Cain v. United States

• Decision Date: 29 April 1958
• Docket Number: No. 15854.,15854.
• Citation: 255 F.2d 193
• Parties: J. W. CAIN, Appellant, v. UNITED STATES of America, Appellee.
• Court: U.S. Court of Appeals — Eighth Circuit

255 F.2d 193 (1958)

J. W. CAIN, Appellant, v. UNITED STATES of America, Appellee.

No. 15854.

United States Court of Appeals Eighth Circuit.

April 29, 1958.

L. E. Keeney, Texarkana, Tex., for appellant.

David O. Walter, Atty., Dept. of Justice, Washington, D. C. (Charles K. Rice, Asst. Atty. Gen., Lee A. Jackson and A. F. Prescott, Attys., Dept. of Justice, Washington, D. C., and Charles W. Atkinson, U. S. Atty., Fort Smith, Ark., with him on the brief), for appellee.

Before SANBORN, JOHNSEN and VAN OOSTERHOUT, Circuit Judges.

JOHNSEN, Circuit Judge.

Appellant sued in the District Court for recovery of alleged overassessments in his income taxes for the years 1942 and 1943. The Court gave summary judgment for the Government, on the ground that the admitted facts estopped appellant from asserting the existence of overassessments in the situation.

The overassessments were related to the income of a family partnership, comprised of appellant, his father, and their wives, whose reality the Commissioner had refused to recognize. Upon audit of appellant's 1942 and 1943 returns, deficiencies were accordingly determined and assessed against him — for 1942, on all of the partnership income, instead of a one-fourth share as reported by him; and for 1943, on a one-half, instead of a one-fourth, share of such income. As to 1943, the Commissioner had granted recognition to the father as having been a partner with appellant, but he refused to recognize a partnership status in the wives for either year.

Appellant had thereafter paid the deficiencies so imposed upon him, on an instalment basis, extending into the year 1947. In 1948, within a year of his completion of the payments, he filed a claim with the Commissioner for refund. It was upon this claim that he predicated his right to maintain the present action, instituted by him in 1955, under allegation in the complaint that the Commissioner had never taken any action on the claim.

The estoppel which the Court viewed as existing rested on the legal significance and equitable consequence of the incidents following, the facts of which were admitted.

The four partners had continued, for the years 1944 and 1945, to make returns and pay taxes on the basis of each having a right to a one-fourth share of the partnership income. On audit of these returns, made in 1948, the Internal Revenue Agent in Charge took the same position on the partnership question as had been adopted for the years 1942 and 1943, and indicated his intention to recommend deficiencies and adjustments on this basis.

The partners protested against any such action, and requested opportunity for hearing and conference with the Division's Technical Staff. They desired to have the partnership question gone over again, not as to the years 1944 and 1945 alone, but for 1942 and 1943 as well. It apparently was their hope that some solution could be arrived at for the question generally. To facilitate such a consideration, they executed waivers for all of the four years, extending the time in which the Commissioner would be able to make assessment of any additional taxes as to the situation, to June 30, 1950. In all this, and in the further events detailed below, the partners were acting through experienced counsel.

A Technical Advisor from the Division's Staff granted them a conference and hearing, in an attempt to effect a disposition of the matter. The attorney thereafter submitted several proposals of settlement for the Staff's consideration. The situation continued in this negotiative stage until June 3, 1949, when the Head of the Technical Staff sent a letter to the attorney, outlining a basis of adjustment which would be acceptable to him, and which he was prepared to recommend, provided the terms were also satisfactory to the partners, and provided they made submission thereof to him as "a proposal for settlement" originating from them. One of the things which he indicated that they would have to agree to do was to allow such overpayments, as the settlement adjustment would cause to exist in favor of any of them, to be offset "against the deficiencies of the others as required to effect the aggregate adjustment".

Settlement of the partnership question itself was made on the basis of allowing appellant's father to be recognized as a partner with him for the year 1942, as had been previously done for the year 1943; of according recognition to appellant, his father, and the father's wife (appellant's stepmother) — but not to appellant's wife — as having constituted members of the partnership for the years 1944 and 1945, on the basis of a 45%, 45%, and 10% interest, respectively; and of granting a salary allowance to appellant's wife, for 1944 and 1945, of $1200 annually.

