Petition for Review of Decision of the United States Board of Tax Appeals.
Before EVANS and SPARKS, Circuit Judges, and LINDLEY, District Judge.
The Commissioner appeals from the Board's award of a deficiency of $4,057.73 instead of $9,127.37 for the year 1928. Controversy aries over the Commissioner's right to amend his claim to conform to the findings of the Board.
The Facts. In 1926, taxpayer received a note for $25,000 payable in a year, and in 1928, a piece of realty valued at $70,000. The maker of the note and the grantor in the deed was a neighbor to whom taxpayer had frequently given advice. The Board determined, upon evidence which supported such a finding, that the property thus received was compensation for services rendered and not gifts.
The Commissioner based his deficiency award on the theory that income to the extent of $25,000 was received in 1926 as evidenced by the note, and $45,000 in 1928 -- the difference between the value of the realty and the face of the note, which had not been paid. The conveyance of the land worth $70,000 was received as payment of the note, as well as for additional services. The Board held that inasmuch as taxpayer was on the cash receipts and disbursement basis the note did not represent income for the year in which it was received (to-wit, 1926), but was income for the year in which paid -- 1928. The Board sustained the Commissioner as to the inclusion of $45,000 in the 1928 income an upheld his determination of a $4,057.73 deficiency for that year.
As the note was paid in 1928, the Board held it also was income in 1928, but refused to include it in the deficiency award because the Commissioner's claim was not so drawn as to permit of its inclusion in the year 1928.
The applicable statute reads:
Section 272(e), Revenue Act, 1928. "Increase of deficiency after notice mailed. The Board shall have jurisdiction to redetermine the correct amount of the deficiency even if the amount so redetermined is greater than the amount of the deficiency, notice of which has been mailed to the taxpayer, and to determine whether any penalty, additional amount, or addition to the tax should be assessed -- if claim therefor is asserted by the Commissioner at or before the hearing or a rehearing." 26 U.S.C.A. § 272(e) and note.
The pertinent articles of the Rules of Practice are:
"Rule 17. The petitioner may, as of course, amend his petition at any time before answer is filed. After answer is filed, a petition may be amended only by consent of the Commissioner or on leave of the Board.
"Upon motion made, the Board may, in its discretion, at any time before the conclusion of the hearing, permit a party to a proceeding to amend the pleadings to conform to the proof. All motions to amend, made prior to the hearing, must be accompanied by the proposed amendments or amended pleading. When motions to amend are granted at the hearing, the amendment or amended pleading shall be filed at the hearing or with the Board within such time as may be fixed.
"Rule 50. When the Board determines the issues in any proceeding and withlolds decisions of the deficiency or overpayment for later computation, the parties shall, if they are in agreement * * *. If the parties are not in agreement as to the amount to be entered in the decision, either of them may file with the Board a computation of the deficiency or overpayment believed by him to be in accordance with the report of the Board. The clerk will serve a copy thereof upon the opposite party and will thereupon place the matter upon the day calendar for hearing in due course and give the usual notice. If the opposite party fails to file objection, accompanied by an alternative computation * * *. If the parties submit different computations and amounts, they will be afforded an opportunity to be heard thereon on the date fixed, and the Board will determine the correct deficiency or overpayment and enter its decision.
"Any hearing under this rule will be confined to the consideration of the correct computation of the deficiency or over payment resultng from the report already made, and no argument will be heard upon or consideration given to the issues or matters already disposed of by such report or of any new issues. This rule is ...