Court Opinion

ID: 9452500
Source: CourtListenerOpinion
Date Created: 2023-08-04 17:42:18.570649+00
Date Added: 2024-06-11T17:33:14.224020
License: Public Domain

FORMAN, Circuit Judge.
This is an appeal from the judgment of the United States District Court for the Eastern District of Pennsylvania.1 Only a sketchy reference to the factual background of the case is required for it is amply detailed in the reported opinion of the District Court.2
The United States had assessed the late Joseph Saladoff with income tax liability of $22,303.16 for the years 1948, 1949 and 1950. On November 9, 1955, Mr. Saladoff offered to compromise his liability in writing on the Government Official Form 656C. It provided for the payment of $15,000, of which $7,500 was to be paid within one year from the date of the acceptance and the balance in installments of $300 each month thereafter with interest at six percent on all deferred payments until liquidation of the amount of the compromise. One of the provisions contained in the offer was an agreement by Mr. Saladoff that upon its acceptance, he should have no right in the event of default in any payment of *354principal or interest due, to contest in court or otherwise, the amount of liability sought to be compromised and that the Commissioner of Internal Revenue had the option to immediately sue for the entire unpaid balance of the offer or to disregard it and collect by distraint or suit the balance of the liability sought to be compromised after applying all amounts previously paid.3
On November 15, 1955 the Director of Internal Revenue at Philadelphia received another agreement signed by Mr. Saladoff as a further consideration for the acceptance of the offer in which he committed himself, in addition to the compromise amount of $15,000, to pay, in each of the years 1955 to 1964 inclusive, twenty percent of his annual income in excess of $3,500 and not in excess of $5,000; thirty percent of any excess of $5,000 and up to $10,000; and fifty percent in excess of $10,000. It was also stipulated that he would make annual statements of his income and that the amount of the offer and additional installments should not exceed the liability covered by the offer plus accrued interest to the dates of payments.
On April 18, 1956 the Government accepted the offer in compromise as supported by the collateral agreement. Mr. Saladoff made an immediate payment of $3,500. Thereafter, between July 30, 1957 and May 24, 1961, he made twenty-eight installment payments in amounts ranging from $50.00 to $538.64 each, aggregating $4,468.64, which, with the payment of $3,500, totalled $7,968.64. Except for the $3,500 payment only five installments were in amounts of $300 or more — four were for $200, one for $80, another for $50, and the balance were $100 each.
The record shows only one written communication from the Government to Mr. Saladoff concerning his delinquency in meeting his installments. It was a letter from the District Director of the Internal Revenue Service at Philadelphia dated July 24, 1959 informing him that the Collection Division felt that the payments on his offer in compromise were insufficient and suggesting that he call the office for an appointment to make new arrangements.4 We know only that thereafter payments were made at the rate of $100 per month except for November and December of 1959 when they were $200 each; that no payment was made in January and February of 1960 and that the last remittance of $50 oe-*355curred May 24, 1961, thirteen days before Mr. Saladoff’s death on June 6, 1961.
On October 12,1961 the District Director addressed a letter to the appellant noting that only $7,968.64 had been paid on account of the offer in compromise. The letter declared the offer in default and terminated.5
A complaint was filed on February 7, 1963 by the United States against Mrs. Saladoff as Administratrix of the Estate of Joseph Saladoff, Deceased, in the United States District Court for the Eastern District of Pennsylvania alleging that after the reflection of credits amounting to $7,968.64 there was due the United States a balance of unpaid income taxes of the decedent for the years 1948, 1949 and 1950 in the amount of $23,754.97. It sought judgment therefor with interest from May 31, 1962 and costs. The complaint was amended and answers were filed to the original and amended complaints. The United States thereafter filed a motion for summary judgment in the sum of $14,338.22 together with interest and costs. A motion also for summary judgment was made by the administratrix for dismissal of the action.
Argument was heard on both motions at which the Administratrix conceded that judgment should be entered in favor of the United States but only for $7,-031.36, the balance she admitted to be due under the offer in compromise. The District Court on June 26, 1964 granted the motion for summary judgment of the United States for $14,338.22 and denied the motion of the Administratrix.6 In the order therefor he gave the United States leave to file an appropriate motion for interest and costs. Pursuant thereto and upon written admission by the Ad-ministratrix of the accuracy of the interest and costs statement of the United States another order was filed on July 22, 1964 adjudging that the Administra-trix pay interest of $6,733.40 and costs of $38.24. This appeal is from those orders for judgment.
*356The argument of the appellant raises the basic question: When the United States accepted the taxpayer’s payments in amounts smaller than called for by the installment schedule of the compromise agreement for over five years, could it, without due notice, declare a default? Her answer is in the negative. She seeks to support it by reference to a number of cases and texts, a detailed analysis of which would be purposeless here. Suffice it to say, none involves the Government and the collection of its taxes; rather, they refer to contractual relationships between private parties. We do not find them apposite.
