Phelps v. United States, 393.

• Decision Date: 30 June 1939
• Docket Number: No. 393.,393.
• Citation: 105 F.2d 904
• Parties: PHELPS v. UNITED STATES.
• Court: U.S. Court of Appeals — Second Circuit

105 F.2d 904 (1939)

PHELPS v. UNITED STATES.

No. 393.

Circuit Court of Appeals, Second Circuit.

June 30, 1939.

Frank J. Albus, of Washington, D.C., for plaintiff.

James E. Murphy, Sp. Asst. to Atty. Gen. (James W. Morris, Asst. Atty. Gen., Sewall Key, and J. Louis Monarch, Sp. Assts. to Atty. Gen., and Robert P. Butler, U. S. Atty., and Louis Y. Gaberman, Asst. U. S. Atty., both of Hartford, Conn., on the brief), for the United States.

Before SWAN, AUGUSTUS N. HAND, and CLARK, Circuit Judges.

CLARK, Circuit Judge.

This is an appeal by the plaintiff from a judgment of the District Court denying his claim for a recovery of an aliquot portion of deficiency interest on income taxes paid in the year 1928. The court held against recovery, on the ground that the payment had been made pursuant to a valid agreement of compromise of tax liability. Plaintiff disputes this interpretation of the compromise agreement.

The plaintiff is the sole surviving partner of Phelps Brothers & Co. In February, 1926, seven years after the partnership had gone into liquidation, the Commissioner of Internal Revenue assessed additional taxes against it for the year 1917 in the amount of $115,995.45. Delay was made in the payment of such additional taxes because the partnership was then pressing a suit to recover a judgment from the United States in another matter. This suit was settled and a payment was made by the United States to the partnership in 1928. Thereafter, on June 26, 1928, the additional assessment was paid in full, and at the same time an offer in compromise was submitted to the Commissioner. The offer recited the delinquency in payment of additional income taxes for 1917, and tendered the sum of $16,239.36 "voluntarily with request that it be accepted as a compromise offer and that release be granted the undersigned from the following liability resulting from the violation or failure specified: Interest and/or penalties for aforesaid alleged delinquency." In a statement attached, the facts regarding the additional assessment and the suit against the United States were set forth, and the refusal of the United States to pay the taxpayer's claim against it was given as the cause of the delay in payment of the assessment and as a reason for acceptance of the offer in compromise. The statement contained this further explanatory sentence: "The amount tendered in compromise of interest and/or penalties for delinquency in payment of the additional tax, is the equivalent of interest on said principal amount, at 6% per annum from February 25, 1926, to date, namely, $16,239.36." This offer of compromise was accepted by the Commissioner with the approval of the Secretary of the Treasury.

Under date of December 14, 1931, the plaintiff filed a claim for refund of the 1917 taxes in the amount of $115,995.45, "plus interest." After negotiations, the plaintiff executed a closing agreement with the Commissioner, dated June 16, 1934, in which it was agreed that the taxpayer's liability for the year 1917 amounted to $151,493.99, exclusive of any penalty or interest, and that this determination should be final and conclusive. Since the partnership had originally paid a tax of $60,498.54, this adjustment meant a tax liability of $25,000 less than had been paid. Accordingly, when this agreement had been approved by the Secretary of the Treasury, the Commissioner repaid the taxpayer $25,000, with interest thereon at 6 per cent per annum from the date of payment (June 26, 1928). The Commissioner refused, however, to pay any portion of the $16,239.36 paid on the same date in compromise of the claim for...