Republic Petroleum Corporation v. United States

• Decision Date: 20 June 1975
• Docket Number: 73-2467.,Civ. A. No. 73-866
• Citation: 397 F. Supp. 900
• Parties: REPUBLIC PETROLEUM CORPORATION v. UNITED STATES of America. Lucy COCCHIARA, wife of/and Louis J. Roussel v. UNITED STATES of America.
• Court: U.S. District Court — Eastern District of Louisiana

397 F. Supp. 900

REPUBLIC PETROLEUM CORPORATION v. UNITED STATES of America.

Lucy COCCHIARA, wife of/and Louis J. Roussel v. UNITED STATES of America.

Civ. A. Nos. 73-866, 73-2467.

United States District Court, E. D. Louisiana.

June 20, 1975.

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Peter J. Butler, New Orleans, La., for plaintiffs.

Scott P. Crampton, Asst. Atty. Gen., Washington, D. C.; Steven Shapiro, William W. Guild, Fleming T. deGraffenried, Asst. U. S. Attys., United States Dept. of Justice, Dallas, Tex.; Gerald J. Gallinghouse, U. S. Atty., New Orleans, La., for defendant.

HEEBE, Chief Judge:

In these consolidated actions, Louis J. Roussel and his wife in Civil Action No. 73-2467 and the Republic Petroleum Corporation in Civil Action No. 73-866 seek a refund of taxes they allege were erroneously assessed and collected for the years 1959-1966. Due to the number, variety and complexity of the issues involved, we have undertaken to discuss each issue separately, and have followed the numbers assigned to each issue by the parties. The omission of several numbered issues is explained by the fact that they were conceded by one side or the other. Issues 9, 17, 24 and 25 were conceded by the government in favor of the taxpayer while the taxpayer conceded Issue 23 in favor of the government. The following discussion of the tax issues tried to the Court without a jury shall serve as our findings of fact and conclusions of law.

ISSUE 1

Prior to trial the government filed a motion for partial summary judgment on the grounds that the statute of limitations barred certain of plaintiff Roussel's claims for refund. The applicable statute, § 6511 of the Internal Revenue Code, provides that a claim for credit or refund of an overpayment must be filed "by the taxpayer within 3 years from the time the return was filed or 2 years from the time the tax was paid, whichever of such periods expires the later . . .." Further, § 7422 precludes the filing of a suit to recover "any internal revenue tax alleged to have been erroneously or illegally assessed or collected . . . until a claim for refund or credit has been duly filed . . .."

The taxpayer timely filed returns for each of the years in question, 1959-1966, and paid the taxes shown due thereon at the same time. On February 28, 1972, the IRS determined that for each of those years, except for 1960 and 1962, the taxpayer owed additional taxes. "Quick Assessment" notices were, therefore, issued for those years. For 1960 and 1962 the IRS apparently disallowed certain deductions and losses claimed by the taxpayer, but also determined that certain income reported in those years was properly reportable instead in 1959.

The taxpayer's overpayment of taxes resulting from the erroneous inclusion of income was thus applied to satisfy the taxpayer's tax deficiency caused by the disallowance of the deductions and credits. Since the overpayment exceeded the deficiencies for both 1960 and 1962, the taxpayer was credited on March 6, 1972, with a net overpayment for those years. The additional taxes assessed by IRS were paid on March 13, 1972. On August 15, the taxpayer filed claims for refund for the years 1959-1966.

The government contends that the taxpayer is now barred from making a claim for the refund of taxes attributable to the disallowance of the deductions and losses in the years 1960 and 1962. The government's theory is that the taxes paid by the taxpayer for those years were paid in 1961 and 1963, respectively, with the filing of the appropriate tax returns. The claims for refund filed in 1973 were, therefore, according to the government, filed more than three years from the filing of the return and more than two years from the payment of the tax.

We disagree. The taxpayer in the case at bar merely wishes to contest the action of the IRS in disallowing certain deductions and losses for the years 1960 and 1962. He contends, in effect, that the IRS action was erroneous in this respect and that he is entitled to a larger credit or refund for those years than was given him. This claim could obviously have not been made by the taxpayer until the action of the IRS in 1972, well after three years from the filing of the return. But it does appear that the taxpayer's claim for refund was filed within two years from the time the tax was "paid." The taxpayer's additional tax liability resulting from the disallowance by the IRS of the disputed deductions and losses is the allegedly erroneous assessment giving rise to the claims for refund. That liability was satisfied or "paid" when the IRS applied the credit the taxpayer otherwise would have received because of his erroneous inclusion of income for the two years in question to satisfy the additional assessments. This offsetting of added tax liability against overpayment must be deemed to constitute payment of the additional tax liability. Otherwise, we fail to comprehend how the taxpayer could contest the action of the IRS in disallowing the deductions and losses in question. See Rosenman v. United States, 323 U.S. 658, 65 S.Ct. 536, 89 L.Ed. 535 (1944). Therefore, to the extent the government's motion would preclude the taxpayer from litigating the legality of the disallowances, it is hereby denied.

