Ventura Consolidated Oil Fields v. Rogan

• Decision Date: 26 October 1936
• Docket Number: No. 7671.,7671.
• Citation: 86 F.2d 149
• Parties: VENTURA CONSOLIDATED OIL FIELDS v. ROGAN, Collector of Internal Revenue.
• Court: U.S. Court of Appeals — Ninth Circuit

86 F.2d 149 (1936)

VENTURA CONSOLIDATED OIL FIELDS v. ROGAN, Collector of Internal Revenue.^*

No. 7671.

Circuit Court of Appeals, Ninth Circuit.

October 26, 1936.

COPYRIGHT MATERIAL OMITTED

Herman Phleger, of San Francisco, Cal., and Charles C. Stanley, R. K. Barrows, and J. A. Tucker, all of Los Angeles, Cal., for appellant.

Frank J. Wideman, Asst. Atty. Gen., and Sewall Key and John MacC. Hudson, Sp. Assts. to the Atty. Gen., for appellee.

Before WILBUR, DENMAN, and MATHEWS, Circuit Judges.

DENMAN, Circuit Judge.

This action was brought in the District Court by Ventura Consolidated Oil Fields, a corporation, against the collector of internal revenue, seeking to enjoin the defendant from attempting to collect by distraint or otherwise alleged income tax deficiencies for the years 1920 to 1923, inclusive, claimed by taxpayer to have been assessed during a period in which the taxing statute prohibited assessment. It should be noted that taxpayer seeks no injunction restraining the government from proceeding to assess taxpayer for taxes properly due and thereafter collect them, but merely that "the Collector `be enjoined * * * from making any levy, seizure or distraint under authority of or under the pretended authority of such alleged assessments.'"

The bill for injunction is based upon the right conferred by section 274 (a) of the Revenue Act of 1926 (44 Stat. 55) as follows: "If in the case of any taxpayer, the Commissioner determines that there is a deficiency in respect of the tax imposed by this chapter title, the Commissioner is authorized to send notice of such deficiency to the taxpayer by registered mail. Within 60 days after such notice is mailed * * * the taxpayer may file a petition with the Board of Tax Appeals for a redetermination of the deficiency. Except as otherwise provided * * * no assessment of a deficiency in respect of the tax imposed by this title and no distraint or proceeding in court for its collection shall be made, begun, or prosecuted until such notice has been mailed to the taxpayer, nor until the expiration of such 60-day period, nor, if a petition has been filed with the Board, until the decision of the Board has become final. Notwithstanding the provisions of section 3224 of the Revised Statutes the making of such assessment or the beginning of such proceeding or distraint during the time such prohibition is in force may be enjoined by a proceeding in the proper court."

The appellant contends that:

(1) The claimed deficiencies were prohibited to be assessed by the administrative officials of the treasury by the taxing statutes because

(a) No notice of the claimed deficiency was ever mailed by the Treasury or received by the taxpayer; and

(b) If a letter claimed by the Treasury to comply with the statute is such a notice, the alleged assessment was made within the prohibited 60 days from its mailing.

(2) The congressional purpose in so specifically providing injunctive relief against distraint on the forbidden assessment is to compel the Commissioner to give to the taxpayer his right to an administrative assessment. The Commissioner, by failing to mail such letter and to make such assessment, after the expiry of the 60-day period, does not thereby deprive taxpayer of his right to an administrative assessment and transfer to the court of equity the assessing function the Commissioner has failed to perform.

(3) The elapse of the statutory time in which the Commissioner may make a proper assessment of the alleged deficiencies does not create any power in equity to perform the neglected duty of the Commissioner.

(4) Even if the taxpayer's injunctive right was not for the specific congressional purpose of compelling assessment by the prescribed administrative officials, and the court could grant the injunction conditioned on a payment of taxes admittedly due, there is no admission of the taxpayer that it owes any of the claimed deficiencies and nothing in the pleadings or evidence from which the existence of such a liability may be determined.

The taxpayer made its return for the tax years 1920 to 1923, inclusive, and paid its tax thereon. On September 14, 1928, the Commissioner of Internal Revenue wrote taxpayer advising it of alleged deficiencies in taxes for the years in question in addition to others not material here. This was not the letter required by the statute in which the Commissioner "determines" the deficiency. It was a preliminary statement, expressly permitting protest by the taxpayer and conference before the statutory determination.

