Reporter's Statement of the Case of liquidation of Dickie Manufacturing Co." The recommendation of the revenue agent with respect to the treatment of the foregoing intercompany loss was approved by the Commissioner in his determination and in all subsequent determinations hereinafter referred to. 6. January 22, 1925, plaintiff filed a further application for a determination of its profits tax for 1918 under the provisions of sections 327 and 328, claiming abnormalities in both income and invested capital under subdivision (d) of section 327, supra, and pointing out the intercompany loss of $62,010.11, referred to above and theretofore disallowed by the Commissioner, as one factor of abnormality to be considered. That application for special assessment was denied by the Commissioner May 4, 1925, and plaintiff advised that the claim for abatement would be rejected in full. Thereafter, upon plaintiff's request for reconsideration, a reaudit of the case was made on a statutory basis and an overassessment determined of $28,105.57, which was finally allowed by the Commissioner on a schedule of overassessments signed February 25, 1926. In that determination the Commissioner stated that the deduction heretofore referred to of $62,010.11 was not allowed "on the ground that said loss must be treated as an intercompany transaction." The overassessment was used to abate a portion of the additional assessment then outstanding, and the Commissioner refused to abate the balance of the additional assessment. February 18, 1926, plaintiff paid the balance of $38,862.48 and on the following day paid interest thereon of $4,462.71. 7. February 12, 1930, plaintiff duly filed a claim for refund of $51,096.34 for 1918 on the following grounds: (1) Bolcom Mills, Inc., sustained a loss of $62,010.11 upon the dissolution of the Dickie Manufacturing Company, representing an uncollectible amount due from Dickie Manufacturing Company which was deductible in the computation of the consolidated net income. (2) The profits tax should be computed under section 328 of the revenue act of 1918. April 16, 1930, the Commissioner advised plaintiff of a proposed rejection of its claim on the ground that the loss referred to represented an intercompany transaction and Reporter's Statement of the Case therefore could not be deducted in computing consolidated net income, and that the evidence presented failed to establish the existence of abnormalities as affecting income or invested capital. July 3, 1930, plaintiff filed a second claim for refund for 1918 which was entitled "In amendment of and supplemental to claim filed on or about Feb. 10, 1930," and in which the grounds asserted in the first claim were renewed, and in addition a basis was assigned that the tax was collected after the statute of limitations for collection had expired. 8. Subsequently, the Commissioner reconsidered the first claim referred to above, allowing special assessment and determining an overassessment of $25,548.96. The overassessment was listed on a schedule of overassessments which was signed by the Commissioner January 12, 1931, and such overassessment having been found to be an overpayment it was duly refunded to plaintiff with interest in the amount of $2,933.87. The claim, to the extent not allowed by this determination, was disallowed on the same date. The second claim for refund was rejected by the Commissioner on a schedule dated May 22, 1931. 9. In his final computation of plaintiff's tax liability wherein the overassessment of $25,548.96 was determined as set out in the preceding finding and plaintiff's profits tax computed under section 328 of the Revenue Act of 1918, the Commissioner made such determination as follows: Net income as previously determined.. Profits tax (section 328). Net income $153, 655. 07 55, 320. 52 $153, 655. 07 10. In the foregoing computation of the tax as finally determined the Commissioner first determined the income or losses of each of the affiliated corporations and then combined such income or losses to determine the consolidated net income. To the consolidated net income as thus determined the Commissioner added the loss of $62,010.11 on liquidation of Dickie Manufacturing Company, heretofore referred to, on the ground that such loss was an intercompany transaction and not allowable as a deduction in the computation of taxable consolidated net income. Throughout all computations by the Commissioner the loss of $62,010.11 has been allowed as a loss in determining the income of Bolcom Mills, Inc., but thereafter has been added back to consolidated net income by the Commissioner to determine the taxable consolidated net income of the affiliated group. The net result has been to disallow the loss. 11. For 1917, in computing consolidated net income for excess profits tax purposes of the same affiliated group that is included in the 1918 return, an operating loss of Dickie Manufacturing Company of $23,162.09 was allowed as a deduction by the Commissioner. For 1918, in computing consolidated net income for income and profits tax purposes, an operating loss of the Dickie Manufacturing Company of $3,801.18 was allowed as a deduction by the Commissioner. The court decided that the plaintiff was not entitled to recover. WHALEY, Judge, delivered the opinion of the court: The plaintiff is suing for a refund of taxes paid for the year 1918. Plaintiff, during that year, was affiliated for income and profits tax purposes with the Dickie Manufacturing Company and other corporations. The entire capital stock of the Dickie Manufacturing Company was owned by 109870-39—c.c.