United States v. Newman

Decision Date12 December 1968
Docket NumberNo. 25072.,25072.
Citation405 F.2d 189
PartiesUNITED STATES of America, Appellant, v. Joel NEWMAN, Appellee.
CourtU.S. Court of Appeals — Fifth Circuit

Mitchell Rogovin, Asst. Atty. Gen., Lee A. Jackson, Harry Marselli, J. D. Garrett Crombie, Willy Nordwind, Jr., Attys., Dept. of Justice, Washington, D. C., William A. Meadows, Jr., U. S. Atty., Lavinia L. Redd, Asst. U. S. Atty., Miami, Fla., for appellant.

Sidney Poller, Boca Raton, Fla., Milton E. Grusmark, Miami Beach, Fla., for appellee.

Before GOLDBERG, GODBOLD and SIMPSON, Circuit Judges.

GOLDBERG, Circuit Judge:

This tax appeal presents solely a question of limitations. The government through homogenization of the statute of limitations, waivers, and offers in compromise would give itself twenty-one years to file this suit to collect these taxes. In so doing, the government has given itself a limitations period of truly Rip Van Winkle proportions. The taxpayer in the court below successfully asserted that the government's cause of action was barred by the limitations provisions of the Internal Revenue Code.1

In determining whether the government's action was barred by limitations, we must decide whether certain assessments beginning on November 21, 1945, were kept viable by various waivers2 and offers in compromise.3 The taxpayer, quite predictably, argues that the district court properly held that the government waited too long to bring this suit.

The facts are not disputed and are detailed in the opinion of the district court which granted the taxpayer's motion for summary judgment. United States v. Newman, S.D.Fla.1967, 265 F.Supp. 540. We adopt the district court's statement of facts and affirm its judgment.

The four separate assessments involved in this appeal have different assessment and limitation dates, but the computational and limitations problem to be solved for one of the assessments is typical of all the others, and the solution as to that assessment will govern all the others. Therefore, we will excerpt and summarize only one of the assessments in question.4

The assessment for item 1, which is the assessment we have singled out for analysis, was made on November 21, 1945, and the statutory period of limitations began to run on that date. On November 12, 1946, the taxpayer made an offer in compromise which on its face suspended the running of the limitations statute for the period during which the offer was being considered by the Internal Revenue Service and for one year thereafter. This offer in compromise was rejected on September 17, 1947. On May 2, 1951, the taxpayer signed a waiver agreement extending the collection period through December 31, 1955. On June 23, 1953, the taxpayer made another offer in compromise which was rejected on June 9, 1954. (Note that the suspension period of this offer, from June 23, 1953, to June 9, 1955 falls entirely within the period already covered by the waiver agreement.) On July 23, 1954, the taxpayer made a third offer in compromise which was rejected on June 6, 1960. The taxpayer made two more offer in compromise after the termination date of the waiver agreement: one on June 6, 1961, which was rejected on July 14, 1961, and one on June 7, 1962, which was rejected on April 14, 1964.

                        The assessment, waiver, and offers in compromise relevant to item
                      1 are illustrated by the following chronology
                     November 21, 1945    Assessment made and statute of limitations begins
                                          to run
                     November 12, 1946    Taxpayer makes his first offer in compromise
                                          statute of limitations "suspended" until offer rejected
                                          and for one year thereafter
                     September 17, 1947   IRS rejects taxpayer's first offer in compromise
                     September 17, 1948   Statute of limitations begins to run as one year
                                          has passed since the IRS rejection of taxpayer's
                                          offer in compromise.
                     May 2, 1951          Taxpayer signs waiver agreement extending collection
                                          period through December 31, 1955.
                     June 23, 1953        Second offer in compromise made; statute of
                                          limitations suspended.
                     June 9, 1954         Second offer in compromise rejected.
                     July 23, 1954        Third offer in compromise made.
                     December 31, 1955    Limitation period created by waiver agreement
                                          expires, but IRS cause of action kept viable by
                                          taxpayer's third offer in compromise.
                     June 6, 1960         Third offer in compromise rejected.
                     June 6, 1961         Fourth offer in compromise made.
                     July 14, 1961        Fourth offer in compromise rejected.
                     June 7, 1962         Fifth offer in compromise made.
                     April 14, 1964       Fifth offer in compromise rejected.
                     April 14, 1965       Limitations again begins to run as one year has
                                          passed since the rejection of taxpayer's fifth offer
                                          in compromise.
                     January 20, 1966     This suit filed.

