Gustin v. U.S. I.R.S.

• Decision Date: 05 July 1989
• Docket Number: No. 88-1370,88-1370
• Citation: 876 F.2d 485
• Parties: -5163, 89-2 USTC P 9423 Mike GUSTIN, Plaintiff-Appellant v. UNITED STATES of America, INTERNAL REVENUE SERVICE, Defendant-Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 485

876 F.2d 485

64 A.F.T.R.2d 89-5163, 89-2 USTC P 9423

Mike GUSTIN, Plaintiff-Appellant v. UNITED STATES of America, INTERNAL REVENUE SERVICE,

Defendant-Appellee.

No. 88-1370.

United States Court of Appeals, Fifth Circuit.

July 5, 1989.

Donald W. Hicks, Sr., Dallas, Tex., for plaintiff-appellant.

Stuart E. Horwich, Gary R. Allen, Chief, Appellate Section, Tax Div., Dept. of Justice, William S. Rose, Jr., Asst. Atty. Gen., and Jonathan S. Cohen, Washington, D.C., for defendant-appellee.

Appeal from the United States District Court for the Northern District of Texas.

Before REAVLEY and POLITZ, Circuit Judges, and HUNTER ^*, District Judge.

REAVLEY, Circuit Judge:

The taxpayer, a former corporate officer, brought this action for a refund of employee withholding taxes owed by the corporation and assessed against him individually. The government counterclaimed for collection of the outstanding taxes. The district court entered judgment in favor of the government. Except in one respect, we reverse.

I. Background

There are two closely associated corporations in this case. Western Oil & Mineral Co. (Western) was an energy exploration and development company headquartered in Snowmass, Colorado, and was owned and operated by Bruce Miller, its president, and Gerald Sawall, its chief financial officer. Prior to September of 1981, Western owned a drilling operation in Eastland, Texas. During the third quarter of 1981, however, Western incorporated its Eastland drilling operation as a wholly-owned subsidiary, called Great Western Natural Resources, Inc. (Great Western). Western continued to exercise substantial control over Great Western, although it did not undertake to manage the day-to-day drilling activities. Western retained virtually complete financial control over Great Western, handling the accounting, payroll, and taxes for the subsidiary out of the Colorado office. Neither Western nor Great Western paid to the United States the income taxes withheld for the employees in Eastland for the third quarter of 1981 or the fourth quarter of 1981. The Internal Revenue Service has assessed against Great Western $29,738.42 for the third quarter taxes and $31,210.30 for the fourth quarter taxes, totaling $60,948.72 (excluding penalties and interest). Both corporations are now defunct, and both Miller and Sawall are apparently beyond the reach of the Internal Revenue Service.

The plaintiff, Mike Gustin, was hired as a consultant in September of 1981 to report on the Eastland, Texas drilling operations. In October 1981, Gustin was made the president of Great Western. Gustin's authority as president of Great Western included the following: day-to-day management of the drilling operations; the authority to fire employees, but only limited authority to hire them; the authority to negotiate contracts and pay creditors for supplies and services necessary to maintain the company's oil rigs; the authority to sign checks for under $2,500.00 on Great Western's bank account at the Eastland National Bank, and to sign checks for more than $2,500.00 with Sawall's express approval; and the authority to sign and distribute payroll checks to Great Western's employees. Gustin had no ownership interest in the company. He had no control or access to the company's books and financial records, and he had no responsibility for calculating or paying the company's taxes.

In mid-November of 1981, Great Western received a notice from the Internal Revenue Service that its third quarter employee withholding taxes were delinquent. Gustin immediately telephoned Sawall in Colorado; and Sawall told him not to worry about it, that all the taxes were handled out of the Colorado office and to mail the notice to Sawall in Colorado. Two weeks later, Great Western received a second notice for the overdue taxes. Gustin again called Sawall, who told him that the taxes were none of his business and that the taxes would be taken care of. Gustin then called the local Internal Revenue Service office and was informed that he might be held liable for the delinquent taxes. The next week Gustin met with an Internal Revenue Service agent in Abilene, Texas to discuss his personal liability. Gustin then telephoned Sawall again, who assured him that the taxes had been paid. Not satisfied, Gustin arranged for Miller and Sawall to meet with Internal Revenue Service agents at the offices of Great Western in early December. Gustin was not allowed to attend this meeting, but he was informed afterward that the parties had reached an agreement and that the taxes would be paid immediately. After the meeting, Great Western received no further delinquency notices from the Internal Revenue Service. In late January, 1982, Gustin resigned from Great Western. Before he left, however, Gustin signed a number of papers for the corporation, including two blank form 941 tax returns.

