(a) The district courts shall have original jurisdiction, concurrent with the United States Claims Court, of
(1) Any civil action against the United States for the recovery of any internal-revenue tax alleged to have been erroneously or illegally assessed or collected, or any penalty claimed to have been excessive or in any manner wrongfully collected under the internal-revenue laws...
The government relies on cases which hold that § 1346(a)(1) applies only to "taxpayers" who overpay their own taxes, and thus a person who pays taxes owed by another is effectively a volunteer or donor without standing to seek a refund.
The typical plaintiff in these cases held to lack standing under this theory is a third party who comprehends that he is not liable for a tax but decides to satisfy the obligation of another to achieve some net economic benefit, or someone who is not even directly involved in the payment transaction. See, e.g., Lac Courte Oreilles Chippewa Indians v. U.S., 845 F.2d 139 (7th Cir. 1988) (purchaser wishing to retain trucks advances funds to vendor to pay federal excise tax owed by manufacturer); Snodgrass v. U.S., 834 F.2d 537 (5th cir. 1987) (wife seeks refund of tax owed and paid by husband from common funds to release lien so joint property could be sold -- distinguishing her from one who is "threatened ... with personal liability" or "seizure of property"); Busse v. U.S., 542 F.2d 421 (7th Cir. 1976) (plaintiff pays tax owed by former spouse to remove lien on property awarded her by divorce court -- distinguishing her from refund claimant "believing himself to be at least potentially liable" for tax); First National Bank of Emlenton v. U.S., 265 F.2d 297 (3d Cir. 1959) (bank sues for proceeds of tax sale by IRS of third party's property on which bank held mortgage).
In cases highly analogous to the instant one courts have held that similarly situated plaintiffs had standing to maintain refund actions. To read a statute literally is not to construe it broadly. Section 1346(a)(1) allows one from whom taxes are erroneously collected to sue for a refund. Martin v. U.S., 895 F.2d 992, 994 (4th Cir. 1990). Taxes collected from a person who does not owe them are "erroneously collected." Id. In Martin the plaintiff was held to have standing to sue to recover a payment for business taxes owed by and assessed against her former spouse to secure clear title to property she acquired in a divorce settlement.
In David v. U.S., 551 F. Supp. 850 (C.D. Cal. 1982) the plaintiff sued for a refund of sums he paid for FICA taxes assessed against a corporation of which he was an officer and majority shareholder. Plaintiff made these payments because he erroneously "assumed that since he was an officer of the corporation he would be personally liable." The government argued that plaintiff lacked standing because he was not a taxpayer since he was not assessed or actually liable for these taxes. The Court found that plaintiff was not a volunteer or donor when he paid taxes "he was under the impression that he was personally liable for" and held that since he was not actually liable, in accepting his payment the IRS "wrongfully collected the taxes." Id. at 853-54.
In Brodey v. U.S., 788 F. Supp. 44 (D. Mass. 1991) a corporate officer and shareholder sued for a refund of her payment of taxes assessed against the corporation for which "she erroneously assumed that she was personally liable." The Court held that she had standing to do so under § 1346(a)(1). The Court determined that a plaintiff enjoys the status of a "taxpayer" for purposes of § 1346(a)(1) if: (1) he believed the taxes he was paying were taxes he owed personally; (2) his belief in his personal liability was reasonable under all the circumstances; and, (3) he paid the taxes with no intention that the payment be a donation for the benefit of a third party. Id. at 57. See also Schoenherr v. U.S., 566 F. Supp. 1365, 1367 (E.D. Wisc. 1983) (applying reasonable belief test to plaintiff who paid taxes assessed against corporation of which he was receiver for which he erroneously believed he was personally responsible).
The court appreciates that it is the mission of the IRS to obtain and retain for the treasury every dollar possible. Ultimately, however, the touchstone for the dealings of the government with our citizens should be fairness and reasonableness. When the government seeks to collect delinquent corporate taxes from someone it believes or assumes may be liable as a "responsible person" therefor, it is not fair or reasonable for the government to accept payment and thereafter declare that the payor was not a responsible person but a non-taxpayer volunteer without standing to seek a refund. Someone to whom the IRS directs rather intimidating, if standard, demand letters as "a person required to collect, account for and pay" a referenced tax should not be required to guess at his peril whether or not he may ultimately be determined not to be responsible for such payment.
As the Court in Brodey noted, there are no "convincing reasons why [the government] should not refund amounts erroneously paid to the people who paid them." Brodey, 788 F. Supp. at 48. The court believes that § 1346(a)(1) does not mandate otherwise. One must also question the prudence of the apparent determination of the government relentlessly to pursue at public expense a case involving a relatively nominal amount in the particular circumstances presented.
The government elicited testimony to rebut plaintiff's claim that he reasonably believed he was responsible for the taxes of 5727 Bar and argued to the jury that any such belief was not reasonable. The case was submitted to the jury on the reasonable belief theory.
The recent contention of the government in its brief that it was not afforded an opportunity to object to the reasonable belief instruction outside the presence of the jury is astounding. During the first day of trial, one business day after the government belatedly filed its pretrial submissions and outside of the presence of the jury, the court reviewed with counsel the proposed jury instructions. This endeavor consumed 22 pages of the trial transcript.
The court expressly referenced Martin and Brodey and made clear that it would charge the jury on reasonable belief. The response of counsel for the government was "Your Honor, is your definition of reasonableness going to be an objective standard?" The court responded "Yes" and again specifically referenced the test set forth in Brodey.
Before the charge and out of the presence of the jury, the court reiterated that it would instruct the jury that plaintiff may recover "if he believed he was personally liable for the payment, the belief was objectively reasonable and he paid only because of that belief." The court also provided counsel with a copy of a proposed verdict form reflecting the reasonable belief standard. The court then asked counsel if they had "any questions, suggestions or problems." Counsel for the government responded "Your Honor, the Government is satisfied with these instructions, and with these verdict forms."
After the charge and before the commencement of deliberations, the court asked counsel if there was anything they then wished to raise. Counsel for the government did not ask for a sidebar or manifest any objection. His response to the court's inquiry was "Nothing from the defense, your Honor."
The government alternatively argues that it is entitled to judgment notwithstanding the verdict under the reasonable belief standard. In an official IRS communication, plaintiff was told that he was "a person required to collect, account for and pay" the taxes owed by 5727 Bar of which he was the current owner. He was told that "your property" could be seized for nonpayment and that a notice of levy could be served "on your employer for salary or wages." It is doubtful that anyone might reasonably believe that 5727 Bar Inc. would have an "employer." There is no evidence that the IRS attempted to disabuse plaintiff of the notion he was responsible for the taxes in question. The court is satisfied that a reasonable jury could find that plaintiff in the circumstances presented reasonably believed that he was responsible for the taxes in question and paid them only for that reason.
Accordingly, the government's motions will be denied. An appropriate order will be entered.
ORDER - August 27, 1993, Filed; August 30, 1993, Entered
AND NOW, this 27th day of August, 1993, upon consideration of defendant's Motion for Judgment as a Matter of Law and Motion for a New Trial, and plaintiff's response thereto, consistent with the accompanying memorandum, IT IS HEREBY ORDERED that these Motions are DENIED.
BY THE COURT:
JAY C. WALDMAN, J.
AND NOW, this day of August, 1993, upon consideration of plaintiff's Motion for Sanctions and defendant's response thereto, IT IS HEREBY ORDERED that said Motion is DENIED.
BY THE COURT:
JAY C. WALDMAN, J.