The district court used the following language in holding that the statute of limitations barred the government's claim:

"By virtue of each of the waiver agreements described above, the taxpayer waived the benefit of the statute of limitations until a date certain, thus extending the limitations period until that date. Since the running of the statute of limitations was suspended5 by the offers in compromise until after each extension date specified by the taxpayer in his waiver agreements, these waiver agreements are of no consequence in the computation of the limitations period.
"Thus as to Items 1 and 2, the period began to run on November 21, 1945 and continued to run until November 12, 1946, a period of 356 days. There then remained a period of five years and nine days when the period again began to run on September 17, 1948. Limitations ran from September 17, 1948 until June 23, 1953, leaving 95 days remaining. From June 23, 1953 until June 14, 1965 there were a series of offers in compromise which suspended the operation of the statute during that period. One year from the rejection of the last offer, limitations again began to run, and the statutory period expired 95 days thereafter, on July 18, 1965. Hence as to Items 1 and 2, this action is time-barred." 265 F.Supp. at 541-542.

The district court's holding is founded upon its determination that the date certain created by the waiver agreement became functus officio when that date was reached during the time the limitations statute was suspended by the taxpayer's second offer in compromise. Thus the district court reasoned that when the period of suspension created by the offers in compromise ended, the determination of whether the government's claim was barred should be made by reference to the time remaining of the statutory six-year period. Since there remained only ninety-five unused days of that period, the district court concluded that the government had ninety-five days after the end of the limitations suspension to bring this suit; and that since the government had not brought suit within that time, the government's claim was barred by limitations.

The diagram which follows illustrates the computations of the district court:

______________________Nov. 21, 1945: Six-year statute of limitations starts to run. | > Statute runs for 356 days, leaving 5 years and 9 days of | the 6 year limitation period. | ______________________Nov. 12, 1946: Taxpayer makes first offer in compromise. Statute of limitations suspended during this period (time offer being considered by government and one year thereafter). ______________________Sept. 17, 1948: 6 year statute again begins to run. | | ........ |.............May 2, 1951: Waiver agreement signed | which extends limitations bar to a date certain, | Dec. 31, 1955. | > Six year statute runs for 4 years and 279 days, leaving | 95 days yet to run. | ______________________June 23, 1953: 6 year statute suspended by taxpayer offers in compromise two through five. Statute of limitations suspended during this period. ......................Dec. 31, 1955: Date certain created by waiver agreement is passed. At this point district court regards waiver agreement and date certain as functus officio. ______________________April 14, 1965: Six year limitation statute | again begins to run as one year has passed | since the government's rejection of the taxpayer's | last offer in compromise. | > The 95 unused days of the 6-year statute of limitations | are running. **********************July 18, 1965: Six year statute of limitations has run and government's claim is barred. ______________________Jan. 20, 1966: This suit filed.

On appeal the government does not contest the district court's mathematical computations but instead poses two mutually dependent challenges to the district court's premise regarding the waiver agreement. The government first argues that the district court erred in its determination that the waiver agreement was functus officio. Quite to the contrary, says the government, the six-year period should be considered the nullity. It is the position of the government that the waiver agreement rendered the six-year statutory period functus officio by creating a new limitations period which, without any suspensions, would expire on December 31, 1955. The second point in this argument is that the waiver agreement is construed as having created a period of time measured in years, months, and days rather than merely an extension of the limitations date to a date certain in the future. Thus the government takes the position that when the taxpayer's second offer in compromise suspended limitations, it suspended the limitations period created by the waiver agreement rather than the six-year period. Consequently, when the suspension period ended on April 14,...

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