With respect to the taxpayer's claims for refund for the remaining years, the government points out that the taxpayer made claim for the refund of all taxes paid for those years.

The taxpayer's motivation for making such claims was to protect himself against the possible payment of a double tax on the same income resulting from the taking of inconsistent positions by the IRS. The government is correct in its position that § 6511 bars the taxpayer from claiming a refund in 1973 for taxes paid with the filing of his returns in the years 1959-1966. His refund claims were timely filed only with respect to the additional taxes paid in 1972 to satisfy the quick assessments of the IRS. Should the taxpayer's fears concerning a double payment of taxes prove to be justified, his proper remedy is to seek relief under the mitigation sections of the Internal Revenue Code, §§ 1311-1315.

The government's motion, then, is hereby granted to the extent that it would bar the taxpayer from claiming a refund for taxes paid with the filing of his returns for the years in question.

ISSUE 2

Republic Petroleum Corporation was founded by Louis J. Roussel in 1941. During the years 1959-1966, Roussel was the majority shareholder of the corporation and its ultimate decision maker. In July 1959, he decided to transfer the ownership of the Bollinger-Melancon mineral leases from himself to Republic. The confusing transaction through which this was accomplished has led to this dispute in which the IRS questions the right of the taxpayer to treat the sale of the leases to his own corporation as an installment sale under the provisions of § 453 of the Internal Revenue Code.

The leases in question were burdened with a mortgage in favor of the Whitney National Bank of New Orleans, the balance of which was then $1,950,000.00. On July 24, 1959, Roussel signed a document entitled "Act of Sale and Assumption of Mortgage" by which the leases were "sold" to Republic. This contract contains the following language:

"This sale is made and accepted for and in consideration of the sum of TWO MILLION and NO/100 DOLLARS ($2,000,000.00), in part payment and reduction whereof, the present purchaser has paid the sum of FIFTY THOUSAND and NO/100 DOLLARS ($50,000.00) in cash, receipt of which amount the said vendor hereby acknowledges and grants full balance of said purchase price, to-wit: the sum of ONE MILLION NINE HUNDRED FIFTY THOUSAND and NO/100 DOLLARS ($1,950,000.00), the present purchaser assumes, binds and obligates itself for the payment of the indebtedness of vendor under that certain mortgage note in the amount of Two Million, Five Hundred Thousand and No/100 Dollars ($2,500,000.00), dated July 9, 1957, payable to the order of Bearer and due on demand at the Whitney National Bank of New Orleans, bearing interest at the rate of five and one-half percent (5½%) per annum from date, which note is paraphed "Ne Varietur" by Kalford K. Miazza, Notary Public for Orleans Parish, to identify it with an act of Mortgage and assignment passed before the said Notary Public on July 9, 1957, and of record in Mortgage Book 57, folio 56 of the Mortgage Records of Lafourche Parish, Louisiana, under Entry No. 151-387; the present indebtedness hereby assumed being the sum of One Million, Nine Hundred and Fifty Thousand and no/100 Dollars ($1,950,000.00).

"The said purchaser, Republic Petroleum Corporation, does hereby bind itself to the full and final payment and discharge of said mortgage note and of the liabilities and obligations expressed and stipulated in the said act of mortgage and assignment hereinabove mentioned; and the said purchaser does take cognizance of all of the terms, provisions and conditions in the said act of mortgage and assignment, and is being purchased subject to all of said terms, provisions and conditions contained in the said act of mortgage and assignment." (emphasis added)

Roussel's intention that Republic would assume his mortgage liability to the Whitney Bank is, needless to say, clearly and unequivocally expressed in this document. Nevertheless, Roussel testified that despite the clear language of the act of sale, it was never his intention that Republic assume the mortgage liability encumbering the leases, and that when he was informed that the act of sale provided for such an assumption several days after signing the document, he was most surprised. Consequently, Roussel caused the following letter to be drafted on behalf of Republic to himself which reads as follows:

"Dear Mr. Roussel:

"This will evidence our agreement that you will accept a note from this corporation in the full

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