The only authorization for the acceptance of a lesser amount of income tax than that duly assessed is found in the provisions of the Internal Revenue Code of 1954 7 and in the Treasury Regulations promulgated thereunder.8 Mr. Saladoff sought the compromise of his income taxes for the years 1948, 1949 and 1950 on one of the grounds covered by the regulations, namely, doubt as to the collectibility of the indebtedness.9 Upon the acceptance of the offer a contract was formed binding the Government to refrain from pressing him for his taxes by either distraint or suit as long as he performed his undertaking to pay the stipulated installments. After the very first installment he seldom met the required payments. It is a fact that the Government accepted the lesser amounts without objection save for its letter of July 24, 1959 10 and even thereafter it continued to accept some twenty payments of sums less than those called for by the schedule. Finally Mr. Saladoff died and the payments ceased altogether, his estate having made none.
The appellant urges that the tenor of the letter of July 24, 1959 is such as to lead to the inference that the Government, in any event, would have granted Mr. Saladoff more favorable terms of payment had he answered it and that its conduct in accepting many small payments thereafter proves that the Government, in effect, modified the agreement or estopped itself from now claiming the original taxes, particularly since no notice that it would so act had ever been given to Mr. Saladoff or his estate. We cannot agree with appellant’s theory. Indeed, the statement in the letter notifying him — “The Collection Division feels that payments are insufficient, therefore new arrangements should be made.” — is as readily susceptible of the interpretation that more stringent compliance would be required as more lenient.
When the Government declared the compromise agreement terminated, the time for the liquidation in full of the compromise undertaking had long since expired and only approximately half the compromised indebtedness had been paid. Moreover, a period of over four months elapsed after Mr. Saladoff’s death in which no payment whatever was forthcoming from the estate. As was aptly held by Judge Higginbotham the failure of the Government to insist upon installments in the specified amounts or to give notice that unless they were so made the compromise would be terminated worked neither a waiver, modification of its terms, nor an estoppel to the reinstitution of the original assessment. The collection of revenue by the Government is such a collossal operation that it may be expected that incidents of acceptance of smaller than specified payments over eyen *357a period as long as the one in the case at bar can occur. Actions on the part of landlords and mortgagors in systematically accepting less than contractual payments are not to be considered on a par with the Government’s collection of its revenue.
The surmise of the appellant is very probably accurate that the Government’s declaration of termination and its insistence upon the liquidation of the unpaid balance of the taxes were precipitated by the settlement by the appellant of a suit concerning property of Mr. Saladoff which resulted in possession by the estate of substantial funds upon which the unpaid taxes could fasten. The record is not clear as to the amount of funds which have come into the hands of the appellant but her very resistance to the Government’s declaration of default and demand for liquidation of full liability raises the reasonable inference that the funds are now available to wholly or substantially discharge the entire tax liability. The taxing authorities would certainly have been remiss in their duties had they not sought to enforce the breached compromise agreement, the collateral supplement to which made quite clear that the Government was not unqualifiedly forgiving Mr. Saladoff his 1948,1949 and 1950 taxes. Any feeling entertained by him or the appellant that it was within the power of the taxing authorities by their conduct to waive or modify the terms of the method by which he was to liquidate his taxes was and is badly conceived. The method by which the taxing authorities could enter into compromise agreements with taxpayers was restricted by the limitations placed upon them by the Internal Revenue Act and the Regulations.
The appellant calls attention to the comment found in the dissenting opinion in Federal Crop Ins. Corp. v. Merrill11 to the effect that those who deal with the Government should do so fairly and that the Government should reciprocate similarly. We find the remarks in the majority opinion more to the point when it charged anyone entering into an agreement with the Government with taking the risk of having accurately ascertained that those who purport to act for the Government stay within the bounds of their authority.12
Appellant’s lament that she has worked hard to enhance the estate of which much or even all will now be swallowed by the Government’s tax claims may inspire sympathy but it hardly furnishes a legal bolster for her resistance to the Government’s demand for satisfaction of the entire tax indebtedness. By the clear language of the offer in compromise Mr. Saladoff agreed that, upon his default, *358the Commissioner of Internal Revenue could terminate the compromise agreement. The default is undisputed. The Government cannot be held to the “warning shot” the appellant suggests is required here. And the fact that the Government accepted numerous payments in less than the agreed scheduled amounts did not modify the clear and precise obligation of the agreement.
