DeNiro v. U.S., 76-1403

• Decision Date: 30 August 1977
• Docket Number: No. 76-1403,76-1403
• Citation: 561 F.2d 653
• Parties: 77-2 USTC P 13,205 Louis DeNIRO, Frank DeNiro and Michael DeNiro, Plaintiffs-Appellees, v. UNITED STATES of America, Defendant-Appellant.
• Court: U.S. Court of Appeals — Sixth Circuit

Page 653

561 F.2d 653

77-2 USTC P 13,205

Louis DeNIRO, Frank DeNiro and Michael DeNiro, Plaintiffs-Appellees, v. UNITED STATES of America, Defendant-Appellant.

No. 76-1403.

United States Court of Appeals Sixth Circuit.

Argued June 8, 1977.

Decided Aug. 30, 1977.

Frederick M. Coleman, U. S. Atty., Cleveland, Ohio, David J. Curtin, Scott P. Crampton, Gilbert Andrews, Gary R. Allen, Arthur L. Bailey, Tax Div., Dept. of Justice, Washington, D.C., for defendant-appellant.

James C. Herndon, William T. Walker, Buckingham, Doolittle & Burroughs, Akron, Ohio, for plaintiffs-appellees.

Before WEICK and LIVELY, Circuit Judges, and ZIRPOLI, ^* District Judge.

LIVELY, Circuit Judge.

The government appeals from a judgment for the plaintiffs in an action for refund of estate taxes. The jury found the value of the decedent's estate to be less than the government claimed and the tax paid to be in excess of the amount due. Jurisdiction was based on 28 U.S.C. § 1346(a)(1). ¹ The issues on appeal as set forth in the government's brief relate to the standing of the plaintiffs to maintain the action, the sufficiency of the evidence upon which the jury determined the amount of the taxable estate and the allowance by the district court, after verdict, of litigation expenses as a further reduction of the taxable estate.

Vincent DeNiro (Vincent) died intestate, a resident of Ohio, on July 17, 1961. There were no probate proceedings and no personal representative was appointed. No federal estate tax return or Ohio inheritance tax return was filed. Vincent was divorced and his heirs at law were two daughters who were minors at the time of his death. He was also survived by three brothers, the appellees. On August 23, 1965 the appellees were convicted in the United States District Court for the Northern District of Ohio of willfully attempting to evade and defeat the federal estate tax owed by the estate of Vincent. Their conviction was affirmed by this court. United States v. DeNiro, 392 F.2d 753 (6th Cir.), cert. denied, 393 U.S. 826, 89 S.Ct. 89, 21 L.Ed.2d 97 (1968). The criminal case was tried without a jury and the District Judge made findings of fact which were filed in the record of the present case.

On April 4, 1969 the Internal Revenue Service (IRS) filed jeopardy assessments against the three DeNiro brothers as "nominees or transferees" of the estate of Vincent. Liens were recorded by the IRS against all the assets of two corporations which were controlled by Vincent, National Cigarette Service of Youngstown, Inc. (National Cigarette) and Valley Land Company (Valley Land). No assessment was made against either corporation. There was a partial abatement of the assessments and the amount remaining after abatement was paid by the two corporations in August and September, 1969. After claims for refund were denied the present action was filed with the two corporations and the three DeNiro brothers as plaintiffs. The government's motion to dismiss was granted as to the two corporations, but denied as to the three individual plaintiffs. The district court found that it had no jurisdiction over a claim by the corporations, even though they actually paid the taxes assessed against Vincent's estate, because they were not "taxpayers" within the meaning of the statute which permits claims for refund. The court defined "taxpayer" as the person actually owing the tax and rejected a construction of 26 U.S.C. § 6402(a) ² which would permit a refund only to the person actually making the overpayment. Construing the complaint most favorably to the plaintiffs on the motion to dismiss, the district court found that it alleged that the corporations made the payments voluntarily to protect their major shareholders rather than involuntarily to protect their own assets. The court reasoned that the persons on whose behalf the payments were made were "taxpayers" who were entitled to sue for refund.

