PROBLEM 257 Illustrating Case in Which Tax is Not Paid Upon Notice and Demand by the Collector But Amount Due is Paid Prior FACTS: to Levy of Tax by Distraint and Sale of Property The Moriarity Trucking Company received a registered letter from the Bureau of Internal Revenue, notifying it that additional income and excess-profits taxes of $5,000.00 were due from the company for the taxable year 1918. The company agreed that the Bureau was correct in the determination of the taxes. Sixty days later the collector sent the company a notice demanding payment of the additional tax of $5,000.00. The company, although solvent, neglected to pay the same within the ten days allowed after notice and demand by the collector. Two months after date of the notice and demand, just as the collector was about to distrain the property of the company and sell the same for the amount of the tax, the president of the company paid the amount demanded by the collector. QUESTION: Was the payment of $5,000.00 made by the company all that is required under the law? ANSWER: No, the law requires that there be added to the tax a penalty of 5 per centum on the amount due but unpaid, plus interest at the rate of 1 per centum per month upon such amount from the time it became due. The total amount the company is obligated to pay under the law is computed as follows: Additional assessment 5% of above .... Interest for two months at 1% per month on $5,000.00 250.00 100.00 Sec. 250 (e): "If any tax remains unpaid after the date when it is due, and for ten days after notice and demand by the collector, then, except in the case of estates of insane, deceased, or insolvent persons, there shall be added as part of the tax the sum of 5 per centum on the amount due but unpaid, plus interest at the rate. of 1 per centum per month upon such amount from the time it became due: ..." PROBLEM 258 Illustrating Case in Which Claim in Abatement May be Filed FACTS: The Baldwin Lighterage Company received a registered letter from the Bureau of Internal Revenue notifying it that an additional tax of $12,640.00 was due for the taxable year 1919. The company immediately filed a request for a hearing in order to present a bona fide claim for a reduction of the assessment but in less than thirty days and before the hearing had been held, the company received a notice and demand from the collector for an additional amount claimed to be due. QUESTIONS: 1. Is the collector authorized to accept a claim for abatement for the above amount? 2. If so, what rate of interest will be charged by the collector on that part of the claim which is rejected provided the Bureau does not allow the entire claim? ANSWERS: 1. Yes, the collector is authorized to accept a claim for abatement if filed within ten days after notice and demand of pay ment of tax in cases where opportunity for a hearing has not been had by taxpayer. 2. If the Commissioner rejects the claim in part, interest at the rate of one-half of 1 per centum per month from the time the amount was due until payment is made will be added thereto. REFERENCE: Sec. 250 (e): "... Provided, That as to any such amount which is the subject of a bona fide claim for abatement filed within ten days after notice and demand by the collector, where the taxpayer has not had the benefit of the provisions of subdivision (d), such sum of 5 per centum shall not be added and the interest from the time the amount was due until the claim is decided shall be at the rate of one-half of 1 per centum per month on that part of the claim rejected. . . ." PROBLEM 259 Illustrating Case in Which Commissioner May Grant an Extension of Time for the Payment of Tax Due Where Such Payment Would Result in Undue Hardship to the Taxpayer FACTS: The Samato Silk Company, manufacturers of silk hosiery, had a tax assessment of $25,890 due December 15, 1921, covering the taxable year 1918. The company demonstrated to the satisfaction of the Commissioner that the payment of the above tax would entirely wipe out the working capital of the company and necessitate the closing down of its plant. QUESTION: Can the company obtain relief under these conditions? ANSWER: Yes. Under the conditions outlined above, the Commissioner may extend the time for payment of the additional tax, or any part of such tax, for a period of not over 18 months after November 23, 1921. REFERENCES: Sec. 250 (f): "In the case of any deficiency (except where the deficiency is due to negligence or to fraud with intent to evade tax) where it is shown to the satisfaction of the Commissioner that the payment of such deficiency would result in undue hardships to the taxpayer, the Commissioner may, with the approval of the Secretary, extend the time for the payment of such deficiency or any part thereof for such period not in excess of eighteen months from the passage of this Act as the Commissioner may determine. In such case the Commissioner may require the taxpayer to furnish a bond with sufficient sureties conditioned upon the payment of the deficiency in accordance with the terms of the extension granted. . . ." Sec. 250 (h): "The provisions of subdivisions (e), (f) and (g) of this section shall apply to the assessment and collection of taxes which have accrued or may accrue under the Revenue Act of 1917, the Revenue Act of 1918 or this Act." PROBLEM 260 Illustrating Case in Which Extension is Granted for Payment of Additional Tax Found to be Due After Examination of Return-Tax Paid Within Extension Period FACTS: The Royal Silk Company obtained an extension of six months from January 2, 1922, in which to pay an assessment of $45,000 covering additional taxes due for the taxable year 1918 as the result of an examination of its returns. This additional tax was not due to fraud or negligence. It paid the assessment June 29, 1922. QUESTION: Is the company required to pay any interest because of this extension, and if so, at what rate? ANSWER: Since the additional tax was not due to fraud or negligence the company would have to pay interest at the rate of 2% of 1% per month from January 2, 1922 to June 29, 1922 on the tax so extended. REFERENCE: Sec. 250 (f) provides that where the time for payment of additional tax is extended by the Commissioner ". . . There shall be added in lieu of other interest provided by law, as a part of such deficiency, interest thereon at the rate of two-thirds of 1 per centum per month from the time such extension is granted; except where such other interest provided by law is in excess of interest at the rate of two-thirds of 1 per centum per month. . . .” NOTE: The provisions of this section apply to such additional taxes as are assessed under the Revenue Acts of 1917, 1918 and 1921. PROBLEM 261 Illustrating Case in Which Extension is Granted for Payment of Additional Tax Found to be Due After Examination of Return-Payment Not Made Prior To Expiration of Extension Period FACTS: The Carbon Paper Supply Company received an extension of four months from February 1, 1922 in which to pay additional tax found to be due as the result of an examination of its 1917, 1918 and 1919 returns. This tax was not paid until after June 1, 1922. QUESTION: Is the company subject to a further penalty due to the nonpayment of such tax within the extension period? ANSWER: When the additional tax is not paid prior to the last day of the extension period a penalty of 5% attaches, plus interest of 1% per month from the date the extension period commenced. REFERENCE: Sec. 250 (f) provides that where the Commissioner has granted an extension of time for the payment of additional taxes found to be due, ". . . If the deficiency or any part thereof is not paid in accordance with the terms of the extension granted, there shall be added as part of the deficiency, in lieu of other interest and penalties provided by law, the sum of 5 per centum of the deficiency and interest on the deficiency at the rate of 1 per centum per month from |