Senger v. United States

Decision Date11 August 1965
Docket NumberCiv. A. No. 2838.
Citation245 F. Supp. 109
PartiesHarold H. SENGER, Plaintiff, v. UNITED STATES of America, Defendant.
CourtU.S. District Court — District of Delaware

Daniel O. Hastings, of Hastings, Taylor & Willard, Wilmington, Del., and Robert M. Taylor, Philadelphia, Pa., for plaintiff.

Louis F. Oberdorfer, Asst. Atty. Gen., C. Moxley Featherston, David A. Wilson, Jr., Burton G. Lipsky, Dept. of Justice, Washington, D. C., Alexander Greenfield, U. S. Atty., Wilmington, Del., for defendant.

LAYTON, District Judge.

This is a suit against the United States (hereafter defendant) on a claim for a tax refund.

From 1946-1953 the taxpayer, Harold H. Senger, was engaged in the business of transporting milk by tank trucks and trailers. As such transporter he was required, by 1939 IRC § 3475, to collect an excise tax from his customers, make returns, and pay the taxes to the United States. Senger collected the tax and accurately kept records of his collections, but failed to file returns and make payments to the United States. During these years, Senger should have paid $66,039.84 in satisfaction of the tax. On May 25, 1954, the United States made an assessment against Senger for taxes under 1939 IRC § 3475, a 25% penalty under 1939 IRC § 3612,1 a 100% penalty under 1939 IRC § 1718,2 and interest under 1939 IRC § 3310, in the total amount of $163,750.49. Pursuant thereto, a lien on Senger's property was filed with the Office of the Recorder of Deeds of Kent County.

Since July 15, 1955, Senger has been making regular payments on his liability. In order to prevent seizure and sale of his business assets, Senger agreed, on August 11, 1955, that his business would be operated by John S. Hanlon as escrow agent, that Mr. Hanlon would make regular monthly payments of at least $2,500.00, and that Senger would manage the business as a $50 per week employee. From July, 1955, until September 10, 1963, Senger paid to the United States over $125,000.00. Finally, on August 31, 1963, Senger, with the approval of the United States, sold his trucking business. On September 23, 1963, Senger assigned to the United States all his rights in the sale contract of August 31, 1963. Since September 1963, Senger has paid in excess of $30,000.00.

At the same time that Senger has attempted to satisfy his liabilities, he has been seeking relief from the United States. He filed a claim for abatement of the 100% penalty in 1954. The United States rejected the claim asserting that the assessment of the 100% penalty was proper and lawful. Senger has persistently contended that the 100% penalty was erroneously assessed. He filed offers in compromise with the United States on March 25, 1955, July 8, 1955, December 23, 1957, January 10, 1961, and July 10, 1961. None of these offers was accepted by the defendant. On July 3, 1963, Senger filed a claim for refund and abatement. On July 25, 1963, defendant notified Senger that his claim would be rejected, but there has been no formal rejection. On August 14, 1963, Senger filed a petition for preliminary restraining order in this court to prevent the United States from selling his property until the rights on the claim for refund were full yand finally adjudicated. On April 28, 1964, the defendant agreed not to levy on the property of Senger until the suit for refund had been fully adjudicated. Senger filed the instant action on April 28, 1964.

In this suit, Senger contends that he is entitled to a refund of $66,039.84 plus interest at 6% because he is not liable for the 100% penalty under 1939 IRC § 1718. The defendant does not contest Senger's claim on the merits3 but contends that under 1939 IRC § 33134 this court is without jurisdiction to grant a refund on payments made before July 3, 1959. Accordingly, defendant concedes Senger's claim for a refund in the amount of $22,386.02. By way of counterclaim, the defendant seeks a judgment for $30,290.29, the amount unpaid on the total liability. Both parties have filed motions for summary judgment.

Senger contends that the statute of limitations does not effectively bar his claim for four reasons: (1) The United States is estopped from asserting the statute of limitations. (2) The statute of limitations, 1939 IRC § 3313, was suspended by waiver of the statute of limitations on assessments in the offer in compromise. (3) The statute of limitations is not a bar because Senger filed an informal claim within the statutory period. (4) Taxpayer's liability should be abated under the doctrine of equitable recoupment.

