Court Opinion

ID: 9446162
Source: CourtListenerOpinion
Date Created: 2023-08-03 21:48:20.042437+00
Date Added: 2024-06-11T17:30:33.370563
License: Public Domain

VAN OOSTERHOUT, Circuit Judge
(dissenting).
The only conclusive evidence in the record to support the summary judgment against the taxpayer, entered upon the basis of estoppel, is that the taxpayer, after negotiations with the Technical Staff, which resulted in an adjustment of an asserted deficiency, signed the waiver form, and the further fact that the statute of limitations had run against the right of the Government to assert a deficiency at the time the taxpayer commenced his refund suit. I cannot accept the view that such facts, standing alone, are sufficient as a matter of law to create an estoppel against the taxpayer.
The Government does not contend that the informal agreement with the taxpayer was approved by the Secretary in the manner required by section 3760 or 3761 of the Internal Revenue Code of 1939. The Supreme Court has clearly held that an agreement not approved by the Secretary is of no validity and is binding upon neither the Government nor the taxpayer. Botany Worsted Mills v. United States, 280 U.S. 282, 49 S.Ct. 129, 73 L.Ed. 379. The Court there states (280 U. S. at pages 288-289, 49 S.Ct. at page 131):
“We think that Congress intended by the statute to prescribe the exclusive method by which tax cases could be compromised, requiring therefor the concurrence of the Commissioner and the Secretary, and prescribing the formality with which, as a matter of public concern, it should be attested in the files of the Commissioner’s office; and did not intend to intrust the final settlement of such matters to the informal action of subordinate officials in the Bureau. When a statute limits a thing to be done in a particular mode, it includes the negative of any other mode. Raleigh & G. Railroad *200Co. v. Reid, 13 Wall. 269, 270, 20 L.Ed. 570; Scott v. Ford, 52 Or. 288, 296, 97 P. 99.
“It is plain that no compromise is authorized by this statute which is not assented to by the Secretary of the Treasury. Leach v. Nichols, 1 Cir., 23 F.2d 275, 277. For this reason, if for no other, the informal agreement made in this case did not constitute a settlement which in itself was binding upon the Government or the Mills. * * * ”
It is noted that the estoppel issue was raised in the Botany Mills case. The facts are not fully set out in the opinion, but it is disclosed that the tax involved was that for 1917, due in 1918, and that the refund suit was commenced in September 1924. Thus, it is not unlikely that the statute of limitations had run against the Government when the suit was brought. The Court disposes of the estoppel issue summarily with the following language (280 U.S. at page 289, 49 S.Ct. at page 132):
“ * * * And, without determining whether such an agreement, though not binding in itself, may when executed become, under somé circumstances, binding on the parties by estoppel, it suffices to say that here the findings disclose no adequate ground for any claim of estop-pel by the United States.”
In Daugette v. Patterson, 5 Cir., 250 F.2d 753, 757, decided December 26, 1957, a case involving the same basic issue as now before us, Judge Rives, in his dissenting opinion, aptly states: .
“The holding in this case is, I think, contrary to the legislative policy that there can be no compromise of a tax claim by the Commissioner of Internal Revenue unless assented to by the Secretary of the Treasury. Sections 3760 and 3761, Internal Revenue Code of 1939, 26 U.S.C.A. §§ 3760, 3761; Sections 7121 and 7122 of the Internal Revenue Code of 1954, 26 U.S.C.A. §§ 7121, 7122; Botany Mills v. United States, 278 U.S. 282, 289, 49 S.Ct. 129, 73 L.Ed. 379. The Commissioner or his representative should not be permitted by indirection to usurp the functions which Congress has vested in the Secretary or his delegate. To allow that to be accomplished, first by tacit compliance of the parties with an agreement of compromise not approved by the Secretary and then by the device or theory that the taxpayer is estopped to deny the compromise or to file or prosecute a claim for refund contrary to his promise which had not been accepted by the Secretary, and hence was not legally binding, seems to me wholly impermissible.”
A substantial majority of the courts considering the issue now before us have held that the execution of a waiver, such as here used, and the running of the statute of limitations against the Government’s right to assert a deficiency, do not estop the taxpayer from prosecuting a claim for refund. Among such cases are: Bennett v. United States, 7 Cir., 231 F.2d 465; Bank of New York v. United States, 3 Cir., 170 F.2d 20; Joyce v. Gentsch, 6 Cir., 141 F.2d 891; Bank of New York v. United States, D.C.S.D.N.Y., 141 F.Supp. 364; Hamil v. Fahs, D.C.S.D.Fla., 129 F. Supp. 837; Steinden Stores, Inc., v. Glenn, D.C.W.D.Ky., 94 F.Supp. 712; O’Connor v. United States, D.C.S.D.N.Y., 76 F.Supp. 962. See also Annotation, 11 A.L.R.2d 903, 912.
I believe that the reasoning upon which the foregoing decisions are based is sound. As stated in the Joyce case, 141 F.2d at page 895, the waiver agreement was “entirely lacking in essential mutuality.”
Daugette v. Patterson and Guggenheim v. United States, 77 F.Supp. 186, 111 Ct. Cl. 163, relied upon by the maj'ority, both distinguish the Joyce case upon the basis of difference in the factual situation in that the waiver form did not contain a clause reserving to the Government the right to assert a further deficiency such as appears in the Joyce waiver form. I do not attach any importance to this distinction, because the reservation gives the Government no rights relative to as*201serting a deficiency which it did not already possess by reason of the Botany Mills decision. In our present case the waiver contains a reservation similar to that in the Joyce case. To the extent that the Guggenheim and Daugette cases rely upon the difference in form of waiver, they aro no authority for an es-toppel under the facts in our present case.