On August 22, 1983, Gustin was assessed a timely 100 percent penalty for all the payroll taxes due for both the third and fourth quarters of 1981. Gustin then paid to the United States an amount equal to the withholding taxes owed for one employee for each quarter. Gustin paid the United States by two separate checks. Gustin filed two separate form 843 claims for refunds. Gustin then entered negotiations with an Internal Revenue Service field agent regarding the taxes for both quarters. The Internal Revenue Service denied Gustin's refund claim apparently for both quarters, but ceased collection activities pending the filing of this law suit. Gustin then sued in district court for a refund, and the United States counterclaimed to recover the balance of the assessments levied against Gustin. After the case was filed, the government's attorneys noticed that both of the refund forms filed by Gustin had the same dates on them, the dates for the fourth quarter of 1981; and the government moved to dismiss. After the trial, the district court dismissed Gustin's refund action for the third quarter of 1981 on the basis of subject matter jurisdiction. The district court found against Gustin on the merits on his refund claim for the fourth quarter of 1981, and entered judgment for the government on the government's counterclaims for both quarters.

II. Third Quarter Taxes

A. Jurisdiction of Taxpayer's Claim For Refund

Subject matter jurisdiction of the taxpayer's refund claims is based on 28 U.S.C. Sec. 1346(a)(1), which provides that district courts shall have original jurisdiction of any civil action against the United States for the recovery of any Internal Revenue tax alleged to have been erroneously or illegally assessed or collected. That jurisdiction is explicitly limited, however, by 26 U.S.C. Sec. 7422(a), which prohibits any suit or proceeding in any court for a refund of taxes prior to the filing of a claim for a refund with the Internal Revenue Service. Failure to file a claim for a refund deprives the court of subject matter jurisdiction. Zernial v. United States, 714 F.2d 431, 434 (5th Cir.1983). The form 843 which Gustin filed for the third quarter of 1981 did not have the correct date on the form; therefore, no formal claim for a refund for the taxes assessed for the third quarter was filed. Noting that Internal Revenue Service agents had actual knowledge of his refund claim for the third quarter, Gustin argues that the refund claim he filed constituted informal notice, the typographical error notwithstanding. An informal claim for a refund is valid under Sec. 7422. See United States v. Kales, 314 U.S. 186, 194, 62 S.Ct. 214, 218, 86 L.Ed. 132 (1941); Bonwit Teller & Co. v. United States, 283 U.S. 258, 264, 51 S.Ct. 395, 397, 75 L.Ed. 1018 (1931); Missouri Pacific R.R. Co. v. United States, 214 Ct.Cl. 623, 558 F.2d 596, 598 (1977). An informal claim must have a written component. Yuen v. United States, 825 F.2d 244, 245 (9th Cir.1987); Furst v. United States, 230 Ct.Cl. 375, 678 F.2d 147, 151 (1982). An oral claim, even if it gives actual notice to an Internal Revenue Service employee that a refund is being filed, is not valid. Disabled Am. Veterans v. United States, 227 Ct.Cl. 474, 650 F.2d 1178, 1180 (1981). Gustin does not rely on his oral discussions with the Internal Revenue Service, but claims that the form 843 that he filed for the third quarter, but with the incorrect date, was itself informal written notice.

An informal written claim is sufficient if it puts the Commissioner of Internal Revenue on notice that the taxpayer believes an erroneous tax has been assessed and desires a refund for certain years. Missouri Pacific R.R. Co., 558 F.2d at 598-99; Barenfeld v. United States, 194 Ct.Cl. 903, 442 F.2d 371, 374 (1971); Newton v. United States, 143 Ct.Cl. 293, 163 F.Supp. 614, 618-19 (1958). The rationale behind the requirement for a written claim is that, because many different people may work on a particular case, the fact that a refund has been claimed must be ascertainable from the file. Furst, 678 F.2d at 151; Disabled Am. Veterans, 650 F.2d at 1180. Therefore, the Internal Revenue Service need only take a written claim for a refund at face value. See Alabama By-Products Corp. v. Patterson, 258 F.2d 892, 900 (5th Cir.1958), cert. denied, 358 U.S. 930, 79 S.Ct. 318, 3 L.Ed.2d 303 (1959). It is not sufficient that the Internal Revenue Service has information somewhere in its possession from which it might deduce that the taxpayer is entitled to a refund, nor is it sufficient that a claim involving the same ground has been filed for another year or by a different taxpayer. American Radiator & Standard Sanitary Corp. v. United States, 162 Ct.Cl. 106, 318 F.2d 915, 920 (1963).

Nevertheless, there are no hard and fast rules for evaluating the sufficiency of an informal claim, and each case must be decided on its own particular set of facts "with a view towards determining whether under those facts the Commissioner knew or should have known, that a claim was being made." Newton,...