Petition — Old National Bank in Evansville v. United States

v9 -234 a 18 1979

ea

MOH ay RODAK, JR., CLERK |

IN THE a

Supreme Court of the United States

October Term, 1979

OLD NATIONAL BANK IN EVANSVILLE,

Personal Representative of the

Estate of Marjorie L. Viehe,

Petitioner,

-VS-

UNITED STATES OF AMERICA,

Respondent.

PETITION FOR WRIT OF

CERTIORARI TO THE UNITED STATES

COURT OF APPEALS FOR THE SEVENTH CIRCUIT

JACK A. STONE

STONE and KECK

1402 Old National Bank Building

Evansville, Indiana 47708

(812) 424-5558

Attorneys for Petitioner

MAURO Tr

Unigraphic, Inc., 1401 N. Fares Ave., Evansville, Ind. 47711, Phone 424-3680

TABLE OF -CONTENTS

Page

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QUESTIONS PRESENTED .... 1... ccc ccc ccc cc eces 2

STATEMENT OF THE CASE . ... 2... cic ccc ccc cccee 3

REASONS FOR GRANTING THE WRIT ........ BAS Ae 4

I. The Judgment of the Court of Appeals is

Contrary to the Decision of this Court in

Rosenman vy. United States, 323 U.S. 658

ET Sat ee Olle BOs esc ada 4ne bead 600 4

II. There is a Conflict Between Circuits as to

the Proper Interpretation of 26 U.S.C. §

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-ii-

TABLE OF AUTHORITIES

CASES

Page

ORPHAN v. FURNCO CONST. CORP., (CA 7,

tee te. . Sn eee ma Sire 4

ROSENMAN y. UNITED STATES, 323 U.S. 658

RR aaa Oe oe te Sek 4, 6,7, 8,9, 12

ROSENMAN y. UNITED STATES, 101 Ct. Cl.

437, 53 F. Supp. 722 (1944) 24 0.25. HA es 5,6

THOMAS v. MERCANTILE NATIONAL BANK

AT DALLAS, (CA 5, 1953) 204 F. 2d 943

bgtibe 7,9, 10,11, 12

STATUTES

26 URE O6SIUROR soi es. & 4 2,9, 10, 11, 12

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_IN .THE

SUPREME COURT OF THE UNITED STATES

October Term, 1979

NO.

OLD NATIONAL BANK IN EVANSVILLE,

Personal Representative of the

Estate of Marjorie L. Viehe,

Petitioner,

-VS-

UNITED STATES OF AMERICA,

Respondent.

PETITION FOR WRIT OF

CERTIORARI TO THE UNITED STATES

COURT OF APPEALS FOR THE SEVENTH CIRCUIT

The Petitioner, Old National Bank in Evansville, as

Personal Representative of the Estate of Marjorie L. Viehe,

respectfully prays that a Writ of Certiorari issue to review the

judgment and opinion of the United States Court of Appeals for

the Seventh Circuit entered in this proceeding on May 18, nein

in its No. 78-2514.

OPINION BELOW

The opinion of the United States Court of Appeals for

the Seventh Circuit is unreported. Such opinion of the United

States. Court of Appeals for the Seventh Circuit affirmed a

3

decision of the United States District Court for the Southern

District of Indiana, Evansville Division, granting the Motion to

Dismiss of Defendant-Appellee, United States of America, and

entering judgment thereon, on September 25, 1978. A copy

of the opinion of the United States Court of Appeals for the

Seventh Circuit appears in the Appendix, and a copy of the

decision and judgment of the United States District Court for

the Southem District of Indiana, Evansville Division, appears

in the Appendix.

JURISDICTION

The judgment of the United States Court of Appeals for

the Seventh Circuit was entered on May 18, 1979, and this

Petition for Certiorari was filed within ninety (90) days of

that date. This Court’s jurisdiction is invoked under 28 U.S.C.

§ 1254 (1). Jurisdiction in the United States District Covzt

for the Southern District of Indiana, Evansville Division, was

invoked under 28 U.S.C. § 1346 (a) and 26 U.S.C. $8 7422

(a). Jurisdiction in the United States Court of Appeals for

the Seventh Circuit was invoked under 28 U.S.C. § 1291.

QUESTIONS PRESENTED

1. When does the limitations period for filing a claim for

refund under 26 U.S.C. § 6511 (a) begin to run?

2. What constitutes payment within the meaning of such

statute? ;

United States Code, Title 26, Section 6511 (a). Period of

limitation on filing claim. - Claim for credit or refund of an

overpayment of any tax imposed by this title in respect of

which tax the taxpayer is required to file a return shall be

filed by the taxpayer within 3 years from the time the return

was filed or 2 years from the time the tax was paid, whichever

of such periods expires the later, or if no return was filed by

the taxpayer, within 2 years from the time the tax wag paid.

