[95-1 USTC ¶50,224] In re Dutch Masters Meats, Inc., Debtor. Dutch Masters Meats, Inc., Plaintiff v. United States of America, Department of Treasury, Internal Revenue Service and Meridian Bank, Defendants

U.S. Bankruptcy Court, Mid. Dist. Pa., 1-91-02797, 3/3/95, 182 BR 405

[Code Secs. 7121 , 7122 , 7421 and 7501 ]

Closing agreements: Material misrepresentation: Reliance: Unauthorized agreement: Compromises: Equitable estoppel: Suits to restrain assessment: Compromise offer: Liability for taxes withheld.--

A debtor was denied relief under the Anti-Injunction Act to enjoin the IRS from collecting employment tax deficiencies from the period after a Chapter 11 plan of reorganization because the debtor failed to show that the government could not prevail on the merits. An oral agreement between the debtor and an IRS agent concerning a payment plan for the delinquent taxes was not enforceable. It was not in writing, and the agent lacked authority to bind the IRS . Additionally, the debtor's reliance on the agreement did not equitably estop the IRS from collecting the delinquent taxes. The agreement to forgo collection without the proper authority was a material misrepresentation by the agent. The debtor's reliance on the agreement was reasonable even though it was on constructive notice of the agent's lack of authority. However, the debtor did not establish any detriment based on reliance. The debtor still would have been subject to levy and execution if it had not relied on the agreement. Finally, although the agent's failure to warn the debtor that he lacked authority to bind the IRS was a material misrepresentation, it was not affirmative misconduct. The debtor was a sophisticated commercial debtor and was on constructive notice of the agent's lack of authority.

Lawrence G. Frank, 2032 N. 2nd St. , Harrisburg , Pa. 17102 , for debtors. Richard Placey, 232 N. 2nd St. , Harrisburg , Pa. 17101 , for debtor. Kurt Althouse, Bingaman, Hess, Coblentz & Bell, 601 Penn St. , Reading , Pa. 19603-0061 , for U.S.

Memorandum

 

WOODSIDE, Chief Bankruptcy Judge:

Before me is the Complaint of Dutch Masters Meats, Inc. ("Dutch Masters" or the "Debtor"), requesting injunctive relief against the Internal Revenue Service (the " IRS " or the "Service") and Meridian Bank (" Meridian "). The Complaint seeks primarily to enjoin the IRS from taking action to collect post-confirmation employment tax deficiencies from the reorganized Debtor. For the reasons stated below, the relief requested in the Complaint will be denied.

Procedural History

 

Dutch Masters filed its voluntary petition for relief under Chapter 11 of the Bankruptcy Code on November 19, 1991. On September 23, 1992, I issued an Order confirming its Chapter 11 plan of reorganization.

On October 31, 1994, Dutch Masters initiated the instant adversary proceeding by complaint; Dutch Masters also filed a motion for temporary restraining order and a motion for a preliminary injunction. I granted Dutch Masters' request for a temporary restraining order on November 1, 1994.

On November 3, 1994, the IRS moved for dismissal of the complaint. Meridian filed an Answer to the Complaint on November 15, 1994. I conducted a hearing on the request for a preliminary injunction on November 7, 1994. Dutch Masters and the IRS subsequently submitted briefs. Dutch Masters' request for a preliminary injunction and the IRS ' motion to dismiss the Complaint are both now ready for disposition.

Factual Findings

 

1. Dutch Masters filed a First Amended Plan of Reorganization (the "Plan") on July 10, 1992. Article VIII of the Plan reads in pertinent part:

The Court will retain jurisdiction until this plan has been fully consummated, including, but not limited to the following purposes:

. . . .

6. Entry of an order including injunctions necessary to enforce the title rights and powers of the debtor-in-possession and to impose such limitations, restrictions, terms, and conditions of such title, rights and powers as this court may deems necessary.

2. The Plan was confirmed by Order of this Court on September 23, 1992.

3. Subsequent to the confirmation of the Plan, Dutch Masters failed to pay certain trust fund taxes to the IRS . At the time of the filing of the complaint, Dutch Masters' post-petition trust fund tax delinquency was approximately $140,000.00.

4. Dutch Masters reached an oral agreement with IRS Revenue Agent Jeff White regarding the delinquency in trust fund taxes. Under this agreement, Dutch Masters was to make monthly payments of $14,000.00 to the IRS for the months of October and November 1994. The parties intended to discuss the payment of the balance of the delinquency at the end of November. In return, the IRS would refrain from taking action on the unpaid taxes through the end of November.

5. Dutch Masters sent a letter to Agent White confirming this arrangement on September 28, 1994 . The IRS does not appear to have responded in writing to this letter.

6. On September 30, 1994 , the IRS filed a lien against Dutch Masters for the delinquent taxes.

7. Dutch Masters sent the IRS the first payment of $14,000.00 in the month of October, pursuant to the agreement.

8. After the first $14,000.00 payment, the IRS informed Dutch Masters that the agreement entered into with Agent White had been rejected by the Service. The IRS advised Dutch Masters that it intended to levy on the debtor's accounts receivable.

9. The IRS ' actions have caused Meridian Bank, a significant secured creditor of Dutch Masters, to deem its loan to be in default. Meridian Bank has indicated its intention to enforce its lien.

10. Since the filing of the instant complaint, Dutch Masters has failed to pay further trust fund tax obligations to the IRS .

11. If the IRS and/or Meridian Bank execute their liens against Dutch Masters, it will be unable to continue operation.

Discussion

 

I. Jurisdiction over Post-Confirmation Request for Injunctive Relief.

 

The IRS first argues that this court lacks jurisdiction over this matter, as it concerns a post-confirmation debt. Section 1141(b) of the Bankruptcy Code requires that: "Except as otherwise provided in the plan or the order confirming the plan, the confirmation of a plan vests all of the property of the estate in the debtor." 11 U.S.C. §1141(b). While bankruptcy court jurisdiction generally ceases upon confirmation, the plan may reserve jurisdiction over certain matters. See, e.g., Hillis Motors, Inc. v. Hawaii Auto. Dealers' Assoc., 997 F.2d 581, 587 (9th Cir. 1993).

Article VIII of the Plan, quoted in my factual findings, appears to be an express reservation of jurisdiction for the provision of injunctive relief, in addition to a broad, genial reservation of jurisdiction for the determination of batters pertinent to this reorganization. I find therefore that this court has jurisdiction to hear the matter in controversy.

II. Dutch Masters' Right to Preliminary Injunctive Relief.

 

Injunctive relief against the IRS is generally prohibited by the Anti-Injunction Act, 26 U.S.C. §7421 . The Act provides that "no suit for the purpose of restraining the assessment or collection of any tax shall be maintained in any court by any person. . . ." 26 U.S.C. §7421(a) . The prohibition against injunctions has been held to apply to the bankruptcy courts. In re Becker's Motor Transp., Inc. ( Needham 's Motor Serv., Inc. v. Internal Revenue Serv.) [81-1 USTC ¶9348 ], 632 F.2d 242, 246 (3d Cir.) (decided under the Bankruptcy Act), cert. denied, 450 U.S. 916 (1980); In re Heritage Village Church and Missionary Fellowship, Inc. (Clark v. United States ) [88-2 USTC ¶9476 ], 851 F.2d 104, 105 (4th Cir. 1988) (decided under the Bankruptcy Code).

An exception to the anti-injunction rule was recognized by the Supreme Court in Enochs v. Williams Packing & Navigation Co. [62-2 USTC ¶9545 ], 370 U.S. 1 (1962). A party may be entitled to an injunction against the IRS if she can show that:

(1) The Government can not prevail on the merits, even if the facts and law are examined in the light most favorable to it; and

(2) Equitable jurisdiction otherwise exists.

Id. at 7; Bob Jones Univ. v. Simon [74-1 USTC ¶9438 ], 416 U.S. 725, 737 (1974); Hillyer v. Commissioner [93-1 USTC ¶50,184 ], 817 F. Supp. 532, 535 (M.D. Pa. 1993).

A. The Government's Chances of Prevailing on the Merits.

The Williams Packing exception to the Anti-Injunction Act requires that the taxpayer show that "it is clear that under no circumstances could the Government ultimately prevail" on the merits. Williams Packing [62-2 USTC ¶9545 ], 370 U.S. at 7. Dutch Masters here raises two substantive grounds for relief: (1) its payment arrangement with the IRS represents an enforceable agreement; and (2) if the agreement is not prima facie enforceable against the IRS , the Service should nonetheless be equitably estopped from pursuing collection. Dutch Masters has failed to meet its burden under either theory.

1. The Enforceability of the Agreement between Dutch Masters and the IRS .

Dutch Masters argues that the IRS is bound by the terms of the agreement between the debtor and Agent White. As the only written evidence of this agreement is a letter from Dutch Masters to the IRS , making reference to a prior oral agreement, I must note initially that any such arrangement does not satisfy the requirement of 28 U.S.C. §7121 that all agreements regarding compromises of liability be in writing. Dutch Masters has offered no evidence of a written acceptance of the terms of the payment arrangement by the IRS . See Boulez v. Commissioner [87-1 USTC ¶9177 ], 810 F.2d 209, 216-17 (DC. Cir.), (finding oral agreement with IRS invalid under Treas. Reg. §301.7122-1(d) ), cert. denied, 500 U.S. 896 (1987); Heffelfinger v. United States, No. 4:CV-94-0122, slip op. at 8 (M.D. Pa. Sept. 21, 1994 ).

Furthermore, Dutch Masters' agreement with Agent White can not represent a contract enforceable as against the Government, since an IRS agent lacks authority to bind the service in the settlement of tax liability. 28 U.S.C. §7122 . Dutch Masters' argument that the agent's failure to disclose his lack of authority to enter into compromises binds the Service under the principles of agency is unpersuasive; once a statute has been published, all citizens are on notice of its contents. Federal Crop Ins. Corp. v. Merrill, 332 U.S. 380, 384-85 (1947) ("Just as everyone is charged with knowledge of the United States Statutes at Large, Congress has provided that the appearance of rules and regulations in the Federal Register gives legal notice of their contents."); Boulez [87-1 USTC ¶9177 ], 810 F.2d at 218 n.68; Heffelfinger, slip op. at 10. Regardless of such disclosure, Agent White lacked the authority to bind the Service. United States v. Asmar [87-2 USTC ¶9488 ], 827 F.2d 907, 913 n.7 (3d Cir. 1987); Brooks v. United States [87-2 USTC ¶9626 ], 833 F.2d 1136, 1145-46 (4th Cir. 1987); Boulez [87-1 USTC ¶9177 ], 810 F.2d at 217. Dutch Masters has failed to demonstrate that it will clearly be able to prove that it entered into an enforceable contract with the IRS .

2. Debtor's Claim of Equitable Estoppel against the United States .

Dutch Masters further claims that even if its agreement with the IRS does not represent an enforceable contract in fact, its reliance upon that agreement should equitably estop the IRS attempts to collect the delinquent taxes.

While the Supreme Court has not expressly ruled on the application of estoppel against the government, Heckler v. Community Health Serv. of Crawford County, 467 U.S. 51, 60 (1984), the Third Circuit has found that estoppel lay be effectively asserted against the government. Asmar [87-2 USTC ¶9488 ], 827 F.2d at 912. Governmental estoppel must, however, be construed narrowly:

When the Government is unable to enforce the law because the conduct of its agents has given rise to an estoppel, the interest of the citizenry as a whole in obedience to the rule of law is undermined. It is for this reason that it is well settled that the Government may not be estopped on the same terms as any other litigant.

Heckler, 467 U.S. at 60. The party asserting estoppel against the government has the burden of proving the traditional elements of estoppel, as well as "affirmative misconduct." Asmar [87-2 USTC ¶9488 ], 827 F.2d at 912; U.S. v. Lair, 854 F.2d 233, 237-38 (7th Cir. 1988).

The elements of governmental estoppel are therefore:

(a) Material misrepresentation by the government;

(b) A reasonable reliance upon that misrepresentation;

(c) Detriment resulting from that reliance; and

(d) Affirmative misconduct by the government.

Asmar [87-2 USTC ¶9488 ], 827 F.2d at 912.

a. Material Misrepresentation. Assuming that Dutch Masters did in fact come to an oral agreement with the IRS to make two payments of $14,000.00 in exchange for forbearance in collection, such an agreement would represent a material misrepresentation by the Service, in that Agent White lacked authority to enter into it. See Asmar [87-2 USTC ¶9488 ], 827 F.2d at 913 n. 7 ( IRS agent's promise to pursue collection of joint liability from taxpayer's husband, not taxpayer, was a material misrepresentation, as agent lacked authority to so bind the Service). I find therefore that the IRS ' agreement with Dutch Masters to forgo collection pending the October and November payments was a material misrepresentation.

b. Reasonable reliance. Dutch Masters argues that its payment of $14,000.00 to the IRS in October 1994 constitutes reasonable reliance upon its agreement with the Service. Although Dutch Masters was on constructive notice of the IRS agent's lack of authority to bind the Service as noted above, supra part II.A.1; see Merrill, 332 U.S. at 384-85; Boulez [87-1 USTC ¶9177 ], 810 F.2d at 218 n.68, I nonetheless find that its reliance upon the payment agreement was reasonable. A financially distressed taxpayer, seeking to cure a substantial tax delinquency, would reasonably comply with the terms of any settlement agreement that its [sic] reached with an IRS agent, even if it knew that the agreement would have to be approved by the Service. But see Heffelfinger, slip op. at 10. It must surely have been apparent to Dutch Masters that further failure to meet its obligations to the IRS would doom its reorganization; it was reasonable of it to comply with the terms of the settlement tentatively reached as to delinquent trust fund taxes.

c. Detriment based on reliance. For Dutch Masters to establish detriment based on reliance it must show reliance which resulted in a change for the worse. In re Crain (Crain v. Maryland ), 158 B.R. 608, 613 (Bankr. W.D Pa. 1993). The alleged agreement between Dutch Masters and the IRS only covered $26,000.00 of Dutch Masters' $140,000.00 delinquency. Even if the IRS was bound by this agreement to permit Dutch Masters to make two payments, it could then have been free to proceed against the debtor; the only agreement as to the balance owed was to discuss the matter further. Given the IRS ' attempted repudiation of the two-payment agreement, it does not appear that it would have been willing to strike a deal as to the remaining $112,000.00 owed.

An analogous situation may be seen in the Third Circuit's Asmar decision. There, an IRS agent represented to the taxpayer that the Service would pursue her ex-husband, and not her, in the collection of joint tax liability. In reliance upon this forbearance, the taxpayer did not seek to enforce provisions in her divorce agreement regarding the joint tax obligations. This reliance was found to have resulted in no detriment to the taxpayer:

[W]e cannot accept the fact that Asmar has suffered any demonstrable detriment. Any benefit she received from the IRS agents' promise not to proceed against her for execution of the judgment is not one to which she was or is legally entitled. To the contrary, she is jointly and severally liable for the 1976 tax judgment against her and her former husband. It would be a windfall to Asmar if she were not required to satisfy any of the adjudged tax deficiency. Moreover, strictly speaking, the IRS agents never forgave the adjudicated liability. They represented only that the IRS would "go after" Robert for satisfaction. There was always the possibility that, after fulfilling their promises and proceeding against Robert, the IRS would proceed against Kathleen Asmar for the remainder of any unsatisfied judgment.

While she may be adversely affected by the execution of the judgment, it is not clear that Asmar is worse off than if the IRS had never promised to forgo an action against her.

Asmar [87-2 USTC ¶9488 ], 827 F.2d at 915 (emphasis in original).

Similarly, any forbearance by the IRS in permitting Dutch Masters to pay delinquent trust fund taxes over an extended period of time represents a windfall to it. The Internal Revenue Code requires that employers withhold and pay over to the IRS taxes on the wages or their employees. 26 U.S.C. §§3402 & 3403. Properly speaking, the employer has no right to this withholding once wages are paid; such withholding is commonly referred to as "trust fund tax" precisely because the employer holds it in trust for the Government. 26 U.S.C. §7501(a) . It is because of this trust relationship that, unlike other tax obligations, trust fund taxes are nondischargeable regardless of age. 11 U.S.C. §§523(a)(i)(A) & 507(a)(8); see COLLIER ON BANKRUPTCY ¶523.06[6]. The IRS initial willingness to accept installment payments on a delinquent trust fund tax obligation represents a substantial benefit to Dutch Masters. The payment of ten percent of the past due amount of which a tax obligation can not reasonably be viewed as a detriment.

More substantially, the IRS here made a promise to Dutch Masters which was limited in scope in much the same manner as that made to the taxpayer in Asmar: the agreement allegedly entered into between Dutch Masters and the IRS covered only two months. Once Dutch Masters had made two payments, the parties had agreed only that they would discuss the matter further. Even if it was bound by the two month agreement, the IRS would have been free in December of 1994 to refuse to further compromise, and to proceed immediately to collection. As Dutch Masters has conceded, enforcement by the IRS of its right to the delinquent trust fund taxes will result in the failure of the reorganization, and the collapse of its business. In that event, the $14,000.00 payment made to the IRS under the oral agreement will make no difference to Dutch Masters. See also Crain, 158 B.R. at 614 (no detriment where taxpayers sold their house in reliance upon alleged statements of IRS agent regarding capital gains liability, since if taxpayers had not sold the house, the service would have foreclosed its lien and had the house sold at forced sale).

Detriment based on reliance implies that Dutch Masters' position now would be better had it not acted in reliance at all. Clearly, had the Debtor not relied on its alleged agreement with the IRS , it still would have been subject to levy and execution. I note further that Dutch Masters' failure to pay $140,000.00 worth of post-confirmation trust fund taxes represents a failure to live up to the terms of the plan, and suggests in and of itself that the proposed reorganization is failing. The single $14,000.00 payment does not represent detriment sufficient to require equitable relief.

d. Affirmative misconduct. The exact meaning of Williams Packing's "affirmative misconduct" requirement is unclear; it must, however, be more than negligence or omission. United States v. Pepperman [92-2 USTC ¶50,465 ], 976 F.2d 123, 131 (3d Cir. 1992); Kennedy v. United States [92-1 USTC ¶50,307 ], 965 F.2d 413, 421 (7th Cir. 1992). For governmental action to rise to the level of affirmative misconduct, it must imperil "the 'interest of citizens in some minimum standard of decency, honor, and reliability in their dealings with their Government.' " Pepperman [92-2 USTC ¶50,465 ], 976 F.2d at 131 (quoting Heckler, 457 U.S. at 61).

No such affirmative misconduct occurred here. While the IRS agent's failure to warn Dutch Masters that he did not have the authority to bind the service absent approval of the agreement by appropriate superiors is a material misrepresentation, this omission does not rise to the level of affirmative misconduct. As noted above, supra part II.A.1, all citizens are on constructive notice of the law once it is published. Merrill, 332 U.S. at 384.85; Boulez [87-1 USTC ¶9177 ], 810 P.2d at 218 n. 68. Dutch Masters had the burden of ensuring that it understood the law in its negotiations with the IRS . "Men must turn square corners when they deal with the Government." Rock Island , Ark. & La. R.R. Co. v. United States , 254 U.S. 141, 143 (1920). I note further that Dutch Masters is a sophisticated commercial debtor, and has been represented in its dealings with its creditors by experienced counsel. I find therefore that Dutch Masters has failed to show any affirmative misconduct by the IRS .

I must therefore find that Dutch Masters has not shown that the Government can not prevail on the merits; the Anti-Injunction Act, 28 U.S.C. §7421 , therefore bars the grant of a preliminary injunction.

B. Equitable Jurisdiction.

Having determined that Dutch Masters has failed to establish that the Government can not prevail on the merits, I need not resolve the second prong of the Williams Packing exception to the anti-injunction rule: whether equitable jurisdiction exists. ¹ There are strong arguments on both sides of this question. On the one hand Dutch Masters contributes to the public interest by employing a substantial number of persons and the denial of an injunction will likely result in the failure of the reorganization. On the other hand, Dutch Masters cannot be permitted to continue to utilize trust fund monies to fund its business; once a reorganization plan is confirmed, a debtor must operate in a manner consistent with the plan and with applicable law. See United States v. Hill [66-2 USTC ¶9736 ], 368 F.2d 617, 621 (5th Cir. 1966) (stating that "[t]he desire to continue in business is not justification for violating the trust imposed to pay taxes"). The extent to which equitable jurisdiction is triggered under such circumstances is an issue that will be reserved for a case that is closer on the merits.

III . The IRS ' Motion to Dismiss The Complaint.

 

The IRS has moved for dismissal of the Complaint based both on an absence of jurisdiction and on the Anti-Injunction Act's bar against the granting of injunctive relief against the IRS . As discussed above, supra part I, I find that this court does have jurisdiction over post-confirmation requests for injunctive relief. However, I further find that the IRS is entitled to a grant of their request for dismissal of the Complaint in light of the Anti-Injunction Act.

The Anti-Injunction Act, 26 U.S.C. §7421(a) , acts as a bar to the grant of any injunctive relief against the IRS . As discussed above, supra part II, Dutch Masters lust prove that this case falls under the Williams Packing exception as a threshold requirement for the grant of any injunction. As Dutch Masters has failed to do so in the context of its request for a preliminary injunction, it is clear that it will be unable to do so in order to obtain a permanent injunction. The Anti-Injunction Act provides that "no suit for the purpose of restraining the assessment or collection of any tax shall be maintained in any court by any person. . . ." 26 U.S.C. §7421(a) . Dutch Masters' Complaint seeks to bar the collection of a tax; I just therefore find that the Anti-Injunction Act bars the maintenance of this action against the IRS . The Service's motion to dismiss the Complaint must be granted.

IV. Debtor's Requested Relief Against Meridian Bank.

 

Dutch Masters' Complaint in this proceeding requests injunctive relief against both the IRS and Meridian . Although my ruling today is on the IRS Motion to Dismiss and not on the merits of Dutch Masters' claims against Meridian , the relief requested against Meridian is expressly tied in the Complaint to that requested against the IRS . In light of my denial of the requested injunction against the IRS , Dutch Masters has no grounds for the requested relief against Meridian . Meridian 's relationship with Dutch Masters is therefore governed by the Plan and by those agreements entered into between them and Meridian is free to proceed against the debtor in response to post-confirmation defaults to the extent so permitted by those documents and by applicable law.

Conclusions of Law

 

1. I have jurisdiction of the instant adversary proceeding pursuant to 28 U.S.C. §§157 & 1334, and pursuant to Article VIII of the Plan. This is a core matter pursuant to 11 U.S.C. §157(b)(2)(I).

2. Dutch Masters has failed to show that the Government will be unable to prove that an enforceable agreement does not exist between the parties.

3. Dutch Masters has failed to show that the Government will be unable to prove that it is not equitably estopped from collecting the debtor's post-petition obligations.

AN APPROPRIATE ORDER WILL FOLLOW.

Order

 

AND NOW , this 3rd day of March, 1995, after a hearing on the merits and for the reasons stated in the accompanying Memorandum, it is hereby ORDERED that:

1. Debtor's request for a preliminary injunction is hereby DENIED;

2. The temporary restraining order issued by this Court on November 1, 1994, is hereby DISSOLVED; and

3. The motion of the Internal Revenue Service for dismissal of the Complaint is hereby GRANTED;

4. Based upon the failure of its cause against the Internal Revenue Service, the Complaint is also dismissed as against Meridian Bank, N.A.

The Clerk is directed to close the adversary file.

¹ To establish an entitlement to equitable relief, the movant must show that: (1) the injunction is necessary to prevent irreparable harm; (2) greater harm will result from the denial of the injunction than from its grant; and (3) the grant of the requested injunction would best serve the public interest. Hillyer, 817 F. Supp. at 537; Opticians Assoc. of America v. Independent Opticians of America , 920 F.2d 187, 192-93 (3d Cir. 1990).

 

97-1 USTC ¶50,404] Nathan Segel and Esme Segel, Plaintiffs v. United States of America, Defendant

U.S. District Court, So. Dist. Fla. , 95-0522- CIV -MARCUS, 3/6/97

[Code Secs. 7121 and 7122 ]

Closing agreements: Compromises: Authority to enter: Proof.--The IRS could assess additional income tax and interest because it had not entered into a settlement agreement with a married couple for the years in question. Code Secs. 7121 and 7122 exclusively govern the settlement of disputed tax liabilities, and no agreement was entered into under those provisions. Letters from the IRS purported to be a settlement offer applied to a different tax year and were not signed by an official authorized to enter into settlement agreements. Further, the taxpayers' filing of amended returns for the disputed years containing changes based on the alleged settlement terms was not evidence of a settlement agreement; the taxpayer cited no authority for such a rule and the use of amended returns as a means of settlement would be contrary to the explicit settlement procedures set out in Code Secs. 7121 and 7122.

Closing agreements: Compromises: Equitable estoppel: Evidence.--The IRS was not equitably estopped from assessing additional taxes and interest after a married couple paid taxes with amended returns. The taxpayers failed to prove the existence of a settlement agreement between them and the IRS as to the years at issue. Payment of taxes did not constitute the type of detrimental reliance necessary to invoke estoppel, and there was no representation by an authorized official of an intent to settle

[Code Sec. 6224 ]

Administrative proceedings: Settlement agreements: Authority to bind IRS .--Code Sec. 6224 provided no authority for settling tax disputes arising under the Tax Equity and Fiscal Responsibility Act of 1982 (P.L. 97-248). The settlement of disputed tax liabilities is governed exclusively by Code Secs. 7121 and 7122 . Code Sec. 6224 merely details the binding effect a settlement agreement that was otherwise properly concluded would have on the parties to the agreement.

Richard A. Josepher, Gutter & Josepher, P.A., 1 E. Broward Blvd., Fort Lauderdale, Fla. 33301, for plaintiffs. Robert Joseph Higgins, Robert L. Walsh, Department of Justice, Washington , D.C. 20530 , for defendant.

ORDER GRANTING DEFENDANT'S MOTION FOR SUMMARY JUDGMENT AND DENYING PLAINTIFFS' CROSS-MOTION FOR SUMMARY JUDGMENT.

MARCUS, District Judge:

THIS CAUSE comes before the Court upon the Defendant's Motion for Summary Judgment, filed March 6, 1996 [D.E. 10], and the Plaintiffs' Cross-Motion for Summary Judgment, filed March 26, 1996 [D.E. 12]. Responsive pleadings were filed by the parties, and thereafter, the Court took oral argument on July 18, 1996 . Having reviewed the pleadings, the arguments, and the file, and being otherwise fully advised in the premises, the Defendant's Motion for Summary Judgment must be and is GRANTED, and the Plaintiffs' Cross-Motion for Summary Judgment must be and is DENIED.

I.

A.

Plaintiffs Nathan Segel and Esme Segel filed this action against Defendant United States of America for a refund of federal income taxes. Plaintiffs allege that between 1986 and 1987 they reached a cash out-of-pocket settlement with the Internal Revenue Service for the tax years 1981 through 1984 with regard to a limited partnership they had used as a tax shelter. The Plaintiffs further allege that on February 7, 1994 , the Defendant assessed against them additional federal income taxes and interest for tax years 1983 and 1984. According to the Plaintiffs, they paid the assessments and then sought refunds of their payments, contending that the additional assessments were erroneous and illegal in light of the settlement reached in respect to those tax years. The Defendant disallowed in full the Plaintiffs' request for a refund. Plaintiffs then instituted this action, claiming their entitlement to a refund in the amount of $15,983.00 plus interest for the Plaintiffs' taxable years 1983 and 1984.

B.

The Plaintiffs and the Defendant now seek summary judgment, and the relevant facts do not appear to be in dispute. Plaintiff Nathan Segel was an investor/partner in the tax shelter partnership known as Peat Oil and Gas Associates (the "Partnership"). For the taxable years 1981, 1982, 1983, and 1984, the Plaintiffs claimed losses related to the Partnership. In a letter dated November 1, 1985 , the IRS forwarded to the Plaintiffs an audit examination report for taxable year 1981, proposing an increased assessment of income tax and an overvaluation penalty as a result of a disallowance of losses claimed for that year in connection with the Partnership. Pl. Cross-Motion, Exh. A. On December 27, 1985 , the Plaintiffs' attorney mailed a letter to the IRS indicating that they wished to settle their case regarding the taxable years 1981 through 1984. Id. , Exh. F. Counsel's letter stated in pertinent part:

. . . Based upon the fact that similar cases . . . have been settled by allowing taxpayers in those cases a deduction to the extent of their cash invested, the above taxpayers have recomputed their tax liabilities on the assumption that all deductions in excess of the amount of the cash actually invested in the subject partnership will be disallowed.

