Monjar v. Higgins

• Decision Date: 29 May 1941
• Citation: 39 F. Supp. 633
• Parties: MONJAR v. HIGGINS, Collector of Internal Revenue.
• Court: U.S. District Court — Southern District of New York

39 F. Supp. 633

MONJAR v. HIGGINS, Collector of Internal Revenue.

District Court, S. D. New York.

May 29, 1941.

Frank C. Myers, of New York City, for plaintiff.

Mathias F. Correa, U. S. Atty., Southern District of New York, of New York City (David W. Wainhouse, of New York City, of counsel), for defendant.

HULBERT, District Judge.

This is a civil action against a Collector of Internal Revenue for the recovery of income taxes for the years 1926 and 1927, alleged to have been erroneously or illegally collected under former Section 3226, R.S., now Section 3772, 26 U.S.C.A. Int.Rev. Code.

Rule 12, Federal Rules of Civil Procedure, following Section 723c, Title 28 U.S.C.A. provides: "(b) Every defense * * * shall be asserted in the responsive pleading * * * except that the following defenses may at the option of the pleader be made by motion: * * * (6) failure to state a claim upon which relief can be granted."

Such motion is limited to the pleading and may not be aided by affidavits. Sherover v. John Wanamaker, New York, D.C.N.Y., 1939, 29 F.Supp. 650.

Defendant has moved, before answer, "for an order dismissing the complaint on the ground that this court lacks jurisdiction to entertain same."

The motion, while addressed to the complaint, is also based on affidavits.

The plaintiff raises the objection in his brief that the notice of motion does not comply with Rule 7(b) F.R.C.P., in failing to state with particularity the grounds on which it is based. This contention is overruled, for the moving affidavit of Mr. Wainhouse sets the particulars forth in paragraphs 3 and 14, and three briefs have been submitted in plaintiff's behalf: (1) upon the question of jurisdiction: (2) in opposition to the motion, and (3) in reply to the Government's brief. The subject matter has been so fully covered that it does not appear that the plaintiff can reasonably plead surprise or prejudice.

For the purposes of this motion the court assumes the facts to be as set forth in the following paragraphs 1 to 22, inclusive:

1. Plaintiff is a citizen of the United States whose principal place of business at all times hereinafter mentioned has been within the Third Collection District of New York and whose Federal income tax returns for the years 1926 and 1927 were made to the Collector of Internal Revenue for that District.

2. The defendant is a resident and citizen of that District and has been since January 28, 1935, Collector of Internal Revenue for the Third Collection District, and in that capacity collected from plaintiff the several amounts, refund of which is sought in this action.

3. The action arises under the laws of the United States, and particularly under the Revenue Act of 1926, 44 Stat. 9, 26 U.S.C.A. Int.Rev.Acts, page 145 et seq.

4. Plaintiff filed his individual income tax return for the calendar year 1926 on March 15, 1927 and simultaneously paid to the defendant $528.75, the amount shown to be due according to the return.

5. After an investigation by an Internal Revenue Agent, the defendant by a 30-day letter to the taxpayer, proposed the assessment of a deficiency, and at a conference held on Oct. 24, 1929, plaintiff signed a "waiver of right to file petition with the U. S. Board of Tax Appeals" and consented to the assessment and collection of a deficiency for the year 1926 in the sum of $9,939.09, with a penalty in the sum of $496.96, and after notice to the plaintiff, such assessment was made on December 14, 1929, which, with deficiency interest, amounted to $11,543.03.

6. Plaintiff filed his individual income tax return for the calendar year 1927 in the Third Collection District of New York and simultaneously paid to the defendant $731.27, the amount shown to be due according to the return.

7. After an investigation by an Internal Revenue Agent, a 60-day letter was mailed to the taxpayer by the Internal Revenue Bureau advising its determination of a deficiency of $93,577.85 inclusive of a penalty of 5% amounting to $4,453.78.

8. On Jan. 20, 1930, the plaintiff filed his petition with the U. S. Board of Tax Appeals for re-determination of the deficiency.

9. The case was assigned for hearing before said Tax Board on April 7, 1932, and at the request of the taxpayer was continued from that day to May 31, 1932. On the last-named date the petition of the taxpayer for a re-determination was dismissed for lack of prosecution and an order of dismissal and upholding the deficiency was entered June 2, 1932.

10. Meanwhile, on May 19, 1932, plaintiff had filed a voluntary petition in and was adjudicated a bankrupt by this court.

