Court Opinion

ID: 9548773
Source: CourtListenerOpinion
Date Created: 2023-08-07 18:08:36.50222+00
Date Added: 2024-06-11T15:19:24.795832
License: Public Domain

SHEPARD, Chief Justice,
dissenting.
There is only one issue in this case, and the facts relating to that issue are admitted by all. The Tax Commission holds $3,456.00 belonging to the taxpayer, and has deprived the taxpayer of the use of that money since 1977. The Tax Commission does not dispute that it was and is not entitled to that money, but relies on legal niceties and gobbledygook to explain why it need not return the money legitimately due the taxpayer. All citizens labor under the onerous burden of paying various types of taxes. Substantial penalties, both civil and criminal, are imposed on those persons who do not pay their taxes which are due. In my view, concepts of fairness and equity should guide the actions of taxing authorities. Those concepts are embodied in the doctrine of equitable recoupment, and should be applied in the instant case by the courts. In my view such application is necessary since the taxing authority, while admitting that it has the taxpayer’s money, takes the position “we gotcha because our technical and accounting procedures took so long that you cannot now claim a refund.” I suggest that such a result ac*744cords with neither fairness, equity, or any common sense perception view of how a tax system or tax authority should operate.
As above stated, there is no argument or conflict as to the facts. The taxpayer sustained net operating losses in its business during 1978, 1979 and 1980. Income tax returns were filed indicating such losses. In 1981, 1982 and 1983 the taxpayer’s business was profitable and it filed income tax returns so indicating, but indicated thereon the operating losses from the previous years and used them as deductions. It was not until August of 1984 that the Tax Commission decided to disallow the net operating losses indicated on the 1981, 1982 and 1983 returns of the taxpayer. The Tax Commission determined that such net operating losses should have been taken on the income tax returns filed by the taxpayer in 1976 and 1977. The Tax Commission then asserted a deficiency in the taxes due for 1981, 1982 and 1983 of $5,955.00 plus interest. The taxpayer did not dispute that deficiency assessed for those three tax years, but rather asserted if those net operating losses are applied to the 1976, 1977 returns it had then overpaid the income tax for those two years. The Tax Commission does not disagree. The taxpayer then offered to pay the difference between what it owed the Tax Commission and what the Tax Commission owed the taxpayer. Such appears to me to be an eminently fair proposal, and would have resulted in the taxpayer paying exactly what was due, and the Tax Commission obtaining exactly the money to which it was entitled.
Unfortunately, that was not the view taken by the taxing authority. Rather, it said you must pay the money due us, but we will not pay the money owed to you because since we did not make this determination until August 1984 you are barred by the statute of limitation from making claim to the money we admittedly owe you. The district court refused to endorse the attitude of the Tax Commission and ruled in favor of the taxpayer. This Court, however, reverses the determination of the district court, and rules that in income tax cases concepts of fairness and equity are inapplicable and the taxpayer is fair game. Such will undoubtedly be viewed as a strange brand of justice for all.
The district court in the instant case held that the taxpayer was not barred from claiming the refund for the years 1976 and 1977 because the statute did not begin to run until the determination by the Tax Commission of 1984. As pointed out by the majority, under the applicable income tax statute, the determination of the district court may well have been erroneous. However, I suggest that the decision of the district court may be sustained on other grounds, i.e., equitable recoupment. That doctrine has not prior to today been addressed in the state of Idaho. However, the doctrine has been addressed by the United States Supreme Court in Bull v. United States, 295 U.S. 247, 55 S.Ct. 695, 79 L.Ed. 1421 (1935), a case somewhat similar to the case at bar. In Bull certain business profits had been excluded from an estate tax return. The government assessed a deficiency asserting that the profits should have been included in the estate tax returns. That deficiency was paid. Later the taxpayer asserted the exclusion of those profits from the income tax returns for the years in question. Admittedly double taxation had occurred, however, the government refused to consider such double taxation, asserting that the statute of limitations had expired. Upon reaching the United States Supreme Court the position of the taxpayer was sustained, albeit the statute had indeed expired, with the court stating the retention of the money was “against morality and conscience” although the claim for refund or credit was not presented, or action instituted for restitution within the period fixed by the statute of limitations. The court stated: “While here the money was taken through mistake without any element of fraud, the unjust retention is immoral and amounts in law to a fraud on the taxpayer’s rights
In my view the concepts of fairness and equity enunciated in Bull are equally applicable to the case at bar. Here the majority opinion attempts to distinguish the message of Bull from the instant case on the *745basis that no single transaction has occurred. I would note only in Bull that the court’s decision was based on the conduct of a going business over a period of years, which had occurred more than ten years prior to the court’s decision. In my view the single transaction in the case at issue here was the deficiency assessment by the Commission in August of 1984 which impacted the conduct of a going business in 1976 and 1977.
Hence, I would affirm the decision of the district court, albeit on a different ground. I would also award interest to the taxpayer since the Commission has had the use of that money, just as the Commission would assess interest against any unpaid taxes due and owing.