Bushmiaer v. United States

• Decision Date: 27 May 1955
• Docket Number: Civ. A. No. 1183.
• Citation: 131 F. Supp. 589
• Parties: W. S. BUSHMIAER and Russell L. Myers, Co-Executors of the Estate of J. W. Myers, Deceased, Plaintiffs, v. UNITED STATES of America, Defendant.
• Court: U.S. District Court — Western District of Arkansas

131 F. Supp. 589

W. S. BUSHMIAER and Russell L. Myers, Co-Executors of the Estate of J. W. Myers, Deceased, Plaintiffs, v. UNITED STATES of America, Defendant.

Civ. A. No. 1183.

United States District Court W. D. Arkansas, Fort Smith Division.

May 27, 1955.

Mehaffy, Smith & Williams, Little Rock, Ark., Hardin, Barton, Hardin & Garner, Fort Smith, Ark., for plaintiff.

H. Brian Holland, Asst. Atty. Gen., Andrew D. Sharpe, Lester L. Gibson, Sp. Assts. to Atty. Gen., Charles W. Atkinson, U. S. Atty., Robert E. Johnson, Asst. U. S. Atty., for defendant.

JOHN E. MILLER, District Judge.

For decision is the motion filed by the defendant on May 16, 1955, to dismiss the complaint of plaintiffs.

The complaint was filed March 15, 1955. Plaintiffs are the co-executors of the estate of J. W. Myers, deceased, and are citizens of the State of Arkansas and reside in the Fort Smith Division of the Western District. Jurisdiction is invoked on the ground that the action arises under the laws of the United States pertaining to the internal revenue.

Paragraphs 3, 4, 5 and 6 of the complaint are as follows:

"3.

"After having determined, as is recorded by a registered deficiency notice dated October 1, 1954, that the Estate of J. W. Myers, deceased, allegedly owed additional income taxes for the years 1942 and 1943, agents of the defendant made an assessment on or about November 23, 1954 of the additional tax asserted in the deficiency notice against the said Estate.

"4.

`On or about December 16, 1954, the Estate of J. W. Myers, deceased, by its checks numbered 861 and 862 made payments of $2,500.00 in partial satisfaction of the assessed tax liability for each of the years 1942 and 1943.

"5.

"On or about December 20, 1954, claims for refund, on Treasury Form 843, for the $2,500.00 of incomes taxes paid for each of the years 1942 and 1943 were duly filed with agents of the defendant by the Estate of J. W. Myers, deceased.

"6.

"A registered notice of disallowance of the claims for refund referred to in Paragraph 5 hereof was mailed to the Estate of J. W. Myers, deceased, on or about March 9, 1955 and no part of the additional taxes paid for 1942 and 1943 has been refunded to the Estate."

In Paragraph 8 of Count I it is alleged that the defendant illegally and erroneously determined and assessed the additional income tax liability asserted for 1942 against the estate of J. W. Myers, deceased, and illegally and erroneously collected $2,500 of taxes paid by the estate for that year.

Paragraph 10 of Count II of the complaint is identical with Paragraph 8 of Count I except it deals with the tax liability for the year 1943.

Plaintiffs pray that they recover a total of $5,000 being claims for refund for $2,500 of income taxes paid for each of the years 1942 and 1943. The defendant states the question presented in the following language:

"Should the plaintiffs' suit be dismissed for failure to show jurisdiction in this court on the ground that the complaint on its face indicates taxpayer has not paid the full tax due for either one of the years involved?"

It will be borne in mind that Paragraph 4 of the complaint discloses that the payments sought to be recovered were made "in partial satisfaction of the assessed tax liability for each of the years 1942 and 1943."

On their brief filed herein, the plaintiffs state:

"On October 1, 1954, * * * the government determined that a deficiency of income taxes existed for the years 1942 and 1943 totaling $91,415.65, with fraud penalties asserted of $45,696.83."

