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(T. D. 3159—April 29, 1921) Income tax--Revenue act of 1918-Decision of court. 1. YEAR TO Which INCOME APPORTIONABLE-LUMP SUM AWARDED TO

RECEIVER IN ADDITION TO SALARY. Where a receiver of a railroad was, in 1918, awarded a large sum in addition to his regular salary, as additional compensation, which he was required to return on a cash receipts and disbursements basis as income for the year 1918, he was properly refused permission to report the income on an accrual basis, apportioning it over the five years of the receivership, for the reasons (1) that the taxpayer had no right to make his return on an accrual basis under section 212 of the revenue act of 1918, and (2) the award was compensation for personal services which was income of the calendar year of its determination and payment. 2. EFFECT OF Nunc Pro TUNC ORDER APPORTIONING OVER PERIOD OF YEARS

ADDITIONAL COMPENSATION PREVIOUSLY AWARDED RECEIVER. Where, upon demand by collector that he return award as income of 1918, taxpayer applied to court for a nunc pro tunc order showing that the additional compensation was earned and accrued in equal monthly installments throughout the receivership, which order was entered, such order was ineffective to alter the conclusion that the award was income for the year in which determined and paid.

The appended decision of the United States circuit court of appeals
for the seventh circuit, in the case of Jackson v. Smietanka, Collector,
is published for the information of internal revenue officers and others
concerned:
UNITED States CIRCUIT COURT OF APPEALS FOR THE SEVENTH CIRCUIT.

No. 2794. OCTOBER TERM, 1920, JANUARY SESSION, 1921.
William J. Jackson, plaintiff in error, v. Julius F. Smietanka, collector of

internal revenue, defendant in error.
(Error to the district court of the United States for the northern district

of Illinois, eastern division.]
Before BAKER, ALSCHULER and Evans, circuit judges.
BAKER, circuit judge, delivered the opinion of the court:

Jackson, plaintiff, filed a declaration to recover income taxes paid by him under protest. Defendant's demurrer was sustained; plaintiff declined to plead over; and this writ of error challenges the consequent judgment.

From May, 1913, to April, 1918, plaintiff served as a railroad receiver under appointment of the district court at Chicago. Plaintiff accepted the employment under an order providing that he "be paid on account of his services at the rate of $2,000 per month," and that on termination of his trust he “shall be at liberty to apply for such further compensation as to the court may then appear reasonable and just.”. For the years 1913 to 1917, inclusive, plaintiff made returns on the basis of "income received;" and, respecting this receivership, he had neither a business system nor books nor unpaid allowances for service from which he could have made returns of "income accrued." In 1918 plaintiff was allowed and paid "as final payment for all services rendered by him during the receivership herein the additional sum of $100,000.” On March 14, 1919, plaintiff filed his return for 1918, showing the receipt of said $100,000, and also filed amended returns for 1913 to 1917, inclusive, in which he claimed that pro rata parts of said $100,000 were “accrued income" of those years. On April 16, 1919, the collector rejected the amended returns and demanded normal taxes and surtaxes on the $100,000 so received in 1918. Plaintiff then prepared and on April 22, 1919, presented to the district court a petition for a nunc pro tunc order showing that the additional compensation was earned and had accrued in equal monthly installments throughout the receivership, and the order as tendered was entered. Thereupon plaintiff, on May 28,

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1919, paid $26,826 under protest, and subsequently brought this action to recover the difference, $19,973.

Unless some effect is to be given to the nunc pro tunc order, the collector was right. Section 213 of the revenue act of 1918 requires a return of "income derived from salaries or compensation for personal service” and provides that the amount thereof "shall be included in the gross income for the taxable year in which received by the taxpayer unless under methods of account permitted under subdivision (b) of section 212 any such amounts are to be properly accounted for as of a different period." That subdivision permits a return "upon the basis of the taxpayer's annual account period (fiscal year or calendar year, as the case may be) in accordance with the method of accounting regularly employed in keeping the books of such taxpayer; but if no such method of accounting has been so employed, or if the method employed does not clearly reflect the income, the computation shall be made upon such basis and in such manner as in the opinion of the commissioner does clearly reflect the income.” Not only do the facts of this case demonstrate that there is no permission in that subdivision to save plaintiff from the direct mandate of section 213, but article 32 of regulations No. 45 (authorized by section 1309 of the act) explicitly requires that “where no determination of compensation for personal services is had until the completion of the services, the amount received is income for the calendar year of its determination." Plaintiff from time to time during the receivership had applied to the court for additional compensation, and the court had always refused. Manifestly such refusals were in accordance with the original order of appointment, which plainly denied any intermediate right to additional compensation and left the question of what additional compensation, if any, would be fair to be determined when the trust ended and to be dependent upon the outcome of the administration. And whether the regulation means that the compensation is income of the year in which the determination of the amount is made, or is income of the year in which payment is made, is immaterial in the present case, for both determination of amount and payment thereof occurred in 1918.