Claim for credit or refund of an overpayment of any tax im-

Bi

posed by this title which is required to be paid by means of

a stamp shall be filed by the taxpayer within 3 years from

the time the tax was paid.

United States Code, Title 26, Section 7422 (b). Protest or

duress. - Such suit or proceeding may be maintained whether

or not such tax, penalty, or sum has been paid under protest

or duress.

STATEMENT OF THE CASE

This action was commenced by the Old National Bank in

Evansville, as Personal Representative of the Estate of Marjorie

L. Viehe, Plaintiff-Appellant, with the filing of its Complaint

on March 27, 1978.

Marjorie Viehe died on October 8, 1971, and a Federal

Estate Tax Return was properly filed on July 7, 1972, together

with a check for payment of tax as computed in the return.

Subsequently, in February, 1973, the estate filed a first refund

claim, which was allowed, and which is not related to this

action.

Marjorie Viehe’s husband, Robert, had predeceased her

by one month. On or about February 1, 1974, the Personal

Representative discovered that certain overdrafts in Robert’s

inter vivos trust had not been taken into account in computing

the value of his estate for either Indiana Inheritance or Federal

Estate tax purposes.

Both federal and state refund claims based on these

overdrafts were ultimately granted (the state refund was re-

ceived on June 20, 1975). Most of Robert’s estate had been

transferred to his beneficiary, Marjorie’s estate. The adjust-

ments to the value of the portion of the Robert Viehe estate

which was transferred to Marjorie’s estate caused a reduction

in value of Marjorie’s estate as well, giving rise to the claim

which is the subject of this action, filed on July 29, 1975.

The date of assessment of the Federal Estate Tax in

Marjorie Viehe’s Estate is not of record in this action.

4.

REASONS FOR GRANTING THE WRIT

I.

The Judgment of the Court of Appeals is Contrary

to the Decision of this Court in Rosenman y.

United States, 323 U.S. 658 (1945).

This action was decided by the Trial Court upon a

Motion to Dismiss. Upon such a Motion, all matters pleaded in

the Complaint must be taken as true, and such Motion may not

be granted unless it appears to a certainty that there can exist

no set of facts which Plaintiff could prove which would en-

title it to relief, Orphan v. Furnco Gn Corp., (CA 7, 1972)

466 F.2d 795.

The date of the assessment of peclibcaasl s Federal Estate

Tax is not of record in this action. The Trial Court afforded

Petitioner no opportunity to either discover or prove such

date. In doing so, and in granting the United States’ Motion to

Dismiss, the Trial Court necessarily concluded that such date

is immaterial to the action before the Court. In thus con-

cluding, the Trial Court failed to follow, and its Decision is

in conflict with, the unanimous decision of this Court in Rosen-

man v. United States, 323 U.S. 658 (1945). In affirming the

Trial Court, the United States Court of Appeals for the Seventh

Circuit committed the same error.

The Trial Court further committed error in seeking to

distinguish Rosenman from the instant action upon the basis

of the absence herein of a letter of protest. Although it is true

that such a letter was included with the transfer of funds to .

the Department of the Treasury by the Rosenman Estate, there

is now a statute, 26 U.S.C. § 7422 (b), which completely

obviates the necessity of such a letter. As this was the sole

point upon which the Trial Court sought to distinguish Rosen-

man, a point which the Seventh Circuit failed to even acknow-

ledge, the Trial Court committed additional error.

A close reading of Rosenman reveals that the Seventh

Circuit did not even understand the facts of the Rosenman

1

-5-

case. The Seventh Circuit, in assuming that the “second claim”

filed by the Rosenman Estate in 1940, for moneys, $14,219.78

of which was delivered to the Department of the Treasury on

December 24, 1934, was an “Amended Claim,” dating arguably

to the date of the earlier 1938 claim - which it was not - demon-

strated its lack of understanding of the facts in Rosenman.

All of the necessary facts of the Rosenman case can be

found in Mr. Justice Frankfurter’s opinion for this Court.

However, a reading of the opinion of the Court of Claims in

Rosenman v. United States, 101 Ct. C1. 437, 53 F. Supp. 722

(1944), makes the facts, and particularly the chronology, much

more clear, particularly the fact that the sole points in issue

after the Court of Claims’ decision were whether or not the

Rosenman Estate could try to recover both on its first claim filed

more than three years after the delivery of the first $120,000.00

and also upon its second claim filed May 20, 1940, asking for

$14,219.78 out of the $80,224.24 shown to be due on the

taxpayer’s own Federal Estate Tax Return. Almost one-third

of this second and additional claim for tax refund was based

upon a claim by decedent’s son, Martin Rosenman, against the

Rosenman Estate, the potential existence of which was known

by the Executors before they filed their Federal Estate Tax

Return on February 25, 1935, but which was not liquidated

in amount until some time thereafter and first incorporated

into a claim for refund on May 20, 1940. No one, not even the

Treasury Department, even contested the Rosenman Estate’s

right to claim refund of the $10,497.34 paid on April 22, 1938,

a fact which may not have been crystal clear to the District

Court below.

