Blansett v. United States

• Decision Date: 12 December 1960
• Docket Number: No. 16475.,16475.
• Citation: 283 F.2d 474
• Parties: F. B. BLANSETT and Ethel Blansett, Appellants, v. UNITED STATES of America, Appellee.
• Court: U.S. Court of Appeals — Eighth Circuit

283 F.2d 474 (1960)

F. B. BLANSETT and Ethel Blansett, Appellants, v. UNITED STATES of America, Appellee.

No. 16475.

United States Court of Appeals Eighth Circuit.

November 3, 1960.

Rehearing Denied December 12, 1960.

COPYRIGHT MATERIAL OMITTED

William H. Becker and E. Massey Watson, Columbia, Mo., for appellants.

Harry Marselli, Attorney, Tax Division, Dept. of Justice, Washington, D. C., Charles K. Rice, Asst. Atty. Gen., Meyer Rothwacks and Michael I. Smith, Attorneys, Tax Div., Dept. of Justice, Washington, D. C., and Edward L. Scheufler, U. S. Atty., Kansas City, Mo., Harry Marselli, Washington, D. C., on the brief, for appellee.

Before SANBORN, WOODROUGH, and MATTHES, Circuit Judges.

MATTHES, Circuit Judge.

Appellants, plaintiffs below, commenced this action for refund of income taxes paid for the calendar year 1948 in the amount of $9,258.14, plus interest. The court denied relief and plaintiffs appealed.

The facts as stipulated by the parties were adopted by the trial court and are incorporated in a memorandum opinion. D.C., 181 F.Supp. 637. Reference to the opinion will disclose that while the facts are not unusually involved, they are quite detailed, and no useful purpose can possibly be served by another full restatement of them. The parties are familiar therewith, and others interested may ascertain the details by reference to the trial court's opinion.

In summary, the controversy stems from action taken by the Commissioner of Internal Revenue with reference to the 1948 and 1949 income tax returns filed by plaintiffs. Their 1948 return showed a tax due of $3,114.50; their amended return for 1949 showed a net operating loss of $31,071.41. In 1950 an internal revenue agent inspected and audited the 1948 return and proposed a deficiency in plaintiffs' income tax for 1948 of $9,097.44. This deficiency was the subject of a Treasury Department Form 870 duly executed by plaintiffs in 1950 wherein they consented to the assessment of the deficiency without regard to restrictions imposed by § 272(a), Internal Revenue Code of 1939, 26 U.S.C.A. § 272 (a). This deficiency of $9,097.44 plus interest was assessed by the Commissioner in June, 1950. However, as the result of a tentative allowance of a carry-back adjustment based on the claimed 1949 net operating loss, the amount previously assessed for the year 1948 was abated in the sum of $7,488.32. See at page 639 of 181 F.Supp.

In 1952 plaintiffs' 1948 return was reaudited and their 1949 return was audited, with the result that all of the net operating loss claimed for the year 1949 and the aforesaid tentative allowance of the carry-back adjustment based thereon were eliminated and disallowed. This disallowance was made for the stated reason, "lack of substantiation." Thereupon the internal revenue agent proposed a deficiency in plaintiffs' tax for 1948 in the amount of $7,488.32, being the amount previously abated in 1950. Plaintiffs again executed a waiver on Form 870, but shortly thereafter sought to revoke this instrument. On October 24, 1952, the Commissioner made an assessment of the deficiency for 1948, relying upon the waiver.¹

Conferences and considerable correspondence failed to convince the Commissioner that plaintiffs had effectively revoked the waiver, and in February, 1953, federal tax liens were filed in the office of Recorder of Deeds of certain counties in Missouri. Following this event plaintiffs instituted a suit in the United States District Court for the Eastern District of Missouri to enjoin collection of the deficiency assessment. A preliminary injunction was granted, and defendants in that action appealed to this Court. Thereafter plaintiffs paid the amount of the assessment with interest, without prejudice to their right to claim a refund, and the action for injunction was dismissed. This action followed.

The trial court ruled that plaintiffs had effectively revoked the waiver on October 18, 1952, so that no legal deficiency assessment could be made in reliance thereon after that date.² Having so determined, the court then demonstrated that the action of the Commissioner could be sustained under authority granted by §§ 3780(b) and (c), 26 U.S. C.A. §§ 3780(b, c), and 272(f),³ Internal Revenue Code of 1939, and that even though the challenged action was procedurally incorrect, the plaintiffs could not recover the amount paid without proving that said sum represents payment in excess of their true tax liability for the year 1948.

