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Reporter's Statement of the Case them as continuing contracts. The parties by their actions agreed that the contracts were continuing, and had the right so to do. The Government electing to treat them as continuing contracts is bound by them. The plaintiff with the consent and approval of the Government having expended the sum of $131,454.86 in the construction and production of the articles named in the several contracts is entitled to be paid the sum so expended. Of this sum the Government has paid to the plaintiff the sum of $78,000, leaving a balance due to the plaintiff amounting to the sum of $53,454.86. A judgment will be entered for the plaintiff for the sum of $53,454.86. It is so ordered.

Moss, Judge; BOOTH, Judge; and CAMPBELL, Chief Justice, concur.

GRAHAM, Judge, took no part in the decision of this case.

CALIFORNIA WINE ASSOCIATION OF NEW YORK,

INC., v. THE UNITED STATES

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(No. E-115. Decided February 20, 1928]

On the Proofs

Internal-revenue laws; compromise; incorrect citations of statutes.--

A compromise under sec. 3229, Revised Statutes, of a criminal case arising under the internal-revenue laws, under which plaintiff has made payment of the sum agreed upon, will not be set aside because the parties, in their negotiations, inadvertently made incorrect citations of statutes and regulations thereunder, actual violations of law being admitted, subject to the same penalties.

The Reporter's statement of the case:

Mr. Stanleigh P. Friedman for the plaintiff. Thomas & Friedman were on the briefs.

Mr. Joseph H. Sheppard, with whom was Mr. Assistant Attorney General Herman J. Galloway, for the defendant.

The court made special findings of fact, as follows:

I. Plaintiff, California Wine Association of New York, Inc., was at the times hereinafter mentioned a duly organReporter's Statement of the Case ized and existing corporation under and by virtue of the laws of the State of New York, and engaged in the business of manufacturing and selling wines and as a bonded winery, with its principal place of business in the Borough of Manhattan, city, county, and State of New York. Said corporation was at all times a subsidiary of the California Wine Association, a California corporation, with its principal office in the city of San Francisco, State of California, which corporation had been in existence for more than twenty-five years, conducting a wholesale wine business.

II. In the early part of 1920 the Commissioner of Internal Revenue made an investigation of the business of plaintiff corporation and as a result of this investigation plaintiff corporation was charged with forty-one violations of article 19, Regulations 28, supplement 2, issued pursuant to authority granted the Commissioner of Internal Revenue by section 402, act of September 8, 1916. Plaintiff corporation was charged by the Commissioner of Internal Revenue with making forty-one false entries in Form 702 during the months of October, November, and December, 1919. Form 702 was a daily record required by Regulations 28 to be kept by the proprietors of bonded wine rooms. Such record was required to show, among other things, the quantity of wine withdrawn from bond, the amount of wine tax paid upon withdrawal, and the name of the consignee for whom the wine was withdrawn.

III. No criminal charge of any kind was made against plaintiff corporation in any of the courts of the United States.

IV. On or about the 10th day of January, 1920, plaintiff corporation applied to the Collector of Internal Revenue for the First District of New York and to the Collector of Internal Revenue for the Second District of New York for a permit to deal in nonbeverage wines under the national prohibition act, dated October 28, 1919.

V. Plaintiff's application for a permit to deal in nonbeverage wines under the national prohibition act was denied on the ground that the company was charged with violation of article 19, Regulations 28, supplement 2, issued pursuant to authority granted the Commissioner of Internal Reporter's Statement of the Case Revenue by section 402, act of September 8, 1916, more fully set out in Finding II hereof.

Several conferences were had between the representatives of the Prohibition Unit and the Internal Revenue Department and representatives of plaintiff corporation in reference to the charges and the application for a permit to engage in business under the national prohibition act.

VI. As a result of conferences between the representatives of plaintiff corporation and representatives of the Government, on April 24, 1920, plaintiff corporation offered the sum of $5,000 in compromise of the alleged violations, and sent the following letter to the Commissioner of Internal Revenue :

APRIL 24, 1920. Hon. WILLIAM H. EDWARDS, Collector of Internal Revenue,

Customhouse, New York City. DEAR SIR: California Wine Association of New York, Inc., a New York corporation, which is a subsidiary of California Wine Association, a California corporation, has been charged with certain irregularities involving violation of the war-time prohibition act and also violation of the internal revenue laws of the United States. The violations charged consist of the sale of wine to persons other than those mentioned in the permits which were obtained for the sale of wine for sacramental purposes.

