CIR v. Weinreich's Estate, 17930.

• Decision Date: 03 April 1963
• Docket Number: No. 17930.,17930.
• Citation: 316 F.2d 97
• Parties: COMMISSIONER OF INTERNAL REVENUE, Petitioner, v. ESTATE of Oscar WEINREICH, Deceased, et al., Respondents. Geraldine Snyder WEINRICH, Petitioner, v. COMMISSIONER OF INTERNAL REVENUE, Respondent.
• Court: U.S. Court of Appeals — Ninth Circuit

316 F.2d 97 (1963)

COMMISSIONER OF INTERNAL REVENUE, Petitioner, v. ESTATE of Oscar WEINREICH, Deceased, et al., Respondents.

Geraldine Snyder WEINRICH, Petitioner, v. COMMISSIONER OF INTERNAL REVENUE, Respondent.

No. 17930.

United States Court of Appeals Ninth Circuit.

April 3, 1963.

Louis F. Oberdorfer, Asst. Atty. Gen., Lee A. Jackson, Harry Baum, Stephen B. Wolfberg and C. Moxley Featherstone, Department of Justice, Washington, D. C., for petitioner-respondent.

George T. Altman, Beverly Hills, Cal., for respondent-petitioner.

Before CHAMBERS and HAMLIN, Circuit Judges, and CRARY, District Judge.

CRARY, District Judge.

The question involved in this consolidated proceeding is whether the mitigation provisions of §§ 1311-1315 of the Internal Revenue Code of 1954 permit assessment and collection of certain deficiencies which would otherwise be barred by the statute of limitations.

The relevant facts are established by stipulation of the parties (pages 33 through 39, Tr. of R.) and pertinent matters set forth as Findings in Snyder v. Westover (U.S.D.C.S.D.Calif., 1952) 107 F.Supp. 363, and Snyder v. Riddell (U.S.D.C.S.D.Calif., 1957) 52 A.F.T.R. 1776. It was further agreed that the stipulation was not intended to be in conflict but was subject to the decisions and opinions of this court in Snyder v. Westover (C.A. 9th, 1954) 217 F.2d 928; Snyder v. Riddell (C.A. 9th, 1958) 252 F.2d 23, and Snyder v. United States (C. A. 9th, 1958) 260 F.2d 826.

A summary of the facts relevant to these proceedings is as follows:

"1. Geraldine and Oscar were husband and wife during the year 1945, residing in Los Angeles, California, a community property state. Geraldine and Oscar each filed on or about March 15, 1946, separate Federal income tax returns for the taxable year 1945 with the collector of internal revenue, Los Angeles, California, and each reported as an item of income therein the amount of $6,212.71, representing one-half of the $12,425.42 which Geraldine received in 1945 as her distributive share of the profits of California Car Company (hereafter referred to as Car Company).

"2. Throughout the year 1945 Car Company was a partnership consisting of Geraldine, her father, Sam Snyder (hereafter referred to as Sam), and her brother, Bernard Snyder (hereafter referred to as Bernard). Sam owned a one-half interest in the partnership and Geraldine and Bernard owned a one-fourth interest. This partnership was terminated December 31, 1946. A second partnership consisting of Sam and Bernard was in existence during the years 1947, 1948, 1949, and 1950. A third partnership consisting of Geraldine, Sam, and Bernard was formed on January 1, 1951, and was terminated September 30, 1958. Geraldine was not a partner of Sam during any of the years 1947 through 1950 or after September 30, 1958. Oscar was never a partner in any of the above partnerships.

"3. Sam filed a Federal income tax return for the year 1945 on or about March 15, 1946, and he also filed timely individual income tax returns for the years 1943, 1944, and 1946, including therein as gross income one-half of the earnings of Car Company as his share of the partnership earnings under the partnership agreement. Some time prior to May 6, 1948, respondent determined deficiencies in income tax due from Sam for the years 1943, 1944, 1945, and 1946 on the grounds, inter alia, that no valid partnership existed between Sam and Geraldine and that Geraldine\'s one-fourth share of the partnership income was taxable to Sam for those years. The deficiencies with interest thereon were assessed. Sam paid the assessed amounts for the taxable years 1943, 1944, and 1946 in full to Harry C. Westover, as collector of internal revenue. However, on the deficiency assessed for the taxable year 1945 (which, exclusive of interest, was $11,803.51), Sam paid only the sum of $2,047.12 to Westover and the sum of $3,000 to Robert A. Riddell, as successor in office to Westover. The payments made to Westover for the year 1945 were made in September and October of 1949, and the payments made to Riddell for the year 1945 were made in November and December of 1949 and January of 1950. Payment of the balance of the assessment for 1945 was not completed by Sam.