The judgment complained of was entered upon motions for summary judgment. With respect to such motions, this court, in Northwestern Auto Parts Co. v. Chicago, Burlington & Quincy R. Co., 240 F.2d 743, 746, said:
“ * * * a summary judgment upon motion therefor by a defendant should never be entered except where the defendant is entitled to its allowance beyond all doubt; only where the conceded facts show defendant’s right with such clarity as to leave no room for controversy; with all reasonable doubts touching the existence of a genuine issue as to a material fact resolved against the movant; giving the benefit of all reasonable inferences that may reasonably be drawn from the evidence to the party moved against. * * ”
The burden of proof is upon a party asserting estoppel to prove the existence of the essential elements of estoppel. Ross v. Commissioner, 1 Cir., 169 F.2d 483, 496, 7 A.L.R.2d 719; Crossett Lumber Co. v. United States, 8 Cir., 87 F.2d 930, 931, 109 A.L.R. 1348. The essential elements of estoppel are thus stated in Van Antwerp v. United States, 9 Cir., 92 F.2d 871, 875:
“To constitute estoppel (1) there must be false representation or wrongful misleading silence. (2) The error must originate in a statement of fact and not in an opinion or a statement of law. (3) The person claiming the benefits of estoppel must be ignorant of the true facts, and (4) be adversely affected by the acts or statements of the person against whom an estoppel is claimed.”
See also 19 Am.Jur. Estoppel, § 42; Vol. 10A, Merten’s Law of Federal Income Taxation, § 60.02.
I am convinced that the Government has failed to establish the existence of the essential elements of estoppel with sufficient certainty to justify a summary judgment. I am unable to find support in the record for a conclusion that the taxpayer has been guilty of any false representation or misleading silence, upon which the Government had any right to rely. It seems clear that the Government was chargeable with knowledge that as a matter of law the waiver was binding upon no one. Hence, how can it be said that the Government was justified in relying upon it ? The Government knew at’ the time of the signing of the waiver that the taxpayer had already filed a refund claim. The Government’s defense that it rejected the refund claim and gave proper notice thereof, and that the claim for refund is barred by the statute of limitations, is not before us on this appeal.
Another essential element of estoppel is detriment to the promisee. The record does not establish, beyond factual dispute, that the Government will suffer any loss of taxes justly due it. There has as yet been no adjudication as to the membership and validity of the alleged family partnership. If upon trial it is determined, as contended by the Government, that the taxpayer was chargeable with one-half of the income for the partnership for 1942 and 1943, the taxpayer would be entitled to no refund, as he would not then have established that he had overpaid his tax. If, on the other hand, the determination should be that the taxpayer and his wife each owned a one-fourth interest in the partnership, it is still far from certain that the Government would sustain any loss. The claim for refund involves only the years 1942 and 1943. Taxpayer claims that he and his wife each owned one-fourth interest in the partnership. The Government claims taxpayer owns a one-half interest. Taxpayer and his wife each paid tax upon one-fourth of the partnership income. The Government took steps to as*202sess the taxpayer with one-half the partnership income. Such additional tax assessed was paid and, in connection therewith, the overassessment of $10,008.82 against the wife, occasioned by the determination that she was not a partner, was credited to the deficiency due from the taxpayer.
Taxpayer concedes that his claim should be reduced by the above $10,008.-82 and by the net amount of the Dorothy Cain overassessment above the W. A. Cain deficiency applied to the taxpayer’s deficiency ($901.33), and by the amount of the overassessment refunded him in 1949 ($6,886.74).
• J. W. Cain, W. A. Cain, and their respective wives consistently filed tax reports in which each reported one-fourth of the partnership income and paid tax thereon. When the Government insisted on reallocating the income to the husbands, the wives’ overassessments were generally applied against the tax deficiencies of the husbands. No readjustment of taxes subsequent to 1943 is directly involved in the refund suit. The claim upon which this suit is based was filed in 1948, prior to the 1949 tax adjustments.
, The majority states that appellant is seeking to recover the amount of his 1942 overassessment which, with his consent, was applied upon his father’s deficiency created by charging his father with one-half of the 1942 partnership income. As I read the recor'd appellant makes no such claim. The majority does not point to any evidence which definitely establishes that the Government will, as a result of this suit, lose any taxes to which it is lawfully entitled from the members of the alleged partnership, or to any facts that establish any of the members of the alleged partnership will suffer any prejudice.
As pointed out in the Joyce case, supra, 141 F.2d at pages 895-896, the Government may have a defense of equitable recoupment against the taxpayer’s claim. Such a defense is not barred as long as the main action is timely. Bull v. United States, 295 U.S. 247, 55 S.Ct. 695, 79 L.Ed. 1421.
It should be noted that on June 27, 1949, a date subsequent to the 1949 purported settlement, the Supreme Court decided Commissioner of Internal Revenue v. Culbertson, 337 U.S. 733, 69 S.Ct. 1210, 93 L.Ed. 1659, which case, together with other eases subsequently decided, has an important bearing upon the validity of family partnerships for tax purposes.
The Government has, in addition to the estoppel defense, asserted other defenses which may have considerable merit. Since I am of the opinion that the Government has not, in any event, established an estoppel against the taxpayer with the degree of certainty required to entitle it to a summary judgment, I would reverse the judgment and remand the case to the trial court for trial upon all issues, including the estoppel issue.