Commissioner of Internal Revenue v. Bain Peanut Co.

134 F.2d 853, 30 A.F.T.R. (P-H) 1325, 1943 U.S. App. LEXIS 3703, 1 U.S. Tax Cas. (CCH) 9343

• Court: Court of Appeals for the Fifth Circuit
• Decided: March 15, 1943
• Docket: 10151
• Status: Published

Opinions

HOLMES, Circuit Judge.

The Processing Tax Board of Review awarded the sum of $38,847.25 to the Bain Peanut Company in an action brought under Title VII of the Revenue Act of 1936¹ relating to refunds of processing taxes collected under the taxing provisions of the Agricultural Adjustment Act. The questions raised by the petition for review turn upon the application of undisputed facts to various provisions of the refunding statutes.

Respondent, a corporation engaged in the business of processing peanuts in Texas, paid the sum of $96,113.75 as processing-taxes under the A. A. A. The tax was declared unconstitutional,² and Congress made provision for the refund of all amounts so paid to any claimant who could show that he bore the burden of the amount of the tax sought to be recovered, and had not shifted such burden, nor been relieved thereof nor reimbursed therefor, directly or indirectly, in any manner whatsoever.³ On June 22, 1937, respondent filed its claim for refund in the sum of $17,793.-25, later amending the claim by increasing the amount thereof to $19,780.20. The Commissioner disallowed the claim in full on the ground that respondent failed to establish that it bore the burden of the tax. On appeal therefrom, the Processing Tax Board of Review found that respondent had borne the burden of the tax to the extent of $38,847.25, allowed it to amend its claim to conform to the proof, and entered decision for a refund of $38,847.25.

Section 907 of the Act⁴ provides that, where a claim for refund is made of an amount actually paid, it shall be prima facie evidence that the burden of such amount was borne by the taxpayer to the extent (not to exceed the amount of the tax) that the average margin per unit of the commodity processed was lower during the tax period than was the average margin during the period before and after the tax. The margin was the figure reached by deducting, from the gross sales value of all articles processed from the commodity during each month, the cost of the commodity processed plus the processing tax paid with respect thereto, and by dividing the remainder by the total number of units of the commodity processed during the month. Section 907 (b) (5) provided that the cost of the commodity processed during each month should be (a) the actual cost of the commodity if the accounting procedure of the claimant was based thereon, or (b) the product computed by multiplying the quantity of the commodity processed by the current prices at the time of processing for commodities of like quality and grade in the markets where the claimant customarily made his purchases.

Respondent, in its amended claim and at the hearing before the Board, proceeded upon the theory that it was entitled to compute the cost of the commodity processed by the method described in Section 907(b) (5) (b), either because its accounting procedure was not based upon actual cost or because it had the privilege to elect whichever of the two methods it desired. Under its computations thus made, there being no disagreement as to the other factors entering into the calculation, the margin per unit of the commodity processed during the period before and after the tax exceeded the margin per unit during the tax period by $.0040418. Having reached this figure, the taxpayer invoked the statutory presumption that it had borne the burden of the tax to the extent of $38,847.25, the product of the margin decrease per unit multiplied by 9,611,375, the number of units processed during the tax period.

The contentions made by the Commissioner are these: (1) That the cost of the commodity processed, for the purpose of the margin computation, could have been determined on the basis of actual co‘st of the compiodity processed, despite the loss of identity of the various purchases by commingling of'the fungible commodity, by the adoption of the first-in-first-out theory of cost accounting; that whenever the actual cost method is available it is the exclusive method whereby the cost of the commodity processed may be computed; and that a computation of the taxpayer’s margin on the basis of the actual cost of the commodity, using the first-in-first-out theory, admittedly raises the presumption that the taxes were not borne by the taxpayer; (2) that, whether or not the taxpayers proof enabled it to invoice the presumption in its favor, the presumption was rebutted by undisputed evidence that the burden of the tax had been shifted; (3) that, in any event, the taxpayer was not entitled to refund of an amount in excess of $19,780.20, since the claim filed with the Commissioner was required to set forth the aggregate of the amount of the'tax that had been borne by the taxpayer, together with supporting data, and the amount of the claim so filed was only $19,780.20.

