Ewing v. U.S.

Decision Date10 December 1990
Docket NumberNo. 89-1756,89-1756
Citation914 F.2d 499
Parties-5615, 90-2 USTC P 50,503 Arthur C. EWING a/k/a A. Clifford Ewing; Maxine H. Ewing, Plaintiffs-Appellees, v. UNITED STATES of America, Defendant-Appellant.
CourtU.S. Court of Appeals — Fourth Circuit

Mary Frances Clark, Tax Div., U.S. Dept. of Justice, Washington, D.C., argued (Shirley D. Peterson, Asst. Atty. Gen., Gary R. Allen, William S. Estabrook, Tax Div., U.S. Dept. of Justice, Washington, D.C., Thomas J. Ashcraft, U.S. Atty., Charlotte, N.C., on brief), for defendant-appellant.

J. Randall Groves, argued (Steve C. Horowitz, Joyce W. Wheeler, on brief), Weinstein & Sturges, P.A., Charlotte, N.C., for plaintiffs-appellees.

Before HALL and SPROUSE, Circuit Judges, and SMITH, District Judge for the Eastern District of Virginia, sitting by designation.

SPROUSE, Circuit Judge:

The underlying action was initiated in the district court by Arthur C. Ewing and Maxine H. Ewing (taxpayers) for return of sums they had remitted to the Internal Revenue Service after tax audits resulted in an agreement by the taxpayers and the government concerning deficiencies for previous tax years. Although the taxpayers forwarded to the IRS the sums for the agreed deficiencies, the IRS failed to "assess" the deficiencies within the statutory period for assessment. 1 See 26 U.S.C. Sec. 6501. The district court granted summary judgment in favor of the taxpayers. 711 F.Supp. 265. The government appeals.

The taxpayers, arguing in support of the judgment in their favor, contend that their agreement to the amounts of their deficiencies was contingent upon formal assessment of the deficiencies; that since the assessments were not made within the time allowed by Sec. 6501, they have no tax liabilities for the deficiencies; and that they therefore are entitled to the return of the sums they forwarded to the IRS in fulfillment of their agreement. We disagree, and reverse the district court's judgment with regard to the amounts that were paid prior to the running of the assessment period.

I

Taxpayers filed joint federal income tax returns for the years 1976 through 1979 and paid the taxes that were reflected on their returns. Later the IRS audited the returns and proposed adjustments resulting in deficiencies. After negotiation, the government and the taxpayers executed Closing Agreements (Forms 906) for these years purporting to settle their dispute as to the adjustments and deficiencies. 2 Additionally, the taxpayers executed Forms 1902-B and 4549--"Reports of Income Tax Examination Changes." The agreements were executed by taxpayers on July 31, 1984. Some two weeks later, in mid-August, the agreements were approved by the Commissioner's authorized representative. The next day, the taxpayers forwarded to the IRS their check in the amount of $258,956.18. Notations on the check indicated how the sum was to be apportioned among tax years; the year-by-year amounts corresponded exactly with the deficiency amounts to which the taxpayers had agreed. Taxpayers remitted additional checks to cover interest on the deficiencies.

Some time after their remittances, taxpayers became aware that the IRS had not formally assessed the deficiencies within the time allowed by statute and their agreed extension of the statutory period. 3 After informal claims for refund were denied, taxpayers brought this action in the district court in June of 1988 for return 4 of the sums they had paid for deficiencies and interest.

After a hearing on cross-motions for summary judgment, the district court granted judgment in the amount of $333,641.17 5 in favor of the taxpayers, ruling essentially that the agreements admitting to the deficiencies were subject to a condition that the government comply with all the provisions of the Internal Revenue Code, including the requirement of Sec. 6501 that assessments be made within three years after filing of returns or by the end of any agreed extension period. The district court in effect concluded that the taxpayers' checks were remitted to the IRS not as payments but as deposits conditioned on a subsequent assessment and that--since the IRS did not timely assess the deficiencies--the taxpayers were entitled to a return of the deposits. The government on appeal contends that the remittances were payments of tax which the government is entitled to retain even if no timely assessment was made.

II

It should be apparent from the above discussion that taxpayers are not contending they initially paid the correct amount of tax when they filed their returns for tax years 1976-1979. By executing the Closing Agreements and associated forms, they acknowledged they owed taxes for those years, and they do not now contend that those Closing Agreements were invalid. Rather, they seek to gain advantage from the IRS's error of not making timely assessment.

