Court Opinion

ID: 4477961
Source: CourtListenerOpinion
Date Created: 2020-01-16 21:12:49.107509+00
Date Added: 2024-06-11T14:53:55.404208
License: Public Domain

PieRCe, J., dissenting: I respectfully dissent from holdings of the majority as to the taxable years 1944' and 1945, which holdings are to the effect: (1) That, upon the appeal of the petitioner from a notice that his 1944 and 1945 taxes were to be adjusted under section 130, this Court acquired jurisdiction to entirely redetermine the tax liabilities for said years, and to find that there are overpayments of tax — notwithstanding that the tax liabilities for said years had been “previously determined” by compromise; that adjustments under section 130 are authorized to be made only with respect to particular loss items which had entered into the computation of “the tax previously determined”; and that the petitioner’s claim to overpayments is based on other items wholly unrelated to the application of section 130. (2) That the petitioner’s claim to overpayments for said years is not barred by the statute of limitations, on the ground that the period of limitation provided by section 275 was extended by the provisions of section 130 (c). (3) That petitioner’s claim to overpayments should not be denied by application of equitable estoppel — notwithstanding that petitioner had in 1949 entered into a compromise settlement of all pending controversies respecting the years 1944 and 1945; that he had voluntarily paid the amounts of tax so agreed upon; that he had agreed the cases would be closed and no claim for refund would be prosecuted; and that, by reason of such compromise settlement, the period of limitation was allowed to expire, within which respondent could have assessed any deficiency in respect of the matters compromised. I would have decided all the above issues, contrary to the holdings of the majority, solely on the basis of the stipulation of facts (paragraphs 11-24) and the pleadings, including petitioner’s admissions in his reply to certain affirmative allegations in the respondent’s answer. My reasons for this are summarized as follows: I. Be Jurisdiction. The jurisdiction of this Court to redetermine deficiencies and find overpayments in respect to income taxes for the years 1944 and 1945, is conferred and limited by sections 272 and 322 (d) of the 1939 Code. Section 272 (a) authorizes the Commissioner to determine and give notice to any taxpayer of “a deficiency determined in respect of the tax imposed by this chapter [Chapter 1 — Income Tax]”; and it also permits the taxpayer to file a petition with this Court for redetermination of such “deficiency.” Section 272 (e) gives this Court jurisdiction to redetermine the correct amount of such “deficiency,” even if the amount so redetermined is greater than the amount determined by the Commissioner, and also to determine whether any penalty, additional amount, or addition to the tax should be assessed, if timely claim therefor is asserted by the Commissioner. And section 322 (d) provides, in substance, that if this Court finds there is no “deficiency” and further finds that the taxpayer has made an overpayment of tax in respect of the year for which the Commissioner determined the “deficiency,” it shall have jurisdiction to determine the amount of such overpayment. It is particularly significant that the term “deficiency,” as used in all of said sections which confer jurisdiction on this Court, is defined to mean the amount by which: (A) The tax imposed ~by this chapter (Chapter 1 — Income Tax) — that is to say, the correct liability as fixed by the provisions of the statute — exceeds (B) the amount of tax shown on the taxpayer's return, if any, plus any amounts assessed (or collected without assessment) as a deficiency, over the amount of any rebates made. Such a “deficiency” — which is measured on the one hand by reference to the correct statutory tax liability, and which is measured on the other hand by the amounts of tax shown on the return, after adjustment for certain assessments, collections, and rebates — is the type of deficiency which is referred to in the applicable Treasury regulations (Regs. 111, sec. 29.130-1 (e)), as an “actual deficiency as defined in section 271.” It is only where the Commissioner has determined and given notice of such an “actual deficiency,” that this Court is given jurisdiction under sections 272 and 322 (d) to redetermine the correct amount of the statutory liability and to find any overpayment of tax. On the other hand, any increase in tax computed under section 130, which is therein authorized to be assessed for any year in respect of which other assessments are barred by the statute of limitations or otherwise (such as the years 1944 and 1945 here involved), is not an “actual deficiency as defined in section 271.” Section 130 shows that such increase in tax is computed, not by adjusting all items of gross income and deductions (including such items as capital gains, charitable contributions, and salaries) which enter into the correct statutory liability, but, rather, by adjusting only particular losses attributable to a trade or business, which had previously been allowed in amounts of more than $50,000. Also, after such limited adjustment has been made, the increase in tax authorized to be assessed, under section 130, is measured not by reference to the correct statutory liability in respect of all items entering into the net income, but only by reference to “the