Although it is my understanding that your settlement position with respect to Peat Oil & Gas Associates, Limited has not been finalized, there is no doubt that taxpayers will be disallowed all deductions in excess of their cash investment. On this basis, the taxpayers are filing amended returns for the years 1981 through 1984 and have mailed a waiver of restrictions on assessment with the District Director in Florida . . . .

Id. Enclosed with the letter were two checks executed on December 26, 1985 , one for a tax payment in the amount of $125,351.00 for the years 1981 through 1984, and the other for interest in the amount of $45,634.00 for those same years. Id. , Exhs. F & G.

In a notice dated December 1, 1986 , the IRS stated in pertinent part:

. . . The settlement policy for the tax shelter investments involved in this case have been developed, permitting us to resolve this case in the following manner:

. . .

Allowing a deduction for the amount of your cash investment in the year of payment unless allowed previously in any other taxable year. Having reviewed the case file, I do not find any canceled checks to substantiate the cash investment. Therefore, please forward copies for our files, and we will then prepare computations and the appropriate agreement forms for closing the case.

. . .

Id. , Exh. M. The notice clearly indicated that it only related to the tax year ending December 31, 1981 . Id. In response Plaintiffs' counsel sent a letter to the IRS on December 5, 1986 , stating in pertinent part:

The taxpayers accept your offer to settle their case based on an allowance of a deduction for the amount of their cash investment. The taxpayers have filed Form 1040X [amended return] for the years 1981 through 1984 in anticipation of the cash settlement proposal. Copies of those Amended Tax Returns are enclosed for your records.

Pursuant to your request in your December 1 letter, I am enclosing copies of canceled check [sic] reflecting principal and interest payments . . .

Id. , Exh. N. In a notice dated February 19, 1987 , the IRS stated that it had closed the case on the basis agreed upon for the tax year ended December 31, 1981 . Id. , Exh. O. In another notice, dated April 27, 1987 , the IRS indicated that it would resolve the 1982 taxable year by

[a]llowing a deduction for the amount of your cash investment in the year of payment unless allowed previously in any other taxable year. Enclosed herewith is a computation reflecting the above proposed settlement and the appropriate agreement forms. Please execute the agreement forms and return them to me in the envelope provided.

Id. , Exh. R. Under a cover letter dated May 11, 1987 , the Plaintiffs returned the executed agreement form for taxable year 1982. Id. , Exh. S.

At issue in the parties' summary judgment motions are the Plaintiffs' taxable years 1983 and 1984, the first two years for which the IRS conducted an audit of the Partnership pursuant to the Tax Equity and Fiscal Responsibility Act of 1982 ("TEFRA"). The Act dictated that audit adjustments of the partnership's return would be passed through to the individual partners/investors. For the years 1983 and 1984, the audit results were contested at the partnership level under the TEFRA provisions, and as a result of the Tax Court's decision regarding the dispute, the IRS assessed additional tax and interest against the Plaintiffs on February 7, 1994 , for those years. Def. Mot., Exh. 1. Indicated on the assessment reports were credits to the 1983 and 1984 tax years for the Plaintiffs' payment on December 27, 1985 . Compare id. with Pl. Cross-Motion, Exh. F. Plaintiffs paid the new tax assessment and then protested it, arguing that the tax years 1984 and 1985 had already been settled and the tax paid.

At the core of the Plaintiffs' Complaint is the contention that they had already reached a settlement with the IRS regarding the Partnership losses for the 1983 and 1984 tax years. The Defendant, in turn, argues that it is entitled to summary judgment because the Plaintiffs have failed to come forward with any evidence that a settlement had been reached with the IRS regarding Plaintiffs' 1983 and 1984 tax years.

II.

A.

The standard to be applied when reviewing a motion for summary judgment is stated unambiguously in Rule 56(c) of the Federal Rules of Civil Procedure:

The judgment sought shall be rendered forthwith if the pleadings, depositions, answers to interrogatories and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.

It may be entered only where there is no genuine issue of material fact. Moreover, the moving party has the burden of meeting this exacting standard. Adickes v. S.H. Kress & Co., 398 U.S. 144, 157 (1970).

In applying this standard, the Eleventh Circuit has explained:

In assessing whether the movant has met this burden, the courts should view the evidence and all factual inferences therefrom in the light most favorable to the party opposing the motion. Adickes, 398 U.S. at 157, 90 S.Ct. at 1608; Marsh, 651 F.2d at 991. All reasonable doubts about the facts should be resolved in favor of the non-movant. Casey Enterprises v. Am. Hardware Mutual Ins. Co., 655 F.2d 598, 602 (5th Cir. 1981). If the record presents factual issues, the court must not decide them; it must deny the motion and proceed to trial. Marsh, 651 F.2d at 991; Lighting Fixture & Elec. Supply Co. v. Continental Ins. Co., 420 F.2d 1211, 1213 (5th Cir. 1969). Summary judgment may be inappropriate even where the parties agree on the basic facts, but disagree about the inferences that should be drawn from these facts. Lighting Fixture & Elec. Supply Co., 420 F.2d at 1213. If reasonable minds might differ on the inferences arising from undisputed facts, then the court should deny summary judgment. Impossible Electronics, 669 F.2d at 1031; Croley v. Matson Navigation Co., 434 F.2d 73, 75 (5th Cir. 1970).

Moreover, the party opposing a motion for summary judgment need not respond to it with any affidavits or other evidence unless and until the movant has properly supported the motion with sufficient evidence. Adickes v. S.H. Kress & Co., 398 U.S. at 160, 90 S.Ct. at 1609-10; Marsh, 651 F.2d at 991. The moving party must demonstrate that the facts underlying all the relevant legal questions raised by the pleadings or otherwise are not in dispute, or else summary judgment will be denied notwithstanding that the non-moving party has introduced no evidence whatsoever. Brunswick Corp. v. Vineberg, 370 F.2d 605, 611-12 (5th Cir. 1967). See Dalke v. Upjohn Co., 555 F.2d 245, 248-49 (9th Cir. 1977).

Clemons v. Dougherty County, 684 F.2d 1365, 1368-69 (11th Cir. 1982); see also Amey, Inc. v. Gulf Abstract & Title, Inc., 758 F.2d 1486, 1502 (11th Cir. 1985), cert. denied, 475 U.S. 1107 (1986).

The United States Supreme Court has provided significant additional guidance as to the evidentiary standard that trial courts should apply in ruling on a motion for summary judgment:

[The summary judgment] standard mirrors the standard for a directed verdict under Federal Rule of Civil Procedure 50(a), which is that the trial judge must direct a verdict if, under the governing law, there can be but one reasonable conclusion as to the verdict. Brady v. Southern R. Co., 320 U.S. 476, 479-80, 64 S.Ct. 232, 234, 88 L.Ed. 239 (1943).

Anderson v. Liberty Lobby Inc., 477 U.S. 242, 250 (1986). The Court in Anderson further stated that "[t]he mere existence of a scintilla of evidence in support of the position will be insufficient; there must be evidence on which the jury could reasonably find for the [nonmovant]." Id. at 252. In determining whether this evidentiary threshold has been met, the trial court "must view the evidence presented through the prism of the substantive evidentiary burden" applicable to the particular cause of action before it. Id. at 254. If the nonmovant in a summary judgment action fails to adduce evidence that would be sufficient to support a jury finding for the nonmovant when viewed in a light most favorable to the nonmovant, summary judgment may be granted. Id. at 254-55.

In another case, the Supreme Court has declared that a nonmoving party's failure to prove an essential element of a claim renders all factual disputes as to that claim immaterial and requires the granting of summary judgment:

In our view, the plain language of Rule 56(c) mandates the entry of summary judgment. . . . against a party who fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial. In such a situation, there can be "no genuine issue as to any material fact," since a complete failure of proof concerning an essential element of the nonmoving party's case necessarily renders all other facts immaterial. The moving party is "entitled to judgment as a matter of law" because the nonmoving party has failed to make a sufficient showing on an essential element of her case with respect to which she has the burden of proof.

Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986). It is against these standards that we measure the parties' motions for summary judgment.

B.

Again, at the core of all four counts of the Plaintiffs' Complaint is the alleged existence of a settlement agreement for the 1983 and 1984 tax years. According to the Defendant, the settlement of tax liability disputes are governed exclusively by 26 U.S.C. §§7121 and 7122 and their accompanying regulations. Those provisions state in pertinent part:

§7121. Closing agreements

(a) Authorization.--The Secretary is authorized to enter into an agreement in writing with any person relating to the liability of such person . . . in respect of any internal revenue tax for any taxable period.

(b) Finality.--If such agreement is approved by the Secretary (within such time as may be stated in such agreement, or later agreed to) such agreement shall be final and conclusive, and, except upon a showing of fraud or malfeasance, or misrepresentation of a material fact--

(1) the case shall not be reopened as to the matters agreed upon or the agreement modified by any officer, employee, or agent of the United States , and

(2) in any suit, action, or proceeding, such agreement, or any determination, assessment, collection, payment, abatement, refund, or credit made in accordance therewith, shall not be annulled, modified, set aside, or disregarded.

§7122. Compromises

(a) Authorization.--The Secretary 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. §§7121, 7122(a). The Defendant argues that the requirements contained in these provisions are exclusive and strictly construed and therefore permit only specifically authorized IRS officers to bind the Government to such compromises. Further, the Defendant contends that the Plaintiffs cannot produce any document pertaining to their taxable years 1983 and 1984 where an authorized IRS employee accepted an offer to settle their tax liabilities for those years. In the absence of evidence suggesting a settlement for those years, Defendant argues, the Plaintiffs' Complaint must be rejected, and the Defendant is entitled to summary judgment.

Plaintiffs argue, however, that there is ample evidence demonstrating the existence of a settlement for 1983 and 1984. First, they point to the IRS 's December 1, 1986 letter to them, Pl. Cross-Motion, Exh. M, supra, which they contend was an offer for a cash out-of-pocket settlement that "unambiguously applied to 1981-1984, all of the years in which Plaintiffs' [sic] made out-of-pocket cash investments in the Partnership." Id. at 10. The Plaintiffs then note that their counsel timely responded to this offer in the December 5, 1986 letter, id., Exh. N, supra, and that they submitted, along with the letter, the requested canceled checks evidencing their cash investment. Id. at 10. According to the Plaintiffs, they fully complied with the terms of the IRS 's settlement offer by submitting the acceptance letter, the canceled checks, and their amended tax returns. Id. at 11. Plaintiffs also argue that when the IRS confirmed the amount of the cash investments reflected on their amended returns, the Plaintiffs' cases for 1981, 1982, 1983, and 1984 were closed. Id. Plaintiffs assert that the absence of a "closing agreement" does not preclude the existence of the settlement agreement. Id. Finally, Plaintiffs contend that the Defendant has relied on the wrong provisions and that 26 U.S.C. §6224 is the governing section with regard to these facts. Id. at 8. That provision states in pertinent part:

§6224. Participation in administrative proceedings; waivers; agreements

. . .

(c) Settlement agreement.--In the absence of a showing of fraud, malfeasance, or misrepresentation of fact--

(1) Binds all parties.--A settlement agreement between the Secretary and 1 or more partners in a partnership with respect to the determination of partnership items for any partnership taxable year shall (except as otherwise provided in such agreement) be binding on all parties to such agreement with respect to the determination of partnership items for such partnership taxable year. . . .

26 U.S.C. §6224(c)(1).

C.

The Defendant is plainly correct that the settlement of disputed tax liabilities is governed exclusively by sections 7121 and 7122 of the Internal Revenue Code. The Eleventh Circuit has explained:

The settlement of disputed tax liabilities is governed by 26 U.S.C. §§7121 and 7122; these sections authorize the Secretary of the Treasury or an authorized delegate to settle any tax disputes and compromise any civil or criminal case arising under the internal revenue laws. The requirements set forth in these statutes and the accompanying regulations are exclusive and strictly construed.

Klein v. Comm'r [90-1 USTC ¶50,251 ], 899 F.2d 1149, 1152 (11th Cir. 1990) (emphasis added) (internal citations omitted). Cf. Botany Worsted Mills v. United States [1 USTC ¶348 ], 278 U.S. 282, 288-89 (1929) (holding that precursor to current sections 7121 and 7122 prescribed exclusive method by which to compromise tax cases, explaining that "[w]hen a statute limits a thing to be done in a particular mode, it includes the negative of any other mode."). The highlighted language in the Klein holding disposes of Plaintiffs' assertion that section 6224 is an independent source of authority for settling TEFRA cases. Rather, section 6224 details the binding effect a settlement agreement that was otherwise properly concluded would have on the parties to that agreement. The IRS may only enter into that agreement pursuant to the terms of sections 7121 and 7122, and the regulations promulgated thereunder, which authorize the Secretary or his designee to settle any tax dispute arising under any of the tax provisions, including the TEFRA provisions.

The settlement of tax disputes is governed by general principles of contract law, and settlement offers made and accepted by letters can be enforced as binding agreements. Haiduk v. Comm'r [ CCH Dec. 46,888(M)], 60 T.C.M. ( CCH ) 864, 865-66 (1990). Accord Treaty Pines Inv. Partnership v. Comm'r [92-2 USTC ¶50,418], 967 F.2d 206, 211 (5th Cir. 1992). Settlements, however, that are entered upon by officials without authority to do so under sections 7121 and 7122 will not bind the United States . Klein [90-1 USTC ¶50,251], 899 F.2d at 1153.

The Plaintiffs have failed to present any evidence that supports their contention that a valid settlement in respect to the 1983 and 1984 tax years was consummated. The December 1, 1986 , letter from the IRS , Pl. Cross-Motion, Exh. M, unambiguously applied only to the tax year 1981. At the top of the letter, it stated that it regarded "Tax Year(s) Ending: 12-31-81 , Peat Oil & Gas." Id. We can find no basis for concluding that this purported offer to settle applied to any of the Plaintiffs' taxable years other than 1981. Moreover, the notice only stated that-upon the Plaintiffs' forwarding copies of the canceled checks to the IRS , the IRS would "then prepare computations and the appropriate agreement forms for closing the case." Id. The Plaintiffs' argument that this provision established a condition precedent for forming a binding contract is unpersuasive; this provision was merely a request for additional documentation. In fact, the February 19, 1987 letter from the IRS , Id. , Exh. O, was the "appropriate agreement form" referenced in the December 1, 1986 , letter, and it was sent upon the Plaintiffs' submission of the canceled checks. We hasten to note again, however, that the February 19th letter only applied to the tax year ending December 31, 1981 . A Form 872-T, which terminated the case, was apparently attached to that letter, and it too indicated that the "Tax Period(s) Covered by this Notice" was December 31, 1981 . Id. On this record, there is no basis upon which to conclude that the IRS offered to settle any tax year other than 1981 through these two letters. We are equally unpersuaded by the Plaintiffs' contention that the filing of returns for 1983 and 1984, containing changes based on the alleged settlement terms, is evidence that a settlement agreement existed. The Plaintiffs cite to no legal authority for this contention, and the use of amended returns as a means of settlement would be contrary to the explicit settlement procedures set out in sections 7121 and 7122 and their accompanying regulations.

Finally, the Plaintiffs have failed to come forward with any evidence that the December 1, 1986 letter sent to the Plaintiffs--which they contend was in fact an offer to settle--was signed by an official authorized to settle tax liabilities. The regulation accompanying section 7121 states in pertinent part:

The Commissioner may enter into a written agreement with any person relating to the liability of such person [] in respect of any internal revenue tax for any taxable period ending prior or subsequent to the date of such agreement.

26 C.F.R. §301.7121-1(a). This authority in turn has been delegated to "Regional Commissioners; Regional Counsel; Regional Directors of Appeals; Assistant Regional Commissioners (Examination); District Directors; Chiefs and Associate Chiefs of Appeals Offices; and Appeals Team Chiefs with respect to his/her team cases." Delegation Order No. 97 (Rev. 21), 47 F.R. 46,613 (1982). The December 1st letter was signed by an S. Chavez of the Miami Appeals Support Unit, and the Plaintiffs do not even suggest that Chavez held one of the positions listed in the Delegation Order. Likewise, the Plaintiffs have not come forward with any evidence to rebut the Defendant's contention that the letter was not signed by an authorized official. Accordingly, we are constrained to conclude that the Plaintiffs have not established that the December 1, 1986 , letter was an authorized offer to settle the Plaintiffs' taxable years 1983 and 1984. Further, the Plaintiffs have not come forward with any evidence to rebut what the February 19, 1987 letter indicates on its face, which is that the IRS settled and terminated the case only with regard to the 1981 tax year. In short, the Plaintiffs have failed to produce any evidence raising a genuine issue of material fact in respect to whether a settlement agreement was consummated for the 1983 and 1984 tax years.

The Plaintiffs have also failed to establish that they are entitled to the application of the doctrine of equitable estoppel. Under controlling law, for estoppel to lie against the Defendant, three conditions must be met: "(1) the traditional private law elements of estoppel must have been present; (2) the Government must have been acting in its private or proprietary capacity as opposed to its public or sovereign capacity; and (3) the Government's agent must have been acting within the scope of his or her authority." United States v. Vonderau, 837 F.2d 1540, 1541 (11th Cir. 1988). In the first place, the Plaintiffs have not satisfied any of the three traditional elements required by estoppel, which are "(1) words, acts, conduct, or acquiescence causing another to believe in the existence of a certain state of things, (2) willfulness or negligence with regard to the acts, conduct, or acquiescence, and (3) detrimental reliance by the other party upon the state of things so indicated." Dade County v. Rohr Indus., Inc., 826 F.2d 983, 989 (11th Cir. 1987). As has already been discussed, supra, the Plaintiffs have not produced any evidence that the IRS ever represented its intent to settle the 1983 and 1984 tax years along with tax years 1981 and 1982. To the contrary, the two documents upon which the Plaintiffs rely plainly apply only to the tax year ended 1981. At all events, however, the payment of taxes does not constitute the type of detrimental reliance necessary to invoke estoppel. Bunce v. United States [93-2 USTC ¶60,142], 28 Fed. Cl. 500, 506 (1993), aff'd, 26 F.3d 138 (Fed. Cir.), cert. denied, 115 S. Ct. 635 (1994). Rather, in the tax area, detrimental reliance usually refers to false information that caused the claimant to lose a legal right. Id. The Plaintiffs have not presented any evidence showing detrimental reliance other than having paid their taxes for the 1983 and 1984 tax years. Moreover, the Defendant, through the IRS , was clearly acting in its public capacity with respect to the assessment of federal tax liabilities, and not in a private or proprietary capacity. Cf. Gibson v. Resolution Trust Corp., 750 F. Supp. 1565, 1573 (S.D. Fla. 1990) ("Proprietary governmental functions include essentially commercial transactions involving the purchase or sale of goods and services and other activities for the commercial benefit of a particular government agency . . . Conversely, in its sovereign role, the government carries out unique governmental functions for the benefit of the whole public."), aff'd, 51 F.3d 1016 (11th Cir. 1995). Finally, as we have also already discussed, supra, the Plaintiffs have failed to present any evidence of a representation by an authorized official of an intent to settle the 1983 and 1984 tax years. In sum, the Plaintiffs have not created a genuine issue of material fact as to whether principles of equitable estoppel should apply here.

Because the Plaintiffs have failed to establish the existence of a settlement agreement in respect to the 1983 and 1984 tax years, and there being no basis for equitable estoppel to lie against the Defendant in this case, we must find that the Defendant's Motion for Summary Judgment should be granted as to all four counts of the Complaint. Accordingly, it is hereby

ORDERED AND ADJUDGED that the Defendant's Motion for Summary Judgment is GRANTED, and the Plaintiffs' Cross-Motion for Summary Judgment is DENIED. The Defendant is directed to submit a proposed Order of Final Summary Judgment to the Court within ten (10) days of this Order. It is further

ORDERED AND ADJUDGED that all other pending motions are DENIED as moot. The Clerk of the Court is directed to close the case.

 

[2000-2 USTC ¶50,724] Gerald J. Buesing, Plaintiff v. United States , Defendant

U.S. Court of Federal Claims, 96-70T, 9/7/2000, 2000 U.S. Claims LEXIS 179. Prior decision by the Court of Federal Claims in this same case, 99-1 USTC ¶50,246

[Code Secs. 6325 and 7122 ]

Settlement agreements: Release of lien: Existence of contract: Acceptance of offer: Bankruptcy: Authority: Material misrepresentation: Unilateral mistake.--An individual failed to prove that he entered into a contract with the IRS to release a federal tax lien on his real property. Since an IRS agent lacked statutory authority to release the lien prior to the taxpayer's discharge in bankruptcy, he could not accept the taxpayer's offer to release the lien for payment and, thus, there was no mutual assent to a settlement agreement. Moreover, even if a contract had been formed, the existence of a material misrepresentation on the part of the taxpayer would have made the contract voidable. The taxpayer's communicated intention not to sell the property affected the method by which the IRS agent valued it and the circumstances under which the IRS would release the lien; thus, the misrepresentation was deemed material.

[Code Sec. 7122 ]

Settlement agreements: Release of lien: Existence of contract: Collateral estoppel.--The doctrine of equitable estoppel did not prevent the government from denying the existence of a contract to purportedly release a lien on an individual's real property in exchange for payment of his tax liability. Due to the taxpayer's misrepresentation regarding his intention not to sell the property, the IRS used the property's estimated value rather than its true sale value to calculate its worth. Moreover, the taxpayer suffered no detriment as a result of the alleged agreement since he failed to show that it affected the terms of his divorce settlement, and there was no evidence of misconduct on the part of any IRS agent. BACK REFERENCES: ¶41,605.016 and 41,130.0254

Jeffrey A. McKee, Davis , McKee & Forshey, P.C., Phoenix , Ariz. , for plaintiff. Mildred L. Seidman, Chief, Steven I. Frahm, Assistant Chief, Elizabeth Diane Seward, Department of Justice, Washington, D.C. 20530, for defendant.

OPINION

HORN, Judge:

The above-captioned case is before the court after a trial on the merits. Plaintiff, Gerald J. Buesing, alleges that he entered into a contract with the defendant, the United States, under which a federal tax lien on his home would be released if (1) he converted his bankruptcy to a Chapter 7 proceeding, (2) he received a discharge from his bankruptcy, and (3) he paid $30,000.00 to the Internal Revenue Service. The United States argues that no contract was ever formed, and, if a contract had been formed, it would be voidable because of a material misrepresentation by the plaintiff and/or a unilateral mistake on the part of the defendant. Defendant's allegations of a material misrepresentation and a unilateral mistake both stem from plaintiff's conduct in leading defendant to believe that plaintiff would keep his home, which purportedly caused defendant to underestimate the value of plaintiff's home, and, hence, the value of plaintiff's equity interest in the home. Plaintiff, in turn, counters that defendant would be equitably estopped from denying the existence of a contract.

After the trial on these issues and the submittal of post-trial briefs, the court concludes that no contract was formed. Had a contract been formed, the court agrees with defendant that any agreement would have been voidable due to both a material misrepresentation on the plaintiff's part and a unilateral mistake on the defendant's part. In addition, the court holds that the government would not be estopped by its actions from denying the existence of the contract.

FINDINGS OF FACT

Plaintiff, Gerald J. Buesing, founded a trucking company with his brother in 1965. The trucking company evolved into a construction company called Buesing Corporation, of which plaintiff is the sole owner and president. In 1986, plaintiff decided to move the company to Phoenix , Arizona , from its previous place of business in Minnesota .

On March 10, 1990 , Gerald Buesing married Laura Michael. ¹ At the time of their marriage, the market value of plaintiff's assets exceeded $4.3 million, while Ms. Michael's assets were worth about $30,000.00. On the day before the marriage, plaintiff and Ms. Michael entered into an Antenuptial Agreement. Paragraph 3 of the Antenuptial Agreement stated:

Termination of Marriage by Dissolution. . . . In consideration of the sum of $25,000 to be paid by Mr. Buesing to Ms. Michael at the time either party would initiate an action for divorce or separate maintenance, Ms. Michael hereby waives and relinquishes all statutory rights to temporary or permanent alimony, support, or maintenance, allowance for costs of an action for divorce or separate maintenance, property settlement and all other allowances from one another's assets in any such action.

Initially, the Buesings lived in Ahwatukee , Arizona , in a house which plaintiff had purchased in 1989 with his own funds, and which was titled solely in his name. In March 1993, plaintiff and Ms. Michael purchased, as husband and wife, a residence at 1917 East Clubhouse Drive in Phoenix , Arizona (the Clubhouse Drive property) for $321,562.00. The parties agree that the couple took title to the property as joint tenants with right of survivorship and not as a community property estate or as tenants in common. Plaintiff made the down payment with $100,000.00 of the net proceeds from the sale of the Ahwatukee home, and he also made the monthly mortgage payments.

In May of 1993, soon after purchasing the Clubhouse Drive property, the Buesings' marriage began to dissolve. They separated on or about July 17, 1993 , when Laura Michael moved to Chicago , Illinois . On that same day, plaintiff wrote to Ms. Michael and asked that she sign and have notarized three documents: (1) a quit claim deed relinquishing to plaintiff all of her right, title and interest in and to the Clubhouse Drive residence, (2) a power of attorney, and (3) a waiver of any conflict that might arise from the representation of plaintiff in any divorce proceedings by the law firm of Mariscal, Weeks. ² On July 26, 1993 , Ms. Michael signed the power of attorney and the waiver, but she did not sign the quit claim deed.

On August 24, 1993 , using the power of attorney which his wife had executed, plaintiff signed and recorded in Maricopa County, Arizona, a quit claim deed for himself and on behalf of Ms. Michael, which was identical in substance to the quit claim deed which she had declined to sign. ³ Plaintiff did not inform Laura of the purported conveyance. Later, Plaintiff was advised by counsel that the quit claim deed was probably not enforceable, and that Laura held an undivided one-half community property interest in the Clubhouse Drive residence.

Ms. Michael filed a divorce petition in Maricopa County , Arizona on September 21, 1993 . In a letter of the same date to plaintiff's attorney, Ms. Michael demanded immediate payment of the $25,000.00 provided for in the Antenuptial Agreement, or at least a portion of that sum along with monthly payments to enable Ms. Michael to meet her living expenses.

Meanwhile, on October 19, 1993 , the Internal Revenue Service ( IRS ) recorded a Notice of Federal Tax Lien in Maricopa County , Arizona respecting assessed and unpaid income taxes, penalties and interest totaling $105,369.00 that plaintiff owed for taxable years 1987 through 1989. The federal tax lien attached to all of plaintiff's real and personal property. The taxes had originally been assessed on July 21, 1992 following an IRS audit, and notice and demand for payment had been made by the IRS a total of five times over the course of the following year.

During the following months, the Buesings continued to exchange correspondence through their attorneys as they attempted to reach a divorce settlement. Each of plaintiff's proposals, among other terms, would have resulted in plaintiff receiving the Clubhouse Drive property as his separate property. During the negotiations, Mr. Buesing consistently maintained to his divorce attorney, Cindra White, that Ms. Michael had no interest in the residence, and that it was his separate property.

During the course of the divorce negotiations, on January 18, 1994 , plaintiff filed a petition under Chapter 11 of the United States Bankruptcy Code seeking protection from his creditors. In March 1994, plaintiff's bankruptcy case was assigned to Revenue Officer William Unger of the IRS for resolution of plaintiff's unpaid income taxes for 1987 through 1989. Mr. Unger met with plaintiff and his attorney on March 22, 1994 to discuss the unpaid taxes and plaintiff's options for repayment, which depended on whether the income tax liability was dischargeable. ⁴ Mr. Unger explained that, if the liability was determined to be dischargeable, the federal tax lien then would be satisfied by the equity in plaintiff's real and personal property after his discharge from bankruptcy. Unger explained that plaintiff could make an offer in settlement of his tax liabilities under a Chapter 11 bankruptcy or, alternatively, he could convert to a Chapter 7 bankruptcy liquidation proceeding, obtain a discharge, and then satisfy the still-attached tax lien.

