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In Dravo Corp. v. United States, 348 F.2d at 544-546, a
taxpayer’s liability for additional State taxes was asserted
during an audit occurring in a later year. The taxpayer paid the
additional State taxes without protest or appeal. The Court of
Claims rejected the argument that the mere filing of a tax return
acknowledging a liability in a stated amount automatically should
be regarded as giving rise to a contest with regard to additional
amounts asserted on audit by a taxing authority. The Court of
Claims stated that a contest “should be evidenced by * * *
objective acts; i.e., lodging a formal protest with the tax
authorities or instituting a suit in a court of law”. Id.
at 546.
In Lutz v. Commissioner, 396 F.2d 412, 414 (9th Cir. 1968),
revg. 45 T.C. 615 (1966), the taxpayer accrued State sales tax on
its Federal income tax returns even though other taxpayers were
contesting their liability therefor. The Court of Appeals for
the Ninth Circuit allowed the accrual, explaining that a third
party’s contest of a liability does not necessarily make the
liability of a similarly situated taxpayer (who did not contest
the liability) contingent.
In Woodmont Terrace, Inc. v. United States, 261 F. Supp.
789, 792-793 (M.D. Tenn. 1966), questions raised with a State
official within a few months after the end of a liquidating
corporation’s last taxable year over a State franchise tax audit
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