United States v. Wolf, 15011-15015.

• Decision Date: 14 November 1956
• Docket Number: No. 15011-15015.,15011-15015.
• Citation: 238 F.2d 447
• Parties: UNITED STATES of America, Appellant, v. Monte L. WOLF, Executor of the Estate of Harry J. Wolf, deceased, Appellee. UNITED STATES of America, Appellant, v. Monte L. WOLF, Transferee of the Estate of Jennie Wolf, deceased, Appellee. UNITED STATES of America, Appellant, v. Blossom M. GRAYSON, Transferee of the Estate of Jennie Wolf, deceased, Appellee. UNITED STATES of America, Appellant, v. Charlotte C. COHON, Transferee of the Estate of Jennie Wolf, deceased, Appellee. UNITED STATES of America, Appellant, v. Manuel SCHNITZER, Harold Schnitzer and Leonard Schnitzer, Executors of the Estate of Sam Schnitzer, deceased, Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

238 F.2d 447 (1956)

UNITED STATES of America, Appellant, v. Monte L. WOLF, Executor of the Estate of Harry J. Wolf, deceased, Appellee.

UNITED STATES of America, Appellant, v. Monte L. WOLF, Transferee of the Estate of Jennie Wolf, deceased, Appellee.

UNITED STATES of America, Appellant, v. Blossom M. GRAYSON, Transferee of the Estate of Jennie Wolf, deceased, Appellee.

UNITED STATES of America, Appellant, v. Charlotte C. COHON, Transferee of the Estate of Jennie Wolf, deceased, Appellee.

UNITED STATES of America, Appellant, v. Manuel SCHNITZER, Harold Schnitzer and Leonard Schnitzer, Executors of the Estate of Sam Schnitzer, deceased, Appellees.

Nos. 15011-15015.

United States Court of Appeals Ninth Circuit.

November 14, 1956.

Charles K. Rice, Asst. Atty. Gen., Lee A. Jackson, A. F. Prescott, Kenneth E. Levin, Sp. Assts. to Atty. Gen., C. E. Luckey, U. S. Atty., Victor E. Harr, Asst. U. S. Atty., Portland, Or., for appellant.

Jacob, Jones & Brown, S. J. Bischoff, Portland, Or., for appellees.

Before HEALY, POPE and LEMMON, Circuit Judges.

POPE, Circuit Judge.

These cases, consolidated for trial, involve the income and victory tax of the members of a partnership known as Alaska Junk Co. for the years 1942-43. The partnership had delivered $202,000 plus worth of goods to Oregon Electric Steel Rolling Mills, a corporation, owned by the four partners, and a fifth party. Oregon Electric failed without paying the amounts charged to it on Alaska's books as an account receivable. The amount was written off as a bad debt loss, but this was disallowed by the Commissioner who also attacked the returns of the separate partners on the ground that it was not a bona fide partnership. The Board of Tax Appeals on petition for redetermination upheld the validity of the partnership but sustained the Commissioner in disallowing the bad debt loss on the ground that the delivery of goods to Oregon Electric was not a sale but a capital contribution. The decision of the Tax Court, 13 T.C. 43, was affirmed per curiam by this court, 183 F.2d 70, and certiorari was denied. 340 U.S. 911, 71 S.Ct. 291, 95 L.Ed. 658. After computation of the deficiency resulting from the Tax Court's decision pursuant to Tax Court Rules, Rule 50, 26 U.S.C.A. (I.R.C. 1954) § 7453 (hereafter mentioned), the taxpayers paid the amount thus ascertained pursuant to the judgment of the tax court.

The taxpayers brought these actions in the district court seeking recovery of an overpayment alleged to have resulted from paying the amount computed in consequence of the tax court's decision. The theory of the actions was that the original returns made by the taxpayers had disclosed profits made on the sale of this merchandise to Oregon Electric which the tax court had held was no sale at all; therefore the total amount paid by them on account of their 1942-1943 taxes was excessive in that it included an overpayment to the extent of the tax calculated upon a non-existent profit from the supposed sale to Oregon Electric.

