Trevelyan v. United States

• Citation: 219 F. Supp. 716
• Decision Date: 18 July 1963
• Docket Number: Civ. No. 8178.
• Court: United States District Courts. 2nd Circuit. United States District Court (Connecticut)
• Parties: Mary T. TREVELYAN, Plaintiff, v. UNITED STATES of America, Defendant.

219 F. Supp. 716

Mary T. TREVELYAN, Plaintiff, v. UNITED STATES of America, Defendant.

Civ. No. 8178.

United States District Court D. Connecticut.

July 18, 1963.

John H. Weir, of Thompson, Weir & Barclay, New Haven, Conn., for plaintiff.

Jay E. Orlin, Washington, D. C. (Louis F. Oberdorfer, Asst. Atty. Gen., Edward S. Smith, Rufus E. Stetson, Jr., Washington, D. C., Robert C. Zampano, U. S. Atty., New Haven, Conn., on the brief), for defendant.

TIMBERS, District Judge.

Cross-motions for summary judgment,¹ pursuant to Rule 56, Fed.R.Civ. P., in this action for refund of $9,510.32 of federal income taxes, raise the question whether the statute of limitations begins to run with the filing of declarations of estimated tax and payments of such estimated tax (as defendant contends) or with the filing of the final returns (as plaintiff contends).

The Court holds that the statute of limitations begins to run with the filing of the final returns; that plaintiff's claims for refund were filed within the time allowed by statute; and that accordingly plaintiff's motion for summary judgment is granted, defendant's is denied.

FACTS

The facts are not in dispute.

Plaintiff, a United States citizen, has lived in Great Britain since 1936, the year she married a British subject.

Her attorney in the United States² filed declarations of estimated income tax on her behalf for each of the years 1944 through 1953; paid the estimated tax in quarterly installments; but did not file final returns for these years until 1957.

The reasons for this procedure are as follows. During the tax years involved, plaintiff's financial affairs in Great Britain were handled by the Royal Bank of Scotland, Drummond's Branch. Judge MacDonald was not able until 1955, despite repeated requests, to obtain from the Bank information with respect to plaintiff's income from sources within Great Britain and the amount of British taxes paid by plaintiff. Such information of course was essential for the preparation of correct United States income tax returns for plaintiff. This situation was fully explained by Judge MacDonald to a representative of the Collector of Internal Revenue at Hartford in 1949.³

In 1955 the Bank did submit a statement of British income received and British income tax paid by plaintiff during the period 1944 to April 5, 1952. Thereupon returns were prepared but were not filed because of a suggestion from an IRS representative that it would be preferable to withhold filing such returns until subsequent returns could be prepared and filed.

In 1957 the Bank submitted information with respect to plaintiff's British income received and British taxes paid by plaintiff during the period April 5, 1952 to April 5, 1956. Final returns for the years 1944 through 1956 thereupon were prepared by accountants and were filed December 30, 1957 with the District Director of Internal Revenue at Hartford.

January 2, 1959 claims for refund were filed on behalf of plaintiff for the years 1944 through 1953, seeking for each of these years refund of the difference between the amount of estimated tax paid and the amount of tax shown due on the final return.

January 21, 1959 the District Director by letter advised that the refunds claimed for the years 1944-1953 would not be allowed.⁴

January 15, 1960 the instant action was commenced, pursuant to 28 U.S.C. § 1346(a) (1), to recover the refunds claimed for the years 1944-1953.

February 9, 1960 a registered notice of disallowance of the claims for refund was issued by the District Director.

QUESTION PRESENTED

The sole question presented, the answer to which is believed to be dispositive of the instant motions, is:

Were plaintiff's claims for refund filed within the limitation provided by Section 322(b) of the Internal Revenue Code of 1939?⁵

The Court holds this question must be answered in the affirmative.⁶

SECTION 322(b)

The applicable statute of limitations, Section 322(b), provides in subsection (1) that a claim for refund must be presented within three years from the time of the filing of a return; and in subsection (2) (A) that a refund shall not exceed the tax paid during the three years immediately preceding the filing of the claim.

In holding that plaintiff's claims for refund were filed within the limitation provided by Section 322(b), the Court construes the statute as follows:

(1) The "return" referred to in Section 322(b) is the final return, not the declaration of estimated tax.

(2) The "tax paid" referred to in Section 322(b) is the determination of plaintiff's tax liability by filing the final return, not the payment of installments of estimated tax.

Absent any decision squarely in point by the Supreme Court or the Second Circuit, this Court looks to other circuits for decisions which, while not controlling on this Court, are persuasive and will be followed.

