Cohen v. U.S., 92-5013

• Citation: 995 F.2d 205
• Decision Date: 04 June 1993
• Docket Number: No. 92-5013,92-5013
• Parties: -5124, 93-1 USTC P 50,354 James R. COHEN and Joanne D. Cohen, Plaintiffs-Appellees, v. The UNITED STATES, Defendant-Appellant.
• Court: U.S. Court of Appeals — Federal Circuit

Page 205

995 F.2d 205

72 A.F.T.R.2d 93-5124, 93-1 USTC P 50,354

James R. COHEN and Joanne D. Cohen, Plaintiffs-Appellees, v. The UNITED STATES, Defendant-Appellant.

No. 92-5013.

United States Court of Appeals Federal Circuit.

June 4, 1993.

David Parker, Kleinberg, Kaplan, Wolff & Cohen, New York City, argued for plaintiffs-appellees. With him on the brief was Jeffrey S. Bortnick.

Richard Farber, Atty., Dept. of Justice, Washington, DC, argued for defendant-appellant. With him on the brief were Shirley D. Peterson, Asst. Atty. Gen., Gary R. Allen, and Mary Frances Clark, Attys.

Before LOURIE, Circuit Judge, SMITH, Senior Circuit Judge, and RADER, Circuit Judge.

EDWARD S. SMITH, Senior Circuit Judge.

In this income tax case, the United States appeals the decision of the United States Claims Court ¹ granting the Cohens' motion for summary judgment, entered August 6, 1991, as well as that court's order of August 14, 1991, denying the United States' motion for reconsideration. We affirm.

Issue

Whether the remittance to the IRS made by the Cohens on April 23, 1987, under protest, after a statutory notice of deficiency but before expiration of the period for assessment was a "payment" of tax or a mere "deposit" which should be refunded due to untimely assessment. ²

Background

The Claims Court found that the remittance made by the Cohens, was a "deposit" rather than a "payment" and that, upon later untimely assessment, the deposit became an overpayment. On cross-motions for summary judgment, the court held that the Cohens were entitled to prevail and ordered the government to refund the overpayment of tax with interest.

Facts

A comprehensive account of the facts of the case may be found by reference to the opinion of the Claims Court. ³ Following are the facts pertinent to this appeal.

On their 1980 joint federal income tax return, the Cohens claimed a $75,933 deduction from gross income for James Cohen's distributive shares of losses from a limited partnership engaged in trading securities. In December of 1985, pursuant to the Cohens' consent to extend the time period for assessment, ⁴ the IRS proposed an adjustment to the Cohens' 1980 income tax to disallow the $75,933 deduction. The Cohens filed a formal protest to the proposed adjustments on March 7, 1986. On December 30, 1986, the IRS issued to the Cohens a statutory notice of deficiency ("90-day letter") for tax years 1980 and 1981 in which the $75,933 deduction for partnership losses in 1980 was disallowed, and deficiencies of $42,502 for 1980 and $26,654 for 1981 were proposed. Cohen, 23 Cl.Ct. at 718.

On March 26, 1987, the Cohens filed a petition in the United States Tax Court contesting the proposed deficiency for 1981. ⁵ Thereafter, James Cohen remitted a check for $46,000 to the IRS on April 23, 1987, in response to the 90-day letter dated December 30, 1986. ⁶ The IRS posted the $46,000 remittance to the Cohens' account as an "Advance Payment" on May 8, 1987. Id. at 719. The statute of limitations for assessment of deficiencies for the Cohens' 1980 joint income tax return expired May 29, 1987. ⁷ On June 7, 1987, the IRS assessed $51,628.70 in interest on unpaid tax for 1980. On August 20, 1987, the IRS assessed against the Cohens a $42,502 tax deficiency for 1980. Id. at 720.

On March 28, 1989, the Cohens filed a claim for refund with the IRS in connection with their 1980 tax liability. Id. Six months elapsed without action by the IRS on the claim for refund and the Cohens took their claim to the United States Claims Court contending that the $46,000, remitted to the IRS prior to the expiration of the period for assessment of deficiencies in their 1980 income tax, should be refunded because the assessments when made by the IRS were untimely. The Claims Court agreed and the government appeals.

Standard of Review

The level of acceptance by appellate courts of determinations of fact by a trial tribunal is extremely high, and in cases involving dispositive motions neither court has much choice other than to determine whether a question of fact exists. Appellate courts must approach determinations of trial courts with all due respect. In the case of conclusions of law, however, the parties are entitled to a complete and independent appellate review. ⁸ The question of the propriety of summary judgment itself is subject to complete and independent review by the Federal Circuit. ⁹

Deposit or Payment?

