United States v. Carlow, Civ. A. No. 69-594.

• Decision Date: 11 March 1971
• Docket Number: Civ. A. No. 69-594.
• Citation: 323 F. Supp. 1310
• Parties: UNITED STATES of America, Plaintiff, v. Frank CARLOW and Fayette National Bank and Trust Company, Defendants.
• Court: U.S. District Court — Eastern District of Pennsylvania

323 F. Supp. 1310

UNITED STATES of America, Plaintiff, v. Frank CARLOW and Fayette National Bank and Trust Company, Defendants.

Civ. A. No. 69-594.

United States District Court, W. D. Pennsylvania.

March 11, 1971.

Richard L. Thornburgh, U. S. Atty., Pittsburgh, Pa., for plaintiff.

Coldren & Adams, Uniontown, Pa., for Fayette National Bank.

No appearance for Frank Carlow.

OPINION

GOURLEY, District Judge:

The United States commenced this action pursuant to Sections 7401 and 7403 of the Internal Revenue Code of 1954, 26 U.S.C. §§ 7401 and 7403, and seeks to enforce herein certain federal tax liens and to have determined the merits of all claims to and liens upon the property in question. The Court has jurisdiction pursuant to 28 U.S.C. §§ 1340 and 1345. Judgment by default has been entered in favor of the United States and against defendant Carlow (hereinafter "the taxpayer") in the sum of $13,769.96 plus interest. The present matters before the Court are a Motion for Summary Judgment filed by the United States and a cross-Motion for Summary Judgment filed by defendant Fayette National Bank and Trust Company (hereinafter "the Bank"). Counsel for the respective parties have entered into Stipulations of facts not in dispute. After hearing, the Court concludes that there is no genuine issue as to any material fact, the Motion of the United States should be granted and the Motion of the Bank denied.

In its Complaint, the United States averred that the expiration of the applicable statutory period for the enforcement of its assessment liens had been extended beyond the time of filing suit by virtue of several offers of compromise wherein the taxpayer entered into agreements suspending the running of the applicable statute of limitations. The Bank averred in its Answer that it was without information sufficient to form a belief as to the truth of this averment and thereby effectively denied the averment. F.R.Civ.P. 8(b). Thereafter, counsel for the respective parties neither adverted to the statute of limitations issue in their respective Motions for Summary Judgment nor offered proof at the hearing, by affidavit or otherwise, with respect to this issue. Uncertain as to whether the issue had been abandoned, the Court made inquiry of respective counsel. Thereafter, counsel for the respective parties entered into a Stipulation as to the facts material to this issue and submitted briefs upon a disputed question of law. Accordingly, the Court will resolve this issue before proceeding to the question presented by the Motions for Summary Judgment.

The undisputed facts are as follows. During a period from February 8, 1962 to and including March 20, 1964, eleven federal tax assessments were made against the taxpayer for failure to pay on demand federal taxes totalling $9,827.67 in principal amount. On May 10, 1965, the taxpayer submitted to the United States an "Offer in Compromise," Form 656, which provides in pertinent part as follows:

"6. The undersigned proponent waives the benefit of any statute of limitations applicable to the assessment and/or collection of the liability sought to be compromised, and agrees to the suspension of the running of the statutory period of limitations on assessment and/or collection for the period during which this offer is pending, or the period during which any installment remains unpaid, and for 1 year thereafter."

The compromise offer was rejected on June 10, 1965. However, the waiver of the statute of limitations was accepted by the District Director of Internal Revenue on October 12, 1965.

Thereafter, on July 11, 1966, the taxpayer submitted a second compromise offer upon a form identical to the first and containing the same provision for the suspension of the statute of limitations. The waiver of the statute of limitations was accepted by the District Director of Internal Revenue on September 20, 1966. Subsequently, the taxpayer amended the second compromise offer by a collateral agreement dated June 13, 1967 which reaffirmed the taxpayer's previous suspension of the statute of limitations. On May 18, 1970, the taxpayer substituted for the collateral agreement of June 13, 1967 another collateral agreement, again reaffirming his previous suspension of the statute of limitations. The United States has never rejected the second offer of compromise, dated July 11, 1966, and said offer, as modified by the collateral agreement of May 18, 1970, is presently under consideration. The United States filed the instant Complaint on May 13, 1969.