With respect to the divorce, plaintiff contacted his divorce attorney, Cindra White, on August 3, 1994 , and informed her that his wife wanted to finalize the divorce. He instructed the attorney to draft a decree of dissolution under which the Clubhouse Drive residence would have been listed as his separate property, Ms. Michael would have received the Antenuptial Agreement payment of $25,000.00, and various items of community property would have been identified as the separate property of either plaintiff or of his wife. The next day, Ms. White prepared a draft Consent Judgment with these terms, but the settlement was not resolved at that time because Mr. Buesing did not have $25,000.00 available to make the payment to Ms. Michael. He told Ms. Michael that he would be able to pay her when the house was sold.

Meanwhile, for several months, Revenue Officer Unger had focused his work with respect to plaintiff's case on the question of whether the income tax liability was dischargeable. Revenue Officer Unger notified plaintiff's counsel, Jeff McKee, by letter dated January 23, 1995 , that plaintiff's income taxable years 1987 through 1989 met the requirements for discharge from personal liability in his Chapter 11 proceeding. Revenue Officer Unger stated that after the Bankruptcy Court issued an order discharging the taxes, and collection was made from plaintiff's equity in his real and personal property to which the federal tax lien attached, any remaining tax debt would be abated.

Plaintiff initiated discussions with the IRS to determine the extent and value of the real and personal property to which the federal tax lien respecting his 1987 through 1989 tax liabilities could attach. Upon Revenue Officer Unger's request, plaintiff provided to the IRS information and documentation regarding the value of his business, automobile, and residence. With regard to the value of the Clubhouse Drive residence, plaintiff provided comparable sales information to the IRS showing that similarly situated residential property had a market value of $300,000.00. During the negotiations, plaintiff represented to the IRS that his wife had a one-half interest in the Clubhouse Drive property, pursuant to Arizona community property law. Plaintiff also represented to Revenue Officer Unger that he wanted to keep his home. Based on the comparable sales figures and plaintiff's representation that Ms. Michael held a one-half interest in the Clubhouse Drive property, Revenue Officer Unger believed that the value of plaintiff's real and personal property to which the federal tax lien could attach was $30,000.00. Mr. Unger assigned no value to plaintiff's household furnishings, based on a bankruptcy schedule on which plaintiff had listed the fair market value of the furnishings at the exemption amount of $2500.00.

Plaintiff, by letter dated March 8, 1995 , made alternative offers to the IRS to secure the release of the federal tax lien in dispute. The offer at issue in the instant case provided that plaintiff would pay the IRS $30,000.00 within 90 days of IRS acceptance of plaintiff's offer to buy out the federal tax lien on his property. The letter, written by plaintiff's counsel, Mr. McKee, states:

This correspondence is to confirm that the Internal Revenue Service has determined and agreed that Mr. Buesing is entitled to a discharge regarding, and is relieved of personal liability for, personal income tax liabilities for the tax years 1987, 1988 and 1989, subject to obtaining an Order Granting Discharge from the Bankruptcy Court. For ease of reference and your acknowledgment and understanding, I have enclosed your letter dated January 23, 1995 stating and acknowledging that the IRS will not contest the dischargeability of Mr. Buesing's Form 1040 tax liabilities for the years 1987, 1988 and 1989.

This shall also constitute an offer in compromise of all Federal Tax Levies and Liens on Mr. Buesing's real and personal property, including (but limited to) his equity in his personal residence and the value of his stock in Buesing Corporation. As you know, these Federal Tax Levies and Liens encumber Mr. Buesing's real and personal property to the extent of the above-referenced 1987, 1988 and 1989 tax liabilities.

In full satisfaction, extinguishment, and release of these Federal Tax Levies and Liens, Mr. Buesing makes the following alternative offer:

1. At Mr. Buesing's behest, Buesing Corporation will immediately relinquish to the IRS $100,000.00 of Net Operating Losses (NOLs) which it presently retains, and cooperate in reasonable measures to insure that Buesing Corporation does not attempt to utilize said NOLs; or (if, and only if, Option One is not accepted by the IRS )

2. $30,000.00 in cash within 90 days of IRS acceptance, which amount is comprised of $28,600.00 for Mr. Buesing's equity in his home and $1,400.00 representing Mr. Buesing's ownership interest in Buesing Corporation.

We respectfully request an expeditious response to this alternative offer by the IRS . Thank you for your professional courtesies and manner in this proceeding.

On March 15, 1995 , prior to receiving any response to his offer and without notice to the IRS , plaintiff signed an agreement with a real estate agent to list the Clubhouse Drive property for sale at $339,900.00. The residence was listed for sale in a Century 21 advertisement run by plaintiff's friends, Alan and Barbara Levanson, which appeared in the Ahwatukee Foothills News on March 22, 1995 , and every two weeks thereafter through June 14, 1995 .

Two days later, on March 17, 1995 , plaintiff informed his divorce attorney, Ms. White, that he and Ms. Michael had reached a basis for settlement. Mr. Buesing asked Ms. White to prepare two different draft Consent Judgments, with both versions increasing the cash payment to his wife to $30,000.00, with $5,000.00 payable on or before March 31, 1995 . In both versions, the Clubhouse Drive residence was confirmed as plaintiff's sole and separate property. Plaintiff also told Ms. White that he had reached an agreement with the IRS concerning his unpaid taxes, and he advised her that he would need to sell the Clubhouse Drive property. For the rest of that month, while agreeing in principal on the sum to be paid to Ms. Michael, plaintiff and his wife continued to negotiate the payment's timing.

While plaintiff was finalizing his divorce settlement, plaintiff's attorney McKee continued to discuss plaintiff's outstanding tax debt with Revenue Office Unger. The two held discussions several times between March 8, 1995 and March 28, 1995 . Mr. Unger restated that, in order to secure a release of the federal tax liens, plaintiff first had to obtain a discharge from his Chapter 7 bankruptcy, and then pay the $30,000.00 amount estimated as the value of the IRS 's lien interest. On March 15, 1995 , Mr. Unger discussed plaintiff's case with his Section Chief, Ed Perry. Based on the information then available to Mr. Unger, including plaintiff's intent to keep his residence, Mr. Perry approved Mr. Unger's recommendation that plaintiff be allowed to buy out the tax lien for $30,000.00.

As of March 28, 1995 , Mr. Unger was unaware that Ms. Michael had tentatively agreed to the divorce settlement amount, and he was also unaware that plaintiff had listed the Clubhouse Drive residence for sale. On that day, Revenue Officer Unger formally responded to plaintiff's tax settlement offer by letter, wherein Mr. Unger agreed that the value of the real and personal property to which the federal tax lien attached was $30,000.00. He stated that following plaintiff's discharge from a Chapter 7 proceeding and plaintiff's payment of $30,000.00, plaintiff's remaining tax liabilities for 1987 through 1989 would be abated and the lien released. The letter from the IRS , signed by Revenue Officer Unger, stated:

The Internal Revenue Service agrees that the value of the real and personal property to which our Notice of Federal Tax Liens attach is $30,000.00. Following Chapter 7 discharge by the court and receipt of $30,000.00, the 1987, 1988, and 1989 income tax liabilities of the debtor will be discharged and the Notice of Federal Tax Liens will be released.

This is a procedure that has several steps involving several people, so the actual release will not appear at the county recorders office for about 4 weeks after the discharge and money are received. Payment should be made directly to this office to minimize delay.

The letter did not refer to plaintiff's March 8, 1995 letter, nor did it refer to the 90-day period in which plaintiff offered to make a lump sum payment of $30,000.00 to satisfy the lien interest of the IRS in his real and personal property.

On April 12, 1995 , the Maricopa County Superior Court entered a consent judgment and decree of dissolution of the marriage of Gerald Buesing and Laura Michael. The consent judgment stated that the Clubhouse Drive property was plaintiff's sole and separate property and was confirmed to him. The consent judgment provided further that plaintiff was to pay Ms. Michael $5,000 on or before March 31, 1995 , and $25,000.00 upon the sale of the Clubhouse Drive property. In March 1995, at the time of the exchange of letters between plaintiff and the IRS respecting the buy-out of the IRS lien on plaintiff's property, plaintiff's bankruptcy proceeding was still in Chapter 11.

Plaintiff interpreted Revenue Officer Unger's March 28, 1995 letter as an acceptance of plaintiff's offer contained in his March 8, 1995 letter, with the additional requirement, developed in interim conversations between Mr. Unger and Mr. McKee, that plaintiff first had to obtain a Chapter 7 discharge. Revenue Officer Unger, however, considered his March 28, 1995 letter to be a separate proposal or counteroffer which stated an additional, material term.

On April 26, 1995 , the bankruptcy court entered an order converting plaintiff's case to a Chapter 7 proceeding. The reason stated for the conversion was that the plaintiff had failed to file a disclosure statement and plan of reorganization by January 31, 1995 , the date stipulated to by the plaintiff and the United States Trustee. On May 17, 1995 , plaintiff received an offer of $340,000.00 for the Clubhouse Drive property, including its furnishings. Mr. Buesing accepted the offer on May 20, 1995 ; closing was scheduled for June 16, 1995 .

Mr. Unger first learned of the property's sale on June 13, 1995 . On June 15, 1995 , one day before plaintiff was to close on the sale, plaintiff's attorney McKee called the IRS to inform them. In order for the sale to close, plaintiff asked the IRS to release its lien on the property and to accept $30,000.00 cash from the sale proceeds. ⁵

On June 16, 1995 , plaintiff attempted to tender to the IRS a cashier's check for $30,000.00 to secure a release of the lien on the Clubhouse Drive property. The IRS refused to accept the check. Revenue Officer Unger, by letter dated June 19, 1995 , notified plaintiff's counsel that he was withdrawing his March 28, 1995 proposal to release the lien on plaintiff's property if plaintiff obtained a discharge from his Chapter 7 bankruptcy proceeding and paid $30,000.00. Revenue Officer Unger stated:

Some of the information provided during our discussions is now known to be incorrect. Mr. Buesing indicated that his wife held a 50% interest in the real property. The recent review of sale documents shows that her interest is limited to $25,000. This significantly increases your client[']s interest and our lien interest in the property. The estimated value was based on comparables you provided. This recent offer to purchase at $330,000 indicates that those values were too low. The net effect of these two factors changes our lien interest from $30,000.00 to $83,000.00.

There are two entirely different actions being discussed here. They cannot be combined. In the event Mr. Buesing receives a discharge one set of laws apply. If he still [owns] his home, then a negotiated value is a reasonable means to determine our secured interest in the exempt property without forcing its sale. That discharge is key. Without it, the actual sale of the home determines the value of our lien . . . .

The sale of plaintiff's home closed on June 30, 1995 . Sale proceeds of $25,000.00 were paid to Laura pursuant to the Antenuptial Agreement and Consent Judgment. Net sale proceeds of $77,943.05 were deposited in escrow with United Title Company pursuant to 26 U.S.C. §6325(b)(3) (1994). ⁶ On October 16, 1995 , United Title remitted to the IRS a check in the amount of $78.543.91, including $600.86 in accrued interest. On the same day, plaintiff's income tax liabilities for 1987 through 1989 were credited as follows: $11,124.06 for 1987; $46,215.50 for 1988; and $21,204.35 for 1989. The credits to 1987 and 1989 satisfied plaintiff's tax liability for those years, but about $31,000.00 of plaintiff's tax liability for 1988 remained unpaid. On October 27, 1995 , the IRS issued a Certificate of Discharge, discharging the Clubhouse Drive residence from the federal tax lien.

On January 10, 1996 , the bankruptcy court released plaintiff from all dischargeable debts, including his remaining unpaid income tax liability for 1988, and discharged him from his Chapter 7 proceeding. On September 16, 1996 , plaintiff's remaining liability for 1988 income taxes was abated.

The complaint in the instant action was filed in the United States Court of Federal Claims on February 7, 1996 . Plaintiff contends that he had a contractual agreement with the IRS by which the federal tax lien on his real and personal property would be removed upon his payment to the IRS of $30,000.00. Mr. Buesing is seeking to recover the net proceeds in excess of $30,000.00 from the sale of the Clubhouse Drive property. Alternatively, plaintiff seeks damages of $30,000.00, which is the alleged value of his exempt furniture and furnishings which were sold with the Clubhouse Drive residence, plus interest. ⁷

After the case was filed, the defendant filed a motion to dismiss arguing that a contract had not been formed between Buesing and the IRS regarding the tax lien, and alleging that plaintiff improperly sought a remedy not available in this court, specifically, declaratory relief or specific performance. In the alternative, the defendant filed a motion for summary judgment, arguing that any contract entered into by the parties was voidable on the grounds that material misrepresentation or unilateral mistake occurred.

The plaintiff responded to the motion to dismiss, and filed a cross-motion for summary judgment asserting that the parties had entered into a contract arising out of a settlement agreement and contending that the plaintiff sought money damages stemming from a failure to perform that contract. Moreover, the plaintiff argued that in the event the court determined there was a contract, but found the government's argument regarding material misrepresentation and unilateral mistake worthy of consideration, that summary judgment was not appropriate as facts material to the formation of a contract were genuinely in dispute.

In a decision issued on January 13, 1999 , the court granted in part and denied in part defendant's motion to dismiss. Buesing v. United States [99-1 USTC ¶50,246], 42 Fed.Cl. 679, 698 (1999). The court granted the motion to dismiss Mr. Buesing's claims for specific performance and declaratory judgment, because those claims fell outside of the court's jurisdiction. Id. at 692. The court, however, denied defendant's motion to dismiss plaintiff's other claims. Id. at 691. The court also denied the parties' motions for summary judgment because they were premature due to an underdeveloped record with material issues of fact in dispute. The court stated:

A number of issues of fact have been raised by the parties in papers presented to the court that weigh against resolution of the instant case upon summary judgment pleadings. It appears that there are questions of fact surrounding the impact upon Revenue Agent Unger's understanding of the equity value of the property owned by the plaintiff, Unger's interpretation of plaintiff's intent to retain or sell the house, and how these issues impacted Unger's determinations for settlement negotiation purposes. In addition, there is an issue as to the plaintiff's intent, or stated intent, to reside in or sell the Clubhouse Drive property.

The issues of materiality, mistake and "reason to know" need further examination by a trier of fact. Moreover, insufficient information is available to the court at this time to resolve the issues raised regarding the authority of Revenue Agent Unger to enter into a settlement agreement and the doctrine of equitable estoppel raised by the plaintiff.

Id. at 697. Plaintiff's case subsequently went to trial in December, 1999.

DISCUSSION

The court must address several issues raised by the parties both at trial and in their post-trial briefs. The court must examine whether a contract was formed between the parties through their exchange of letters regarding a possible settlement, or through defendant's letter and the plaintiff's subsequent conduct taken allegedly in reliance on that letter. If a contract was formed, the court also must decide whether the contract is voidable by the government because of alleged material misrepresentations by the plaintiff, or because of unilateral mistake on the part of the government. Last, the court must decide if the defendant is equitably estopped from denying the existence of a contract.

I. The existence of a contract

The court first examines the question of whether a settlement contract was formed between Mr. Buesing and the IRS . Plaintiff argues that "this is a breach of contract case. A contract was formed when Gerald Buesing offered to settle the value of the tax liens on his property for $30,000 and the IRS accepted that offer." As the basis of an agreement, plaintiff points to (1) the combination of his March 8, 1995 offer letter and the March 28, 1995 letter response from the IRS , and/or (2) the combination of that March 28, 1995 IRS response and subsequent actions which plaintiff allegedly performed, such as converting his bankruptcy proceeding to Chapter 7 and settling his divorce, in reliance on the IRS response. According to defendant, however, no contract was ever formed:

There never was a meeting of the minds between plaintiff and Unger regarding the material terms of a contract to compromise plaintiff's tax liability. Mr. Unger did not agree to release the lien upon a payment of $30,000 within 90 days, and plaintiff never agreed to Unger's counterproposal to release the lien upon a payment of $30,000 after plaintiff converted to a Chapter 7 bankruptcy and received a discharge. Indeed, no one at the IRS had authority to release the lien before a discharge in bankruptcy. There was no contract between plaintiff and the IRS .

As the court noted in its prior opinion in this case, although not addressed directly by this circuit, the law regarding tax settlement agreements has been clearly articulated:

A settlement agreement is a contract; mutual forbearance supplies the consideration. As such, we interpret its terms using general contract law principles. Treaty Pines Invs. Partnership v. Commissioner [92-2 USTC ¶50,418], 967 F.2d 206, 211 (5th Cir. 1992). If the language of the agreement is unambiguous, we will not consider any extrinsic evidence: the meaning will be determined from the terms encompassed within the proverbial four corners of the agreement. Goldman [94-2 USTC ¶50,577], 39 F.3d at 406. Where the language is not so clear, however, we will examine the language within the context of the circumstances surrounding the execution of the agreement. Robbins Tire & Rubber Co. v. Commissioner [ CCH Dec. 29,612], 52 T.C. 420, 435-436, 1969 WL 1677 (1969).

Estate of Kokernot v. Commissioner [97-1 USTC ¶60,276], 112 F.3d 1290, 1294 (5th Cir. 1997); see also Goldman v. Commissioner [94-2 USTC ¶50,577], 39 F.3d 402, 405-06 (2d Cir. 1994) ("As the settlement agreement constituted a contract, general principles of contract law must govern its interpretation."); Slovacek v. United States [96-2 USTC ¶50,467], 36 Fed.Cl. 250, 256 (1996) (citing Goldman v. Commissioner [94-2 USTC ¶50,577], 39 F.3d at 405). This same legal framework has also been applied in the United States Tax Court:

The settlement of tax cases is governed by general principles of contract law. A settlement agreement is in essence a contract. Each party agrees to concede some rights which he or she may assert against his or her adversary as consideration for those secured in the settlement agreement. Saigh v. Commissioner [ CCH Dec. 21,694], 26 T.C. 171, 177 (1956). In determining the proper meaning of the terms of the agreement, we look to the language of the agreement and the circumstances surrounding its execution. Robbins Tire Co. v. Commissioner [ CCH Dec. 29,612], 52 T.C. 420, 435-436 (1969). Generally, extrinsic evidence will not be admitted to expand, vary, or explain the terms of a written agreement unless the agreement is ambiguous. Rink v. Commissioner [ CCH Dec. 48,969], 100 T.C. 319, (1993), aff'd [95-1 USTC ¶50,092], 47 F.3d 168 (6th Cir. 1995); Woods v. Commissioner [ CCH Dec. 45,602], 92 T.C. 776, 780-781 (1989). Petitioner bears the burden of proving that his interpretation of any ambiguous contract language is correct. Rule 142(a); Rink v. Commissioner [ CCH Dec. 48,969], supra at 326.

Washoe Ranches #1, Ltd. v. Commissioner [ CCH Dec. 51,634(M)], 1996 Tax Ct. Memo LEXIS 511, 72 T.C.M. ( CCH ) 1176, T.C. Memo. 1996-495 (1996). This court is persuaded of the rectitude of this approach and will analyze the above-captioned case using the principles of contract law.

A valid express contract requires that the following criteria have been met: "a mutual intent to contract including offer, acceptance, and consideration; and authority on the part of the government representative who entered or ratified the agreement to bind the United States in contract." Total Med. Management, Inc. v. United States , 104 F.3d 1314, 1319 (Fed. Cir. 1997), cert. denied, 522 U.S. 857, 118 S.Ct. 156, 139 L.Ed.2d 101 (1997) (citing Thermalon Indus., Ltd. v. United States, 34 Fed.Cl. 411, 414 (1995) (citing City of El Centro v. United States, 922 F.2d 816, 820 (Fed. Cir. 1990), cert. denied, 501 U.S. 1230, 115 L.Ed.2d 1019, 111 S.Ct. 2851 (1991); Fincke v. United States, 230 Ct. Cl. 233, 244, 675 F.2d 289, 295 (1982))). Even without an express contract, there may still be an implied-in-fact contract if there is a meeting of the minds which can be inferred from parties' conduct showing, in light of the surrounding circumstances, a tacit understanding between them. City of Cincinnati v. United States , 153 F.3d 1375, 1377 (Fed. Cir. 1998) (citing Baltimore & Ohio R.R. Co. v. United States, 261 U.S. 592, 597, 67 L.Ed. 816, 43 S.Ct. 425 (1923)). "Like an express contract, an implied-in-fact contract requires '(1) mutuality of intent to contract; (2) consideration; and, (3) lack of ambiguity in offer and acceptance.' " Id. (quoting City of El Centro v. United States, 922 F.2d at 820). An express offer and acceptance are not necessary, but the parties' conduct must indicate mutual assent. Id. In addition, if the United States is a party, the government representative whose conduct is relied upon must have actual authority to bind the government in contract. Id. The government, however, is not bound by the acts of its agents beyond the scope of their actual authority. Harbert/Lummus Agrifuels Projects v. United States , 142 F.3d 1429, 1432 (Fed. Cir. 1998), cert. denied, 525 U.S. 1177 (1999). "Anyone entering into an agreement with the Government takes the risk of accurately ascertaining the authority of the agents who purport to act for the Government, and this risk remains with the contractor even when the Government agents themselves may have been unaware of the limitation on their authority." Trauma Servs. Group v. United States , 104 F.3d 1321, 1325 (Fed. Cir. 1997). ⁸

The defendant argues that the exchanged correspondences between plaintiff and the IRS cannot constitute a binding agreement because there was no meeting of the minds with respect to the date when payment could be made in return for release of the federal tax lien. The March 8, 1995 offer letter from plaintiff's counsel stated, in relevant part:

This correspondence is to confirm that the Internal Revenue Service has determined and agreed that Mr. Buesing is entitled to a discharge regarding, and is relieved of personal liability for, personal income tax liabilities for the tax years 1987, 1988 and 1989, subject to obtaining an Order Granting Discharge from the Bankruptcy Court. For ease of reference and your acknowledgment and understanding, I have enclosed your letter dated January 23, 1995 stating and acknowledging that the IRS will not contest the dischargeability of Mr. Buesing's Form 1040 tax liabilities for the years 1987, 1988 and 1989.

This shall also constitute an offer in compromise of all Federal Tax Levies and Liens on Mr. Buesing's real and personal property, including (but limited to) his equity in his personal residence and the value of his stock in Buesing Corporation. As you know, these Federal Tax Levies and Liens encumber Mr. Buesing's real and personal property to the extent of the above-referenced 1987, 1988 and 1989 tax liabilities.

In full satisfaction, extinguishment, and release of these Federal Tax Levies and Liens, Mr. Buesing makes the following . . . offer:

* * *

2. $30,000.00 in cash within 90 days of IRS acceptance . . .

The purported acceptance from Revenue Agent Unger, dated March 28, 1998 , states:

The Internal Revenue Service agrees that the value of the real and personal property to which our Notice of Federal Tax Liens attach is $30,000.00. Following Chapter 7 discharge by the court and receipt of $30,000.00, the 1987, 1988, and 1989 income tax liabilities of the debtor will be discharged and the Notice of Federal Tax Liens will be released.

This is a procedure that has several steps involving several people, so the actual release will not appear at the county recorders office for about 4 weeks after the discharge and money are received. Payment should be made directly to this office to minimize delay.

Defendant argues that the "within 90 days of IRS acceptance" language in plaintiff's offer letter was a material term to which no one at the IRS ever agreed. After listening to the testimony at trial and evaluating the parties' arguments on this issue, the court agrees that plaintiff's ninety-day limit was a material term and that the combination of the March 8 and March 28 letters cannot be seen as an offer and acceptance because that material term intentionally was removed from the purported March 28 "acceptance." Edwin Perry, Revenue Officer Unger's supervisor, noted at trial that the "within ninety days" term of plaintiff's offer was unacceptable to the IRS "because [the release of the lien is] dependent on the discharge not on 90 days. There was no time frame. Neither party had any control over the time frame . . . for the issuing of the discharge by the [bankruptcy] court." Mr. Unger later corroborated this notion and stated that he also had deemed the ninety-day time period as an "unacceptable" term because it was uncertain when plaintiff's discharge from bankruptcy would occur, and the discharge was a necessary precursor to release of the federal tax lien. Mr. Unger gave the following testimony at trial:

Q. All right. And can you extinguish a lien in a Chapter 11 under--within a fixed time period such as 90 days?

A. No. Because you still have the issue of the discharge.

Q. And that is the Plaintiff's discharge from bankruptcy?

A. The discharge of his total tax liability. It is not just the lien equity.

Q. And that occurs when the Bankruptcy Court discharges the debtor from bankruptcy?

A. That is correct.

Q. And that had not happened at this point? [when plaintiff had offered to pay $30,000.00 within ninety days of IRS acceptance]

A. That had not happened in [plaintiff's case.]

Q. And did you know on March 8, 1995 , when Plaintiff's discharge from bankruptcy was going to take place?

A. I had no knowledge whatsoever.

The position taken by Mr. Perry and Mr. Unger has statutory support under 26 U.S.C. §6325(a) (1994), which makes no distinction between Chapters 7 and 11. The statute states in relevant part:

(a) Release of lien.--Subject to such regulations as the Secretary may prescribe, the Secretary shall issue a certificate of release of any lien imposed with respect to any internal revenue tax not later than 30 days after the day on which-

(1) Liability satisfied or unenforceable.--The Secretary finds that the liability for the amount assessed, together with all interest in respect thereof, has been fully satisfied or has become legally unenforceable; . . .

As Mr. Perry noted at trial, the bankruptcy discharge makes the lien legally unenforceable. He stated, while discussing a Chapter 7 discharge, "Prior to the discharge, [the lien] is not unenforceable, we have a stay but it is not unenforceable. And nobody really has the authority to release that lien until the court issues the discharge. That's the legal requirement to make it unenforceable." The IRS had no control over the timing of plaintiff's discharge from bankruptcy, so it could not agree to the ninety-day time period which plaintiff proposed. ⁹ Instead, Mr. Unger altered the terms of plaintiff's offer and responded with what is seen most reasonably as a counteroffer. Thus, defendant's March 28, 1995 letter was not an acceptance.

The above analysis finds support in the treatise Corbin on Contracts, which states that "[a] communicated offer creates a power to accept the offer that is made and only that offer. Any expression of assent that changes the terms of the offer in any material respect may be operative as a counter-offer; but it is not an acceptance and consummates no contract." 1 Corbin on Contracts §3.28 (1993) (footnote omitted). The terms of the March 28, 1995 IRS letter differed materially from plaintiff's offer by placing no limitation on the time period for release of the lien on the Clubhouse Drive property. Moreover, Mr. Unger's letter explicitly added another condition to the agreement, namely, that Mr. Buesing first had to obtain a discharge of a Chapter 7 bankruptcy proceeding before the lien would be released. ¹⁰ Mr. Unger's letter stated that the tax lien would be released "following Chapter 7 discharge by the [bankruptcy] court and receipt of $30,000.00." For these reasons, Mr. Unger's March 28, 1995 letter is seen most appropriately as a counteroffer to Mr. Buesing. ¹¹

It is well established that a counter-offer may be accepted by conduct. See Union Realty Co. , Ltd. v. Moses, 984 F.2d 715, 722 n.6 (6th Cir. 1993); see also Ismert & Assocs. v. New England Mut. Life Ins. Co., 801 F.2d 536, 541 (1st Cir. 1986) ("an offer may be accepted by overt acts."); Kurio v. United States [71-1 USTC ¶9112], 429 F.Supp. 42, 64 (S.D. Tex. 1970) ("a contract will arise if conduct by the original offeror following receipt of the late acceptance amounts to an acceptance of the counteroffer"). "Such acceptance does no violence to the 'mirror image' rule . . . ." Union Realty Co., Ltd. v. Moses, 984 F.2d at 722 n.6 (citing horn-book "mirror image" rule articulated in Canton Cotton Mills v. Bowman Overall Co., 149 Tenn. 18, 257 S.W. 398 (1924)).

Plaintiff argues that, if Mr. Unger's March 28, 1995 letter is seen as a counteroffer, a contract still was formed as a result of plaintiff's subsequent actions. Mr. Unger's counteroffer required three things: (1) that plaintiff convert his bankruptcy to a Chapter 7 proceeding, (2) that he pay the IRS $30,000.00, and (3) that he obtain a discharge of his bankruptcy. With respect to the first requirement, plaintiff's bankruptcy was converted from Chapter 11 to Chapter 7, and the conversion was made official by an Order of the bankruptcy court on April 26, 1995 . ¹² For the payment to the IRS , plaintiff attempted to accomplish this by presenting a certified check for $30,000.00 on June 16, 1995 . The IRS , however, refused acceptance. According to plaintiff, "By tendering the $30,000.00 before the IRS withdrew its self-styled counter-offer or proposal, Mr. Buesing substantially performed, and thereby accepted, the offer/proposal."

