Crocker v. United States
| Citation | 323 F. Supp. 718 |
| Decision Date | 22 February 1971 |
| Docket Number | No. WC 6958-S.,WC 6958-S. |
| Parties | O. B. CROCKER and Jon A. Crocker, Administrator of the Estate of Ora Crocker, Deceased, Plaintiffs, v. UNITED STATES of America, Defendant. |
| Court | U.S. District Court — Northern District of Mississippi |
COPYRIGHT MATERIAL OMITTED
Armis E. Hawkins, Houston, Miss., J. Kearney Dossett, Charles L. Brocato, of Dossett, Magruder & Montgomery, Jackson, Miss., for plaintiffs.
H. M. Ray, U. S. Atty., Oxford, Miss., Jack D. Warren, C. G. Barnett, Dept. of Justice, Washington, D. C., for defendant.
As the result of an examination by the agents of the Internal Revenue Service (Agents) of the income tax liabilities of O. B. Crocker and his wife, Ora Crocker, now deceased, (Taxpayers) for the taxable years 1956-1961, inclusive, the District Director of Internal Revenue (Director) on October 27, 1967, issued a thirty-day letter to taxpayers notifying them of the findings of the Agents with regard to the tax liabilities of Taxpayers for the years under audit. The letter offered Taxpayers an opportunity to file formal protest setting forth disputed items contained in the Agents' report. A formal protest was filed on December 4, 1967, requesting a District conference. A final conference agreement was reached for the closing of the case, and the Director forwarded Taxpayers a closing letter, dated August 21, 1968, setting forth the closing agreement. Upon receipt of the letter Taxpayers paid the taxes, penalties and interest as set forth in the letter.
Attorneys for Taxpayers advised the Conferee at the time the closing agreement was reached that Taxpayers would probably file claims for refund.
In September, 1968, claims for refund for overpayment of the taxes, penalties and interest for the years in issue were filed by Taxpayers. They were notified of the disallowance of the claims in April, 1969, and, in July, 1969, Taxpayers filed the complaint herein.
Subsequent to the filing of the answer by Defendant, the court scheduled a status report of the case preparatory to placing the action on the trial docket for the May, 1970 session of the court at Oxford. At this conference, it was made known to the court that counsel for Defendant had other trial commitments which precluded the setting of the action for trial at the May session of the court. The action was carried over for setting at the December session.
At a second status hearing in August, 1970, a pre-trial order was entered by the court providing that all discovery in the action should be completed by December 1, 1970; that a pre-trial order should be submitted to the court by counsel not later than December 10, and that the action would be tried at the December session beginning on December 16.
In the midst of trial preparation by the parties, in mid-November, 1970, counsel for defendant made known to counsel for Taxpayers that defendant had under consideration the issuance of a notice of deficiency to Taxpayers covering all of the taxable years involved in the action sub judice, reversing the factual findings of the District Conferee and determining additional taxes and penalties for the years in question based upon such reversal. On December 2, 1970, counsel for Defendant advised counsel for Taxpayers that the notice of deficiency mentioned above would be issued. On December 3, 1970 counsel for Taxpayers notified counsel for Defendant that Taxpayers would present to the court on December 4, 1970, a motion for a temporary restraining order prohibiting the issuance of the notice of deficiency. The motion was presented to the court, and the temporary restraining order was issued at approximately 10:45 a. m. However, at 8:00 a. m. on December 4, 1970, defendant placed in the mails at Jackson, Mississippi the notice of deficiency, addressed to Taxpayers at their Post Office Address Bruce, Miss. 38915. The notice was received by Taxpayers on the morning of December 5, 1970. The restraining order was served at 3:00 p. m. on December 4, 1970.
Taxpayers on December 9, 1970, filed an amended motion and application for preliminary and permanent injunction to enjoin defendant to withdraw the notice of deficiency, and desist from issuing any other notice covering the years involved in the action sub judice. Subsequently on December 11, 1970 Taxpayers filed the second amendment to the motion above mentioned setting forth additional grounds for the issuance of the injunction aforesaid.
