Rose v. McEachern

• Decision Date: 09 November 1936
• Docket Number: No. 7911.,7911.
• Citation: 86 F.2d 231
• Parties: ROSE v. McEACHERN.
• Court: U.S. Court of Appeals — Fifth Circuit

86 F.2d 231 (1936)

ROSE v. McEACHERN.

No. 7911.

Circuit Court of Appeals, Fifth Circuit.

November 9, 1936.

Edward P. Hodges and Sewall Key, Sp. Assts. to Atty. Gen., Robert H. Jackson, Asst. Atty. Gen., and Lawrence S. Camp, U. S. Atty., and M. Neil Andrews Asst. U. S. Atty., both of Atlanta, Ga., for appellant.

W. A. Sutherland and Joseph B. Brennan, both of Atlanta, Ga., for appellee.

Before SIBLEY, HUTCHESON, and HOLMES, Circuit Judges.

HUTCHESON, Circuit Judge.

The suit was to recover as overpayments taxes paid in 1929, 1930, and 1931. They were paid by appellee as administrator of the estate of S. C. McEachern on account of collections of certain installment obligations held by the deceased at his death. Appellant, admitting that the amounts sued for had been in form erroneously paid, defended against paying them back on the ground that those amounts and more were due by plaintiff to the United States on account of those obligations, and that therefore, "under the circumstances of the case, he was not obligated by the ties of natural justice and equity to refund the money."

In support of this position, he pointed out, by answer and stipulation, that under section 44(d) of the Revenue Act of 1928 (26 U.S.C.A. § 44(d) and note), the transmission by death of the unpaid installments should have been returned for the period from January 1, 1928, to December 12, 1928, and a tax of $11,625, an amount greatly in excess of the amount sued for, paid on account thereof. He insists that having failed to make such return, and having instead made incorrect and misleading returns as upon sales for each of those years, plaintiff may not now, limitation having barred the collection of the larger sum due the United States, get back the smaller sums paid on his incorrect returns.

The District Judge thought that these matters did not constitute an estoppel or otherwise operate to defeat the suit. He excluded the stipulation regarding them as irrelevant. The cause then standing solely on the stipulation that the sums sued for had been erroneously collected as taxes, he directed a verdict for plaintiff.

Appellant is here complaining of the overruling of his motion for a direction, of the direction of verdict for plaintiff, and of the ruling of the court excluding the stipulation. These are the facts as stipulated.

On September 3, 1924, S. C. McEachern, the decedent, by a purchase contract sold 500 shares of the capital stock of the Industrial Life & Health Insurance Company for the sum of $300,000, $30,000 to be paid in cash, the balance in quarterly installments of $7,500 each, payable on March 1, 1925, and on the first day of each and every third month thereafter. The stock had cost him $10 a share, or $5,000. On December 12, 1928, with installments aggregating $150,000 still unpaid, he died intestate. On February 4, 1929, appellee was granted letters testamentary and qualified as administrator. For the years 1929, 1930, and 1931 he filed estate income tax returns, reporting in each year, as income, amounts equal to the profits on the installments collected in it, based on the original cost of the stock to decedent, and paid taxes accordingly. The returns, however, did not show these profits as derived from collections on installment obligations. Each showed a complete sale in that year of 50 shares. Plaintiff has made no return of the gain or profit received from the transmission of the installments. The only reference he ever made to these installments was in the federal estate tax return to list, among the assets of the estate, "unpaid balances of deferred payments on 250 shares of stock of the Industrial Life & Health Insurance Company under contract of S. C. McEachern to J. N. McEachern, as trustee, dated September 3, 1924, value $125,000." This value of $125,000 had been arrived at by discounting the face value of the $150,000 of future installment payments approximately 6.35 per cent. per annum from McEachern's death to the average due date of the installments.

Appellant insisted below, and insists here, that appellee having based his returns upon a misstatement of fact, and having paid his taxes upon that misstatement, is now, limitation having run, estopped to correct it by showing that he did not sell 50 shares in each of those years as he reported he had done, but merely in each year collected some of the deferred installment obligations. He cites in support cases holding that a taxpayer having asserted the existence of a state of facts and paid his taxes on that basis, though incorrect, one may not thereafter, when limitation has run against collection on the correct basis, unsay what he has said to recover back the sums he has paid. Shamrock Oil Co. v. Com'r (C.C.A.) 77 F.(2d) 553, 555; Hartwell Mills v. Rose (C.C.A.) 61 F.(2d) 441; Wheelock v. Com'r (C.C.A.) 77 F.(2d) 474; Swartz, Inc., v. Com'r (C.C.A.) 69 F.(2d) 633; Adler v. Com'r (C.C.A.) 77 F.(2d) 733; Bothwell v. Com'r (C.C.A.) 77 F.(2d) 35; Larkin v. United States (C.C.A.) 78 F. (2d) 951; Crane v. Com'r (C.C.A.) 68 F.(2d) 640; Askin & Marine Co. v. Com'r (C.C.A.) 66 F.(2d) 776; Stearns v. United States, 291 U.S. 54, 54 S.Ct. 325, 78 L. Ed. 647.

He argues, too, that when the nature of the action plaintiff has brought is considered, it must be plain that plaintiff cannot recover in it; for to do so he must show not merely that defendant has obtained money from plaintiff by one or another device which he was not entitled to employ, but that regardless of the method of its obtaining he withholds money from plaintiff which ex aequo et bono he may not justly withhold. J. W. Carter Music Co. v. Bass (D.C.) 20 F.(2d) 390; Champ Spring Co. v. United States (C.C.A.) 47 F.(2d) 1; Hartwell Mills v. Rose (C.C.A.) 61 F.(2d) 441; Lewis v. Reynolds, 284 U.S. 281, 52 S.Ct. 145, 76 L.Ed. 293; Bull v. United States, 295 U.S. 247, 55 S.Ct. 695, 79 L.Ed. 1421.

Appellee replies that every element of estoppel is lacking here; that appellee did not misstate any fact with reference to the particular taxes collected, which has or could have misled any one. He argues further that from the statement in the estate tax return showing the installment obligations as assets of the estate, the Commissioner was charged with knowledge, and did in fact know, that the administrator was under a mistake of law erroneously carrying forward the practice of the decedent in returning, as income, gains on the installments as received. Finally, he argues that section 44 (d) of the 1928 act, the statute appellant invokes, is without force as unconstitutional.

We take up the last point first. No court which has examined the statute has yet thought it unconstitutional.¹ We do not think it is. We regard as...