In Schmidt v. Commissioner, 272 F.2d 423 (9 Cir. 1959), a declaration of estimated tax for 1944 was filed showing estimated income tax liability of $2,473 which was paid in four equal installments within the time required by law. No declaration of estimated tax for 1945 was filed. The final 1944 return was not filed until June 30, 1952; it showed no tax due; but it claimed, as a credit against the 1945 estimated tax, the $2,473 overpayment for 1944. The final 1945 return, also filed June 30, 1952, showed a 1945 tax liability of $3,469.44; this was reduced by the $2,473 overpayment for 1944; and the balance was paid with the return. The government refused to allow the claimed $2,473 refund for 1944 in the form of a credit against the 1945 tax liability on the ground that the claimed refund was not timely, not having been claimed within three years of the $2,473 payment. Rejecting the government's contention and deciding the case in favor of the taxpayer, the Court of Appeals for the Ninth Circuit said (Id. at 428-429):

"The principal argument made by counsel for the respondent in this court was that the allowance of the credit claimed was prohibited by the limitations set forth in § 322(b) (2) (A) of the 1939 Code which provides that the amount of a claimed credit or refund `shall not exceed the portion of the tax paid * * * during the three years immediately preceding the filing of the claim.'

"Counsel's argument that the statute of limitations had run proceeds on the assumption that `payment' of the 1944 tax occurred when petitioner sent the money in with the return of the estimated tax. That assumption is erroneous. The remittances made in 1944 did not constitute payment of the tax at that time for the purpose of starting the running of the statute of limitations. * * *

* * * * *

"The statute of limitations did not begin to run against allowance of the claimed credit until the date of filing of the 1944 return on June 30, 1952; only then was the final tax liability for 1944 ascertainable. We hold that the claim for credit presented here was not barred by limitations."

In Plankinton v. United States, 267 F.2d 278 (7 Cir. 1959), declarations of estimated tax for 1949 and 1950 were filed; quarterly payments of the estimated tax were remitted as required by law; but the final returns, accompanied by final payments, for 1949 and 1950 were not filed until June 1950 and September 1951, respectively. Claims for refund were filed; that for 1949 was filed in May 1953; that for 1950 was filed in July 1954. These claims for refund were filed within three years of filing of the final returns and the accompanying final payments, but more than three years after filing of the declarations of estimated tax and remittance of the quarterly payments of estimated tax. The government allowed for each year that part of the claimed refund which accompanied the final return, but refused to allow that part of the claimed refund which represented payments of the estimated tax. The government's refusal to allow the latter was based on Section 322(b) (2) (A) and Section 322 (e) of the Internal Revenue Code of 1939. The Court of Appeals for the Seventh Circuit first stated the issue (Id. at 279-280):

"The sole issue for determination is whether the provisions of the Internal Revenue Code of 1939, as amended, preclude a refund or recovery of amounts in excess of the payment remitted with the final return for each year, the remaining portion of the overpayment in each instance having been remitted as estimated tax more than three years before the filing of the respective claims for refund.

"The quarterly remittances for each of the years in question were made pursuant to the requirements of Section 59 of the Internal Revenue Code which was added by the Current Tax Payment Act of 1943 (26 U.S.C.A. § 59). * * *"

Then, rejecting the government's contention and deciding the case in favor of the taxpayer, the Court held (Id. at 280):

"Congress in the enactment of Section 59(d) of the Current Tax Payment Act specifically characterized remittances of estimated tax as payments `on account' of the tax for the taxable year i. e. a remittance on a liability not as yet finally defined or determined. Nothing in the language employed in Section 59(d) or the context in which it is found is indicative of any intention on the part of Congress to make such remittances `tax paid' for the purpose of measuring a limitation on refunds. * * *"

The following cases support plaintiff's position in the instant case, particularly that remittances made prior to the time a taxpayer's liability is defined do not constitute "payment" of a tax for purpose of commencing the limitation period on refund claims. Rosenman v. United States, 323 U.S. 658, 65 S.Ct. 536, 89 L.Ed. 535 (1945); Budd Co. v. United States, 252 F.2d 456, 459-460 (3 Cir. 1957); United States v. Dubuque Packing Co., 233 F.2d 453, 459-462 (8 Cir. 1956); Lewyt Corp. v. Commissioner, 215 F.2d 518, 522-523 (2 Cir. 1954), affirmed in part and reversed in part on other grounds, 349 U.S. 237, 75 S.Ct. 736, 99 L.Ed....