A year after plaintiff had finally stepped out of the district court and a month after his liability to make a true return of his income for 1918 had become fixed, plaintiff reappeared in court and obtained the aforesaid nunc pro tunc order. Respecting the general question of a court's authority to make nunc pro tunc orders or judgments, plaintiff cites certain authorities, which we supplement by calling attention to others. In regard to the present order it suffices to say: There was no misprision of a clerical officer; no new facts; no newly discovered evidence concerning former issues of fact; no failure in the court to enter the original order exactly as the court intended to enter it; even if the petition for the nunc pro tunc order had tendered an issue which interested the original parties (the railroad company and its creditors), no steps were taken by the aforetime receiver to have them join issue; the petition was heard ex parte; and as to the government all the matters in the district court were res inter alios. The judgment is affirmed.

(T. D. 3160—April 28, 1921) Capital-stock tax-Act of September 8, 1916, Title IV-Decision of court. 1. VALIDITY OF Tax.

The capital-stock tax is an excise tax imposed upon a corporation with respect to the carrying on or doing business by the corporation, which is a proper subject for taxation by the government, and within its constitutional powers of taxation. 2. PAYMENT IN ADVANCE.

The capital-stock tax imposed by the act of September 8, 1916, is not illegal because assessed and collected in advance under regulations of the treasury department; the act, by sections 407 and 409, contemplating that

a corporation must pay a tax on its capital stock for the preceding year in order to do business for the coming year. 3. ACTION TO RECOVER Tax Pail— MAINTENANCE.

An action to recover a capital-stock tax paid in advance, on the ground that advance payment was unauthorized, can not be maintained where the tax became due and payable under the taxpayer's theory before suit was brought.

The appended decision of the court of claims, under date of February 14, 1921, in the case of the Washington Water Power Co., a corporation, 2. United States, is published for the information of internal-revenue officers and others concerned:

COURT OF CLAIMS OF THE UNITED STATES. No. 34092. The Washington Water Power Co., a corporation, v. United States.

[Decided Feb. 14, 1921] This case having been heard by the court of claims, the court, upon the evidence makes the following

FINDINGS OF Fact. I. The plaintiff, The Washington Water Power Co., is and was during the period hereinafter stated, a corporation organized for profit and engaged in business in the state of Washington.

II. On or about January 31, 1917, the plaintiff duly filed a return on form 707 prescribed by the treasury department for the return of the tax on corporations under section 407, title IV, act of September 8, 1916 (30 Stat., 756). In his return plaintiff stated the value and amount of its capital stock, surplus, and undivided profits for the year ending June 30, 1916, and computed the amount of tax due thereon for the six months ending June 30, 1917, at the rate of 25 cents for each $1,000 of such value to be the sum of $2,977,75. This return was accompanied by the following written statement :

The Washington Water Power Co. hereby formally protests against the filing of this return, and only does so under compulsion exerted by the collector of internal revenue. In support of its protest the company states that no return is due from it to the United States at this time under the act commonly known as the capital-stock tax law, being embraced in title IV of the act approved September 8, 1916, and that the demand of the collector of internal revenue for the filing of such return is illegal and unauthorized.

III. On or about March 9, 1917, the plaintiff paid to the United States collector of internal revenue for the district of Washington, in said state, the sum of $2,977.75, as a tax under said statute for the six months' period ending June 30, 1917. This tax was paid voluntarily and without protest.

IV. On or about July 25, 1917, plaintiff filed another return similar in form to that described in finding II, computing thereon the amount of tax due for the year ending June 30, 1918, to be the sum of $5,458.50. This return was also accompanied by a written statement identical with that set forth in finding II.

V. On or about September 24, 1917, the plaintiff paid the United States collector for said district in the sum of $5,458.50 as a tax under said statute for the year ending June 30, 1918, which was computed at the rate of 50 cents for each $1,000 of plaintiff's capital stock, surplus, and undivided profits less authorized deduction.

The payment of this tax was accompanied by the following written protest:

The Washington Water Power Company hereby protests against the payment of taxes in the amount of $5,458.50, or in any other amount, which are alleged to be due by the collector of internal revenue under the terms of the act commonly known as the capital-stock tax law, being embraced in

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title IV of the act of congress approved September 8, 1916. That this payment is made by this company involuntarily, under duress and compulsion, and in order to avoid penalties and the institution of distraint proceedings, which it is advised by the collector of internal revenue will be exacted and instituted unless payment is now made. Further, in support of its protest the Washington Water Power Company states that no tax is now lawfully due by said company to the United States under the terms of the capital-stock tax law, as aforesaid. Said company hereby notifies the collector of internal revenue of its intention to recover said taxes illegally collected by appropriate proceedings in the courts.

VI. On or about October 31, 1917, the plaintiff filed in the treasury department an application demanding a refund to it of the sum of $2,977.75, and also the sum of $5,458.50, being the amount of the taxes which it had paid as set forth in findings III and V. The said claim for refund was rejected by the commissioner of internal revenue on or about June 14, 1918. VII. The petition to recover in this case was filed on February 26, 1919.

