Horton Homes, Inc. v. US

• Decision Date: 05 January 1990
• Docket Number: Civ. A. No. 88-279-3-MAC (WDO),88-280-1-MAC (WDO) and 88-281-2-MAC (WDO).
• Parties: HORTON HOMES, INC., etc., Plaintiffs, v. UNITED STATES of America, Defendant.
• Court: U.S. District Court — Middle District of Georgia

727 F. Supp. 1450

HORTON HOMES, INC., etc., Plaintiffs, v. UNITED STATES of America, Defendant.

Civ. A. Nos. 88-279-3-MAC (WDO), 88-280-1-MAC (WDO) and 88-281-2-MAC (WDO).

United States District Court, M.D. Georgia, Macon Division.

January 5, 1990.

David D. Aughtry, Richard N. Hubert, Atlanta, Ga., John James, Macon, Ga., for plaintiffs.

Curtis Bowman, Tax Div., Dept. of Justice, Washington, D.C., for defendant.

OWENS, Chief Judge:

FACTUAL BACKGROUND

The Internal Revenue Service (IRS) conducted an extensive examination of plaintiffs' tax returns and determined tax deficiencies for each of the plaintiffs. The IRS made determinations with respect to Horton Homes, Inc. (Horton Homes) for the taxable years ending August 31, 1978, through August 31, 1982, inclusive. The IRS also made determinations with respect to plaintiffs N.D. Horton, Sr. and Maude Horton on their joint returns for the taxable years 1978, 1979, and 1980 and plaintiffs N.D. Horton, Jr. and Jacquelyn P. Horton for the taxable years 1978, 1979, and 1980.

The IRS also determined tax deficiencies with respect to three other entities related to the plaintiffs. The IRS conducted an audit for the taxable years ending April 31, 1979, through April 31, 1983, inclusive, on Horton International, Inc., which had the same shareholders as Horton Homes and the same president, N.D. Horton, Jr. In addition, the IRS conducted audits on R.J. and J. Enterprises, Inc. for the years ending July 31, 1979, and July 31, 1980, and Rufus W. and Maude Hicks for the years 1978, 1979, and 1980 taxable years.

All six entities were represented by the same attorneys. Each submitted written protests of the examination reports which had resulted in proposed tax deficiencies. The six cases were by agreement handled together by the same IRS appeals officer. On May 14, 1985, and November 22, 1985, plaintiffs' representatives met formally with the IRS appeals officer. The parties also met informally on several other occasions, and corresponded by telephone and in writing regarding settlement of the cases. Subsequently, the appeals officer and the representative of the plaintiffs and the related taxpayers reached a package agreement.¹

On December 22, 1986, plaintiffs, through their counsel, made prepayments against tax and estimated past interest to prevent the running of future interest. The IRS subsequently adjusted plaintiffs' estimate of interest to conform with its own calculation. On or about December 23, 1986, plaintiffs were advised by the representative of the IRS that the government could no longer agree to incorporate into the settlement one of the negotiated provisions favorable to the taxpayers. In response to this change, plaintiffs proposed, by letter dated December 23, 1986, that the IRS consider the prospect of abating interest under section 6404(e). According to plaintiffs, when the plaintiffs' representative met with the IRS representative, he was told that the IRS could not consider abatement of interest. Plaintiffs' counsel was advised that no guidelines had been provided by the IRS as to how to handle these matters and that, in any event, he could not, from the view of office politics, state that the District Director's office had behaved unreasonably. Counsel for plaintiffs states that he then advised the IRS representative that plaintiffs would deal with the abatement of interest elsewhere. The defendant contends that no conversation regarding abatement of interest took place.

On December 30, 1986, the taxpayer's representatives submitted Forms 870-AD for each taxpayer. Some issues directly and indirectly affected more than one entity.² The Forms 870-AD covered all periods involved in the settlement. On March 12, 1987, Sylvia Turnage, an Associate Chief of the Atlanta Appeals Office, executed the Forms 870-AD, and thereby accepted the agreement on behalf of the IRS. The Form 870-AD executed on behalf of Horton Homes, Inc. provided that it was "conditioned upon IRS acceptance of accompanying Form 870-AD relating to refunds due Horton International, Inc." The Consolidated Supporting Statement, for all taxpayers and periods, identified 29 issues for settlement.

All of the Forms 870-AD included the following language:

Pursuant to the provisions of section 6213(d) of the Internal Revenue Code of 1954, or corresponding provisions of prior internal revenue law, the undersigned offers to waive the restrictions provided in section 6213(a) of the Internal Revenue Code of 1954, or corresponding provisions of prior internal revenue laws, and to consent to the assessment and collection of the following deficiencies with interest as provided by law. The undersigned offers also to accept the following overassessments as correct:

* * * * * *

This offer is subject to acceptance for the Commissioner of Internal Revenue. It shall take effect as a waiver of restrictions on the date it is accepted. Unless and until it is accepted, it shall have no force or effect.