Proposals to settle and adjust the tax liability of all the parties for the four years on this related basis were formally submitted by them on June 15, 1949. On July 13, 1949, the Head of the Technical Staff notified each of them in writing that "The proposal submitted by you has been accepted on behalf of the Commissioner", and "The case will be closed on the foregoing basis".

The Head of the Technical Staff made adjustment of the tax liability of all of the parties on the basis of the authorization contained in their proposals of settlement, which resulted collectively in the creation of overpayments as to appellant, his wife, and his stepmother, and a deficiency as to his father. Pursuant to the consent given by all of them in their proposals, the overpayments as to the three parties were applied to the deficiency of the father, except that there existed an excess beyond the father's deficiency, which it had been agreed should be, and which was, refunded to appellant.

The situation stood thus, seemingly disposed of and closed, until 1955, when appellant instituted this action. While the acceptance of the proposals of settlement expressed by the Head of the Technical Staff on behalf of the Commissioner had never been submitted to and approved by the Secretary of the Treasury, or the Under Secretary, or an Assistant Secretary, as required by § 3760(b) of the Int.Rev.Code of 1939, 26 U.S.C.A. § 3760(b), to give it legal finality at the time against the Government, the adjustment nevertheless was for administrative purposes recognized and honored by the Internal Revenue Department, in that the statute of limitations, 26 U.S.C.A. §§ 275(a, c), 276(b) and 3746(b), was permitted to run against the Government's right to reopen the situation as to any of the parties. The Commissioner's right to have claimed and assessed additional deficiences expired on June 30, 1950.

Appellant had additionally seen fit to allow the situation to lie passive and unalerted in any respect, until the statute of limitations had also run against the right which the other three would equally have had to escape the effect of the aggregate adjustment, if appellant succeeded in forcing recognition of the partnership on a different basis than under the settlement terms.

Only the fact that appellant had put a claim for refund on file, before the settlements were undertaken to be negotiated, and his allegation, if a fact, that the Commissioner had failed to take any action thereon, provided any possible handhold at the time the suit was instituted for an attempt to reopen the situation. And that attempt could be capable, at most, of making reach against, not all four, but merely two, of the years which had been involved in the aggregate adjustment, since his antecedently filed claim had had application only to his 1942 and 1943 taxes. Thus, he could not and did not at all seek to touch the effect of that part of the adjustment which related to his 1944 and 1945 tax liability. Each of these constituted, of course, a separate tax year, but underlying the adjustments agreed upon as to them were involved recognitions which had been made interdependently, for effecting disposition of the partnership controversy in its whole.

Appellant's primary contention for reversal is that the proposals of settlement made by the partners, and the purported acceptance thereof by the Head of the Technical Staff, were without any actual legal effect, in that the transaction was not subjected to the procedure and formality necessary under § 3760 or § 3761 of the 1939 Code, to cause a closing agreement or a compromise to become final against the Government; and that they therefore were incapable of giving rise to any estoppel whatsoever.

A second contention is made that, if such a proposal of settlement and purported acceptance thereof, not in compliance with § 3760 or § 3761, could be capable otherwise, under some circumstances, of having an effect by way of estoppel, no such recognition would be possible in a situation where as here, there had been a direct use of a regular Treasury Waiver Form, with its protective recitations and conditions.

The proposal of settlement submitted by appellant, beyond the precedent letters of the attorney and of the Head of the Technical Staff explanatory of its underlying basis, consisted of a statement of the tax effects upon appellant, for the years involved, of the aggregate adjustment being made, with a recognition of liability and willingness to pay on this basis — all of which was set out by inserted statements upon a Treasury Form 874. The Form itself contained general, printed recitations on it, such as that it did not constitute "a final closing agreement under section 3760 of the Internal Revenue Code, and does not, therefore, preclude the assertion of a further deficiency in the manner provided by law should it subsequently be determined that additional tax is due"; that the agreement was "subject to acceptance by or on behalf of the Commissioner on the basis of the adjusted liability as herein proposed, and if not thus accepted will have no force and effect"; and that the taxpayer was agreeing "upon request of the Commissioner to...