We realize that there can be no compromise of any case, either civil or criminal, arising under the war-time prohibition act. The complaint, however, if well founded, also involves a violation of the internal-revenue laws in that the corporation reported on Form 702 the sale of wine, for example, to the Christian Press Association, whereas it is charged the wine was delivered to parties other than the Christian Press Association. If such a violation has been committed, it may be compromised by the Commissioner of Internal Revenue under section 3229 of the Revised Statutes as a criminal case arising under the internal-revenue laws. We understand that there is no claim by the Government that the corporation has involved itself in any civil liability to the Government.

After discussion of the evidence with the Government agents in charge of the case the corporation removed at once all of the officers connected with the corporation at the time of the alleged violations who were charged with making a false return and committing the other illegal acts. The Reporter's Statement of the Case entire management of the corporation has now been placed in reliable hands.

The corporation, without necessarily admitting guilt in the premises, desires to effect an adjustment with the Commissioner of Internal Revenue for the alleged violations of the internal-revenue laws connected with the filing of its return on Form 702. To this end we make the following offer of compromise of the alleged criminal violation of the internal-revenue laws under section 3229 of the Revised Statutes. The corporation_now offers and incloses to the Commissioner of Internal Revenue a certified check in the sum of five thousand dollars in compromise of this alleged violation.

It should be borne in mind in this connection that there has been no evasion of taxes nor is there any claim that the Government has been defrauded in any way of any taxes or other sums which the corporation was legally bound to pay. The corporation regrets the necessity for the Government's investigation of this matter, of the causes of which it was in complete ignorance, and urges upon the commissioner the thought that any violation was the result of the unauthorized action of officers who, if the violations are true, have proved themselves entirely unworthy of the trust that was reposed in them. As stated above, all of the officers who are charged with responsibility for the alleged violations were immediately removed from office on receipt of the information from the Government agents and have now absolutely no connection with the corporation or its management. The corporation assures the commissioner that under its present management it will be governed strictly in accordance with law.

It is requested that this offer be forwarded to the commissioner through the proper channels. Very truly yours,

CALIFORNIA WINE ASSOCIATION OF

NEW YORK, INC., (Signed) B. KAHNWEILER, President. Under date of May 25, 1920, the Commissioner of Internal Revenue rejected the offer of $5,000, and John F. Kramer, Prohibition Commissioner, wrote plaintiff the following letter:

WASHINGTON, May 25, 1920. CALIFORNIA WINE ASSOCIATION,

Washington & West 11th Streets, New York, N. Y. GENTLEMEN: The Commissioner of Internal Revenue has considered the offer of $5,000, submitted by you on April 29,

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Reporter's Statement of the Case 1920, through the collector of internal revenue, second district of New York, in compromise of liability for alleged violation of article 19, Regulations 28, supplement 2, and has decided to reject the same.

In view of all the facts in the case this office does not consider that the amount offered by you is sufficient. After careful consideration of this case it has been decided that no offer in an amount less than $100,000 should be given favorable consideration. In order that you may consider this matter, no further action will be taken in this case for 15 days.

Any additional offer in compromise should be submitted to the Collector of Internal Revenue, Customs House Building, New York City. Respectfully,

(Signed) John F. KRAMER,

Prohibition Commissioner. VII. Subsequent to the receipt of the letter dated May 25, 1920, and on the 8th day of June, 1920, a conference between representatives of plaintiff corporation and Government representatives was held in the office of the Solicitor of Internal Revenue in the city of Washington, which conference was attended by H. Bartow Farr, attorney for the plaintiff; Stanleigh P. Friedman, attorney for the plaintiff and secretary of plaintiff corporation; Percy A. Vize, an attorney in the office of the Solicitor of Internal Revenue; Lew M. Noble, assistant to the chief of the law division, prohibition unit; and Benjamin C. Hilliard, jr., an attorney in the Prohibition Unit. At said conference the proposal to enter into a compromise was discussed by the officials present. It was stated by the Government representatives that there had been fortyone violations of article 19, Regulations 28, supplement 2 issued pursuant to authority granted the Commissioner of Internal Revenue by section 402, act of September 8, 1916, and that the penalty for each violation was $5,000, which made a total maximum penalty of $205,000. Mr. Farr and Mr. Friedman, representatives of plaintiff corporation, contended that Regulations 28, supplement 2, article 19, provided only for a sworn monthly report, and that the violations charged would only result in a maximum penalty of $15,000, being three in number, October, November, and December, 1919.

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