Moskowitz v. United States

• Decision Date: 18 January 1961
• Docket Number: No. 22-54.,22-54.
• Parties: Morris MOSKOWITZ v. UNITED STATES.
• Court: U.S. Claims Court

285 F.2d 451 (1961)

Morris MOSKOWITZ v. UNITED STATES.

No. 22-54.

United States Court of Claims.

January 18, 1961.

Julius Kuschner, New York City, Philip A. Brenner, New York City, on the briefs, for plaintiff.

Harold S. Larsen, Washington, D. C., with whom was Charles K. Rice, Asst. Atty. Gen., James P. Garland and Lyle M. Turner, Washington, D. C., were on the briefs, for defendant.

DURFEE, Judge.

The plaintiff, an individual taxpayer, seeks to recover the difference between income taxes, interest, and penalties for the calendar years 1941, 1942, and 1943 paid under a deficiency assessment and an amount claimed to be an offer of settlement accepted by the Collector of Internal Revenue. Briefly stated, the facts are these: following an examination of plaintiff's income tax returns for 1941, 1942, and 1943, by the Bureau of Internal Revenue, he was informed, because of his failure to report certain items of income, of proposed additional taxes and penalties in excess of $77,000. On September 7, 1945, the taxpayer's attorney personally delivered to an official of the Bureau of Internal Revenue a letter (more fully set out in Finding 5)^* entitled "Offer of Settlement." It contained plaintiff's own computations of his additional tax liabilities, penalties, and interest for the years 1941, 1942, and 1943 and offered to pay $41,266.32 in full settlement of these items. A check for that amount was enclosed.

At the time of the tender of this offer of compromise and at the time of the receipt of the proceeds by the Collector, no statutory deficiency notices had been issued the taxpayer for the years 1941, 1942, and 1943. The check was received at the Office of the Collector of Internal Revenue, Second District of New York, which office caused the check to be certified by the drawee bank on September 24, 1945. The following day it was deposited at the Federal Reserve Bank to the credit of the Treasurer of the United States. However, instead of being recorded on the Collector's books as an internal revenue collection, the proceeds of the check were entered in a special deposit account maintained for sums received or collected other than internal revenue collections, including sums offered by taxpayers in compromise of tax liabilities.

Several months later, the plaintiff's attorney wrote to the Department of Justice advancing arguments to support his contention that the Government, by certifying, collecting and retaining the proceeds of the check as tendered, had accepted a settlement of plaintiff's tax liabilities for the years in question. The Department of Justice did not agree that there had been a settlement and it pointed out that the proceeds of the check always had been and still were refundable upon demand. In February of 1949, the Commissioner of Internal Revenue notified the plaintiff that his offer of compromise had been considered and rejected. In April, plaintiff was informed of proposed adjustments in his tax liabilities and on November 13, 1950, after filing a waiver consenting to assessment of proposed deficiencies, he was assessed the sum of $79,920.77 for the years 1941, 1942 and 1943. That was the first assessment made in this matter.

Following the assessment, the Collector notified plaintiff that he was holding a Treasury check in the amount of $41,266.32 representing "a rejected offer in compromise submitted in lieu of an unpaid tax liability." Plaintiff's attorney replied stating that the check would not be accepted "for the reason that it was his understanding that such amount would be credited as of September 19, 1945, to the deficiencies assessed in November 1950." The check was subsequently accepted under protest by the plaintiff, the defendant having computed or paid no interest on the principal amount. Thereafter, the plaintiff paid the amount of the deficiency assessment, interest, and penalties in full. Timely claims for refund were made, the plaintiff at the same time also stating the alternative claim which he makes in this suit, namely, that if the check tendered as an offer of settlement did not effect a compromise, he would be entitled to interest on the proceeds of the check for the period it was held by the defendant.

The plaintiff maintains that a compromise and settlement has the same practical effect as an accord and satisfaction. In this connection it quotes from the New York Court of Appeals opinion in Hudson v. Yonkers Fruit Co., 1932, 258 N.Y. 168, 179 N.E. 373, 80 A.L.R. 1052, to the effect that an accord and satisfaction is arrived at where a conditional tender of payment is retained by the creditor. Silence while retaining the payment, it holds, amounts to an assent to the conditions, inferred in law. Since the payment in this case was tendered before any assessment was made, while the amount in question was unliquidated, plaintiff argues that the alleged acceptance of the settlement offer fully discharged all tax liabilities.

It appears that the plaintiff has overlooked section 3761 of the Internal Revenue Code of 1939, 26 U.S.C. § 3761 (1952 Ed.). That provision permits the Commissioner of Internal Revenue, with the approval of the Secretary, Under Secretary, or Assistant Secretary of the Treasury to compromise civil tax matters. It also provides for the filing of a public record of the details of the compromise settlement. In Botany Worsted Mills v. United States, 1929, 278 U.S. 282, 49 S.Ct. 129, 73 L.Ed. 379, the Court concluded that Revised Statute, § 3229, the predecessor of section 3761 of the Code, provided the exclusive procedure by which a tax could be compromised. It stated the belief that the Congress did not intend to entrust the final decision on such matters to subordinate Internal Revenue Bureau officials. We think section 3761 sets forth the only machinery for compromising a tax whether or not there has been an assessment or judgment rendering the amount certain.

In view, therefore, of the statutory prescription of an exclusive method for compromising tax liabilities, any theory founded on general concepts of accord and satisfaction cannot be utilized to impute a compromise settlement to the agents of the Government. But even if this statutory hurdle did not block plaintiff's way, as a matter of fact, we do not think that the actions of the Government are consistent with the theory of an acceptance of the offer. The action of the Collector in depositing plaintiff's check in a special account to the credit of the Treasurer was an insignificant, mechanical act dictated by section 3971 of the Code, 26 U.S.C. § 3971 (1952 Ed.) and the regulations promulgated thereunder.¹ That Code section provides that sums offered in compromise under section 3761 are not to be deposited in the same fashion as ordinary internal revenue collections. The regulations prescribe the deposit of compromise offers in special deposit accounts pending a decision as to whether or not the offer will be accepted. We do not think that the action of the Collector, taken pursuant to and in conformity with the statute and regulations, can be interpreted as the acceptance of an offer, even if he had the power to so accept.

Furthermore, the letter entitled "Offer of Settlement" stated that the offer was tendered soliciting the Commissioner's "favorable consideration." The Department of Justice, responding to plaintiff's first inquiry about the position it would take on the offer, denied that it had yet taken any action on the offer and informed the plaintiff's attorney that the proceeds of the check could be recovered by the plaintiff at any time he desired. On...