Heiner v. Diamond Alkali Co.

Background

Diamond Alkali Company paid income and profits taxes for 1918 and 1919. The tax official reviewed the returns, questioned amortization and depreciation, and declined at first to use the law’s special assessment process. After audits, in July 1927 the official found the company’s net income and, saying abnormal conditions justified relief, granted a special assessment under sections 327 and 328 and sent a tax calculation. The company protested the net income and the rate used, paid the assessed amount under protest, and sued for a refund after administrative claims were denied.

Reasoning

The Court addressed whether a court can correct a taxpayer’s net income and then apply the tax agency’s special-assessment ratio to that new income. The Court said no. It explained that finding true net income is essential to the agency’s comparison with representative firms and that the decision to grant special assessment and to choose which firms and rate to use is a discretionary administrative task. Because that discretion belongs to the agency and the Board of Tax Appeals on review, courts may not substitute their own judgment by adopting the agency’s rate and applying it to a different income figure.

Real world impact

The decision protects the tax official’s authority over special corporate tax computations and limits courts from recomputing taxes by mixing their own income findings with the agency’s rate. Corporations seeking relief under the special assessment sections must rely on agency determinations and appeals within the tax system rather than ask courts to combine a judicial income finding with an administrative rate. The case was reversed and sent back for further proceedings consistent with the opinion.