Overpayment

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Overpayment

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[58-2 USTC 9880]Wilburna Hussey, as Administratrix of the Estate of Eldred W. Hussey, Deceased, Plaintiff v. The United States of America , Defendant

U. S. District Court, So. Dist. Calif., Central Div., Civil, No. 19,682-TC, 9/30/58

[1939 Code Secs. 3761 and 3770(a)(1), (4)--similar to 1954 Code Secs. 6402(a) and 7122]

Overpayment of tax: Overpayment credited against another's tax: Offer in compromise of another's tax not accepted.--Taxpayer operated, during 1944, but never was an officer, director or stockholder of, his brother's sandblasting company. The Commissioner determined that the taxes paid by taxpayer on income received from the company were taxable to the company and informed taxpayer of his overpayment. Following taxpayer's timely claim for refund, issuance of an overassessment certificate to the taxpayer was approved by the Commissioner. Between the time the certificate was approved and the time it was mailed, the Collector credited the amount of the refund against the 1942 and 1944 tax liabilities of the company, which had gone into bankruptcy in 1946. Taxpayer is entitled to judgment on his suit for refund, since the Commissioner may not credit taxpayer's overpayment against the tax due from another, namely, the company. Taxpayer did sign a Form 873 (Acceptance of Proposed Overassessment) and therein consented that the overpayment be credited against the company's tax liability, but neither the Commissioner nor anyone in his behalf ever signed the form. The company filed a compromise offer and, as a part of that offer, taxpayer did agree to waive his right to refund of the overpayment, but the offer, after it was accepted and the acceptance was later withdrawn, was never re-accepted. Thus the Commissioner had no authority to make such a credit. BACK REFERENCES: 58 FED 5411.064, 58 FED 5697.025.

George Bouchard, 900 Statler Center, Wilshire Blvd. , Los Angeles 17, Calif. , for plaintiff. Robert H. Wyshak, Assistant United States Attorney, 808 Federal Building, Los Angeles 12, Calif. , for defendant.

Findings of Fact, Conclusions of Law and Judgment

CLARKE, District Judge:

This cause was heard by the Court, without a jury, on July 17, 19 58, George Bouchard, Esq. appearing as counsel for the plaintiff, and the United States Attorney by John G. Messer, Esq., Assistant United States Attorney, appearing for the defendant, and was submitted to the Court upon the pleadings, a stipulation of fact, oral evidence, and the briefs of counsel. The Court makes the following findings based on the pleadings, the stipulation of fact, the evidence, and the reasonable inferences to be drawn therefrom:

Findings of Fact

I. This is a suit for refund of income tax, plus interest, for the year 1944, and the jurisdiction of this Court is invoked pursuant to Section 1346(a)(1) of Title 28 of the United States Code as amended.

II. Eldred W. Hussey was at all times referred to in the complaint an individual and a citizen of the United States , residing at Los Angeles , California . Eldred W. Hussey died January 20, 19 57, leaving as his only heir at law his widow, Wilburna Hussey. On October 14, 19 57, said widow was appointed by the Superior Court of Los Angeles County as Administratrix of his estate and she is now the duly appointed, qualified and acting Administratrix. Said Administratrix was substituted as plaintiff in this action pursuant to Rule 25(a), Rules of Civil Procedure, by order of this Court dated July 17, 19 58.

III . Eldred W. Hussey filed his Federal income tax return for the calendar year 1944 with the Collector of Internal Revenue at Los Angeles , California , on or about March 15, 19 45, reporting business income of $55,015.22 and paying a tax thereon of $32,989.73. The Collector of Internal Revenue to whom these taxes were paid is not now in office as Collector of Internal Revenue or as District Director of Internal Revenue.

IV. Aero Services, Inc. was a California corporation, all of whose capital stock was owned by J. Gordon Hussey, a brother of Eldred W. Hussey, deceased. This company was engaged in the business of repairing, reconditioning and maintaining airplanes for the Government and several large aircraft companies in the Los Angeles area. As a sideline it had a so-called sandblasting business. Eldred W. Hussey was never an officer, director or stockholder of Aero Services, Inc. Upon his returning from the service, his brother J. Gordon Hussey entered into an agreement with him whereby he was to take over and operate as his own this sandblasting business. Separate books were set up in the name of Eldred W. Hussey and a bank account was opened in his name. The money received from the sandblasting business was deposited in said account and the taxes in question were paid by Eldred W. Hussey from his bank account.

