Biggs, Chief Judge, and Forman and Freedman, Circuit Judges. Freedman, Circuit Judge (dissenting).
This is an appeal from the judgment of the United States District Court for the Eastern District of Pennsylvania.*fn1 Only a sketchy reference to the factual background of the case is required for it is amply detailed in the reported opinion of the District Court.*fn2
The United States had assessed the late Joseph Saladoff with income tax liability of $22,303.16 for the years 1948, 1949 and 1950. On November 9, 1955, Mr. Saladoff offered to compromise his liability in writing on the Government Official Form 656C. It provided for the payment of $15,000, of which $7,500 was to be paid within one year from the date of the acceptance and the balance in installments of $300 each month thereafter with interest at six percent on all deferred payments until liquidation of the amount of the compromise. One of the provisions contained in the offer was an agreement by Mr. Saladoff that upon its acceptance, he should have no right in the event of default in any payment of principal or interest due, to contest in court or otherwise, the amount of liability sought to be compromised and that the Commissioner of Internal Revenue had the option to immediately sue for the entire unpaid balance of the offer or to disregard it and collect by distraint or suit the balance of the liability sought to be compromised after applying all amounts previously paid.*fn3
On November 15, 1955 the Director of Internal Revenue at Philadelphia received another agreement signed by Mr. Saladoff as a further consideration for the acceptance of the offer in which he committed himself, in addition to the compromise amount of $15,0000, to pay, in each of the years 1955 to 1964 inclusive, twenty percent of his annual income in excess of $3,500 and not in excess of $5,000; thirty percent of any excess of $5,000 and up to $10,000; and fifty percent in excess of $10,000. It was also stipulated that he would make annual statements of his income and that the amount of the offer and additional installments should not exceed the liability covered by the offer plus accrued interest to the dates of payments.
On April 18, 1956 the Government accepted the offer in compromise as supported by the collateral agreement. Mr. Saladoff made an immediate payment of $3,500. Thereafter, between July 30, 1957 and May 24, 1961, he made twenty-eight installment payments in amounts ranging from $50.00 to $538.64 each, aggregating $4,468.64, which, with the payment of $3,500, totalled $7,968.64. Except for the $3,500 payment only five installments were in amounts of $300 or more -- four were for $200, one for $80, another for $50, and the balance were $100 each.
The record shows only one written communication from the Government to Mr. Saladoff concerning his delinquency in meeting his installments. It was a letter from the District Director of the Internal Revenue Service at Philadelphia dated July 24, 1959 informing him that the Collection Division felt that the payments on his offer in compromise were insufficient and suggesting that he call the office for an appointment to make new arrangements.*fn4 We know only that thereafter payments were made at the rate of $100 per month except for November and December of 1959 when they were $200 each; that no payment was made in January and February of 1960 and that the last remittance of $50 occurred May 24, 1961, thirteen days before Mr. Saladoff's death on June 6, 1961.
On October 12, 1961 the District Director addressed a letter to the appellant noting that only $7,968.64 had been paid on account of the offer in compromise. The letter declared the offer in default and terminated.*fn5
A complaint was filed on February 7, 1963 by the United States against Mrs. Saladoff as Administratrix of the Estate of Joseph Saladoff, Deceased, in the United States District Court for the Eastern District of Pennsylvania alleging that after the reflection of credits amounting to $7,968.64 there was due the United States a balance of unpaid income taxes of the decedent for the years 1948, 1949 and 1950 in the amount of $23,754.97. It sought judgment therefor with interest from May 31, 1962 and costs. The complaint was amended and answers were filed to the original and amended complaints. The United States thereafter filed a motion for summary judgment in the sum of $14,338.22 together with interest and costs. A motion also for summary judgment was made by the administratrix for dismissal of the action.
Argument was heard on both motions at which the Administratrix conceded that judgment should be entered in favor of the United States but only for $7,031.36, the balance she admitted to be due under the offer in compromise. The District Court on June 26, 1964 granted the motion for summary judgment of the United States for $14,338.22 and denied the motion of the Administratrix.*fn6 In the order therefor he gave the United States leave to file an appropriate motion for interest and costs. Pursuant thereto and upon written admission by the Administratrix of the accuracy of the interest and costs statement of the United States another order was filed on July 22, 1964 adjudging that the Administratrix pay interest of $6,733.40 and costs of $38.24. This appeal is from those orders for judgment.
