Scharpf v. United States, Civ. No. 8282.

• Decision Date: 14 December 1956
• Docket Number: Civ. No. 8282.
• Citation: 157 F. Supp. 434
• Parties: George L. SCHARPF and William Fred Scharpf, Executors of the Estate of Louis C. Scharpf, Plaintiffs, v. The UNITED STATES of America, Defendant.
• Court: U.S. District Court — District of Oregon

157 F. Supp. 434

George L. SCHARPF and William Fred Scharpf, Executors of the Estate of Louis C. Scharpf, Plaintiffs, v. The UNITED STATES of America, Defendant.

Civ. No. 8282.

United States District Court D. Oregon.

December 14, 1956.

Carl E. Davidson and Charles P. Duffy, Portland, Or., for plaintiffs.

Charles K. Rice, Asst. Atty. Gen., Andrew D. Sharpe, Allen A. Bowden and Jerome S. Hertz, Washington, D. C., and Clarence E. Luckey, U. S. Atty., and Edward J. Georgeff, Asst. U. S. Atty., Portland, Or., for the Government.

SOLOMON, District Judge.

Plaintiffs, as executors of the estate of Louis C. Scharpf, deceased, seek to recover individual income taxes for the year 1944 assessed against and paid by the decedent.

The case is before the court upon an agreed statement of facts contained in the pre-trial order as well as certain exhibits attached to the order.

These facts disclose that Scharpf and his wife, together with another married couple, entered into a written partnership agreement which provided that the profits of the business were to be divided equally between the four partners after paying $9,000 per year to each of the husbands and $300 per year to each of the wives.

On October 3, 1947, the Commissioner of Internal Revenue notified Scharpf of an income tax deficiency asserted against him for the year 1944 in the sum of $8,328.06. This deficiency was based upon the Commissioner's contention that one-half of the income from the partnership during 1944 was taxable to him and that none of such income was taxable to his wife. On the same day, the Commissioner notified Twin Oaks Company, a corporation owned and controlled by the members of the partnership, of deficiencies asserted against it for the years 1942, 1943 and 1944, claiming that all of the partnership income for each of these years was taxable to the corporation rather than to the partners.

On March 8, 1948, Scharpf paid the asserted deficiency by applying the total credit for overassessments determined for Scharpf's wife together with a cash payment for the balance. This payment was accompanied by a letter dated March 6, 1948, which stated:

"The payment of the deficiency above described and the application of the credits as above set out are not to be construed as an admission of the correctness of the determinations of the Commissioner of Internal Revenue, nor a waiver of taxpayers' right to a refund of any or all of the deficiency concerned in the event it is later determined that the Federal income tax liabilities of the parties are subject to revision."

On March 13, 1948, Scharpf filed with the then Collector of Internal Revenue a proper and timely claim for refund. The reason set forth by the taxpayer for the allowance of his claim was that:

"In a proceeding now pending before The Tax Court of the United States, Docket No. 16845, the Commissioner of Internal Revenue has taken the position that all or a substantial portion of the income of this taxpayer for the year 1944 was the income of a corporation known as Twin Oaks Company. Should the Commissioner prevail in such pending litigation this taxpayer will be entitled to a refund of all or a substantial part of the tax paid by him individually as above described. This claim is filed for the purpose of staying the running of the Statute of Limitations as to the year 1944, and it is requested that any action thereon be delayed until the decision of The Tax Court of the United States shall have been rendered and a final determination had as to the taxation of the income of this taxpayer."

On July 20, 1950, the United States Court of Appeals for the Ninth Circuit held that the Tax Court was in error in sustaining the Commissioner's deficiency assessments against the corporation. Twin Oaks Co. v. Commissioner, 9 Cir., 183 F.2d 385.

On February 16, 1951, taxpayer filed a claim for refund for the year 1944, seeking to amend his refund claim for that year which he had previously filed on March 12, 1948, upon which the Commissioner had taken no action. The statement attached to this refund claim was as follows:

"On or about January 25, 1941, I and my wife, Eva M. Scharpf, and John J. Rogers and his wife, Corabelle M. Rogers, entered into a written partnership agreement, effective January 1, 1941, for the purpose of conducting a business under the name of Twin Oaks Builders Supply Co., of general supply in the city of Eugene, Oregon. Each of the parties contributed $2000.00 to the partnership capital and also obligated themselves on a promissory note of the partnership payable to Twin Oaks Company, a corporation, in the amount of $89,378.35, in payment for certain assets which were thereafter used by the partnership in its business. By the terms of said partnership agreement, as amended, the profits of the said business were to be divided equally among the said parties after payment to me and John J. Rogers of the

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