V. The Commissioner of Internal Revenue determined that the income reported by Eldred W. Hussey in his 1944 income tax return was income properly taxable to Aero Services, Inc. and that this income was not taxable to Eldred W. Hussey. The Commissioner of Internal Revenue determined that said Eldred W. Hussey had overpaid his Federal income taxes for the year 1944 in the amount of $32,989.73. On December 30, 19 46, the Internal Revenue Service at Los Angeles, California, advised said Eldred W. Hussey by letter that an overassessment in the amount of $32,989.73 on his 1944 income tax return was indicated and suggested to him that he protect his rights in the matter by preparing and filing a claim for refund, forms for which were included with the letter, together with instructions as to how the claim should be prepared.

VI. On March 4, 19 47, Eldred W. Hussey filed his claim for refund on Form 843 with the Collector of Internal Revenue at Los Angeles , California , for the year 1944 in the amount of $32,989.73. On or about February 5, 19 54, the Director of Internal Revenue at Los Angeles , California , advised the attorney for Eldred W. Hussey that he should file a supplemental claim for refund covering the amount previously determined by the Commissioner of Internal Revenue for the year 1944. Eldred W. Hussey accordingly filed a supplemental claim for refund on February 5, 19 54, with the District Director of Internal Revenue at Los Angeles , California . The grounds for the refund claims filed by Eldred W. Hussey were the same as the grounds set forth in the complaint herein. Said Eldred W. Hussey's claims for refund for the year 1944 had been on file for more than six months and no decision had been rendered thereon by the Commissioner of Internal Revenue prior to the time of the commencement of this suit. These claims for refund have not been assigned by Eldred W. Hussey to anyone, and the same are now the property of his estate.

VII . The Commissioner of Internal Revenue determined the tax liability of Aero Services, Inc. for the years 1942, 1943, and 1944, as follows:

1942         Deficiency .......................         $ 64,556.54

             An overassessment in the

1943         amount of ........................           49,073.12

1944         Income tax .......................            9,722.67

             Declared value excess profits

             tax ..............................           31,576.75

             Excess profits tax ...............          365,751.16


The assessment of the foregoing taxes was made by the Commissioner of Internal Revenue on or about the 24th day of April, 1946. Aero Services, Inc. was unable to pay the tax liability asserted for the year 1944, but could have paid the additional tax determined for 1942 by virtue of the overassessment determined by the Commissioner for the year 1943. The taxpayer's financial condition was such that it was necessary for it to make an offer in compromise of its tax liabilities. In connection with such proposed offer in compromise, it was suggested by the grent of the United States that Eldred W. Hussey consent to the application of his refund in the amount of $32,989.73 to the liability of Aero Services, Inc. At the suggestion of the Internal Revenue agent, Eldred W. Hussey, on June 27, 19 46, signed Treasury Department Form 873 accepting the Commissioner's determination of proposed overassessment for the year 1944 and consented that it be applied and credited against any deficiency in taxes owed by Aero Services, Inc. This Treasury form was never signed by the Commissioner of Internal Revenue or by anyone in his behalf.

VIII. In June, 1946, Aero Services went into bankruptcy. In April, 1948, Aero Services, Inc. filed with the Attorney General of the United States, through the United States Attorney at Los Angeles, California, an offer in compromise of all its Federal income, declared value excess profits, and excess profits taxes, and all other taxes, in the sum of $15,000, offering to pay said amount within sixty days after notice of acceptance. As a part of said offer Eldred W. Hussey agreed that he would waive his right to the refund of income taxes for the year 1944 in the amount of $32,989.73 if the offer in compromise of Aero Services, Inc. was accepted and its tax liabilities finally discharged.

IX. On October 27, 19 49, the Attorney General of the United States accepted said offer in compromise but later withdrew its acceptance. Eldred W. Hussey's consent to the credit of his refund to the tax liabilities of Aero Services, Inc. was conditioned upon the settlement of Aero Services, Inc.'s tax liabilities by an acceptance of the offer in compromise, which event did not occur.

