Sanders v. Andrews

Decision Date13 May 1954
Docket NumberCiv. A. No. 5743.
Citation121 F. Supp. 584
PartiesSANDERS et al. v. ANDREWS et al.
CourtU.S. District Court — Western District of Oklahoma

Herman J. Galloway, Washington, D. C., Dan G. Moody, Austin, Tex., John E. Marshall, Oklahoma City, Okl., and Harry O. Glasser, Enid, Okl., for plaintiff.

Robert E. Shelton, U. S. Atty., Leonard L. Ralston, Asst. U. S. Atty., Oklahoma City, Okl., Homer R. Miller, Sp. Asst. to the Atty. Gen., Washington, D. C. (H. Brian Holland, Asst. Atty. Gen., and Andrew D. Sharpe, Sp. Asst. to the Atty. Gen., on brief), for defendant.

VAUGHT, Chief Judge.

The plaintiffs bring this action for injunctive relief restraining and enjoining the defendants (hereinafter referred to as the Government or a named agency) from enforcing certain liens against their property based upon, what plaintiffs allege, are invalid assessments of taxes, interest, penalties and jeopardy assessments; to construe a compromise settlement of a suit pending in the Court of Claims based on a contract, designated No. W-957-eng-968, between the plaintiff, Leo Sanders, and the Government for the principal construction of the Oklahoma Aircraft Assembly Plant near Oklahoma City, Oklahoma, (hereinafter referred to as the Plant); to quiet title to their real estate and personal property against said liens; and for general and special relief.

The defendants challenge the jurisdiction of this court, contending that it is an attempt upon the part of the plaintiffs to have this court determine their tax liability, and denying that this court has power to award injunctive relief because of the provisions of Section 3653 of the Internal Revenue Code, Title 26 U.S.C.A., or to enter a declaratory judgment in view of the express prohibitions contained in Section 2201, Title 28 U.S. C.A.

The jurisdiction of this court depends upon a determination of whether or not the assessments of taxes, penalties and interest herein involved were arbitrary and capricious.

In view of the issues and the contentions of the parties, it is necessary to give a full review of the situation as it has been developed by the evidence. The uncontradicated evidence discloses the following facts.

The plaintiffs, Leo Sanders and Jessie H. Sanders, are husband and wife, residing in Oklahoma City, Oklahoma. Leo Sanders is a graduate civil engineer from the University of Oklahoma and at the time of the trial had been engaged in the general contracting business in heavy construction work for about thirty years. In June, 1942, he was engaged in construction work on the Fort Supply Dam project and was near its completion, which project was under a contract with the United States through the Corps of Engineers, Department of the Army, in the Tulsa district. The district engineer, a Colonel Montgomery, asked Sanders to come to Tulsa, Oklahoma, and explained the Government's situation in connection with the construction of the Plant — that seventy six contractors had refused to bid on the project as it was considered a big undertaking. He conferred with Sanders for two or three hours, urging him to bid on the project, appealing to his patriotism. This resulted in Sanders bidding on the project, he being the only bidder finally. Negotiations followed and a contract, No. W-957-eng-968, (hereinafter referred to as the contract) was entered into on June 6, 1942. Two days after the contract was entered into "a man from the President's office" advised Sanders that the contract had to be greatly accelerated. After the work started many changes, enlargements, expansions and demands to speed up the work were encountered which greatly added to the cost of construction, caused much confusion in the progress of the work, and resulted in many adjustments out of which grew claims for additional compensation, which were not settled until June 30, 1949, the date of a compromise settlement. The actual construction was completed in 1943. On May 17, 1949, Sanders, having claimed a balance due in the sum of $2,254,420.37, filed a petition in the Court of Claims for that amount in order to be within the statute of limitations. The Board of Contract Appeals of the War Department had made a decision to the effect that Sanders was entitled to recover on his claims and the Department of the Army was directed to determine the amount due. They were unable to do so and the suit was filed. After the suit was filed it was referred to The Attorney General, the Department of Justice (hereinafter referred to as the Department) which thereafter had charge of the case. The case was assigned to Gaines V. Palmes, a trial attorney in the Claims Division. Newell A. Clapp was then Acting Assistant Attorney General and Peyton Ford, then Deputy Attorney General. As a result of the suit, Congress appropriated $1,674,030.26 to pay Sanders' claims, which funds were made available only until June 30, 1949. Negotiations for a settlement were soon under way.

In attempting to collect the money claimed to be due under the contract, Sanders and his representatives held many conferences with the agencies of the Government in Tulsa, Oklahoma City and Washington both prior to the time the suit was filed and thereafter until the compromise settlement.

In the early part of June, Palmes, with an accountant from the Federal Bureau of Investigation, came to Oklahoma City to verify the cost figures prepared by Sanders' auditors. Palmes requested that they be permitted to examine Sanders' tax records and returns, which request was granted. Conferences covering three days were held in the office of Sanders in Oklahoma City and in the office of the United States Engineers in Tulsa. At the close of one of the conferences in Tulsa, Palmes told Sanders that he was going to have a tax problem and that he should get a good tax lawyer. The last negotiations pertaining to a settlement of the suit occurred in Washington on June 27, 28 and 29, 1949.

