Kellogg-Citizens Nat. Bank of Green Bay, Wis. v. United States

• Decision Date: 17 April 1964
• Docket Number: No. 108-62.,108-62.
• Citation: 330 F.2d 635
• Parties: KELLOGG-CITIZENS NATIONAL BANK OF GREEN BAY, WISCONSIN, Executor of the Estate of Joseph B. Holzer, Deceased v. The UNITED STATES.
• Court: U.S. Claims Court

330 F.2d 635 (1964)

KELLOGG-CITIZENS NATIONAL BANK OF GREEN BAY, WISCONSIN, Executor of the Estate of Joseph B. Holzer, Deceased v.The UNITED STATES.

No. 108-62.

United States Court of Claims.

April 17, 1964.

Paul P. Lipton, Milwaukee, Wis., for plaintiff; Richard A. Petrie, Milwaukee, Wis., of counsel.

Philip I. Brennan, Washington, D. C., with whom was Asst. Atty. Gen., Louis F. Oberdorfer, for defendant; Edward S. Smith, Lyle M. Turner and Robert Livingston, Washington, D. C., were on the brief.

Before JONES, Chief Judge, REED, Justice(Retired), sitting by designation, and LARAMORE, DURFEE and DAVIS, Judges.

DAVIS, Judge.

In this estate tax refund suit, the first question to be decided is whether the taxpayer filed a timely claim with the Internal Revenue Service asking for the refund now sought.On that threshold issue the facts are undisputed.Plaintiff, as the executor of the estate of Joseph B. Holzer who died on April 21, 1954, filed an estate tax return on April 26 or 27, 1955, and immediately paid an estate tax of $26,275.37.About two years later, on June 25, 1957, the Internal Revenue Service issued deficiency notices claiming additional income tax and penalties (aggregating $111,581.45) from the decedent (and his wife) for the years 1945 through 1953.In September 1957, plaintiff, on behalf of the decedent, petitioned the Tax Court to set aside the proposed deficiencies in income taxes.The cases were to be heard in March 1960, but before trial they were compromised and the parties entered into settlement stipulations which were accepted by the Tax Court on April 7, 1960.Under the settlement, the court decided that there were no deficiencies in the decedent's income taxes for 1945 through 1947, but that additional taxes and penalties amounting to $41,685.37 were owing for 1948 through 1953.These additional taxes and penalties were assessed on June 3, 1960, and paid by the estate (with interest) on June 13, 1960.

No part of these extra taxes, penalties, or interest was deducted on the original estate tax return, nor had the plaintiff deducted the legal fees of $14,000 paid to the attorney representing the estate before the Tax Court.

On June 17, 1960, very shortly after payment of the additional income taxes, plaintiff filed an amended estate tax return and a claim for refund of estate taxes in the sum of $17,739.46.On April 26, 1961, the estate filed an amended refund claim raising its demand to $24,334.62.Both claims rested largely on a recomputation of the estate tax to allow as deductions the additional income taxes (including penalties and interest), as well as the legal fees.¹(The plaintiff's position was that these taxes and fees were properly deductible in computing the estate tax.)The two refund claims were denied by the Service on September 8, 1961.This suit was begun on April 12, 1962.

The Government's point (on its motion for summary judgment) is simply that, although the statute requires a refund claim for estate taxes to be filed within three years of the payment of the estate tax (here, April 26 or 27, 1955), the plaintiff's first claim was not presented to the Internal Revenue Service until some five years later (on June 17, 1960).²The terms of the statute are mandatory, the defendant urges, and those terms plainly close the door to this action.The taxpayer's reply is that it did not know until the Tax Court determination of April 7, 1960 — about two years after the three-year period would normally have expired — how much additional income taxes (plus penalties and interest) the decedent owed and therefore how much of a deduction from the estate tax it could claim on account of those extra income taxes.In these circumstances, the plaintiff contends, the limitations period for estate tax refund claims cannot have run from April 1955, but must have begun in the spring of 1960 when the Tax Court decided the decedent's income tax case and the plaintiff paid the additional taxes; it is said that, if the three-year period ended in April 1958, plaintiff would be precluded from filing a refund claim before it knew that it had one and in what amount.

Because the arguments in support of these opposing positions implicated questions upon which the Supreme Court might pass in United States v. Zacks, U.S.Sup.Ct., Oct. Term 1962, No. 632, Oct. Term 1963, No. 44, then pending on writ of certiorari (grantedJan. 14, 1963, 371 U.S. 961, 83 S.Ct. 543, 9 L.Ed. 2d 509), we deferred disposition of this case until after the decision of the Supreme Court.That ruling has now been made (375 U.S. 59, 84 S.Ct. 178, 11 L.Ed. 2d 128), and the present parties have given us supplemental memoranda on the impact of the Zacks holding and opinion.Although Zacks is quite a different case, our view is that the opinion of the Supreme Court reflects basic attitudes which should guide us in dealing with the present problem.

In Zacks, an investor receiving royalties in 1952, in exchange for grant of an exclusive license, reported the royalties as ordinary income in that year and paid the tax in 1953; under the general limitations statute for income tax refunds, any claim for those taxes was barred in 1956.In June 1956, Congress amended the 1939 Code, for all tax years beginning after May 31, 1950, to provide that such royalties should be taxed as capital gain rather than as ordinary income.In 1958, within two years of the amendment, the taxpayer filed a claim for refund based on the new provision.As against a government defense of limitations, this court held that the amendment created a new cause of action giving the taxpayer two years (from the date of the legislative change) to file for a refund.280 F.2d 829, 150 Ct.Cl. 814(1960).The Supreme Court reversed, ruling that, though Congress had made the amendment retroactive, it had not extended or tolled the statute of limitations; the amendment could apply only to prior years which had been kept open by the taxpayer.

In its facts and the issue squarely before the Court, Zacks is not at all the counterpart of this case.We do not have a retrospective modification of a substantive tax provision, nor do we have the same history and circumstances as those surrounding the 1956 patent royalty amendment with which the Supreme Court was concerned.The Zacks opinion is nevertheless instructive because of the basic postulates it implicitly embodies, as well as the direction it takes.A fair reading of the opinion impels us to conclude that the Supreme Court(a) neutralized that part of the general theory of our earlier opinions (Verckler v. United States, 170 F.Supp. 802, 145 Ct.Cl. 252(1959);Zacks v. United States, supra;Eastman Kodak Co. v. United States, 292 F.2d 901, 155 Ct.Cl. 256(1961);Lorenz v. United States, 296 F.2d 746, 155 Ct.Cl. 751(1961))³ which may have seemed to suggest the extension of the statute of limitations whenever an event reducing a taxpayer's liability occurred after the payment of the tax or the filing of the return; and (b) indicated, at the least, that the normal limitations period in tax cases should continue to be applied unless there are good reasons for thinking that Congress established a new or prolonged period.Those two benchmarks are helpful in pointing out the route we should follow.

The significant fact, for the present controversy, is that the plaintiff knew, some ten months before the expiration of the three years within which it could file a normal refund claim on the estate tax, that the Internal Revenue Service was demanding extra tax and penalties on account of the decedent's income tax liability before his death.The deficiency notices were issued on June 25, 1957, and the three-year period would not close until April 26 or 27, 1958.The estate thus had notice, a substantial time before the bar would fall on a claim for refund of the estate tax, that the defendant considered the...