By presenting payment after the bankruptcy conversion, plaintiff argues that he performed the portion of Mr. Unger's requirements which were within plaintiff's power to effectuate. However, a close examination of plaintiff's conduct indicates that he was not accepting the counter-offer. Instead, plaintiff still was attempting to implement the terms of his original March 8, 1995 offer which had not been accepted by the IRS .

When plaintiff and his attorney attempted to present the $30,000.00 certified check to the IRS on June 16, 1995 , they requested that an IRS official sign a document which accompanied the check. The document, titled "Satisfaction and Receipt of Payment under Agreement," read as follows:

The Internal Revenue Service, by its authorized undersigned agent, acknowledges and accepts payment from Gerald Buesing (Taxpayer I.D. # 469-50-8084) in the amount of $30,000.00 paid this date in certified funds. Mr. Buesing's payment of $30,000.00 satisfies the payment required of him in the attached agreement between Mr. Buesing and the Internal Revenue Service, which payment must be made on or before the expiration of 90 days following March 28, 1995 .

This "payment satisfaction document" was provided to the court at trial as an exhibit. Unfortunately, the exhibit did not include the referenced "attached agreement," so it is at first unclear under what agreement plaintiff purported to be operating. However, the document's denotation of "before the expiration of 90 days following March 28, 1995 " recites a limitation--ninety days --which was only contained in plaintiff's original March 8, 1995 offer. Because plaintiff's March 8, 1995 letter had anticipated payment within ninety days of IRS acceptance, and because plaintiff's payment satisfaction document alleged that the ninety-day period had begun on March 28, 1995 , it is apparent that plaintiff believed his March 8, 1995 offer had been accepted by the IRS through Mr. Unger's March 28, 1995 letter. Thus, the "attached agreement" only could have been the plaintiff's March 8, 1995 offer or a summation of that offer's terms and conditions, and the court has noted above that the March 8, 1995 offer never was accepted by the IRS .

As plaintiff was attempting to perform the requirements of his March 8, 1995 letter, the court must agree with defendant that Mr. Buesing's actions could not have been an acceptance of Mr. Unger's March 28 counteroffer. The Restatement (Second) of Contracts §50(1) (1981) notes that "acceptance of an offer is a manifestation of assent to the terms thereof . . . ." With his belief that the ninety-day limitation was still valid, plaintiff was not assenting to the terms of defendant's counteroffer.

Furthermore, plaintiff's conduct in attempting payment provides additional evidence that there was no meeting of the minds. Defendant's counteroffer allowed for the release of the lien only "following Chapter 7 discharge by the court and receipt of $30,000.00." (Emphasis added.) When Mr. Buesing presented the certified check, he asked for an immediate release of the tax lien in exchange. This would have been appropriate under the terms of plaintiff's March 8, 1995 offer, but was unacceptable to the IRS because no discharge from bankruptcy had been granted yet. For the above reasons, the court holds that a contract never was formed between plaintiff and the IRS to achieve the release of the federal tax lien on the Clubhouse Drive property.

II. Material misrepresentation and unilateral mistake

Even were the court to hold that a contract existed between plaintiff and the IRS , defendant argues that it would be voidable due to a material misrepresentation on the part of plaintiff, or due to a unilateral mistake on the part of the IRS . In either instance, defendant's arguments center on the circumstances surrounding the sale of the Clubhouse Drive property.

With respect to the material misrepresentation contention, defendant states:

Plaintiff's misrepresentations regarding his wife's interest in the property, his intention to sell, the value of the property, and the actual listing and contract for sale at a higher price all induced Unger to believe that the property would not be sold and that the IRS would not receive more than $30,000 upon a forced sale. Had plaintiff not concealed the facts of the pending sale, Unger would have simply waited for the sale to occur and to receive the proceeds according to the IRS 's interest. Those proceeds were still insufficient to satisfy plaintiff's tax liability, and plaintiff certainly would have received nothing. Plaintiff had insufficient equity in his house to receive any funds from its sale after payment of the mortgage, the IRS , and his wife; he should not now receive such funds, and be enriched, as a result of his misrepresentations.

Defendant argues that plaintiff's intention to keep his home induced Mr. Unger to agree to an estimated value of the house rather than the most accurate value determined by the actual sale of the property. Plaintiff, in turn, counters that defendant should have known that keeping the house was not a certainty for plaintiff. Plaintiff's post-trial brief states:

Mr. Buesing has continually maintained that he certainly wanted to keep the house but that he stated that he might have to sell the house; that despite his fondness for the house, his financial situation, his failing business and his ongoing divorce--all of which the IRS was well aware--might prevent him from keeping the house.

As the court noted in its prior opinion in this case, the United States Court of Appeals for the Federal Circuit has quoted approvingly the Restatement (Second) of Contracts §162 (1979) defining material misrepresentation. See T. Brown Constructors, Inc. v. Pena, 132 F.3d 724, 729 (Fed. Cir. 1998) ("A misrepresentation is material if it would be likely to induce a reasonable person to manifest his assent, or if the maker knows that it would be likely to induce the recipient to do so."). The Restatement (Second) of Contracts §164(1) provides that a contract is voidable when (1) a party made a misrepresentation, (2) the misrepresentation was material, (3) the misrepresentation induced the other party to enter into the contract, and (4) the other party was justified in relying on the misrepresentation. See Morris v. United States , 33 Fed.Cl. 733, 745 (1995) (adopting the Restatement (Second) of Contracts test for misrepresentation); National Rural Util. Coop. Fin. Corp. v. United States, 14 Cl.Ct. 130, 142 (1988) (adopting the Restatement (Second) of Contracts test for misrepresentation), aff'd, 867 F.2d 1393 (Fed. Cir. 1989); Lehner v. United States, 1 Cl.Ct. 408, 415 (1983) (adopting the Restatement (Second) of Contracts test for misrepresentation). The United States Court of Appeals for the Federal Circuit has applied the same concept of material misrepresentation against both the government and a plaintiff in this court. See, e.g., Roseburg Lumber Co. v. Madigan, 978 F.2d 660, 667 (Fed. Cir. 1992); Summit Timber Co. v. United States, 230 Ct.Cl. 434, 441, 677 F.2d 852, 857 (1982); Morrison-Knudsen Co. v. United States, 170 Ct.Cl. 712, 719, 345 F.2d 535, 539 (1965); Morris v. United States, 33 Fed.Cl. 733, 744-47 (1995).

The evidence presented at trial indicates that, even had the court concluded that there was a contract, the contract would have been voidable due to plaintiff's misrepresentation about whether the Clubhouse Drive property would be sold. It is apparent that plaintiff made a misrepresentation by failing to inform Mr. Unger that the sale of the house would potentially go forward shortly. When plaintiff and Mr. Unger initially met to discuss plaintiff's bankruptcy and the tax lien on his house, plaintiff did disclose his financial and divorce problems, and he and Mr. Unger did discuss the possibility that plaintiff might have to sell his house. Mr. Unger confirmed this with his trial testimony. However, while the possibility of sale was raised, plaintiff's statements to Mr. Unger, as described by plaintiff at trial, would have left a reasonable person with the impression that plaintiff was going to keep the Clubhouse Drive property. Mr. Buesing testified as follows:

Q. Did you have a discussion or did you make, did you tell Mr. Unger what your intentions were with respect to the Clubhouse Drive home?

A. I was always quite clear in reference to settlement and payment and/or terms that I really only had two avenues because my business was not doing well enough for me to envision that paying off any kind of debt, is that even though I'd like to maintain the residence on Clubhouse Drive that it was either sell that or borrow the money, that those were the two options that I saw.

Q. Did you tell Mr. Unger that you wanted to keep the house?

A. Yes.

Q. Did you want to keep the house?

A. Definitely.

Thus, while plaintiff indicated that sale of the house was a possibility, he indicated to Mr. Unger that he did not want to choose that option. Furthermore, when asked whether he told Mr. Unger that he might not be able to keep the house, plaintiff's answer was evasive. He stated:

Because of everything that was going on in and around that time, Jeff [McKee, the questioning attorney], between working with the business and trying to get that back on its feet and working with the creditors, the accountants in reference to the dischargeability just prior to that, and all the other things that were going on financially, the divorce and so forth, I was just really pretty much upside-down.

In addition, plaintiff's testimony indicated that he, himself, did not see sale of the house as a realistic option. Plaintiff testified that "with the bankruptcy I was advised that the odds that I could get a mortgage if I could sell the house were nil, slim to none. And so my intentions were to keep the house. And I liked the house."

Plaintiff's communicated intention to keep the Clubhouse Drive property impacted the method by which Mr. Unger valued plaintiff's house. Instead of waiting for an actual sale of the home to occur to get an actual market value, Mr. Unger estimated the valuation of the house at $300,000.00 based on comparable properties information which plaintiff supplied. This was not Mr. Unger's preferred method of establishing a value for the house, a value which largely determined plaintiff's total equity in his real and personal property that was available to satisfy the IRS lien. Mr. Unger explained at trial:

Q. Would you agree that there are benefits to the IRS to agree to the value of real property such as the Clubhouse Drive home because an agreement provides certainty for the IRS ? You've got a number, it's a known commodity?

A. Actually, I don't agree with that. I think when I value a piece of property unknowingly, I'm at extreme risk. If I have a sale I know exactly what I'm getting and I can validate the sale. But I'm, I am never as comfortable with a valuation as I am with a sale.

Q. I heard you say "when I value a piece of property unknowingly." What does that mean?

A. It's a crap shoot. I mean you take some information. It's very hard to judge the real world out there or the marketplace. The marketplace changes. The uniqueness of his house, the very time we spent discussing how his house sold and what sold it, those are things that can only be measured by the sale.

Q. You're absolutely right. You're absolutely right. And it is a crap shoot. And doesn't that fact make it a good reason why the IRS wants to agree to a dollar figure?

A. Absolutely not. I would always take a sale over a guess.

Plaintiff's counsel further questioned Mr. Unger as to what the IRS response would have been if plaintiff's property had later sold for less than the estimated value, instead of more, as occurred here. Mr. Unger stated, "If you sell the property we get the equity. It's cut and dried. There's no guesswork, there's no decision making, it's a simple process." Importantly, Revenue Officer Unger concluded that "I would, we would never have done this, any of this if Mr. Buesing had said, I'm selling my property." ¹³

Plaintiff's expressed intent to keep his home is material because it affected Mr. Unger's valuation of plaintiff's home, and, hence, the IRS estimation of plaintiff's monetary interest in the property. This, in turn, affected the conditions under which the IRS was willing to release its lien, inducing defendant to allegedly enter into an agreement which defendant otherwise would have rejected. The consequences of plaintiff's expressed intent are evident in this case: the home eventually sold for $40,000.00 more than its estimated value, potentially leaving plaintiff with a windfall. ¹⁴ Had the IRS known that plaintiff was going to sell the property, it would have waited for the consummation of the sale in order to precisely determine plaintiff's monetary interest. This procedure would have avoided the possibility of the IRS shortchanging itself and collecting less from the plaintiff than it was legally entitled to under the lien.

Plaintiff argues that there was no misrepresentation because he originally desired to keep his house, at the time when he and the IRS allegedly reached an agreement to settle his tax lien. The evidence, however, contradicts this position. Plaintiff made his original offer, via letter, on March 8, 1995 . After ensuing discussions between Mr. Unger and plaintiff's attorney, defendant responded by letter on March 28, 1995 . As noted above, had the court concluded that a contract was formed, it could not have been prior to March 28, 1995 , because, based on the evidence in the record, the IRS letter of that date constituted the earliest possible acceptance. Prior to this purported acceptance of his offer, the record indicates that plaintiff had reversed his decision to keep his home. First, plaintiff signed a listing agreement with Century 21 Real Estate on March 15, 1995 which gave Century 21 the right to sell the Clubhouse Drive property beginning on March 16, 1995 . Second, he informed his divorce attorney on March 17, 1995 that he had reached a settlement with the IRS and needed to sell the home. Third, the Clubhouse Drive property was publicly advertised for sale in a local newspaper beginning on March 22, 1995 .

Plaintiff argues that, while the house was listed for sale, it was noted as being TOM , or "Temporarily Off the Market." However, one of plaintiff's real estate agents, Barbara Levanson, testified that any TOM restrictions are placed in the listing agreement. No such restriction appears in plaintiff's listing agreement. Moreover, the same agent recalled showing the house to potential buyers within the first week to ten days after it was listed, and stated that she could not recall any instance where a house was advertised in the newspaper if it was not available for purchase. While the testimony of plaintiff's other real estate agent, Alan Levanson, Barbara Levanson's husband, indicated that the house was TOM or perhaps otherwise held from sale, Mr. Levanson contradicted himself by noting other activity regarding sale of the house at that time, such as advertising which did not indicate TOM status.

It is apparent that plaintiff took affirmative steps to sell his house and failed to inform Mr. Unger of his change in position. Plaintiff's failure to inform the IRS of this information, coupled with his original stated desire to keep the Clubhouse Drive property, constituted a misrepresentation which caused Mr. Unger to estimate the value of plaintiff's home. Mr. Unger would not have agreed to estimate the value had he known that sale of plaintiff's home was imminent, and that he, therefore, could have obtained an actual sale value. Thus, the court concludes that, even had a contract been formed between plaintiff and the IRS , the contract would have been voidable due to a material misrepresentation on plaintiff's part.

Defendant also argues that "even if the Court were to determine that a binding agreement was formed between the IRS and plaintiff to release the lien for $30,000 while he was still in Chapter 7, the contract is voidable as a matter of law because of Unger's unilateral mistake." Largely for the same reasons that a material misrepresentation was found, in particular that plaintiff led defendant to believe he would keep the Clubhouse Drive property rather than sell it, the court believes that, had an agreement been formed between plaintiff and the IRS , it would be voidable by defendant due to a unilateral mistake.

Unilateral mistake is defined in the Restatement (Second) of Contracts §151 (1981), and states "[a] mistake is a belief that is not in accord with the facts." See National Rural Utils. Coop. Fin. Corp. v. United States , 14 Cl.Ct. at 141. In order to show that there was a unilateral mistake, a party must demonstrate a:

(1) Mistake by one party, not bearing the risk of such mistake, as to a basic assumption on which he made the contract;

(2) that has a material effect on the agreed exchange of performance; and

(a) the effect of the mistake is such that enforcement of the contract would be unconscionable; or

(b) the other party to the contract has reason to know of the mistake.

Northrop Grumman Corp. v. United States , 47 Fed.Cl. 20, 91 (2000) (quoting National Rural Utils. Coop. Fin. Corp. v. United States, 14 Cl.Ct. at 141); ¹⁵ Nevin v. United States, 43 Fed.Cl. 151, 154 (1999); aff'd, F.3d (Fed. Cir. 2000). As discussed with respect to material misrepresentation, Mr. Unger's belief that plaintiff would keep his house was a mistake which led Mr. Unger to estimate the value of plaintiff's house instead of waiting for its sale. The terms of the purported agreement between the IRS and plaintiff were based on the stated desire of plaintiff to keep the Clubhouse Drive property. Plaintiff retaining his residence was, thus, a basic assumption on which the IRS made the alleged contract, and the assumption's materiality has been demonstrated above in the court's analysis of the material misrepresentation claim.

In order to find that there was a unilateral mistake, however, the court must still determine that the IRS did not bear the risk of making a mistake, and that either (a) enforcement of the contract would be unconscionable, or (b) plaintiff had reason to know of the defendant's mistake. Northrop Grumman Corp. v. United States , 47 Fed.Cl. at 91. The Restatement (Second) of Contracts addresses "When a Party Bears the Risk of a Mistake" in section 154:

A party bears the risk of a mistake when

(a) the risk is allocated to him by agreement of the parties, or

(b) he is aware, at the time the contract is made, that he has only limited knowledge with respect to the facts to which the mistake relates but treats his limited knowledge as sufficient, or

(c) the risk is allocated to him by the court on the ground that it is reasonable in the circumstances to do so.

Restatement (Second) of Contracts §154 (1981).

In the present case, the risk of a mistake was not allocated to the defendant under the alleged contract or any other agreement. The court has noted that defendant was unaware of plaintiff's decision, prior to the time of plaintiff's alleged tax settlement with IRS , to seek the sale of his home. Defendant had been told by plaintiff that plaintiff desired to keep his home, and plaintiff made no effort to inform Mr. Unger that the Clubhouse Drive property had been listed for sale with realty agents and advertised for sale in a local newspaper. Mr. Unger could not reasonably have been aware that he did not possess the "whole story," and it would not be reasonable to allocate that risk to him in a situation in which plaintiff had an obligation to alert Mr. Unger of the change of mind with respect to the sale of the Clubhouse Drive property.

Furthermore, plaintiff had reason to know of defendant's mistake. As noted above, plaintiff informed Mr. Unger during their initial meetings that he desired to keep the Clubhouse Drive property. Apart from Mr. Buesing himself, only plaintiff's attorney was conversing with Mr. Unger on a regular basis regarding possible settlement of plaintiff's outstanding tax debt. There is no indication in the record that plaintiff informed his attorney of his attempts, prior to the date of the alleged settlement agreement, to sell his home. Consequently, plaintiff in all likelihood was the only person who could have informed Mr. Unger that he no longer intended to keep the property. Plaintiff, therefore, knew that, at the time of the purported agreement, Mr. Unger was still operating under the assumption that plaintiff wished to keep his home. ¹⁶ With reason to know of the defendant's mistake established, all of the elements for a unilateral mistake have been satisfied, and the court finds that, even had a contract been formed between plaintiff and the IRS , it would be voidable by the government.

III . Equitable estoppel

Plaintiff also contends that his situation meets the requirements to equitably estop the government from denying the existence of a contract between himself and the IRS . The doctrine of equitable estoppel is a remedy by which a party may be precluded, by a party's own act or omission, from asserting a right to which it otherwise would have been entitled. See Heckler v. Community Health Servs. of Crawford County, Inc., 467 U.S. 51, 59, 104 S.Ct. 2218, 81 L.Ed.2d 42 (1984). The traditional elements for asserting estoppel against the government in the context of a contract dispute are: "(1) the government must know the true facts; (2) the government must intend that its conduct be acted on or must so act that the [party] asserting the estoppel has a right to believe it so intended; (3) the [party] must be ignorant of the true facts; and (4) the [party] must rely on the government's conduct to his injury." JANA, Inc., v. United States , 936 F.2d 1265, 1270 (Fed. Cir. 1991), cert. denied, 502 U.S. 1030, 116 L.Ed.2d 775, 112 S.Ct. 869 (1992) (citing American Elec. Lab, Inc., v. United States , 774 F.2d 1110, 1113 (Fed. Cir. 1985); Emeco Indus. v. United States , 202 Ct.Cl. 1006, 485 F.2d 652, 657 (Ct. Cl. 1973)). To claim estoppel, a party must have relied on an "adversary's conduct 'in such a manner as to change his position for the worse' and that reliance must have been reasonable in that the party claiming the estoppel did not know nor should it have known that its adversary's conduct was misleading." See Heckler v. Community Health Servs. of Crawford County, Inc., 467 U.S. at 59 (quoting 3 J. Pomeroy, EQUITY JURISPRUDENCE §805, at 192 (S. Symons ed. 1941)).

Although the United States Supreme Court and other courts have left open the narrow possibility that under limited circumstances and in cases of affirmative misconduct by a government agent an estoppel claim against the government may succeed, ¹⁷ thus far, federal courts generally have done so only while rejecting, for a variety of reasons, each attempt at application of the estoppel theory in the particular case then before the court. See, e.g., Heckler v. Community Health Servs. of Crawford County, Inc., 467 U.S. at 66 (holding that the detriment faced was not so severe or imposed in such an unfair way as to invoke the estoppel doctrine); Office of Personnel Management v. Richmond, 496 U.S. 414, 434, 110 S.Ct. 2465, 110 L.Ed.2d 387 (holding that the courts cannot estop the Constitution and, therefore, there can be no "estoppel by a claimant seeking public funds"), reh'g denied, 497 U.S. 1046, 111 L.Ed.2d 821, 111 S.Ct. 5 (1990); Henry v. United States [89-1 USTC ¶9223], 870 F.2d 634, 637 (Fed. Cir. 1989) (holding that the oral advice given by an IRS agent did not constitute affirmative misconduct because the element of reasonable reliance was absent); Hanson v. Office of Personnel Management, 833 F.2d 1568, 1569 (Fed. Cir. 1987) (holding that misrepresentations made by Office Personnel Management and Office of Workers Compensation Programs officials to a benefits recipient did not constitute affirmative misconduct because the officials acted in good faith on the basis of the currently accepted reading of the statute).

Plaintiff's equitable estoppel claim fails because the factual situation at bar does not present elements which are required to press such a claim against the government. Most prominently, as discussed above, the government did not know the true facts in plaintiff's case. Defendant incorrectly believed that plaintiff would remain in his house, rather than sell it. As a result, defendant negotiated with plaintiff using an estimated valuation of the Clubhouse Drive property, rather than the preferred true sale value which defendant would have had available upon the house's sale.

Furthermore, plaintiff suffered no detriment in relying on the alleged agreement. Plaintiff's course of action, purportedly taken in reliance on the agreement with Mr. Unger, was the most favorable to him at the time. As defendant aptly notes:

When [plaintiff] converted to Chapter 7 on April 26, 1995 , he had been in default in his Chapter 11 proceeding for several months for failure to file a disclosure statement and plan of reorganization by January 31, 1995 . His only other option would have been dismissal from bankruptcy, which would have removed him from the protection of the bankruptcy laws and left him in the hands of each of his creditors to pursue their state law remedies against him. See 11 U.S.C. §349. Had he remained in Chapter 11, he would have [had] to have filed a reorganization plan, obtained the approval of his creditors, and paid off the debt, including the tax debt, to the extent of the allowed amount of the claims, over the course of several years out of his future income. The tax lien would not be released until final payment was made. See 11 U.S.C. §1129. By contrast, under Chapter 7, plaintiff's bankruptcy estate assets were liquidated, and his debts were discharged. See 11 U.S.C. §§726, 727.

Plaintiff also has not shown any detriment to his interests as a result of settling his divorce proceedings. The terms of the settlement were nearly identical to the terms of the original Antenuptial Agreement between Mr. Buesing and Ms. Michael. Plaintiff paid Ms. Michael an additional $5,000.00 above the original agreed upon sum, but any detriment from that extra payment was offset and outweighed by the fact that, in the settlement, Ms. Michael waived her right to claim a one-half interest in the Clubhouse Drive property. Moreover, plaintiff has not shown that the supposed agreement with the IRS influenced the terms of this divorce settlement.

Finally, to establish estoppel against the government, a party must show some affirmative misconduct on the part of a government official. Such misconduct is not present here. There is no indication in the record that Mr. Unger, Mr. Perry and the IRS ever attempted to cheat or deceive plaintiff. On the contrary, the record indicates that Mr. Unger and Mr. Perry were at all times honest and forthright with Mr. Buesing, and attempted to help him resolve a debt to the IRS in a manner which would have allowed him to retain his house. They did not go back on any "deal" with plaintiff because that "deal" simply did not exist.

CONCLUSION

After thoroughly reviewing the record and carefully examining the arguments put forth by both parties, the court has determined that no contract was formed in this case between the plaintiff and the IRS to gain the release of the federal tax lien on plaintiff's Clubhouse Drive property, and that the government is not equitably estopped from denying the existence of such a contract. Furthermore, even if a contract had been formed, the court holds that it would have been voidable by the defendant due to a material misrepresentation on plaintiff's part, and/or a unilateral mistake on defendant's part. For these reasons, plaintiff is not entitled to recover any net proceeds in excess of $30,000.00 from the sale of the Clubhouse Drive property, which were retained by the government. The Clerk's Office is directed to DISMISS the case.

IT IS SO ORDERED.

¹ Subsequent to the events of this case, Laura Michael remarried and now uses the surname Booras. For ease of reference, the court will refer to her as Laura Michael, or Ms. Michael, throughout this opinion.

² William Novotny, a partner at Mariscal, Weeks, already had been advising the Buesings with respect to a contemplated filing for bankruptcy.

³ That same day, August 24, 1993 , plaintiff recorded a Declaration of Homestead for the Clubhouse Drive property. Under Arizona law, the Declaration exempted up to $100,000.00 of equity in the residence from attachment, execution, or forced sale.

⁴ A discharge in bankruptcy operates to prohibit the IRS from collecting a tax debt as a personal liability of the taxpayer pursuant to 11 U.S.C. §524(a)(2) (1994), which addresses the "Effect of Discharge:"

(a) A discharge in a case under this title--

* * *

(2) operates as an injunction against the commencement or continuation of an action, the employment of process, or an act, to collect, recover or offset any such debt as a personal liability of the debtor, whether or not discharge of such debt is waived; . . .

However, the debtor's property, including the plaintiff's exempt property such as the Clubhouse Drive residence in the instant action, remains liable for a debt secured by a tax lien of the IRS pursuant to 11 U.S.C. §522(c)(2)(B) (1994) which addresses "Exemptions:"

(c) Unless the case is dismissed, property exempted under this section is not liable during or after the case for any debt of the debtor that arose, or that is determined under section 502 of this title as if such debt had arisen, before the commencement of the case, except--

* * *

(2) a debt secured by a lien that is--

* * *

(B) a tax lien, notice of which is property filed; . . .

⁵ Plaintiff understood that the IRS was not required to release its lien because he had not obtained a discharge from the Chapter 7 proceeding. On June 14, 1995 , plaintiff had filed an emergency motion with the bankruptcy court to abandon the exempt homestead ( Clubhouse Drive ) property from the Chapter 7 estate. On the same date, the court had entered an order abandoning the Clubhouse Drive property from plaintiff's estate.

⁶ The applicable statute, 26 U.S.C. §6325, titled "Release of lien or discharge of property," states in relevant part:

(b) Discharge of property.--

* * *

(3) Substitution of proceeds of sale.-- Subject to such regulations as the Secretary may prescribe, the Secretary may issue a certificate of discharge of any part of the property subject to the lien if such part of the property is sold and, pursuant to an agreement with the Secretary, the proceeds of such sale are to be held, as a fund subject to the liens and claims of the United States, in the same manner and with the same priority as such liens and claims had with respect to the discharged property.

⁷ This relief request was not advanced in the plaintiff's original Complaint, but has been raised in the plaintiff's post-trial briefs.

⁸ In the previous opinion in this case, the court noted the parties' dispute with respect to Mr. Unger's settlement authority:

The facts available to the court, in the parties' papers filed with the court, present uncertainty as to whether Revenue Agent Unger had the authority to bind the government in a contract to release the tax lien that was upon the plaintiff's property. The parties agree that Revenue Agent Unger was delegated in the place of his supervisor Edward Perry as Acting Chief of the Chapter 7/11 Insolvency Section of the Special Procedures Function Collection Branch of the IRS Collection Division in Phoenix , Arizona , on the day that Unger wrote the March 28, 1995 letter. In addition, there appears to be some controversy as to whether Revenue Agent Unger had obtained approval on the proposed settlement agreement from his superior, Mr. Perry. These facts are of material significance to the outcome of this litigation. Therefore, it is prudent for the court to deny the motion to dismiss, pending an appropriate determination of Revenue Agent Unger's authority.

Having heard the testimony of Mr. Unger and Mr. Perry, the court is satisfied that they considered the contemplated settlement terms at issue in this case, and that they needed no further approval from others within the IRS to bind the IRS to a settlement agreement in this case. As noted infra, however, the parties never entered into a settlement agreement, due in part to statutory limitations on the power of the IRS to release tax liens which precluded the IRS representatives from agreeing to some of plaintiff's proposed settlement terms.