In summary, the principal points urged by plaintiffs are: (1) the challenged assessment is void because it was made under § 272(a) without giving plaintiffs the required 90 days' notice; (2) the challenged assessment cannot be sustained by reliance on §§ 3780(c) and 272 (f) of the Code because the Commissioner, proceeding under § 272(a), did not purport to act under these sections; (3) the challenged assessment cannot be sustained under §§ 3780(c) and 272(f) because the Commissioner did not give notice that the assessment had been made or would be made pursuant thereto. On the other hand, the Commissioner, in upholding the challenged assessment, asserts that a deficiency assessment may be sustained upon any legal ground supporting it, even though not relied upon at the time of the assessing; that if the assessment is right on any theory, the Commissioner must be sustained.

Aside from the question of the validity of the procedure in making the assessment, the Commissioner further contends that in a suit for refund the ultimate question is whether the taxpayer actually overpaid his taxes and that since plaintiffs failed to prove that they overpaid their taxes for 1948, they cannot recover. Plaintiffs insist that they have at all times contested the validity of the tax arising from the disallowance of the 1949 loss.

We first take up the question of the validity of the assessment. The controversy revolves around the aforementioned sections of the Code. Section 272(a) provides that if the Commissioner determines that there is a deficiency in respect of the tax of any taxpayer, he is authorized to send notice thereof by registered mail. Within 90 days after such notice is mailed the taxpayer may file a petition with the Tax Court for a redetermination of the deficiency. No assessment of a deficiency may be made until such notice has been mailed to the taxpayer nor until the elapse of the 90-day period. Subsection (d) of § 272 grants a taxpayer the right to waive the restrictions provided for in subsection (a).⁴ Section 272(f) provides, inter alia, that if the taxpayer is notified that on account of a mathematical error appearing upon the face of the return, an amount of tax in excess of that shown upon the return is due, and that an assessment has been or will be made on the basis of the correct amount, such notice shall not be considered as a notice of deficiency and the taxpayer shall have no right to file a petition with the Tax Court based on such notice. The provisions of § 3780 relate to and deal with tentative carry-back adjustments. Of pertinence here is § 3780(c) which authorizes the Commissioner to assess the amount of a tentative carry-back adjustment determined to be excessive, "as a deficiency as if it were due to a mathematical error appearing on the face of the return, as provided in Section 272(f)."

There is little room to doubt that in 1952 when the Commissioner obtained plaintiffs' waiver of the restrictions provided in § 272(a), he was pursuing the course prescribed for making an assessment for a deficiency contemplated by § 272(a). The trouble stems from the revocation by plaintiffs of this waiver, and the failure of the Commissioner to give the 90 days' notice prior to the time the assessment was made on October 24, 1952. If plaintiffs were correct in asserting that the Commissioner's challenged action is governed by § 272(a), and that the deficiency assessment must stand or fall on that section, we would then be required to determine whether technical irregularities in procedure under the circumstances here, were fatal to the validity of the assessment.⁵ In our view, such determination is unnecessary because of other overriding considerations.

The pivotal issue is whether, in light of what transpired, the Commissioner is bound by the theory which he pursued at the time of making the deficiency assessment, or whether his action permissibly may be upheld on another theory. Resolution of this issue brings into play principles of law which have been applied with considerable frequency in tax litigation. First, a deficiency assessment may be sustained upon any legal ground supporting it, even though the Commissioner did not rely thereon when the assessment was made. If the assessment is right on any theory it must be sustained. Helvering v. Gowran, 302 U.S. 238, 245, 58 S.Ct. 154, 82 L.Ed. 224; Hormel v. Helvering, 312 U.S. 552, 61 S.Ct. 719, 85 L.Ed. 1037; Bernstein v. C. I. R., 5 Cir., 267 F.2d 879, 881; and Acer Realty Co. v. Commissioner of Internal Revenue, 8 Cir., 132 F.2d 512, at pages 514, 515, where this Court applied the rule, stating:

"In an appeal to the Board the burden is upon the taxpayer `to show that it was entitled to the deduction which the Commissioner had disallowed, and that the additional tax was to that extent illegally assessed.\' Reinecke v. Spalding, 280 U.S. 227, 233, 50 S.Ct. 96, 98, 74 L.Ed. 385. The taxpayer must show that the assessment is wrong upon any proper theory. Helvering v. Gowran, 302 U.S. 238, 245, 58 S.Ct. 154, 82 L.Ed. 224. Upon appeal the Board `may investigate anew the issues between the government and the taxpayer, and upon the determination of the appeal it may affirm, set aside, or modify the findings and decision of the Commissioner.\' Blair v. Oesterlein Co., 275 U.S. 220, 227, 48 S.Ct. 87, 89, 72 L.Ed. 249. Neither the Board nor this court is bound by the reason assigned by the Commissioner for his decision. If the disallowance

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