United States v. Hardy, 8402.
| Decision Date | 07 February 1962 |
| Docket Number | No. 8402.,8402. |
| Citation | 299 F.2d 600 |
| Parties | UNITED STATES of America, Appellee, v. William J. HARDY, Appellant. |
| Court | U.S. Court of Appeals — Fourth Circuit |
Douglas A. Kahn, Attorney, Department of Justice, Washington, D. C. (Louis F. Oberdorfer, Asst. Atty. Gen., John B. Jones, Jr., Acting Asst. Atty. Gen., Meyer Rothwacks and Robert N. Anderson, Attorneys, Department of Justice, Washington, D. C., and Claude V. Spratley, Jr., U. S. Atty., Norfolk, Va., on brief), for appellee.
Before SOBELOFF, Chief Judge, and SOPER and BOREMAN, Circuit Judges.
Defendant below, William J. Hardy of Fairfax County, Virginia, appeals from a final judgment of the United States District Court determining that he is liable for a portion of 1942 federal income tax in the amount of $18,957.90 plus interest thereon from March 15, 1943, until paid and from the disallowance of his counterclaim for refund of an alleged $26,484.62 overpayment of income taxes.
The evidentiary facts have been stipulated, but as to the interpretation of these facts the parties violently disagree. On March 15, 1943, Hardy filed his federal income tax return for 1942 revealing a tax liability for that year of $37,915.81, which amount was duly and regularly assessed on June 4, 1943. During 1943 Congress enacted the "Current Tax Payment Act of 1943", 57 Stat. 126 (1943), 26 U.S.C.A. § 1621 et seq., which changed the tax collection system from one in which income taxpayers made payments each year of the taxes owed for the previous year to a pay-as-you-go system in which collections of tax were made during the year when the liability therefor was incurred. In order to avoid a double tax burden for taxpayers in the year of transition, Congress included a relief provision, section six, the relevant portion of which is reproduced below.1 Insofar as this case is concerned and in the absence of taxpayer's fraud, section six would have forgiven payment of three-quarters of the 1942 tax and would have required the remaining quarter to be added to the 1943 tax liability. The change was effective as of September 1, 1943, and no further payments on 1942 tax liability were to be made after that date. Payments of the 1942 tax made prior to the change-over date were to be credited on the 1943 liability, including the unforgiven portion of 1942 taxes. However, section six of the Current Tax Payment Act, sometimes hereinafter referred to as the Act, provided that the forgiveness feature did not apply in event additional taxes for 1942 were due by reason of taxpayer's filing of a fraudulent tax return for that year.
Prior to September 1, 1943, Hardy had paid $18,957.91 or one-half of his reported 1942 tax liability. In accord with the Act, he made no further payments on his 1942 taxes until March 1944, when he filed his 1943 return which revealed a tax liability of $49,621.73 for income received during 1943; in addition Hardy added the unforgiven one-fourth of his 1942 taxes, thus giving him a total reported tax liability for 1942 and 1943 of $59,100.68. From this total amount he deducted as a credit $35,069.09 which he had paid during 1943 for that year's taxes and the $18,957.91 that had been paid on account of 1942 taxes, leaving a balance due of $5,073.68. This amount was duly paid.
In 1947 the Commissioner began an investigation of Hardy's returns for 1942 and subsequent years. Taxpayer was indicted on November 10, 1949, and in 1950 entered pleas of nolo contendere to charges that he filed fraudulent tax returns for the years 1944 through 1946. There was no indictment or conviction with respect to the filing of a fraudulent return for 1942. Nevertheless, Hardy has stipulated that for purposes of this case it may be accepted as true that he wilfully intended to evade a portion of his income tax for the year 1942 and that a 50% penalty on the 1942 deficiency was properly assessed in 1951 and paid on account of the fraud. After Hardy had paid a fine and served a prison sentence imposed for filing fraudulent 1944-1946 returns, the Commissioner made a jeopardy assessment against taxpayer for the years 1942 to 1947, inclusive, in the total amount of $205,610.44 which included tax, penalties and interest to November 21, 1951. Following the assessment on the latter date, a 90-day letter was sent on December 14, 1951, to taxpayer advising him that his income tax liability for 1942 through 1947 was as follows:
Interest to
Year Deficiency 50% Penalty 5% Penalty Nov. 21, 1951
1942 $ 4,574.62 $ 2,287.31 $ 2,383.31
1943 15,692.41 3,106.73 7,233.99
1944 16,271.80 8,135.90 6,524.77
1945 27,613.84 13,806.92 9,415.94
1946 39,883.59 19,941.80 1,206.74
1947 21,739.32 $987.36 4,804.09
___________ __________ ________ ___________
$125,775.58 $47,278.66 $987.36 $ 31,568.84
Total tax, penalties and interest $205,610.44
The entire $205,610.44 was paid in full. An error was made in the 90-day letter, however, in stating interest due on the 1946 deficiency and an additional $10,000, plus interest thereon, was subsequently assessed and paid. Included in the total liability assessed against Hardy was $9,478.96, designated in the notice of deficiency (90-day letter) as "Balance (Reassessed portion of 1942 tax)." The 90-day letter also included a 5% negligence penalty of $1,052.81 (including interest) because in 1947 Hardy had claimed a $33,900 loss as a business bad debt instead of a nonbusiness bad debt. On May 2, 1952, the Commissioner reassessed against taxpayer $18,957.90, the amount alleged to be the unpaid balance of 1942 taxes. This action to collect the amount so assessed was commenced on May 1, 1958, that being one day less than six years from the date of assessment.
