STATE STREET CORPORATION v. United States

• Decision Date: 13 September 1968
• Docket Number: Civ. A. No. 67-112-F.C.A.
• Citation: 289 F. Supp. 242
• Parties: STATE STREET CORPORATION, Plaintiff, v. UNITED STATES of America, Defendant.
• Court: U.S. District Court — District of Massachusetts

289 F. Supp. 242

STATE STREET CORPORATION, Plaintiff, v. UNITED STATES of America, Defendant.

Civ. A. No. 67-112-F.C.A.

United States District Court D. Massachusetts.

September 13, 1968.

David Burstein, J. Barry Morrissey, Hale & Dorr, Boston, Mass., for plaintiff.

Paul F. Markham, U. S. Atty., Joseph A. Lena, Asst. U. S. Atty., Peter J. Ciano, Trial Atty., Tax Division, Dept. of Justice, Washington, D. C., for defendant.

OPINION

FRANCIS J. W. FORD, District Judge.

Plaintiff in this action seeks to recover certain income tax payments allegedly illegally assessed and collected. Claim for refund has been properly made and denied. The relevant facts have been stipulated.

Plaintiff is one of a group of thirteen corporations whose income tax returns for the years 1945 through 1952, as well as the returns of the individuals who owned and controlled the corporations, were under investigation by the Internal Revenue Service beginning in 1953. In 1958 the District Director proposed deficiencies. At the request of the taxpayers various conferences were held before the Appellate Division.

On May 4, 1961 plaintiff signed a Form 870-AD offering to close the matter of its income tax liability on the basis of a tax deficiency of $28,602.67 for the year 1951 together with a penalty of $20,546.08. The conferee informed plaintiff that he would recommend acceptance of this offer but that his recommendation would not be binding on the Commissioner of Internal Revenue. The offer was not accepted by the Commissioner at that time and taxpayer was so informed on June 14, 1961. Plaintiff did not at any time thereafter contend that it owed the government less than this amount.

On January 31, 1962 plaintiff sent to the Internal Revenue Service a certified check for $66,095.83, representing the amount of the deficiency and penalty set forth in Form 870-AD with interest thereon to that date. Receipt of this check was acknowledged by the Service on March 30, 1962 in a letter which stated in part:

The Internal Revenue Service assesses voluntary payments of this nature only in those cases where the amount of the deficiency has been determined. Inasmuch as the amount of the deficiency has not been determined in your case, no assessment will be made at this time.

A voluntary payment which is not assessed is treated as a deposit made in the nature of a cash bond for the payment of taxes thereafter found to be due. As such, it will have no effect on the computation of interest, nor on the running of the period of limitation for filing a claim. At such time as the amount of the deficiency is determined, an assessment will be made, and your remittance will be applied as a payment of tax and/or interest made on the date of the assessment.

If you do not want your remittance to remain on deposit under the above conditions, you may request that the amount be returned to you. In this event, interest will continue to run on any unpaid tax as provided by law.

During 1962 the tax liabilities of some of these taxpayers were referred to the Department of Justice for possible criminal prosecution. Criminal prosecution was declined on October 29, 1962.

On March 26, 1964 the Form 870-AD executed by plaintiff was accepted by the Commissioner and on June 5 an assessment was made in the amount of $70,127.43 consisting of items of tax liability of $28,602.67, penalties of $20,546.08, and interest of $20,978.68. The tax and penalty amounts are exactly the same as those agreed to by plaintiff in its Form 870-AD and used by it in computing the amount of its check in January, 1962. However, the June 5, 1964 assessment included interest to June 5, 1964, and this exceeded the amount of the January 31, 1962 check by the interest from January 31, 1962 to June 5, 1964. The 1962 check was credited to the deficiency and plaintiff paid the additional amount representing added interest. It is this amount which plaintiff now seeks to recover.

Plaintiff's position is that with the government's receipt of its check on January 31, 1962 its full tax liability as it was ultimately determined had been paid and that the government is entitled to no interest after that date. 26 U.S.C. § 6601 (a). The position of the defendant (which it has consistently held from the beginning, as its letter of March 30, 1962 indicates) is that receipt of plaintiff's check did not constitute a payment but was only the making of a deposit as security for the payment of a still undetermined tax liability. There was no payment which would stop the running of interest until an assessment of a deficiency in a definite amount had been made and the deposit applied in payment.

A taxpayer is liable for interest on overdue tax payments until the date when the tax is paid. 26 U.S.C. § 6601(b). The statute does not give any further definition of what constitutes payment. Under 26 U.S.C. § 6213 (b) (3) and the corresponding Treasury Regulations § 301.6213-1(b) (3), any amount paid as a tax or in respect of a tax may be assessed upon receipt of the payment. Rev.Proc. 63-11, 1963-1 Cum. Bull. 497, issued to implement this regulation, provides in relevant part:

Sec. 4. GENERAL

* * * * * *

.02 An advance payment made before the mailing of a statutory notice of deficiency (90-day letter), which is made by a taxpayer as a payment in respect of a pending deficiency, may also be assessed upon receipt or as soon thereafter as is practicable, provided the District Director of Internal Revenue is in a position to ascertain the amount of the deficiency. * * *

.03 Advance payments received before the mailing of a statutory notice of deficiency will not be assessed in any case where the District Director is unable to ascertain the amount of the deficiency at the time the payment is received. An advance payment which is not assessed will be treated as a deposit made in the nature of a cash bond for the payment of taxes thereafter found to be due. As such, it will have no effect on the computation of interest or on the running of the period of limitation for filing a claim for refund. The taxpayer will be placed on notice by certified mail as to the status of the payment. At such time as the amount of the deficiency is determined, an assessment will be made and the advance payment will be applied as a payment of tax and/or interest made on the date of the assessment. Upon request by the taxpayer, the deposit will be returned to him, without interest, at any time

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