tax previously determined” for the year involved. Moreover, section 130 (b) does not designate such increase in tax to be an actual “deficiency,” as defined in section 271; but, rather, it provides that such increase in tax “shall be considered” a deficiency “for the purposes of this section [section 130].” The applicable regulations (Regs. 111, sec. 29.130-1 (e)) state: the excess of the tax recomputed as described in subsection (b) over the tax previously determines, may be assessed and collected even though in fact there is no actual deficiency, as defined in section 271, in respect of the given taxable year. [Emphasis supplied.] Thus the Commissioner is not authorized by section 130 to make any adjustment, except the limited adjustment specifically provided therein with regard to certain business losses; no provision is made for issuance of a statutory notice respecting such limited adjustment; and no provision is made that, when a limited adjustment has been determined under section 130, this Court shall have jurisdiction to redetermine either the correct statutory liability or “the tax previously determined,” or to find any overpayment of tax. The situation is otherwise where the section 130 adjustment is made for a taxable year in respect to which assessments are not barred by limitation and could be made “without regard to section 130” (such as petitioner’s years 1946 through 1949 which were open on waiver extending to June 30, 1955); for in such situation, the adjustment of losses attributable to a trade or business may be made along with other adjustments, in determining any “actual deficiency as defined in section 271” (Regs. 111, sec. 29.130-1 (c)). The notice of deficiency in the present case served a double purpose. Insofar as it pertained to the years 1946 through 1949 which were open under waiver of the statute of limitations, it gave notice of “actual deficiencies” determined by merging the section 130 adjustments with the other miscellaneous adjustments, in the manner above mentioned; but insofar as it pertained to the years 1944 and 1945, it gave notice of increases in tax which were based only on the limited adjustments authorized to be made under section 130. The parties have stipulated (paragraph 24) that “the other adjustments reflected and explained by the statutory notice of deficiency with respect to the petitioner’s income and deductions for the taxable years 1944 and 1945 * * * represent those adjustments agreed to by the petitioner and the respondent [in the compromise settlement of 1949] * * The taxpayer’s petition, on the other hand, shows that his claim to overpayments is based on an item respecting the computation of capital gains, which is an item wholly unrelated to the limited adjustments authorized to be made under section 130. On the basis of all the foregoing, I would have held that this Court has no jurisdiction to entertain or allow petitioner’s claim to over-payments for the years 1944 and 1945. Whether such jurisdiction should be given to this Court, or be left to other courts, is a matter of policy controlled by Congress. II. Be Statute of Limitations. The majority of the Court held, near the end of that portion of its Opinion which is designated as Issue 2, that petitioner’s claim to over-payments is not barred by limitation, because the statute of limitations contained in section 275 was extended by section 130 (c). Iam unable to agree. Section 275 provides a general period of limitation on assessment, which is “three years after the return was filed”; but this is expressly made subject to the exceptions contained in section 276. This latter section, so far as here material, provides: SEO. 276. SAME — EXCEPTIONS. (b) Waiver. — Where before the expiration of the time prescribed in section 275 for the assessment of the tax, both the Commissioner and the taxpayer have consented in writing to its assessment after such time, the tax may be assessed at any time prior to the expiration of the period agreed upon. The period so agreed upon may be extended by subsequent agreements in writing made before the expiration of the period previously agreed upon. In the instant case, it has been stipulated (paragraph 20) that, “[o]n June 30, 1950, the period [as extended by waivers] expired within which the Commissioner could assess income taxes against the petitioner with respect to the taxable years 1944 and 1945, except to the extent that such taxes may be properly assessed under the provisions of section 130 of the Internal Revenue Code of 1939 if and to the extent that such section is applicable.” Section 130 contains no provision for extension of the period of limitation provided in section 275. To the contrary, it recognizes that “any increase in the tax previously determined,” which is therein authorized to be assessed, may be prevented “by the operation of any law or rule of law.” And it therefore provides, in subsection (c), for a special period of limitation for assessing such “increase.” Such special period is not measured from the date of the return for the year involved; but it is measured, rather, with respect to “the expiration of the time prescribed by law for the assessment of a deficiency for the fifth taxable year of the five consecutive taxable years specified in subsection (a).” The applicable Treasury regulations (Regs. 111, sec. 130-1 (c)) likewise give recognition to the fact that the period of limitation for determining an “actual deficiency as defined in section 