Southeast Bank of Orlando v. United States, 281-80T.

• Decision Date: 07 April 1982
• Docket Number: No. 281-80T.,281-80T.
• Citation: 676 F.2d 660
• Parties: SOUTHEAST BANK OF ORLANDO, and Marcia Andersen Murphy as Co-Trustees of the Jeanette Andersen Trust v. The UNITED STATES.
• Court: U.S. Claims Court

676 F.2d 660

SOUTHEAST BANK OF ORLANDO, and Marcia Andersen Murphy as Co-Trustees of the Jeanette Andersen Trust v. The UNITED STATES.

No. 281-80T.

United States Court of Claims.

April 7, 1982.

John J. Reid, Orlando, Fla., attorney of record, for plaintiffs. Eugene B. Cawood and Giles, Hedrick & Robinson, Orlando, Fla., of counsel.

Bruce W. Reynolds, Washington, D. C., with whom was Acting Asst. Atty. Gen. John F. Murray, Washington, D. C., for defendant. Theodore D. Peyser, Jr., and Donald H. Olson, Washington, D. C., of counsel.

Before DAVIS, NICHOLS and SMITH, Judges.

ON DEFENDANT'S MOTION FOR SUMMARY JUDGMENT AND PLAINTIFFS' CROSS-MOTION FOR SUMMARY JUDGMENT

DAVIS, Judge:

Plaintiffs are the trustees of the Jeanette Andersen Trust. In 1965, the trust sold stock, with payments to be made on notes in yearly installments from 1966 through 1980. The gain on the sale was distributed to Jeanette Andersen, the income beneficiary of the trust. She died in December 1968 and the total value of the trust, including the capital gain, was included in the estate and subjected to the estate tax. In an earlier tax refund suit for 1969 through 1972, this court held for taxpayers, ruling that under § 691 of the Internal Revenue Code the capital gains were "income in respect of a decedent," so that the trust was entitled to a deduction from the estate taxes that were attributable to the gains. Sun First National Bank of Orlando v. United States, 221 Ct.Cl. ___, 607 F.2d 1347 (1979).

The present case involves the same facts for the following year, 1973. On the trust's Fiduciary Income Tax return for 1973, a deduction was taken under § 691(c), for estate tax for income in respect of decedents. The Internal Revenue Service disallowed this deduction and assessed a deficiency of $49,330.37. After paying this sum, plaintiffs filed an administrative claim on August 20, 1975, seeking a refund alleging that the gain on the 1973 note was income in respect of a decedent and that a deduction of a proportion of the estate tax attributable to such gain was allowable under § 691. This claim was rejected by the Service on January 14, 1977. All this was before our decision for the earlier year, supra.¹

On March 24, 1978, plaintiffs filed a second claim for refund arguing that, if the gain did not fall under § 691, then, because the installment notes had been included in the estate they should be valued for capital gain purposes at the value used for estate tax purposes, a stepped up basis under Code § 1014, 26 U.S.C. § 1014 (1976). This second claim for 1973 was disallowed on June 1, 1978. That notice of disallowance provided in relevant part:

"We are sorry, but we cannot allow your claim, which we received Mar. 30, 1978. This is your legal notice that your claim is disallowed.

"A claim for credit or refund cannot be allowed if, as in your case, the claim is filed more than three years after the return was filed or two years after the tax was paid, whichever is later.

"Our records show a claim was filed on August 20, 1975, relating to the same issue and overpament sic of the same amount of tax. An audit of the tax account resulted in a disallowance of the claim. You were notified of the disallowance.

"If you wish to bring suit or proceedings for the recovery of any tax, penalties, or other moneys for which this disallowance notice is issued, you may do so by filing such a suit with the United States District Court having jurisdiction, or the United States Court of Claims. The law permits you to do this within two years from the mailing date of this letter."

In a letter, taxpayer claimed that the untimeliness basis for disallowance was clearly incorrect and sought to have the Service review the case further because the disallowance was wrong. No response was received.

Taxpayer then brought this action (on May 29, 1980) challenging the Service determinations for 1973 under § 691 and § 1014.² In its motion for summary judgment, defendant does not seek to reargue the merits of the Sun First National Bank decision but contends instead that this court lacks jurisdiction over the first refund claim because suit was not brought on the § 691 claim within two years after the original disallowance notice. See 26 U.S.C. § 6532(a)(1) (1976). The alternative claim under § 1014, the Government says, is barred by collateral estoppel because our prior decision, holding § 691 applicable, necessarily means that § 1014 cannot govern. In contrast, plaintiffs' cross-motion for summary judgment asserts that suit under § 691 is timely and that, in any event, § 1014 can properly apply. We do not reach the second aspect of the case (i.e. the claim under § 1014) because we hold that suit under § 691 was within time limits and taxpayers should prevail on that basis.

