United States v. Martin Hotel Co., 9342

• Decision Date: 18 May 1932
• Docket Number: 9347.,No. 9342,9342
• Parties: UNITED STATES v. MARTIN HOTEL CO. et al. MARTIN HOTEL CO. et al. v. UNITED STATES.
• Court: U.S. Court of Appeals — Eighth Circuit

59 F.2d 549 (1932)

UNITED STATES v. MARTIN HOTEL CO. et al.

MARTIN HOTEL CO. et al. v. UNITED STATES.

Nos. 9342, 9347.

Circuit Court of Appeals, Eighth Circuit.

May 18, 1932.

Ambrose C. Epperson, Asst. U. S. Atty., of Omaha, Neb., and E. T. Kemper, Sp. Atty., Bureau of Internal Revenue, of Washington, D. C. (Charles E. Sandall, U. S. Atty., of Omaha, Neb., and C. M. Charest, Gen. Counsel, Bureau of Internal Revenue, and C. C. McCormick, Atty., Bureau of Internal Revenue, both of Washington, D. C., on the brief), for the United States.

John E. Hughes, of Chicago, Ill., William Cogger, of Washington, D. C., and Kennedy, Holland & De Lacy, of Omaha, Neb., for Martin Hotel Co. et al.

Before VAN VALKENBURGH and SANBORN, Circuit Judges, and DAVIS, District Judge.

SANBORN, Circuit Judge.

In March, 1924, the collector of internal revenue for the District of Iowa assessed additional corporate income and profits taxes against the Martin Hotel Company for the year 1918 of $2,306.96, and for the year 1919 of $25,593.21; and against the M. & M. Hotel Company for the year 1918 of $2,338.31, and for the year 1919 of $13,525.12. He notified both companies of these additional taxes on March 18, 1924, and demanded their payment. Thereupon the taxpayers filed claims for the abatement of these taxes, and asked that collection be stayed. The assessments were transferred to the internal revenue collection district of Nebraska in June, 1924, at the request of the taxpayers. The Commissioner of Internal Revenue refused to consider the claims in abatement and to refrain from collecting the taxes unless their payment was secured. On July 10, 1924, in consideration of the postponement of proceedings to collect the taxes until the claims for abatement were determined, the taxpayers and E. C. Eppley, an officer of each of them, deposited with the Omaha National Bank, of Omaha, Neb., $48,000, in accordance with the terms of a declaration of trust or escrow agreement, which was delivered to the collector of internal revenue for the District of Nebraska as security for the payment of the additional taxes assessed or so much thereof as should ultimately be determined to be due. This agreement, which was, in effect, a cash bond, after reciting the assessment of the additional taxes, that they were due and collectible, and that the taxpayers had filed claims for their abatement, provided:

"Now, for the protection of the interests of the United States during the pendency of said claims of said Hotel Companies for abatement of said taxes, said Martin Hotel Company and said M. & M. Hotel Company by arrangements with said E. C. Eppley, have caused to be deposited with Omaha National Bank at Omaha, Nebraska, as Escrow Agent, the principal sum of $48,000.00 to be used in the payment of all such taxes hereinbefore referred to, as may eventually be determined by said Commissioner of Internal Revenue to be due from said Martin Hotel Company and said M. & M. Hotel Company upon final consideration of said claims for abatement filed by said Martin Hotel Company and said M. & M. Hotel Company.

"Now, Therefore, this Declaration of Trust is made by said Omaha National Bank, Escrow Agent, for the purpose of stating the terms and conditions of said trust:

"1. Said principal sum of $48,000.00 so deposited with said Omaha National Bank as Escrow Agent hereunder, shall be held by said Escrow Agent until the final determination of said additional Corporation Income Taxes due from said Martin Hotel Company and said M. & M. Hotel Company for the years 1918 and 1919 is made by said Commissioner of Internal Revenue in accordance with the procedure prescribed by the law and regulations for such cases. Said final adjustment and determination shall be certified to said Omaha National Bank by said Collector of Internal Revenue for the District of Nebraska and such certification shall be final with respect to fixing the liability of said taxpayers for the years in question."

The agreement then provides that if, within ten days after the final determination of the taxpayers' liability is made, they shall pay any and all additional corporation income taxes found due from them, or either of them, upon the final hearing of their claims in abatement, and shall exhibit to the escrow agent satisfactory proof of payment, the escrow agent shall deliver to them the principal sum; that if, at the end of ten days after the final determination of their tax liability, they shall not have paid the taxes found due upon final consideration of their claims, then, upon notice to that effect from the collector of internal revenue for the District of Nebraska, the escrow agent shall pay over to the said collector all of the principal sum of $48,000 that may be necessary to pay the additional taxes finally determined to be due from the taxpayers, together with any penalties or interest thereon, and shall pay over any balance remaining to the taxpayers.

In reliance upon this agreement, the government postponed proceedings to collect the additional taxes pending the consideration of the claims for abatement, and on August 24, 1925, the Commissioner of Internal Revenue considered those claims, and on that day advised the taxpayers that there remained unabated of the additional taxes of the Martin Hotel Company for the year 1918, $746.70, and for the year 1919, $14,518.48; and of the additional taxes of the M. & M. Hotel Company for 1918, $1084.64, and for 1919, $11,544.22; and advised them of their right to file a protest within thirty days. They filed such a protest, and he again considered their claims, but did not change his determination, and so informed them by letter of March 23, 1926. In that letter he advised them that, under section 274 of the Revenue Act of 1926, they were allowed sixty days in which to file an appeal with the Board of Tax Appeals, "contesting in whole or in part the correctness of this determination."

On October 5, 1927, the collector of internal revenue for the District of Nebraska certified in writing to the Omaha National Bank that a final adjustment and determination had been made by the Commissioner of Internal Revenue with reference to the additional taxes in question, and that none of the taxes had been paid as finally determined, and he demanded so much of the $48,000 deposited as was necessary to pay the taxes, with interest. This demand was not complied with.

The taxpayers did not appeal to the Board of Tax Appeals from the determination by the Commissioner of the deficiencies in their 1918 taxes, but did appeal from his determination of the deficiencies in the 1919 taxes. On January 15, 1930, the Board of Tax Appeals filed an opinion (see Martin Hotel Co. and Affiliated Corporations, Petitioners, v. Commissioner of Internal Revenue, Respondent, 18 B. T. A. 826) reciting that the taxpayers had set up the statute of limitations as a bar to the collection of the deficiencies in their taxes for the year 1919 as determined by the Commissioner, and that the Commissioner claimed that the escrow agreement was a waiver of the right of appeal to the Board or a waiver of the statute of limitations. The Board said: "With respect to the Martin Hotel Co. and the M. & M. Hotel Co., the questions presented are two: first, whether the so-called escrow agreement executed by them constitutes a waiver of their right to ask of this Board a review of the deficiencies finally determined against them, and, second, does that agreement, if not a waiver of jurisdiction, constitute a waiver of the statutory limitation against collection?"

And further:

"We hold that the agreement in question does not constitute a waiver of the right of these two taxpayers to appeal to the Board and that we have jurisdiction to entertain the appeal.

"In respect to the question raised that the escrow agreement constitutes a waiver of the statute of limitations, w...