McMahon v. United States, Civ. A. No. 2151.

• Decision Date: 01 April 1959
• Docket Number: Civ. A. No. 2151.
• Citation: 172 F. Supp. 490
• Parties: Evelyn E. McMAHON, Plaintiff, v. UNITED STATES of America, Defendant.
• Court: U.S. District Court — District of Rhode Island

172 F. Supp. 490

Evelyn E. McMAHON, Plaintiff, v. UNITED STATES of America, Defendant.

Civ. A. No. 2151.

United States District Court D. Rhode Island.

April 1, 1959.

John P. Cooney, Jr., Providence, R. I., Joseph B. Buckley, Ansonia, Conn., for plaintiff.

Charles K. Rice, Asst. Atty. Gen., James P. Garland and William F. Kolbe, Attys., Dept. of Justice, Washington, D. C., Joseph Mainelli, U. S. Atty., Samuel S. Tanzi, Asst. U. S. Atty., Providence, R. I., for defendant.

DAY, District Judge.

In this action the plaintiff, widow of one Patrick S. McMahon, seeks to recover a sum of money paid to satisfy the income tax liability of the decedent for the years 1946 and 1947, which taxes were due and owing by him at the time of his death on June 20, 1953. Said sum was paid out of the proceeds of insurance policies on the decedent's life, which policies designated the plaintiff as the beneficiary. The plaintiff herein asserts that said sum was "wrongfully collected" by the District Director within the meaning of Sec. 7422(a) of the Internal Revenue Code of 1954, 26 U.S.C.A. § 7422(a).

The material facts were stipulated by the parties, and may be summarized as follows. On June 26, 1941, the decedent purchased from The Lincoln National Life Insurance Company three policies of insurance on his life, namely, (1) policy No. 652022 in the sum of $5,000; (2) policy No. 652023 in the sum of $5,000; and (3) policy No. 672888 in the sum of $10,000. In each of said policies Margaret T. McMahon, his mother, was designated as beneficiary, with the right reserved to him to change the beneficiary at will; on October 25, 1943, he exercised this right and designated the plaintiff, if living at his death, as beneficiary, reserving the right of revocation subject to the terms and conditions of the policies. Subsequently, on February 7, 1949, he further changed the beneficiary by designating the plaintiff, if living at his death, otherwise his son, Patrick S. McMahon IV, if then living, with right of revocation subject to the terms and conditions of the policies.

It further appears that Patrick S. McMahon became indebted to the United States for unpaid income taxes for the taxable year 1946 in the amount of $5,002.85, together with accrued interest of $1,924.02, which amounts were duly assessed against him in August 1947, and this assessment list was received by the appropriate Collector of Internal Revenue during the same month. For the taxable year 1947 he also became indebted to the United States for unpaid income taxes in the amount of $369, which amount was duly assessed, together with interest thereon of $119.33 and a lien fee of $2, in April 1948, the assessment list being received by the appropriate Collector of Internal Revenue during the same month.

On November 14, 1952, notice of federal tax liens on account of the tax deficiencies above set forth was filed with the Town Clerk of New Britain, Connecticut, in which place the said Patrick S. McMahon then resided. On November 18, 1952, these income tax liens were filed with the home office of The Lincoln National Life Insurance Company, located at Fort Wayne, Indiana, against the aforesaid insurance policies.

Patrick S. McMahon died on June 20, 1953. Subsequent thereto the Internal Revenue Service requested The Lincoln National Life Insurance Company to pay, out of the proceeds of said policies, the full amount of the said income tax claims against Patrick S. McMahon, together with interest and costs. The plaintiff, as the beneficiary of said policies, demanded full payment of their proceeds, which was refused by The Lincoln National Life Insurance Company unless and until the tax liens were released.

Thereafter, on August 14, 1953, the plaintiff authorized the insurance company to pay to the United States the sum of $7,410.23, the full amount of the claims against the said Patrick S. McMahon, and to deduct the same from the said proceeds; this payment was made on August 19, 1953.

No assessment of said taxes was ever made against the plaintiff as a transferee of Patrick S. McMahon, nor was any action ever instituted against her claiming that she was a transferee of the said Patrick S. McMahon within the meaning of the Internal Revenue laws.

