Vishnevsky v. U.S.

• Citation: 581 F.2d 1249
• Decision Date: 09 August 1978
• Docket Number: No. 77-1767,77-1767
• Parties: 78-2 USTC P 9640 John VISHNEVSKY and Margaret Vishnevsky, Plaintiffs-Appellants, v. UNITED STATES of America, * Defendant-Appellee.
• Court: United States Courts of Appeals. United States Court of Appeals (7th Circuit)

Page 1249

581 F.2d 1249

78-2 USTC P 9640

John VISHNEVSKY and Margaret Vishnevsky, Plaintiffs-Appellants, v. UNITED STATES of America, ^* Defendant-Appellee No. 77-1767.

United States Court of Appeals Seventh Circuit.

Argued Jan. 19, 1978.

Decided Aug. 9, 1978.

Sherwin C. Peltin, Milwaukee, Wis., for plaintiffs-appellants.

Francis J. Gould, Appellate Section, Tax Div., Dept. of Justice, Washington, D. C., for defendant-appellee.

Before PELL and TONE, Circuit Judges, and EAST, Senior District Judge. ^**

PELL, Circuit Judge.

Plaintiffs-appellants John and Margaret Vishnevsky (taxpayers) are husband and wife who filed joint federal income tax returns for the years 1965 through 1970. Having apparently audited their returns, the Internal Revenue Service issued a statutory notice of deficiency for the years 1966, 1967, 1969, and 1970. The notice was by letter of July 10, 1972, signed by W. S. Stumpf, District Director of Internal Revenue, on behalf of Johnnie M. Walters, Commissioner of Internal Revenue. As pertinent, the letter states:

Dear Mr. and Mrs. Vishnevsky:

In accordance with the provisions of existing Internal Revenue laws, notice is given that the determination of your income tax liability discloses deficiencies for the taxable years ended December 31, 1966, December 31, 1967, December 31, 1969 and December 31, 1970 in the amounts of $1,491.35, $1,820.51, $3,651.29 and $3,177.69 respectively, and An overassessment for the taxable year ended December 31, 1965 in the amount of $1,407.41. The attached statement shows the computation of the deficiencies and the overassessment.

When final determination is made as to the deficiencies proposed in this letter, the overassessment will be scheduled for adjustment to the extent allowable and applied as set forth in section 6402 of the Internal Revenue Code. (Emphasis added.)

In three additional paragraphs, the letter explains the procedures to be followed with reference to the deficiencies, in the event taxpayers did or did not wish to contest the Service's determinations thereof.

As was their right, taxpayers appealed the Service's deficiency determinations to the Tax Court, where they were represented by the same experienced tax attorney who represents them here. By mutual agreement made in hopes of reaching a settlement, a February 1973 trial date in the Tax Court was postponed until February 1974. Settlement negotiations were unsuccessful, a trial was had, and the decision of the Tax Court was rendered in September 1974. The deficiencies found to be due were in total amount in excess of the overassessment sum.

Taxpayers did not appeal the Tax Court's decision, and they do not challenge their liability thereunder here. When they sought to have their 1965 overpayment offset against that liability, however, the Service refused. The period of limitations for filing a claim for refund for 1965 had expired on June 30, 1973, ¹ during the pendency of the Tax Court proceedings, and taxpayers and their counsel, relying on the apparent promise of the District Director's July 10, 1972, letter to adjust their liabilities had filed no formal claim for a refund. The Commissioner, through his delegates, took the position that the failure to file the claim during the limitations period deprived him of authority to allow the claim thereafter, relying on 26 U.S.C. § 6511(b)(1). That subsection provides:

No credit or refund shall be allowed or made after the expiration of the period of limitation prescribed . . . for the filing of a claim for credit or refund, unless a claim for credit or refund is filed by the taxpayer within such period.

The Government's position, then as now, has been exclusively based on this procedural assertion. It has never in any way denied that District Director Stumpf had and exercised delegated authority in dispatching the letter of July 10, 1972, nor has the fact of or the accuracy of the determination that taxpayers overpaid their 1965 taxes by $1,407.41 been questioned. The Government concedes, in short, that taxpayers would have had every right to a credit or refund if they had not appealed the deficiencies to the Tax Court, or if the Tax Court proceedings had not extended past June 30, 1973, or if a timely claim for refund had been filed. It is insisted, however, that taxpayers had no right to rely on the apparent promise of the District Director that the "overassessment will be scheduled for adjustment" and, moreover, that no relief may be obtained in any court from the harsh results of their reliance, reliance which at least in the clear light of hindsight could arguably be termed as negligent.

