Charlson Realty Company v. United States

Decision Date13 October 1967
Docket NumberNo. 388-62.,388-62.
Citation384 F.2d 434
CourtU.S. Claims Court


Lawrence J. Hayes, St. Paul, Minn., for plaintiff. Joseph A. Maun, St. Paul, Minn., attorney of record. Maun, Hazel, Green, Hayes, Simon & Aretz, St. Paul, Minn., of counsel.

Leonard S. Togman, Washington, D. C., with whom was Asst. Atty. Gen., Mitchell Rogovin, for defendant. Philip R. Miller, Joseph Kovner, and Norman J. Hoffman, Jr., Washington, D. C., of counsel.

Before COWEN, Chief Judge, JONES, Senior Judge, LARAMORE, DURFEE, DAVIS, SKELTON and NICHOLS, Judges.

SKELTON, Judge, announced the judgment of the court in an opinion in which COWEN, Chief Judge, and JONES, Senior Judge, joined:

This is an income tax case. The plaintiff, Charlson Realty Company, is a Minnesota corporation which purchased 14.25 acres of unimproved land in Minnesota on April 27, 1953, for the sum of $40,000, for the purpose of constructing a building to be leased to the Charlson-Lynn Company (its grantor had bought the same real estate in 1952 for $10,650). Thereafter, it was determined that this property was not suitable for improvement for rental purposes because of certain zoning restrictions and other reasons. Since the plaintiff was not interested in developing the property for resale or lease to others, it sold the property on February 10, 1955, to Mabelle F. Charlson and Harriet C. Charlson, the mother and sister of Lynn L. Charlson, the president and sole stockholder of the plaintiff company, for the sum of $40,000 evidenced by their demand note in that amount payable to the company. The plaintiff alleges that the fair market value of the property on the date of sale and prior thereto was not in excess of $40,000, and the value of the note which it received for the property was not less than $40,000.

Thereafter, the purchasers constructed a building on 4.5 acres of the land at a cost of $268,323.18 and thereafter sold it for $356,460.63. The balance of 9.5 acres was sold by the purchasers for $103,585.67. The plaintiff alleges that it had no interest of any kind in said property or in the improvements made thereto after it sold the 14.25 acres for $40,000 on February 10, 1955. Furthermore, it was not interested in developing the property for resale or lease, and during the years 1954 and 1955 had no information of any nature that said 14.25 acres of unimproved land had a value in excess of the $40,000 for which it was sold.

On or about July 15, 1955, plaintiff filed its Corporation Income Tax Return for its fiscal taxable year ending April 30, 1955. This return disclosed net taxable income of $10,139.63 with a net tax due of $3,041.89. This tax was duly paid to the District Director of Internal Revenue on or about July 15, 1955. The Internal Revenue Service assessed a deficiency in income tax for 1955 against the plaintiff in the amount of $12,500, together with interest in the sum of $3,453.94, the basis for which was its claim that the 14.25 acres of land had a fair market value of $90,000 on February 10, 1955, the date it was sold by the plaintiff for $40,000, and that the sale resulted in a distribution of a taxable dividend to plaintiff's president and sole shareholder, Lynn L. Charlson. It further contended that plaintiff realized a taxable gain of $50,000 by reason of the sale, even though no amount in excess of its cost of $40,000 was ever received or realized by the plaintiff.

The Internal Revenue Service also assessed a deficiency in income tax against plaintiff's president, Lynn L. Charlson and wife, which is now the subject of litigation in the United States Tax Court and is not in any way involved in this suit.

The plaintiff paid the Internal Revenue Service said additional income tax and interest in the sum of $12,500 and $3,453.94, respectively, on February 23, 1960. On March 8, 1960, plaintiff filed a claim for refund of such additional tax and interest which it had been required to pay with the Internal Revenue Service. In such claim the plaintiff assigned as the ground upon which the claim was based the fact that plaintiff had not realized any gain on the sale of the 14.25 acres of land for $40,000, and that the Commissioner of Internal Revenue was wrong in finding that the plaintiff had realized a net gain of $50,000 on the sale.

While the first claim for refund was still pending, and before any action had been taken thereon by the Internal Revenue Service, the plaintiff, on July 25, 1960, filed an amended claim for refund of said deficiency assessment for $12,500 and interest in the sum of $3,453.94. This amended claim contained various specific grounds on which such claim was based which were not contained in the first claim, all of which will be discussed in more detail in the following paragraphs.

