Higginbotham v. U.S., 75-1487

• Decision Date: 22 June 1977
• Docket Number: No. 75-1487,75-1487
• Citation: 556 F.2d 1173
• Parties: 77-2 USTC P 16,265 Carl Junior HIGGINBOTHAM, Appellee, v. UNITED STATES of America, Appellant.
• Court: U.S. Court of Appeals — Fourth Circuit

Page 1173

556 F.2d 1173

77-2 USTC P 16,265

Carl Junior HIGGINBOTHAM, Appellee, v. UNITED STATES of America, Appellant.

No. 75-1487.

United States Court of Appeals Fourth Circuit.

Argued Jan. 10, 1977.

Decided June 22, 1977.

Murray S. Horwitz, Atty., Tax Div., Dept. of Justice, Washington, D. C. (John A. Field, III, U. S. Atty., Charleston, W. Va., Scott P. Crampton, Asst. Atty. Gen., Gilbert E. Andrews and Michael L. Paup, Attys., Tax Div., Dept. of Justice, Washington, D. C., on brief), for appellant.

Franklin S. Fragale, Jr., Charleston, W. Va. (Stanley E. Preiser, Preiser & Carrico, Charleston, W. Va., on brief), for appellee.

Before HAYNSWORTH, Chief Judge, BRYAN, Senior Circuit Judge, and WYZANSKI, ^* Senior District Judge.

HAYNSWORTH, Chief Judge:

The government appeals the verdict below because it is not satisfied with the amount the jury awarded on its counterclaim against the taxpayer. It argues that the trial court erroneously placed the burden of proof regarding the counterclaim on the government and erred in telling the jury not to consider certain factors in determining the amount of taxes due. We find no prejudicial error in the trial court's instructions.

The only real issue at trial involved the amount of taxes due the government. After raiding the taxpayer's gambling operation, the IRS determined that he owed $353,082.06 in wagering excise taxes and assessed that amount against him. The taxpayer paid $293.50 on the assessment and then sued for a refund. ¹ The government counterclaimed for the unpaid balance. At the trial the taxpayer conceded that he had been in the business of accepting wagers, that he was not entitled to a refund, and that he owed the government more money.

Both parties introduced their own computation of the amount owed. The court properly told the jury that the only question was how much the taxpayer owed, but its initial instructions regarding the burden of proof on the government's counterclaim failed to satisfy either party. After hearing the objections to its instructions, the court called the jury back and gave the following instruction:

In a case, in any case, the side asserting a claim to begin with has the burden of proof of his case, to prove his case by a preponderance of the evidence. In this case we are concerned mostly with the counterclaim of the Government, and on that counterclaim to begin with the Government has the burden of proof. All right. The law says that when there are no records kept and the Government uses the projection methods then there is a presumption then that the figures are right and the burden of going forward with the evidence shifts. The burden of proof still remains with the Government but the burden of going forward with the evidence, which is not exactly the same thing as the burden of proof, it then puts it up to the plaintiff in this case to come forth with competent and relevant evidence to show that that was wrong. But the burden of proof itself never does shift from the Government. They just get the advantage of that presumption. Then when they go forward with relevant and competent evidence that takes away that presumption and then we are back to where we started from.

The Government objected to the new instruction contending that the taxpayer should bear the same burden of proof on the counterclaim as on the refund claim. The jury returned a verdict for the Government of $48,388.92.

The Government says that the court should have told the jury that the taxpayer must prove that the Government's assessment was wrong and must show the amount that he actually owed. Although such an instruction is proper in a refund suit where the plaintiff must show what he actually owes in order to prove that he deserves a refund, Compton v. United States, 334 F.2d 212, 216 (4th Cir. 1964), it is not appropriate regarding a Government counterclaim to collect taxes which have been assessed but not paid. We agree with the Second Circuit that in response to a counterclaim, a taxpayer need only prove by a preponderance of the evidence that the Government's assessment is erroneous, and, once that burden is met, the Government, not the taxpayer, must prove how much the taxpayer actually owes. ² Lesser v. United States,368 F.2d 306, 310 (2d Cir. 1968); United States v. Lease, 346 F.2d 696, 701 (2d Cir. 1965). But see, DeLorenzo v. United States, 555 F.2d 27 (2d Cir. 1977). The Government bears the same burden of proof on a counterclaim to collect taxes as it does when it initiates a collection suit.

It is well established that, in a deficiency suit by the Government to collect taxes, a taxpayer need not show how much he actually owes once he has shown the Government's claim to be erroneous. Helvering v. Taylor, 293 U.S. 507, 515, 55 S.Ct. 287, 79 L.Ed. 623 (1935). The taxpayer must show what he actually owes in a refund suit because the ultimate question in such a suit is not whether the assessment was wrong but whether the amount paid exceeded the amount due. Compton v. United States, supra at 216. In a collection suit or a counterclaim in a refund suit, the issue is whether the Government is entitled to what it has assessed. The presumption of administrative regularity, the need to encourage taxpayers to keep records, and the governmental interest in facilitating the collection of taxes justify requiring the taxpayer to pay what the Government asks unless he can prove that the Government's assessment is excessive. Once the taxpayer has proved that the Government's assessment is excessive, there is no sufficient justification for relieving the Government of the burden of showing what the taxpayer owes.

The cases upon which the Government relies are not inconsistent with our holding. G. M. Leasing Corp. v. United States, 514 F.2d 935 (10th Cir. 1975) held that the plaintiffs had not shown the Government's assessment to be erroneous and, thus, the Government could rely on the assessment to sustain its case. Psaty v. United States, 442 F.2d 1154, 1160 (3d Cir. 1971); Liddon v. United States, 448 F.2d 509, 514 (5th Cir. 1971) and United States v. Rexach, 482 F.2d 10, 15-17 (1st Cir. 1973) indicate that the taxpayer has more than a procedural burden of going forward in response to a counterclaim in a refund suit and must actually prove the assessment wrong. Although Liddon contains language saying that there is no difference in the taxpayer's...