There were pre-trial orders in the court below in which the parties stipulated to the facts which are basic to the claim of the plaintiffs-appellees sought to be enforced here. In case No. 15011, the stipulation (which is in substance the same as those in the other cases), contained the following paragraph: "As a result of said adjudication, that these were not sales but capital contributions it follows that the `sales' to Oregon Electric Steel Rolling Mills were erroneously carried on the books of the Alaska Junk Company as accounts receivable; they were erroneously included in the gross income of the partnership for 1942 and 1943; the income and victory taxes paid by the partners including Harry J. Wolf on their distributive shares therefrom under the original returns, were erroneously paid; and the amounts of such `sales' should have been excluded from the gross income of Alaska Junk Company, thus reducing the amount of the net income reportable by said Alaska Junk Company, and thus reducing the amount of income reportable by the deceased, Harry J. Wolf, on his individual income and victory tax return for the taxable year 1943."

It will be noted that it was thus stipulated that as a matter of fact the net income reportable by Alaska Junk had been overstated and the income and victory taxes paid by the partners for 1942-43 included sums which were overpayments because they represented profits on what had been treated as sales of these goods.

The appellant claims however that notwithstanding this stipulation that there was actually an overpayment made, yet plaintiffs cannot maintain these actions because of (1) the provisions of § 322 (c) of the Internal Revenue Code of 1939, 26 U.S.C.A. § 322(c); or, in the alternative, (2) because of res judicata or collateral estoppel.

The appellees meet these contentions by asserting that their cases came within the second exception found in § 322(c) and that in any event the ordinary rules of res judicata or collateral estoppel have no application here.

Section 322(c), here invoked, provided as follows: "* * * (c) Effect of petition to Tax Court. If the Commissioner has mailed to the taxpayer a notice of deficiency under section 272(a) and if the taxpayer files a petition with the Tax Court within the time prescribed in such subsection, no credit or refund in respect of the tax for the taxable year in respect of which the Commissioner has determined the deficiency shall be allowed or made and no suit by the taxpayer for the recovery of any part of such tax shall be instituted in any court except —

"(1) As to overpayments determined by a decision of the Tax Court which has become final; and

"(2) As to any amount collected in excess of an amount computed in accordance with the decision of the Tax Court which has become final; and

"(3) As to any amount collected after the period of limitation upon the beginning of distraint or a proceeding in court for collection has expired; but in any such claim for credit or refund or in any such suit for refund the decision of the Tax Court which has become final, as to whether such period has expired before the notice of deficiency was mailed, shall be conclusive."

The taxpayers call attention to the admitted fact that their right to claim the refund here arose for the first time after the tax court had affirmed the Commissioner's determination that the merchandise constituted a capital contribution. They say that then and not before then did this overpayment appear. Because the cause of action for the recovery of this overpayment arose out of the decision of the tax court, and because the payments in dispute could not be regarded as overpayment until after the tax court determination became final, and the deficiencies were paid, taxpayers contend that the second exception quoted above covers their case; — that it must have been designed to permit persons in their situation to make recoveries of overpayments where the fact that an excess tax was collected was the later and direct result of the tax court's decision.

We have concluded that the second exception upon which taxpayers rely cannot be construed to have the meaning which they attach to it. It is plain that § 322(c) was intended to have a broad general application so as to provide that if the taxpayer files a petition with the tax court, the mere filing of the petition operates to deprive the district court of jurisdiction to entertain a subsequent suit for refund. Moir v. United States, 1 Cir., 149 F.2d 455, 460. As stated in Elbert v. Johnson, 2 Cir., 164 F.2d 421, 424, "It is not the decision which the Tax Court makes but the fact that the taxpayer has resorted to that court which ends his opportunity to litigate in the District Court his tax liability for the year in question." To say that exception No. 2 has the broad application which the appellees claim for it, would, we think, give it a more extensive reach than Congress intended. At any rate, it is apparent that this is the view which the courts have taken, and we are unable to find any decisions which sustain the taxpayers' contention here.

In Moir v. United States, supra, the fact of an overpayment of an estate tax developed after decision by the tax court on the petition for redetermination of the estate tax had become final. There the executor's petition for redetermination had been decided in his favor. After the decision was final, counsel for the executor presented his bill, the amount of which had depended upon the outcome of the litigation. The executor paid the bill which was a proper expense and deductible from the gross estate, but it was too late to reopen the tax court proceedings to make further adjustment in the estate tax. The overpayment was demonstrable. It was held that the executor was barred by the section of the then existing Revenue Code which was the predecessor of and in all important respects identical to § 322(c). The court, while noting the provisions of exception (2), clearly did not regard it as warranting the action in the district court there attempted for the purpose of recovery of the admitted overpayment. It said, 149 F.2d at...