Taxpayers filed this suit for mandamus relief, invoking the district court's jurisdiction under 28 U.S.C. § 1361. For reasons not entirely clear, however, the district court treated the action as one for a tax refund under 28 U.S.C. § 1346(a)(1). ² Having earlier denied the Government's motion to dismiss the case for lack of jurisdiction, the court, faced with cross-motions for summary judgment, granted this relief in favor of the Government. The propriety of mandamus relief was not considered by the court.

I.

The Government argues that, if the case is an action for a refund under 28 U.S.C. § 1346, the district court was without jurisdiction to entertain it. We address this contention first, because of our duty to satisfy ourselves of the jurisdiction of the district courts when we are called upon to review their judgments.

The obstacle to § 1346 jurisdiction is created by 26 U.S.C. § 7422(a), which provides:

No suit or proceeding shall be maintained in any court for the recovery of any internal revenue tax alleged to have been erroneously or illegally assessed or collected, or of any penalty claimed to have been collected without authority, or of any sum alleged to have been excessive or in any manner wrongfully collected, until a claim for refund or credit has been duly filed with the Secretary or his delegate, according to the provisions of law in that regard, and the regulations of the Secretary or his delegate established in pursuance thereof.

The language describing the coverage of § 1346 and § 7422(a) is identical; the conclusion that the latter provision establishes a prerequisite to suit under the former is inescapable. The question on the present issue is whether the requirement of § 7422(a) can be waived and, if so, whether that happened here.

The district court thought the requirement could be waived, but that it had not been waived here. ³ For the conclusion that waiver was possible, the court relied on United States v. Felt & Tarrant Manufacturing Company, 283 U.S. 269, 51 S.Ct. 376, 75 L.Ed. 1025 (1931); and Tucker v. Alexander, 275 U.S. 228, 48 S.Ct. 45, 72 L.Ed. 253 (1927). These cases unquestionably establish the possibility of waiver where the period of limitations for filing a refund claim has not run. In Tucker, taxpayer had filed a claim, but at trial the grounds set out therein were abandoned in favor of another. Although the Court in Tucker did not find it necessary to say so, the failure of the "claim" to indicate in any way its true amount or nature rendered it out of compliance with the statutory predecessor of § 7422(a). See Felt & Tarrant, supra, 283 U.S. at 272, 51 S.Ct. 376. The Government made no objection to the total change of theory by taxpayer, and, in fact, stipulated that if taxpayer's legal theory was correct, judgment in a specified amount should be entered. The Court held that the claim requirement could be and had been waived:

The statute and the regulations must be read in light of their purpose. They are devised, not as traps for the unwary, but for the convenience of government officials in passing upon claims for refund and in preparing for trial. Failure to observe them does not necessarily preclude recovery. If compliance is insisted upon, dismissal of the suit may be followed by a new claim for refund and another suit within the period of limitations. If the Commissioner is not deceived or misled by the failure to describe accurately the claim, as obviously he was not here, it may be more convenient for the government and decidedly in the interest of an orderly administrative procedure that the claim should be disposed of upon its merits on a first trial without imposing upon government and taxpayer the necessity of further legal proceedings.

275 U.S. at 231, 48 S.Ct. at 46. The Court carefully distinguished a situation, not there present, where a waiver, if allowed, would circumvent the statute of limitations.

Likewise, in Felt & Tarrant, supra, the Court recognized the possibility of waiver of the statute's requirement, but said that none could be found where, as there, "the Commissioner had no knowledge of the claim and took no action with respect to it." 283 U.S. at 273, 51 S.Ct. at 378.

In United States v. Memphis Cotton Oil Co., 288 U.S. 62, 53 S.Ct. 278, 77 L.Ed. 619 (1933), the Court held that a claim amendment, out of time, to satisfy formal requirements had to be allowed where the Commissioner did not dismiss the claim on the basis of the formal defects, but had in fact investigated and allowed the claim on the merits, prior to asserting the defects as a basis for rejection. But the Court carefully distinguished "the function of a statute requiring the presentation of a claim within a given period of time" from that of "a regulation making provision as to form." Id. at 71, 53 S.Ct. at 281. And in Angelus Milling Co. v. Commissioner of Internal Revenue, 325 U.S. 293, 296, 65 S.Ct. 1162, 1164, 89 L.Ed. 1619 (1945), the Court stated that "(i)nsofar as Congress has made explicit statutory requirements, they must be observed and are beyond the dispensing power of Treasury officials." United States v. Garbutt Oil Co., 302 U.S. 528, 58 S.Ct. 320, 82 L.Ed. 405 (1938), is to the same effect See id. at 533, 58 S.Ct. 320, treating Memphis Cotton, supra, as a case involving amendment...