Tax Refund
Obtained
[54-2 USTC
¶9695]I. Newton Brozan and Aaron Holman, doing business as Brozan &
Holman, Plaintiffs v. United States of America, Defendant
In
the United States District Court for the Southern District of New York,
Civ. 93-259, 128 FSupp 895, November 16, 1954
[1939 Code Sec. 3672--similar to 1954 Sec. 6323]
Assessment: Collection: Liens: Attorneys' fees.--Plaintiff
attorneys prosecuted a claim for refund of excess profits taxes, which
refund was made. Later they claimed an inaccurate computation of
interest, and this claim was also paid. The Commissioner later
determined that the client owed the government withholding and federal
unemployment taxes for certain periods, and applied the amount of the
checks, which had not been collected, as an offset. The government's
motion to dismiss the attorneys' claim for their fees was granted,
because their claim, like their client's, was always subject to the
government's right of setoff, which is not limited by the date of entry
of assessment or overassessment.
Benjamin Arac,
405 Lexington Avenue
,
New York
, N. Y., for plaintiffs. J. Edward Lumbard, United States Attorney for
the Southern District of New York, United States Court House, Foley
Square, New York, N. Y. (Harold R. Tyler, Jr., Assistant U. S. Attorney,
of Counsel), for defendant.
Opinion
CLANCY,
District Judge:
This is an
action brought by attorneys to impress and enforce a lien on Treasury
funds. In September, 1943, the plaintiffs were retained to prosecute a
claim in the Internal Revenue Bureau for refund of excess profits taxes
for the years 1940 through the year 1944. They rendered services and on
June 8, 1951
the Director of Internal Revenue in another district published an
overassessment list showing that the client was entitled to considerable
refunds. The refund was paid to the client then or shortly after.
Subsequently plaintiffs claimed an inaccurate computation of the
interest and with this claim the Director apparently agreed, so that on
January 26, 1953 he issued two checks drawn to the client's order and
mailed them to the plaintiffs, the complaint alleges, on February 16,
1953. The Director later determined that the client owed the Government
withholding and Federal Unemployment Taxes for certain periods during
1952 and 1953 and applied the amount represented by the checks, which
had not been collected, as an offset against this indebtedness. Payment
of the checks was stopped so that when they were presented for payment
on
September 10, 1953
, they were not honored. The lien the plaintiffs claim is about half the
amount of the checks. The complaint says the Treasurer had notice of
plaintiffs' lien but there is no allegation of when or how notice had
been given. The Government moves to dismiss.
[Payment
Was Not Made]
Mailing the
checks to the attorney did not constitute payment. Plaintiffs make no
such claim. There never was an unqualified acceptance of the checks by
the payee. Seemingly he never came into possession of them until after
accomplishment of the setoff and the issuance of the stop payment order.
The fact that the checks represent interest is not remarked. The
interest was part of the taxpayer's claim.
The decision
in Malman v. U. S., 202 Fed. (2d) 483, is presented by the
plaintiffs as authority requiring the denial of the motion. That case
involved unpaid monies due on a contract with the attorney's client and
the Court held that he was suing as equitable assignee of his client's
contract claim and was properly before the Court. The plaintiff's client
in this action was not a contractor. His claim was in the nature of one
for money had and received. 28
U. S.
C. A. 1346; Moses v. MacFarian, 2 Burr. 1005; Roybark
v.
U. S.
, 104 Fed. Supp. 7059 [759] [52-1 USTC ¶9333]; Bull v. U. S.,
295
U. S.
247 [35-1 USTC ¶9346]. The Treasury is not a debtor nor was the client
a creditor. The claim was at all times subject to the Treasury's
statutory right to setoff. As assignees plaintiffs stand in no better
case than did their client who was always, until payment, subject to the
Treasury's setoff. Whatever right they acquired was inchoate until the
fund due was established by their clients acquittance of any obligation
to the
United States
. Matter of Albrecht, 132 Misc. 713; Wardman v. Leopold,
85 Fed. (2d) 277-281 [36-2 USTC ¶9348]. Plaintiffs believe their lien
attached when the overassessment went on the Director's rolls. The only
effect in law of the overassessment was to reduce the Government's lien
on their client's property for the taxes then in dispute. Its enrollment
did not then state an account or create a debt. We find no authority
that limits the right to setoff by the date of entry of assessment or
overassessment. Such a notion seems to the Court a contradiction in
terms since the exercise of setoff would in practice have meaning or
value only then and thereafter. We hold that the complaint does not
state a claim.
Motion
granted.
