Goldstein v. United States

• Decision Date: 14 December 1955
• Docket Number: 15356.,No. 15355,15355
• Citation: 227 F.2d 1
• Parties: Esther GOLDSTEIN, Appellant, v. UNITED STATES of America, Appellee. Jack NELSON, Appellant, v. UNITED STATES of America, Appellee.
• Court: U.S. Court of Appeals — Eighth Circuit

227 F.2d 1 (1955)

Esther GOLDSTEIN, Appellant, v. UNITED STATES of America, Appellee.

Jack NELSON, Appellant, v. UNITED STATES of America, Appellee.

Nos. 15355, 15356.

United States Court of Appeals Eighth Circuit.

November 17, 1955.

Rehearing Denied December 14, 1955.

Gilbert Weiss and Rodney Weiss, St. Louis, Mo. (Martin A. Rosenberg, St. Louis, Mo., on the brief), for appellants.

David O. Walter, Atty., Department of Justice, Washington, D. C. (H. Brian Holland, Asst. Atty. Gen., Ellis N. Slack and John J. Kelley, Jr., Attys., Department of Justice, Washington, D. C., Harry Richards, U. S. Atty., and Wayne H. Bigler, Jr., Asst. U. S. Atty., St. Louis, Mo., on the brief), for appellee.

Before SANBORN, COLLET and VAN OOSTERHOUT, Circuit Judges.

SANBORN, Circuit Judge.

These appeals are from judgments dismissing two actions, one brought by Esther Goldstein and the other by Jack Nelson, to recover income taxes for the years 1943, 1944, 1945 and 1946, alleged to have been illegally collected. Both actions arose out of the same facts, which were not in substantial dispute. The cases were consolidated for trial and for appeal.

The question for decision is whether the Government was precluded from denying that the taxpayers overpaid their taxes for the years in suit, because the Commissioner of Internal Revenue, after they had paid the taxes reported by them, had erroneously determined that the income received by them from a partnership, of which they were members, was not their income but belonged to other partners, and had assessed deficiencies against the other partners accordingly.

The taxpayers were residents of the city of St. Louis. They filed their individual income tax returns for the years 1942 to 1946, inclusive, with the Collector of Internal Revenue for the First District of Missouri and paid to him the taxes they reported as due for the years 1943 to 1946, inclusive. They were members of a family partnership known as Susan Shane Dresses, formed in 1941 to engage in making and selling women's dresses. There were four partners: Samuel Goldstein; his wife, Esther Goldstein; their son, Jack Nelson; and their son-in-law, Sylvan Wolf. Each of the partners had made a contribution to the original capital of the partnership. The partnership continued until August, 1946, when it was succeeded by a corporation, in which the former partners became stockholders.

The partnership filed federal partnership information returns. Each of the partners shared in the distribution of the partnership net earnings in each of the years in suit.

Late in 1946 or early in 1947, the Office of the Internal Revenue Agent in Charge for the First District of Missouri commenced an audit and field investigation of the partnership returns filed by Susan Shane Dresses. The Revenue Agent who conducted the investigation concluded and reported that Esther Goldstein had not been a bona fide partner, and that Jack Nelson, for the years prior to October 1, 1945, had not been such a partner. The Agent testified at the trial that it had appeared to him that Esther Goldstein had made no capital contribution to the partnership and that he had considered Jack Nelson too immature and inexperienced to be a partner. A copy of the Agent's report was mailed to Susan Shane Dresses by the Internal Revenue Agent in Charge, with a letter of transmittal dated June 15, 1950.

On December 28, 1950, the Commissioner of Internal Revenue made a timely assessment against Samuel Goldstein of deficiencies in income taxes for the calendar years 1942 to 1946, inclusive, plus interest and fraud penalties totaling $431,031.81, and a similar assessment against Sylvan Wolf in the sum of $121,199.95. Of the sum assessed against Samuel Goldstein, only $820.63 has been paid, and all of the assessment against Sylvan Wolf remains unpaid.

The deficiencies in tax assessed against Samuel Goldstein and Sylvan Wolf for the years in suit were partially based upon an increase in the taxable net income of the partnership, Susan Shane Dresses. The remainder was based upon the nonrecognition or disallowance of Esther Goldstein as a partner during the years involved and the disallowance of Jack Nelson as a partner prior to October 1, 1945, and the taxing to Samuel Goldstein and Sylvan Wolf of the partnership income reported by Esther Goldstein as her income on her individual income tax returns for the years 1942 to 1946, and of the partnership income reported by Jack Nelson on his individual income tax returns for the years 1942 to 1944 and a portion of such income reported by him for the year 1946.

Samuel Goldstein and Sylvan Wolf filed no petition with the Tax Court contesting the deficiencies assessed against them. The assessments have not been abated. After December 28, 1950, notices of federal tax liens were filed with respect to them and have not been released of record.

The Commissioner also assessed a deficiency in tax of $6,946.63 plus interest and civil fraud penalty of $3,473.31 against Jack Nelson for the year 1946. Of this deficiency and penalty, Nelson has paid only $333.42. The basis for this deficiency does not appear in the printed record.

The taxpayers, Esther Goldstein and Jack Nelson, on July 16, 1951, filed timely claims for refund, asserting as the basis therefor the disallowance by the Commissioner of income reported by them as their income from the partnership and the determination that such income was taxable to others.

The taxpayers in their amended complaints, in substance, alleged that during the years 1943, 1944, 1945 and 1946 they were partners in Susan Shane Dresses, and paid the tax upon the income received by them from the partnership, but that the Government, through the Commissioner, refused to recognize them as partners for tax purposes, disallowed as income taxable to the taxpayers all partnership income paid to them, and allocated and taxed all such income to others, and that therefore the taxpayers had erroneously and illegally paid the taxes which they reported.

The taxpayers alleged that they accepted the determination of the Commissioner, but that he arbitrarily refused to issue to them certificates of overassessment unless they would permit the overassessments to be credited against the tax of others. Esther Goldstein asked judgment for $45,538.58, the total amount of income taxes she had paid on her distributive share of partnership income during the years in suit, and Jack Nelson asked judgment for...