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Bulletin HASKINS & SELLS 13 Persistence in Claim for a Tax Refund By H. W . ELLIS, New York Broad Street Office A N interesting development in a federal tax case recently has reached the point of a satisfactory settlement, which illustrates the importance of persistently refusing to accept an improper decision from the Commissioner of Internal Revenue, and of fully considering the possibility of there being more than one basis of accomplishing the desired result when certain features of the case have to be abandoned. The " M " Company and the " N " Company were not affiliated during the year 1919, but during the year 1920 they were affiliated and filed a consolidated return for that year. This return included approximately 375,000 net income of the " N " Company and the tax was paid upon the entire net income shown by this return. It was later discovered that the " N " Company had sustained a statutory net loss for the year 1919 of approximately 3105,000 which had not been taken as a deduction in the 1920 return. A claim for refund was therefore filed, and while the whole 3105,000 could not be claimed as a deduction in the consolidated return, due to the fact that the company had not been affiliated with the " M " Company in 1919 when the net loss was incurred, it was recognized that this loss could be allowed as a deduction to the extent of the " N " Company's income of 375,000 which was included in the 1920 consolidated return. But, while the Commissioner allowed the deduction, he did so only in part, because in auditing the net loss for 1919 a disallowance was made for what was said to be "capital expenditures" amounting to about 350,000 thus reducing the statutory net loss from 3105,000 to 355,000, which lacked 320,000 to eliminate the " N " Company's entire net income of 375,000. A second claim for refund was therefore made, protesting the disallowance of the "capital expenditures" for lack of sufficient explanation and identification, and also making claim for depreciation of 345,000 for each of the years 1919 and 1920, which was admitted to be quite proper, but which had not been previously claimed. Either of these items would have eliminated the remainder of the " N " Company's taxable income of 320,000 for 1920 but for the fact that the second claim for refund was filed after the statute of limitations had expired. For this reason the second claim was entirely rejected by the Commissioner. It was persistently claimed however that the "capital expenditures" could not properly be disallowed until they were more fully identified, and it was also urged that if the second claim must be rejected because of the statute of limitation, that the first claim be reconsidered and that these items be given effect in connection with that claim which had been filed within the statute of limitation. After much delay this appeal was also formally denied, upon the ground that no issues could be considered other than those mentioned in the claim. A further demand was then made, either for a satisfactory explanation of the "capital expenditures" or that they be allowed as a deduction. The matter was considered again, but another formal letter of rejection was eventually received. Still, we refused to accept this as final, and at a later conference the matter was presented in a different way, by claiming that even if depreciation had not been one of the points mentioned in the first claim for refund, the statutory net loss had been claimed, and that there was no reason why the computation of this net loss should not be correctly made by including deprecia-
Object Description
Title |
Persistence in claim for a tax refund |
Author |
Ellis, Herbert W. |
Subject |
Corporations -- Taxation -- Consolidated returns Tax refunds |
Office/Department |
Haskins & Sells. New York Office |
Citation |
Haskins & Sells Bulletin, Vol. 12, no. 02 (1929 February), p. 13-14 |
Date-Issued | 1929 |
Source | Originally published by: Haskins & Sells |
Type | Text |
Collection | Deloitte Digital Collection |
Digital Publisher | University of Mississippi Libraries. Accounting Collection |
Date-Digitally Created | 2009 |
Identifier | HS Bulletin 12-p13 |