The outcome of this case turns on whether the Cohens' remittance to the IRS of April 23, 1987, constituted a payment or a deposit. ¹⁰ If a payment, as the government argues, the government is entitled to retain the remittance in partial satisfaction of the proposed deficiencies for 1980. Alternatively, if the remittance was a deposit, a payment did not occur until the formal assessments of June and August of 1987; because those assessments were untimely, the remittance became an overpayment pursuant to I.R.C. § 6401(a), ¹¹ and the Cohens are entitled to a refund pursuant to I.R.C. § 6402(a). ¹²

The term "overpayment" is defined by I.R.C. § 6401(a) as "that part of the amount of the payment of any internal revenue tax which is assessed or collected after the expiration of the period of limitation properly applicable thereto." The United States Claims Court aptly explained the period of limitation relevant to this case:

As a general matter, "the amount of any [internal revenue] tax ... [must] be assessed within 3 years after the return was filed." ¹³ According to the Cohens' 1980 Certificate of Assessments and Payments, the Cohens filed their 1980 return on September 15, 1981. Thus, absent the June 1984 special consent to extend the time to assess tax, the IRS would have been required to assess any deficiency against the Cohens for 1980 by September 15, 1984. However, the Cohens and the IRS agreed that the IRS could assess a deficiency against the Cohens arising out of claimed 1980 limited partnership losses during the 60-day period commencing 90 days from the mailing of a notice of deficiency. The IRS mailed a notice of deficiency on December 30, 1986, so notwithstanding the provisions of section 6401(a), the IRS could have assessed a deficiency against the Cohens for 1980 between March 30, 1987 and May 29, 1987. According to the [government], the IRS assessed two separate amounts against the Cohens for 1980, $51,628.70 on June 7, 1987 and $45,502 on August 20, 1987. The two assessments were therefore untimely....

Cohen, 23 Cl.Ct. at 721.

The Claims Court based its decision on the holdings of Rosenman v. United States, 323 U.S. 658, 65 S.Ct. 536, 89 L.Ed. 535 (1945), and Charles Leich & Co. v. United States, 329 F.2d 649, 165 Ct.Cl. 127 (1964), which make a distinction between a "payment of tax" and a mere deposit.

The specific issue addressed by the United States Supreme Court in Rosenman was whether a claim for refund of federal estate tax was time-barred. Rosenman, 323 U.S. at 659, 65 S.Ct. at 537. Louis Rosenman died on December 25, 1933. The Commissioner of Internal Revenue extended the time for filing the federal estate tax return to February 25, 1935; however, the Commissioner did not allow an extension for payment of the estate tax, which was due one year from the date of Rosenman's death. On December 24, 1934, the executors remitted a check for $120,000 to the IRS. The check was accompanied by a letter, which stated:

"We are delivering to you herewith, by messenger, an Estate check payable to your order, for $120,000, as a payment on account of the Federal Estate tax.... This payment is made under protest and duress, and solely for the purpose of avoiding penalties and interest, since it is contended by the executors that not all of this sum is legally or lawfully due."

Id. at 659-60, 65 S.Ct. at 537. The Collector placed the remittance in a suspense account for money received from taxpayers in cases where the IRS had not made a formal assessment.

On February 25, 1935, the executors filed the estate tax return, which reflected a total estate tax due of $80,224.24. On March 28, 1935, the Collector applied $80,224.24 of the $120,000 in the suspense account towards satisfaction of the estate tax. On March 26, 1938, the executors filed a claim for refund of the balance in the suspense account, $39,775.76. Id. at 660, 65 S.Ct. at 537.

In April of 1938, the Commissioner completed an audit of the estate tax return and assessed a deficiency of $48,534.84. The Collector then applied the balance of the suspense account, $39,775.76, in partial satisfaction of the assessed deficiency. On April 22, 1938, the executors remitted an additional $10,497.34, which satisfied the balance of the deficiency, plus interest. The Commissioner rejected the executors' claim for refund. Id.

On May 20, 1940, the executors filed a second refund claim for $24,717.12, based on additional deductions. The Commissioner rejected the claim as time-barred by the three-year statute of limitations, except for the $10,497.34 remitted in 1938. The Commissioner based his rejection on the position that the executors' remittance of December 24, 1934, was a payment of tax. The Court of Claims agreed with the Commissioner and barred recovery. Id. at 661-62, 65 S.Ct. at 537-38.

The Supreme Court reversed the finding of the Court of Claims that the remittance was a payment and held that the remittance was a deposit. The Court explained: "[O]n December 24, 1934, the taxpayer did not discharge what he deemed a liability nor pay one that was asserted. There was merely an interim arrangement to cover whatever contingencies the future might define. The tax obligation did not become defined until April 1938 [the time of the assessment]." Id. at 662, 65 S.Ct. at 538. The deposit did not become a payment until assessment of tax by the IRS in April of 1938. Therefore, the executors' claim for refund filed on May 20, 1940, was not time-barred.

In Charles Leich & Co., the Court of...