PROBLEM 266

Illustrating Case in Which the Treasury Department is Required to Make Refund of or Credit for Overpayment of Tax Even Though Time Limitation Has Expired

FACTS:

The National Art Metal Company of New Jersey, organized in 1904, maintains large factories for the manufacture of metal desks, cabinets, etc.

On account of business conditions its yearly profits fluctuate considerably. As a result of these conditions the company in the good years has charged off large amounts to depreciation reserves, and in the poor years very little or none at all.

On the examination of the company's returns in 1921 by the Internal Revenue Bureau the invested capital as shown on the returns for 1917, 1918, 1919 and 1920 was decreased on account of these variations in depreciation charges, the department holding that a constant rate should have been charged throughout the entire period. The adjustments made increased and decreased the income tax for the prior years as follows:

Is the corporation entitled to a refund or credit on account of its overpayment of tax, even though the time limitation has expired?

ANSWER:
Yes.

REFERENCE:

Sec. 252:

Provided further, That if upon examination of any return of income made pursuant to the Revenue Act of 1917, the Revenue Act of 1918, or this Act, the invested capital of a taxpayer is decreased by the Commissioner, and such decrease is due to the fact that the taxpayer failed to take adequate deductions in previous years, with the result that an amount of income tax in excess of that properly due was paid in any previous year or years, then, notwithstanding any other provision of law and regardless of the expiration of such five-year period, the amount of such excess shall, without the filing of any claim therefor, be credited or refunded as provided in this section. . . ."

PROBLEM 267

Illustrating Case in Which Taxpayer Should File Claim For Refund of Overpayment of Tax

FACTS:

The Cloverdale Condensed Milk Company, which was organized October 1, 1920, filed an income and profits tax return for the fiscal year ending September 30, 1921, and reported a total tax of $13,677.84, which was paid in full on December 15, 1921. During the month of January, 1922, a firm of certified public accountants audited the books of the company and found that no provision had been made on the books for depreciation of

plant and equipment and that no deduction for depreciation had been claimed from taxable income on its return for the fiscal year 1921. Engineers estimated the average life of the plant and equipment to be twenty years, and the annual depreciation was arrived at on that basis. Proper adjustments were made on the books of the company to record such depreciation. The corrected amount of tax for the fiscal year 1921 as a result of the depreciation deduction was $9,377.84.

QUESTION:

What action should the company take in order to obtain a refund of the excess payment of $4,300?

ANSWER:

The company should file a claim for refund on Form 46, supported by full details with respect to the depreciation deduction which brought about the reduction in the tax.

REFERENCE:

66

T. D. 3260, dated December 8, 1921, reads in part as follows: (1) Reduction of internal revenue assessments and adjustments of overpayments of revenues will hereafter be accomplished in one of three ways: (a) On the basis of an application submitted by a taxpayer on Form 46, 47, or 47A, together with appropriate supporting evidence to be filed in the office of the collector of internal revenue of the district in which the tax is assessed. . . ."

PROBLEM 268

Illustrating Penalties for Failure to Pay or Collect Tax Required, or to Make a Return or to Supply Information

FACTS:

Required

The Franko-Russian bank, organized under the laws of the the State of New York, did not report the amount of taxes withheld on account of interest payments made to foreign customers for the year 1920. Upon inquiry by the Treasury Department, it was discovered that this report had unintentionally not been filed.

QUESTION:

Is the bank subject to a penalty?

ANSWER:

Yes, the bank is liable to a penalty of not more than $1,000 for not reporting the information at the proper time.

REFERENCE:

Sec. 253: "That any individual, corporation, or partnership, required under this title to pay or collect any tax, to make a return or to supply information, who fails to pay or collect such tax, to make such return, or to supply such information at the time or times acquired under this title, shall be liable to a penalty of not more than $1,000. Any individual, corporation, or partnership, or any officer or employee of any corporation or member or employee of a partnership, who willfully refuses to pay or collect such tax, to make such return, or to supply such information at the time or times required under this title, or who willfully attempts in any manner to defeat or evade the tax imposed by this title, shall be guilty of a misdemeanor and shall be fined not more than $10,000 or imprisoned for not more than one year, or both, together with the costs of prosecution."

PROBLEM 269

Illustrating Requirement to Make Returns of Payments of Dividends

FACTS:

The Montauk Shipbuilding Company, a corporation organized under the laws of the State of Delaware, had a very prosperous year in 1919, and paid out large dividends. Subsequently the officers of the company were requested by the Commissioner to submit a list of the stockholders and the various amounts they had received as dividends.

QUESTION:

What position can the officers take?

ANSWER:

They must comply with the request of the Commissioner of

Internal Revenue, as he is acting within the scope of the law.

REFERENCE:

Sec. 254: "That every corporation subject to the tax imposed by this title and every personal service corporation shall, when required by the Commissioner, render a correct return, duly verified under oath, of its payments of dividends, stating the name and address of each stockholder, the number of shares owned by him, and the amount of dividends paid to him."

FACTS:

PROBLEM 270

Illustrating Returns of Brokers

Hardin, Cornell & Weeks is a New York Stock Exchange house. It has been called upon by the Commissioner to file a return showing therein all the transactions of a certain one of its customers for the year 1921.

QUESTION:

Must Hardin, Cornell & Weeks disclose this information?

ANSWER:

Yes, in order that the Commissioner may determine that all profits or gains, resulting from the sale or other disposition of securities, have been included on the return of a taxpayer, the Commissioner has the power under the law to request such information as that stated above from any individual, corporation or partnership doing business as a broker. Such individual, corporation or partnership is required to make a return under oath, giving the information requested.

REFERENCES:

Sec. 255: "That every individual, corporation, or partnership doing business as a broker shall, when required by the Commissioner, render a correct return duly verified under oath, under such rules and regulations as the Commissioner, with the approval of the Secretary, may prescribe, showing the names of customers for whom such individual, corporation, or partnership has transacted any business, with such details as to the profits, losses, or other information which the Commissioner may require, as to each of such customers, as will