Compton v. United States

Decision Date17 June 1964
Docket NumberNo. 9116.,9116.
Citation334 F.2d 212
PartiesNannie V. COMPTON, Appellant, v. UNITED STATES of America, et al., Appellees.
CourtU.S. Court of Appeals — Fourth Circuit

Otto L. Tucker, Alexandria, Va., for appellant.

George F. Lynch, Atty., Dept. of Justice (Louis F. Oberdorfer, Asst. Atty. Gen., Lee A. Jackson and David O. Walter, Attys., Dept. of Justice, Claude V. Spratley, Jr., U. S. Atty., and MacDougal Rice, Asst. U. S. Atty., on brief), for appellees.

Before HAYNSWORTH and BOREMAN, Circuit Judges, and BARKSDALE, District Judge.

BOREMAN, Circuit Judge.

Plaintiff, Nannie V. Compton, brought this action seeking a refund of $194.19 alleged to have been illegally assessed and collected as federal taxes. She joined with her claim for refund prayers for certain injunctive relief and for abatement of the balance of a $75,167.39 assessment for taxes and penalties alleged to have been unlawfully made. From the judgment of the District Court dismissing the action on the merits she appeals.

The relevant facts are not in controversy. On October 21, 1957, members of the Arlington County Police Department, armed with a search warrant, entered and searched the premises of the plaintiff in Arlington, Virginia.1 Indicia of gambling or wagering operations, including adding machines, tapes, numbers slips and a large amount of cash, were seized. Plaintiff and one Joseph A. Chase were arrested and charged with violating Virginia's lottery laws. On November 7, 1957, plaintiff and Chase entered separate pleas of guilty in the County Court of Arlington County, Virginia, to charges of operating a lottery and possessing lottery slips. Plaintiff was given a suspended sentence of nine months and placed on probation for a period of five years. Subsequently, Chase was prosecuted on charges of failure to file federal gambling excise tax returns and failure to purchase a wagering tax stamp as required by law. He was convicted in the District Court but, on appeal on Government's motion, the judgment of conviction was reversed and the cause remanded, the Government conceding before this court that the warrant under which plaintiff's home was searched and the property seized was invalid, and that the evidence upon which Chase had been convicted was obtained in violation of the constitutional protection against unreasonable search and seizure.2 That prosecution was subsequently dismissed in the District Court on Government's motion.

Prior to the criminal proceedings mentioned above, agents of the Internal Revenue Department, having learned from newspapers of the raid, were permitted by the police to inspect the seized property. From information gained through their inspection and from helpful and revealing discussions with the Arlington police, the agents estimated the gross receipts of the lottery business. On the basis of these estimates the District Director, pursuant to 26 U.S.C.A. § 6862, made a joint jeopardy assessment of excise and occupational taxes owed by plaintiff and Chase which, together with penalties and interest, totaled $75,167.39.3 The assessment, covering periods in 1957, is set forth below.4 In an effort to collect the assessment, the District Director filed liens against property of the plaintiff, including her automobile and her home, and levied upon a bank account in plaintiff's name. The balance in the bank account, $194.19, was paid by the bank to the District Director and credited to the total joint assessments against plaintiff and Chase.

In her complaint plaintiff alleged that at no time had she engaged in the State of Virginia in any of the activities that would require her to file a return of wagering taxes or to "apply for an occupational stamp to accept wagers." The denial of these allegations in the Government's answer created a material issue of fact. Before the District Court, plaintiff testified that she had never been engaged in the business of accepting wagers or operating a lottery and contended that, in any event, the assessment, being based upon illegally seized evidence, was void. The District Court held that she had not sustained the burden of showing that she was entitled to the relief requested and dismissed her action on the merits. We think the decision of the District Court should be affirmed.

On this appeal plaintiff fails, in her brief, to discuss or argue the refusal of the District Court to grant the injunctive relief requested and to abate the outstanding assessment. We are convinced, however, that in the circumstances here the court was without jurisdiction to grant such relief.5

The specific errors of which plaintiff does complain on this appeal are not altogether clear from her brief and oral argument. In her brief she states the questions involved as follows:

"1. Whether the record of the proceeding below shows the Appellant to have been engaged in a partnership or other arrangement to justify the assessment of Federal Excise Taxes to Appellant jointly with another so as to bring it in the ambit of the Due Process Clause of the Fifth Amendment to the Constitution of the United States?
"2. Whether the District Court committed reversible error in not permitting Appellant to retain counsel of her own choice?
"3. Whether evidence seized by either State or Federal officers, in violation of the Constitution of the United States, is inadmissible in Federal tax proceedings?"