At this point in the proceedings the district court assumed that the three individual plaintiffs were the controlling shareholders of the two corporations. In fact, none of them ever owned stock in the two corporations. Vincent had caused stock to be issued to them as nominees, and the certificates had been endorsed by the brothers and returned to Vincent. In the prosecution of the appellees for attempting to avoid payment of the estate tax due on Vincent's estate the district court made a finding of fact that on the date of Vincent's death, after conferring with an associate of Vincent, "(t)hen and there they (the three appellees) agreed to gather together and secure permanent possession of these and all other properties which had belonged to their deceased brother to the exclusion of his rightful heirs." The district court in the criminal case further found that "Frank, Louis and Michael DeNiro thus marshalled all the assets of Vince DeNiro's estate and agreed to do anything that was necessary to maintain permanent possession of them," and that the three appellees owned no interest in either National Cigarette or Valley Land. The evidence in the present case is consistent with these findings. It was stipulated in the present case that at the time of his death Vincent owned 100% of Valley Land and at least 65% of National Cigarette. Frank DeNiro, who was president of both corporations, testified that ownership of the two corporations never changed after Vincent's death. If the corporations paid the tax deficiencies "to protect their major shareholders," as found by the district court, the payments were made on behalf of the estate of Vincent DeNiro, not of the three appellees personally.

We believe the district court erred in dismissing the corporations as plaintiffs. Liens had been filed against both corporations as nominees of the estate of Vincent DeNiro. Louis DeNiro testified without contradiction that he was told by an IRS representative that National Cigarette would be padlocked and Valley Land would be taken over if he and his brothers refused to sign Form 890, by which they accepted a proposed tax deficiency of $81,000 against the estate. He said the taxes were paid by the two corporations in order to continue in business. Frank DeNiro testified that as president of the two corporations he caused the deficiency assessment to be paid after the tax liens were placed against the corporations' property.

Section 7701(a)(14) of the Internal Revenue Code of 1954, 26 U.S.C. § 7701(a) (14), provides:

The term "taxpayer" means any person subject to any internal revenue tax.

When a corporation which has been subjected to a lien on all its assets for unpaid taxes allegedly due from the estate of the deceased owner of all or a majority of its stock pays the assessment, it is not acting as a volunteer. On the contrary, by its actions the IRS has treated it as a "taxpayer," i. e., one subject to a tax, and if the requirements for claiming a refund have been met ³ it has standing to sue for a refund. See 26 U.S.C. § 7422(a); Stahmann v. Vidal, 305 U.S. 61, 66, 59 S.Ct. 41, 83 L.Ed. 41 (1938); White v. Hopkins, 51 F.2d 159, 163 (5th Cir. 1931); Smart v. United States, 21 F.2d 188, 190 (W.D.Mo.1927); cf. Morse v. United States, 494 F.2d 876, 880 (9th Cir. 1974). We do not believe that Keith v. Woodworth, 115 F.2d 897 (6th Cir. 1940), and Ohio Locomotive Crane Co. v. Denman, 73 F.2d 408 (6th Cir.), cert. denied, 294 U.S. 712, 55 S.Ct. 508, 79 L.Ed. 1246 (1934), require a contrary conclusion. In both of those cases the corporations which paid the tax did so as volunteers. There had been no liens filed against either paying corporation. Ohio Locomotive, supra, holds that one who pays the tax of another willingly and without duress, with full knowledge of what he is doing cannot recover in a refund action. National Cigarette and Valley Land paid under completely different circumstances.

Neither corporation appealed from the order of dismissal, and the only "standing" question before this court relates to the three individual plaintiffs-appellees. Since payment was not made by the individual plaintiffs or on their behalf they have no standing to sue for a refund individually. However, the question remains whether they have standing to act in any capacity. The appellees were not transferees under the stipulated facts and the evidence. If they remained nominees after Vincent's death, his estate was their principal.

The government argues that to be a proper party in a refund suit the person seeking a refund must show that the United States has assessed and collected the taxes from him; i. e., that only the person who makes the actual payment has standing to bring the refund suit. This would mean that no one could...