Defendant on December 11, 1970 filed a motion for a stay of the proceedings herein, pursuant to the provisions of 26 U.S.C. § 7422(e).1
The motions of the parties were supported by affidavits. The court heard the motions and argument of counsel at Oxford on December 11, 1970. The court cancelled the trial setting of the case, and has held the same in abeyance, pending a determination of the court's authority to preliminarily or permanently enjoin the Internal Revenue Service from issuing the notice of deficiency to Taxpayers covering the taxable years involved in this action.
The court has considered the motions in light of the record and affidavits filed by the parties, and now makes its decision on the issues presented.
Taxpayers contend that Defendant is foreclosed from issuing a notice of deficiency covering the years in question by the closing agreement made at the district conference by the District Conferee.
Taxpayers reached an understanding with the District Conferee and paid the taxes, penalties and interest established by the agreement. Taxpayers contend that by entering into the agreement and accepting payment of the taxes, penalties and interest Defendant is estopped from reopening the case for the taxable years in question unless such is done pursuant to Regulation Rev.Proc. 68-28 aforesaid. Defendant does not contend that there exists evidence that fraud, malfeasance, collusion, concealment or misrepresentation of a material fact was practiced by Taxpayers at the conference, or that the prior closing agreement involves a clearly defined substantial error based on an established Service position existing at the time of the previous examination, or that there are other circumstances existing which indicate that failure to reopen the case will result in a serious administrative omission. Thus, Taxpayers argue that the Director is without authority to reopen the case and issue the notice of deficiency.
The Defendant contends that Rev. Proc. 68-28 as a revenue procedure does not have the effect of law and does not bind Defendant or foreclose the Director's authority to issue the notice. In addition, Defendant contends that Taxpayers reopened the case by filing claims for refunds and bringing suit therefor, after the claims were denied. Defendant argues that if Defendant is bound by the closing agreement, Taxpayers are likewise bound, and, since they have reopened the case, Defendant is at liberty to issue the notice of deficiency.
Procedural rules, such as Rev. Proc. 68-28, are directory and not mandatory in legal effect and they do not curtail the power conferred upon the Secretary of the Treasury or his delegate by 26 U.S.C.A. § 6212, to send a notice of deficiency if the Secretary or his delegate determines that there is a deficiency in the tax shown on the taxpayer's return.3 Luhring v. Glotzbach, 304 F.2d 560 (4 Cir. 1962). See Cleveland Trust Company v. United States, 421 F. 2d 475 (6 Cir. 1970).4
It has been stated that "the objective of the district conference procedure is to give taxpayers a greater opportunity to reach an early agreement with respect to disputed items arising from office and field audits".5
It appears that a taxpayer would suffer an injustice if the Internal Revenue Service is permitted to reopen a case once it has been closed by an agreement at a district conference and the taxpayer has accepted the settlement and has paid the tax. However, when the taxpayer rejects the agreement, files a claim for refund, and, upon its denial, brings suit against the United States to recover the taxes, as having been erroneously paid, the court can see no injustice to the taxpayer by permitting the United States to reopen the case and issue a notice of deficiency. Otherwise the matter would be a one-way street.
The court is, therefore, of the opinion that Rev.Proc. 68-28, supra, does not act to prohibit the Director from issuing the notice of deficiency aforesaid.
The Taxpayers contend that the claim for additional taxes must be made in the action sub judice, by way of counterclaim, and, for that reason, the notice of deficiency should be withdrawn and rescinded by Defendant. Taxpayers argue that a claim for additional taxes for the years involved in this action is in the nature of a compulsory counterclaim within the purview of Rule 13(a) Fed.R.Civ.P. This rule provides in its pertinent part: The fallacy with this reasoning is Defendant's claim does not ripen into an...
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