Erickson v. United States

• Decision Date: 07 November 1962
• Docket Number: No. 318-59.,318-59.
• Parties: Frank ERICKSON and Amelia Erickson v. The UNITED STATES.
• Court: U.S. Claims Court

159 Ct. Cl. 202, 309 F.2d 760 (1962)

Frank ERICKSON and Amelia Erickson v. The UNITED STATES.

No. 318-59.

United States Court of Claims.

November 7, 1962.

Harry L. Brown, Washington, D. C., for the plaintiff. Alvord & Alvord, Washington, D. C., were on the briefs

David D. Rosenstein, Chicago, Ill., with whom was Asst. Atty. Gen. Louis F. Oberdorfer, for the defendant. Edward S. Smith, Lyle M. Turner and Philip R. Miller, Washington, D. C., were on the brief.

DAVIS, Judge.

This is primarily a suit for refund of interest, collected on delayed tax payments, which the plaintiffs would deny to the Government because of the special history of their prior tax litigation. The case has its origin in the income tax returns filed by Frank Erickson, the taxpayer,¹ for the years 1937-1950 (exclusive of 1941). In January 1951, on the ground that the returns were fraudulent, the Commissioner of Internal Revenue made jeopardy assessments of tax, fraud penalty, and deficiency interest for each of the years 1937-1946 (except 1941) in large sums varying in amount from over $36,000 to almost $500,000. A deficiency notice was sent in March 1951 (appending a statement of the amount assessed by jeopardy, including interest). In June 1951, the taxpayer sought from the Tax Court a redetermination of his income taxes for those years; he attached a copy of the notice received from the Commissioner, but the Commissioner did not himself file any notice of the amount of the jeopardy assessment (or of any abatement).

In July 1955, the Commissioner made similar jeopardy assessments, again invoking fraud, for the years 1947-1950, in amounts ranging from over $518,000 to over $1,801,000. Notices of these deficiencies were sent in August 1955, including statements of the jeopardy assessments (but this time without mention of interest). In September 1955, the taxpayer commenced two Tax Court proceedings — one for 1947 and another for 1948-1950 — to test these later jeopardy assessments. Again, he attached copies of the notices and statements he had received from the Commissioner, but the latter did not file with the Tax Court any notice of the amount of the jeopardy assessments.

In the years between 1951 and November 1958, the defendant collected all the amounts assessed by way of jeopardy for 1937-1946, together with additional (i. e., delinquency) interest in substantial sums. The jeopardy assessment for 1947 was also collected, as well as a part of that for 1948.

The three Tax Court proceedings challenging these jeopardy assessments were not concluded until 1958. In September 1957, taxpayer's counsel offered to settle the three cases by an agreement that the liability for deficiency in tax and for penalties for each taxable year was equal to a specified dollar amount. The letter added that statutory interest would also be payable. The Government responded by forwarding proposed settlement stipulations incorporating figures which differed only slightly from those suggested by counsel. These stipulations were executed by both sides and filed with the Tax Court on August 27, 1958.

Two days later, on August 29, 1958, the Tax Court entered a decision in each of the three cases, "pursuant to the written stipulation of settlement," deciding the amount of the deficiencies and the overpayments for the various years, in the sums indicated in the stipulations. The court's decisions referred to taxes and to additions to the tax under Section 293(b) (fraud penalty) and Section 294 (d) (2) (penalty for substantial underestimate of estimated taxes) of the 1939 Code, but did not mention or refer to interest.

In the fall of 1958, following these Tax Court decisions, the Commissioner issued to the taxpayer Certificates of Overassessment for various of the taxable years involved in the Tax Court proceedings. Those overassessments which had not been collected were abated; of the remainder, the major portion was credited against unpaid liabilities of the taxpayer, and the rest was refunded. In addition, interest on the overpayments, in the amount of $266,039.87, was paid to the taxpayer.

Through the credits for overpayments, the Commissioner also collected amounts of tax, penalty, and interest (deficiency and delinquency) which he considered to be due under the Tax Court decisions but which had not yet been collected from the taxpayer. In December 1958 and January 1959, the taxpayer filed claims for refund of the interest — not the tax or penalties — obtained by the Government. No action having been taken by the Treasury on these claims, the plaintiffs instituted this suit in July 1959.