The appellant further submits that a reading of the agreements in their entirety commands that they be construed as distinguishing “between the smaller amount which was agreed to and the larger amount which the Government originally claimed.” Under such construction she contends it is clear that the Government has the option “either to accelerate the payments under the compromise agreement with no right to defend as to the agreed compromised amount or to completely terminate the compromise agreement and to sue for the larger amount claimed by the Government just as if there had been no compromise. * * * ” To such a claim for the larger amount the appellant insists she should now have the opportunity to defend and calls upon United States v. Lane13 for support, a case also cited by the appellee and considered by the District Court. That case has striking similarity to the case at bar because it is based upon an offer in compromise on Form 656C and a collateral agreement, identical with the offer on Form 656C and the collateral agreement which Mr. Saladoff signed, except that the amounts of taxes, compromised figure and installment payments were different. To be sure there was a different turn in Lane for there the taxpayer had made all of the installment payments required under the compromise agreement. It was by reason of the failure of the taxpayer Lane subsequently to file annual statements of his income as required by the terms of the collateral agreement that the Government sued him for the unpaid balance of his assessed taxes over and above the compromised amount which he had paid. This distinction, however, does not detract from the applicability of the principles enunciated by Chief Judge Tuttle in that case, which may be quoted with equal cogency in this case:
“In the present case, the contracting parties expressed their mutual intention in clear and unmistakable terms. The collateral agreement specifically stated that the default provisions of the main agreement on Form 656-C were to be applicable should the taxpayer fail to perform his obligations with respect to the making of annual payments and filing of sworn statements of annual income. Form 656-C, in turn, expressly provided that the Commissioner, upon default by the taxpayer, could terminate the compromise agreement and proceed to collect the unpaid balance of the original tax liability. This language is so precise, and the intention which it manifests is so evident, as to leave no doubt that the course of action taken by the Government here was fully authorized by the compromise agreement.
“There was nothing illegal, immoral or inequitable in the compromise agreement. It did not provide for any ‘forfeiture’. By express provision, the amounts to be paid under the compromise agreement, including both the Form 656-C and the collateral agreement, could not exceed the aggregate amount which the taxpayer conceded that he owed the Government from the start. By allowing the Government to revive the taxpayer’s original liability, the taxpayer will not forfeit the amounts he has already paid, for those amounts will be applied to reduce the original liability. The agreement was precise, it was fair, and it was freely consented to by the taxpayer. There is no reason why it should not be enforced as written.”14
*359The appellant also stresses that error was committed in awarding summary judgment in favor of the Government in the face of her denial in her answer that she was liable for the taxes for which the Government sued. Such a bare assertion in her answer and an equally abstract denial of any liability greater than the amount of the compromise made in her affidavit opposing the motion for summary judgment does not now raise a genuine material issue of fact sufficient to thwart the granting of the motion for summary judgment. At the time this motion was made (February 3, 1964) the amendment to Federal Rule 56 of Civil Procedure was in effect (July 1, 1963). The amending language is singularly pertinent here:
“When a motion for summary judgment is made and supported as provided in this rule, an adverse party may not rest upon the mere allegations or denials of his pleading, but his response, by affidavits or as otherwise provided in this rule, must set forth specific facts showing that there is a genuine issue for trial. If he does not so respond, summary judgment, if appropriate, shall be entered against him.” 15
For a clarifying discussion of the effect of the amendment see the recent decision of this court in Robin Construction Company v. United States.16
In the face of the affidavits and documents supporting the Government’s motion for summary judgment for the unpaid balance of the income taxes assessed for the years 1948, 1949 and 1950, appellant’s opposing affidavit sets forth no specific facts showing that there was any genuine issue for a trial as to the correctness of the income tax assessments against Mr. Saladoff for the years in question.17 Her affidavit, it is true, contained numerous denials that there had been a default in the payments due under the compromise agreement and that the unpaid balance of taxes was due, all based on theories of modification or waiver of the terms of the compromise agreement or by estoppel. These assertions, however, raised only issues of law and they were properly adjudicated in the District Court.
In addition to the matters discussed above we have examined all other points raised by appellant. The summary judgment emerges impervious to any of the appellant’s attacks. Hence the order of the United States District Court for the Eastern District of Pennsylvania of June 26, 1964 granting the motion of the Government for summary judgment in its favor and denying the motion of the appellant for summary judgment of dismissal of the complaint will be affirmed.18 The order of the District Court of July 22, 1964 covering the computation of interest on the judgment will also be affirmed.

