Roybark v. United States

• Decision Date: 16 May 1952
• Citation: 104 F. Supp. 759
• Court: U.S. District Court — Southern District of California
• Parties: ROYBARK v. UNITED STATES (two cases).

104 F. Supp. 759

ROYBARK v. UNITED STATES (two cases).

United States District Court S. D. California, Central Division.

May 16, 1952.

Irving S. Baltimore, Los Angeles, Cal., Strong & Schwartz, Beverly Hills, Cal., for plaintiffs.

Walter S. Binns, U. S. Atty., E. H. Mitchell and Edward R. McHale, Asst. U. S. Attys., Eugene Harpole and Frank W. Mahoney, Sp. Attys., Bureau of Internal Revenue, Los Angeles, Cal., for defendant.

HARRISON, District Judge.

Plaintiffs, husband and wife, have brought these actions for refund of taxes paid, 28 U.S.C.A., § 1340. The issues of law and fact being identical it was stipulated that whatever evidence applied to the husband's case would apply as well to that of Mrs. Roybark.

The income tax returns of the plaintiffs for the years in question, 1945 and 1946, were filed with the Collector of Internal Revenue for the Sixth Collection District. During those years, Mr. Roybark was in the used automobile business. Subsequent to their filing, it was discovered that Mr. Roybark's business transactions included some purchases and sales made in violation of the then O.P.A. ceilings. In 1949, each plaintiff was assessed an additional sum in taxes for the years herein involved as a deficiency assessment. The theory behind the assessment was one which disallowed amounts expended in excess of O.P.A. ceiling prices, but the amount actually assessed was, of necessity, based on an estimate. Those records of Mr. Roybark made available to the investigating agent not reflecting any of the over-ceiling receipts or expenditures, the agent estimated the amounts paid in excess of the ceiling price, and the assessment was based on the disallowance of that estimated figure. On July 5, 1949, each plaintiff paid the amounts assessed for both calendar years, and thereafter filed claims for refund, which claims were disallowed in full.

The issues in this case resolve themselves to but two:

1. Can the Commissioner disallow from the cost of merchandise that portion thereof which was paid in excess of the O.P.A. ceiling price?

2. Have the plaintiffs sustained their burden of proof so as to entitle them to the refunds sought?

The first question has been before the Tax Court, Sullenger v. Commissioner, 11 T.C. 1076, and it has rendered rulings adverse to the contention of the Commissioner. Such rulings stand undisturbed by any appellate court. The question was fairly presented to Judge Chesnut in the case of Anderson Oldsmobile, Inc., v. Hofferbert, D.C., 102 F.Supp. 902. He decided against the Commissioner.

I concur in the conclusions and hereby adopt the able opinion of Judge Chesnut and the authorities therein cited. I therefore hold the Commissioner was in error in holding the excess over-ceiling expenditures were not allowable as part of the cost of the automobiles.

Coming to the second question, the government has adopted a different method in its effort to bar the plaintiffs' recovery by contending that the plaintiffs have not sustained their burden of proof. The government now, in effect, says to plaintiffs: "Our theory may have been wrong, but that is not enough to show you are entitled to a refund." It is with no small reluctance that I must agree with the government in this case.

Plaintiffs contented themselves in relying solely on their income tax returns for the two years as evidence of their cost of sales and profits. They did not present their books of record nor any other evidence showing their income or expenditures. Neither plaintiff took the stand. I am satisfied that these returns were not accurate.

Looking at the picture from the vantage point most favorable to plaintiffs, what apparently happened was this: Plaintiffs did not include any of the black-market profit in their 1945 returns. The 1946 returns included not only the "legitimate" income for that year, but also the alleged black-market profit for both years. Why Mr. Roybark chose this peculiar mode of reporting is not for my determination. No citations of authority are necessary, however, for the proposition that such method is not sanctioned by our annual accounting concept of income tax reporting. Although plaintiffs' returns for 1945 and 1946 may have reported the total income for the two years, they did not report their true income from sales each year. Thus, I have no accurate figures before me reflecting the business income and cost of sales for the years 1945 and 1946, respectively.

It is well settled that an action for refund of taxes paid to the government is in the nature of an action for money had and received and is governed by equitable principles. Stone v. White, 301 U.S. 532, 534, 57 S.Ct. 851, 81 L.Ed. 1265; Lewis v. Reynolds, 284 U.S. 281, 283, 52 S.Ct. 145, 76 L.Ed. 293; Champ Spring Co. v. U. S., 8 Cir., 47 F.2d 1; Ryan v. Alexander, 10 Cir., 118 F.2d 744, 748. There is a well recognized distinction between the taxpayer's burden of proof in an action such as this and a proceeding before the Tax Court. Taylor v. Commissioner, 2 Cir., 70 F.2d 619, 621, affirmed Helvering v. Taylor, 293 U.S. 507, 514, 55 S.Ct. 287, 79 L.Ed. 623; Forbes v. Hassett, 1 Cir., 124 F.2d 925, 928; Maroosis v. Smyth...