X. The Commissioner, on October 5, 19 49, approved the issuance of a certificate of overassessment to Eldred W. Hussey in the amount of $32,989.73. Said certificate of overassessment was mailed to Eldred W. Hussey by the Commissioner on or about April 5, 19 50. On December 29, 19 49, the Collector of Internal Revenue at Los Angeles , California , applied said refund to the tax liabilities of Aero Services, Inc. as follows:

             declared value excess profits

1944         tax ..............................          $ 832.21

             excess profits tax ...............          4,418.99

             Total ............................         $5,251.20


The balance of said overassessment was credited to the income tax liability of Aero Services, Inc. for the year 1942.

XI. The Referee in Bankruptcy before whom the said bankruptcy proceedings of Aero Services, Inc. were pending determined by an order dated June 20, 19 52, which order became final, that there were no Federal income, declared value excess profits, or excess profits taxes due by Aero Services, Inc. for the year 1944.

XII. All conclusions of law which are or are deemed to be findings of fact are hereby incorporated as findings of fact.

Conclusions of Law

From the foregoing facts the Court makes the following conclusions of law:

I. The Court has jurisdiction of the parties and of the cause of action herein.

II. Plaintiff is suing to recover taxes paid by her deceased husband, and as administratrix of his estate is the real party in interest.

III . This suit is properly brought under the provisions of Section 3772 of the Internal Revenue Code of 1939 and Section 6532 of the Internal Revenue Code of 1954.

IV. All findings of facts which are deemed to be conclusions of law are hereby incorporated in these conclusions of law.

V. Plaintiff is entitled to judgment in the amount of $32,989.73, with interest at the rate of 6% per annum from March 15, 19 45, to a date preceding the refund check by not more than thirty days, such date to be determined by the Commissioner of Internal Revenue.

 

 

 

[72-2 USTC 9477]Robbins Tire and Rubber Company, Inc., Plaintiff-Appellee v. United States of America , Defendant-Appellant

(CA-5), U. S. Court of Appeals, 5th Circuit, No. 71-2827, 462 F2d 684, 6/13/72 , Rev'g and rem'g an unreported District Court decision

[Code Sec. 7122]

Offers in compromise: Overpayment as part of compromise: Form 656: Interpretation.--The District Court improperly held that the language of paragraph 3(b) of Form 656 (Offer in Compromise) was ambiguous. Since no ambiguity existed, it was error to have received testimony as to the intention of one of the parties or the opinions of experts as to the offer's meaning. Under the circumstances, the government was entitled to a directed verdict in taxpayer's action seeking to recover the refund of an overpayment established in a Tax Court proceeding since the settlement included a relinquishment of this overpayment. BACK REFERENCES: 72 FED 5697.095.

C. A. Poellnitz, P. O. Box 876, Florence, Ala., James C. Herndon, 680 E. Market St., Akron, Ohio, for plaintiff-appellee. Wayman G. Sherrer, United States Attorney, Charles D. Stewart, Assistant United States Attorney, Birmingham, Ala., Lynn W. Ross, Jr., Scott P. Crampton, Assistant Attorney General, Meyer Rothwacks, Ann Belanger, Department of Justice, Wishington, D. C. 20530, for defendant-appellant.

Before WISDOM, GOLDBERG and CLARK , Circuit Judges.

CLARK, Circuit Judge:

The contract interpretation issue in this appeal arose in the context of a tax claim settlement. Finding that only one reasonable meaning may be ascribed to the compromise offer and acceptance agreement of the parties, we reverse the action of the trial court in treating the contract as ambiguous and in submitting the issue of its interpretation to jury resolution.

Robbins Tire & Rubber Company (Taxpayer), an Alabama corporation, chose to file its tax returns on a September 30th fiscal year basis. During its 1942-1963 operations, Taxpayer incurred unpaid liability claims for (1) income, excess profits and other related taxes together with penalties and interest totaling 4,722,202.44 dollars, and (2) excise taxes, and related penalties and interest totaling 5,545,170.07 dollars. In December 1963, settlement conferences were held between representatives of Taxpayer and the Commissioner of Internal Revenue (Commissioner). On March 12, 19 64, Taxpayer wrote the following letter to the Commissioner:

Re: Robbins Tire & Rubber Company, Inc. Claims for Refund

Dear Sir:

The above named taxpayer has submitted offers in compromise to you for settlement of its tax liabilities to September 30, 19 63.

