Thompson v. United States

• Decision Date: 27 May 1964
• Docket Number: No. 20214.,20214.
• Citation: 332 F.2d 657
• Parties: I. W. THOMPSON, Individually and wife, Charlie Thompson, et al., Appellants, v. UNITED STATES of America, Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

332 F.2d 657 (1964)

I. W. THOMPSON, Individually and wife, Charlie Thompson, et al., Appellants, v. UNITED STATES of America, Appellee.

No. 20214.

United States Court of Appeals Fifth Circuit.

May 27, 1964.

A. A. White, Houston, Tex., for appellants.

Louis F. Oberdorfer, Asst. Atty. Gen., Lee A. Jackson, Carolyn R. Just, Melva M. Graney, Attys., Dept. of Justice, Washington, D. C., for appellee.

Before HUTCHESON and BROWN, Circuit Judges, and SIMPSON, District Judge.

JOHN R. BROWN, Circuit Judge.

I. W. Thompson, his wife Charlie Thompson, and I. W. Thompson, as Trustee for Selected Minority Funds¹ sued in the District Court to recover income taxes, penalties, and interest in the aggregate amount of $171,665.65, assessed against the Thompsons for the years 1952-1956 and collected by levy on the bank accounts of the Thompsons and Selected.²

On September 19, 1949, I. W. Thompson, referring to himself as Donor and naming himself as Trustee, executed an instrument establishing Selected. Subsequently the Thompsons executed a deed conveying to I. W. Thompson, Trustee, 9/10ths of all of the oil, gas and other minerals in and under approximately 86 acres of land in the Van Field in Van Zandt County, Texas. After June 1, 1951, the effective date of that deed, the oil and gas royalties attributable to the mineral interest conveyed were paid to Selected. Because the Thompsons did not consider the royalty income paid to Selected to be income accruing to them, they did not include this income in the returns filed by them for the years 1952-1956. The deficiencies assessed resulted from the determination by the Internal Revenue Service that the royalty amounts paid to Selected were taxable to the Thompsons.³

The Government challenged the jurisdiction of the District Court to entertain the refund suit involving the years 1953, 1955, and 1956 on the ground that the Thompsons had filed no claims for refund for those years. Acknowledging that claims had been filed for the years 1952 and 1954, the Government nevertheless, but unsuccessfully, challenged the jurisdiction of the District Court to entertain the refund suit for these years on the theory that the claims failed adequately to set forth the grounds relied on for relief. The Government further urged various substantive theories under which the income paid to Selected was taxable to the Thompsons. The District Court decided that Selected is a trust organized and operated exclusively for charitable or educational purposes and thus exempt from the payment of income taxes under Int.Rev. Code of 1954, § 501, 26 U.S.C.A. § 501. It rejected the Government's contentions that the royalty income was taxable to the Thompsons and that the claims were insufficient and thus rendered judgment for them for the years 1952 and 1954.⁴ The Court dismissed the refund suit for the years 1953, 1955, and 1956, however, holding that the Thompsons had not filed refund claims for those years. The sole question here presented is the correctness of this dismissal.

Clearly the Code⁵ and the Regulations⁶ require the filing of a refund claim prior to the institution of a civil suit for refund. Neither the Thompsons nor Selected dispute this controlling principle of law; the difference — and therein the difficulty of this case — lies in its proper application.

The position of the Government may be simply stated. It is that, assuming that the "claims" in all other respects complied with the Code and Regulations,⁷ those for the years here in question are fatally defective because on the line captioned "Name of taxpayer or purchaser of stamps" on Form 843 there appeared "Selected Minority Fund" rather than "I. W. Thompson and wife, Charlie Thompson." The Government also urges that the statement of the ground upon which the refund was claimed was insufficient. We reject both contentions and reverse.

I.

The filing of a claim or demand as a prerequisite to a suit to recover taxes paid is a familiar provision of the revenue laws, compliance with which may be insisted upon by the Government. United States v. Felt & Tarrant Mfg. Co., 1931, 283 U.S. 269, 51 S.Ct. 376, 75 L.Ed. 1025. The Supreme Court has said that "one object of such requirements is to advise the appropriate officials of the demands or claims intended to be asserted, so as to insure an orderly administration of the revenue * * *." Id. at 283 U.S. 272, 51 S.Ct. 377. We have said more specifically that the purpose of the rule is to permit the Commissioner to correct claimed errors in the first instance and, if disagreement persists, to limit the litigation to the issues which have been reexamined by the Commissioner and which he is prepared to defend. Carmack v. Scofield, 5 Cir., 1953, 201 F.2d 360, 362; Snead v. Elmore, 5 Cir., 1932, 59 F.2d 312, 314.