⁹ Furthermore, plaintiff's attorney and Mr. Unger engaged in several interim conversations between March 8, 1995 and March 28, 1995 . During those conversations, the parties agreed that plaintiff would need to obtain a discharge under a Chapter 7 bankruptcy proceeding, rather than a Chapter 11 proceeding. As of March 28, 1995 , plaintiff had not yet converted from Chapter 11 to Chapter 7. When plaintiff did convert, his conversion would have begun a new sixty-day period in which creditors could have objected to a discharge, and the period would not have started until the first meeting of creditors after conversion. See Fed. R. Bankr. P. 1019(2); Fed R. Bankr. P. 4004(a). If the meeting of creditors took place more than thirty days from the date of conversion, the additional sixty-day period for discharge objections would have placed any possible discharge outside of ninety days from the time of the March 28, 1995 IRS letter. This likely scenario is further evidence that the IRS would not have agreed to a ninety-day limitation.

¹⁰ Plaintiff's attorney's March 8, 1995 offer letter had noted the parties' agreement that release of Mr. Buesing's tax liabilities was "subject to obtaining an Order Granting Discharge from the Bankruptcy Court," however, plaintiff's attorney had not indicated when that discharge from bankruptcy had to occur.

¹¹ The court notes that its prior opinion in this case indicated that a contract perhaps had been formed. That position, however, was a preliminary finding based upon an incomplete record. After conducting a trial, compiling a fully-developed body of evidence, and re-reading pertinent documents within the context of the parties' testimony, the court has re-evaluated its position and cannot conclude that a contract was ever formed between plaintiff and the IRS .

¹² It is unclear whether plaintiff affirmatively decided to convert from a Chapter 11 bankruptcy proceeding to a Chapter 7. The bankruptcy court converted plaintiff's proceeding because plaintiff failed to file a Chapter 11 disclosure statement and plan of reorganization by a January 31, 1995 deadline.

¹³ Later, when discussing his March 28, 1995 letter to plaintiff, Mr. Unger explained why he had not stated a condition in his letter that plaintiff not sell the Clubhouse Drive property: "I thought we had agreed to that two years ago, well, in our very first meeting with the commitment I want to keep the house. Because at that time I made the commitment I'm willing to go the route that allows you to keep your house."

¹⁴ Plaintiff attempts to argue that $40,000.00 difference between the sale price of the Clubhouse Drive property and the estimated value of the property is due to the inclusion of furnishings with the sale of the home. Plaintiff contends that the furnishings were worth approximately $30,000.00. Mr. Buesing has failed to convince the court that this is true. No evidence was offered to substantiate this contention apart from the testimony of Mr. Buesing and one of his real estate agents. It is also noteworthy that plaintiff listed the value of these furnishings at the exempt limit of $2,500.00 in his bankruptcy filings. Plaintiff cannot have it both ways: a low value to avoid his creditors in bankruptcy and a high value to make it appear that his home is worth less the sale price would indicate.

¹⁵ The court in National Rural Utils. Coop. Fin. Corp. v. United States, 14 Cl.Ct. at 141 cited the Restatement (Second) of Contracts §153, which states:

§153. When Mistake of One Party Makes a Contract Voidable

Where a mistake of one party at the time a contract was made as to a basic assumption on which he made the contract has a material effect on the agreed exchange of performances that is adverse to him, the contract is voidable by him if he does not bear the risk of the mistake under the rule stated in §154, and

(a) the effect of the mistake is such that enforcement of the contract would be unconscionable, or

(b) the other party had reason to know of the mistake or his fault caused the mistake.

Restatement (Second) of Contracts §153 (1981). The term "reason to know" is discussed in the Restatement (Second) of Contracts in section 19, comment b:

A person has reason to know a fact, present or future, if he has information from which a person of ordinary intelligence would infer that the fact in question does or will exist. A person of superior intelligence has reason to know a fact if he has information from which a person of his intelligence would draw the inference. There is also reason to know if the inference would be that there is such a substantial chance of the existence of the fact that, if exercising reasonable care with reference to the matter in question, the person would predicate his action upon the assumption of its possible existence.

Reason to know is to be distinguished from knowledge and from "should know." Knowledge means conscious belief in the truth of a fact; reason to know need not be conscious. "Should know" imports a duty to others to ascertain facts; the words "reason to know" are used both where the actor has a duty to another and where he would not be acting adequately in the protection of his own interests were he not acting with reference to the facts which he has reason to know.

Restatement (Second) of Contracts §19 cmt. b (1981) (footnotes omitted).

¹⁶ In the end, Mr. Unger did not become aware of a possible sale until plaintiff found a buyer and had his attorney request an immediate release of the federal tax lien on June 15, 1996 to facilitate the sale of the home.

¹⁷ Under the Heckler test and subsequent definitions of the elements of estoppel, without affirmative misconduct on the part of the government, there can be no equitable estoppel against the government. See Westinghouse Elec. Corp. v. United States, 41 Fed.Cl. 229, 240-241 (1998); see also Hanson v. Office of Personnel Management, 833 F.2d 1568, 1569 (Fed. Cir. 1987).

 

2001-2 USTC ¶50,783] United States of America, Plaintiff v. Jacob Evseroff, et al., Defendants

U.S. District Court, East. Dist. N.Y., CIV . CV 00-6029 (DGT), 11/6/2001, Related opinions at (DC) 2000-2 USTC ¶50,807 and (CA) 2001-2 USTC ¶50,486 .

[Code Sec. 6501 ]

Deficiencies: Evidence: Burden of proof: Form 4340.--The government was entitled to an award of summary judgment with respect to its action to reduce to judgment federal income tax deficiencies assessed against an attorney that arose as a result of his investments in illegal tax shelters. The government's submission of properly certified Form 4340's for all of the tax years at issue constituted presumptive proof that the assessments were valid. Absent proof by the taxpayer that the assessments and a subsequent levy of his personal property were improper, he failed to meet his burden of proof.

[Code Sec. 7122 ]

Deficiencies: Offers-in-compromise, fraudulent: Evidence: Equitable estoppel: Discovery.--An attorney's equitable estoppel defense was rejected where the government proved that an offer-in-compromise that he submitted was fraudulently prepared by his accountant. There was no misrepresentation on the part of the government that the offer was accepted. Moreover, rather than attempting to establish the authenticity of the documents in issue, the taxpayer unsuccessfully argued that further discovery was necessary to demonstrate that the IRS had accepted his offer. Because his request for additional discovery was speculative and failed to demonstrate that further discovery would turn up any genuine issues, his request for additional discovery was denied.

[Code Sec. 6502 ]

Deficiencies: Enforcement of liens: Assessment date: Statute of limitations.--The government was entitled to reduce to judgment federal income tax deficiencies assessed against an attorney that arose as a result of his investments in illegal tax shelters. His statute of limitations defense was rejected because the government's attempts to collect were made within 10 years from the date of the assessments.

[Code Secs. 7401 and 7403 ]

Deficiencies: Assessment date: Offers-in-compromise, fraudulent: Evidence: Failure to state a claim.--The government was entitled to an award of summary judgment with respect to its action to reduce to judgment federal income tax deficiencies assessed against an attorney that arose as a result of his investments in illegal tax shelters. He failed to carry his burden of proving that the assessments were incorrect. Moreover, his contention that the government failed to state a claim lacked merit because the government had authority, under Code Sec. 7401 and Code Sec. 7403 to request that the assessments be reduced to judgment.

MEMORANDUM AND ORDER

TRAGER, District Judge:

The United States brought this action to: (1) reduce to judgment federal tax assessments against Jacob Evseroff, (2) establish the validity of liens on Evseroff's property, (3) foreclose on those liens, and (4) determine the interests of various parties in some of that property. The United States alleges that Evseroff owes taxes, interest, and penalties from 1978-82, 1991-92, and 1996. The assessments from 1978-82 were entered as a decision of the United States Tax Court in November 1992, and the IRS subsequently assessed Evseroff with additional tax liabilities for 1991-92 and 1996. The United States now moves for all of the assessments to be reduced to judgment on the pleadings pursuant to Rule 12(c) of the Federal Rules of Civil Procedure ("FRCP"), or, in the alternative, for summary judgment under Rule 56. In addition, the United States moves for the assessments to be entered as final judgment pursuant to Rule 54(b) of the FRCP, leaving the claims regarding the validity and foreclosure of the liens and the determination of interests in the property pending.

Background

Evseroff, a licensed attorney and a former Assistant District Attorney in Brooklyn, purchased a series of tax shelter investment programs between 1978 and 1982 from his office suite co-tenant, John Serpico. Affidavit of Jacob Evseroff ("Evseroff Aff.") ¶6. Evseroff believed the tax shelters were legal and approved by the IRS . Id. After an audit, however, the IRS notified Evseroff in December 1990 that he owed approximately $900,000 in taxes, penalties, and interest relating to the tax shelters. Evseroff Aff. ¶8. When Evseroff confronted Serpico with the notice, Serpico told him that the IRS had disallowed the tax benefits in 1985 or 1986. Id.

Represented by Serpico, Evseroff challenged the IRS assessments in the United States Tax Court in April 1992. Evseroff Aff. Ex. A. On June 4, 1992, Evseroff transferred his interest in certain properties to his sons and grandchildren through a trust agreement. United States' Complaint ("U.S. Compl.") Ex. 4; Evseroff Ans. ¶22. On November 5, 1992, the Tax Court entered a decision for $209,113 in taxes and penalties on consent. Evseroff Aff. Ex. B.

In an attempt to reduce the amount of his tax liability, in 1993 Evseroff retained James Graves, a public accountant, to represent him before the IRS . Evseroff Aff. ¶11. Evseroff claims that Graves told him that the IRS told Graves it would accept $110,000 as full settlement of Evseroff's tax liability under its "Offer in Compromise" program. Id. Evseroff claims he authorized Graves to submit the offer to the IRS . Evseroff Aff. ¶12.

According to Evseroff, he received a letter from the IRS dated December 31, 1993 accepting the offer-in-compromise agreement. Evseroff Aff. Ex. C. The purported IRS letter instructed Evseroff to pay the IRS $1,600 per month for 48 months to satisfy his liability. Id. Two other purported IRS letters reflecting the offer-in-compromise exist, one allegedly sent to Graves dated July 6, 1994 , and one allegedly sent to Evseroff and his wife dated August 2, 1994 . United States' Reply in Support of Motion for Judgment ("U.S. Reply") Ex. 11. Between January and September 1994, Evseroff made nine $1,600 payments to the IRS . Evseroff Aff. ¶12. All of the checks stated they were for a tax settlement. Evseroff Aff. Ex. D. The IRS accepted the checks, deposited them, and stamped on the back, "FOR CREDIT TO THE U.S. TREASURY." Id. At the time, the IRS apparently did not inform Evseroff how the funds from the checks would be applied. United States Memorandum of Oct. 18, 2001 . IRS documents indicate that the payments were applied to Evseroff's tax liability for 1978. U.S. Reply. Ex. 12.

The United States contends that the IRS never accepted any offer-in-compromise from Evseroff, and that the letters of December 31, 1993 , July 6, 1994 , and August 2, 1994 are counterfeit. U.S. Reply at 2-9. According to the United States, IRS paper files and computer records in the facilities that serviced the areas in which Evseroff owned homes in 1993 and currently were checked and showed no record that the IRS ever accepted an offer-in-compromise from Evseroff. U.S. Reply Ex. 7-10.

The United States contends that the information contained in the letter proves that it was not issued by the IRS . The letter indicates it was sent from the IRS Brookhaven Service Center, but the United States contends that in 1993 and 1994 the Brookhaven Service Center had no offer-in-compromise function other than rerouting to other IRS facilities offer-in-compromise materials erroneously sent there. U.S. Reply Ex. 8. In addition, the United States claims that its correspondence records do not contain an entry indicating that a letter was issued. Id.

According to the United States, the language of the letter does not accurately reflect IRS correspondence and procedures regarding an offer-in-compromise. The letter has a notation that it is a " LTR 105C," which the United States asserts is used to indicate a letter the IRS sends to notify a taxpayer that his administrative claim for a tax refund has been denied, and that such a letter is not used in connection with an offer-in-compromise. Id. The United States also contends that contrary to IRS procedures regarding an offer-in-compromise, the letter: (1) does not contain specific payment terms or discuss actions available to the IRS in case the taxpayer defaults, (2) claims to close the case before all payments were received, and (3) appears to contain contradictory language about when Evseroff should pay his 1992 taxes. Id.

The United States also contends that the July 6, 1994 and August 2, 1994 letters are counterfeit. The United States alleges that Graves admitted to an IRS criminal investigator in April 1996 that he counterfeited them. Evseroff Aff. Ex. F; U.S. Reply Ex. 11. The investigator, James Martin, interviewed Graves twice in April 1996. Evseroff Aff. Ex. F. According to an arrest warrant affidavit prepared by Martin, in the first interview Graves denied any knowledge that the letters might be fraudulent. Id. In the second interview, however, Graves stated that he had fraudulently prepared both letters, doing a "cut and paste" job to create the false impression that they were issued by the IRS . Id.

Furthermore, the United States claims that, as with the December 31, 1993 letter, the other two letters do not accurately reflect IRS correspondence and procedures regarding an offer-in-compromise. Like the December 31, 1993 letter, the other two letters indicate they were sent from the IRS Brookhaven Service Center, which the United States contends had no offer-in-compromise function in 1993 and 1994. U.S. Reply Ex. 8. The signature block of these two letters indicates they were written by "D. Lewis" in the "Special Procedures" section, but Martin found in his investigation that no person with that name worked at the Brookhaven Service Center in 1994 and that there was no Special Procedures function at the Brookhaven Service Center that year. U.S. Reply Ex. 11. Finally, Martin also found that the letters contain bar codes that refer to employment tax numbers of a taxpayer other than Evseroff or his wife. Id.

In the late summer of 1994, the IRS placed a lien on Evseroff's home in Florida and ordered his checking account seized. Evseroff Aff. ¶13. Evseroff claims this was when he learned that the IRS contended it had no record of accepting his offer-in-compromise. Evseroff Aff. ¶13.

In 1997, Evseroff filed suit against the IRS alleging it had improperly attempted to collect taxes from him. The action was subsequently dismissed. Evseroff v. Internal Revenue Service [2000-2 USTC ¶50,807], 86 A.F.T.R.2d 2000-6711 (E.D.N.Y. 2000), aff'd, Evseroff v. Internal Revenue Service [2001-2 USTC ¶50,486], No. 00-6331, 2001 WL 668528 (2d Cir. June 12, 2001 ). In that case, Evseroff relied on the purported IRS letters, and the court stated that Graves had forged them. Id. at *1.

From 1992 to 1997, the IRS assessed Evseroff additional tax liabilities based on his 1991, 1992, and 1996 tax returns. U.S. Compl. ¶10. These assessments were not part of the Tax Court decision and apparently are not alleged to be covered by the offer-in-compromise Evseroff claims was accepted by the IRS .

Including all payments, credits, and additional interest and penalties, the United States claims that Evseroff owed $1,546,682.08 as of May 31, 2000 , plus additional statutory interest. U.S. Compl. ¶12.

The United States brought this action on October 5, 2000 , to: (1) reduce the federal tax assessments from 1978-82, 1991-92, and 1996 against Evseroff to judgment; (2) establish the validity of liens of the United States on all of Evseroff's property; (3) foreclose on the lien on a piece of real estate in Brooklyn, N.Y. and the other assets of the 1992 trust agreement; and (4) determine the interests and priority of the United States and several defendants in proceeds from a court-ordered sale or liquidation of the Brooklyn property and the trust agreement.

Discussion

(1)

The United States now moves for entry of judgment on the pleadings pursuant to Rule 12(c) of the FRCP, or, in the alternative, for summary judgment under Rule 56, to reduce to judgment the federal tax assessments made by the United States Tax Court and the IRS . ¹ This court has jurisdiction to reduce to judgment federal tax assessments under 26 U.S.C. §7402(a). See United States v. Scherping [99-2 USTC ¶50,758], 187 F.3d 796 (8th Cir. 1999); United States v. Kyser, 78 A.F.T.R.2d 96-6737 (W.D.N.Y. 1996).

The standard for granting a Rule 12(c) motion for judgment on the pleadings is the same as that for a Rule 12(b)(6) motion for failure to state a claim. Patel v. Contemporary Classics of Beverly Hills, 259 F.3d 123, 126 (2d Cir. 2001). For both motions, the court must accept the non-movant's allegations as true, viewing the facts in the light most favorable to the non-moving party. Sheppard v. Beerman, 18 F.3d 147, 150 (2d Cir. 1994). A Rule 12(c) motion should be granted if the movant is entitled to judgment as a matter of law. Burns Int'l Sec. Servs. v. Int'l Union, 47 F.3d 14, 16 (2d Cir. 1994).

In its initial motion, the United States sought entry of judgment on the pleadings because Evseroff's answer did not deny the complaint's allegations that: (1) the United States Tax Court entered a decision against him on November 5, 1992 ; (2) the IRS made assessments against him in 1978, 1979, 1980, 1981, 1982, 1991, 1992, and 1996; and (3) the total amount owed by Evseroff as of May 31, 2000 was $1,546,682.08 plus additional statutory interest. United States' Memorandum of Law in Support of Motion ("U.S. Mem.") at 1-4.

Clearly, however, Evseroff's answers were not intended to admit the United States' allegations. Instead, Evseroff only agreed that the complaint correctly stated the Tax Court decision and the IRS assessments. Evseroff Answer ("Evseroff Ans.") ¶¶10, 12. For example, responding to the complaint's chart of taxes owed and subsequent penalties, fees, and interest, Evseroff answered: "In response to the allegations contained in paragraph 10 of the Complaint, refers to the IRS transcripts for their true and complete contents." Evseroff Ans. ¶10. Evseroff's other answers are substantially the same, and are far from admissions that he, in fact, owes the amount listed above to the IRS . The United States' motion for judgment on the pleadings is therefore denied.

(2)

In the alternative, the United States moves for summary judgment pursuant to Rule 56 of the FRCP. Summary judgment is granted when "there is no genuine issue as to any material fact and . . . the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c). On a motion for summary judgment, the court must consider "whether the evidence presents a sufficient disagreement to require submission to a jury or whether it is so one-sided that one party must prevail as a matter of law." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 251-52, 106 S.Ct. 2505, 2512 (1986). In making this determination, all factual inferences must be drawn in favor of the party against whom summary judgment is sought, viewing the factual assertions in materials such as affidavits, exhibits, and depositions in the light most favorable to the party opposing the motion. Id. at 255, 106 S.Ct. at 2513; Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 2552 (1986). However, "conclusory statements, conjecture, or speculation" by the non-moving party will not defeat the motion. Kulak v. City of New York, 88 F.3d 63, 71 (2d Cir. 1996).

a. Proper Notice and Demand

Evseroff argues that judgment should not be entered because the United States has not proven that it took the proper steps to issue notice and demand to assess the unpaid taxes and penalties. Evseroff does not offer any evidence that the proper steps were not taken. Instead, he argues that the United states has the burden of proving it took those steps, and that he is entitled to discovery on the issue.

An IRS assessment is made "by recording the liability of the taxpayer in the office of the Secretary in accordance with rules or regulations proscribed by the Secretary." 26 U.S.C. §6203. The IRS satisfies its obligations under this statute when an assessment officer signs a summary record of assessment describing: (1) the taxpayer's name and address; (2) the character of the assessed liability; (3) the taxable period (if any); and (4) the amount of the assessment. Treas. Reg. §301.6203-1. These steps are reflected in Certificates of Assessments and Payments, known as Forms 4340, issued by the IRS . "Courts consistently regard such certificates as presumptively correct and as being sufficient proof, in the absence of evidence to the contrary, of the adequacy and propriety of the notices and assessments listed therein." United States v. Kyser, 78 A.F.T.R.2d 96-6737 (W.D.N.Y. 1996) (citing Hefti v. I.R.S. [93-2 USTC ¶50,591], 8 F.3d 1169, 1172-73 (7th Cir. 1993)).

The United States has submitted properly certified Forms 4340 for all eight of the years in question. U.S. Reply Ex. 12. Evseroff has offered no evidence to contradict their validity, only a conclusory claim that the United States has not proven that it took the proper steps to issue notice and demand. "Conclusory allegations will not suffice to create a genuine issue. There must be more than a 'scintilla of evidence' and more than 'some metaphysical doubt as to the material facts.' " Delaware & Hudson Ry. Co. v. Consolidated Rail Corp., 902 F.2d 174, 178 (2d Cir. 1990) (quoting Anderson, 477 U.S. at 252, 106 S.Ct. at 2512, and Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586, 106 S.Ct. 1348, 1356 (1986)). Accordingly, the court presumes that proper notice and demand was made for the assessments.

b. Offer-in-Compromise

Evseroff argues that the IRS accepted his offer-in-compromise, superseding its right to collect any other amount now. ² Evseroff Aff. ¶16. The United States responds that the IRS never accepted any offer-in-compromise from Evseroff, and that letters of December 31, 1993 , July 6, 1994 , and August 2, 1994 are counterfeit. U.S. Reply at 2-9.

Evseroff does not offer any evidence that the letters are authentic. Instead, he argues that he needs further discovery to demonstrate that the IRS accepted his offer-in-compromise. Evseroff contends that he needs discovery of Evseroff's accountant Graves, Martin, who conducted the IRS investigation into Graves' alleged forgery, an unnamed IRS employee who assisted Martin, and the IRS personnel who processed his 1993 offer-in-compromise to determine if someone with IRS did, in fact, accept the offer. Evseroff Aff. ¶¶13, 18. Evseroff seeks depositions of the individuals and document discovery from the IRS .

Rule 56(f) of the FRCP governs situations in which a party may need more discovery in order to oppose a summary judgment motion. The rule states:

Should it appear from the affidavits of a party opposing the motion [for summary judgment] that the party cannot for reasons stated present by affidavit facts essential to justify the party's opposition, the court may refuse the application for judgment or may order a continuance to permit affidavits to be obtained or depositions to be taken or discovery to be had or may make such other order as is just.

Fed.R.Civ.P. 56(f).

In the Second Circuit, a party opposing summary judgment on the ground that it needs more discovery under Rule 56(f) must present his contention by affidavit. Paddington Partners v. Bouchard, 34 F.3d 1132, 1137 (2d Cir. 1994). "A reference to Rule 56(f) and to the need for additional discovery in a memorandum of law in opposition to a motion for summary judgment is not an adequate substitute for a Rule 56(f) affidavit." Id. The failure to file a Rule 56(f) affidavit alone is sufficient grounds to reject a claim that the opportunity for discovery was inadequate. Id.

Evseroff's request for further discovery does not mention Rule 56(f) and is not styled as a Rule 56(f) affidavit. His only reply to the United States' motion was an "affidavit" in which he made both factual assertions and legal arguments. In some cases, courts have denied a request for additional discovery because the party's affidavit did not reference Rule 56(f). See, e.g., AAI Recoveries, Inc. v. Pijuan, 13 F.Supp.2d 448, 452 (S.D.N.Y. 1998). Other courts have construed an affidavit to "function" as a Rule 56(f) affidavit. See Lukas v. Triborough Bridge and Tunnel Auth., No. CV-92-3680, 1993 WL 597132, at *8, 11 and n.3 (E.D.N.Y. Aug. 18, 1993 ). Again, Evseroff's request for further discovery could be denied on this basis alone.

Even if Evseroff's "affidavit" is liberally construed to allow it to be treated as a Rule 56(f) affidavit, the Second Circuit requires such an affidavit to include: "(1) what facts are sought and how they are to be obtained, (2) how those facts are reasonably expected to create a genuine issue of material fact, (3) what effort affiant has made to obtain them, and (4) why the affiant was unsuccessful in those efforts." Meloff v. New York Life Ins. Co., 51 F.3d 372, 375 (2d Cir. 1995).

Evseroff's affidavit only partially satisfies these requirements. He does specify that he seeks to determine whether anyone at the IRS accepted his offer-in-compromise and that this will be obtained through "discovery" of Graves, Martin, and unnamed IRS employees. Evseroff also states that he hopes to obtain documents from the IRS establishing that it accepted his offer in December 1993. However, he does not fully state how this discovery would reasonably be expected to generate a genuine issue of material fact. Regarding Graves, Evseroff argues that since Graves at first denied to Martin any knowledge that the letters were fraudulent, a deposition is needed to clear up this inconsistency. In theory, Graves could recant his admission that he forged the letters and direct Evseroff to the IRS personnel that accepted the offer-in-compromise. Considering that it is unchallenged that Graves subsequently admitted to Martin that he forged the July 6, 1994 and August 2, 1994 letters, this is, at best, a highly speculative theory about what could be discovered. Taking Graves' deposition therefore cannot reasonably be expected to generate a genuine issue of material fact.

Likewise, deposing Martin or the unnamed IRS employee who assisted him cannot reasonably be expected to uncover evidence of the material issue of whether the IRS accepted Evseroff's offer-in-compromise. According to his affidavit, Martin only investigated whether the letters were forged. There is no evidence that he conducted an investigation within the IRS to determine if the IRS did, in fact, accept Evseroff's offer-in-compromise. Therefore, deposing him or his unnamed assistant cannot reasonably be expected to generate a genuine issue of material fact.

Evseroff did correctly specify that discovery of other, unnamed IRS personnel and document requests could possibly lead to evidence that the IRS accepted the offer-in-compromise. However, aside from the fact that the United States has already searched its records and failed to find any evidence that it accepted Evseroff's offer-in-compromise, Evseroff has not explained what efforts, if any, he has made to obtain these facts, and why he was unsuccessful in those efforts. This failure is magnified by the opportunities for discovery previously available to Evseroff which he did not utilize. From the outset of this action, Eversoff [Evseroff] knew that his defense would be that the IRS accepted his offer-in-compromise. The complaint against Evseroff was filed October 5, 2000 and Evseroff filed his answer on January 2, 2001 , but the docket sheet does not show any steps he took to obtain discovery. It was only in his May 30, 2001 response to the United States' motion for judgment on the pleadings or summary judgment that he raised the need for discovery.

Moreover, Evseroff either was or should have been aware from even before the beginning of this case that he would likely need discovery regarding the authenticity of the purported IRS letters because the issue was raised in his previous suit against the IRS . See Evseroff v. Internal Revenue Service [2000-2 USTC ¶50,807], 86 A.F.T.R.2d 2000-6711, at *1 (E.D.N.Y. 2000). In that case, Evseroff relied on the purported IRS letters, and Graves' forgery was reported. Id. While the failure to comply with the third and fourth requirements is not automatically fatal to a Rule 56(f) affidavit, the total absence of reference to efforts to obtain the needed facts can result in defeat of the request for additional discovery. See Paddington Partners, 34 F.3d at 1139; Bonnie & Co. Fashions, Inc. v. Bankers Trust Co., 945 F.Supp. 693, 706-07 (S.D.N.Y. 1996). Evseroff thus had a fully adequate opportunity for discovery and did not take it.

As the party opposing the motion for summary judgment, Evseroff is usually entitled to "the opportunity to discover information that is essential to his opposition." Berqer v. United State, 87 F.3d 60, 65 (2d Cir. 1996) (internal quotation marks omitted). "But the trial court may properly deny further discovery if the nonmoving party has had a fully adequate opportunity for discovery." Trebor Sportswear Co. v. The Limited Stores, Inc., 865 F.2d 506, 511 (2d Cir. 1989). Moreover, a court may deny a request for further discovery "if it deems the request to be based on speculation as to what potentially could be discovered." Paddington Partners, 34 F.3d at 1138. The "bare assertion" that the evidence supporting a party's allegation is in the hands of his opponent is "insufficient to justify a denial of a motion for summary judgment under Rule 56(f)." Id. (quoting Contemporary Mission, Inc. v. U.S. Postal Serv., 648 F.2d 97, 107 (2d Cir. 1981)) (internal quotation marks omitted).

As noted, Evseroff had an opportunity to discover the information he seeks. In addition, Evseroff's request is only slightly more than a bare assertion that the IRS has evidence to support his claim. Indeed, Evseroff states in his affidavit that "[e]vidence may exist to indicate that the IRS accepted my Offer in Compromise in December 1993." Evseroff Aff. ¶18. The existence of the purported IRS letters makes Evseroff's argument more than speculation about what potentially might be discovered, but not much more. As noted above, depositions of Martin, Graves, and the unnamed IRS employee who assisted Martin's investigation will not uncover evidence that the IRS accepted Evseroff's offer-in-compromise. Evseroff's vague request for discovery of unnamed IRS personnel is based on speculation about what might be discovered. Nor will document discovery of the IRS aid Evseroff. The United States has already searched its records and failed to find any evidence that it accepted Evseroff's offer-in-compromise. Additional discovery is therefore futile.