We shall consider these questions as they relate to the suit for refund which, in our view, was properly before the District Court.6

We turn first to plaintiff's contention that illegally seized evidence is inadmissible in federal tax proceedings. Plaintiff makes this argument as an abstract proposition of law without in any manner demonstrating that unlawfully obtained evidence was introduced in the District Court. In fact, no physical or tangible evidence obtained as a result of the illegal search was introduced by the Government. The only evidence introduced by the Government which could possibly be deemed a product of the unlawful search was offered for the purpose of impeachment only and, for reasons hereinafter stated, we think the evidence was properly admitted for that purpose. Obviously the thrust of plaintiff's argument here, as in the court below, is that the assessment itself is invalid because it was based on illegally obtained evidence. Apparently she seeks to press that issue by broadly insisting that illegally obtained evidence is inadmissible in a civil proceeding. At trial, plaintiff introduced the testimony of three agents of the Internal Revenue Department to show the manner in which the assessment was made. From their testimony, it is clear that the assessment was based almost entirely upon the fruits of the illegal search7 but that fact is not decisive of the issues here. The difficulty with plaintiff's position is that she apparently misconceives the burden of proof imposed upon her and which she must sustain in order to establish her claim of entitlement to a refund.

It is a well established principle that in every case, whether in a proceeding in the Tax Court to contest a deficiency assessment or in a District Court in a suit for refund, the assessment of the Commissioner is presumed to be correct.8 To be sure, this presumption is not evidence in itself and may be rebutted by competent evidence. It operates merely to place upon the opposing party the burden of going forward with the evidence. However, to prevail in an action for refund, the taxpayer must not only overcome this presumption but must assume and discharge the added burden of demonstrating the correct amount of the tax due or that he owes no tax at all. See Helvering v. Taylor, 293 U.S. 507, 55 S.Ct. 287, 79 L.Ed. 623 (1935); Commissioner of Int. Rev. v. R. J. Reynolds Tobacco Co., 260 F.2d 9, 14 (4 Cir. 1958); Clinton Cotton Mills v. Commissioner of Internal Revenue, 78 F.2d 292 (4 Cir. 1935); 9 Mertens, Federal Income Taxation, § 50.65 (Zimmet Rev. 1958).

An action for refund of taxes paid is in the nature of an action of assumpsit for money had and received and the plaintiff's right to recover must be measured by equitable standards.9 Here, taxpayer's entire liability is at issue and if, under any state of facts, the Government is entitled to the money claimed, she cannot prevail. Consequently, it is not enough merely to show that the assessment was invalid or that the Commissioner erred; the plaintiff must go further and produce evidence from which another and proper determination can be made.10 The extent of the taxpayer's burden in a refund action was aptly stated by Judge Learned Hand in Taylor v. Commissioner, 70 F.2d 619, 620 (2 Cir. 1934), aff'd sub. nom. 293 U.S. 507, 55 S.Ct. 287, 79 L.Ed. 623 (1935):

"* * * If the burden of proof goes so far as to demand not only that the taxpayer show that the deficiency assessed against him is wrong, but what is the proper deficiency, or that there should be none at all, the decision was right, even though we know that the tax is too high. In an action to recover taxes unlawfully collected the burden does go so far. * * * But the reason for this is obvious; a plaintiff, seeking an affirmative judgment measured in dollars, must prove how much is due. His claim is for money paid and he must show that every dollar he recovers is unjustly withheld. So it is not enough merely to prove that the tax as a whole was unlawful; some of the dollars he paid may nevertheless have been due. * * *"

To put it another way, the ultimate question in a suit for refund is not whether the Government was wrong, but whether the plaintiff can establish that taxes were in fact overpaid. The plaintiff, to prevail, must establish the exact amount which she is entitled to recover.

With the foregoing principles in mind, we turn our attention to the circumstances of the case at hand. Here, plaintiff endeavored to prove that no tax was due by testifying that...

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