Holbrook v. United States

• Citation: 284 F.2d 747
• Decision Date: 30 November 1960
• Docket Number: No. 16704.,16704.
• Parties: Frederic P. HOLBROOK, Trustee in Bankruptcy of the Estate of Mitchell H. Hewitt, bankrupt, Appellant, v. UNITED STATES of America, Appellee.
• Court: United States Courts of Appeals. United States Court of Appeals (9th Circuit)

284 F.2d 747 (1960)

Frederic P. HOLBROOK, Trustee in Bankruptcy of the Estate of Mitchell H. Hewitt, bankrupt, Appellant, v. UNITED STATES of America, Appellee.

No. 16704.

United States Court of Appeals Ninth Circuit.

November 30, 1960.

Edwards & Edwards, Lee Edwards, Eleanor Edwards, Seattle, Wash., for appellant.

Charles K. Rice, Asst. Atty. Gen., Lee A. Jackson, Robert N. Anderson, Arthur I. Gould, Attys., Dept. of Justice, Washington, D. C., Charles P. Moriarty, U. S. Atty., Seattle, Wash., for appellee.

Before STEPHENS and HAMLEY, Circuit Judges, and EAST, District Judge.

STEPHENS, Circuit Judge.

On November 23, 1948 and January 1, 1949, Internal Revenue taxes were seasonably assessed by the United States against Mitchell H. Hewitt, subsequently a bankrupt. These taxes had not yet been collected when bankruptcy was adjudicated on October 1, 1957, and a claim was thereafter made by the government upon the bankrupt's estate. The Referee disallowed the claim but was reversed on review by the District Court. The trustee in bankruptcy appeals from the District Court's decision.

Allowance or disallowance of appellee's claim depends upon the validity of a tax collection waiver signed and delivered by the bankrupt on July 22, 1954, extending the time for collection of his tax liabilities until December 31, 1960. We are governed by the Internal Revenue Code of 1939, see 1954 I.R.C. § 7851(a)(6), 26 U.S.C.A. § 7851(a) (6). The pertinent provision thereof reads as follows:

"§ 276 * * *

"(c) Collection after assessment. Where the assessment of any income tax imposed by this chapter has been made within the period of limitation properly applicable thereto, such tax may be collected by distraint or by a proceeding in court, but only if begun (1) within six years after the assessment of the tax, or (2) prior to the expiration of any period for collection agreed upon in writing by the Commissioner and the taxpayer before the expiration of such six-year period. The period so agreed upon may be extended by subsequent agreements in writing made before the expiration of the period previously agreed upon."

Appellant argues that the Commissioner's agreement in writing to a taxpayer's waiver postponing the deadline for collection of assessed taxes is a prerequisite to its validity under the Code provision above quoted, and that neither the Commissioner nor anyone acting on his behalf expressed written agreement to the bankrupt's waiver before the expiration of the applicable six-year periods on November 23, 1954 and January 1, 1955. The District Court ruled that although the Commissioner had not signed the waiver within the allotted time, his failure to agree in writing did not render the waiver ineffective. Consequently, the court held that the government's claim was not barred by the statute of limitations and should not have been disallowed.

The contention put forward by appellant is one which has plagued this court before. We have held consistently that the Commissioner's consent or agreement in writing is not indispensable to the validity of a tax collection waiver executed by the taxpayer under Revenue Act provisions to which § 276(c) is the successor and from which, the parties apparently agree, it cannot be distinguished.¹ Commissioner of Internal Revenue v. Hind, 9 Cir., 1931, 52 F.2d 1075; McCarthy Co. v. Commissioner, 9 Cir., 1935, 80 F.2d 618, 620; Crown Willamette Paper Co. v. McLaughlin, 9 Cir., 1936, 81 F.2d 365, 368. See also John M. Parker Co. v. Commissioner, 5 Cir., 1931, 49 F.2d 254, 256. Other courts have not been in accord. Commissioner of Internal Revenue v. United States Refractories Corp., 3 Cir., 64 F.2d 69, affirmed without opinion by an equally divided court, 1933, Helvering v. United States Refractories Corp., 290 U.S. 591, 54 S.Ct. 94, 78 L.Ed. 521; United States v. Bertelsen & Petersen Engineering Co., 1 Cir., 1938, 95 F.2d 867; S. S. Pierce Co. v. United States, 1 Cir., 1937, 93 F.2d 599; Atlantic Mills of Rhode Island v. United States, 1933, 3 F. Supp. 699, 78 Ct.Cl. 219; J. T. Sneed, Jr., 1934, 30 B.T.A. 1121; American Railways Co., 1934, 30 B.T.A. 939; Corn Products Refining Co., 1931, 22 B.T.A. 605; Melville W. Thompson, 1930, 18 B.T.A. 1192; Chadbourne & Moore, 1929, 16 B.T.A. 961. Despite such an accumulation of contrary authority, and for the reasons which follow, we adhere to our ruling in Commissioner of Internal Revenue v. Hind, supra.