Taxpayers point out correctly that the appellate courts' task in tax cases such as this is not that of weighing equities, but of determining technical application of the law. We agree with the well-established view that tax laws are technical and, for the most part, are to be accordingly interpreted. E.g., Lewyt Corp. v. Commissioner, 349 U.S. 237, 240, 75 S.Ct. 736, 739, 99 L.Ed. 1029 (1955); Brafman v. United States, 384 F.2d 863, 867-68 (5th Cir.1967); Richardson v. Smith, 301 F.2d 305, 306 (3d Cir.) ("taxation is a game which must be played strictly in accordance with the rules"), cert. denied, 371 U.S. 820, 83 S.Ct. 36, 9 L.Ed.2d 60 (1962). But cf. United States v. Dalm, --- U.S. ----, 110 S.Ct. 1361, 1368 n. 6, 108 L.Ed.2d 548 (1990) (applying a "common sense" approach to the definition of "overpayment"). Even given technical interpretation and application, however, we conclude that the 1984 remittances of the Ewings were payments of principal and interest on their tax deficiencies (as agreed to by them) properly collected by the IRS, and that the failure of the government to comply with the requirements of 26 U.S.C. Sec. 6501 does not entitle taxpayers to return of those monies.

Title 26 U.S.C. Sec. 6501, "Limitations on assessment and collection," provides:

(a) General rule.--Except as otherwise provided in this section, the amount of any tax imposed by this title shall be assessed within 3 years after the return was filed (whether or not such return was filed on or after the date prescribed) or, if the tax is payable by stamp, at any time after such tax became due and before the expiration of 3 years after the date on which any part of such tax was paid, and no proceeding in court without assessment for the collection of such tax shall be begun after the expiration of such period.

* * * * * *

(c) Exceptions.--

* * * * * *

(4) Extension by agreement.--Where, before the expiration of the time prescribed in this section for the assessment of any tax imposed by this title ... both the Secretary and the taxpayer have consented in writing to its assessment after such time, the tax may be assessed at any time prior to the expiration of the period agreed upon.

The taxpayers contend that their remittances to the IRS were not payments of tax, but deposits, and that they are entitled to their return because the IRS did not comply with the conditions on which it was to be permitted to apply the deposit to their tax liabilities--i.e., making formal assessments within the appropriate time period. Their argument is that, prior to assessment, there can be no tax liability and thus no "payment" of tax. 6 They suggest that, once the statutory period for assessment is past, it is impossible for the government to create a tax liability, and therefore any "deposits" made in anticipation of assessment must be returned. Although taxpayers have cited to cases in which the reasoning infers support of their position, we believe the weight of authority and the plain meaning of the statute compel a different conclusion.

III

There has been no firm resolution of the question of whether a taxpayer is entitled to return of monies remitted in accordance with their admitted tax deficiencies simply because the IRS failed to assess within the time requirements of Sec. 6501. Several cases from the 1930's support the government's position that it may retain such payments, 7 but those holdings arguably were brought into question by the Supreme Court case of Rosenman v. United States, 323 U.S. 658, 65 S.Ct. 536, 89 L.Ed. 535 (1945). That case and subsequent decisions by several of our sister circuits have entertained questions necessarily implicating the issue of the necessity of assessment, but the outcomes in each of those cases hinged on distinct issues relating to "payment." 8

Rosenman, on which taxpayers rely heavily, decided whether estate taxes had been "paid" when remitted by the taxpayer or when later assessed by the IRS. After receiving an extension of time for filing the estate tax return, the Rosenman estate delivered a check to the IRS, noting "This payment is made under protest and duress, and solely for the purpose of avoiding penalties and interest, since it is contended by the executors that not all of this sum is legally or lawfully due." Id. at 660, 65 S.Ct. at 537. The check was delivered on December 24, 1934. The IRS placed the delivered funds in a suspense account to the credit of the estate. Later, the estate filed its return. The IRS audited the return and assessed a deficiency, and the estate paid additional taxes.

In 1940, six years after the original check had been remitted, the estate filed a claim for refund, which was rejected. The estate then filed suit in the Court of Claims, which held that recovery was barred by the three-year statute of limitations 9 running from the date the taxpayer's remittance was forwarded. The Supreme Court, reversing, held that the statute of limitations commenced running only when the...

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