11. On June 18, 1932, the Commissioner of Internal Revenue assessed on the June 1932 No. 36 assessment list, P. No. 3, a deficiency tax against plaintiff in the sum of $89,124.07 and $4,453.78 penalty, together with interest to the date of assessment in the amount of $22,770.58, making a total of $116,348.43.

12. On July 8, 1932 the defendant filed proof of claim in the Bankruptcy proceeding for the taxes set forth in the complaint.

13. On July 21, 1932 the defendant was served with a bar order made by the Referee in Bankruptcy appointed in said proceeding. The petition of the Irving Trust Company, appointed Trustee at the first meeting of creditors held June 14, 1932, upon which the bar order was made, states: "That your petitioner is desirous of making partial or total distribution of the estates (probably means assets) and is without knowledge as to the intention of the United States Government to file claim it may have for taxes."

14. Plaintiff has never filed a petition for or received a discharge in bankruptcy.

15. The final report of the Referee in Bankruptcy, dated July 20, 1935, discloses that only $56.03 of the bankrupt's assets came into the hands of the Trustee, of which it disbursed $16.18, and after deducting the Referee's expenses amounting to $36.49, there remained in the estate $3.36, which the Referee recommended be paid to the Trustee as commission.

16. The Referee's report was confirmed by an order of the Bankruptcy Court dated and entered August 30, 1935, and the bankruptcy proceeding was formally closed on or about January 29, 1936, without any further action having been taken with respect to the claim filed on behalf of the Government for taxes.

17. On various dates, beginning about May 28, 1936 and continuing until March 21, 1939, defendant collected from plaintiff and credited to the 1926 income tax deficiency, and interest thereon, 26 payments of $500 each, 5 payments of $1,250 each, and one payment of $999.04, making a total of $20,249.04.

18. On various dates beginning on or about May 28, 1936 and continuing until November 24, 1939, defendant collected from plaintiff and credited to the 1927 income tax deficiency, and penalty and interest thereon, 12 payments of $500 each, 3 payments of $1,250 each, 5 payments of $10,000 each, and one payment of $20,000, making a total of $90,250.

19. On various dates beginning on or about Dec. 9, 1939 and continuing until April 24, 1940, defendant collected from plaintiff and credited to the 1927 income tax deficiency, and penalty and interest thereon, one payment of $9,030.99; one payment of $10,000; three payments of $15,000 each, and one payment of $20,000, making an additional total of $83,030.99.

20. On December 13, 1939, plaintiff filed with defendant a claim for refund of a portion of the 1926 income tax deficiency collected in the amount of $16,749.04, the plaintiff conceding that the first seven collections of $500 each were barred by the Statute of Limitations. This claim was disallowed in full by the Commissioner of Internal Revenue on Sept. 11, 1940.

21. On Dec. 13, 1940, plaintiff filed with the defendant a claim for refund of a portion of the 1927 income tax deficiency collected in the sum of $86,750, the plaintiff conceding that the first seven collections of $500 each were barred by the Statute of Limitations. This claim was disallowed in full by the Commissioner of Internal Revenue on April 29, 1940.

22. On July 24, 1940, plaintiff filed a further claim with the defendant for a refund of the 1927 income tax deficiency collected after Dec. 9, 1939 in the amount of $83,030.99. This claim was disallowed in full by the Commissioner of Internal Revenue on Sept. 28, 1940.

With respect to the plaintiff's claim for refund for the year 1926, the sole contention of the defendant is that the deficiency assessed for that year cannot be challenged "because the taxpayer signed an agreement that the said deficiency could be assessed and collected at any time. Furthermore, the taxpayer signed a waiver of his right to file an appeal to the Board of Tax Appeals."

Plaintiff asserts that this waiver "not only did not bar the right to bring such a suit as the present, but on the contrary such a waiver was a customary step incident to the exercise by a taxpayer of his option to resort to such a suit rather than to file a petition with the United States Board of Tax Appeals."

The substance of the plaintiff's argument is that this waiver was executed to allow the immediate assessment of the deficiency in order to stop the running of interest during the statutory period and this customary procedure has always been so intended by the taxing authorities.

Section 274 of the Revenue Act of 1926, 44 Stat. 55, 56, 26 U.S.C.A. Int.Rev.Acts, page 203, provides as follows:

"(a) If in the case of any taxpayer, the Commissioner determines that there is a deficiency in respect of the tax imposed by this title, the Commissioner is authorized to send notice of such deficiency to the taxpayer by registered mail. Within 60 days after such notice is mailed (not counting Sunday as the sixtieth day), the taxpayer may file a petition with the Board of Tax Appeals for a redetermination of the deficiency. Except as otherwise provided in subdivision (d) or (f) of this section or in section 279, 282, or 1001,...