Before MAJOR, FINNEGAN and HASTINGS, Circuit Judges.
Appellant (taxpayer) seeks reversal of a determination by the district court that its claim for a refund of excess profit taxes, which had been erroneously assessed and collected,*fn1 was not filed within the statutory period of limitations. The applicable provision of the Internal Revenue Code of 1939 required that a claim for refund be filed "within two years from the time the tax was paid."*fn2 Taxpayer's claim was filed January 6, 1954. On January 15, 1952, the sum of $13,410, representing interest on the tax erroneously assessed, was paid in cash, and as to this cash payment of interest, there is no question but that the claim was timely. However, payment of the principal amount of the tax ($36,640.72) was made through the application of credits for overassessments, as provided in 26 U.S.C.A. § 322(a) (1) (1939 I.R.C.), rather than in cash; and government and taxpayer disagree as to when such "payment" was effected.
A brief review of the Internal Revenue procedures followed in this case will aid in the understanding of the issue presented. A deficiency was assessed against the taxpayer on December 21, 1951 representing a tax liability for the fiscal year ending August 31, 1945; and, on December 28, 1951, the Collector in Milwaukee, Wisconsin, received from the Commissioner the Assessment List so indicating. This Assessment List directed that demand be made for the deficiency and also showed that overassessments had been made against taxpayers in the years 1945, 1947 and 1948. Accompanying the Assessment List was a "Statement of Income Tax Due" indicating the deficiency plus interest due from the taxpayer.
Pursuant to discretion granted him by Section 2627 of the Collectors Manual,*fn3 the Collector caused an Analyzation Sheet to be prepared in which the overassessments indicated on the Assessment List were applied to the deficiency in order of taxable years. Then there was typed on the face of the "Statement of Income Tax Due" the following: "Credit $36,640.72 [balance due] $13,410." Taxpayer was mailed its copy of this Statement on January 3, 1952, along with a mimeographed from which stated:
"The enclosed statement of tax due reflects a credit with respect to a proposed overassessment. Should you elect to deduct this proposed credit at this time and remit the balance, please be advised that in the event that the credit should be allowed in an amount other than indicated on the statement or applied in a manner other than indicated, interest will continue to accrue from the date of this notice on any balance due on this account until paid."
Taxpayer responded to this Statement by paying the balance due (the interest) as set out above in this opinion.
On January 5 or 7, 1952,*fn4 the Collector received from the Commissioner a Form 7920, designated as the "Schedule of Overassessments," which was signed by the Deputy Commissioner on January 2, 1952. This indicated the amounts allowed as overassessments by the Commissioner and contained the following printed instructions for the Collector:
"The amounts listed in column 3 as overassessments or reductions of tax liability are hereby approved and allowed in the respective amounts indicated.
"The Collector will check such items against the accounts of the taxpayers and determine whether the amounts by which the tax liabilities have been reduced should be abated, credited against tax found to be due, or refunded, and will thereupon make appropriate entries in his accounts, complete and certify this schedule, and return same, with the necessary copies to the Commissioner of Internal Revenue."
Following these directions the Collector's office made the entries on the Schedule of Overassessments indicating, in this case, the "Amount Credited to other Taxes or Interest Due," which credit included the amount of $36,640.72 involved in this controversy. The original and Collector's account copy of this Schedule thus completed were certified by the Collector on January 9, 1952 and thereupon returned to the Commissioner along with the Certificates of Overassessments which indicated the specific disposition of the various credits. Thereafter, the Commissioner forwarded to the taxpayer its copies of the Certificates of Overassessments.
It is the Government's position that the taxes were "paid" in this case on January 2, 1952, the date on which the Deputy Commissioner signed the Schedule of Overassessments thus allowing, in effect, a reduction of any outstanding tax liability of the taxpayer, and that the two-year period of limitation began to run on that date. Taxpayer contends that both Government and trial court have lost sight of a basic distinction between allowance of an overassessment or credit and the final application of an allowed credit in satisfaction of a tax liability. The application of the credits or payment of the tax took place, according to taxpayer, some time after January 7, 1952 when the Claims Clerk in the Collector's Office in Milwaukee, Wisconsin, made the various entries indicating the disposition of the overassessments, or on January 9, 1952, when the Collector certified the Schedule of Overassessments, the filing of the claim for refund on January 6, 1954 thus being timely.
The Supreme Court of the United States recognized no such distinction between allowance and application of credits in United States v. Swift & Co., 1930, 282 U.S. 468, 51 S. Ct. 202, 75 L. Ed. 464,*fn5 in which the Court stated that, as a general principle, payment is made by credit on the date that the credit is allowed by the Commissioner. It was determined in Swift that credit was allowed under the then existing Bureau procedures when the Commissioner in the exercise of his discretion approved the schedule of refunds and credits.*fn6 The Court, in so holding, rejected the Government's contention that the signing of the Schedule of Overassessments was the last effective act of the Commissioner in the exercise of his discretion to allow a refund or credit.
The Swift case, though decided under provisions of the Revenue Act of 1921, is still authority for the general proposition that a tax is considered paid by credit on the date of the allowance of such credit. A review of subsequent legislation indicates when such credit is allowed. The Revenue Act of 1926, c. 27, 44 Stat. 119, ...