holding that the IRS, by allowing the Navy, which had taken over the corporation, to breach the corporation’s agreement to repay withholding taxes to the IRS in favor of funneling those funds to itself, committed “acts of commission” that precluded it from recovering the deficiency from a responsible person
How later courts described this case
- holding that the IRS, by allowing the Navy, which had taken over the corporation, to breach the corporation’s agreement to repay withholding taxes to the IRS in favor of funneling those funds to itself, committed “acts of commission” that precluded it from recovering the deficiency from a responsible person
- finding of willfulness precluded based, in part, on existence of installment agreement for payment of delinquent taxes
- IRS abused its discretion in failing to collect taxes from corporation prior to its takeover by the Navy, where corporation had sufficient assets to pay taxes prior to takeover arid Navy failed to pay over the taxes in accordance with agreement between government and corporation
- IRS abused its discretion in collecting tax from individual under Section 6672 rather than from employer where it could have foreclosed on tax liens on employer’s property to collect tax liability
Written by the judges who cited it.
The opinion
NICHOLS, Judge
(concurring):
I agree generally with Judge Skelton’s handling of this case and therefore concur in his opinion, but I would somewhat shift the emphasis and spell out some matters he takes for granted.
The issue is, as I see it, one of statutory construction and one for application of our old friend Church of Holy Trinity v. United States, 143 U.S. 457 , 12 S.Ct. 511 , 36 L.Ed. 226 (1892). That case is at times mis-cited, and perhaps it has been by me, but on mature reflection about it what it stands for I believe is: The Congress can enact a statute that appears in unambiguous language to assess Draconic penalties for actions, some of which may be quite innocent, but it can count on the executive and judicial branches to take note of what it really meant to accomplish and exclude the law from application to cases not within Congressional contemplation.
The 1956 mimeograph referred to by the court shows that without any express *975 warrant in the statute the IRS has restricted the assessment of penalties under § 2707 of the 1939 Code and § 6672 of the 1954 Code to cases where the tax cannot be collected from the corporation, and only to the extent of the employee’s portion of the withholding. It has used the penalty “primarily as a collection device.” When these practices started we are not informed, nor whether they are still in effect. The copy supplied us shows the mimeograph is now superseded by a provision of the Internal Revenue Manual.
The Secretary of the Treasury has express power to remit forfeitures and penalties incurred under the customs and navigation laws under 19 U.S.C. § 1618 , and IRC § 7327 extends this to forfeitures under the Internal Revenue laws. There may perhaps exist other authority of that kind, but the mimeograph does not purport to be an exercise of any authority of that kind.
This “policy” as it is called, is also not a regulation. Congress gave no authority to write one under these particular sections, which were meant to be automatic in their application, although it is true that Internal Revenue penalties, under IRC § 6671, are payable only on notice and demand. We must presume they thought they had a right to do this, and therefore, though called á “policy” it does reflect a construction of the statute by the administering agency. It is a reasonable construction in light of Holy Trinity, and thus one we should adopt. I do not think, however, that it would be proper for the courts to mitigate the application of penalties without independent consideration, whenever the circumstances were shown to be circumstances under which the IRS did not normally demand payment. Cf. Wagner v. United States, 387 F.2d 966 , 181 Ct.Cl. 807 (1967). Conversely, I think that in the totality of circumstances proven here the Holy Trinity precedent would make our holding the proper one even if there were no mimeograph. I was prepared so to hold before I heard of the mimeograph, as our commissioner, of course, recommended.
The mimeograph is a now-you-see-it-now-you-don’t kind of thing. Apparently the court in Monday v. United States, 421 F.2d 1210 (7th Cir. 1970), cert. denied, 400 U.S. 821 , 91 S.Ct. 38 , 27 L.Ed.2d 48 , got a clue to its existence from Spivak v. United States, 370 F.2d 612, 615 (2d Cir. 1967), cert. denied, 387 U.S. 908 , 87 S.Ct. 1690 , 18 L.Ed.2d 625 , but declined to take judicial notice of it. I commend the Government counsel herein because they divulged it ungrudgingly on our request, but it seems to me that such a thing as this mimeograph ought to be notified by publication to all courts and litigants and it is not fair for it to benefit one court or litigant and not another. The business of giving effect like regulations to all sorts of papers emanating from the executive branch, is one that should cause concern.
The “agreement” quoted in the opinion is shown in the findings (which will not be reproduced in F.2d) to have been altered (before delivery?) by the signing Government officer. He tore out his signature for fear he lacked authority to sign it. But it was carried out for a time, as found, just as if it were effective and authorized. The commissioner found it was “an agreement”, and defendant did not except. I would call this a conclusion of law. My approach to the case does not oblige me to rely heavily on this “agreement”. I would not be able to do so without further study than I deem necessary as things are, and I do not rely on it, except as a part of the total circumstances.