The setting for the difference of opinion noted above was provided by the Supreme Court in Florsheim Bros. Drygoods Co. v. United States, 1930, 280 U.S. 453, 50 S.Ct. 215, 74 L.Ed. 542, and Stange v. United States, 1931, 282 U.S. 970, 51 S.Ct. 145, 75 L.Ed. 335. In Florsheim the taxpayer urged that a waiver signed by both taxpayer and Commissioner under § 250(d) of the Internal Revenue Act of 1921, see note 1, supra, constituted a contract binding upon the government, for otherwise Congress would not have called for the written consent of the Commissioner. The Court rejected this argument, holding that waivers under § 250(d) were not contracts. The requirement in the statute that the Commissioner consent in writing does not imply that the lawmakers intended a contract to result. If a purpose for the Commissioner's consent must be shown, it "exists in the general desirability of the requirement as an administrative matter." 280 U.S. at page 466, 50 S.Ct. at page 219. In Stange, the Court again dealt with a waiver executed by both the taxpayer and the Commissioner under the 1921 Act, and again declared, "As pointed out in Florsheim, a waiver is not a contract, and the provision requiring the Commissioner's signature was inserted purely for administrative purposes and not to convert into a contract what is essentially a voluntary, unilateral waiver of a defense by the taxpayer." 282 U.S. at page 276, 51 S.Ct. at page 147. See also Aiken v. Burnet, 1931, 282 U.S. 277, 281, 51 S.Ct. 148, 75 L.Ed. 339; Burnet v. Chicago Ry. Equipment Co., 1931, 282 U.S. 295, 298, 51 S.Ct. 137, 75 L.Ed. 349.

With these statements in mind we decided Commissioner of Internal Revenue v Hind, supra.² We were there faced, as the Supreme Court in Stange and Florsheim was not, with a waiver to which the Commissioner had not consented in writing, and with the argument that because of the Commissioner's omission, the waiver was ineffective. Assuredly, the Commissioner's written consent was required by the statute. But, we ruled, the fact that consent was required did not mean that a waiver without it was invalid. The purpose of the statutory requirement was administrative; to provide for the proper, orderly and prompt conduct of business. We reasoned that neither the rights of the taxpayer nor the interests of the public would be injuriously affected by the Commissioner's failure to sign the taxpayer's waiver of the statute of limitations within which the government might collect outstanding taxes. In consequence, applying a traditional canon of statutory construction, we deemed the requirement that the Commissioner consent in writing directory rather than mandatory, and concluded that although the requirement had been disregarded, the waiver filed by the taxpayer was nonetheless valid and effective. See French v. Edwards, 1871, 13 Wall. 506, 511, 80 U.S. 506, 511, 20 L.Ed. 702; Erhardt v. Schroeder, 1894, 155 U.S. 124, 129, 15 S.Ct. 45, 39 L.Ed. 94; United States v. Maney, 7 Cir., 1927, 21 F.2d 28, 29, all relied on in Hind. Our subsequent decisions in McCarthy Co. v. Commissioner, supra, and Crown Willamette Paper Co. v. McLaughlin, supra, reiterated our earlier conclusion without extension or discussion of the reasoning by which it was reached.

Hind went not long unchallenged. In March, 1933, the Third Circuit handed down its opinion in Commissioner of Internal Revenue v. United States Refractories Corp., 64 F.2d 69. The taxpayer had there executed a waiver under § 278 (d) of the Internal Revenue Act of 1926, see note 1, supra, containing a reservation by the taxpayer of all rights which it might have had under the 1921 Act with its five-year statute of limitations for the collection of taxes. The waiver had been executed after the five-year period had terminated, and by its reservation the taxpayer sought to preclude the application of the six-year limitation period which became law with the passage of the 1926 Act. The Commissioner did not sign the waiver in question, and the court held in consequence that it could have no effect.

The court conceded that a waiver even when signed by both taxpayer and Commissioner did not constitute a contract between them. Even so, the requirement that the Commissioner consent in writing was made for some purpose. This purpose, said the court, might well be to prove that the terms of a waiver are those to which both taxpayer and Commissioner agreed. Or perhaps Congress may have wished to protect the Commissioner from falling prey unknowingly to the terms which a taxpayer might impose in a waiver, the taxpayer's ability to impose such terms arising from the fact that, in the court's eyes, he could force the Commissioner to bargain for an extension of the limitation period. The Commissioner's consent thus prevents the execution by taxpayers of waivers which waive nothing and precludes the combination of the Commissioner's delay in collection and his ignorance of the terms of a waiver from resulting in the loss of the tax to the government. On these grounds and despite its awareness of our decision in Hind, the court held that a waiver without the Commissioner's written agreement is void and ineffective.

The same result was reached in Atlantic Mills of Rhode Island v. United States, decided by the Court of Claims in June, 1933, and reported at 3 F.Supp. 699, 78 Ct.Cl. 219. There the waiver the validity of which was challenged contained a proviso attempting to limit in duration the effect of previous waivers embodying the...