A brief consideration of the peculiar facts of this case demonstrates that these important policies are not undermined by our decision for the Thompsons.

The 5 claims in issue in the Court below were transmitted in one bundle to the proper district director. Each claim showed the year for which it was made, the amount claimed as a refund, and the date the amount claimed as a refund was paid. The claims for the years 1952 and 1954 showed "I. W. and/or Charlie Thompson" as taxpayer and were signed by I. W. Thompson and Charlie Thompson. The claims for the years 1953, 1955, and 1956 showed "Selected Minority Fund" as taxpayer and were signed "Selected Minority Fund by I. W. Thompson, Trustee." But with the receipt on March 27, 1959 of this bundle of refund claims, the district director had full and complete information. The bundle of claims themselves presented a full picture of the events which had transpired with relation to the Thompsons for the years 1952-1956.⁸ It is clear from the claims that each of the 5 consecutive years involves a dispute with I. W. Thompson. The amount shown on each claim as having been assessed is the amount shown on the notice of levy and receipt for payment of taxes for the corresponding year. Likewise the date of payment shown on each claim is the date on which the bank issued its cashier's check in payment of the levy for the corresponding year. The same ground was set forth in the claims for the years 1952 and 1954, and it closely corresponded to the ground set forth in the claims for the years 1953, 1955, and 1956.⁹ More than that, the Director had with these claims his own files which included them. Included were the Director's file of the Thompsons' tax returns for the years 1952-1956. That also included the Internal Revenue Agent's report covering his examination and investigation of those returns, and a copy of the essential excerpts from the trust instrument by which Selected was created. From these documents the Director knew the essential provisions of the trust, that the Thompsons had not included in their returns for those years the royalty income paid to Selected on the theory that it was tax-exempt income of Selected rather than income to them, and that the deficiencies assessed for each of those years came about from the determination of the Service that the income was taxable to the Thompsons rather than to Selected on the theory that Selected was not a valid educational trust. Thus the record reflects that in the light of the facts before and then known to the Director at the time the claims were received, he was sufficiently advised as to the identity of the taxpayer seeking refund for taxes wrongfully assessed and collected for the years 1953, 1955, and 1956.

In returning them the District Director's action was similarly without any discriminating distinction. The claims for all 5 years were bundled up and sent back to I. W. Thompson in one envelope, under one cover letter. It is true, of course, that the Director returned the claims with the request that they be filed in the exact name shown on the original return. But to lump 1952 and 1954 with these other years (1953, 1955, 1956) was an error. That error is graphically demonstrated by the District Court's determination adverse to the Government but from which it did not appeal.

This holding in no way brings into question the Supreme Court's rejection in Angelus Milling Co. v. Commissioner, 1945, 325 U.S. 293, 299, 65 S.Ct. 1162, 89 L.Ed. 1619, of the taxpayer's contention that the Commissioner is charged with knowledge of all he might learn from his vast files. Here the Director treated all together. All of the information was physically together and substantively related. He did not have to look elsewhere "somewhere under the Commissioner's roof * * *" for "information which might enable him to pass on the claim for refund." 325 U.S. 293, 299, 65 S.Ct. 1162, 1165. It was all there. The Director did not have to look for. All he had to do was look at.

Under the circumstances of this case we hold that claims were filed for the years 1953, 1955, and 1956.¹⁰

II.

Whatever doubt there might be in the unitary treatment of the refund claims for the 5 years as a sufficient basis for upholding the validity of the claims discussed in Part I, we would nevertheless be forced to hold with the Thompsons for another reason. The notice of levy served on the bank for the years 1953, 1955, and 1956 was on the usual Form 668-A.¹¹ In the blank space following the printed statement, "You are hereby notified that there is now due, owing, and unpaid from NAME AND ADDRESS OF TAXPAYER," there was inserted the following: "Selected Minority Trust by I. W. Thompson, Route 3, Grand Saline, Texas." The account of Selected was levied upon to satisfy the tax stated to be due by Selected for each of these years. Mr. Thompson, with his rural upbringing and 82 years, apparently thought that he could follow the Government's lead. He did it precisely, deliberately, and with discrimination. Thus, for the years 1952 and 1954 he filed claims in the name of I. W. and Charlie Thompson. He did this because on the Notice...