Turning to the first contention of the Commissioner, we think the finding of the Board that the actual cost method was not available to this taxpayer is supported by substantial evidence. Respondent purchased some of its peanuts.at its place of business, some at peanut farms; some were bought by salaried employees, others by commission men. The peanuts were stored in bags in various warehouses, were shipped about, and ultimately were consumed in the mills without regard to source of supply or period of storage, From the moment of storage, the peanuts lost their identity with respect to when purchased, from whom purchased, and the purchase price, but it clearly appears that the peanuts first bought were not the peanuts first processed. It was-respondent’s custom to store the peanuts in its warehouses from back to front, and to remove them for shipment to the mills from front to back.

When the final draft of the Act was under consideration in Congress, it was proposed that the first-in-first-out theory should be incorporated in the section as a theoretical basis of assuming actual costs, but the Act as passed adopted the language recommended by various governmental departments,. and omitted express recognition of this accounting principle.⁵ As enacted, the section provides method A for the computation of the margin in all cases, where the taxpayer’s mode of accounting enables actual cost to be calculated; but where the character of the commodity or the accounting practice of the taxpayer does not admit of computation of actual cost, method B becomes available and provides a formula by which an assumed actual cost may be computed. We think method A is exclusive if available, but that it may be- used only where the actual cost of the commodity processed may be computed without resort to theoretical assumptions; and that method B was intended to be used in all other instances, including this one.

On the basis of the taxpayer’s margin computations, it made out a prima facie case with the aid of the statutory presumption afforded by Section 907(a). This done, the burden of going forward with the evidence shifted to the Commissioner, and required of him proof either that the taxpayer actually shifted or otherwise escaped the burden of the amount claimed, or that the presumption relied upon by the taxpayer was not properly available to it. The Commissioner undertook this burden, and attempted to rebut the presumption by uncontradicted proof that the taxpayer adopted and followed a general practice of shifting the burden of' the tax by billing the tax separately to its vendees and by increasing sales prices in every possible circumstance.

Section 907(e) of the Act provides that the statutory presumption may be rebutted by proof of the actual extent to which the claimant did not bear the burden of the tax, including but not limited to proof that the taxpayer modified existing contracts of sale, changed the sales price of the article processed by substantially the amount of the tax, billed the tax as a separate item to any vendee, or indicated in any writing that the sales price included the amount of the tax. There was much proof of this nature before the Board; but it was the Board’s view that, although the evidence showed the taxpayer had escaped the burden of the tax paid to an appreciable extent, it failed to show that the burden of taxes in excess of $57,266.50, the amount paid but not sought to be refunded, had not been borne by the taxpayer; it accordingly held that the presumption had not been rebutted, and awarded the refund.

In actions to recover taxes illegally collected by the United States, the burden is upon the plaintiff throughout the trial to prove that the defendant has in its possession money that in equity and good conscience should be refunded to the plaintiff. Where the refund claimed is for an amount paid as processing taxes, the claimant is further required by statute to prove that he bore the burden of the tax and never shifted it in any manner. Proof of a lower profit during the tax period is made prima facie evidence of the ultimate fact in issue, but the only effect of this statutory rule is to create an inference that the burden of the tax was borne by the claimant.