The claim for refund of the interest collected by the Commissioner is a strictly technical one, held together by alternative chains of reasoning. The first position (which has two facets) is based on the view that the Tax Court had jurisdiction to determine interest. The argument proceeds in the following steps: (1) Where a Tax Court proceeding is begun pursuant to a statutory notice issued with respect to a jeopardy assessment, that court has complete jurisdiction (under Sections 272 and 273 of the 1939 Code) to determine the full "amount which should have been assessed," including interest; the three Tax Court determinations involved here did not decide that interest was due but on the contrary determined, erroneously or not, that interest was not owing; these Tax Court decisions became final and binding; nevertheless, the interest was collected by the Government, although it exceeded the amount finally determined by the Tax Court as the "amount which should have been assessed"; therefore, the taxpayer is entitled to a refund of the interest and is not precluded by any of the statutory prohibitions on refund suits after a Tax Court ruling, regardless of whether claims for refund were timely filed. (2) If, however, the Tax Court's decisions are read as not reaching the issue of whether interest was included in the "amount which should have been assessed" by the Commissioner, then the defendant is precluded by res judicata from retaining the interest because the Tax Court proceedings could have decided the interest issue (which was an integral part of the cause of action) in the Government's favor, but did not do so; and since the taxpayer filed timely refund claims he is entitled to recover.

The alternative theory assumes that the Tax Court did not have jurisdiction to determine interest, but argues that in any event the jeopardy assessments in this case could not support the collection of interest because the Commissioner failed to follow the statutory requirement (Section 273(c) of the 1939 Code) that he notify the Tax Court of the amounts of the jeopardy assessments.

The defendant meets these elaborate technical contentions on their merits but also presents an initial non-technical argument which, if upheld, would be dispositive. It is that the taxpayer is estopped from seeking interest in this refund suit because he specifically agreed, as part of the settlement which eventuated in the Tax Court decisions and the Commissioner's subsequent actions, that interest was to be payable. Counsel's letter of September 25, 1957, proposing a settlement, said that, "It is understood, of course, that in addition to the foregoing stated sums of tax deficiency and penalties for the various years statutory interest will be payable". The stipulations in the two Tax Court cases in which deficiencies were determined expressly stated that, "effective upon the entry of decision pursuant to this stipulation," the taxpayer waived all restrictions on the assessment and collection of the deficiencies and penalties "plus statutory interest." As its orders recognized, the Tax Court obviously acted, when it rendered its decisions two days after the filing of the stipulations, on the basis of the parties' agreement, including the agreement as to interest. The Commissioner followed the stipulations when he collected interest, after the Tax Court decisions. He also followed the parties' understanding when he paid taxpayer $266,039.87 as interest on the overpayments determined by the Tax Court — although the court's orders contained no express finding or determination on interest. The taxpayer never withdrew his agreement on interest, as embodied in the stipulations, by any formal document, and certainly did not do so before the Tax Court decisions became final on November 29, 1958. Neither side objected to the failure of the court to make an express determination on interest, and neither side sought review.

In these circumstances it is apparent that, if we can properly consider estoppel in this case, that defense should be taken into account. The general nature of the claim would normally require us to do so. An action for refund of taxes is essentially governed by equitable principles. Lewis v. Reynolds, 284 U.S. 281, 52 S.Ct. 145, 76 L.Ed. 293 (1932); Stone v. White, 301 U.S. 532, 534-535, 57 S.Ct. 851, 81 L.Ed. 1265 (1937); Ryan v. Alexander, 118 F.2d 744, 748 (C.A. 10, 1941); Blansett v. United States, 283 F.2d 474, 479, 480-81 (C.A.8, 1960); Western Maryland Railway Co. v. United States, 131 F.Supp. 873, 889-890 (D.Md., 1955). That is not to say either that the taxpayer must always show that he has in fact overpaid his tax, or that statutes preventing the Government from retaining the money (despite the absence of an overpayment) should not be respected. McEachern v. Rose, 302 U.S. 56, 58 S. Ct. 84, 82 L.Ed. 46 (1937); Lyddon & Co. (America), Inc. v. United States, 158 F.Supp. 951, 141 Ct.Cl. 545, 551, cert. denied, 358 U.S. 832, 79 S.Ct. 55, 3 L.Ed. 2d 70 (1938). But the principle that equity is woven into the warp and woof of a refund suit does mean that the court should apply so fundamental an equitable concept as estoppel, when the circumstances warrant, unless some Congressional enactment or valid regulation requires a different result. See R. H. Stearns Co. of Boston, Mass....