271” may have expired before the provisions of section 130 became applicable. They therefore point out that assessment of increases in tax under section 130 may be made by two separate methods: One to be used in cases where “the taxable year is one in respect of which an assessment could be made without regard to section 130”; and the other to be used where the year is one (like the years 1944 and 1945 here involved) in respect of which an assessment for such year “would be prevented by any provision of law (e. g., the period of limitation upon the assessment of tax) * * *.” I would have held, on the basis of the foregoing (assuming that this Court does have jurisdiction to pass upon a claim for overpayment, based on an item wholly unrelated to the application of section 130), that any overpayment herein is barred by the statute of limitations provided in section 275; and that such statute of limitations was not extended by section 130 (c). III. Be Estoppel. The majority of tbe Court, in that portion of tlie above Opinion designated as Issue 3, rejected the plea of the Commissioner that petitioner’s claim to overpayments should be denied by application of equitable estoppel. The reasoning of the majority is that the compromise settlement agreement which the parties executed in 1949, on Form 870-TS (Modified), was not a formal closing agreement within the meaning of section 3760 (which I agree is true) ; and that equitable estoppel should not be applied, because the respondent has not established that he suffered any “detriment.” The majority said: The detriment shown in this proceeding is merely the running of the statute of limitations with regard to possible additional deficiencies relating to the years 1944 and 1945. We are not informed as to what those deficiencies, if any, might have been. * * * Several decisions of other courts are to the contrary. The case of Guggenheim v. United States, (Ct. Cl.) 77 F. Supp. 186, certiorari denied 335 U. S. 908, involved a situation almost identical to the present one. There the parties had executed a Form 870-TS settlement agreement, which contained covenants substantially the same as those contained in the agreement here involved; and, after the amounts of the taxes therein agreed upon had been paid and the statute of limitations had barred respondent from assessing any deficiency in respect of the settled issues, the taxpayer filed a claim for refund in violation of the agreement. The Court of Claims said, at page 196: At the time the agreement in this case was executed the statute had not run on the collection of further deficiencies, but when the claims for refund were filed the statute had run. It would obviously be inequitable to allow the plaintiff to renounce the agreement when the Commissioner cannot be placed in the same position he was when the agreement was executed. A clear case for the application of the doctrine of equitable estoppel exists and should be applied. * * * The Court of Claims, in said case, also gave consideration to Botany Worsted Mills v. United States, 278 U. S. 282. In this case, the Supreme Court stated that formal closing agreements, such as those now provided for in section 3760 of the 1939 Code, provide the exclusive method for compromising tax controversies; but the Supreme Court further stated therein, that it was not determining whether an informal agreement “may when executed become, under some circumstances, binding on the parties by estoppel * * Other cases in which estoppel was applied in situations similar to the present are Baldwin v. Higgins, not officially reported (S. D. N Y., 1937; 19 A. F. T. R. 1341, 37-2 U. S. T. C. par. 9434) affirmed on other grounds (C. A. 2) 100 F. 2d 405; Schneider v. Kelm, (D. Minn.) 137 F. Supp. 871, affirmed on other grounds (C. A. 8) 237 F. 2d 721; Girard v. Gill, (N. D. N. C.) 142 F. Supp. 770, affirmed per curiam (C. A. 4) 234 F. 2d 166; and Daugette v. Patterson, (C. A. 5) 250 F. 2d 753, affirming (N. D. Ala.) — F. Supp. —. In the Baldwin case, supra, the District Court said: The waiver and consent agreement * * * is a binding contract and it was accepted and acted upon by the Commissioner. * * * Furthermore, it would seem unconscionable and inequitable to permit the plaintiff to sustain a recovery based on his own broken promises. * * * In the Schneider case, supra, it was said, at page 876: If this would not create an estoppel, we would have the anomaly that taxpayers, if successful, would still retain the fruit of their broken bargain. And in the recent Daugette case, supra, the Court of Appeals for the Fifth Circuit not only applied the doctrine of estoppel, but also reviewed and distinguished most of the cases which have been relied upon by the majority of this Court, in its above Opinion. It now is well settled, that equitable estoppel or estoppel in pais is applied by courts of law, as well as in equity. Wehrman v. Conklin, 155 U. S. 314, 327; 19 Am. Jur. 831; 3 Pomeroy, Equity Jurisprudence, p. 181 (5th ed.). Also, the doctrine of equitable estoppel has been applied frequently by this Court, and by Courts of Appeals on the review of decisions of this Court. See for example: Aurore B. Benoit, 25 T. C. 656, 668-669, and Lucas v. Hunt, (C. A. 5) 45 F. 2d 781. See also Fairmont Aluminum Co., 22 T. C. 1377, affirmed (C. A. 4) 222 F. 2d 622, certiorari denied 350 U. S. 833, in which the doctrine of collateral estoppel was discussed and applied. By reason of all the foregoing, I respectfully dissent.