Payne v. United States

• Decision Date: 17 September 1957
• Docket Number: No. 15620.,15620.
• Citation: 247 F.2d 481
• Parties: Vaughn C. PAYNE and Edith Pruitt Payne, Appellants, v. UNITED STATES of America, Appellee.
• Court: U.S. Court of Appeals — Eighth Circuit

247 F.2d 481 (1957)

Vaughn C. PAYNE and Edith Pruitt Payne, Appellants, v. UNITED STATES of America, Appellee.

No. 15620.

United States Court of Appeals Eighth Circuit.

August 8, 1957.

Rehearing Denied September 17, 1957.

Claude I. Bakewell, St. Louis, Mo. (Gillette F. Wright, St. Louis, Mo. with him on the brief) for appellants.

Davis W. Morton, Jr., Atty., Dept. of Justice, Washington, D. C. (Charles K. Rice, Asst. Atty. Gen., A. F. Prescott, Atty., Dept. of Justice, Washington, D. C., and Harry Richards, U. S. Atty., St. Louis, Mo., with him on the brief) for appellee.

Before GARDNER, Chief Judge, JOHNSEN, Circuit Judge, and DONOVAN, District Judge.

JOHNSEN, Circuit Judge.

In 1949, the Commissioner of Internal Revenue made assessment, against Vaughn C. Payne, of tax deficiencies and fraud penalties, for each of the years 1942 to 1947, inclusive.

Notice of the determinations, which had been previously made, and demand for payment were properly served on Payne. And the assessment list was duly transmitted to and received by the Collector, with notice of lien being filed by him with the Recorder of Deeds for the City of St. Louis, Missouri.

Thereafter, from 1950 to 1953, Payne made payment of the deficiencies and penalties for the years 1942, 1945 and 1946, except interest thereon from the date of assessment to the time of payment.

On August 27, 1953, at the request of the Commissioner and on the direction of the Attorney General, this action was instituted in the District Court, against Payne and his wife,¹ (1) to have the remaining amount of the deficiencies, penalties and interest reduced to judgment against Payne; (2) to have it decreed that two described pieces of real estate, acquired in 1944 and 1945, with title taken and standing in the name of Payne and his wife as tenants by the entirety, had been purchased with funds of Payne, had left Payne without sufficient other assets to pay his outstanding tax liabilities, and had had for their transactional purpose the defrauding of Payne's creditors, including the United States; (3) to have it decreed that a third piece of real estate, acquired in 1947, with title taken and standing in the wife's name, had been purchased with funds of Payne, constituted a conveyance and transfer to her without consideration, and had left Payne without sufficient assets to pay his outstanding tax liabilities; and (4) to have enforced under 26 U.S.C.A., Int. Rev.Code of 1939, § 3678, the lien, which existed from the Collector's receiving of the assessment list, as well as such other rights as the United States had in the circumstances to have the real estate subjected to the payment of the tax liability involved.

Between the institution of the suit and the time of the trial, Payne made payment of the deficiencies and penalties assessed for the year 1943 and a part of those assessed for the year 1944, but again without the interest due thereon from the date of assessment to the time of payment. At the time of trial, there remained a balance of deficiencies and penalties, for the years 1944 and 1947, in the sum of $19,799.21, together with the accumulated interest on the deficiency and penalty for each year, 1942 to 1947, from the date of the assessment until the deficiency and penalty for the year had been or should be paid.

The District Court entered a judgment against Payne on this basis. In so doing, it upheld all of the deficiencies determined by the Commissioner to exist, and found as a fact that the understanding of income in which Payne had engaged had been done by him with the fraudulent intent to evade part of the taxes owing from him for each of the years involved, so that the Commissioner had been entitled to impose the fraud penalties which he did, under 26 U.S.C.A., Int.Rev.Code of 1939, § 293(b).

The court further held that the two pieces of property, standing in the name of Payne and his wife as tenants by the entirety, had been purchased with funds of Payne, and that the using of Payne's funds for this purpose, with the taking of title in this form, had legally made Payne insolvent as to his creditors. It held also that this equally was true as to the third piece of property, title to which stood in the name of the wife alone, and that, beyond this, the circumstances under which the wife had taken title had involved a specific intent on the part of both her and Payne to defraud his creditors, in that, when the property was purchased, title had been placed in the name of a third party, who had given back a deed in blank, and that the wife's name had been inserted in this deed as grantee, only after the Commissioner's assessment of tax deficiencies and fraud penalties had occurred and Payne had been given notice thereof.

The court accordingly decreed that the United States was entitled "to a reformation of the title of each of the real properties * * * vesting such title in the defendant Vaughn C. Payne, with whose funds such properties were purchased", and to have foreclosure and sale of the property made for the satisfaction of its liens thus existing, pursuant to 28 U.S.C.A. §§ 2001 and 2002.²

In addition to the judgment and decree provisions which have been set out, the court also entered a personal judgment against the wife, for the unpaid interest existing as to the 1942 deficiency and penalty, from the date of the assessment thereof to the time that Payne had paid the deficiency and penalty for that year. Judgment was so entered against the wife, because of the fact that she had placed her signature upon the return filed for 1942, below the signature of Payne, and the court held that it therefore constituted a joint return and had the effect of creating a joint and several liability against her as well as Payne, for whatever tax obligation there existed for the year 1942.

On this appeal, taken by both the husband and the wife, the entering of this personal judgment against the wife, for the unpaid interest on the 1942 deficiency and penalty, is first attacked. Relatively, only a small pecuniary amount is involved, but the wife apparently feels that there has been an arbitrary attempt to perpetrate an in justice upon her and that she is entitled to vindication as a matter of principle.

The 1942 return, in its heading, listed Payne's name alone, as the taxpayer for whom the report was being made. It gave his occupation as a physician and showed, as the only item of income and source of tax liability involved, compensation for personal services in the amount of $6406.70. Payne duly signed on the line indicated for "Signature of taxpayer". There were two other blank lines appearing on the form — one to the left of the taxpayer's signature line, indicated as being for "Signature of person (other than taxpayer or agent) preparing return", and another below the taxpayer's signature line, with the indication, "If this is a joint return (not made by agent) it must be signed by both husband and wife". The wife had placed her signature on this line.

She testified that she had no earned or other income as a basis for any signing by her of the 1942 return as a taxpayer. She was a housewife and was not engaged in any outside employment. Nor was she possessed of any other sources of income. She had not placed her signature upon any of the other returns involved and did so on the 1942 return only because "I thought that was where I had to sign because I helped to fill it out". She had no reason and no intent to sign the form as the making of a joint return. And there was at that time no advantage to the husband in having her join in the return.

The Commissioner seems to have so construed the situation throughout the years, for no notice of deficiency had ever been mailed to her either separately or jointly, and no assessment of deficiency had ever been made against her. The complaint in the present suit had alleged that the 1942 return, the same as those for the other years involved, was Payne's individual income tax return. And the prayer of the complaint contained no demand for any relief against her, except in her transferee status. The claiming of personal liability against her for interest on the 1942 deficiency and penalty assessed against Payne, between the date of the assessment...