United States v. Benitez Rexach

• Decision Date: 05 April 1976
• Docket Number: Civ. No. 531-64.
• Citation: 411 F. Supp. 1288
• Parties: UNITED STATES of America, Plaintiff, v. Lucienne D'Hotelle de BENITEZ REXACH et al., Defendants.
• Court: U.S. District Court — District of Puerto Rico

411 F. Supp. 1288

UNITED STATES of America, Plaintiff, v. Lucienne D'Hotelle de BENITEZ REXACH et al., Defendants.

Civ. No. 531-64.

United States District Court, D. Puerto Rico.

September 24, 1975.

As Amended April 5, 1976.

U. S. Atty. Julio Morales Sánchez, Asst. U. S. Atty. José A. Anglada, San Juan, P. R., John J. McCarthy, Trial Atty., Tax Div., U. S. Dept. of Justice, Washington, D. C., for plaintiff.

René Benítez, Walter L. Newsom, Brown, Newsom & Córdova, San Juan, P. R., for defendants.

OPINION

TORRUELLA, District Judge.

This case is one more chapter in a series of prior actions before this Court involving attempts to recover income taxes allegedly due to the Government of the United States.¹

This Court has jurisdiction over the subject matter of this controversy by virtue of Sections 7401, 7402 and 7403 of the Internal Revenue Code of 1954 and Sections 1340 and 1345 of Title 28 of the United States Code.

Defendant Lucienne D'Hotelle de Benítez Rexach, hereinafter referred to as Lucienne, was born in France on January 15, 1909. She married Defendant Félix Benítez Rexach, hereinafter referred to as Benítez Rexach, in 1928. Thereafter Lucienne lived in Puerto Rico commencing in 1938 and became a naturalized citizen of the United States on December 7, 1942. As it appears from the finding of facts in the case of U. S. v. Benítez Rexach, 185 F.Supp. 465, in 1944 Lucienne left for the Dominican Republic with her husband. From the facts in the above case we can infer that she resided in the Dominican Republic from 1944 to November 9, 1946 and then she travelled to France where she resided until May 20, 1952.

A United States passport was issued to Lucienne on November 10, 1947 by the American Embassy in Paris, France.

On February 11, 1952 Lucienne filed an application for another passport renewal at the United States Consulate in Nice, France. This request was denied and a Certificate of Loss of Nationality was issued and signed by the American Vice Consul in Nice on May 21, 1952. The Vice Consul determined that Lucienne being a naturalized citizen, she had violated Section 404, Chapter IV, of the Nationality Act of 1940² by living and residing in her domicile of origin for more than three years, and thus effectively loosing her citizenship as of November 9, 1949. This Certificate was approved by the Department of State on December 23, 1952. A notification of the loss of nationality was filed at the United States District Court for Puerto Rico on March 5, 1953. Lucienne's passport was taken at Nice, cancelled, and never returned to her.

Meanwhile, on January 2, 1952 a decree of privileged naturalization was issued in her favor by the Dominican Government, under the provisions of Dominican Republic Law Number 1633.³ Thereafter on September 4, 1956 a Dominican diplomatic passport was issued in her name and Lucienne travelled extensively with this passport. On January 20, 1962 the Dominican Government cancelled her citizenship and on June 5, 1962 a French passport was issued to her.

On May 18, 1964 the case of Schneider v. Rusk⁴ was decided by the Supreme Court of the United States. Therein, the Court held that Sec. 352(a)(1)⁵ of the Immigration and Nationality Act of 1952 was unconstitutional since "living abroad, whether the citizen be naturalized or native born, is no badge of lack of allegiance and in no way evidences a voluntary renunciation of nationality and allegiance." It was stipulated by the parties in this case that from December 23, 1952 up to 1964 no steps were taken by Lucienne to contest her nationality or to affirm her renunciation thereof.

On August 13, 1964 a delegate of the Commissioner of Internal Revenue pursuant to Sec. 6861 of the Internal Revenue Code of 1954, appearing at 26 U.S.C. Sec. 6861(a), made a jeopardy assessment for the sum of $9,065,036.93 against Lucienne for calendar years 1944 through 1950, based on assessed tax deficiencies and interests to the date of assessment.⁶ Notice and demand for payment was sent to Lucienne on August 13, 1964. On June 29, 1964 a similar assessment was made for the amount of $12,515,151.89 for fiscal year 1951 through 1958 and a delinquency penalty for 1951 and 1952. Notice and demand for payment were made to Lucienne on June 29, 1964. However, the parties stipulated that all delinquencies or other penalties referred to on the deficiencies were withdrawn.

It should be noted that the above tax assessment periods were based upon one half of the income that Defendant Benítez Rexach earned in the Dominican Republic during said periods and upon the contention that Lucienne had a vested interest over said one half of Defendant Benítez Rexach's income in the Dominican Republic under the community property law of the Dominican Republic. See U. S. v. Benítez Rexach, 185 F.Supp. 465, D.C.P.R., 1960. Said taxable income was derived from the employment of capital and services by Benítez Rexach in the Dominican Republic.