The argument of the appellant raises the basic question: When the United States accepted the taxpayer's payments in amounts smaller than called for by the installment schedule of the compromise agreement for over five years, could it, without due notice, declare a default? Her answer is in the negative. She seeks to support it by reference to a number of cases and texts, a detailed analysis of which would be purposeless here. Suffice it to say, none involves the Government and the collection of its taxes; rather, they refer to contractual relationships between private parties. We do not find them apposite.
The only authorization for the acceptance of a lesser amount of income tax than that duly assessed is found in the provisions of the Internal Revenue Code of 1954*fn7 and in the Treasury Regulations promulgated thereunder.*fn8 Mr. Saladoff sought the compromise of his income taxes for the years 1948, 1949 and 1950 on one of the grounds covered by the regulations, namely, doubt as to the collectibility of the indebtedness.*fn9 Upon the acceptance of the offer a contract was formed binding the Government to refrain from pressing him for his taxes by either distraint or suit as long as he performed his undertaking to pay the stipulated installments. After the very first installment he seldom met the required payments. It is a fact that the Government accepted the lesser amounts without objection save for its letter of July 24, 1959*fn10 and even thereafter it continued to accept some twenty payments of sums less than those called for by the schedule. Finally Mr. Saladoff died and the payments ceased altogether, his estate having made none.
The appellant urges that the tenor of the letter of July 24, 1959 is such as to lead to the inference that the Government, in any event, would have granted Mr. Saladoff more favorable terms of payment had he answered it and that its conduct in accepting many small payments thereafter proves that the Government, in effect, modified the agreement or estopped itself from now claiming the original taxes, particularly since no notice that it would so act had ever been given to Mr. Saladoff or his estate. We cannot agree with appellant's theory. Indeed, the statement in the letter notifying him -- "The Collection Division feels that payments are insufficient, therefore new arrangements should be made." -- is as readily susceptible of the interpretation that more stringent compliance would be required as more lenient.
When the Government declared the compromise agreement terminated, the time for the liquidation in full of the compromise undertaking had long since expired and only approximately half the compromised indebtedness had been paid. Moreover, a period of over four months elapsed after Mr. Saladoff's death in which no payment whatever was forthcoming from the estate. As was aptly held by Judge Higginbotham the failure of the Government to insist upon installments in the specified amounts or to give notice that unless they were so made the compromise would be terminated worked neither a waiver, modification of its terms, nor an estoppel to the reinstitution of the original assessment. The collection of revenue by the Government is such a collossal operation that it may be expected that incidents of acceptance of smaller than specified payments over even a period as long as the one in the case at bar can occur. Actions on the part of landlords and mortgagors in systematically accepting less than contractual payments are not to be considered on a par with the Government's collection of its revenue.
The surmise of the appellant is very probably accurate that the Government's declaration of termination and its insistence upon the liquidation of the unpaid balance of the taxes were precipitated by the settlement by the appellant of a suit concerning property of Mr. Saladoff which resulted in possession by the estate of substantial funds upon which the unpaid taxes could fasten. The record is not clear as to the amount of funds which have come into the hands of the appellant but her very resistance to the Government's declaration of default and demand for liquidation of full liability raises the reasonable inference that the funds are now available to wholly or substantially discharge the entire tax liability. The taxing authorities would certainly have been remiss in their duties had they not sought to enforce the breached compromise agreement, the collateral supplement to which made quite clear that the Government was not unqualifiedly forgiving Mr. Saladoff his 1948, 1949 and 1950 taxes. Any feeling entertained by him or the appellant that it was within the power of the taxing authorities by their conduct to waive or modify the terms of the method by which he was to liquidate his taxes was and is badly conceived. The method by which the taxing authorities could enter into compromise agreements with taxpayers was restricted by the limitations placed upon them by the Internal Revenue Act and the Regulations.
The appellant calls attention to the comment found in the dissenting opinion in Federal Crop Ins. Corp. v. Merrill*fn11 to the effect that those who deal with the Government should do so fairly and that the Government should reciprocate similarly. We find the remarks in the majority opinion more to the point when it charged anyone entering into an agreement with the Government with taking the risk of having accurately ...