Clement v. United States, No. 72-1244

• Decision Date: 26 January 1973
• Docket Number: No. 72-1244,72-1273.
• Citation: 472 F.2d 776
• Parties: Charles V. CLEMENT, Jr., et al., Plaintiffs-Appellants, v. UNITED STATES of America, Defendant-Appellee. Charles V. CLEMENT, Jr., et al., Plaintiffs-Appellees, v. UNITED STATES of America, Defendant-Appellant.
• Court: U.S. Court of Appeals — First Circuit

472 F.2d 776 (1973)

Charles V. CLEMENT, Jr., et al., Plaintiffs-Appellants, v. UNITED STATES of America, Defendant-Appellee.

Charles V. CLEMENT, Jr., et al., Plaintiffs-Appellees, v. UNITED STATES of America, Defendant-Appellant.

Nos. 72-1244, 72-1273.

United States Court of Appeals, First Circuit.

Heard November 8, 1972.

Decided January 26, 1973.

Chester M. Howe, Boston, Mass., with whom Edward T. Robinson and Ely, Bartlett, Brown & Proctor, Boston, Mass., were on briefs, for Charles V. Clement, Jr., and others.

Louis A. Bradbury, Atty., Dept. of Justice, with whom Scott P. Crampton, Asst. Atty. Gen., Joseph L. Tauro, U. S. Atty., Meyer Rothwacks, and Leonard J. Henzke, Jr., Attys., Tax Div., Dept. of Justice, were on brief, for United States.

Before ALDRICH, McENTEE and CAMPBELL, Circuit Judges.

LEVIN H. CAMPBELL, Circuit Judge.

On April 15, 1971, taxpayers sued in the district court to recover federal income taxes which they alleged were illegally assessed and collected for the year 1964. The United States moved to dismiss on the ground that the taxpayers had failed to file a claim for refund, as required by 26 U.S.C. § 7422(a). The district court denied the motion, but made rulings, hereinafter described, which resulted in a small recovery. We hold that the motion to dismiss should have been allowed.

I

On January 20, 1965, the District Director of the Internal Revenue Service sent taxpayers an agent's examination report proposing tax deficiencies for the years 1959-1962 of $35,381.13. These resulted from a determination that taxpayers had erroneously reported income from a trust, of which they were grantors, to the trust rather than to themselves.

Taxpayers were asked to return an enclosed waiver form if they accepted the findings, and were told that they might pay any additional tax due. They were also advised to request a conference with IRS representatives if they did not accept the findings, and to file a written protest. On January 29, 1965, a so-called 90-day letter was sent taxpayers, advising them that unless within 90 days they contested the determination of tax liability for 1959-1962 by petitioning the Tax Court, the deficiencies would be assessed for collection. There is no evidence that taxpayers either returned a waiver form or filed a petition with the Tax Court.

On April 14, 1965, taxpayers filed a joint return for the tax year 1964. The return showed a total income of $4,593.63, deductions of $2,084.77 and exemptions of 2,400.00, leaving (on Line 11d) an amount of $108.86. Instead, however, of figuring their tax on this amount in the return, the taxpayers eliptically referred to "Schedule Attached", and then proceeded to list on lines 12 and 16 as their "Tax" and "Total Tax", the sum of $22,423.17, against which they credited withholdings (line 17a) of $14,856.24, leaving a Balance Due of $7,567.23.¹ Enclosed with their return was a check for that amount.

On June 13, 1967, the District Director sent taxpayers, through their counsel, another agent's examination report, proposing deficiencies for 1963 and 1965, and showing for 1964 "Corrected income tax liability", $20,875.86, and hence an overassessment of $1,547.61. The agent's report explained that taxable income for 1964 had been computed by, among other things, including in taxpayers' income the trust income, and disallowing taxpayers' asserted "Claim of Right" of $45,000 (an item not involved in this case). With reference to the 1959-1962 assessment, the agent wrote:

The taxpayer did not pay the additional assessment, however, when the taxpayer filed his 1964 individual return he computed the tax by figuring in the additional deficiency for the prior years 1959-62. . . .

The taxpayer contends that this additional assessment of deficiency has been paid for the prior years as the result of the above described computation of tax in the 1964 years. . . .

On December 29, 1969, the assistant chief of the appellate branch office of the IRS sent to taxpayers, through their counsel, a notice of deficiencies for the taxable years 1963 and 1965, which showed, as well, an overassessment for 1964 of $1,547.61. The notice said, with reference to the overassessment:

The overassessment claim herein for the year 1964 should not be regarded as finally determined. When final determination has been made the overassessment to the extent of the amount allowable will be made the subject of a notice of adjustment, which will reach you in due course through the office of the District Director of Internal Revenue for your district, and will be applied by that official in accordance with Section 6402 of the Internal Revenue Code of 1954, provided that you have fully protected yourself against the expiration of the statute of limitations with respect to the apparent overassessment referred to in this letter by filing with the District Director of Internal Revenue for your District a timely claim for refund on the attached form 843, the basis of which may be as set forth herein.

On April 22, 1970, the assistant chief of the appellate branch office of the IRS sent taxpayers a notice stating: "Our records indicate that no claim for refund has been filed for the above year 1964. Accordingly, we are closing this case out of this office on the basis of no overassessment."

Taxpayers brought suit in the district court on April 15, 1971, for refund of $22,406.05. They asserted that the Commissioner lawfully could collect for 1964 only $17.42, the amount allegedly shown as their tax liability for 1964. The remainder, $22,406.05, they asserted to have been unlawfully collected for that year.

The district court ruled that the 1964 return, with attachment, was an implied § 7422(a) claim for a refund. It also ruled, however, that the 1967 agent's examination report was a disallowance of $20,875.86 and that therefore the taxpayers' suit for refund, to the extent of that amount, was untimely under the two-year limitations for suits for refund. § 6532(a)(1). The district court granted taxpayers summary judgment for the remaining $1,547.61.

Both sides have appealed.

II

At the outset we reject any contention that because the Treasury made an assessment which was, or may have been, procedurally improper, taxpayers can sue for a refund without first filing a claim for refund or credit as required by § 7422(a). Conceivably, although we do not need to decide the question, taxpayers are right that the assessment and collection for 1964 of amounts over $17.42 was illegal. Involuntary assessment and collection of an amount above that shown to be due in the return must be pursuant to statutory deficiency proceedings, not here undertaken. 26 U.S.C. §§ 6211-6216. See Jamison v. Repetti, 239 F.2d 901, 902 (9th Cir. 1956); Schmidt v. C. I. R., 272 F.2d 423, 429 (9th Cir. 1959). But we see nothing to take this case outside the broad coverage of § 7422(a), applying to suits for the recovery of taxes "erroneously or illegally assessed or collected" and "any sum wrongfully collected." Whether the alleged error in assessment and collection was "procedural" or "substantive" is immaterial.²

The question must accordingly be whether taxpayers' 1964 return, the only document filed with the IRS which is alleged to qualify, is a claim for refund or credit within the meaning of § 7422(a).

Viewed as a "formal" claim, the return is obviously insufficient, as the district court found. It was not in compliance with Treasury Regulations § 301.6402-2(b) and (c), which provide for the filing of a special verified form (803) setting forth "in detail each ground upon which a credit or refund is claimed and facts sufficient to apprise the Commissioner of the exact basis thereof." Nor did it comply with Regulations § 301.6402-3(a) and (b), which require that a claim for refund made on a properly executed tax return be evidenced

by a statement on the return setting forth the amount determined as an overpayment and advising whether such amount shall be refunded to the taxpayer or shall be applied as a credit against the

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