For these reasons, Evseroff's request for further discovery is denied.

(3)

In his opposition to the United States' motion, Evseroff contends that judgment should not be entered because he has asserted several affirmative defenses. However, none of these defenses are a bar to entry of judgment.

a. Failure to state a claim

First, Evseroff asserts as an affirmative defense that the United States has failed to state a claim as to which relief can be granted. This argument is without merit. The United States merely asks for the Tax Court decision and the federal tax assessments to be reduced to judgment. The United States has the authority under 26 U.S.C. §§7401, 7403 to request that the assessments be reduced to judgment, and the Court has subject matter jurisdiction to reduce the assessments to judgment under 26 U.S.C. §7402(a). Accepting all of the United States' factual allegations as true, the United States has not failed to state a claim.

b. Statute of Limitations

Second, Evseroff claims that the United States' action is barred by applicable statues of limitation. Evseroff raised this contention in his suit against the IRS regarding his tax assessments for 1978-82, and the court conclusively rejected it. Evseroff v. Internal Revenue Service [2000-2 USTC ¶50,807], 86 A.F.T.R.2d 2000-6711, at *4 (E.D.N.Y. 2000), aff'd [2001-2 USTC ¶50,486], No. 00-6331, 2001 WL 668528 (2d Cir. June 12, 2001 ). Under 26 U.S.C. §6502(a), the IRS has 10 years from the date of assessment for the collection of taxes. The court determined that the first assessment on March 10, 1993 was timely under 26 U.S.C. §§6501(a), 6501(c)(4), 6503(a)(1), and 7481(a)(1), and thus concluded that the IRS has until March 10, 2003 to begin collection of the taxes from these years.

Nor has the statute of limitations run on Evseroff's additional tax assessments for 1991, 1992, and 1996. According to the Form 4340 for Evseroff's 1991 tax liability, he was assessed on November 9, 1992 , giving the IRS until November 8, 2002 to begin collection. U.S. Reply Ex. 12. Similarly, the assessment for 1992 was made on October 10, 1993 , giving the IRS until October 9, 2003 to begin collection, and the 1996 assessment was made on November 24, 1997 , giving the IRS until November 23, 2007 to start.

Evseroff makes no additional allegations in his affidavit, so his argument is to no avail.

c. Laches

Similarly, Evseroff argues as an affirmative defense that the United States' claim is barred by the doctrine of laches. This argument is also without merit. "It is well settled that the United States is not . . . subject to the defense of laches in enforcing its rights." United States v. Summerlin [40-2 USTC ¶9633], 310 U.S. 414, 416, 60 S.Ct. 1019, 1020 (1940). In fact, laches is especially inappropriate in the area of tax collection. See United States v. De Beradinis [75-2 USTC ¶9530], 395 F.Supp. 944, 953-54 (D. Conn. 1975).

d. Estoppel

The final affirmative defense asserted by Evseroff is estoppel. The traditional elements of an estoppel claim are: "(1) the defendant made a definite misrepresentation of fact, and had reason to believe that the plaintiff would rely on it; and (2) the plaintiff reasonably relied on that misrepresentation to his detriment." Wall v. Construction & General Laborers' Union, Local 230, 224 F.3d 168, 176 (2d Cir. 2000). Furthermore, the doctrine of estoppel does not generally lie against the federal government. See Office of Personnel Mgmt. v. Richmond, 496 U.S. 414, 422-24, 110 S.Ct. 2465, 2470-71 (1990). In the Second Circuit, estoppel against the government is limited to those cases in which the party can establish both the traditional elements of estoppel, and that the government engaged in affirmative misconduct. City of New York v. Shalala, 34 F.3d 1161, 1168 (2d Cir. 1994); Estate of Carberry v. C.I.R. [91-1 USTC ¶50,280], 933 F.2d 1124, 1127 (2d Cir. 1991).

Evseroff does not elaborate on why the United States should be estopped from having judgment entered against him. The best reading of this defense is that the IRS misrepresented that it had accepted an offer-in-compromise through the three purported letters and by depositing the nine checks. Neither of these alleged misrepresentations, however, can sustain an estoppel defense as a matter of law.

Depositing the checks is not a misrepresentation by the government nor does it constitute affirmative misconduct. Compromise offers can only be accepted by the provisions of 26 U.S.C. §§7121, 7122, and the acceptance and cashing of checks from a taxpayer cannot be used to impute a compromise settlement. Brooks v. United States [87-2 USTC ¶9626], 833 F.2d 1136, 1146 (4th Cir. 1987); Bowling v. United States [75-1 USTC ¶9333], 510 F.2d 112, 113 (5th Cir. 1975); Mayer v. United States, 78 A.F.T.R.2d 96-7422 (Bankr. D. Kan. 1996).

Nor can the letters rise to the level of affirmative misconduct. As discussed above, Evseroff has offered no evidence that the letters are authentic. Any allegation of affirmative misconduct by the IRS is thus speculation inadequate to defeat the motion for summary judgment.

(4)

The United States also moves under Rule 54(b) of the FRCP to enter final judgment on the issue of whether to reduce the federal tax assessments to judgment. Rule 54(b) generally provides that when one or more claims is presented in an action, the court may direct the entry of a final judgment as to one of the claims on an express determination that there is no just reason for delay and on an express direction for entry of judgment. See Fed.R.Civ.P. 54(b). Accordingly, to permit entry of a final judgment under Rule 54(b), there must be: (1) multiple claims; (2) at least one claim finally decided within the meaning of 28 U.S.C. §1291; and (3) the district court must make an express determination that there is no just reason for delay and expressly direct the clerk to enter judgment. See Advanced Magnetics, Inc. v. Bayfront Partners, Inc., 106 F.3d 11, 16 (2d Cir. 1997); Ginett v. Computer Task Group, Inc., 962 F.2d 1085, 1091 (2d Cir. 1992).

The United States seeks to reduce to judgment all the federal tax assessments. ³ The United States separately seeks to establish the validity of liens on Evseroff's property, foreclose on those liens, and determine the interests of various parties in some of that property. Therefore, there are multiple claims here.

A claim is finally decided "if the decision 'ends the litigation [of that claim] on the merits and leaves nothing for the court to do but execute the judgment' entered on that claim," Ginett, 962 F.2d at 1092 (quoting Coopers & Lybrand v. Livesay, 437 U.S. 463, 467, 98 S.Ct. 2454, 2457, 57 L.Ed.2d 351 (1978)). As there is nothing left for the court to do here but execute its judgment, the first claim is finally decided within the meaning of §1291.

In general, there is no just reason to delay entry of judgment when "there exists some danger of hardship or injustice through delay which would be alleviated by immediate appeal." American Magnetics, Inc., 106 F.3d at 16 (quotations omitted). This danger exists when "a plaintiff might be prejudiced by a delay in recovering a monetary award." Id. (citing Curtiss-Wright v. General Elec. Co., 446 U.S. 1, 11-12, 100 S.Ct. 1460, 1466-67 (1980). Specifically, the concern that the government could be prejudiced by a delay in enforcing its judgment against a taxpayer pending adjudication of a lien foreclosure on the property of that taxpayer has been held to constitute no just reason to delay entry of judgment. See United States v. Julius Nasso Concrete Corp. [2000-1 USTC ¶50,454], 85 A.F.T.R.2d 2000-2157 (E.D.N.Y. 2000).

The United States argues that it will be prejudiced by delaying entry of judgment because a delay will give Evseroff an opportunity to hide his assets. In response, Evseroff argues that no urgency exists to reduce the assessments to judgment because the tax liabilities go back 23 years and nine years has passed since the Tax Court decision, and because a few more months to permit discovery on this count while discovery continues on the other counts will not prejudice the United States. Evseroff Aff. ¶4.

The United States has established that there is at least some danger of hardship or injustice from delay that can be alleviated by entry of judgment. It is undisputed that soon after the Tax Court proceedings began Evseroff transferred assets to a trust for the benefit of his children and grandchildren. In addition, the lengthy delay in collecting owed taxes has already caused prejudice. Therefore, there is no just reason to further delay entry of judgment, and the United States' Rule 54(b) motion for entry of judgment is granted.

Conclusion

Evseroff has failed to demonstrate that a genuine issue of material facts exists regarding the United States' notice and demand to collect its tax assessments against him, has failed to fulfill the requirements for additional discovery, and has not offered any affirmative defenses that preclude entry of summary judgment. Accordingly, the United States' motion to reduce to judgment the United States Tax Court judgment and the federal tax assessments against Evseroff is granted, and the clerk of the court is directed to enter final judgment pursuant to Rule 54(b).

¹ The United States seeks to reduce the assessments to judgment to take advantage of judicial collection remedies. United States' Letter of April 16, 2001 at 3.

² This argument only applies to the tax liabilities related to the years 1978 through 1982. The purported offer-in-compromise did not cover tax liabilities from 1991, 1992, and 1996.

³ This includes both the assessments from 1978-82 that were entered as a decision of the United States Tax Court in November 1992, and the subsequently IRS assessments of additional tax liabilities for 1991-92 and 1996.

 

76-1 USTC ¶9447]Theodore F. Tonkonogy, Plaintiff v. United States of America, Defendant

U. S. District Court, So. Dist. N. Y., 75 Civ. 4746, 417 FSupp 78, 3/18/76

Theodore F. Tonkonogy, 32 E. 57th St., New York, N. Y., pro se. Peter C. Salerno, Assistant United States Attorney, Thomas J. Cahill, United States Attorney, New York, N. Y., for defendant.

Memorandum and Order

OWEN, District Judge:

The question presented by this case is whether a taxpayer who is critically ill following a second heart attack is entitled to rely upon a letter from the Internal Revenue Service apparently extending the time to make payment of a compromise agreement when, pursuant to that letter, he makes prompt and full payment upon minimal recovery.

Plaintiff Theodore Tonkonogy, a practicing attorney of mature years, commenced this action against the United States pursuant to 28 U. S. C. §1346(a) to recover $1,380.19 in taxes and interest paid to the Internal Revenue Service. Defendant moved to dismiss the complaint for failure to state a claim upon which relief can be granted under Rule 12(b)(6) of the Federal Rules of Civil Procedure and plaintiff makes a cross-motion for summary judgment pursuant to Rule 56(a) of the Federal Rules of Civil Procedure. There being no material issues of fact and affidavits being before the Court summary judgment is appropriate.

The facts in this case speak for themselves. ¹ In 1962 the taxpayer entered into a collateral agreement with the IRS in connection with a compromise of various tax liabilities that had been assessed against him. Over the years the taxpayer made payments until by October 1972 there remained only a balance of $400.00 due under the collateral agreement.

It is undisputed that on October 2, 1972 the taxpayer was hospitalized with his second heart attack of that year and as a result missed the scheduled October payment. On October 12 the IRS wrote the taxpayer requesting that the entire $400.00 due under the compromise and collateral agreement be paid within ten days. The taxpayer did not answer this letter as he was in the hospital until October 17, and later confined to his bed with, one can fairly assume, more compelling matters occupying his mind, such as his ability to return to work and support himself and his family. On November 22, the taxpayer received a second letter from the IRS which stated:

We have no record of receiving a reply to our recent letter asking about the past due installments on your Offer in Compromise

Please pay the amount due [$400.00] shown above as soon as possible, or let us know what you plan to do about the commitment.

The plaintiff answered this letter with a hand-written note dated December 4 stating that he had been ill and in the hospital, and that he expected the situation to be better by January and would resume his $100.00 a month payments or pay the entire balance by that date. IRS then mailed a third letter dated December 7 to the taxpayer notifying him that he was in default of the agreements and demanding the entire unpaid tax liability. Tonkonogy, however, says he never received this letter. In any event, within five days of the date IRS claims the third letter is dated, on December 12, the taxpayer received a fee due him and sent IRS a check for the entire balance due under the agreement, $400.00 IRS thereupon credited him with the payment but demanded $1,380.19 more as the outstanding balance of the taxpayer's liability. The taxpayer thereupon borrowed money and paid the $1,380.19 under protest and commenced administrative proceedings for a refund. Having been unsuccessful, he commenced this action.

The position of the IRS is that even though the taxpayer was gravely ill in the hospital at the scheduled time of payment, and even though it then sent him a letter apparently extending the time for payment, and even though he paid in full shortly thereafter, nevertheless he defaulted on the compromise agreement, and is consequently liable for the full amount of the original debt. The taxpayer admits that he was nominally in default, but raises the affirmative defense of equitable estoppel.

The general rule is that equitable estoppel is not applicable against the government regardless of the action of its agents. However, the rule is not without exception. ² With respect to the IRS , equitable estoppel is appropriate under certain limited circumstances. ³ Specifically, there must be

"(1) a misrepresentation by an agent of the United States acting within the apparent scope of his duties; (2) the absence of contrary knowledge by the taxpayer in circumstances where he may reasonably act in reliance; (3) actual reliance; (4) detriment; and (5) a factual context in which the absence of equitable relief would be unconscionable." ⁴

In this case, the taxpayer reasonably assumed, upon receipt of the letter from the IRS requesting payment "as soon as possible" and suggesting the possibility of alternative arrangements, that he could defer payment until he was capable of leaving bed. Thus, instead of arranging to make payment prior to the time he was "found" in default, he wrote a letter proposing an alternative payment schedule. But then, having complied with IRS instructions, he was abruptly informed that he was in default.

The IRS states that the agent who wrote the letter apparently extending the time for payment had no actual authority to amend the collateral agreement between the parties and thus it cannot be held to any representations made. However, Brandt v. Hickel, 427 F. 2d 53 (9th Cir. 1970) is to the contrary. There the Land Manager of the United States Bureau of Land Management allowed the plaintiffs 30 days to resubmit an offer for a lease without a loss of priority. As a result, they gave up an appeal of the rejection of their earlier offer. The government stated that the Land Manager had no authority to give such an extension. The court stated at 56:

. . . some forms of erroneous advice are so closely connected to the basic fairness of the administrative decision making process that the government may be estopped from disavowing the misstatement.

Thus, by analogy, an IRS agent may not have the actual authority to bind the government; yet as to a taxpayer who relies upon his statements to his detriment at a time of great personal trauma and concern, that agent will be found to be acting within the apparent scope of his authority. Anything to the contrary would, in my opinion, be ". . . hardly worthy of our great government." Brandt v. Hickel, supra, at 57.

The government urges to the contrary that U. S. v. Feinberg [67-1 USTC ¶9176], 372 F. 2d 352 (3rd Cir. 1965) mandates dismissal. There the taxpayer sought, without success, to use estoppel against the IRS . That case, however, is clearly distinguishable. The taxpayer had long been in default of his agreements by remitting payments substantially less than required and by missing four payments entirely. He argued that the government's acceptance of his reduced payments for so long worked an estoppel, and further that the government's silence had induced his reliance. The facts distinguish themselves.

I conclude that by any standard of equity and fairness the government is estopped in this case from finding the taxpayer in default. In so concluding, I note that a decision adverse to the government here would not impose any injury upon the public. ⁵

Summary judgment is hereby granted to the plaintiff and the refund with interest is hereby ordered. Defendant's cross-motion to dismiss is denied.

¹ Cf. Corniel-Rodriguez v. Immig. & Nat. Service, -- F. 2d --, Slip Op. 2713 (2d Cir. Mar. 22, 1976).

² E.g. United States v. Lazy FC Ranch, 481 F. 2d 985 (9th Cir. 1973). See generally Note, Emergence of an Equitable Doctrine of Estoppel Against The Government--The Oil Shale Cases, 46 U. Colo. L. Rev. 433 (1975).

³ Schuster v. C. I. R., 312 F. 2d 311, 317 (9th Cir. 1962); Simmons v. United States [62-2 USTC ¶15,449], 308 F. 2d 938, 945 (5th Cir. 1962); Vestal v. Commission of Internal Revenue [45-2 USTC ¶9461], 152 F. 2d 132 (D. C. Cir. 1945); Exchange & Savings Bank v. United States [64-1 USTC ¶9331], 226 F. Supp. 56 (D. C. Md. 1964).

⁴ Lynn and Gerson, Quasi-Estoppel And Abuse of Discretion As Applied Against the United States in Federal Tax Controversies, 19 Tax L. Rev. 487, 488-489 (1964).

⁵ See Brandt v. Hickel, supra, at p. 57.

[78-2 USTC ¶9627]Frank A. Warner, Plaintiff, v. United States of America, Defendant

U. S. District Court, Dist. Minn., Fourth Div., Civil 4-74-255, 8/3/78


Martin G. Weinstein, Maslon, Kaplan, Edelman, Borman, Brand & McNulty, 1800 Midwest Plaza, Minneapolis, Minn. 55402, for plaintiff. Max H. Lauten, Department of Justice, Washington, D. C. 20530, for defendant.

Order

LORD, District Judge:

Before the Court is plaintiff's motion to compel settlement. In May 1974, the plaintiff, Frank Warner, commenced suit against the United States for the refund of certain federal taxes paid as the result of an assessment against him under Section 6672 of the Internal Revenue Code of 1904, 26 U. S. C. §6672. The government counterclaimed for the remainder of the assessment, plus interest.

In accordance with a special arrangement with the Tax Division of the Department of Justice, this case was handled by United States Attorney Robert G. Renner rather than by a Tax Division attorney. After discovery was entered into, the parties commenced settlement negotiations.

Preliminary offers and counteroffers were rejected. On June 4, 1975 , Mr. Renner made a counteroffer which indicated that he would recommend a cash settlement in the amount of $9,000, in addition to all monies previously paid by the plaintiff. On June 10, 1975 , Mr. Renner wrote plaintiff's counsel confirming the settlement discussion and counteroffer of June 4, 1975 . Included in the letter was the following caveat:

As has been mentioned on a number of occasions, I may not enter into the settlement on behalf of the Justice Department in tax refund matters, settlement authority as reserved as to the Tax Division of the Department of Justice. In this case, if the settlement is to be approved, I can inform you it would only be approved by reason of the dire financial circumstances of Mr. Warner.

On July 18, 1975 , the plaintiff indicated in writing that he would accept the proposal discussed in Mr. Renner's letter. Also in this letter was the acknowledgment by plaintiff's counsel that they had provided Mr. Warner with IRS Form 433, the completion of which is prerequisite to a settlement proposal based upon insufficient funds.

This form was completed and sent to Mr. Renner on September 26 and delivered to the IRS on September 29, 1975 , for verification. On January 19, 1976 , the plaintiff applied to the IRS for a Certificate of Nonattachment of a Federal Tax Lien with respect to certain real estate. It related to the assessment at issue but not Form 433. Because of irregularities in the Certificate of Nonattachment, a criminal investigation was initiated. On October 18, 1976 , the determination was made that criminal prosecution was unwarranted and in January 1977, the case was transferred back to the Tax Division. In March 1977, the government advised plaintiff that they would not accept the $9,000 cash settlement.

Plaintiff contends that the government implicitly accepted the negotiated settlement, that plaintiff detrimentally relied on this acceptance and that the government should thereby be estopped from repudiating it. Plaintiff further contends that the applicable rules and regulations are in this instance not to be examined because of the government's misconduct.

The plaintiff alleges that the following factors require a finding of implied acceptance: the actions of the government agents, the period of discovery and negotiations, the written documentation of settlement terms and the 20 months that elapsed before the refusal of the settlement offer.

It is not at all clear to the Court what the plaintiff is referring to when he cites the actions of the government agents (U. S. Attorney and IRS agent) as being a factor which shows implied consent. The plaintiff does not point to a specific conduct in an attempt to illustrate his charge. If the plaintiff is referring to the U. S. Attorney's authority to settle, it is plain that he informed the plaintiff that he had no such authority. The delay of the IRS is examined below.

Secondly, the period of discovery and negotiations does not seem to be unusually long and furthermore it is hard to fathom how the period of discovery and negotiation can indicate an implied acceptance by one side or the other.

The written documentation is simply that, a recording device which has no bearing whatsoever on this issue.

Certainly the key element propounded by the plaintiff is the time lapse of approximately 20 months. At the outset it should be noted that the plaintiff contributed slightly to this delay by not expeditiously filing the Form 433. A further delay was necessitated by a criminal investigation of Mr. Warner relating to his application for a Certificate of Nonattachment of a Federal Tax Lien. Thus, that part of the delay was reasonable under the circumstances. From the plaintiff's perspective, it is obvious that the delay is not reasonable and the government may have been remiss in not updating plaintiff on the status of the case; however, having stated that, it is clear that delay does not amount to an implied acceptance.

Assuming arguendo that there was an implied acceptance, no cases have been cited, nor has the Court been able to uncover any, wherein an implied acceptance is implemented to invoke the doctrine of equitable estoppel.

Furthermore, even if accepting the theory that implied acceptance can trigger the applicability of the doctrine of equitable estoppel, the plaintiff's claim still fails because the elements of the estoppel doctrine are not present.

The United States Court of Appeals for the Eighth Circuit has indicated that:

The doctrine of election and estoppel is not inapplicable to the Government and its officers, but is to be applied with caution. Goldstein v. United States [55-2 USTC ¶9768], 227 F. 2d 1, 4 (8th Cir. 1955) [Emphasis added]

The following elements comprise the doctrine of equitable estoppel:

(1) intentional or careless misrepresentations of known material facts inconsistent with subsequent claim,

(2) ignorance of the truth and absence of equal means of knowledge of the party claiming estoppel,

(3) action by him induced by misrepresentation, and

(4) injury to him if the truth should be proved.

Teasdale v. Prosperity Co., 290 F. 2d 345, 348 (8th Cir. 1961); Shepard v. United States, 289 F. 2d 681 (8th Cir. 1961).

In the case at bar, there was no false misrepresentation of a material fact. Rather the plaintiff was informed throughout the negotiations that the Tax Division had the final decision on the acceptance of a settlement offer.

Second, the plaintiff acknowledges that rules and regulations have been promulgated by the IRS and/or Attorney General that only certain persons other than the Attorney General have the authority to settle a suit of this nature. The U. S. Attorney informed the plaintiff of these regulations in his correspondence with the plaintiff; therefore, the plaintiff was not ignorant of the accurate law.

There appears to be no affirmative action upon which the plaintiff embarked as a result of his belief that the case had been settled.

The plaintiff lists numerous injuries: the accumulation of interest on the original assessment over the 20 month period, unavailability of witness or documents if the case is tried, legal fees, absence of counsel most familiar with the case, plaintiff's mental and emotional stress. As pointed out previously, the United States Court of Appeals for the Eighth Circuit requires that the doctrine must be applied with caution, and while the Court sympathizes with the plaintiff's plight, it does not believe that the damages claims are of the type envisioned by the Court of Appeals in applying this doctrine. Rather, the nature of the "injuries" which are alleged appears to be an unavoidable consequence of the litigation process.

The plaintiff cites a recent tax case as being dispositive of this issue. United States v. Armbruster, 78-1 USTC ¶9244 (3 D. N. Y. Dec. 1977). In that case, the defendant was 68 years old, had no permanent place of residence and was unemployed receiving Social Security payments. The government brought an action for recovery of withholding taxes for $5,329.11. At a pretrial conference, the Court being present, a proposed settlement was agreed upon. The U. S. Attorney informed the Court that the IRS would have to approve the settlement, but felt that they would do so. At the second pretrial conference, the IRS had not yet acted; therefore the meeting was adjourned. At a subsequent pretrial conference, the IRS had still not considered the case. The Court found the proposed settlement reasonable and the government's failure to act promptly unreasonable. The Armbruster decision, emanating from the District Court for the Southern District of New York, is not binding precedent for this Court. Moreover, there are a number of distinctions. First, in the tax case, the Court participated throughout the proceedings whereas in the present case, there was no judicial participation in the settlement negotiations which does tend to expedite the process. Second, in the tax case, the government offered no explanation for its dilatory tactics. In this case, a sufficient explanation was presented to the Court to justify the government's delay of over 18 months. Additionally, the tax case seems rather straightforward while the case at bar is much more complex.

Therefore, it is hereby ordered that plaintiff's motion to compel settlement is denied.

[86-2 USTC ¶9561] Lewis G. Allen, Plaintiff v. United States of America and Johnson County National Bank, Defendants United States of America and James L. Gaunce, Jr., Revenue Officer, Internal Service, Petitioners v. Johnson County National Bank and Trust Company, Respondent Lewis G. Allen, individually and as Trustee for the Lewis G. Allen Family Trust, Plaintiff v. The Internal Revenue Service, with Clarence M. King, Jr. as District Director and James L. Gaunce, Jr., as Revenue Agent, The United States of America, with Vernon E. Lewis, as Assistant U.S. Attorney and Robert S. Streepy, as Assistant U.S. Attorneys, and Johnson County National Bank and Trust Company, with Michael Best, as Trust Officer, Defendants

U.S. District Court, D.C. Kan., 83-2078, 83-2185A, 83-2331, 8/3/84, 630 FSupp 367

[Code Sec. 61 ]

Tax protestors: Constitutional arguments: Frivolous claims.--The taxpayer's contentions that he was subjected to double and triple jeopardy in a civil case were found to be frivolous. Various other constitutional arguments were also found to be frivolous.

[Code Sec. 6332 ]

Levy and distraint: Summary judgment.--The court did not determine whether motions for summary judgment with respect to a levy on the taxpayer's bank account should be granted. Additional facts were needed concerning the procedure used in enforcing the levy and in making jeopardy assessments. A question as to the legal effect of a change in the basis of the levy also existed. The court delayed its decision pending further information from the parties.

[Code Sec. 7122 ]

Agreements: Equitable estoppel.--The government was not estopped from further litigating the tax liability of a taxpayer for years other than those covered in an agreement between the taxpayer and the IRS . The government took no affirmative action regarding deficiencies for those other years on which the taxpayer could rely to his detriment. The taxpayer also failed to show that he was unaware of his tax liability for the additional years. BACK REFERENCES: 86 FED ¶5697.0254

[Code Sec. 7402 ]

District court: Jurisdiction: Amount in controversy.--The district court had no subject matter jurisdiction where the taxpayer's claim against the government for breach of contract exceeded $10,000.

[Code Sec. 7402 ]

Suits by taxpayer: Immunity.--Assistant United States Attorneys were immune from suit under the doctrine of quasi-judicial immunity and were therefore dismissed. Other individuals, sued in their official capacity, were also dismissed, and the United States was substituted as defendant in their place.

Lewis G. Allen, Ash Flat, Ark. 72513, pro se. Robert A. Olsen, 812 N. 7th St., Kansas City, Kan. 66101, Robert F. Bennett, Bennett, Lytle, Wetzler, Winn & Martin, 5100 W. 95th St., Prairie Village, Kan. 66207, Stephen G. Fuerth, Michael P. Haney, Department of Justice, Washington, D.C. 20530, for defendants.

MEMORANDUM AND ORDER

O'CONNOR, Chief Judge:

These cases involve claims brought by Lewis G. Allen, pro se, a radiologist, against the United States Government, various officials thereof, the Johnson County National Bank, and one of the bank's trust officers. Allen alleges that the defendants have committed numerous wrongs against him in connection with the assessment and collection of back-taxes.

Plaintiff is no stranger to this court. In 1980, the Internal Revenue Service ( IRS ) was sued by the Lewis G. Allen Family Trust, a creation of the plaintiff, over a sum of money the IRS claimed. The IRS filed a counterclaim against Lewis G. Allen and Deloris A. Allen, his wife, to recover back-taxes. On March 24, 1982 , the Honorable Dale E. Saffels of this court determined that the Lewis G. Allen Family Trust was invalid and that the Allens owed $43,149.55, and Lewis G. Allen, individually, owed $138,339.26 in back-taxes. See Lewis G. Allen Family Trust v. United States, No. 80-2109 (D. Kan., unpublished, 3/24/82 ). The court of appeals affirmed the district court's decision. Lewis G. Allen Family Trust v. United States, No. 82-1709 (10th Cir., unpublished, 10/27/82 ).

In 1982 plaintiff was found guilty after a jury trial on two counts of failing to file income tax returns in violation of 26 U.S.C. §7203 . He was sentenced to one year on each count, the sentences to run consecutively, and he was also fined the sum of $20,000.00.

