Ewing v. US

• Decision Date: 19 April 1989
• Docket Number: Civ. No. ST-C-88-71.
• Citation: 711 F. Supp. 265
• Parties: Arthur C. EWING, a/k/a A. Clifford Ewing and Maxine H. Ewing, Plaintiffs, v. The UNITED STATES of America, Defendant.
• Court: U.S. District Court — Western District of North Carolina

711 F. Supp. 265

Arthur C. EWING, a/k/a A. Clifford Ewing and Maxine H. Ewing, Plaintiffs, v. The UNITED STATES of America, Defendant.

Civ. No. ST-C-88-71.

United States District Court, W.D. North Carolina, Statesville Division.

April 19, 1989.

Steven J. Horowitz, J. Randall Groves, Joyce W. Wheeler, Weinstein & Sturges, Charlotte, N.C., for plaintiffs.

Mark Stier, Trial Atty., Tax Div., U.S. Dept. of Justice, Washington, D.C., Thomas J. Ashcraft, U.S. Atty., Clifford C. Marshall, Asst. U.S. Atty., Asheville, N.C., for defendant.

MEMORANDUM OF DECISION

RICHARD L. VOORHEES, District Judge.

THIS MATTER comes before the Court with several motions pending, including cross-motions for summary judgment. As Plaintiffs' motion for summary judgment is to be granted, their motions in limine and to compel will be rendered moot and need not be examined. Defendant's motion for summary judgment will be denied.

This is a tax matter. Plaintiffs, Arthur C. Ewing and Maxine H. Ewing, seek to recover money they remitted to the Internal Revenue Service (IRS) in connection with their tax liabilities for the years 1976-79, inclusive. Various remittances were made in connection with an audit examination the IRS made of the Ewings' returns for the years in question. Plaintiffs eventually remitted a total of $333,641.17. Although Plaintiffs make several other arguments, the key issue is whether the monies remitted constitute "deposits" which are subject to refund under appropriate conditions, rather than payments collected for taxes due and owing. This issue is decided in Plaintiffs' favor and is dispositive of the case, so Plaintiffs need not prove any of their other contentions, and this decision need not address them.

I. APPLICABLE LAW

The starting point for answering the questions posed by this case is Rosenman et al. v. United States, 323 U.S. 658, 65 S.Ct. 536, 89 L.Ed. 535 (1945). Rosenman dealt with plaintiffs, executors of an estate, who had remitted money to the IRS in connection with an estate tax dispute. They later filed for a refund. The question, as here, was whether the remittance constituted "payment" of a "tax." If so, plaintiffs would have lost, being outside the three-year limit for a tax refund claim. However, the Court ruled that the remittance was merely a "deposit," placed in a special suspense account created only "for depositing money received when no assessment is then outstanding against the taxpayer." Id. at 662, 65 S.Ct. at 538. Since the actual assessment of tax due had been made by the IRS less than three years before the taxpayer filed the claim, plaintiffs were within the statute of limitations.

The lower courts, however, are far from being in agreement that Rosenman establishes a per se rule that any monies remitted before assessment is made are always deposits and can never be payments of taxes. Those who would deny the existence of such a per se rule can point to Rosenman's remark that "on December 24, 1934 the date of the remittance, the taxpayer did not discharge what he deemed a liability nor pay one that was asserted." Id. at 662, 65 S.Ct. at 538 (emphasis added). This can be taken as creating an either/or test: the tax is paid either when remittance is made pursuant to an assessment, or when the taxpayer pays what he "deems a liability," that is, what he honestly believes he owes. Herewith, a review of cases that take that view is set forth to see why they rest on weak authority and are based on factual situations which have little to do with the present case.