CONCLUSION OF LAW. Upon the foregoing findings of fact the court decides, as a conclusion of law, that the plaintiff is not entitled to recover, and its petition is therefore dismissed.

Judgment is rendered against the plaintiff for the cost of printing the record in this cause, the amount thereof to be entered by the chief clerk and collected by him according to law.

GRAHAM, judge, delivered the opinion of the court:

In this suit the plaintiff seeks to have refunded taxes collected from it under section 407, title IV, act of September 8, 1916, which provides as follows: Every corporation

shall pay annually a special excise tax with respect to carrying on or doing business by such corporation

The act, by its terms, provides for “a special excise tax" on corporations which had been doing business during the previous year of $0.50 per $1,000 on the value of the capital stock, this value to include surplus and undivided profits, the tax to be computed on the basis of the fair average value of the capital stock for the preceding year.

It is further provided in the said act as follows:

Sec. 409. That all administrative or special provisions of law, including the law relating to the assessment of taxes, so far as applicable, are hereby extended to and made a part of this title, and every person, firm, company, corporation, or association liable to any tax imposed by this title shall keep such records and render, under oath, such statements and returns as shall comply with such regulations as the commissioner of internal revenue, with the approval of the secretary of the treasury, may from time to time prescribe.

The amount of such annual tax shall in all cases be computed on the basis of the fair average value of the capital stock for the preceding year:

* and, provided, further, that this tax shall not be imposed upon any corporation

not engaged in business during the preceding taxable year.

Any person who carries on any business or occupation for which special taxes are imposed by this title, without having paid the special tax thereon provided, shall, besides being liable to the payment of such special tax, be deemed guilty of a misdemeaner and goes on to provide a penalty.

Thus it appears that all administrative or special provisions, including the law relating to the assessment of taxes, are made applicable to its enforcement. The act of October 1, 1890, 26 Stat., 624, which deals with the collection of special taxes, provides for the payment of these taxes in advance.

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On October 19, 1916, the commissioner of internal revenue, with the approval of the secretary of the treasury, as authorized by law, promulgated regulations which adopted, as a basis of payment, the provisions of the said act of October 1, 1890, requiring payment in advance. These regulations contained the following:

1. Time of filing returns.—The capital-stock tax, which becomes effective January 1, 1917, will be payable in January, 1917, on returns to be made during that month for the six months ending June 30, 1917. In July, 1917, and annually thereafter, returns must again be made and the tax paid for the ensuing fiscal year.

On January 30, 1917, the plaintiff made a return for the six months ending June 30, 1917, showing that it was liable for the payment of $2,977.75, and attached thereto a written protest against making the return. The plaintiff paid the sum above shown by its return to the collector of internal revenue, the tax being upon the basis of this return, without protest. On the 25th of July, 1917, the plaintiff made another return in the sum of $5,458.50, to which was attached a protest, and on the 13th day of September, 1917, paid this sum to the collector of internal revenue, attaching a protest against payment.

On October 28, 1917, the plaintiff filed with the treasury department an application for the refund of the aforesaid sums of money, which application was, on June 14, 1918, rejected and denied by the collector of internal revenue. The moneys have never been refunded. This suit was filed February 26, 1919, for the recovery of these two sums so paid.

From the above quotations from the act it will be seen that the tax is spoken of in the act as “a special excise tax with respect to carrying on or doing business," so that there can be no question that congress intended it to be what it called it, namely, “a special excise tax." The capital stock of the plaintiff corporation was a proper subject for taxation by the government, and within its constitutional powers of taxation, and the tax was due after the passage of the act and the promulgation of the said regulations by the treasury department. The presumption will be in favor of the legality of the act and that congress performed its duties, with the burden upon the plaintiff to show that the taxes it seeks to recover were not due-Arthur v. Unkart (96 U. S., 118); Union Trust Co. of Indianapolis v. United States (55 Ct. Cls.), and this the petitioner has failed to do.

The contention is that the tax was illegal because it was assessed and collected in advance under the regulations of the treasury department. The matter might be disposed of without further comment on the familiar principle that a suit can not be maintained to recover taxes once paid, and which were, in fact, due, because the manner of collecting the tax was not authorized.-Schafer v. Craft (144 Fed., 407); Anderson v. Farmers' Loan & Trust Co. (241 Fed., 322-329).

However, without regard to the question of advance payment, if these taxes were due, when collected, and had not been paid in advance, they would have been due and payable, the first installment on July 1, 1917, and the last installment on July 1, 1918; so that, at the time this suit was brought, on February 26, 1919, these taxes would have been due and payable over seven months, and consequently, the money for their payment was properly in the hands of the treasury department. If these taxes being due had not been paid, they would still be due and payable. Thus, this seems to be an effort to compel the treasury to take the money out of one hand and pass it into the other, without any benefit accruing to the petitioner.

It may be well to point out that, as appears from the foregoing quotations from it, the act itself contemplated the payment of this tax as a tax upon the right to the “carrying on or doing business," computed on the basis of the "fair average value of the capital stock for the preceding

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