Court Opinion

ID: 9452501
Source: CourtListenerOpinion
Date Created: 2023-08-04 17:42:18.575724+00
Date Added: 2024-06-11T17:33:14.227622
License: Public Domain

ON REHEARING
Before STALEY, Chief Judge, and BIGGS, McLAUGHLIN, KALOD-NER, HASTIE, FORMAN, SMITH, FREEDMAN, and SEITZ, Circuit Judges.
OPINION OF THE COURT
FORMAN, Circuit Judge.
Following the filing of an opinion on September 17, 1965 by the panel that heard the above appeal a petition for rehearing was presented by the appel*360lant.1 Argument on the appeal was heard by the original panel. Subsequently reargument was ordered before the court en banc, with the parties addressing themselves particularly to the question : whether the compromise agreement with the Commissioner of Internal Revenue into which appellant’s decedent entered can be adjudged an effective waiver of the statute of limitations on the assessments ?
Upon such reargument the decision reached by the panel was found to be reinforced by the following considerations :
The petition for rehearing now injects into this appeal issues neither raised before the District Court during the pendency of the action nor in the appeal herein, namely:
(1) Whether the 1954 deficiency assessments on taxpayer’s 1948 and 1949 tax returns (which together with the assessment for 1950 formed the subject of the compromise agreement involved in this case) were invalid as assessed beyond the three year statute of limitations period, 26 U.S.C. § 6501(a); and
(2) Whether the waiver of this statute found in the compromise agreement is invalid as it was entered into subsequent to the running of the three year period, 26 U.S.C. § 6501(c) (4)? Appellant challenges neither the validity of the deficiency assessment made on the 1950 tax return nor the propriety of the Government’s demand to the extent of the amount stated in the compromise agreement. '
No serious denial is made that Paragraph 5 of the Government’s complaint and both Paragraph 5 and the Third Affirmative Defense in the answer of appellant’s predecessor all relate to a pleading of the six year statute of limitations for commencement of suit (26 U.S.C. § 6502(a) (l)),2 rather than to a pleading of the three year limitations period for the filing of assessments (26 U.S.C. § 6501(a)).3 It is plain that there was no intention, prior to the adverse decision of this court, to raise the three year statutory bar to the assessment of taxes for 1948 and 19494 and appellant’s suggestion that now the pleadings should be permitted to be so amended falls of its own weight. Such an approach is not helpful for the law governing the existent offer in compromise is dispositive of the case adversely to the appellant.
 Section 7122 of Title 26 authorizes the Secretary of the Treasury or his delegate to compromise any civil or criminal case arising under the internal revenue laws prior to, or after, reference to the Department of Justice for prosecution or defense. In the pattern of the Internal Revenue Code this section has no relationship to, or dependency upon, 26 U.S.C. § 6501(a) which prescribes the three year statute of limitations for the assessment of taxes. Staten Island Hygeia Ice & Cold S. Co. v. United States,5 appears persuasive of the proposition that a compromise agreement and *361the waiver of the statute of limitations incorporated therein may be effective even if entered into beyond the limitations period. As stated by the Second Circuit, supra at 70:
“ * * * An agreement of compromise, however, is not an agreement ‘which would be within the provisions of subdivisions (c) or (d)’ [now § 6501(c) (4)]. They relate respectively to waivers extending the period for assessment and collection. * * * Compromise agreements are authorized by R.S. § 3229 (26 U.S.C. § 1661 and note) [now § 7122]. This contains no requirement that the compromise must be executed before the tax is barred by the statute of limitations, and it would be quite unjustifiable to find in section 278(f) [a transitional section, replaced by § 6501(a)] an expression of congressional intent to add such a condition.”
In Staten Island Hygeia, the Government was only attempting to enforce the amount of the compromise in the face of the statute of limitations defense, while in the instant case the Government is seeking to invoke a provision of the compromise agreement authorizing suit for the entire amount of the pre-compromise tax liability, because of the default in payment of the compromised amount. This difference is inconsequential for if the running of the statute of limitations were to be considered a bar to the assessment of taxes unless that period were extended prior to its running, a compromise agreement entered into subsequent to its running would not be effective as to even the compromised amount. A fortiori, if the expiration of the statutory period is not a bar to the enforcement of the amount of the compromise even though the statute was waived only subsequent to its running, that statute of limitations may not with any sense of logic be raised to negate another provision of the compromise provision providing for a suit for the full amount of the pre-compromise liability in case of default on the compromised amount. All provisions of the compromise have the same legal force and effect vis-a-vis the statute of limitations defense. The statute of limitations has been waived, therefore, as to all provisions of the compromise agreement.
To give other than this legal effect to a compromise agreement would distort both the compromise as a contract and the place of the contract in the scheme of the Internal Revenue Code. In return for the Government’s accepting less than the taxes owing, generally due to a realistic appraisal of a taxpayer’s financial situation, a taxpayer agrees to pay the compromised amount, usually in set installments. If a taxpayer employing the statute of limitations defense could defeat a suit for the full amount of the precompromise liability when there is a default in the installments, the taxpayer’s obligations would be hollow ones, and mutuality would be absent from the contractual relationship.
As to the statutory scheme, the 26 U.S.C. § 6501(c) exceptions to the three year statute of limitations provide the very reasons why a taxpayer would enter into a compromise agreement subsequent to the running of the statute of limitations. Fearing that the three year period may not be applicable and that the assessment may in fact have been timely in face of the exceptions, it is reasonable to infer that a taxpayer would be willing to waive the three year period in return for a reduction in the amount owing the Government.
Therefore, all provisions of a compromise effected under 26 U.S.C. § 7122 are properly to be considered as not being affected by the statutory bar of 26 U.S.C. § 6501. The independence of 26 U.S.C. § 7122 and compromises authorized by it fit neatly into the statutory scheme. On these considerations we conclude that the judgment of the United States District Court for the Eastern District of Pennsylvania should be affirmed.

. Upon the death of Mrs. Sara Saladoff during the pendency of this appeal Mr. Bernard Feinberg was substituted as administrator of the estate of Joseph Sala-doff, deceased, and as appellant herein.

. “Where the assessment of any tax imposed by this title has been made within the period of limitation properly applicable thereto, such tax may be collected by levy or by a proceeding in court, but only if the levy is made or the proceeding begun—
“(1) within 6 years after the assessment of the tax, * * * ”

. “Except as otherwise provided in this section, the amount of any tax imposed by this title shall be assessed within 3 years after the return was filed (whether or not such return was filed on or after the date prescribed) or, if the tax is payable by stamp, within 3 years after such tax became due, and no proceeding in court without assessment for the collection of such tax shall be begun after the expiration of such period.”

. Indeed in appellant’s predecessor’s brief ( on this appeal she maintained her readiness to pay the full amount due under the compromise agreement but contested only a summary judgment for the full amount of the tax.

. 85 F.2d 68 (2 Cir. 1936).