"4. As a result of the court\'s determination that Geraldine\'s one-fourth share of the net income of the partnership for 1945 was taxable to Sam, on September 1, 1949, respondent voluntarily refunded $1,424.48 to each of Geraldine and Oscar, representing the tax on Geraldine\'s share of the partnership income which they had reported on their returns, plus interest thereon. Although neither Geraldine nor Oscar at any time applied for the foregoing refunds, each accepted and retained said refunds.

"5. On March 13, 1950, Sam filed claims for refund of the additional taxes he paid for the years 1943, 1944, 1945, and 1946. Respondent disallowed Sam\'s claims and on September 27, 1951, Sam instituted suits for refund against each of Westover and Riddell in the United States District Court for the Southern District of California. In the suit against Westover (hereafter called the Westover suit), Sam sought refund of all of the additional taxes assessed and paid for the years 1943, 1944, and 1946 and of the $2,047.12 additional tax assessed and paid to Westover for the year 1945. In the suit against Riddell (hereafter referred to as the first Riddell suit), Sam sought a refund of the $3,000 additional tax assessed and paid to Riddell for the year 1945. One of the grounds relied upon by Sam in these proceedings was that respondent erred in refusing to recognize Geraldine as a partner of Car Company and including her share of the partnership earnings in his income for each of the years involved. These suits were consolidated for trial. Separate judgments were entered, both holding in effect that the partnership income in dispute was taxable to Sam and not to Geraldine. Snyder v. Westover, 107 F.Supp. 363 (S.D.Calif.1952). In September 1952 Sam appealed the Westover suit to the United States Court of Appeals for the Ninth Circuit. No appeal was taken in the first Riddell suit and the judgment of the District Court became final.

"6. On December 20, 1954, the Court of Appeals reversed the decision of the District Court, holding that the judgment of the District Court that Geraldine was not a member of the partnership for tax purposes for the years involved was erroneous. Snyder v. Westover, 217 F.2d 928 (C.A. 9, 1954). Upon remand the District Court revised its judgment in the Westover suit to conform to the decision of the Court of Appeals and on March 29, 1955, entered judgment ordering a refund to Sam for the years 1943, 1944, and 1946. No refund was ordered for the year 1945 apparently for the reason that Sam admitted, because of other adjustments conceded by him, that he still owed some tax for the year 1945.

"7. In making the refund ordered for the years 1943, 1944, and 1946, respondent by "Notice of Adjustment" dated December 6, 1955, credited against the judgment and withheld the sum of $11,580.35, representing the unpaid balance of the additional tax assessed for the year 1945 plus interest. On March 26, 1956, Sam filed a claim for refund of $10,715.10 for the year 1945, being the amount of $11,580.35 less $865.25 which Sam admitted was still due on his 1945 income tax liability. The ground for the claim was that the deficiency resulted from the erroneous inclusion of Geraldine\'s partnership income in Sam\'s income. When the claim for refund was not paid, Sam brought suit (hereinafter referred to as the second Riddell suit) in the District Court against Riddell for recovery of the above amount. The District Court held that each tax year constitutes a separate cause of action and Sam, having failed to appeal the first Riddell suit, was barred by res adjudicata from seeking a refund of income taxes for the year 1945 on the same ground relied upon in the first Riddell suit and that he could not collaterally attack the judgment on the merits of the prior action, and on April 1, 1957, dismissed the suit. Snyder v. Riddell, an unreported case (S.D.Calif.1957, 52 A.F.T.R. 1776, 57-1 U.S.T.C. par. 9547). On appeal of the second Riddell suit the Court of Appeals for the Ninth Circuit, in a decision filed on January 27, 1958, again reversed the District Court, holding that the first Riddell suit was not res adjudicata of Sam\'s claim in the present proceeding for the reason that the balance of the assessment for 1945 not having been paid at the time of the first Riddell suit Sam\'s present claim did not then exist and could not have been sued upon. Snyder v. Riddell, 252 F.2d 23. On remand of the second Riddell suit the District Court, on January 13, 1959, ordered a refund of the $10,715.10 in controversy in that proceeding for the year 1945.

"The statutory notices of deficiency in this proceeding were sent to Geraldine and Oscar by registered mail on April 27, 1959."

It is agreed by the parties that the assessment and collection of the deficiencies as against Geraldine and Oscar are barred by the statute of limitations unless they qualify as "adjustments" timely made within the mitigation provisions of §§ 1311-1315 of the 1954 Code, the pertinent portions of which are set forth in footnote to this opinion.¹ These provisions constitute an exception to the one year statute of limitations involved and must be affirmatively pleaded and proved by the party relying thereon when the statute of limitations is relied on, as in this case by Geraldine and Oscar, as a bar to assessment of the deficiency. J. C. Bradford, 34 T.C. 1051 (1960) and cases cited therein. The respondent Commissioner relies on § 1312 (3) (A) as to the circumstances under which the adjustment is authorized in the case at bar asserting that the "determination", as defined in § 1313(a) (1), was the decision of this court filed on January 27, 1958, in the second Riddell suit on the...