Newton v. United States

• Decision Date: 16 July 1958
• Docket Number: No. 391-55.,391-55.
• Citation: 163 F. Supp. 614
• Parties: Maurice NEWTON v. UNITED STATES.
• Court: U.S. Claims Court

163 F. Supp. 614

Maurice NEWTON v. UNITED STATES.

No. 391-55.

United States Court of Claims.

July 16, 1958.

Thomas N. Tarleau, New York City, for plaintiff. Sandow Holman, James R. Zuckerman, and Willkie, Farr, Gallagher, Walton & Fitz Gibbon, New York City, were on the briefs.

David R. Frazer, Washington, D. C., with whom was Asst. Atty. Gen., Charles K. Rice, for defendant. James P. Garland, Washington, D. C., was on the brief.

LARAMORE, Judge.

This is an action to recover income taxes and interest assessed thereon which have been paid by the plaintiff for the years 1945 and 1946. The sole issue presented is whether or not the plaintiff filed timely claims for refund as required by section 322(b) (1) of the Internal Revenue Code of 1939, 26 U.S.C.A. § 322(b) (1). The facts necessary for an understanding and determination of the case are as follows:

In each of the years 1942 through 1950, plaintiff made a payment to his former wife, Alice L. Heath, in the amount of $11,000. These sums were paid pursuant to an agreement incident to divorce and will be referred to herein as "alimony payments." In filing his income tax returns for the years 1942 through 1950 plaintiff claimed as a deduction from gross income each of the $11,000 alimony payments made during those years. On January 15, 1948, following an audit of his 1944 return, plaintiff was advised by an internal revenue agent that a deficiency in his income tax was proposed. A part of this proposed deficiency resulted from the disallowance of the deduction plaintiff claimed for the alimony payment made in that year. Plaintiff's returns for 1942 and 1943 were also examined and the alimony payment questioned.

On February 19, 1948, plaintiff paid the 1944 deficiency with the intention of litigating the issue of the deductibility of the alimony payment for that year. On October 2, 1948, a complaint, Docket No. Civ. 47-681, Newton v. Pedrick, was filed against the Collector of Internal Revenue in the United States District Court, Southern District of New York, alleging the overpayment of tax resulting from an erroneous disallowance of a deduction for an alimony payment.¹

In the meantime plaintiff's 1945 return was the subject of an audit by an internal revenue agent which resulted in plaintiff being advised that a deficiency was proposed with respect to his tax for that year. This proposed deficiency was attributable in part to the disallowance of the alimony deduction claimed for 1945. Thereafter Mr. Brach, a tax accountant who represented plaintiff in regard to the audit, filed a letter with the internal revenue agent in charge dated December 30, 1948, which formally protested the proposed deficiency. This protest letter stated in part as follows:

"The taxpayer's deductions for similar alimony payments made to Alice L. Heath during 1943 and 1944, have been previously disallowed by the Bureau of Internal Revenue. Payment of the deficiency resulting from the disallowance for the year 1944 has been made by the taxpayer, a claim for refund of this payment has been duly filed, and the taxpayer has instituted suit against the Collector of Internal Revenue in the United States District Court, Southern District, for refund of the amount paid.

"Protest against the disallowance of the deduction for the year 1943 has been duly filed by the taxpayer. Final determination of the deductibility of the alimony paid by the taxpayer in 1943 is being deferred by the Bureau, pending the determination by the District Court of the deductibility of the alimony paid by the taxpayer in 1944.

"The facts in connection with this issue have been previously submitted to the Bureau as part of the claim for refund for 1944 and as part of the protest against your proposed deficiency for 1943. To the extent deemed necessary these facts are incorporated herein by reference.

"It is respectfully requested that final determination of the deductibility of the alimony paid by the taxpayer in 1945 be deferred, pending the determination by the District Court of the deductibility of the alimony paid by the taxpayer in 1944."

In January 1949, after the District Court action had commenced, plaintiff's 1946 return was audited. The examining agent was informed by plaintiff's representative that the alimony issue was then involved in litigation for 1944, and that the result of that suit would govern all years in which the issue arose. Thereafter plaintiff was advised by a 30-day letter that a deficiency was proposed with regard to his 1946 return which was again attributable to the disallowance of an alimony payment as a deduction. Plaintiff sent a letter protesting the deficiency which stated substantially the same facts and request contained in his 1945 protest.