During the interim from the date the construction work was completed in 1943 to the date of the compromise settlement on June 30, 1949, the filing of income tax returns by Sanders posed various problems. Sanders was an old friend of the then collector of internal revenue at Oklahoma City, with whom he had many consultations with reference to filing returns for those years. But he did file a return for each year within the time provided by law, or within the time of extensions granted. These returns were tentative and in no sense completed returns, as he was unable to determine whether he would make a profit on the contract, or sustain a heavy loss. He explained why the returns were tentative in a letter attached thereto, or when requesting an extension. Three sample letters, addressed to the collector of internal revenue at Oklahoma City, are as follows:

Under date of December 15, 1943:

"This letter is written as a request for an extension of time in which to file my estimated income and victory tax return for 1943.
"For the last two years, I have been engaged in large War contracts with the Federal Government. During the course of these construction contracts, many changes were made and additional compensation has been requested for them. The major contracts have not been completed and final payments made. It is not known at this time whether any additional funds will be received, except the small additional retained precentages which are now withheld and which keep the contracts alive, or whether allowances will be made on the large amounts which we have requested, and if allowances are made, it is not known the amounts of allowances. We also have large unsettled items resulting from these contracts in obligations of our own and therefore cannot determine the expense in connection therewith. One of the largest items is a backcharge by the Government of $180,000.00, which is now being considered for readjustment.
"An extension of time, without penalties, is requested from you until such time as we have action and determination by the Government as to what, if any, allowance on these matters will be made. A preliminary return on Form 1040-ES was made on September 15, 1943, without knowing the outcome on these large contracts and we still do not have that information.
"Please grant an extension of time and clearance to avoid any penalties or indication of lack of good faith on my part."

Under date of March 12, 1947, and attached to the tentative 1946 income tax return:

"The declaration of my Estimated Income Tax for 1946 has been made in the amount of $2,000.00, which amount has been paid.
"It is not possible at this time to determine the exact tax due for 1946, nor for 1945, 1944, or 1943, due to the fact that large sums of money are still due me from the Government on contracts which have not yet been closed. We do not know at this time what allowances or payments will be made by the Government on these war contracts. We also have unsettled items resulting from these contracts in obligations of our own and therefore it is impossible at this time to determine our tax.
"This letter is written to clarify and avoid any penalties due to our inability to determine any tax in addition to what we have already declared and paid. As soon as the Government determines the amount of final payments due me, I will make proper returns."

Under date of September 14, 1949:

"I am enclosing herewith Income Tax Return for the year 1948, on which payment of estimated tax was made in January 1949.
"Extension to September 15, 1949 for filing 1948 return was granted by your office; however, due to the vast amount of detailed work required in making adjustments in connection with recent settlement of amounts due me from the U. S. Government, my accountants have been unable to complete final figures by this date. As soon as figures are computed from the work now being done, amended returns will be prepared and filed."

The tentative returns for the years 1939 to 1950, inclusive, reflected the following: 1939, net...

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6 cases
  • Sanders v. Commissioner of Internal Revenue
    • United States
    • U.S. Court of Appeals — Tenth Circuit
    • September 30, 1955
    ...objection to its jurisdiction, held that the settlement did include any liability for income taxes on the amount received. Sanders v. Andrews, D.C., 121 F.Supp. 584. The questions presented grew out of the same facts, and the cases were consolidated on appeal. We have concluded that the dec......
  • Homan Mfg. Co. v. Long
    • United States
    • U.S. Court of Appeals — Seventh Circuit
    • February 4, 1957
    ...Mfg. Co. v. Higgins, 2 Cir., 1937, 90 F.2d 439. Communist Party U. S. A. v. Moysey, D.C.N.Y.1956, 141 F.Supp. 332; Sanders v. Andrews, D.C.Okl.1954, 121 F.Supp. 584 reversed on other grounds, Sanders v. C. I. R., 10 Cir., 1955, 225 F.2d 29; Long v. Kelly, D.C.Ala.1951, 100 F.Supp. 235 excep......
  • Hawse v. Comm'r
    • United States
    • U.S. Tax Court
    • May 27, 2015
    ...agents waive the rights of the United States by their unauthorized acts."), aff'g 21 T.C. 1012 (1954), and rev'g Sanders v. Andrews, 121 F. Supp. 584 (W.D. Okla. 1954); Boulez v. Commissioner, 76 T.C. 209, 213-214 (1981) (concluding that an oral agreement entered into by an authorized agent......
  • Coson v. United States
    • United States
    • U.S. District Court — Southern District of California
    • December 30, 1958
    ...and the assessment upon which such lien is based is quite a different thing. * * *" (Emphasis added.) at page 729. In Sanders v. Andrews, D.C.W.D.Okl. 1954, 121 F.Supp. 584, rev'd sub nom Sanders v. Commissioner, 10 Cir., 1955, 225 F.2d 629, another case involving a taxpayer's action to qui......
  • Request a trial to view additional results

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