In Ford v. United States, 618 F.2d 357 (5th Cir.1980), the Fifth Circuit criticized its own precedent, Thomas v. Mercantile National Bank at Dallas, 204 F.2d 943 (5th Cir.1953), which established the per se rule in that circuit, and is still good law there. Ford asserted that "nearly every other court considering the question of when tax was `paid' has adopted a course in conflict with that rule." Id. at 360 (citing cases). One case Ford cited was Hill v. United States, 263 F.2d 885 (3d Cir.1959). Hill was an open-and-shut case of a taxpayer who filled out his return wrongly and attempted to file for a refund outside the statute of limitations. "A taxpayer makes out his return form; he accompanies it with a check for the amount he figures he owes. If that is not the sending of money in discharge of the debt it is hard to figure out what a `payment' can be." Id. at 886. Hill obviously gave little or no thought to the distinction between a payment and a deposit, as it was so clear that the remittance in that particular case was a payment. Ford also cites Colt's Mfg. Co. v. Commissioner, 306 F.2d 929 (2d Cir.1962). This was a case where the government was attempting to assert that "no overpayment can exist until the assessment or allocation of the amount to the payment of a tax...." Id. at 932. Plaintiff Colt's Mfg. won, but only because "the effect of the Rosenman case was nullified by the enactment of Section 3770(c) of the Internal Revenue Code of 1939, 26 U.S.C. (1952 ed.) ...," Id. at 932-33. Obviously, this has nothing to do with Rosenman as it deals with a situation in which the case law is not applicable, there being an act of Congress that controls. Similarly, Ford cites United States v. Miller, 315 F.2d 354 (10th Cir.1963). Miller dealt with a married couple who had paid "estimated tax" for two years for which they actually owed no tax. Outside the limitations period, they applied to get it back. They lost because, said the court, the Current Tax Payment Act of 1943 specified that such a situation constitutes "payment," notwithstanding that no tax was ever owed. Id. at 358. Therefore, Miller also is based on statutory, not case law, and does not directly interpret Rosenman. Significantly, Rosenman itself stated, "(we need not here consider the effect of the Current Tax Payment Act of 1943 ...)," Rosenman, supra, 323 U.S. at 663, 65 S.Ct. at 538, suggesting that Rosenman creates general principles that can be overridden by statute, but which were not so overridden in Rosenman itself. Clearly, all three of these cases lend very weak support to the proposition Ford claims to stand for.

One case Ford cites that is a bit stronger is Fortugno v. Comm. Int. Rev., 353 F.2d 429 (3rd Cir.1965). Fortugno makes the twin observations: "Rosenman does not foreclose treating as a tax payment a remittance made prior to an assessment," and, "we believe ... the weight of authority to be that there must either be an assessment or an acquiescence in the proposed deficiency...." Id. at 435. (Emphasis added). This "acquiescence" seems to refer to some sort of formal concession by the taxpayer that he does in fact owe the tendered amount; e.g., the tax return in Hill, supra. In the instant case, the formal acquiescence, if any, would seem to have been the Closing Agreements and IRS Forms 1902-B and 4549 that the Ewings signed; but as will be seen, they carry no weight. Thus, Fortugno appears to have no applicability to today's case.

One last case that tends to support the government is Ameel v. United States, 426 F.2d 1270 (6th Cir.1970). First, it should be noted that the facts of Ameel are very different from the instant case: the taxes actually were formally assessed by the IRS after the taxpayer had signed a form agreeing to additional liability; here, they never were. This might well be the "acquiescence" Fortugno talks about. But, let us look at the language of Ameel. "However, a number of courts construed certain dicta in Rosenman to suggest that payment may be effected prior to a formal assessment...." Ameel, supra, at 1273 (citation omitted) (emphasis added). This is hardly the strongest language that might be imagined in interpreting Rosenman this way.

Clearly the above cases do not impress as being the most coherent or consistent views of Rosenman. Now let us examine the cases which go the other way. The earliest one in time is Thomas v. Mercantile Nat. Bank, supra. Thomas stands foursquare for a per se rule.

The deficiency assessment did not come into existence until the Commissioner certified the assessment list.... Until the Commissioner certified the assessment list ... there was no deficiency assessment, and no liability on the part of the taxpayer, and consequently nothing to pay. The sum deposited with the Collector ... was merely an advance deposit to cover additional tax liability expected to arise thereafter.

Id. at 944. Nothing in Thomas even remotely suggests that it is possible to pay tax before it is assessed.

Another early case is United States v. Dubuque Packing Co., 233 F.2d 453 (8th Cir.1956). There, the court said of the district court (the Northern District of Iowa, Graven, J.) from which the appeal was being taken:

It considered that a taxpayer may transfer money to tax collecting authorities for a number of reasons other than the satisfaction of a clearly defined tax liability and that not every transfer of money by a taxpayer to a Federal tax authority will constitute a `payment' under the laws relating to Internal Revenue. It reasoned that in the case of a proper tax return, the return itself defines the obligation, but where a taxpayer makes a transfer of money to the collector, the transfer itself does not define the tax obligation. Some further act is necessary. Accordingly, it concluded that a money transfer to a Federal tax authority (regardless of the original reason for the transfer) should start the statute of limitations running ... on the date that the tax obligation becomes defined. On this date the transfer becomes a `payment' because from this day forward the taxpayer has a fair opportunity to determine whether he has a claim for a refund. The Court found its course of reasoning and its conclusion supported by the decision of the Supreme Court in Rosenman v. United States ... the reasoning compelled conclusion that the taxpayer's obligation became defined when the Commissioner made

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