L. J. Christopher Co. of Delaware v. Commissioner (55 F.2d 530, 1931)

YAN ORSDEL, Associate Justice.

This ease is before the eourt on petition for review of the decision of the United States Board of Tax Appeals. 13 B. T. A. 729.

In 1887, one L. J. Christopher entered the wholesale and retail ice cream, candy, and confectionery business at Los Angeles, Ca,l., with a capital of about $50,000. The ■business was successful and steadily increased in value. In 1912 he registered his name as a trade-mark. Prior to 1914 he had acquired certain real estate and had built thereon an extensive plant. The sales grew in volume, and by 1914 he was selling ice cream in many of the surrounding towns and cities, his annual sales being approximately 200,000 gallons. In 1914 he organized the L. J. Christopher Company, a California corporation, with a capital stock of $400,300, and, transferred to it all of the assets of his business, including the good will, in consideration of receipt of all its capital stock except a few qualifying shares.

On June 1, 1914, the California company set up on its books a statement of the assets and liabilities acquired from L. J. Christopher. It entered its capital stock of-$400,300 among the liabilities and then made a balancing entry “Good will — $17,028.82” among the assets. It continued in the business until 1921.

In February, 1921, the L. J. Christopher Company of Delaware (appellant) was organized under the laws of Delaware and immediately acquired for $125,000 cash and $125,000 par of stock the business of the California company, including all personal property, and good will, but excepting real estate and cash owned by the vendor.

Appellant filed a timely income tax return for the period from February 16 to December 31, 1921. In auditing the return, the Commissioner of Internal Revenue determined the net income for the period to be $124,073.53 and the invested capital to be $279,745.85. The invested capital was ■determined on the basis of the par value of the stock issued and retired during the year, prorated for the time effective. The commissioner thus arrived at a deficiency in the tax of $20,210.94, and so notified the .appellant by letter mailed April 24, 1926.

At the trial of the case the Commissioner of Internal Revenue offered in evidence a waiver in order to prove that his deficiency letter was timely. The waiver was signed on behalf of appellant corporation by S. C. Hookstratten, its secretary, and stamped upon it appeared the date of February 19, 1926. The waiver was not signed by the Commissioner of Internal Revenue, but the name of D. H. Blair, Commissioner, had been written thereon by some one else, who placed his initials “L. G.” thereunder. S. C. Hookstratten had no express authority as secretary to sign the waiver.

Petitioner objected to the introduction of the waiver in evidence for the reason that it was signed only by the secretary and not by the president of the corporation; that the secretary was not authorized to sign it; and that it was not signed by the Commissioner of Internal Revenue. The objection was overruled by the board and the waiver was admitted as Respondent’s Exhibit “D,” and an exception to the ruling noted.

In its decision the board held that there was no abnormality in income or invested capital; that it was not impossible to determine appellant's invested capital; that there was no evidence to the effect that appellant acquired for stock a mixed aggregate of tangible and intangible assets, the respective values of whieh could not be determined; and that appellant was not entitled to the benefit of section 328 of the Revenue Act of 1921 (42 Stat. 275). It also held that assessmont of the deficiency was not barred at the time the deficiency letter was mailed,

The case presents two questions for the consideration of this court: 1. Whether or not the deficiency here asserted is barred by the statute of limitations; 2. whether, in the absence of fraud or other irregularity, a Circuit Court of Appeals may review a decision of the Board of Tax Appeals sustaining a determination by the Commissioner of Internal Revenue that the appellant was not entitled to have its profits taxes determined espeeially under sections 327, 328 of the Revenue Act of 1921. In other words, was appellant entitled to have its profits tax computed under the provisions of sections 327 and 328 of the Revenue Act of 1921, and if so whether or not appellant has waived the right to have that question reviewed on appeal.

Considering first the question whether or not the deficiency here asserted is barred by the statute of limitations, it must he remembered that the waiver in this case was executed by the secretary of the corporation before the bar of the statute had run. It is therefore a ease in which tho consent of the parties is all that is necessary to bar the running of the statute, and inasmuch as the tax return was made by tho secretary of the corporation and the corporation, without objection, is here relying upon that return, we think it is not in position to question the authority of the secretary to consent to a waiver. In the case of Hammond v. Carthage Sulphite Pulp & Paper Co. (D. C.) 34 F.(2d) 155, 156, involving the authority of the secretary-treasurer of the corporation to execute a waiver before the expiration of the five-year limitation, as set forth in seetion 250 (d) of the Revenue Act of 1921 (42 Stat. 264, 265), the court said: “The secretary-treasurer, being the officer who originally signed the income tax returns and the officer whom the corporation held out to the government as the person entitled to represent it in sneh matters, by signing the ^Tad',{;r f°r 1918 before the claim for addit™1™1 tafes was barred ^ seetio11 25°. (d) ^ae -^eveniie Act of 1921, acted within ™ie aPParen^ scope of his authority, and the government *ad a right to rely and act uPon SIl