Subsequently, on February 14, 1955, the plaintiff, by her attorney, filed with the District Director of Internal Revenue at Hartford, Connecticut, claims for the refund of $7,410.23, said claims being dated February 11, 1955; they were accompanied by a letter from the plaintiff's then attorney, dated February 11, 1955, which read in part as follows:

"Transmitted herewith in duplicate is Treasury Dept. form #843 entitled Claim together with a Power of Attorney from Evelyn E. McMahon appointing the undersigned as her agent and attorney.

"These documents are submitted in connection with Income Tax alleged to be owed by Patrick S. McMahon, deceased, formerly of 59 Lincoln Street, New Britain, Connecticut.

It appears that Mr. McMahon's taxes or part thereof, for the years 1946 and 1947 were not paid at the time of his death. To satisfy this obligation a lien * * * Income 1516 * * * was filed in New Britain on May 7, 1953 attaching the proceeds of three insurance policies with Lincoln National Life Insurance Company. The widow of the deceased who is also the beneficiary of the policies, caused the tax to be paid and attachments released on 7 August, 1953. This claim is made to recover the monies paid by Mrs. McMahon. Because of expiration of the two year limitation period in August it is requested that you review the completeness of the claim and the capacity of Mrs. McMahon to submit a claim under this form. I would appreciate your acknowledgment of the receipt of this letter and your comments concerning any additional information needed or forms required."

The claims transmitted with the foregoing letter set forth that refunds were sought for income taxes illegally and erroneously collected for the years 1946 and 1947 respectively. They also recited that said taxes were "paid by discharge of tax lien Aug. 7, 1953". As ground for allowance thereof the claims stated in part:

"Beneficiaries here were not transferees of insurance proceeds, since such amount was not property of decedent prior to his death. Beneficiaries were only transferees of cash surrender value of policies since only this amount was subject to decedent's power of withdrawal during his lifetime. Fact that beneficiaries are liable as transferees to extent of entire proceeds in satisfaction of decedent's estate tax liability is irrelevant. That liability is specifically created under Sec. 827 (b) of 1939 Code 26 U.S.C.A. § 827 (b) and does not pertain to collection of income taxes. Rowen v. Comm., 2 Cir., Sept. 9, 1954 215 F. 2d 641."

Each claim was signed by plaintiff's then attorney as "attorney in fact for Evelyn McMahon, widow of deceased, beneficiary of the insurance and payer of the tax".

Under date of April 18, 1955, the District Director by direction of the Commissioner of Internal Revenue notified plaintiff's attorney by registered mail that the "Claim for refund of Income Tax for Patrick S. McMahon for the year 1946" was disallowed. No reason for the disallowance was stated in the notice. On the same date he forwarded a like notice in identical language to said attorney disallowing plaintiff's claim for the taxes paid by plaintiff for the year 1947. Here again, no reason was given for the disallowance of her claim.

The defendant contends that this Court is without jurisdiction to grant the plaintiff any relief because (1) the United States has not consented to be sued under the provisions of Title 28 U.S.C.A. § 1346(a)(1) by any person except a person against whom a tax has been assessed; and (2) even if the plaintiff has standing to maintain this action, there is a fatal variance between the grounds for relief stated in the complaint and those stated in the claims for refund filed by the plaintiff.

Although the complaint alleges that the jurisdiction of this Court over this controversy exists under the provisions of 28 U.S.C.A. § 1332, it is manifest from the allegations of the complaint that she seeks relief under 28 U.S.C.A. § 1346(a)(1), and the parties in their respective oral arguments and briefs have recognized and argued this matter from that viewpoint. Plaintiff's action should not fail merely because she has relied upon the wrong statutory provision in her pleading, if her complaint states facts upon which she is entitled to relief. Broadway Open Air Theatre, Inc. v. United States, 4 Cir., 1953, 208 F.2d 257.

The provisions of said Sec. 1346(a)(1) are in material part as follows:

"(a) The district courts shall have original jurisdiction, concurrent with the Court of Claims, 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 internal-revenue laws * * *"

In support of its contention that the plaintiff has no standing to maintain this action, the defendant contends that the right to bring a suit for a refund of taxes is limited by the provisions of Sec. 7422(a) of the Internal Revenue Code of 1954, and that this plaintiff is not a "taxpayer" within the meaning of that section, which provides:

"(a) No suit prior to filing claim for refund—No suit or proceeding shall be maintained in any court for the recovery of any internal revenue tax alleged to have been erroneously or illegally assessed or collected, or of any penalty claimed to have been collected without authority, or of any sum alleged to have been excessive or in any manner wrongfully collected, until a claim for refund or credit has been duly filed with the Secretary or his delegate, according to the provisions of law in

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