If this offer is accepted for the Commissioner, the case shall not be reopened in the absence of fraud, malfeasance, concealment or misrepresentation of material fact, an important mistake in mathematical calculations, deficiencies or overassessments resulting from adjustments made under Subchapters C and D of Chapter 63 concerning the tax treatment of partnership and subchapter S items determined at the partnership and corporate level, or excessive tentative allowances of carrybacks provided by law; and no claim for refund or credit shall be filed or prosecuted for the year(s) stated above other than for amounts attributed to carrybacks provided by law.

NOTE: — The execution and filing of this offer will expedite the above adjustment of tax liability. This offer when executed and timely submitted, will be considered a claim for refund for the above overassessments, as provided in Revenue Ruling 68-65, C.B. 1968-1,555. It will not, however, constitute a closing agreement under section 7121 of the Internal Revenue Code. (emphasis added).

If this offer is executed with respect to a year for which a JOINT RETURN OF A HUSBAND AND WIFE was filed, it must be signed by both spouses unless one spouse, acting under a power of attorney, signs as agent for the other.

If the taxpayer is a corporation, the offer shall be signed with the corporate name followed by the signature and title of the officers authorized to sign.

This offer may be executed by the taxpayer's attorney or agent provided this action is specifically authorized by a power of attorney which, if not previously filed, must accompany the form.

Pursuant to the executed Forms 870-AD, on December 22, 1986, Horton Homes paid $652,258.87 in tax and $592,715.86 in interest; N.D. Horton, Sr. and Maude Horton paid $36,077.31 in tax and $41,857.34 in interest; N.D. Horton, Jr. and Jacquelyn Horton paid $39,536.16 in tax and $45,850.34 in interest. Due to the settlement agreement, on May 27, 1987, the Internal Revenue Service issued a refund to Horton International, Inc. in the amount of $240,482.82, including $102,482.82 in interest. As a result of the package settlement agreement, the combined tax deficiencies of the related taxpayers was decreased from $1,566,852.94 to $732,322.14.

After the Forms 870-AD were executed settling the cases, plaintiffs filed Forms 843 claims for refund with the IRS on October 7, 1987. Plaintiffs Horton Homes, Inc., N.D. Horton, Jr. and Jacquelyn P. Horton, N.D. Horton, Sr. and Maude Horton seek by these claims for refund to recover, respectively, $478,267.22, $34,467.44, and $31,245.49 in interest paid for the years subject to the settlement beginning after January 1, 1979, alleged to have been erroneously collected from them, plus interest from date of payment. The defendants took no action on the plaintiffs' claim for refund.

On August 31, 1988, plaintiffs filed the instant actions with this court seeking the recovery of interest paid which plaintiffs allege was illegally assessed and collected. Plaintiffs base their claim for refund solely on section 6404(e)(1) of the Internal Revenue Code of 1986. Defendants answered the plaintiffs complaint denying that plaintiffs were entitled to a refund.

Subsequently, the defendant filed a motion to dismiss or in the alternative, motion for summary judgment. Plaintiffs have filed a response to defendant's motion and a cross-motion for partial summary judgment as to defendant's equitable estoppel defense. A hearing was held on December 19, 1989. After due consideration of the briefs submitted by the parties, the arguments contained therein, and the relevant case law, the court issues the following order.

DISCUSSION

As a threshold matter the court must address the defendant's argument that this court lacks subject matter jurisdiction over plaintiffs' complaints. Defendant argues that the plaintiffs in these cases cannot avail themselves of section 1346 because the facts plainly demonstrate that there has been no tax or interest which has been illegally or erroneously assessed or collected; nor do plaintiffs allege in their complaints that taxes have been erroneously or illegally assessed or collected. Defendant further argues that even if the court has subject matter jurisdiction to hear plaintiffs' claims, the decision of the IRS to abate, or not to abate, interest pursuant to 26 U.S.C. § 6404(e)(1) is not judicially reviewable.

Plaintiffs contend that the court does have subject matter jurisdiction pursuant to 28 U.S.C. Sections 1340 and 1346.³ Title 28 U.S.C. § 1346(a)(1), provides in relevant part:

(a) The district courts shall have original jurisdiction ... of:

(1) 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, or any penalty claimed to have been collected without authority or any sum alleged to have been excessive or in any manner wrongfully collected under the

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