. On March 3, 1965, during the pendency of this appeal, a suggestion of the death of Mrs. Sara Saladoff was filed and Mr. Bernard Feinberg was substituted for her as administrator of the estate of Joseph Saladoff. This opinion will be entitled as in the original cause but the title of the judgment in this court will show the substitution.

. United States v. Saladoff, 233 F.Supp. 255 (1964).

. The pertinent provision of the offer in compromise is as follows:
“As a part of this offer, it is agreed that upon notice to the proponent of the acceptance of this offer in compromise of the liability aforesaid, the proponent shall have no right, in the event of default in payment of any installment of principal or interest due under the terms of the offer, to contest in court or otherwise the amount of the liability sought to be compromised, and that in the event of such default the Commissioner of Internal Revenue, at his option, (1) may proceed immediately by suit to collect the entire unpaid balance of the offer, or (2) may disregard the amount of such offer and apply all amounts previously paid thereunder against the amount of the liability sought to be compromised and may, without further notice of any hind, assess and/or collect by distraint or suit (the restrictions against assessment and/or collection being hereby specifically waived) the balance of such liability. (This paragraph shall not apply where a surety bond is given to secure payment of the amount offered in compromise.)”

.
“U.S. Treasury Department Internal Revenue Service
District Director
1300 Gimbel Building Philadelphia 7, Pa.
July 24, 1959
Phone: 3-2400 In Reply Refer To
Ext. 431 Code C:A:AC:
Joseph Saladoff
1319 Duval St.
Phila., Pa.
Re: Offer in Compromise
Dear Mr. Saladoff:
We suggest you telephone Mr. Eley for an appointment before August 15, 1959 regarding new arrangement for payments on your Offer in Compromise.
The Collection Division feels that payments are insufficient, therefore new arrangements should be made.
Very truly yours,
E. A. McGinnes
District Director.”