The Rosenman case is, in all material respects, directly on

point in the action now before the Court. In Rosenman, the

Court held that the Statute of Limitations! does not begin to

run until the taxpayer’s liability has been fixed, in this case by

1 The relevant Statute of Limitations in Rosenman, Section

810 of the Revenue Act of 1932, required a claim be

filed within three years after payment.

y™

the audit of the return and the subsequent “assessment”’ of the

tax. The Seventh Circuit in the instant action sought to inject

a new concept into the rule of the Rosenman case - that of

“tentative assessment” based upon filing of the return. The

Seventh Circuit then cites Rosenman as authority for such

a concept. However, the return in Rosenman, which was filed

after the transfer of funds to the Department of the Treasury,

was filed on February 25, 1935. The relevant claim for refund,

which was truly a “second” claim and not an “amended”

claim, a point not grasped by the Seventh Circuit, was filed on

May 20, 1945, well over five years after the filing of the return,

under a three-year Statute of Limitations. Such fact renders

the conclusion that the filing of the return, even after a transfer

of funds, is the date which commences the running of the

limitations period an impossibility. Yet the Seventh Circuit in

the instant action found just that - that the limitations period

begins to run upon the filing of a return along with the transfer

of funds. The only two conceivable conclusions are that the

Seventh Circuit failed to understand Rosenman, or that the

Seventh Circuit refuses to follow Rosenman. In either event,

the Seventh Circuit erred, and its decision shoyld be reviewed,

and reversed, by this Court.

In Rosenman, this Court quite correctly held that the

term “payment” in the statute is a term of art and effectively

means the crediting of funds submitted to the taxpayer’s tax

account by means of an “assessment,” being the action which

fixes the Department of the Treasury’s assertion of taxpayer’s

liability. The act of “assessment,” when coupled with a trans-

fer of funds, begins the running of the limitations period

' under that portion of the statute which, on its face, begins at

the time of payment - both at the time of Rosenman and now.

After noting that it is the time of assessment, not the time of

the filing of the return or the transfer of funds, at which in-

terest begins to accrue in favor of the taxpayer in the event of

an overpayment, this Court in Rosenman supported its decision

that such date of final assessment begins the running of the

Statute of Limitations for a claim for refund stating “that,

“It will not do to treat the same transaction as payment and

“Jo

not as payment, whichever favors the Government.”

In Thomas v. Mercantile National Bank at Dallas, 204 F.

2d 943 (CA 5, 1953), Roseman was correctly so read by the

Fifth Circuit. Thomas is a decision from which the United

States, and the Department of the Treasury took no appeal.

Petitioner is aware that for some time this Court has

declined many tax cases, perhaps in deference to the “exper-

tise” of the taxing departments of the Department of the

Treasury. However, it is Petitioner’s position that seldom has

the United States so flagrantly flouted the authority of this

Court, or so carelessly misinterpreted the decisions of this Court

as it has here, perhaps seeking refuge in the knowledge that this

Court seldom accepts tax cases. Admittedly, the amount of

money here involved is not large, but Petitioner feels the

question is valid, and is concerned about the attitude of the

United States, which appears to have infected the Seventh

Circuit as evidenced by that Court’s flippant remark that the

Rosenman Estate’s transfer of funds on December 24, 1934,

was “not in the spirit of the season.” Petitioner assumes that

Court takes comfort in its order that its decision not be pub-

lished or cited.

As previously indicated, on a Motion to Dismiss, all

matters pleaded in the Complaint must be taken as true, and

for such Motion to be granted, there can exist no set of facts

which Plaintiff can prove which would entitle it to relief. As

the United States admitted in its brief to the Seventh Circuit,

the date of assessment in the action now before the Court is

not of record, and Petitioner was given no opportunity to

discover of prove such fact. This Court, in Rosenman, estab-

lished that such date is crucial to determination of the running

of the limitations period. As previously indicated, the existence

of 26 U.S.C. 8 7422 (b) renders untenable the Trial Court’s

position that Rosenman can be distinguished on the basis of

the absence of a protest letter in the instant action.

Upon diligent search, Petitioner has been unable to locate

a single decision of any court which has held, since the enact-

ment of 26 U.S.C. § 7422 (b), that transfer of funds, with or

without a return, accompanied by a letter of protest, gives the

-8-

taxpayer who delivers same any rights greater or different than

the rights of those who do not send such a letter. Interestingly,

the Trial Court and the United States have failed to point out

any such decision. It would appear to be the purpose of such

statute to eliminate the need for such meaningless acts. Peti-

tioner is of the opinion that it is important to note that this

is the sole basis upon which the Trial Court even sought to

distinguish Rosenman. