Duncan v. United States, 1973.

• Decision Date: 07 June 1941
• Docket Number: No. 1973.,1973.
• Citation: 39 F. Supp. 962
• Parties: DUNCAN v. UNITED STATES.
• Court: U.S. District Court — Western District of Kentucky

39 F. Supp. 962

DUNCAN v. UNITED STATES.

No. 1973.

District Court, W. D. Kentucky.

June 7, 1941.

Selligman, Goldsmith, Everhart & Greenebaum, by Joseph Selligman, all of Louisville, Ky., for plaintiff.

Eli H. Brown, III, U. S. Atty., of Louisville, Ky., Samuel O. Clark, Jr., Asst. Atty. Gen., and Andrew D. Sharpe and Lyle M. Turner, Sp. Assts. to Atty. Gen., for the United States.

SWINFORD, District Judge.

The facts in this case are somewhat involved but a recitation of them in more or less detail is important to a proper understanding of the conclusions I have reached.

The taxpayer filed an income tax return for the taxable year of 1929. It was thereafter determined by the Commissioner of Internal Revenue that a deficiency tax was due. No appeal was taken by the taxpayer from this decision and in August, 1931, the deficiency in the amount of $4,064 was assessed.

The deficiency assessment arose by reason of the fact that the taxpayer was the owner of certain shares of stock in a utility holding company. In 1929 the holding company gave to its stockholders for each share of its stock which they owned the right to buy at a fixed price per share a certain number of shares in one of its subsidiary corporations. Noting that the taxpayer had received these rights, the Treasury Department in June, 1931, advised him that it represented taxable income.

On January 9, 1932, and March 21, 1932, payments of $500 each were made on the tax liability.

On April 3, 1933, a claim for refund was filed and on September 4, 1934, disallowed by the Commissioner.

On April 30, 1935, the Board of Tax Appeals, in the case of Palmer v. Commissioner, 32 B. T. A. 550, held that the rights on which the taxpayer in the instant case was held liable and on which the deficiency assessment was made were not taxable. This, of course, was in a different case but the identical question was decided.

Thereafter the taxpayer continued to make payments under protest, and in the light of the decision in the Palmer case on June 5, 1936, filed suit to recover the original payments of $500 each made in January and March of 1932.

On February 2, 1937, the Circuit Court of Appeals reversed the decision in Palmer v. Commissioner, supra, and held that the stock rights were income. 1 Cir., 88 F.2d 559.

On March 18, 1937, the taxpayer submitted an offer in compromise and on the following June 7, made another offer and also agreed to dismiss the suit then pending in this court.

The offer in compromise was accepted as of June 29, and the taxpayer was so notified on July 2, 1937.

The acceptance of the offer in compromise was not made with the advice and consent of the Secretary of the Treasury or any Undersecretary of the Treasury. The taxpayer under the terms of the compromise made a number of payments and the United States abated the unpaid balance by letter dated March 16, 1938.

On November 8, 1937, the Supreme Court in Palmer v. Commissioner, 302 U.S. 63, 58 S.Ct. 67, 82 L.Ed. 50, reversed the Circuit Court of Appeals and held that the stock rights were not taxable income. The taxpayer objected to the entry dismissing this case with prejudice in which he was sustained by an order of date, May 25, 1938.

The taxpayer filed claims for refund of the amounts paid under the compromise and the refund was disallowed by reason of the compromise agreement. It is now urged that the compromise was entered into by the taxpayer under duress and should be set aside.

In the brief for the Government, counsel makes the following statement of the issue to be determined here: "The sole question in dispute before this Court is whether the taxpayer's suit, together with the Government's counterclaim, should be dismissed with prejudice by reason of the terms of a compromise wherein the parties agreed that the same should be done."

It appears that this question was passed upon by the Honorable Elwood Hamilton, while presiding Judge of this Court, in the order of May 25, 1938.

The record discloses that the following joint motion was made:

"By agreement of parties, and on their joint motion, this action and the counter-claim of the defendant herein may be dismissed settled as to both parties and with prejudice to the right of either hereafter to make further claim on the accounts and matters presented by the plaintiff's action herein and by the defendant's counter-claim.

"(Signed) Selligman, Goldsmith, Everhart and Greenebaum "Joseph Selligman "Attorneys for Plaintiff "Eli H. Brown, III "Attorney for Defendant."

When the motion was offered by the United States an objection was made by the plaintiff on the ground that it was "obtained" by the defendant from the plaintiff by "extreme duress". The objection is in words and figures as follows:

"Comes the plaintiff, Stuart E. Duncan, by Selligman, Goldsmith, Everhart and Greenebaum, his attorneys, and formally withdraws his consent and agreement that this action may be dismissed settled with prejudice to the right of the parties hereto to make any further claim on the accounts or matters presented by plaintiff's action herein and by defendant's counter-claim, and objects to the entry of such a motion to dismiss this action. In support hereof the plaintiff files his affidavit showing that the compromise agreement made between the plaintiff and the defendant, by which the defendant has heretofore obtained the consent of this plaintiff to the entry of an order of dismissal of the kind aforementioned, was obtained from this plaintiff by extreme duress as to the plaintiff's property and legal rights and under mistake of law.

"(Signed) Joseph Selligman "Selligman, Goldsmith, Everhart and Greenebaum "Attorneys for Plaintiff"

Thereupon Judge Hamilton entered the order of May 25, 1938, which I quote in full:

"At a Court Held at Louisville on This 25th Day of May, 1938:

"This action having...