While both of the claims were pending, the District Director of Internal Revenue for the District of Minnesota notified plaintiff by certified mail, dated September 21, 1960, of the disallowance of the first claim filed March 8, 1960. On December 6, 1960, the District Director notified plaintiff by certified mail that he had disallowed plaintiff's second claim for refund which it had filed July 25, 1960.

The plaintiff filed this suit for said tax and interest in the total sum of $15,953.94, plus interest thereon, based upon plaintiff's second claim for refund and the disallowance thereof by the District Director. The defendant filed an answer to plaintiff's petition generally denying the basic allegations thereof and asserting an affirmative defense that this suit is barred by Section 6532 of the Internal Revenue Code of 1954, because it was begun after the expiration of two years from the date of mailing of a notice of disallowance of the claim to which the suit related. Thereafter, on December 13, 1963, the defendant filed a motion for summary judgment alleging that plaintiff's petition was not timely filed. Plaintiff opposed defendant's motion for summary judgment, and, after hearing oral argument, the court, by order entered on May 18, 1964, denied said motion "without prejudice" and referred the case back to the trial commissioner with directions to "investigate and report as to the mailing of plaintiff's petition, the handling of the mailed petition by the Post Office Department, and the receipt and filing of the petition in this court." The commissioner has complied with the directions of the court and has made his report only on this one jurisdictional issue raised by the defendant. Defendant renewed its motion for summary judgment in its briefs filed to the commissioner's report and the case is now before the court on such motion.

The defendant has made a two-pronged attack on plaintiff's case on jurisdictional grounds based on limitations, claiming that plaintiff has not filed its suit within two years from the date its claim for refund was disallowed by the District Director of Internal Revenue Service as required by law. In the first place, the defendant contends that plaintiff's first claim for refund and its second claim for refund were identical and the second claim did not add anything to the first claim but was a mere repetition of it, and, by reason thereof, the filing of the second claim did not extend the period of limitations within which plaintiff could file its suit. On this theory, defendant says that the plaintiff was required to file its suit within two years after September 21, 1960, the date the District Director of Internal Revenue Service disallowed the plaintiff's first claim. Plaintiff's petition was marked filed in this cause on December 7, 1962. On this theory, plaintiff's suit would be barred. However, the plaintiff contends that the second claim for refund was an entirely new and different claim from the first claim, and that it filed its suit within two years after the District Director disallowed its second claim for refund on December 6, 1960, notwithstanding the file date marked on the petition. If plaintiff's contention is correct, this court has jurisdiction to determine this suit insofar as this particular jurisdictional ground is concerned. These claims and theories will be further developed in subsequent paragraphs of this opinion.

The second jurisdictional ground asserted by the defendant relates to the time when plaintiff's petition was received by this court. The defendant says that the file mark on the petition shows that it was filed on December 7, 1962, whereas, it was required to be filed no later than December 6, 1962, if it be conceded that the basis of the plaintiff's suit is the disallowance of plaintiff's second claim for refund by the District Director on December 6, 1960. In other words, defendant contends that the suit was filed one day late, and, accordingly, is barred by the two-year statute of limitations for suits of this kind. The plaintiff counters with allegations that it mailed the petition from St. Paul, Minnesota, on November 30, 1962, in an envelope properly sealed, stamped and addressed to the Clerk of this Court in Washington, D. C., and that in due course of the mails it arrived at the court on December 4th or 5th, 1962, or in any case, by December 6, 1962, the last day of the two-year period of limitations within which plaintiff could file the suit.

I Statute of Limitations

At the outset, it is necessary for us to determine the primary questions presented in this case as to whether or not plaintiff's suit was begun within the applicable period of limitations set forth in Section 6532 of the Internal Revenue Code of 1954, which, as amended by Section 89(b) of the Technical Amendments Act of 1958, P.L. 85-866, 72 Stat. 1606 (26 U.S.C. § 6532(a) (1) (1964)), (hereinafter sometimes referred to as "the statute of limitations"), reads in pertinent part as follows:

* * * * * *
(a) Suits by taxpayers for refund.
(1) General rule.
No suit * * * under section 7422(a)

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