Taxpayer made protest, and a conference over the disputed taxes was had between its representatives and those of the collector, at which conference, apparently, a tentative settlement of the tax liability was agreed upon.

On September 4, 1929, the Commissioner sent to the taxpayer a registered letter, the material portions of which read as follows:

"Reference is made to a conference granted your representative * * * at which conference an agreement was reached relative to the adjustments protested by you.

"In accordance with the agreement referred to above, your tax liability has been recomputed and Bureau letter dated September 14, 1928, has been revised to disclose a deficiency * * * as shown in the attached statement and accompanying schedules.

"It is believed that this revised computation of your tax liability will be satisfactory and that it will be your desire to definitely close your case as promptly as possible. Therefore, you are requested to execute the enclosed Forms 866 and forward both original and duplicate to the Commissioner * * * within twenty days from the date of this letter."

The material portions of the accompanying schedules purported to show income tax deficiencies for the years 1920 to 1923 inclusive, the alleged taxes here in dispute.

The inclosed form 866 which was sent taxpayer with the registered letter was entitled "Agreement as to Final Determination of Tax Liability," and was a regular method for final closing of liability by mutual agreement, authorized by section 606, Revenue Act of 1928, 26 U.S.C.A. § 1660. It recited an amount of total deficiency and that the taxpayers (plaintiff here and certain of its then affiliates) consented to the assessment and collection of the named deficiency (with a certain exception not material here). We set out the final paragraph verbatim: "Now, This Agreement Witnesseth, that said taxpayers and said Commissioner of Internal Revenue hereby mutually agree that the principal amount of such liability so determined shall be final and conclusive if and when this agreement is approved by the Secretary of the Treasury or the Undersecretary."

The closing agreement was duly signed and sealed by plaintiff and its affiliates and filed with the Commissioner of Internal Revenue on October 11, 1929. It was never signed by the Commissioner, nor was it approved by the Secretary or Undersecretary of the Treasury, as required by the statute. The case was argued and submitted to us on the express admission in Appellee's brief that the agreement to compromise the tax "was not signed or accepted by the Commissioner as a final or conclusive agreement of the appellant's tax liability. * * * The Commissioner, refusing to accept the document as a final or closing agreement, regarded the same as a waiver of the restrictions enforced by section 274 (a) upon assessment and collection of the deficiencies."

It is also stipulated that "A final closing agreement in accordance with the provisions of section 606 of the Revenue Act of 1928 has not at any time been approved by the Secretary of the Treasury or the Undersecretary of the Treasury," and that "No other notice or writing waiving the restrictions provided in section 274 (a) of the Revenue Act of 1926 was signed by appellant or by anyone in its behalf. * * *" These restrictions, it will be remembered, being designed to allow summary appeal to the Board of Tax Appeals before assessment, forbid (inter alia) an assessment within 60 days after notice of deficiency has been sent by registered letter to the taxpayer, or if appeal with the Board has been filed within that time, until the decision of the Board has become final, with a specific provision for injunctive relief. The Commissioner so regarding the unaccepted closing agreement as a waiver of the right to the 60-day delay, on November 2, 1929, less than 60 days after the letter enclosing it had been mailed to the taxpayer, formally purported to assess against taxpayer the proposed deficiency amounts appearing therein together with interest thereon.

In July, 1932, taxpayer filed its amended bill of complaint in this action, praying an injunction under section 274 (a), Revenue Act of 1926, restraining the collector from collecting or attempting to collect the taxes so assessed on November 2, 1929, within the 60-day period. Upon the facts as above set out, taxpayer alleged that the Commissioner's letter of September 4, 1929, was not a proper notice of deficiency as required by section 274 (a), and that even if such letter were proper notice, the assessment of November 2 was void for having been made less than 60 days after the deficiency letter. The collector takes issue as to the sufficiency of the September 4 letter; asserts further that the November assessment was made in due time because by signing the final closing agreement and forwarding it to the Commissioner in October, taxpayer waived the restrictions on assessment contained in section 274 (a). After hearing, the District Court entered a decree dismissing the taxpayer's bill. This appeal followed.

(1) The assessment was prohibited by section 274 (a) because (a) no letter determining the deficiency was mailed taxpayer, and (b) if the letter sent had made such a determination the assessment was made within 60 days of its mailing.

We first consider the issues as to the validity of the so-called deficiency letter...