In both the District Court and on appeal, taxpayer has advanced three general theories of defense with respect to the Government's claim, and the same theories are, with consistency, used offensively in asserting his counterclaim. First, it is contended that all the 1942 tax has long since been paid in quarterly payments as follows:
1. 25%, amounting to $9,478.96, paid on March 15, 1943.
2. 25%, amounting to $9,478.95, paid on June 15, 1943.
3. 25%, amounting to $9,478.95, included in his 1943 return as provided by the Current Tax Payment Act and paid.
4. 25%, amounting to $9,478.96, paid on December 31, 1952, as part of jeopardy assessment. (The 90-day letter of December 14, 1951, labeled part of the assessed amount as reassessed portion of 1942 tax.)
The Government concedes that the first two payments totaling $18,957.91 were paid on the 1942 tax liability. The Commissioner argues, however, that the remaining balance of $18,957.90 was not paid in the manner as claimed by taxpayer or otherwise. The Commissioner reasons: Taxpayer reported his federal income tax liability for 1943 alone as $49,621.73. In discharge of that liability, he paid $40,142.77, leaving a balance of $9,478.96. In 1944 the Commissioner, who then had no knowledge of taxpayer's fraud, thought that balance had been satisfied because taxpayer, in accord with the Current Tax Payment Act, credited $18,957.91 (the amount theretofore paid on his 1942 tax liability) against his reported total 1943 liability. The remaining credit from the 1942 tax offset the addition to the 1943 tax due of 25% of 1942 liability. The net effect of the entire transaction was to give Hardy a credit toward his 1943 tax liability (exclusive of any 1942 liability) equal to 25% of the reported 1942 liability ($9,478.96).
It is true, as taxpayer states, that the Commissioner, in his 90-day letter of December 14, 1951, labeled a portion of the 1943 tax due as "Balance (Reassessed portion of 1942 tax)" but it is clear from an analysis of the letter's explanation of adjustments of 1943 tax that the balance is erroneously labeled. That balance of $9,478.96 is actually the amount which, as of the date of the letter, remained unpaid on 1943 tax liability, as found by the District Court. It was paid along with other deficiencies assessed in the 1951 jeopardy assessment and, of course, there is no longer any dispute over Hardy's 1943 taxes.
Though it is understandable how one might be confused by the misdescription of "Balance" in the 90-day letter, it is clear that the reference is to unpaid tax for the year 1943, not to 1942 tax liability. The Government's position is correct, i. e., that the remaining one-half of the 1942 tax liability, $18,957.90, originally thought to be forgiven by the Current Tax Payment Act but subsequently found to be payable because of taxpayer's fraud in connection with his 1942 return, is still unpaid and owing. The Government's computation is correct, but the same result is achieved in perhaps a more simplified manner, as demonstrated below. It is acknowledged that the Current Tax Payment Act of 1943 does not apply to Hardy's 1942 tax; hence, all of his reported tax for the years 1942 and 1943 must be paid:
$37,915.81 Reported 1942 tax on 1942
income
49,621.73 Reported 1943 tax on 1943
income
__________
$87,537.54 Total tax due for 1942 and
1943 (less fraud deficiencies
and penalties not here in
question)
Payments toward the total combined tax liability for 1942 and 1943 were made as follows:
$18,957.91 One-half reported 1942 tax
paid in March and June 1943
35,069.09 Funds paid during 1943 in
discharge of 1943 tax liability
5,073.68 Balance of 1943 tax due and
paid when 1943 return was...To continue reading
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