On March 7, 1983 , Allen filed case 83-2078 against "The Government of the United States, et al." and Johnson County National Bank. Plaintiff alleges several grounds for recovery. First, he attacks the offense severity rating determined by the United States Parole Commission as being unconstitutional. The commission, in determining the length of Allen's incarceration, apparently took into consideration the total amount of federal income taxes that plaintiff allegedly evaded. Allen contends that this rating has resulted in double jeopardy, cruel and unusual punishment, and constitutes a bill of attainder, all in violation of the United States Constitution. On the same day, plaintiff filed an amended complaint based on 42 U.S.C. §1983 for monetary damages resulting from the alleged double jeopardy.

On March 17, 1983 , Allen filed a second amended complaint which listed, as individual defendants, Attorney General William French Smith; IRS Official Glen L. Archer, Jr., Roscoe L. Eggers, Jr., and K.E. Luke (who was later replaced by Clarence M. King, Jr.); Norman Carlson, the Director of the Bureau of Prisons; J.D. Williams, the National Director of the United States Parole Commission; and Robert Vincent, Regional Director of the United States Parole Commission. All of these defendants are officials of the United States Government and are being sued in their official capacities.

On June 10, 1983 , plaintiff filed a motion for leave to further amend his complaint in case 83-2078 and add a cause of action alleging that he was subjected to "triple jeopardy" by the enforcement of a levy imposed by the IRS . The triple jeopardy claim arose out of civil action 83-2185A in this court, wherein the IRS , pursuant to 28 U.S.C. §7402(a) and §6332 , sought to enforce a notice of levy upon the Johnson County National Bank and Trust Company for back-taxes in the amount of $321,269.45, owed by Allen for the years 1975 and 1976. The notice was served upon Michael L. Best, trust officer for the bank, on May 11, 1983 . It stated that demand had been made on the taxpayer, and that the assessment was made on April 20, 1983 . In its petition, IRS alleged that because the district court had held and the Tenth Circuit had affirmed that the trust was invalid, the IRS was entited to the 1975 and 1976 back-taxes. The order by this court directed the bank to comply with the notice of levy, and was issued the same day as the petition was filed, May 25, 1983 . Thereafter, the bank complied and remitted the funds.

On July 1, 1983 , the Lewis G. Allen Family Trust, by Lewis G. Allen, Trustee, even though not a party in case 83-2185A, filed a counterclaim in that case alleging that the funds which had been held by the bank were the property of the Trust. No response was filed to this pleading. On July 20, 1983 , the United States filed a motion in case 83-2185A to amend the May 25 order, and a motion to enforce the judgment rendered in case 80-2109. In its motion to amend, the government apprised the court of the pending case 83-2078, and modified the amount sought to be levied upon and the basis for the levy. In essence, the government sought to retain the money turned over by the bank, but changed its legal theory of entitlement by asking that $303,429.10 be charged to the judgment rendered by Judge Saffels in case 80-2109, and any remaining amounts be applied against that owed the government for tax years 1975 and 1976 pursuant to the May 11, 1983 levy. On the same day, the bank filed a response alleging that it was not in a position to defend the allegations and that the Allens should be made parties to the action. Pursuant to the government's motion, the court ordered the bank to pay $303,429.10 to the United States in accordance with the judgment in case 80-2109. Further, the court ordered the remaining amount to be paid to the United States pursuant to the levy in case 83-2185A.

On July 29, 1983 , Lewis G. Allen filed a motion to intervene in the now-closed case (83-2185A) in an attempt to remedy alleged improprieties in the procedural aspects of the assessment and levy. Allen alleges that the levy was fraudulently obtained, and advises the court of his allegations made in case 83-2078.

Not content with the two pending cases, Allen filed yet a third action, case 83-2331, on August 31, 1983 . There he alleges that the IRS and two of its agents, two Assistant United States Attorneys, and the Johnson County National Bank and one of its trust officers, breached or caused to be breached an escrow agreement between the Allens, as trustees for the Lewis G. Allen Family Trust, and the Internal Revenue Service. This agreement was made to facilitate the sale of certain real estate owned by the Allens which was encumbered by federal income tax liens. The agreement allowed the Allens to sell the real estate free of the IRS liens, and have the proceeds deposited in an escrow account with Johnson County National Bank. The proceeds would then be distributed by agreement of the IRS and the Allens, or by a court order.

Allen alleges that the agreement between the parties limits any claim for back-taxes to the years 1973 and 1974, and that the IRS is estopped from enforcing the levy for the years 1975 and 1976 because of his due process claims made in case 83-2078. Plaintiff's theory is that because the IRS should have known about any 1975 and 1976 deficiencies before the agreement was signed, it is now barred because there is no indication that the agreement covered those years. Further, he alleges that each defendant has violated the agreement by obtaining a court order by fraud and misrepresentation. Plaintiff seeks monetary damages for these alleged unlawful acts.

After defendants answered, plaintiff filed a motion for leave to amend his complaint by deleting a reference to 28 U.S.C. §1331, and clarifying his claims. The amendment avers that five separate causes of action were contained within the original complaint, namely: (1) breach of contract; (2) deprivation of constitutional rights without due process; (3) wrongful taking and conversion; (4) conspiracy; and (5) violation of banking laws.

On August 15, 1983 , before case 83-2331 was filed, plaintiff filed a motion to consolidate cases 83-2185A and 83-2078. The court, on its own motion, then ordered the three pending cases consolidated on March 2, 1984 . Further, we directed counsel to respond to motions pending in 83-2185A and Allen was given time to reply. These various motions, along with others Allen has interspersed throughout his pleadings, are being construed as motions for summary judgment.

We note that all defendants in cases 83-2078 and 83-2331, except Johnson County National Bank and its trust officer, have filed motions to dismiss or, in the alternative, for summary judgment. Because the parties have included matters outside the pleadings, these motions must be construed as motions for summary judgment pursuant to Fed. R. Civ. P. 12(b).

In reviewing the motions for summary judgment, we are required to view the facts in the light most favorable to the opposing party, and give him the benefit of all reasonable inferences to be drawn therefrom. Adickes v. S.H. Kress & Co., 398 U.S. 144 (1970); Robert Johnson Grain Co. v. Chemical Interchange Co., 541 F.2d 207, 209-210 (8th Cir. 1976). If, after reviewing the evidentiary record, we find that "there is no genuine issue as to any material fact," then we may grant summary judgment. Fed. R. Civ. P. 56(c). However, where different inferences may properly be drawn, the case is not one for summary judgment. Luckett v. Bethlehem Steel Corp., 618 F.2d 1373 (10th Cir. 1980). The summary judgment procedure is useful in avoiding expense and delay of an unnecessary trial if there is no dispute as to the facts governing the claims and defenses presented. Allison v. Menendez, No. 81-2191 (D. Kan., unpublished, 9/8/83 ). With these standards in mind, we turn to the merits of the motions.

In case 83-2331, the federal government defendants assert that this court lacks subject matter jurisdiction. It is well settled that the United States cannot be sued without its consent. Wright, Law of Federal Courts, p. 115 (1983). The Tucker Act, enacted in 1887, grants jurisdiction to federal courts in certain cases, including a contract claim against the United States. 28 U.S.C. §1346. Such a claim, however, must be brought in the Court of Claims if it exceeds $10,000.00. It is readily apparent that whether plaintiff's claim is for the total amount of money contained in the escrow account, or only the excess therein after the levy for 1973 and 1974, it will exceed $10,000.00. Therefore, this court is without jurisdiction to entertain the breach of contract claim. See Alamo Navajo School Board, Inc. v. Andrus, 664 F.2d 229, 233 (10th Cir. 1981).

Plaintiff's claim that the United States is estopped from litigating the alleged 1975 and 1976 tax liability is without merit. To sustain his claim, plaintiff must prove the traditional elements of estoppel: (1) the party to be estopped must know the facts; (2) he must intend that his conduct shall be acted on or must so act that the party asserting the estoppel has a right to believe it is so intended; (3) the latter must be ignorant of the true facts; and (4) he must rely on the former's conduct to his injury. Sweeten v. U.S. Dept. of Agr. Forest Service, 684 F.2d 679, 682 n.5 (10th Cir. 1982). Further, when estoppel is asserted against the government, some affirmative misconduct by the government must be shown. Id. at 682.

Plaintiff's theory is that the government's inaction in including any deficiencies for 1975 and 1976 in the agreement permitting the sale of real estate, bars further collection of taxes for 1975 and 1976. Obviously this inaction on the part of the government does not meet the affirmative conduct standard applicable when estoppel is attempted to be applied against the government. Further, there is no showing that Allen relied on the government's conduct to his detriment, or that he was unaware that he might owe taxes for 1975 and 1976. See City & County of Denver v. Bergland, 695 F.2d 465 (10th Cir. 1982); United States v. Capital Savings Association [83-2 USTC ¶9585 ], 576 F.Supp. 790 (N.D. Ind. 1983).

Defendants Lewis and Streepy, Assistant United States Attorneys, are, of course, immune from suit because of the doctrine of quasi-judicial immunity. A prosecutor is absolutely immune from suit in initiating, prosecuting and presenting the government's case. Imbler v. Pachtman, 424 U.S. 409 (1976). This rationale has been extended to government attorneys involved in civil tax litigation. Flood v. Harrington [76-1 USTC ¶9335 ], 532 F.2d 1248 (9th Cir. 1976); see also, Dacey v. Dorsey, 568 F.2d 275 (2d Cir. 1978); Butz v. Economou, 438 U.S. 478 (1978).

In 83-2185A, the case in which Allen attempts to intervene, he asserts several grounds in attacking the enforcement of the IRS levy. First, he claims that the procedure followed by the IRS was not proper. He raises questions pertaining to the disparity in amounts between the notice of deficiency and the levy, that there was no valid deficiency determination, and that the levy was a misrepresentation to the court. Plaintiff further attacks the court's order of May 25, 1983 , by alleging the property was under "judicial process," as that term is used in 28 U.S.C. §6332(a) , and, therefore, could not be levied upon. Finally, Allen asserts that the Johnson County National Bank violated its fiduciary responsibility by failing to challenge the actions of the IRS .

Plaintiff's argument that §6332 bars a levy by the IRS on the property held by the bank is without merit. That section states only that property subject to attachment or execution under judicial process need not be surrendered. The mere filing of an action challenging the collection of taxes does not bring plaintiff within this statute.

Plaintiff's claims of alleged improper procedure by the IRS in levying on his property were raised in all three cases. They will be addressed in our discussion of case 83-2078.

Turning to the merits of that case--84-2078--we find that several of plaintiff's contentions are without substance. First, any contention that plaintiff has been subjected to double or triple jeopardy is, of course, wholly frivolous. "The Double Jeopardy Clause 'protects against a second prosecution for the same offense after acquittal. It protects against a second prosecution for the same offense after conviction. And it protects against multiple punishments for the same offense.' " Brown v. Ohio, 432 U.S. 161 (1977) (citing North Carolina v. Pearce, 395 U.S. 711, 717 (1969). The Double Jeopardy Clause applies only to the prosecutorial and judicial discretion involved in criminal proceedings. Cordova v. Romero, 614 F.2d 1267 (10th Cir. 1980). It has nothing to do with a civil proceeding involving back-taxes.

Nor is the use of the offense severity rating precluded by the Double Jeopardy Clause. The sentences imposed were authorized by Congress, and the refusal to allow parole is within the discretion of the Parole Commission. Young v. United States Parole Commission, 682 F.2d 1105 (5th Cir. 1982); Robinson v. Hadden, 723 F.2d 59 (10th Cir. 1983). The Parole Commission may take into consideration numerous factors in exercising its parole functions. See Schuemann v. Colorado State Board of Adult Parole, 624 F.2d 172 (10th Cir. 1980).

Further, plaintiff alleges that he has been subjected to cruel and unusual punishment in violation of the Eighth Amendment. There is no indication from the record how plaintiff has been subjected to cruel and unusual punishment. Apparently, he argues that the use of the offense severity rating supports his claim. This argument is utterly frivolous. The same may be said with respect to plaintiff's claim that he has been subjected to a bill of attainder because of his prison sentence. A bill of attainder ¹ is a legislative determination of guilt and imposition of punishment upon a specified group or specified individual without the safeguards of a judicial trial. Nixon v. Administrator of General Services, 408 F. Supp. 321 (D. D.C. 1976). In this case, there has been no legislative act which singles out Allen or any specific group, thereby making a determination of guilt. Cf. Cracchiola v. Commissioner of Internal Revenue, 643 F.2d 1383 (9th Cir. 1981).

It is apparent that this action is against the United States and only nominally against the individuals named. The general rule is that an action against an officer of the federal government, in his official capacity (which Allen alleges), is a suit against the sovereign. Helton v. United States, 532 F.Supp. 813, 819 (S.D. Ga. 1982) (citing Hawaii v. Gordon 373 U.S. 57, 58 (1963). This is true when the relief sought would "expend itself on the public treasury or domain." Id. [citing Land v. Dollar, 330 U.S. 731, 738 (1947)]. Plaintiff seeks damages and a return of money paid to the IRS , and it is apparent that such an award would be paid by the government. Thus, the action is treated as one against the United States, and the individuals must be dismissed. Cf. Yannicelli v. Nash [72-2 USTC ¶9763 ], 354 F.Supp. 143, 149 (D. N.J. 1973).

In all three cases Allen has attacked the procedures utilized by IRS . In the interests of justice and judicial economy, the court will consider the arguments made in all three cases to be applicable to case 83-2078. On the basis of the record before us, we are unable to determine whether summary judgment is appropriate for either side concerning the claims made by Allen as to the procedures employed by the Internal Revenue Service in collecting the back-taxes in case 83-2185A. For example, we are unable to discern whether any demand was made on Allen before the IRS began its enforcement proceedings against the bank, see L.O.C. Industries, Inc. v. United States [76-2 USTC ¶9573 ], 423 F.Supp. 265 (M.D. Tenn. 1976); Martinez v. United States, 669 F.2d 568 (9th Cir. 1981); Yannicelli v. Nash [76-2 USTC ¶9763 ], 354 F.Supp. 143 (D. N.J. 1972); Hill v. McMartin, 432 F.Supp. 99 (E.D. Mich. 1977); but see Bremsor v. United States [78-2 USTC ¶9772 ], 459 F.Supp. 128 (W.D. Mo. 1978), or whether the proper jeopardy assessment procedures were followed. Fidelity Equipment Leasing Corp. v. United States [79-1 USTC ¶9404 ], 462 F.Supp. 845 (N.D. Ga. 1978). Further, there remains a question as to the legal effect of a change in the basis for the levy in case 83-2185A. Therefore, we will hold in abeyance a ruling on the cross-motions for summary judgment on these issues. The parties may submit any additional supporting evidence or briefing within fifteen (15) days. Each side will then have an additional ten (10) days to respond to the other's submission.

Thereafter, we will be in a position to make final rulings on the summary judgment motions.

IT IS SO ORDERED.

¹ Because the punishment for the crime which Allen was convicted of is not death, this would not be a bill of attainder, but rather a bill of pains and penalties. A bill of pains and penalties is also prohibited, however, by Article I, §9, cl. 3 of the Constitution. Nixon v. Administrator of General Services, 408 F.Supp. at 371. Although the terminology is different, the legal analysis to be used in determining whether a person has been subjected to a bill of attainder or bill of pains and penalties is identical.

94-1 USTC ¶50,144] Martin J. Delohery, Plaintiff v. Internal Revenue Service, Department of the Treasury, United States of America, Defendants

U.S. District Court, Dist. Colo., Civ. 93-B-897, 2/16/94 , 843 FSupp 666, 843 FSupp 666

[Code Secs. 6672 , 7121 and 7122 ]

Compromises: Closing agreements: Detrimental reliance: Estoppel.--The IRS was entitled to summary judgment in an action brought by the president and sole shareholder of two corporations seeking a refund of employment taxes paid because there was no valid compromise of the individual's tax liability and the doctrine of equitable estoppel did not apply. The individual's reliance on alleged misrepresentations by an IRS agent was not reasonable because the agent did not have the authority to compromise the tax claim and the individual should have known that the agent's oral representation of a compromise was not binding. Further, there was no detrimental reliance, since there was no evidence that he was worse off because of his reliance on the agent's alleged misrepresentation or that there was any affirmative misconduct by the government.

Martin J. Delohery, 1783 Woodmoor Dr., Monument, Colo. 80132, for plaintiff. William G. Pharo, 1961 Stout St., Denver, Colo. 80294, Karen Lynne Baker, Department of Justice, Washington, D.C. 20530, for defendant.

MEMORANDUM OPINION AND ORDER

BABCOCK, District Judge:

The United States of America (the government) moves for summary judgment on plaintiff's tax refund action. For the reasons set forth below, I will grant the government's motion.

I.

On April 20, 1993 , plaintiff Martin J. Delohery (Delohery) filed this pro se complaint seeking a refund of approximately S20,000 paid towards a section 6672 tax liability assessed against him. Delohery was the president and sole shareholder of two corporations: Quebec Investment Company which operated a Village Inn restaurant in Castle Rock, Colorado; and Douglas Investment Company, which operated a Village Inn restaurant in Monument, Colorado. Quebec Investment Company and Douglas Investment Company (the corporations) failed to timely pay their federal employment taxes for all four quarters of 1985 and the first and second quarters of 1986.

In 1986, while negotiating a contract to sell the two Village Inn restaurants, Delohery contacted the Internal Revenue Service ( IRS ) regarding the tax liabilities of the corporations. Specifically, Delohery requested a waiver of some of the penalties and interest on the corporations' tax liabilities in order that the sale of the restaurants could take place. The IRS denied Delohery's request and on June 10, 1986 , the IRS sent Delohery a letter which stated that the total tax liabilities of the corporations for the quarters ending March 31, 1986 , as of June 19, 1986 , was $262,285.81. The letter also stated that the taxes owed for wages paid from April 1, 1986 , were not included in the figure and that those amounts should be added to the total figure.

Subsequently, Delohery contacted the Office of the District Director and spoke with Revenue Officer David Scott (Scott). Delohery told Scott that he would be able to make the $262,285.81 payment but that he would not be able to pay the employment tax liability of approximately $20,000 for the second quarter of 1986. Scott allegedly told Delohery that he would make adjustments to the interest and penalties to "cover the second quarter" tax liability. Based on this representation, the sale of the restaurants occurred.

On June 30, 1986 , Delohery's attorney sent a check to the IRS in the amount of $262,285.81. The money was applied to the Form 941 tax liabilities of the corporations for all four quarters of 1985 and the first quarter of 1986.

Almost two years later, the IRS assessed Delohery for the second quarter 1986 employment taxes owed by the two corporations. Delohery paid a total of $21,086.16 in additional assessments.

In March 1991, Delohery filed a claim for refund with the IRS which was denied. Delohery then brought this pro se refund action. In this action, Delohery claims that Scott agreed to a settlement of the employment tax liabilities of the corporations in order that the sale of his two restaurants could take place. Specifically, Delohery contends that under the terms of the alleged agreement, upon receipt of the $262,285.00 payment, all employment tax liabilities of the corporations would be satisfied in full. Delohery therefore claims that the section 6672 liability for the second quarter of 1986 was illegally assessed against him and seeks a refund of the $21,086.16 paid.

The government moves for summary judgment on two bases: (1) there was no compromise of the employment taxes owed for the second quarter of 1986 as a matter of law; and (2) Delohery never filed a proper claim for refund for the section 6672 liability assessed against him. Because I agree that summary judgment is appropriate on the first basis, I will not address the government's second argument.

II.

Fed. R. Civ. P. 56 provides that summary judgment shall be granted if the pleadings, depositions, answers to interrogatories, admissions, or affidavits show that there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. The non-moving party has the burden of showing that there are issues of material fact to be determined. Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). A party seeking summary judgment bears the initial responsibility of informing the district court of the basis for its motion, and identifying those portions of the pleadings, depositions, answers to interrogatories, and admissions on file together with affidavits, if any, which it believes demonstrate the absence of genuine issues for trial. Celotex, 477 U.S. 323; Mares v. ConAgra Poultry Co., Inc., 971 F.2d 492, 494 (10th Cir. 1992).

Once the moving party demonstrates an absence of evidence supporting an essential element of the plaintiff's claim, the burden shifts to the plaintiff to show that there is a genuine issue for trial. Celotex, 477 U.S. at 324. To satisfy this burden the nonmovant must point to specific facts in an affidavit, deposition, answers to interrogatories, admissions, or other similar admissible evidence demonstrating the need for a trial. Celotex, 477 U.S. at 324; Mares, 971 F.2d at 494.

Summary judgment is also appropriate where no reasonable jury could return a verdict for the claimant. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 251 (1986). The operative inquiry is whether, based on all documents submitted, reasonable jurors could find by a preponderance of the evidence that the plaintiff is entitled to a verdict. Anderson, 477 U.S. at 250; Mares, 971 F.2d at 494. However, summary judgment should not enter if, viewing the evidence in a light most favorable to the nonmoving party and drawing all reasonable inferences in that party's favor, a reasonable jury could return a verdict for that party. Anderson, 477 U.S. at 252; Mares, 971 F.2d at 494.

III .

Under Sections 7121 and 7122 of the Internal Revenue Code, the IRS may settle any tax disputes and compromise any civil or criminal case arising under the internal revenue laws. 26 U.S.C.A. §§7121 and 7122 (1989). The procedures for compromising tax liabilities are set forth in the regulations to Section 7122 . Treasury Regulation §301.7122-1(d) and (d)(3) require that the offer and acceptance of a compromise be in writing. 26 C.F.R. §301.7122-1(d)(1) , (d)(3) ; United States v. Wingfield [88-1 USTC ¶9367 ], 822 F.2d 1466, 1476 n.8 (10th Cir. 1987). These regulations are mandatory and strictly construed. Boulez v. Commissioner of Internal Revenue [87-1 USTC ¶9177 ], 810 F.2d 209, 215 (D.C. Cir. 1987), cert. denied, 484 U.S. 896 (1987). Additionally, they are the exclusive means in which to compromise tax liabilities. Klein v. Commissioner of Internal Revenue [90-1 USTC ¶50,251 ], 899 F.2d 1149, 1152 (11th Cir. 1990); Laurins v. Commissioner of Internal Revenue [89-2 USTC ¶9636 ] 889 F.2d 910, 912 (9th Cir. 1989); Brooks v. United States [87-2 USTC ¶9626 ], 833 F.2d 1136, 1145 (4th Cir. 1987).

Here, Delohery acknowledges that he did not submit an offer in compromise to the IRS . (Def.'s Exhibit J, at 70, lines 11-25; p. 71, lines 1-25; p.72, lines 1-2.) Delohery does not disagree with the government with respect to the scope of §7122 and its requirements to achieve an offer in compromise thereunder. Delohery argues, however, that the doctrine of equitable estoppel applies in this case preventing the strict application of §7122 and creating a genuine issue of fact for trial.

The Tenth Circuit recognizes the doctrine of estoppel against the government with great reluctance. U.S. v. Browning, 630 F.2d 694, 702 (10th Cir. 1980); Emery Mining Corp. v. Secretary of Labor, 744 F.2d 1411,1416 (10th Cir. 1984). The only circumstances justifying use of the doctrine are those in which the court is able to conclude that the doctrine does not interfere with underlying government policies or unduly undermine the correct enforcement of a particular law or regulation. Id.

In order to assert equitable estoppel, a party must have relied on the adversary's conduct in such a manner as to change his position for the worse, and such reliance must have been reasonable in that the party claiming the estoppel did not know, nor should it have known that the adversary's conduct was misleading. Emery Mining Corp., 744 F.2d at 1416. Delohery has the burden of proof as the party claiming estoppel. U.S. v. Asmar [87-2 USTC ¶9488 ], 827 F.2d 907, 912 (3rd Cir. 1987). I find that Delohery's reliance on the government was neither reasonable nor detrimental.

Delohery's reliance on Scott's misrepresentation was unreasonable for two reasons. First, Section 7122 provides that only the Secretary or his delegate may compromise a tax liability. 26 U.S.C.A. §7122 . In Browning, the Tenth Circuit held that "it is fundamental that the United States is not estopped by representations made by an agent without authority to bind the government in a transaction." 630 F.2d at 702. Delohery does not dispute the government's contention that Scott did not have the authority to compromise a tax claim under Section 7122 . Second, as mentioned above, the applicable treasury regulations require that an offer of compromise and an acceptance be in writing. 26 C.F.R. §301.7122-1(d)(1) , (d)(3) ; United States v. Wingfield [88-1 USTC ¶9367 ], 822 F.2d 1466, 1476 n.8 (10th Cir. 1987). In dealing with the government, Delohery is charged with knowledge of applicable statutes and regulations. Federal Crop Ins. Corp. v. Merrill, 332 U.S. 380, 384 (1947). Thus, Delohery should have known that Scott's oral representation of compromise was not binding and, therefore, I conclude that his reliance on the agreement was unreasonable as a matter of law. See U.S. v. Wingfield [88-1 USTC ¶9367 ], 822 F.2d 1466, 1476 n.8 (10th Cir. 1987).

In addition, Delohery has provided insufficient evidence for me to conclude that there is a genuine issue of fact as to whether he was left worse off because of his alleged reliance on Scott's misrepresentation. "To analyze the nature of a private party's detrimental change in position, we must identify the manner in which reliance on the Government's misconduct has caused the private citizen to change his position for the worse." Heckler v. Community Health Services of Crawford County, 467 U.S. 51, 61 (1984). Before and after the alleged misrepresentation, the IRS insisted that the same tax obligation was owed. In an attempt to prove detrimental reliance, Delohery states that in reliance upon the government's misrepresentation, he proceeded with the closing of the sale of his restaurants, provided $262,286 to the Internal Revenue Service, and entered into an elaborate escrow arrangement designed to pay the remaining creditors of the Village Inn restaurants. Delohery contends that when further collection efforts against him and the Village Inn restaurants were initiated by the IRS , his credit relationship with the People's National Bank went into default. As a result, Delohery has been threatened with foreclosure and was required to enter into unfavorable arrangements with the Bank to forestall collection efforts.

As in Heckler, this is not a case in which Delohery has "lost any legal right, either vested or contingent, or suffered any adverse change" in his status. Heckler, 467 U.S. at 61; see also U.S. v. Wingfield [88-1 USTC ¶9367 ], 822 F.2d 1466, 1476 (10th Cir. 1987); U.S. v. Asmar [87-2 USTC ¶9488 ], 827 F.2d 907, 913-15 (3rd Cir. 1987). I conclude that Delohery's acts of reliance do not involve a level of detriment necessary to justify the application of the estoppel doctrine.

Moreover, cases in many circuits, including the Tenth Circuit, have suggested that "a showing of affirmative misconduct is necessary to estop the government." See e.g., Emery Min. Corp. v. Secretary of Labor, 744 F.2d 1411, 1417 n.7 (10th Cir. 1984); Lurch v. U.S., 719 F.2d 333, 341 & n.12 (10th Cir. 1983), cert. denied, 466 U.S. 927 (1984); U.S. v. Asmar [87-2 USTC ¶9488 ], 827 F.2d 907, 912 (3rd Cir. 1987); Akbarin v. INS , 669 F.2d 839, 842 (1st Cir. 1982); Corniel-Rodriguez v. INS , 532 F.2d 301 (2d Cir. 1976); Mukherjee v. INS , 793 F.2d 1006, 1008 (9th Cir. 1986). Delohery has failed to provide evidence that any such misconduct occurred.

I conclude that summary judgment in favor of the government is appropriate as there was no valid compromise of Delohery's tax liability and the doctrine of equitable estoppel does not apply in this case as a matter of law.

Accordingly, it is ORDERED that the government's motion for summary judgment is GRANTED; this action is DISMISSED, each party to bear their own costs.

Richard L. Wagner v. Commissioner

Docket No. 16849-88., TC Memo. 1990-443, 60 TCM 551, Filed August 16, 1990

[Appealable, barring stipulation to the contrary, to CA-9.-- CCH .]

[Code Sec. 7122 ]

[Commissioner of Internal Revenue: Compromises: Criminal case: Jurisdiction: United States attorney: Authority to accept offers: Equitable estoppel: Fact finding.]Petitioner was indicted on 15 counts of aiding and assisting in the preparation of false income tax returns of others in violation of section 7206(2) . In a plea agreement letter prepared by his attorney, he pleaded guilty to two counts of the indictment. The plea agreement letter also contained the statement: "The Government acknowledges that Mr. Wagner has no personal income tax Civil liability for purposes of this indictment and Plea." Held: The plea agreement letter does not relieve petitioner of income tax liabilities on matters not covered by the indictment and plea. Held further: The plea agreement letter is not a valid compromise of petitioner's civil income tax liabilities because the government's attorneys were not authorized to enter into a compromise agreement. Held further: Respondent is not estopped from denying the binding effect of the plea agreement letter.

