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BOYD v. UNITED STATES

July 27, 1977

David BOYD, JR., PLAINTIFF
v.
United States of America, and Alfred L. Whinston, District Director of Internal Revenue at Philadelphia, Pennsylvania, DEFENDANTS


Newcomer, District Judge.


The opinion of the court was delivered by: NEWCOMER

NEWCOMER, District Judge:

 This tax case has had a complicated procedural history. Presently before the Court are motions for summary judgment filed by both the plaintiff and the defendant. Both motions will be denied. Although I agree with the Government's legal position, several factual questions cannot be resolved on the present record, so that summary judgment is inappropriate.

 Most of the factual background of the case is not in dispute. On October 29, 1972, the plaintiff's tax year was terminated as of August 25, 1972, pursuant to § 6851 of the Internal Revenue Code, and the Internal Revenue Service ("IRS") made a demand for payment of income taxes in the amount of $13,963.30. An assessment in that amount then was made against the plaintiff. The IRS attempted to collect this liability by levying upon certain cash in the possession of the Philadelphia Police Department ($5,107.00) and seizing plaintiff's automobile, valued at $7,570, from which the IRS realized $5,583.50 after expenses. *fn1" In addition, in 1973, the plaintiff paid $2000 on the assessment.

 Plaintiff then instituted this action, seeking a declaration that the termination assessment was void, an injunction to prevent any further collection, and the return of all property seized pursuant to the termination assessment. While the case was on appeal to the Third Circuit Court of Appeals, the United States Supreme Court decided Laing v. United States, 423 U.S. 161, 46 L. Ed. 2d 416, 96 S. Ct. 473 (1976). In Laing, the Court held that whenever the IRS terminates a taxpayer's taxable year and makes an immediate assessment against him, it must issue a statutory notice of deficiency within sixty (60) days. Laing is applicable here. In fact, the Government has conceded that the termination assessment made against the plaintiff was procedurally defective because the IRS did not issue a timely notice of deficiency. *fn2"

 Despite this concession, the Government has refused to return the entire amount of the taxes collected from the plaintiff pursuant to the defective termination assessment. The Government contends that a portion of these funds can be credited against the taxpayer's other outstanding tax liabilities under section 6402(a) of the Internal Revenue Code, which provides as follows:

 
"In the case of any overpayment, the Secretary or his delegate, within the applicable period of limitations, may credit the amount of such overpayment, including any interest allowed thereon, against any liability in respect of an internal revenue tax on the part of the person who made the overpayment and shall refund any balance to such person." 26 U.S.C. § 6402(a).

 The crucial issue in this case is whether the funds collected pursuant to the termination assessment should be considered an overpayment, or, as plaintiff contends, simply escrow deposits held in the nature of a cash bond for the payment of any taxes later found due.

 I agree with the Government that the funds should be considered overpayments which can be credited against other tax liabilities. See Harris v. United States, 76-1 U.S.T.C. P 9403 (E.D. Mich. 1976); United States v. Cooper, 76-2 U.S.T.C. P 9580 (D.D.C. 1976). In Harris the court noted that the Supreme Court's decision in Laing v. United States, supra, permitting a taxpayer to enjoin collection until a notice of deficiency has been mailed, did not discuss whether a taxpayer is entitled to the return of funds improperly collected. The court then held that the issuance of a proper notice of deficiency mooted the taxpayer's claim for the return of money seized.

 
"To grant injunctive relief for the return of money collected under an invalid assessment where taxpayer is liable for taxes later validly assessed would be improvident." Harris v. United States, supra, at 84,050.

 In Cooper, the court likewise held that property seized pursuant to jeopardy assessment that was procedurally defective only because it violated the Supreme Court's ruling in Laing could be applied to other valid tax liabilities as an overpayment.

 The cases relied on by the plaintiff are distinguishable. Cases such as Rosenman v. United States, 323 U.S. 658, 89 L. Ed. 535, 65 S. Ct. 536 (1945) and Fortugno v. C.I.R., 353 F.2d 429 (3d Cir. 1965), cert. dismissed, 385 U.S. 954, 87 S. Ct. 337, 17 L. Ed. 2d 302 (1966), and other similar cases cited by the plaintiff, arise in an entirely different context. Nearly all of these cases involve claims by taxpayers for interest on sums advanced to the Government. Normally in these cases, unlike the instant case, the taxpayers contend that sums advanced to the Government were payments and not mere deposits, because the Government is required to pay interest on overpayments but not on deposits. None of these cases deals with the issues of funds collected pursuant to a procedurally defective assessment.

 More importantly, the principle established in the Rosenman line of cases is inapplicable to the present case, where the taxpayer's property was collected after an assessment was made. In Rosenman, the Supreme Court held that funds advanced to the Government before any deficiency was assessed could not be considered a payment, but only a deposit in the nature of a cash bond. In reaching this conclusion, the Court relied in part on the fact that the Government had kept the funds advanced by the taxpayer in special suspense accounts for depositing money when no assessment was outstanding against the taxpayer. In this case, however, the property collected from the plaintiff would not have been received in this manner, since an assessment had been made against the plaintiff. The fact that the original assessment later was found to be procedurally defective cannot change the status of the original collection, which was a payment pursuant to an assessment. See Jones v. Liberty Glass Company, 332 U.S. 524, 92 L. Ed. 142, 68 S. Ct. 229 (1947). The Supreme Court stated in Jones that an overpayment is any payment in excess of that which is properly due. In holding that overpayments can arise from erroneous interpretations of facts or law on the part of taxpayers or revenue officers, the Court explicitly rejected the argument that payments made pursuant to erroneous or illegal assessments cannot be overpayments. Id. at 531. Under Jones, the property collected from the plaintiff herein must be treated as an overpayment.

 The plaintiff also relies on several cases involving property seized pursuant to a jeopardy assessment. Again, however, these cases are not persuasive. Several of the plaintiff's cases do not consider the precise question involved here -- whether property seized under a procedurally defective jeopardy assessment is an overpayment which can be credited to other outstanding tax liabilities. See, e.g., United States v. Hall, 423 U.S. 161, 46 L. Ed. 2d 416, 96 S. Ct. 473 (1976); Campbell v. United States, 75-2 U.S.T.C. P 9736 (E.D. Mich. 1975), aff'd, 532 F.2d 1057 (6th Cir. 1976). Johnny Baylor v. United States, 1972-2 U.S.T.C. para. 9654 (E.D. N.Y. 1976) is inapplicable because the decision in that case was based on the fact that there was no outstanding assessment against the taxpayer, since the asserted deficiency was being litigated in the Tax Court. In Sandoval v. United States, 76-1 U.S.T.C. P 9438 (D. Ariz. 1976), the court's ...


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