The law governing burden of proof is a matter of substance.⁶ It is never the function of a rebuttable presumption to shift the burden of proof; its office is to supply an inference which may take the place of proof not otherwise produced.⁷ If the statutory presumption here invoked should be given the probative force accorded to it by the Board, it would have the effect of shifting the burden of proof; but it does not have this effect, because it is a mere rule of evidence and not of substantive law.⁸ It is a presumption that yields readily to evidence, direct or circumstantial, and has no effect in excess of a mere temporary inference of fact that casts upon the defendant the duty of producing sufficient evidence to rebut it. When that is done, the inference is at an end; it disappears entirely, and the burden of proof remains as it existed in the beginning.⁹

The presumption obviously was created in recognition of the difficulty attendant upon proving the extent of the tax burden either borne or shifted, since no reason existed, at the time the tax was levied, for believing that recording such information might be of future benefit. We think the plain purpose of Congress in creating the presumption was to obviate the necessity of strict proof in cases where neither the claimant nor the Commissioner could show directly whether the burden of the fax was or was nof borne.¹⁰ If no proof was available, and if the presumed margin of gross profit of the claimant was lower during the tax period than otherwise, the probability existed that he bore the burden of the tax; likewise, if the presumed margin was not lower during the tax period, it was reasonable to assume that the tax burden was shifted.

A claimant under the statute may make out his case, if his margin is shown to be lower during the tax period, by invoking the presumption, but in all cases where the prima facie proof is so established, the Commissioner may rebut the presumption by proof that the burden of the tax was shifted, which proof may include evidence that sales prices of the product were increased by the approximate amount of the tax imposed, and that the amount of the tax was billed separately. The uncontradicted evidence adduced by the Commissioner showed that this taxpayer actually did shift the burden of the tax; the presumption was rebutted; it was completely dissolved; and the burden reverted to the claimant to come forward with evidence or suffer judgment to be entered against it. The decision of the Board being favorable to it on the basis of the presumption alone, respondent had no reason to present proof of the actual extent to which it bore the burden of the tax. Opportunity should be afforded the taxpayer to make such proof upon remand.

Since we hold that the decision should be reversed, it is unnecessary to decide the remaining question, i. e., whether the claimant was entitled to a refund in excess of the amount set forth in the claim filed with tha Commissioner. Though further proceedings herein are anticipated, it is not likely that this question will arise again. The order appealed from is reversed, and the cause is remanded for further proceedings not inconsistent with this opinion.

1 7 U.S.C.A. § 648, 49 Stat. 1747, 1748.

2 United States v. Butler, 297 U.S. 1, 56 S.Ct. 312, 80 L.Ed. 477, 102 A.L.R. 914.

3 7 U.S.C.A. § 644.

4 7 U.S.C.A. § 649.

5 See Congressional Record, Vol. 80, part 8, pages 8662, 9077.

6 Central Vermont R. Co. v. White, 238 U.S. 507, 35 S.Ct. 865, 59 L.Ed. 1433, Ann.Cas.1916B, 252.

7 Howard v. United States, 5 Cir., 125 F.2d 986, 991.

8 Mobile, J. & K. C. R. Co. v. Turnipseed, 219 U.S. 35, 42, 31 S.Ct. 136, 55 L.Ed. 78, 32 L.R.A.,N.S., 226, Ann.Cas. 1912A, 463.

9 Mobile, J. & K. C. R. Co. v. Turnipseed, supra; New Orleans & N. E. R. Co. v. Harris, 247 U.S. 367, 38 S.Ct. 535, 62 L.Ed. 1167. Cf. Western & A. R. R. v. Henderson, 279 U.S. 639, 49 S.Ct. 445, 73 L.Ed. 884.

In providing that the presumption established by said Section 907(a) might be rebutted by various kinds of proof, other proof was not excluded. In order to avoid the rulo expressio unius est exelusio alterius, the Congress took pains to provide that “such proof may include, but shall not be limited to,” that expressly mentioned. This emphasizes the intention of the statute to create an ordinary presumption that might be rebutted by any competent evidence, either direct or circumstantial.

10 Cf. Anniston Mfg. Co. v. Davis, 301 U.S. 337, 57 S.Ct. 816, 81 L.Ed. 1143; Epstein v. Helvering, 4 Cir., 120 F.2d 427; I. L. Walker Tobacco Co. v. Commissioner, 6 Cir., 129 F.2d 464.