—vol. 87———13 Opinion of the Court the Bolcom Mills, Inc. Tentative and, subsequently, completed consolidated income and profits tax returns were filed by plaintiff for itself and affiliated corporations and information returns were filed by the subsidiary corporations showing that the entire tax was to be assessed against the plaintiff. The information return of the Dickie Manufacturing Company showed that the company had surrendered its charter and gone out of business. The schedules attached to the consolidated return showed an operating loss by the Dickie Manufacturing Company and also a deficit at the close of its operations and an operating loss was also shown for the Bolcom Mills, Inc. Operating losses were also shown for other members of the affiliated group but not for the parent corporation (plaintiff) and these losses were taken as deductions on the net income of the parent corporation in arriving at the consolidated taxable net income of the group. No deduction was taken for the loss in the liquidation of the Dickie Manufacturing Company by the Bolcom Mills, Inc. May 1922 the Commissioner proposed an additional tax upon the consolidated net income of the plaintiff and the affiliated corporations. In October 1922 the plaintiff protested the additional assessment on various grounds and made a formal application for a determination of its profits tax for 1918 under the provisions of sections 327 and 328 of the revenue act of 1918 (40 Stat. 1093). Subsequently the Commissioner increased the income and profits tax for the affiliated group and made a jeopardy assessment and advised plaintiff that its application for special assessment was denied. Thereafter claims in abatement were filed and waivers executed. Again in 1925 plaintiff made an application for a determination of its profits tax for 1918 under the special assessment sections claiming abnormalities in both income and invested capital under subdivision (d) of section 327. The Commissioner again denied this request for special assessment. A reaudit of the case upon the request of plaintiff was made on a statutory basis and an overassessment determined in the amount of $28,105.57, which was finally allowed by the Commissioner on a schedule of overassessment signed February 25, 1926. In arriving at this determination, the Commissioner refused to permit the loss sustained from the liquida Opinion of the Court tion of the Dickie Manufacturing Company and treated it as an intercompany transaction. The overassessment was used to abate a portion of the additional assessment then outstanding, but the Commissioner refused to abate the balance of the additional assessment, whereupon the plaintiff paid the balance with interest. On February 12, 1930, the plaintiff filed a claim for refund of $51,096.34 for the year 1918, setting out specifically two grounds: 1. Bolcom Mills, Inc., sustained a loss of $62,010.11 upon the dissolution of the Dickie Manufacturing Company which was deductible in the computation of the consolidated net income. 2. The profits tax should be computed under section 328 of the revenue act of 1918. The plaintiff was advised by the Commissioner of the proposed rejection of this claim on the ground that the loss referred to represented an intercompany transaction and was not therefore deductible in computing consolidated net income and that the case presented no abnormalities affecting income or invested capital. In July 1930 the plaintiff again renewed its request. The Commissioner reconsidered his decision and allowed special assessment and determined an overassessment of $25,548.96. This overassessment was duly scheduled on January 12, 1931, and refunded to and accepted by the plaintiff with interest in the amount of $2,933.87. In its brief the plaintiff states that this suit is brought for the purpose of recovery of income and profits taxes paid for the year 1918. But the real question presented is, when the profits tax has been determined under the special assessment provisions upon application of the corporation, can a court entertain an action for refund of income tax on the ground that the income was erroneously determined by the failure of the Commissioner to allow a certain allowable deduction? It is apparent that the contention necessarily involves the action of the Commissioner in granting special assessment. The plaintiff having requested special assessment repeatedly and the Commissioner having finally granted special assessment, and an overassessment having been determined and |