Toscano v. CIR

• Decision Date: 28 April 1971
• Docket Number: No. 24595.,24595.
• Parties: Josephine C. TOSCANO aka Josephine C. Zelasko, Petitioner-Appellant, v. COMMISSIONER OF INTERNAL REVENUE, Respondent-Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

441 F.2d 930 (1971)

Josephine C. TOSCANO aka Josephine C. Zelasko, Petitioner-Appellant, v. COMMISSIONER OF INTERNAL REVENUE, Respondent-Appellee.

No. 24595.

United States Court of Appeals, Ninth Circuit.

April 28, 1971.

George H. Zeutzius (argued), Pasadena, Cal., for petitioner-appellant.

Grant W. Wiprud (argued), Lee A. Jackson, Elmer J. Kelsey, Issie L. Jenkins, Attys., Johnnie M. Walters, Asst. Atty. Gen., Tax Div., K. Martin Worthy, Chief Counsel, I. R. S., Washington, D. C., for respondent-appellee.

Before CHAMBERS and DUNIWAY, Circuit Judges, and BYRNE, District Judge.^*

DUNIWAY, Circuit Judge:

This case presents two questions:

1. Did the Tax Court have jurisdiction, after its decision had become final under 26 U.S.C. § 7481, to grant leave to file a motion to vacate its decision on the ground of fraud on the court?

2. If the Tax Court had such jurisdiction, should it have granted leave and afforded the taxpayer an evidentiary hearing in this case? We answer both questions in the affirmative and remand to the Tax Court for further proceedings.

The question arises in this way. One John J. Toscano, with whom petitioner Josephine C. Zelasko was then living, but to whom she claims that she was never married, filed joint income tax returns for the two of them, as husband and wife, for the years 1946 through 1950. The Commissioner assessed deficiencies. A joint petition was filed with the Tax Court, and a settlement stipulation was filed with that court, on the basis of which deficiencies were determined for 1947, 1949, and 1950. Decision was entered March 28, 1955. It became final three months later (26 U.S.C. § 7483), no petition for review having been filed (26 U.S.C. § 7481).

Miss Zelasko alleges, and has submitted considerable documentary evidence to support her allegations, that she never was married to Toscano. She says that her signatures on the joint returns were either forged by Toscano, or were placed there by her under duress. The duress consisted of either the threat of brutal physical beatings, or actual beatings. Toscano ran a restaurant in Los Angeles at various locations from 1943 or 1944 until 1954. Miss Zelasko never had any interest in Toscano's ventures and received none of their profits. She did all the cooking, cleaning and scrubbing at the restaurants, slept on a cot in the restaurant building, and lived in constant fear of Toscano. In 1954, Toscano moved to Nevada, where he lived with another woman.

While Miss Zelasko and Toscano were living in Los Angeles, he represented that they had been married in Arkansas in 1943, while he was stationed there in the army. Her counsel, however, presented evidence that demonstrates that no such marriage occurred. Nor were they ever married in California or elsewhere. In 1954 Toscano obtained a Nevada divorce from Miss Zelasko. He alleged a 1943 Arkansas marriage. An answer to his complaint was filed by a Las Vegas attorney, purporting to appear for Miss Zelasko. However, he had no authority to do so, and she never signed any appearance, never had any contact with the attorney, and never authorized him to appear for her.

In 1953, the Commissioner assessed deficiencies against Toscano and his "wife," Miss Zelasko. She, however, never received or saw a copy of the notice of deficiencies. Toscano, on October 7, 1953, filed a joint petition for redetermination. The Commissioner answered, and on January 18, 1954, Toscano filed a joint reply. He told his attorney that he and Miss Zelasko had been married in Arkansas. On March 21, 1955, Toscano permitted his attorney to enter into a stipulation with the Commissioner, on a joint return basis. The stipulation admitted certain deficiencies. This is the basis for the Tax Court decision.

Toscano died in 1962. The Commissioner then sought to collect from Miss Zelasko — attempts which finally resulted in the present proceedings.¹ Miss Zelasko alleges that she has no recollection of signing the petition or any paper that was filed with the Tax Court, that she did not knowingly participate in the Tax Court proceedings, and that, until the Commissioner levied on her assets, she had no knowledge that any deficiencies had been assessed against her.

1. Can the Tax Court Reopen its Decision On the Basis of Fraud On the Court?

Section 7481 of the Internal Revenue Code, 26 U.S.C., contains an elaborate set of rules as to when a decision of the Tax Court is final. It covers all stages of review, from failure to petition the Court of Appeals for review (subsection (1)), applicable here, through various stages of review, including review by the Supreme Court and proceedings on remand from that Court. The legislative history shows that Congress was conscious of the need that "finality" be clearly defined, so that the process of collection can proceed unimpeded. Court decisions, supporting this objective, have been strict in applying the statute.