The governing statute of limitations is Section 6502 of the Internal Revenue Code of 1954, 26 U.S.C.A. § 6502, which provides in pertinent part:

"(a) Length of period.—Where the assessment of any tax imposed by this title has been made within the period of limitation properly applicable thereto, such tax may be collected by levy or by a proceeding in court, but only if the levy is made or the proceeding begun—

(1) within 6 years after the assessment of the tax, or

(2) prior to the expiration of any period for collection agreed upon in writing by the Secretary or his delegate and the taxpayer before the expiration of such 6-year period (or, if there is a release of levy under section 6343 after such 6-year period, then before such release).

The period so agreed upon may be extended by subsequent agreements in writing made before the expiration of the period previously agreed upon. The period provided by this subsection during which a tax may be collected by levy shall not be extended or curtailed by reason of a judgment against the taxpayer."

Since more than six years elapsed between eight of the Government's assessments and the date of filing suit, the Government would be barred under Section 6502 from proceeding in Court upon these eight assessments unless the statutory period was suspended by agreement of the taxpayer and the Government.

It has been held by the Hon. Herbert P. Sorg, an associate member of this Court, that an offer of compromise containing precisely the same language of waiver used in the taxpayer's two offers in the instant case effectively suspends the six-year limitation period in accordance with the terms of the offer. United States v. Moyer, 308 F.Supp. 754, 756 (W.D.Pa.1968), aff'd 420 F.2d 375 (3d Cir. 1970), cert. denied 400 U.S. 819, 91 S.Ct. 36, 27 L.Ed.2d 46 (1971). Where the waiver of the statute of limitations by the taxpayer is accepted by the United States, it is unaffected by the ultimate rejection of the offer in compromise. United States v. Moyer, supra, 308 F.Supp. at p. 756. Moreover, where waivers are issued with successive compromise offers, the waivers are cumulative in extending the time for collection. United States v. Havner, 101 F.2d 161, 163 (8th Cir. 939); United States v. Maddas, 109 F.Supp. 607, 612 (W.D.Pa. 1953).

In the instant case, the taxpayer's first offer of compromise was rejected thirty-one days after its submission. Under the terms of the waiver agreement, the six-year limitation period upon the earliest assessment, made on February 8, 1962, was suspended for a year and thirty-one days, thus extending the date of expiration of the statutory period into March of 1968. On July 11, 1966, before the extended date of expiration, the taxpayer proffered his second offer of compromise, accompanied with the identical waiver provision. Because the United States has yet to reject this second offer of compromise, the waiver provision contained therein has acted to extend the expiration date of the limitation period beyond the date upon which the Complaint was filed.

Defendant Bank contends, however, that both the first and second offers of compromise were so low as to have required immediate rejection by the United States and that, having failed to reject the second offer within a reasonable period of time, the United States may not claim the benefit of this delay against the Bank.

Section 7122 of the Internal Revenue Code of 1954, which governs compromises, imposes no obligation upon the Secretary of Internal Revenue to reject an offer of compromise within any given period of time. However, § 301.7122-1 of the Regulations, adopted February 3, 1960, does provide in pertinent part as follows:

"(d) (4) Withdrawal or rejection. An offer in compromise may be withdrawn by the proponent at any time prior to its acceptance. In the event an offer is rejected, the proponent shall be promptly notified in writing. Frivolous offers or offers submitted for the purpose of delaying the collection of tax liabilities shall be immediately rejected. If an offer in compromise is withdrawn or rejected, the amount tendered with the offer, including all installments paid, shall be refunded without interest, unless the taxpayer has stated or agreed that the amount tendered may be applied to the liability with respect to which the offer was submitted."

In my judgment, the Bank is not entitled to the benefit of the aforequoted provision.

It is apparent from the very terms of § 301.7122-1(d) (4) that frivolous offers are to be rejected immediately so as to prevent undue delay in the collection of taxes. The provision is for the benefit of the United States, not the taxpayer. The taxpayer is protected from an indefinite suspension of the statute of limitations by his right, afforded by the very same Regulation, to withdraw his offer at any time before acceptance. The taxpayer in the instant case has not seen fit to make such a withdrawal of his second offer of compromise.

Moreover, even if the provision for prompt rejection of frivolous offers were partially for the benefit of the taxpayer, which I do not believe to be the case, the Bank, as a third party would not be entitled to such benefit. It is not disputed that, where a taxpayer enters into an agreement to suspend the running of the statute of limitations, this agreement binds not only the taxpayer but also any party to an action to foreclose the tax lien....