All admit that, if the suit under § 691 must rest on the first refund claim for 1973, it is far beyond the two-year limit. The only real issue is whether the second disallowance founded another claim under § 691 which can now be vindicated because this suit came less than two years after that second denial of a refund. Our rulings are that (1) taxpayers and the court can and should reasonably view the second disallowance as incorporating a reconsideration of the § 691 claim previously rejected, and (2) a formal reconsideration and disallowance of this type begins a new period of limitations for suit.

1. It is plain to us that, at the very best for the Government, the second allowance was extremely ambiguous. The second paragraph, supra, appears to reject the claim, which was squarely based on § 1014, because it was not timely filed with the Service.³ There was no need whatever for any further discussion of that particular claim or for any consideration of its relation to the § 691 claim. Nevertheless, the disallowance added the third paragraph, supra, noting that the new § 1014 claim and the earlier § 691 claim relate to the "same issue and overpayment of the same amount of tax." Note that the Service specifically said "the same issue", as well as the "same overpayment". The "same issue" clearly connotes that the § 1014 claim was the mirror-image of the § 691 demand. This founds the strongest of inferences that the Service had, for the purposes of assessing the second claim under § 1014, deliberately considered the interrelatedness of both claims. Two separate conclusions can then be drawn: the IRS either reconsidered the claim that the gain was "income in respect of a decedent" under § 691 — the common issue between the two tax sections — and rejected it again, or the agency was simply noting the common question and declining to reconsider it under § 691.⁴ Certainly, the latter reading is not compelled, and there are very good grounds for thinking that the Service did in fact reconsider. There was no need, as we have noted, to go any further into the § 1014 claim which was flatly denied on timeliness grounds. It was not necessary (or even relevant) to consideration of that basis for denial of the § 1014 claim to find that it involved the "same issue" as the prior § 691 claim; taxpayers' second refund claim was based on § 1014 alone and did not ask for reconsideration of the § 691 aspect. The third paragraph is, therefore, wholly extraneous and very hard to explain except as a summary statement that the Service had reconsidered (and again rejected) the § 691 claim (which it obviously considered to be inextricably connected with the § 1014 claim directly before it).

At the very least, this understanding of the second notice is so plausible that plaintiffs could have reasonably relied upon it.⁵ Ambiguities are most often resolved against the drafter of the document. United Pacific Insurance Co. v. United States, 204 Ct.Cl. 686, 695, 497 F.2d 1402, 1407 (1974); Peter Kiewit Sons Co. v. United States, 109 Ct.Cl. 390, 418 (1947). In cases of patent ambiguities, a party may be obliged to ask about the unclear language in order to try to resolve the ambiguity, and must assume the risk that its own interpretation may be different from that of the drafter if it does not ask. Beacon Construction Co. v. United States, 161 Ct.Cl. 1, 6-7, 314 F.2d 501, 504 (1963). We are not sure that we have here the kind of "glaring discrepancy" requiring prior clarification. See Mountain Home Contractors v. United States, 192 Ct.Cl. 16, 21-22, 425 F.2d 1260, 1263-64 (1970); WPC Enterprises, Inc. v. United States, 163 Ct.Cl. 1, 6, 323 F.2d 874, 876 (1963). In any case, the corollary to this duty to request clarification is that, if the party complaining does inquire about the problem, and is not assisted by the Government as the drafter of the document, then the complainant's reasonable interpretation will be upheld. That is the situation here because plaintiffs did inquire of the IRS, without response, as to the reach and correctness of the notice.⁶

Accordingly, we find with taxpayers that the Service did reconsider and deny the § 691 claim in the second notice of disallowance.

2. The next question is whether this reconsideration had any effect on the time for filing this action. The Government's argument is that the Internal Revenue Code provides that reconsiderations do not extend the statute of limitations, IRC § 6532(a)(4), and that any extensions of time must be formally agreed to by the parties, using an IRS Form 907, IRC § 6532(a)(2). See U.S.C. § 6532(a)(2), (4) (1976).⁷

These statutory provisions have recently been construed by this court in Heath v. United States, 219 Ct.Cl. 582 (1979), and we are bound by the court's decision there.⁸ In Heath, the plaintiffs received two notices disallowing their refund claims. The second letter was sent to correct the date which the original notice had listed for the day the plaintiffs had filed their claims. This follow-up notice was a form disallowance letter which indicated that the plaintiffs had two years from its mailing date to file suit for a refund. Plaintif...