"Because the estate was clearly not in a position to pay the proposed tax liability, the personal representatives were threatened constantly with the probability of jeopardy assessment of the asserted tax and the immediate imposition of a tax lien against all the property and rights to property of the estate. Thus, there would be lost to the estate the usual advantage gained in petitioning the Tax Court of the United States for a hearing on the deficiency determination of the government. Such a hearing would ordinarily hold in abeyance the assessment of the tax and the filing of the liens until final decision of that Court. Secondly, the testing of the validity of the asserted liability in the Tax Court would not afford the estate the right to a jury trial and because the Tax Court had on October 1, 1954, already scheduled a trial calendar for Arkansas to begin December 13, 1954, it was obvious that another year and a half or two years would pass before a hearing on the correctness of this asserted tax liability could be had before that Court in the State of Arkansas. Thus, the prospect of trying to operate a fresh fruit and vegetable market business for such an extended period of time under a tax lien of the United States government, with all of the disabilities inherent in such a situation, was unthinkable for the personal representatives of the estate. The only alternative to simply closing shop and relinquishing everything to the government in partial satisfaction of the asserted tax liability was to pay as much as possible and file claim, then suit, for refund of the taxes paid."

A summary of the argument of the defendant in support of the motion to dismiss is as follows:

"The District Court does not have jurisdiction of this suit because the entire tax assessed for either of the years involved has not been paid. The statute conferring jurisdiction on district courts to adjudicate internal revenue actions contemplates that the entire tax as assessed by the Commissioner for the period in question must be paid before a suit for refund may be instituted. This is in accordance with the system of corrective justice that Congress has adopted for the collection of taxes and settlement of tax disputes. The basic policy in this system is that the taxes must be paid first and litigation in the courts must come later. If one would contest the validity of tax before payment, he must take his litigation to the Tax Court."

The argument of the plaintiffs in opposition to the motion to dismiss is summarized by their attorneys as follows:

"The language of Section 1346(a) (1) of Title 28, United States Code, plainly recites, and the cases confirm, that this court has jurisdiction of this suit if (a) the action is for the recovery of `any internal revenue tax' and (b) it is alleged that said tax was erroneously or illegally assessed or collected. To require, as defendant would have this court do, that all taxes assessed be paid before suit could be brought, would be to distort the plain language of a rather simply worded statute in a manner neither contemplated by the Congress nor allowed by the canons of legislative construction."

By the enactment of Section 7422 of the Internal Revenue Code of 1954, 26 U.S.C.A. and its predecessors, the United States waived its sovereign immunity from suit. The permission to sue is conditioned on the filing of a claim for refund or credit with the Secretary of the Treasury or his delegate according to the provisions of law in that regard and the regulations of the Secretary or his delegate established in pursuance thereof. United States v. Michel, 282 U.S. 656-658, 51 S.Ct. 284, 75 L.Ed. 598. It will be noted that the claim for refund or credit may be for the recovery of "any internal revenue tax" alleged to have been erroneously or illegally assessed or collected, or of any penalty claimed to have been collected without authority.

In Cheatham v. United States, 92 U.S. 85, on page 88, 23 L.Ed. 561, the court, in speaking of the remedies that a taxpayer has when he thinks the Commissioner of Internal Revenue has erroneously assessed taxes, said:

"If dissatisfied with his decision, on paying the tax, the party can sue the collector; and, if the money was wrongfully exacted, the courts will give him relief by a judgment, which the United States pledges herself to pay.

"It will be readily conceded, from what we have here stated, that the government has a right to prescribe the conditions on which it will subject itself to the judgment of the courts in the collection of its revenues."

From time to time Congress has enacted various statutes providing for and regulating the collection of taxes. The system enacted by Congress is intended to be complete and is in accordance with the experience of governments in general. The statutes may seem harsh and the remedies for recovering taxes illegally exacted may seem burdensome but, as stated in Cheatham v. United States, supra:

"All governments, in all times, have found it necessary to adopt stringent measures for the collection of taxes, and to be rigid in the enforcement of them."

The amounts paid by the plaintiffs as representatives of the estate of the deceased taxpayer are a comparatively small sum compared to the total amount assessed by the United States, and they seek to maintain this suit and recover such amounts without paying the entire tax, upon the allegation that the taxes and penalty were illegally and erroneously determined and assessed. Thus, the question to be determined is whether a taxpayer, when faced with a deficiency assessment of taxes and penalty, may...