Court Opinion

ID: 9454577
Source: CourtListenerOpinion
Date Created: 2023-08-04 18:50:24.908393+00
Date Added: 2024-06-11T17:34:10.317881
License: Public Domain

SKELTON, Judge
(dissenting).
I respectfully dissent. The government erroneously assessed deficiencies for the year 1954 for salaries of plain*1253tiffs which accrued in 1950, 1951, and 1952. In the resulting lawsuit, this court ruled against the government and in favor of the taxpayers. Thereafter, the Internal Revenue Service then assessed deficiencies under Sections 1311-1315 of the Internal Revenue Code of 1954 for the years 1950, 1951, and 1952, which were otherwise closed by the statute of limitations, plus interest. These deficiencies were paid and plaintiffs sued here claiming the above regulations do not authorize the assessment for the barred years. I agree with the plaintiffs for the reason that one of the requirements of Section 1312(3) (A), in order for an adjustment of a barred year to be made, is that the tax must have been paid for the year (1954) which the government initially contended was the proper one and for which it assessed the • tax. This section of the statute says that the item must have been included in a return filed by the taxpayer or “the tax must have been paid” before the government can adjust and assess the taxes for a barred year. The government insists here that this requirement was complied with because the taxpayers paid the deficiency for 1954 and then sued for a refund. The taxpayers say that this “forced payment” on their part is not what the regulation meant by the provision “or the tax must have been paid.” I agree. In my opinion, this means a voluntary payment of the tax and no one made at “pistol point.” Anyone experienced in tax matters knows that when the Internal Revenue Service levies a deficiency assessment against a taxpayer, if he does not pay the tax, the IRS can levy on and sell his property at public auction as a forced sale and the taxpayer is powerless to stop it, except by paying the tax. This is what occurred here.
The regulation (Section 1312(3) (A)) is discriminatory and invalid in my opinion, because it allows an adjustment to be made for barred years where the taxpayer has paid the tax, but does not allow such an adjustment where the tax has not been paid. This discriminates between the taxpayer who pays the tax and sues for a refund in this court or the district court and one who refuses to pay the tax and sues in the Tax Court. I do not believe the Congress ever intended such a result. In any event, I believe the regulation contemplated a voluntary payment of the tax and not one that was forced upon the taxpayer as in this ease.
Every taxpayer should pay the taxes he owes. That has not been done here. To that extent the taxpayer is wrong. On the other hand, the government is seeking to force the taxpayer to pay not only the taxes, but also 18 years’ interest because of the erroneous position taken by the government in the first place. In that connection, the equity is on the side of the taxpayer.
I would grant plaintiffs’ motion for summary judgment and deny that of the defendant.
APPENDIX
Internal Revenue Code of 1954:
§ 1311. Correction of error.
(a) General Rule. If a determination (as defined in section 1313) is described in one or more of the paragraphs of section 1312 and, on the date of the determination, correction of the effect of the error referred to in the applicable paragraph of section 1312 is prevented by the operation of any law or rule of law, other than this part and other than section 7122 (relating to compromises), then the effect of the error shall be corrected by an adjustment made in the amount and in the manner specified in section 1314.
(b) Conditions Necessary for Adjustment.
(1) Maintenance of an inconsistent position. * * * an adjustment shall be made under this part only if—
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(B) in case the amount of the adjustment would be assessed and collected in the same manner as a deficiency under *1254section 1314, there is adopted in the determination a position maintained by the taxpayer with respect to whom the determination is made,
and the position * * * maintained by the taxpayer in the case described in subparagraph (B) [of Section 1312] is inconsistent with the erroneous inclusion, exclusion, omission, allowance, dis-allowance, recognition, or nonrecognition, as the case may be.
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§ 1312. Circumstances of adjustment.
The circumstances under which the adjustment provided in section 1311 is authorized are as follows:
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(3) Double exclusion of an item of gross income.
(A) Items included in income. The determination requires the exclusion from gross income of an item included in a return filed by the taxpayer or with respect to which tax was paid and which was erroneously excluded or omitted from the gross income of the taxpayer for another taxable year, or from the gross income of a related taxpayer; or
(B) Items not included in income. The determination requires the exclusion from gross income of an item not included in a return filed by the taxpayer and with respect to which the tax was not paid but which is includible in the gross income of the taxpayer for another taxable year or in the gross income of a related taxpayer.
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§ 1313. DEFINITIONS.
(a) Determination. For purposes of this part, the term “determination” means—
(1) a decision by the Tax Court or a judgment, decree, or other order by any court of competent jurisdiction, which has become final;
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Treasury Regulations on Income Tax (1954 Code):
§ 1.1312-3 Double exclusion of an item of gross income.
(a) Items included in income or with respect to which a tax was paid. (1) Paragraph (3) (A) of section 1312 applies if the determination requires the exclusion, from a taxpayer’s gross income, of an item included in a return filed by the taxpayer, or with respect to which tax was paid, and which was erroneously excluded or omitted from the gross income of the same taxpayer for another taxable year or of a related taxpayer for the same or another taxable year.
(2) The application of subparagraph (1) of this paragraph may be illustrated by the following examples:
Example (1). (i) A taxpayer received payments in 1951 under a contract for the performance of services and included the payments in his return for that year. After the expiration of the period of limitations for the assessment of a deficiency for 1950, the Commissioner issued a notice of deficiency to the taxpayer for the year 1951 based upon adjustments to other items, and the taxpayer filed a petition with the Tax Court of the United States and maintained in the proceeding before the Tax Court that he kept his books on the accrual basis and that the payments received in 1951 were on income that had accrued and was properly taxable in 1950. A final decision of the Tax Court was rendered in 1955 excluding the payments from 1951 income. An adjustment in favor of the Commissioner is authorized with respect to the year 1950, whether or not a tax had been paid on the income reported in the 1951 return.
(ii) Assume the same facts as in (i), except that the taxpayer had not included the payments in any return and had not paid a tax thereon. No adjustment would be authorized under section 1312 (3) (A) with respect to the year 1950. If *1255the taxpayer, however, had paid a deficiency asserted for 1951 based upon the inclusion of the payments in 1951 income and thereafter successfully sued for refund thereof, an adjustment would be authorized with respect to the year 1950. (See paragraph (b) of this section for circumstances under which correction is authorized with respect to items not included in income and on which a tax was not paid.)
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