In connection with said offers and as additional consideration, we agree to withdraw all claims for refund filed by this corporation upon the acceptance of said offer and the related offer of Poncet Davis, Sr. If said offers are rejected, this agreement shall be of no effect and, upon rejection, is withdrawn.

It is our intention to waive and withdraw any and all claims which have been made by this corporation together with any and all claims which could be made by us in respect to any of the taxable years covered by the offers in compromise. Without limiting the above offer to withdraw claims for refund, the following specific claims are withdrawn:

                                   Type             Amount of

Period                              Tax                 Claim

10-1-50 to 9-30-51          Income ....          $ 129,821.44

10-1-55 to 10-30-56         Income ....            361,279.63

10-1-56 to 10-30-57         Income ....            159,997.98

10-1-57 to 10-30-58         Income ....            198,536.00

10-1-58 to 10-30-59         Income ....            267,754.69

10-1-59 to 10-30-60         Income ....             59,770.75

10-1-60 to 10-1-61          Income ....             32,329.39

                                                $1,209,489.88


On March 19, 19 64, Taxpayer filed a formal offer in compromise, dated September 30, 19 63, to proffer (1) 517,782.16 dollars in settlement of its income, excess profits and related tax liabilities; (2) 423,640.34 dollars in satisfaction of excise taxes, penalties and interest; and (3) an agreement to pay the district director a specified percentage of Taxpayer's future annual income over 25,000 dollars in each of the succeeding nine taxable years. All payments, present and future, were to be subject to the terms of the trust agreement which was in effect between Taxpayer and the district director. Along with the tender of these monetary sums, Taxpayer executed Internal Revenue Department Form 656 entitled "Offer in Compromise". Paragraph 3 of that printed form reads as follows:

3. In making this offer, and as a part consideration thereof, the proponent [Taxpayer] agrees (a) that all payments and other credits heretofore made to the account(s) for the period(s) covered by this offer shall be retained by the United States; and (b) that any and all amounts of money to which the proponent may be entitled under the internal revenue laws, due through overpayments of any tax or other liability, including interest and penalties, made for periods ending prior to or during the calendar year in which this offer is accepted, as are not in excess of the difference between the liability sought to be compromised and the amount herein offered, shall also be retained by the United States. Any such refund received after the filing of this offer will be returned immediately to the office of the District Director.

On May 1, 19 64, the Commissioner accepted Taxpayer's offer.

On December 16, 19 64, Taxpayer filed its income tax return for the fiscal year ended September 30, 19 64. On that 1964 tax return Taxpayer failed to claim certain deductions to which the parties now concede it was entitled. A later controversy about these deductions eventuated in a Tax Court opinion favorable to Taxpayer, which determined that an overpayment had been made on this return in the amount of 139,189.60 dollars. The Tax Court ruled that it had no jurisdiction to determine whether a refund of this overpayment of tax was barred by the terms of the compromise agreement. Taxpayer thereupon brought the present litigation seeking to recover the refund of the overpayment established.

The lower court held that the language of Paragraph 3(b) of Form 656 rendered the offer in compromise ambiguous and therefore refused to grant summary judgment to the United States and permitted Taxpayer to introduce parol evidence of the intentions of its representatives at the time of making the offer. Both parties were also permitted to produce "expert" testimony as to the technical meaning of the above quoted language from Form 656. The court then submitted to a jury the determination of whether the contractual settlement undertaking included a relinquishment of the 1964 overpayment. The jury determined that it did not. Judgment on that verdict in Taxpayer's favor provoked this appeal.

The Commissioner contends that the language of the offer in compromise which it accepted is unambiguous and that the United States was entitled to a directed verdict. Taxpayer contends that the argeement was ambiguous in that the government's own printed form (which Taxpayer was required to submit) can reasonably be read as having given Taxpayer two distinct options--either to relinquish to the United States all overpayment claims for the periods ending prior to the year in which the offer was accepted or to give up any overpayment it might make for the calendar year during which the offer was accepted. The sole issue we need reach is whether such an alternative interpretation can be judicially determined to be reasonable. We hold that it cannot, and that the court erred in submitting any issue to a jury in this cause.

