 1917 until March 15, 1933, when, without notice to me or my associates or an opportunity of a hearing, the Commissioner of Internal Revenue purported to reject the refund claim for 1917, without taking into consideration the action the United States Board of Tax Appeals and the Commissioner had taken on the same questions involved in the deficiency for 1918, 1919, and 1920, in accordance with the oral agreement which was confirmed in writing on March 18, 1930; that I was not advised of the action on the 1917 claim until June 8, 1933.
David A. BUCKLEY, Jr. Subscribed and sworn to this 2d day of August 1941, before me, a notary publio in and for the State of New York. (SEAL]
HARRIET L. Hayes,
Notary Public. Commission expires March 30, 1942.
WASHINGTON, D. C., October 16, 1941. Hon. EUGENE KEOGA, House Office Building,
Washington, D. C. DEAR CONGRESSMAN Keogh: In accordance with your suggestion relative to the claim of the Cuban American Sugar Co., we are submitting herewith for your consideration a statement of the facts pertaining to the addition of $11,000,000 to the invested capital of the Cuban American Sugar Co. for the years 1917, 1918, 1919, and 1920, by the Commissioner of Internal Revenue and the United States Board of Tax Appeals in the determination of its correct tax liability for those years.
After petitions were filed with the United States Board of Tax Appeals for a redetermination of the taxpayer's liability for the fiscal years ending September 30, 1918, 1919, and 1920, the representatives of the taxpayer and the Commissioner had many extended conferences with the officials of the Commissioner's office, General Counsel's office, and special advisory committee with a view of determining the liability without the necessity of a trial before the Board of Tax Appeals. At these conferences and hearings the taxpayer submitted voluminous documentary evidence, oral testimony and valuation reports, and the Commissioner submitted reports made by the revenue agents with the view of determining the invested capital of the taxpayer.
As a result of these conferences and hearings and a consideration of the evidence presented the officials of the Bureau of Internal Revenue decided that the invested capital of the taxpayer should be increased by the addition of $11,000,000 to that already found by the Commissioner for the years involved.
The $11,000,000 was composed of the following assets, together with other assets not mentioned which had not been included in invested capital in returns previously filed. Time and manner of organization.
$3, 929, 340. 28 San Manuel Sugar Co. investment.
854, 549. 67 Improvements, Juan Claro Island.
350, 000. 00 Clearing lands.
4, 532, 700. 00 Canals, cuts, dams...
354, 000.00 Construction costs..
750, 000. 00 Total..
10, 770, 589. 95 In determining the tax liability for the fiscal year ending September 30, 1918, 9 months of which was taxable under the 1918 Revenue Act and 3 months taxable under the 1917 Revenue Act, in accordance with the special advisory committee's recommendation and the Board of Tax Appeals decision, it was necessary to determine the invested capital for the calendar year 1917 to arrive at the taxes for those 3 months under the Revenue Act of 1917, which was done by adding $11,000,000 to the invested capital previously determined by the Commissioner of Internal Revenue for the year 1917 and the taxes recomputed on that basis. Therefore, the invested capital so determined in connection with the taxes for the fiscal year 1918 would be the same invested capital for the fiscal year 1917 which is involved in the instant claim.
The following tabulation will show the invested capital and excess profits taxes for the fiscal year 1917 reported by the taxpayer in its returns, and the determination by the Commissioner and Board of Tax Appeals, and the amount of taxes and overpayment resulting from the addition to the invested capital of $11,000,000.
Trusting that the above will assist you in your consideration of the bill, we are, Respectfully yours,
BUCKLEY & BUCKLEY. By HARVEY L. RABBITT.
MEMORANDUM TO ACCOMPANY AGREEMENTS UNDER SECTION 606 OF THE REVENUE
ACT OF 1928, IN THE CASE OF THE CUBAN-AMERICAN SUGAR CO. AND ITS AFFILIATED COMPANIES IN RESPECT OF INCOME AND PROFITS TAXES FOR THE FISCAL YEARS ENDED SEPTEMBER 30, 1918, AND SEPTEMBER 30, 1919
Closing agreements under section 606 of the Revenue Act of 1928 have been signed for the fiscal years ended September 30, 1918, and September 30, 1919, by the President and Secretary of the Cuban-American Sugar Co. and its affiliated companies designated to act on behalf of the affiliated group, for the fiscal years 1918 and 1919. The agreements were obtained by the office of the Assistant General Counsel for the Bureau of Internal Revenue after a reconsideration of the case resulted in a settlement whereby it was agreed to allow the taxpayers a further overpayment of $101,788.63 for the fiscal year ended September 30, 1918. The result of the reconsideration of the case has been reported to the Joint Committee on Internal Revenue Taxation.
The Cuban-American Sugar Co. was organized in 1906 and immediately thereafter acquired 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 Sugars Co., in the year 1909 it acquired the capital stock of the San Manuel Sugar Co., and in the year 1910 the Chaparra Railroad Co. was formed and its capital stock acquired. In 1916 the Chaparra Light & Power Co. was organized and its capital stock was also acquired. Most of the companies in the affiliated 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 plantars 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 during 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 taxpayers reported in the consolidated income tax return filed on Form 1120 for the fiscal year ended September 30, 1918, a total net income of $8,553,455.32, invested capital of $34,469,537.73 and a tax liability of $3,138,966.74. However, Forms 1031 and 1103 previously filed for the fiscal year 1918, under the provisions of the Revenue Act of 1917, disclosed a tax liability of $1,690,259.15, which was assessed on Form 1031, but not taken into consideration when the assessment of $3,138,966.74 was made on Form 1120. Therefore, a duplicate assessment of $1,690,259.15 was made for the fiscal year 1918.
In the consolidated return filed for the fiscal year ended September 30, 1919, the taxpayers reported & net income of $11,417,846.40, invested capital of $43,314,732.77 and a total tax liability of $2,580,803.81 after deducting a foreign tax credit of $1,308,189.79. The tax liability shown on the return was not assessed, however, as there had previously been assessed on a tentative return a tax in the amount of $2,700,000.
A field investigation of the taxpayers' books and records for the fiscal year 1918 resulted in the determination of a consolidated net income of $8,352,287.40 and invested capital of $29,884,749.49 as shown in Bureau letter dated December 1, 1921. The field investigation for the fiscal year 1919 resulted in the determination of a consolidated net income of $11,263,414.90 and invested capital of $33,432,676.32, as reflected in Bureau letter dated December 1, 1921.
The Audit Review Division of the Bureau, after consideration of the protests filed by the taxpayers and recommendations of the Bureau engineers relative to depreciation and amortization of war facilities, determined the correct consolidated net income for the fiscal year 1918 to be $7,997,019.66, and the correct consolidated invested capital to be $29,988,661.58, as shown in Bureau 60-day letter dated February 14, 1930. The Audit Review Division determined the correct consolidated net income for the fiscal year ended September 30, 1919, to be $10,779,377.78 and invested capital to be $33,593,415.64, as set forth in Bureau 60-day letter dated December 27, 1929.
The principal decreases in the reported net income for the fiscal year 1918 were an additional allowance for amortization of war facilities in the amount of