In connection with the protests filed for 1945 and 1946, Mr. Brach conferred with Mr. W. M. Shank, a conferee in the Internal Revenue Service. At Mr. Brach's request it was agreed that no action would be taken on the 1945 and 1946 deficiencies until the 1944 litigation had been terminated, and that the result for 1944 would settle the issue for 1945 and 1946 as well.

Sometime later the Internal Revenue Service requested Mr. Brach to have the plaintiff execute agreements extending the period of limitations for the assessment of the 1945 and 1946 deficiencies. Mr. Brach expressed concern over the possibility of the accumulation of interest and discussed this matter with Mr. Shank with the idea of finding a method to stop the running of interest without jeopardizing plaintiff's right to have the 1945 and 1946 deficiencies ultimately determined by the result in the 1944 litigation. Mr. Shank suggested that payment of the deficiencies would stop the running of interest and would not interfere with plaintiff's recovery of those amounts should he be successful in the District Court. Accordingly plaintiff then executed a waiver consenting to the immediate assessment of the deficiencies which were paid on April 14, 1950. The files of the Internal Revenue Service contain a memorandum entitled "Field Conferee's Memorandum" dated February 3, 1950, dealing with plaintiff's 1945 and 1946 tax liability. This memorandum states in part that:

"In accordance with the request of the taxpayer contained in the protests, action by this office was held in abeyance pending the outcome of the taxpayer's suit in the U. S. District Court for the Southern District of New York on the same issue for the year 1944.

"The taxpayer requested that the deficiencies as recommended in the revenue agents' reports be assessed for the purpose of saving the interest charges on such deficiencies in the event that the Government's position in the 1944 case is sustained. Agreement, Form 870, has been executed for the full amount of the deficiencies by the taxpayer."

Subsequent to plaintiff's payment on April 14, 1950, of the assessed 1945 and 1946 deficiencies there were no written communications between the plaintiff and the Internal Revenue Service during the next two years in regard to the 1945 and 1946 tax liability.

In mid-1950 and early 1951 plaintiff's 1947 and 1948 returns were audited and again the deductibility of the alimony payments was in issue. The revenue agent conducting the investigation was shown the protests for 1945 and 1946 and was asked to include in his report that the 1947 and 1948 deductions for alimony payments also hinged on the 1944 litigation. Notice to this effect was contained in the report of the revenue agent and the plaintiff filed an agreement consenting to immediate assessment and paid the tax for those years. The same situation arose for the tax years 1949 and 1950 and the deficiency was again paid. For the years 1947 through 1950 the plaintiff filed timely formal claims for refund with respect to the tax paid on account of the disallowance of a deduction for alimony payments.

On March 25, 1953, the District Court action was dismissed on its merits pursuant to an opinion filed March 12, 1953, 115 F.Supp. 368. Appeal was taken to the United States Court of Appeals for the Second Circuit which resulted in reversal of the District Court in an opinion by Circuit Judge Harlan decided April 28, 1954, 212 F.2d 357. On May 28, 1954, the District Court pursuant to the mandate of the Court of Appeals entered judgment against the defendant for the amount of the tax collected attributable to the disallowed deduction for the 1944 alimony payment together with interest and costs.

Shortly after the decision of the Court of Appeals, the District Director of Internal Revenue for the Lower Manhattan District was requested to implement the decision by refunding the overpayments attributable to the disallowance of the alimony deduction for each of the years 1943 through 1950. It was explained that formal claims for refund had not been made for 1945 and 1946 but that all agents concerned had been advised of the plaintiff's position. The District Director advised the plaintiff to file claims for refund on Form 843² for 1945 and 1946 in order to formalize his claims for those years and to write a letter outlining the situation. The requested letter was mailed May 19, 1954, and on May 21, 1954, plaintiff filed formal claims for refund on Form 843 for each of the two years here involved. The claims were disallowed by the Commissioner of Internal Revenue on June 16, 1955, on the ground that the claims were not timely filed. In all other years in which the alimony payments were disallowed as a deduction, and for which formal claims for refund had been made within the specified period of time, a refund of the tax attributable thereto was made.

For the purposes of this suit the defendant is not contesting the issue of whether ...