Normally the interpretation of an undisputed contractual undertaking is to be resolved by the court as a matter of law. However, where the court determines that the words chosen to form an agreement indicate that reasonable men, situated as the contracting parties were, could reach more than one conclusion as to what the bargain was, determination of the intention of the parties is an issue of fact for the jury, if one has been demanded. Fujimoto v. Rio Grande Pickle Co., 414 F. 2d 648 (5th Cir. 1969); Freeman v. Continental Gin Company, 381 F. 2d 459 (5th Cir. 1967); Ammons v. Frankline Life Ins. Co., 348 F. 2d 414 (5th Cir. 1965); United States v. Taylor , 293 F. 2d 717 (5th Cir. 1961).

Even if we were to agree that it would be literally possible to read Paragraph 3(b) as a disjunctive offer by a taxpayer proposing a settlement to forego overpayment claims either (a) for all periods ending prior to the calendar year of acceptance or (b) only for periods ending during that calendar year, assigning such a meaning to the offer of compromise in the case at bar results in a wholly unreasonable construction of its terms under the circumstances present here. Taxpayer offered monetary payments approximating only about 10% of the tax liabilities claimed, based upon inability to pay the whole claim. Prior to its submission of this offer and the Commissioner's acceptance, Taxpayer had written a letter setting out its willingness to waive and withdraw all prior period overpayment claims, including certain specified prior claims totaling in excess of $1,200,000 dollars. Yet the "alternative" interpretation it urges be applied to its later offer in compromise which the Commissioner accepted, might permit Taxpayer to deliberately or inadvertently incur a minimal overpayment later in the year of acceptance and then choose to substitute such single overpayment claim for these much larger prior period claims, or would give the Commissioner the election of renouncing the right to retain the conceded claims and hold a subsequent potentially greater overpayment. To further demonstrate the inherent unreasonableness of Taxpayer's assertedly ambiguous interpretation, we note that it would be impossible to determine which of the contracting parties would be permitted to choose the "optional" period to be waived and when that choice would have to be made. No such unreasonable interpretation may serve to create ambiguity. Restatement of Contracts 236(a) (1932); Williston on Contracts 620 (3rd ed. 1961).

Paragraph 3(b) might be subject to criticism for its inartful use of the word "or", instead of "and" (or the technical catch-all "and/or"), between the prior and present tax periods described. However, the context of the entire document and the circumstances under which the offer was submitted show that the conjunctive meaning is implicit and that any reasonable person in the position of the parties must have so understood it.

Though Taxpayer lays heavy stress on its letter of March 12, 19 64, we find that it neither indicates nor compels a contrary conclusion. The only tax returns which were to be filed in the calendar year in which the offer in compromise was submitted were not due until after the closing of Taxpayer's fiscal year ending September 30, 19 64. The statement in the March 12 letter of Taxpayer's intention to waive and withdraw all known refund claims cannot logically be construed to have excluded a claim related to a tax return not yet filed and not then due. Indeed, the letter in completely consistent with the language of the offer in compromise submitted one week later. The latter can reasonably be construed to merely broaden the intent expressed in the former to include not only waiver of past overpayments but also to agree to permit to Commissioner to retain any overpayment for an additional period--the calendar year in which the offer was accepted. Since the return due in the 1964 calendar year had not yet been made, much less been made incorrectly, it most surely cannot be seriously contended that the March 12 letter constituted an election to waive only refunds for prior periods as opposed to an election to waive a potential later overpayment of 1964 taxes even before the offer allegedly creating the "option" had been tendered and before the alternative overpayment could be known.

We do not fault the district court for considering all of the background and circumstances against which the offer in compromise was made and accepted, including the March 12 letter and any other testimony of the contracting parties which established the context of the bargaining. However, since we have determined as a matter of law that no ambiguity existed in the contractual writings, it was error to have received testimony as to the intention of one of the parties, Freeman v. Continental Gin Co., supra, or the opinions of "experts" as to the meaning of the offer's wording.

 

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