The Supreme Court has held that it cannot entertain a petition for rehearing in a case in which it had affirmed the Board of Tax Appeals, when the petition is filed after the Board's statutory finality date, but during the time for filing a petition for rehearing established by the Court's Rules. Helvering v. Northern Coal Co., 1934, 293 U.S. 191, 55 S.Ct. 3, 79 L.Ed. 281. See also R. Simpson & Co. v. C.I.R., 1944, 321 U.S. 225, 64 S.Ct. 496, 88 L.Ed. 688; Lasky v. C.I.R., 1957, 352 U.S. 1027, 77 S.Ct. 594, 1 L.Ed.2d 598, aff'g per curiam, 9 Cir., 1955, 235 F.2d 97. The Courts of Appeals have been equally strict. They have held that once statutory "finality" has attached, the Tax Court (or Board of Tax Appeals) cannot reopen on any of various grounds that have been urged: fraud, Jefferson Loan Co. v. C.I.R., 8 Cir., 1957, 249 F.2d 364; reformation of a stipulation, Lentin v. C.I.R., 7 Cir., 1957, 243 F.2d 907; id, 237 F.2d 5; newly discovered evidence, Kutner v. C.I.R., 7 Cir., 1957, 245 F.2d 462; excusable neglect, Lasky v. C.I.R., 9 Cir., 1956, 235 F.2d 97, affirmed, 1957, 352 U.S. 1027, 77 S.Ct. 594, 1 L.Ed.2d 598; Monjar v. C.I.R., 2 Cir., 1944, 140 F.2d 263; McCarthy v. C.I.R., 7 Cir., 1943, 139 F.2d 20; intervening change in the law, White's Will v. C.I.R., 3 Cir., 1944, 142 F.2d 746; Denholm & McKay Co. v. C. I.R., 1 Cir., 1942, 132 F.2d 243; Sweet v. C.I.R., 1 Cir., 1941, 120 F.2d 77; failure of Commissioner to follow mandate of the Circuit Court of Appeals, Crews v. C.I.R., 10 Cir., 1941, 120 F.2d 749; ground not stated, Swall v. C.I.R., 9 Cir., 1941, 122 F.2d 324. Nor can a comparable result be had by an independent lawsuit, Schaffner v. Bingler, 3 Cir., 1959, 268 F.2d 76 (alternative holding); Jefferson Loan Co. v. Arundell, 1959, 106 U.S.App.D.C. 370, 273 F.2d 105.

There are but three cases to the contrary: Kenner v. C.I.R., 7 Cir., 1968, 387 F.2d 689, involving claimed fraud on the court, Reo Motors, Inc. v. C.I.R., 6 Cir., 1955, 219 F.2d 610, involving mutual mistake, and La Floridienne J. Buttgenbach & Co. v. C.I.R., 5 Cir., 1933, 63 F.2d 630, where there was a stipulation to reopen. This court in Lasky, supra, which was affirmed by the Supreme Court, criticized and refused to follow Reo Motors and La Floridienne, supra, we also criticized La Floridienne in Swall, supra. So did the First Circuit in Sweet, supra. The Second Circuit in Monjar, supra, distinguished it as a consent case; the Third expressed doubts about it in White's Will, supra.

So far as we know Kenner v. C.I.R., supra, has not yet been criticized by any court. The Kenner opinion states that the Tax Court does have jurisdiction to set aside a final decision for fraud on the court. It bases this view in part on several cases that state that the Tax Court is (now, at least) more than a mere administrative agency, as we described it in Lasky, but in fact exercises judicial powers, Stern v. C.I.R., 3 Cir., 1954, 215 F.2d 701, 707-708; Reo Motors v. C.I.R., supra; Fairmount Aluminum Co. v. C.I.R., 4 Cir., 1955, 222 F.2d 622; Louisville Builders Supply Co. v. C.I.R., 6 Cir., 1961, 294 F.2d 333; MacRae v. Riddell, 9 Cir., 1965, 350 F.2d 291. Thus the Tax Court differs from its predecessor, the Board of Tax Appeals, which was held not to be a court and to have no equitable powers. C.I.R. v. Gooch Milling & Elev. Co., 1943, 320 U.S. 418, 64 S.Ct. 184, 88 L.Ed. 139. None of the cases cited in Kenner, however, involved setting aside a final decision, except Reo Motors, which was not followed by us or by the Supreme Court in Lasky. And Louisville Builders Supply denied one equitable power to the Tax Court, the power to order the taking of a deposition in anticipation of a case that might later come before it. Thus precedent for the view of the Kenner court is sparse. It concluded that a decision obtained by fraud on the Tax Court can be set aside by it at any time because it is not a decision at all — a view strongly supported, as applied to the Court of Appeals, by the Supreme Court in Hazel-Atlas Glass Co. v. Hartford Empire Co., 1944, 322 U.S. 238, 64 S.Ct. 997, 88 L.Ed. 1250. And it relied in part on the fact that the Commissioner conceded that the power exists. However, Kenner also held that fraud on the court had not been shown.

The Commissioner makes the same concession as to the power of the Tax Court here, citing Kenner. Under these circumstances, we hold that the Tax Court can, after its decision becomes final, set it aside on the narrow ground of fraud on the court, as expounded in Hazel-Atlas, supra.

2. Should the Tax Court Have Exercised its Power Here?

The Tax Court's Rule 19(f) provides:

"(f) No motion to vacate or revise a decision may be filed more than 30 days after the decision has been entered, except by special leave."

Miss Zelasko's motion was for "special leave" under this rule. The Tax Court denied leave. In so doing, that court indicated that it believed that, assuming the truth of Miss Zelasko's allegations, she had not shown a fraud on the court, but merely a...