.
“U.S. Treasury Department Internal Revenue Service
Office of the District Director Post Office Box 269 Philadelphia, Pa.
Oct. 12, 1961
In Reply Refer To Au:F:19:LFE
Sarah R. Saladoff, Administratrix
Estate of Joseph Saladoff
1319 Duval Street
Philadelphia, Pennsylvania
Dear Mrs. Saladoff:
This refers to a letter dated April 18, 1956, in which Joseph Saladoff was advised that his installment offer of $15,-000, together with waiver of refunds, interest and default agreements, and other provisions on Form 656-0 to compromise his liability for income taxes for the years 1948, 1949 and 1950, had been accepted upon the terms proposed.
Under the terms of his offer, the sum of $15,000 was to have been paid as follows:
$7,500 within one year of the date of acceptance of the offer, plus $300 per month beginning on or before the 10th day of the 13th month after notice of acceptance of the offer and on each successive month thereafter until paid in full.
The records of this office indicate that only $7,968.64 has been paid on the offer. Since Joseph Saladoff failed to make payments in accordance with the terms of the offer as set forth in the acceptance letter, there is an absence of mutuality in the intention of the parties and, therefore, no compromise was effected. The arrangements looking to the compromise of Joseph Saladoff’s tax liability are hereby terminated.
The default agreement contained in the offer provides that in case of default the Commissioner of Internal Revenue at his option, may disregard the amount of such offer and apply all amounts paid thereunder against the liability sought to be compromised and may, without further notice of any kind, assess and/or collect by levy or suit (the restrictions against assessment and/or collection being specifically waived) the balance of such liability.
The amount paid on the offer will be applied against the liability of Joseph Saladoff.
Very truly yours,
E. A. McGinnes,
District Director.”

. Based on the opinion cited in note 1 supra.

. “The Secretary or his delegate may compromise any civil or criminal case arising under the internal revenue laws prior to reference to the Department of Justice for prosecution or defense; * * 26 U.S.C. § 7122(a) (1965).

. “ * * * As a condition to accepting an offer in compromise, the taxpayer may be required to enter into any collateral agreement or to post any security which is deemed necessary for the protection of the interests of the United States.” 26 C.F.R. § 301.7122-l(d) (3) (1961).

. In his offer of compromise he represented that he was “almost insolvent as he has assets with a forced sale value of approximately $9,500.00 whereas actual and estimated liabilities amount to almost $42,000.00.”

. See note 4 supra.

. Justice Jackson said in this dissent:
“ * * * It is very well to say that those who deal with the Government should turn square corners. But there is no reason why the square corners should constitute a one-way street.” 332 U.S. 380, 387-388, 68 S.Ot. 1, 5, 92 L.Ed. 10 (1947).

. Justice Frankfurter speaking for the majority stated:
“The ease no doubt presents phases of hardship. We take for granted that, on the basis of what they were told by the Corporation’s local agent, the respondents reasonably believed that their entire crop was covered by petitioner’s insurance. And so we assume that recovery could be had against a private insurance company. But the Corporation is not a private insurance company. It is too late in the day to urge that the Government is just another private litigant, for purposes of charging it with liability, whenever it takes over a business theretofore conducted by private enterprise or engages in competition with private ventures. Government is not partly public or partly private, depending upon the governmental pedigree of the type of a particular activity or the manner in which the Government conducts it. * * * Whatever the form in which the Government functions, anyone entering into an arrangement with the Government takes the risk of having accurately ascertained that he who purports to act for the Government stays within the bounds of his authority. The scope of this authority may be explicitly defined by Congress or be limited by delegated legislation, properly exercised through the rule-making power. * * * ” (Footnote omitted.) Id. at 383-384, 68 S.Ct. at 2-3.

. 303 F.2d 1 (5 Cir. 1962).

. Id. at 4.

. See 6 Moore, Federal Practice, 1964 Supp., p. 79 (2d ed. 1953).

. 345 F.2d 610, 613-615 (1965).

. In the motion for summary judgment made by the appellant (as defendant) for dismissal of the action she, herself, asserted that “there is no genuine issue as to any material fact and that the defendant is entitled to judgment as a matter of law.”

. The disposition of the case by the District Court on the motions for summary judgment on the first count of the amended complaint made it unnecessary to reach any issue on the second count in which the Government alleged fraud upon the part of Mr. Saladoff in inducing the acceptance of the compromise by misrepresenting his lack of resources.