On January 12, 1965 the United States Department of State sent a letter to an attorney representing Lucienne in the matter of citizenship, informing her that her expatriation from November 9, 1949 was automatically voided due to Schneider v. Rusk, supra. Lucienne answered on January 29, 1965 stating that after her citizenship was revoked she had accepted the decision without protest and that thereafter she had never considered herself a citizen of the United States. She cited in said letter the case of U. S. v. Benítez Rexach, 185 F.Supp. 465, D.C.P.R., 1960, as being dispositive of the question.

The complaint in this case was filed on November 12, 1964. Lucienne died on January 18, 1968.

The tax regulations of the United States generally provide that citizens of the United States⁷ are liable to pay income tax even if they are not residents of the United States and own no assets or receive no income within the United States.⁸ See 26 CFR 1.1-1(a)(b), P-H 1975 Fed.Taxes Sec. 3423; Cook v. Tait, 265 U.S. 47, 44 S.Ct. 444, 68 L.Ed. 895 (1924); U. S. v. Benítez Rexach, 185 F.Supp. 465 (D.C.P.R.1960). A citizen is defined by the regulations as a person born or naturalized in the United States and who is subject to its jurisdiction. Such a definition must be made under the Immigration and Naturalization Act of 1954. See P-H 1975 Fed.Taxes Sec. 3424.

Thus we must first look at the effect, if any, of Schneider v. Rusk, supra, upon Lucienne's citizenship. In this respect we must determine whether for the purpose of this case, Schneider should be applied retroactively in such manner as to result in the voiding of Lucienne's loss of citizenship and to make her responsible for the payment of the assessed taxes from November 9, 1949 onwards.

In the landmark decision of Linkletter v. Walker, 381 U.S. 618, 85 S.Ct. 1731, 14 L.Ed.2d 601 (1965), the Supreme Court established the criteria for determining whether new constitutional rulings in both criminal and civil litigation should be applied prospectively or retrospectively. While deciding that the Constitution neither prohibits nor requires retroactive effect to its decisions, and that no distinction exists between civil and criminal cases, the Court set forth on page 629, 85 S.Ct. on page 1738, 14 L.Ed.2d on page 608 that:

"Once the premise is accepted that we are neither required to apply, nor prohibited from applying, a decision retrospectively, we must then weigh the merits and demerits in each case by looking to the prior history of the rule in question, its purpose and effect, and whether retrospective operation will further or retard its operation." (Emphasis added).

In subsequent analysis of the Linkletter decision, the Circuit Court for the 9th Circuit in the case of Simpson v. Union Oil Company of California, 411 F.2d 897 (CA 9, 1969) expounded the principle that has since been followed in determining the retrospective effect of rulings in civil litigation. The Court states at Page 903, that:

"The major consideration in civil cases is — did a party to the present litigation rely on a rule of law which has now been changed, so that it would be inequitable to apply the new rule to such party."⁹

In other decisions the Supreme Court has indicated that a balancing of the equities must be conducted before a civil case may be applied retroactively. In the case of Chicot County Dist. v. Bank, 308 U.S. 371, 60 S.Ct. 317, 84 L.Ed. 329 (1940), the Court was confronted with determining whether having found that an Act is unconstitutional is by itself an automatic conclusion that said act was not a law, and that it was inoperative and conferred no rights or imposed no duties. The Court states in page 374, 60 S.Ct. in page 318, 84 L.Ed. in page 332 that:

"The actual existence of a statute, prior to such a determination of unconstitutionality, is an operative fact and may have consequences which cannot justly be ignored. The past cannot always be erased by a new judicial declaration.

. . . . .

These questions are among the most difficult of those which have engaged the attention of courts, state and federal, and it is manifest from numerous decisions that an all-inclusive statement of a principle of absolute retroactive invalidity cannot be justified."¹⁰ (Emphasis supplied).

In another decision, Cipriano v. City of Houma et al., 395 U.S. 701, 89 S.Ct. 1897, 23 L.Ed.2d 647 (1969), the Court set forth in page 706, 89 S.Ct. in page 1900, 23 L.Ed.2d in page 652 that:

"Where a decision of this Court could produce substantial inequitable results if applied retroactively, there is ample basis in our cases for avoiding the `injustice or hardship' by a holding of non retroactivity." (Emphasis added). (Citations omitted).

In the recent decision of Chevron Oil Co., v. Huson, 404 U.S. 97, 92 S.Ct. 349, 30 L.Ed.2d 296 (1971), the Supreme Court set forth in page 106, 92 S.Ct. in page 355, 30 L.Ed.2d in page 306, the standards to be taken into consideration when determining the issue of...