First, it is contended that the United States is estopped from interposing the statute of limitations for the filing of claims for refund because of unconscionable conduct on the part of the Internal Revenue Service. Certainly, the history of its relations with the taxpayer over the past ten years does not present an altogether happy picture. Conceding Senger's original improper conduct in failing to pay over the tax as required by the law, the fact remains that as a consequence, the defendant (1) in addition to the original amount of taxes owed, imposed a 100% penalty which, nine years later as the result of Rosenberg v. United States, 327 F.2d 362 (2 Cir. 1964), appears to have been of the most doubtful validity, (2) a 25% penalty on top of the 100% penalty, (3) substantial interest charges, (4) has received altogether from the taxpayer about $158,942.00, some $92,942.00 more than the amount of the taxes originally due and (5) while for the purposes of this proceeding conceding the impropriety of the 100% penalty in 19555 and thus the validity of the claim for refund, nevertheless, interposes taxpayer's failure to file his claim for refund within the period prescribed by 1939 IRC § 3313 as a defense.

During a substantial portion of this period, Senger by arrangement with defendant installed a nominee in charge of his business who operated it under an agreement with the United States to pay to it some $2500 monthly in reduction of its claim. Moreover, the business has now been sold and the proceeds paid over to the defendant in reduction of the claim, and, finally a lien in favor of the United States against his home threatens its sale if this litigation is unsuccessful.

In reply the defendant points out quite correctly (1) that courts only on the most rare occasions have applied the principle of equitable estoppel against the United States, (2) that at the time of the imposition of the 100% penalty, Section 1718 (c) had not been challenged in the courts and Rosenberg6 was not even decided until 19647 (3) that it was not guilty of any affirmative misrepresentation which resulted in Senger's failing to make a timely filing of his suit for refund and (4) Senger during all this period was free to file his claim for refund but did not do so until too late.

Some would view the conduct of defendant in this long transaction as amounting to no more than arm's length dealing between business men; others would label it sharp practice. I do not decide the point because in my view, the running of the statute on the filing of the claims for refund was suspended for reasons now to be discussed.

Senger's second argument is that the statutory period for filing claims for refunds was suspended, with the result that 1939 IRC § 3313 is not a bar to his claim. He contends that suspension of the statutory period for filing claims for refunds is a concomitant result of the waiver which appeared in the offers in compromise he filed. Each offer in compromise contained the following language:

"The proponent expressly waives * * * the benefit of any statute of limitations applicable to the assessment and/or collection of the liability sought to be compromised, and agrees to the suspension of the running of the statutory period of limitations on assessment and/or collection for the period during which this offer is pending, or the period during which any installment remains unpaid, and for 1 year thereafter."

Senger relies on Walsonavich v. United States, 335 F.2d 96 (3 Cir. 1964), to support his rights on this theory.

In Walsonavich the taxpayer made excise tax payments from 1951 to sometime in 1957. In 1954 and 1956 the taxpayer and the Commissioner of Internal Revenue signed Form 872-B agreeing that the government could make assessments until a specified time irrespective of the statute of limitations. Subsequently, the excise taxes involved were determined to be void. The taxpayer filed a claim for refund. The claims for 1951 and 1952 were rejected on the ground that refund for those years was barred by the statute of limitations.

The Third Circuit Court of Appeals held that the statute of limitations was not a bar to recovery. The court observed that Congressional policy favored mutuality for extension agreements,8 and concluded that the extension agreements would lack mutuality unless the court held that the time for filing refund claims was also extended. The conclusion that there would otherwise be no mutuality was based on the rationale that "little, if any benefit to taxpayer from the waiver agreement can be said to accrue as to * * * the period from 1951 to 1952" because at the time of the waiver agreement the taxpayer had paid the amount assessed for 1951 and 1952. Id. at 100.

In the early phases of this case defendant contended that Senger had waived only the statute of limitations on collections, not the statute of limitations on assessments. However, at this stage of the proceedings the defendant seems to have abandoned this line of argument. Consideration of the circumstances9 leads to the conclusion that Senger did waive the statute of limitations on assessments. Myrick v. United States, 296 F.2d 312 (5 Cir. 1961).

Nonetheless, the defendant contends that the statute of limitations on filing claims for refunds was not suspended because, in the case at bar (1) there is no need for mutuality, and (2) even applying Walsonavich the statutes do...

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1 cases
    • United States
    • U.S. District Court — Southern District of New York
    • April 26, 1967
    ...language of the statutes here involved, however, this argument should be addressed to Congress, not to the Court. Senger v. United States, 245 F.Supp. 109 (D.Del.1965), relied upon by plaintiffs, has no application to the facts here. It involved an agreement between the taxpayer and the Gov......

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