Richard L. Wagner, pro se. William W. Lowrance, for the respondent.

Memorandum Findings of Fact and Opinion

SCOTT, Judge:

This case was assigned to Special Trial Judge Norman H. Wolfe pursuant to the provisions of section 7443A(b) and Rule 180 et seq. ¹ The Court agrees with and adopts the opinion of the Special Trial Judge, which is set forth below.

Opinion of the Special Trial Judge

WOLFE, Special Trial Judge: In a notice of deficiency dated April 5, 1988 , respondent determined the following deficiencies in petitioner's 1979, 1980, and 1981 Federal income tax.

                                                 Additions to tax under

Year                               Deficiency Section 6653(b) Section 6654

1979 .............................  $ 73,447    $ 36,738.50       n/a

1980 .............................   266,319     133,159.50       n/a

1981 .............................   122,593      56,295.50     10,157.49

Respondent also determined that in the event the additions to tax under section 6653(b) were not sustained, petitioner was liable for additions to tax for negligence under section 6653(a) in the amount of $3,673.85 for 1979 and $13,315.95 for 1980, and under section 6653(a)(1) in the amount of $5,629.65 for 1981. He further determined that petitioner was liable alternatively for additions to tax for late filing under section 6651(a)(1) in the amount of $18,369.25 for 1979, $66,597.75 for 1980, and $28,148.25 for 1981. After concessions by the parties, the only issue for decision is whether petitioner is relieved of civil income tax liability for the taxable years 1979, 1980, and 1981 by a plea agreement entered into between the United States Attorney and petitioner with respect to a criminal proceeding in which petitioner pleaded guilty to two counts of aiding and assisting in the preparation of false income tax returns of others in violation of section 7206(2) .

The parties have filed a Stipulation of Settlement that resolves petitioner's liabilities in the event we hold that petitioner's individual civil tax liabilities were not compromised by the government by the November 12, 1986 plea agreement.

Findings of Fact

Some of the facts have been stipulated and are so found. The stipulated facts and attached exhibits are incorporated by this reference. At the time petitioner filed his petition, he was a resident of La Jolla, California.

Petitioner filed his Federal income tax returns for the years 1979 and 1980 on August 18, 1980 and April 5, 1982 , respectively. Petitioner did not file a return for 1981. On both the 1979 and 1980 returns, petitioner gave his occupation as "investment counselor." During these years, petitioner promoted and sold gold mining tax shelters through his controlled corporate entity, Monetary Economics Corporation.

On or about April 4, 1986 , petitioner was indicted in the Southern District of California on fifteen counts of violating section 7206(2) , Aiding or Assisting in the Preparation of False Income Tax Returns of Others. He pleaded not guilty to all counts. Petitioner was not then or at any later date indicted in regard to his individual income tax liabilities for the years 1979, 1980, and 1981.

Petitioner was represented on the criminal charges by attorneys Clyde Munsell and Harry Steward. The United States was represented by Martin F. Klotz, special Assistant United States Attorney, and by Edward Allard, Assistant United States Attorney. The Assistant United States Attorneys were not authorized by the Attorney General or his delegate to settle petitioner's civil tax liabilities. They informed Clyde Munsell that petitioner's civil tax liabilities had not been forwarded to the Department of Justice and that the Department had no jurisdiction over these liabilities.

Early in November, when Clyde Munsell met with Martin Klotz and Edward Allard, Edward Allard showed him a flow-of-funds diagram that the government planned to use in petitioner's case. Clyde Munsell believed that the government's evidence would be harmful to petitioner. He and the government attorneys discussed the terms of a plea bargain. On November 11, 1986 , Clyde Munsell drafted a letter which purported to summarize the agreements reached during the plea negotiations.

A hearing on petitioner's change of plea was held on November 12, 1986 . The Assistant United States Attorneys were prepared to make a statement on the record as to the government's understanding of the plea bargain, since Clyde Munsell had called them that very morning to accept the plea bargain arrangement. However, at the hearing Clyde Munsell produced the letter dated November 11, 1986 , which he had completed drafting that morning. The Government's attorneys did not see this letter prior to the hearing. The letter states, inter alia, that petitioner agreed to plead guilty to two counts of the indictment. In addition, Paragraph 6 of the plea agreement letter (hereinafter, "Paragraph 6") states: "The Government acknowledges that Mr. Wagner has no personal income tax Civil liability for purposes of this indictment and Plea." The parties did not discuss Paragraph 6 at the change of plea hearing. They did discuss other provisions of the letter, and certain modifications were made. The letter, as modified on the record, was filed as the plea agreement between the parties.

Immediately after the hearing, Martin Klotz and Edward Allard sought to obtain confirmation from petitioner that the parties were in agreement as to the meaning of Paragraph 6. They approached petitioner's counsel, Clyde Munsell, and stated that they understood Paragraph 6 to mean that petitioner had no income tax liability with respect to any taxes owed by the investors to whom petitioner had supplied false information and false documents. Clyde Munsell agreed that the government attorneys' interpretation of the meaning of Paragraph 6 was his interpretation as well. Attorneys Klotz and Allard then asked Clyde Munsell to obtain a letter from petitioner stating that petitioner understood that the government did not acknowledge that he had no individual income tax liability. Petitioner refused to sign such a statement.

On February 17, 1987 , petitioner was sentenced to two years imprisonment and fined $5,000 on one of the counts to which he pleaded guilty. He was given a suspended sentence and fined $5,000 on the other count to which he pleaded guilty. Petitioner was paroled after serving eleven months of his two-year sentence.

Opinion

 

Petitioner contends that Paragraph 6 of the plea agreement letter relieves him of civil liability for his individual income taxes. He does not state the years that Paragraph 6 purports to cover or explain whether he believes that Paragraph 6 relieves him of tax liability for matters unrelated to the gold mining tax shelters. He further claims that he relied to his detriment on the plea agreement, so that respondent is estopped from denying the binding effect of Paragraph 6 and from determining the deficiencies at issue in this case.

Respondent asserts that Paragraph 6 of the plea agreement does not relieve petitioner of civil liability for his individual income tax. Respondent further claims that even if the government's attorneys intended to relieve petitioner of civil liability for individual income tax by agreeing to Paragraph 6, they lacked authority to compromise petitioner's civil tax liabilities and therefore Paragraph 6 has no effect. We agree with respondent.

Paragraph 6 states in its entirety: "The Government acknowledges that Mr. Wagner has no personal income tax Civil liability for purpose of this indictment and Plea." Petitioner was indicted on fifteen counts of aiding or assisting in the preparation of false income tax returns of others. He pleaded guilty to two counts. He was not indicted for filing fraudulent individual income tax returns. His individual civil tax liabilities were never made a part of the indictment. He entered no plea regarding his civil tax liabilities. The phrase "for purposes of this indictment and Plea" expressly limits petitioner's liability to matters covered in the indictment and plea. It does not relieve him of civil liability on matters for which he was not indicted and did not plead.

The precise theory under which petitioner might have been held liable for "personal income tax civil liability" for assisting in the filing of false returns of others is not clear. Nevertheless, there is evidence that the government's prosecutors and petitioner's attorneys discussed this possibility on several occasions. We need not consider whether any such concerns of petitioner or his criminal defense attorney were well founded. The language of Paragraph 6 limits petitioner's relief from "personal income tax civil liability" to liability "for purposes of the indictment and plea" on violations of section 7206(2) . We find that this language did not constitute an agreement to waive petitioner's civil income tax liabilities as to his individual income tax returns for 1979, 1980, and 1981.

Even if we were to accept petitioner's interpretation of Paragraph 6, we would not find that it was part of a valid compromise of petitioner's civil tax liabilities. The procedure for compromising tax claims is given in section 7122 , which states:

The Secretary 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; and the Attorney General or his delegate may compromise any such case after reference to the Department of Justice for prosecution or defense.

Petitioner's civil income tax liabilities for the years 1979, 1980, and 1981 were not referred to the Department of Justice by respondent. The only matter referred to the Department of Justice was petitioner's violation of section 7206(2) .

For tax cases which have not been referred to the Department of Justice, sections 7121 and 7122 provide the exclusive means of compromising the dispute. See Botany Worsted Mills v. United States [1 USTC ¶348 ], 278 U.S. 282, 288 (1929); Shumaker v. Commissioner [81-2 USTC ¶9508 ], 648 F.2d 1198, 1200 (9th Cir. 1981); see also Estate of Meyer v. Commissioner [Dec. 31,336 ], 58 T.C. 69, 70 (1972). Both closing agreements under section 7121 and compromise agreements under section 7122 are required to be in writing and to be accepted by the Secretary. Secs. 301.7121-1 and 301.7122-1, Proced. & Admin. Regs.; secs. 601.203(a) and 601.203(b) , Statement of Procedural Rules. Petitioner has not shown that an agreement that complies with these regulations and rules was entered into with the Secretary.

Since petitioner's civil tax case for the years here in issue had not been referred to the Department of Justice, no person in that department, including the United States Attorney, had authority to enter into a compromise agreement with petitioner with respect to these taxes. Section 7122(a) gives the Attorney General "or his delegate" the authority to compromise civil and criminal tax cases referred to the Department of Justice, but not tax cases which have not been referred to the Department. The burden is on petitioner to ascertain whether a government representative is acting within the bounds of his authority. Federal Crop Ins. Corn. v. Merrill, 332 U.S. 380, 384 (1947); Saulque V. United States, 663 F.2d 968, 974 (9th Cir. 1981); Brubaker v. United States [65-1 USTC ¶9274 ], 342 F.2d 655, 662 (7th Cir. 1965).

Both Edward Allard and Martin Klotz testified that petitioner's civil income tax liabilities for the years 1979, 1980, and 1981 were outside their jurisdiction and that they did not have authority to compromise these liabilities. They also testified that they told petitioner's counsel on several occasions that they did not agree to relieve petitioner of his civil tax liability. We find their testimony on this matter credible. We also are convinced that, prior to presentation of the plea bargain in the District Court, petitioner was made aware of the government's position through his attorney. At the least, petitioner was on notice that he should be careful to ascertain the scope of the government attorneys' authority to compromise his liabilities. Petitioner has offered no evidence that he made any inquiry about whether the government attorneys had authority to compromise his civil tax liabilities or that either government attorney affirmatively represented to petitioner or his counsel that he had such authority.

Petitioner's argument that respondent is estopped from denying the binding effect of Paragraph 6 is not persuasive. Estoppel cannot be invoked against the government because of the unauthorized acts of its agents. Utah Power & Light Co. v. United States, 243 U.S. 389, 409 (1917); Saulgue v. United states, supra at 976. Furthermore, the elements of equitable estoppel have not been satisfied in this case. These elements are: (1) there must be a wrongful statement or a misleading silence by the party against whom the opposing party seeks to invoke the doctrine; (2) the error must be 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) the person claiming the benefits of estoppel must be adversely affected by the acts or statements of the person against whom estoppel is claimed. Kronish v. Commissioner [Dec. 44,694 ], 90 T.C. 684, 695 (1988); Estate of Emerson v. Commissioner [Dec. 34,201 ], 67 T.C. 612, 617-618 (1977).

In this case we are convinced that the Assistant United States Attorneys did not make a wrongful statement to petitioner or mislead him by their silence. We also conclude that the failure of the government attorneys to object to Paragraph 6 did not constitute a statement of fact, and that petitioner was not ignorant of any material facts when he entered his change of plea in District Court. Finally, petitioner has failed to convince us that he was adversely affected by the acts or statements of the Assistant United States Attorneys. Petitioner explicitly stated to the District Court that he pleaded guilty to the crimes with which he was charged because he was in fact guilty of them, and he never sought to change that pleading, despite ample opportunity to do so. Respondent is not estopped from denying the binding effect of petitioner's interpretation of Paragraph 6.

To reflect the foregoing,

Decision will be entered under Rule 155.

¹ All section references are to the Internal Revenue Code, as amended and in effect for the years in issue, unless otherwise indicated. All rule references are to the Tax Court Rules of Practice and Procedure.

96-2 USTC ¶50,492] Thomas Benson, Plaintiff v. United States of America, Defendant

U.S. District Court, Dist. Colo., Civ. 95-D-2125, 8/21/96, 934 FSupp 365, 934 FSupp 365

[Code Secs. 7121 and 7122 ]

Compromise agreements: Binding: Authority of IRS employees.--An alleged compromise agreement that included an individual's payroll deduction agreement and several letters to the IRS concerning the proper amount of taxes due was not binding because it was not approved by the Secretary of the Treasury or a delegate of the Secretary under Code Sec. 7121 and was not submitted on a form prescribed by the IRS pursuant to Code Sec. 7122 . Thus, he was liable for unpaid interest the IRS omitted from the final payoff balance of his unpaid taxes. The IRS employee who incorrectly computed the final payoff balance on which the taxpayer relied did not have the authority to enter into a compromise agreement. BACK REFERENCES: 96 FED ¶41,890.68 and 96 FED ¶41,930.0251

[Code Secs. 7121 and 7122 ]

Compromise agreements: Assessment of unpaid interest: Equitable estoppel.--The IRS was not equitably estopped from assessing unpaid interest against an individual, even though he relied on an incorrect final payoff balance of his unpaid taxes as calculated by an IRS employee. Any reliance by the taxpayer was unreasonable since he was not deprived of any legal right to which he was entitled. Moreover, his reliance was not justified since his compromise agreement did not comply with Code Secs. 7121 and 7122 of which he was deemed to have notice, and he negotiated an agreement with an IRS employee who did not have authority to compromise the IRS 's claim.

James David Hopkins, 4155 E. Jewell Ave., Denver, Colo. 80222, for plaintiff. William G. Pharo, Assistant United States Attorney, Denver, Colo., Joel J. Roesner, Arthur P. Yoon, Department of Justice, Washington, D.C. 20530, for defendant.

MEMORANDUM OPINION AND ORDER

I. INTRODUCTION

DANIEL, District Judge:

This matter comes before the Court as a result of the cross motions for summary judgment filed by the parties. The Court, having reviewed the motions for summary judgment, the responses and replies thereto, the entire file and the relevant case law, DENIES Plaintiff's motion for summary judgment and GRANTS Defendant's motion for summary judgment for the reasons discussed below. As I informed counsel at the August 19, 1996 conference, I regret that controlling case and statutory precedent leave me with no alternative but to grant the motion. As the facts disclose, Plaintiff acted in good faith, was misled by the government and may have prevailed on his claim but for the extraordinary powers that are possessed by the Internal Revenue Service.

II. FACTUAL BACKGROUND

The key facts are undisputed. Plaintiff Thomas Benson ("Benson") failed to file personal income tax returns for the 1980, 1981 and 1982 tax years. On November 27, 1985 , a statutory notice of deficiency was issued to Benson which determined deficiencies and additions to tax for all three years. On February 28, 1986 , Benson filed a petition with the United States Tax Court contesting the claimed deficiencies. On May 11, 1987 , a decision was issued which determined deficiencies for the taxable years 1980, 1981 and 1982 in the amounts of $3,076.00, $2,010.00, and $5,699.00, respectively, not including penalties or accrued interest. These taxes were assessed against Benson and the case was transferred to the Internal Revenue Service's (" IRS ") Collection Division. Thereafter, Benson entered into a payroll deduction agreement beginning May 18, 1988 whereby Benson paid $400.00 per month on his total federal income tax liability of $29,636.00 from July of 1988 until June of 1993. I calculate that the amount paid by Benson totalled approximately $24,000.00.

On July 15, 1993 , Benson visited the office of the District Director of the IRS and requested a payoff balance for his unpaid tax liability. As of that date, the deficiencies, penalties and accrued interest for the 1980 and the 1981 tax years had been fully paid, and the remaining balance owed involved only the 1982 liability. In writing on the same date, the Taxpayer Service Division sent Benson a letter, Form 1721B(D), which represented that the final payoff balance on his 1982 account was $1,892.93 if received by August 6, 1993 . This amount, it later turned out, was incorrect because the IRS employee who processed the request failed to update the interest that was due on the 1982 account.

Nevertheless, it is undisputed that Benson made a payment of $1,892.93 by the proscribed deadline and indicated on the check that it was for "TOTAL PAYOFF 1982". The IRS cashed this check and on or about August 2, 1993 , sent Benson a letter which incorrectly stated that the balance due for the 1982 tax period had been fully paid. A Notice of Tax Lien was released by the IRS with respect to the 1982 tax liability, and on August 4, a release of lien was published in the local newspaper.

In claimed reliance on this release and with the extra money that Benson had as a result, Benson alleges that he obtained new financing on his family home and paid his mother back for the loan. Further, he claims to have purchased a motor vehicle, and made plans to have a dentist perform dental work on his son and wife. Finally, Benson claims that he made plans for opening a retirement savings account.

In September, 1993, Benson was informed that the IRS had made a mistake and that he still owed unpaid interest. On September 20, 1993 , the IRS assessed interest in the amount of $9,603.07 with respect to the Plaintiff's tax liability. On December 30, 1993 , a final notice and demand for payment and notice of intention to levy was mailed to Benson from the IRS ' collection department. In March, 1994, Benson requested that the IRS review the case and not levy on his property, which request was denied in a letter issued March 25, 1994 . On April 23, 1994 , Benson paid the balance due plus additional interest in the total amount of $9996.64.

On August 31, 1994 , Benson filed an administrative claim for a refund of the paid interest. Benson's claim was considered by the IRS Examination Division as a request for abatement of interest. Due to the ministerial error of the IRS in giving Benson an incorrect payoff figure on July 15, 1993 , the Examination Division determined that $484.32 of the interest paid should be abated, which represented the interest paid from July 15, 1993 to December 30, 1993 , the date he received final notice and demand for payment. Benson disagreed with the partial allowance and was transferred to the IRS Appeals Division. On or about March 30, 1995 , the Appeals Division sustained the Examination Division's position and issued a partial claim disallowance letter along with a refund of $484.32. In connection therewith, Benson was charged a $10.00 administrative charge for costs.

Thereafter, Benson commenced this suit. As a result of the additional interest that Benson was required to pay, Benson claims that his wife has not yet had the dental work she needs and Benson was not able to start a savings plan. Further, Benson claims that he and his family were required to make adjustments to their budget to pay for the extra expenses they incurred in reliance on the Defendant.

III . ANALYSIS

A. Summary Judgment Standards

In considering these motions, the Court is mindful that "summary judgment is a drastic remedy" and should be awarded with care. Conaway v. Smith, 853 F.2d 789, 792 n.4 (10th Cir. 1988). Summary judgment is appropriate only when there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317 (1986). The initial burden is on the moving party. The moving party must allege an absence of evidence to support the opposing party's case and identify supporting portions of the record. Id. at 323.

Once the movant has made an initial showing, the burden of proof shifts to the opposing party. Anderson v. Dept. of Health and Human Servs., 907 F.2d 936, 947 (10th Cir. 1990). The nonmovant must go beyond the pleadings and designate specific facts showing that there are genuine issues of fact for trial. Allen v. Dayco Prods., Inc., 758 F. Supp. 630, 632 (D. Colo. 1990). A genuine issue of material fact exists only where there is sufficient evidence favoring the nonmoving party for a jury to return a verdict for that party. Mares v. Conagra Poultry Co., 773 F. Supp. 248, 251 (D. Colo. 1991), aff'd., 971 F.2d 492 (1992). All factual disputes and inferences must be drawn in favor of the nonmoving party. Otteson v. United States, 622 F.2d 516, 519 (10th Cir. 1980). Summary judgment should, however, be granted if the pretrial evidence is merely colorable or is not significantly probative. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249-50 (1986).

B. Contract Claim

Benson argues that he entered into a contract with Defendant through the payroll deduction agreement and the later written letters concerning the proper amount due under the 1982 agreement. Benson claims that by demanding more amounts, the IRS has breached its contract with Benson. It is undisputed, however, that the alleged contract of settlement did not comply with Sections 7121 and 7122 of the Internal Revenue Code, 26 U.S.C. §§7121 and 7122 . These statutory sections are the exclusive procedures for compromising tax liabilities. Uinta Livestock Corp. v. United States [66-1 USTC ¶9193 ], 355 F.2d 761, 765 (10th Cir. 1966); Delohery v. IRS , Dept. of Treasury, United States [94-1 USTC ¶50,144 ], 843 F. Supp. 666, 669 (D. Colo. 1994).

The Supreme Court explained this as follows:

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.

Botany Worsted Mills v. United States [1 USTC ¶348 ], 278 U.S. 282, 288-289 (1929). Courts that have applied this rule to cases with facts similar to the instant case include Dorl v. Commissioner [74-2 USTC ¶9826 ], 507 F.2d 406, 407 (2nd Cir. 1974) (letter from IRS received by taxpayer informing her that if she paid deficiency resulting from mathematical error she would have paid taxes in full was not a closing agreement binding on the IRS and did not preclude additional deficiency assessment, especially where the revenue officer who sent the letter had no authority to execute a formal closing agreement); and Klein v. Commissioner [90-1 USTC ¶50,251 ], 899 F.2d 1149, 1153 (11th Cir. 1990) ( IRS letters purporting to constitute settlement of tax liability did not constitute binding contract because closing agreement was not executed, even if letters relied on by taxpayer were held to be apparent settlement, IRS could not be bound because letters were not signed by both parties and agent signing one of letters was without authority to formally settle taxpayer's liability).

In the case at hand, it is undisputed that the alleged contract compromising Benson's claim did not comply with either Section 7121 or 7122 of the Internal Revenue Code. This is because, among other reasons, it was not approved by the Secretary of the Treasury or a delegate of the Secretary (26 U.S.C. §7121(a) ); and (ii) a closing agreement must be submitted on a form prescribed by the IRS . 26 C.F.R. §301.7122-1(d) . In addition, the employee of the District Director did not have the authority to enter into a compromise agreement. Accordingly, summary judgment in favor of the Defendant is GRANTED as to Benson's first claim for relief for breach of contract. ¹

B. Equitable Estoppel

I also find that summary judgment is appropriate as to Benson's equitable estoppel claim. The Supreme Court has left open the question whether equitable estoppel may ever be invoked against the government. Heckler v. Community Health Services, 467 U.S. 51, 60 (1984). If there is such a claim, it is clear that the government may not be estopped on the same terms as any other litigant. Id. The Tenth Circuit invokes the doctrine of equitable estoppel against the government with great reluctance. Emery Mining Corp. v. Secretary of Labor, 744 F.2d 1411, 1416 (10th Cir. 1984).

The following elements must be met in order to establish an estoppel claim: "(1) the party to be estopped must know the facts; (2) he must intend that his conduct will be acted upon or must so act that the party asserting the estoppel has the right to believe that it was so intended; (3) the latter must be ignorant of the true facts; and (4) he must rely on the former's conduct to his detriment." United States v. Wingfield [88-1 USTC ¶9367 ], 822 F.2d 1466, 1476 (10th Cir. 1987). Further, "there is an additional consideration of public policy when a party seeks to estop the Government; if the Government is unable to enforce the law because of estoppel, the interest of the citizenry as a whole in obedience to the rule of law is undermined." Id.; see also United States v. Browning, 630 F.2d 694, 702 (10th Cir. 1980), cert. denied, 451 U.S. 988 (1981) (the only circumstances justifying use of the doctrine are those which add up to the conclusion that it does not interfere with underlying governmental policies or unduly undermine the correct enforcement of a particular law or regulation").

Cases that are factually similar to the instant proceeding have concluded that the IRS is not estopped from collecting amounts that were compromised by an agreement with the IRS which did not comply with the regulations of the Internal Revenue Code. Thus, in Delohery, a taxpayer claimed that equitable estoppel was appropriate against the IRS with relation to certain quarterly taxes that the taxpayer was forced to pay on the basis that a revenue officer of the Office of the District Director had previously represented that he would make adjustments to the interest and penalties to cover this quarterly tax liability.

This Court rejected the argument, holding that the taxpayer's reliance on the revenue officer's representation was unreasonable for two reasons:

First, Section 7122 provides that only the Secretary or his delegate may compromise a tax liability. In Browning, the Tenth Circuit held that 'it is fundamental that the United States is not estopped by representations made by an agent without authority to bind the government in a transaction.' 630 F.2d at 702.... Second, as mentioned above, the applicable treasury regulations require that an offer of compromise and an acceptance be in writing.... In dealing with the government, Delohery is charged with knowledge of applicable statutes and regulations. Thus, Delohery should have known that Scott's oral representation of compromise was not binding and, therefore, I conclude that his reliance on the agreement was unreasonable as a matter of law.

Id. at 669 (internal citations omitted).

Further, the court rejected Delohery's argument that he had relied to his detriment upon the IRS agent's representation by having to sell his business, that his credit relationship with his bank was damaged, that he had been threatened with foreclosure and that he was required to enter into an unfavorable arrangement with the bank to forestall collection efforts. The court concluded that this did not create a genuine issue of fact as to the reliance factor of estoppel because Delohery had not lost any legal right, either vested or contingent, or suffered any adverse change in his status, since it is undisputed that he owed the tax. Id. at 670. Finally, the court concluded that the facts of the case did not warrant a finding of affirmative misconduct on the part of the government, an element of estoppel required by many circuits. Id.

The Delohery opinion relied on the holding of the Supreme Court in Heckler. In Heckler, a health care provider sued an administrative agency of the government for recoupment of overpayments made under medicare cost reimbursement procedures on the basis that it had requested the reimbursements in reliance on an intermediary of the agency who told the provider that the requested costs were reimbursable. The Supreme Court held that equitable estoppel was inapplicable against the agency because the provider received a benefit that it should never have gotten in the first place, stating, "[w]hen a private party is deprived of something to which it is entitled of right, it has surely suffered a detrimental change in its position. Here, [the provider] lost no rights but merely was induced to do something which could be corrected at a later time." Id. at 61-62.

Further, as to the provider's argument that it was adversely affected by having to repay the money that it thought it was entitled to because its operations would be curtailed, the Supreme Court in Heckler stated, "[c]urtailment of operations does not justify an estoppel when--by [the provider's] own account--the expansion of its operation was achieved through unlawful access to governmental funds." Id. at 62. Finally, the Supreme Court held that estoppel was also inappropriate because reliance was not justified since the provider was deemed to know the regulations and thus know that it accepted advice from an entity that did not have authority to bind the agency. Id. at 62-65; see also United States v. Guy [92-2 USTC ¶50,581 ], 978 F.2d 934 (6th Cir. 1992); Kennedy v. United States [92-1 USTC ¶50,307 ], 965 F.2d 413 (7th Cir. 1992); Wingfield [88-1 USTC ¶9367 ], 822 F.2d at 1476; Dorl [74-2 USTC ¶9826 ], 507 F.2d at 407.

Based on the foregoing authority, I find that judgment is appropriate as a matter of law as to the equitable estoppel claim. Any reliance of Benson was unreasonable since he was not deprived of any legal right to which he was entitled. Moreover, his reliance was not justified since the regulations required that he comply with Sections 7121 and 7122 of the Internal Revenue Code of which he is deemed to have notice, and because he negotiated a settlement with an employee of the IRS that did not have authority to compromise the IRS ' claim. Summary judgment in favor of Defendant is thus GRANTED on Benson's second claim for relief for equitable estoppel.

III . CONCLUSION

Based upon the foregoing, it is

ORDERED that Plaintiff's Motion for Summary Judgment is DENIED. It is

FURTHER ORDERED that Defendant's Motion for Summary Judgment is GRANTED. It is

FURTHER ORDERED that the trial set to commence on September 9, 1996 is VACATED.

¹ I note that a key case relied on by Benson is distinguishable on its facts and actually supports my ruling. The Tenth Circuit in Anthony v. United States [93-1 USTC ¶50,140 ], 987 F.2d 670, 673 (10th Cir. 1993), specifically recognized the rule that informal settlement agreements are precluded by sections 7121 and 7122 of the Internal Revenue Code. However, it created an exception to this rule for the sole reason that the agreement was issued as an official decision of the United States Tax Court.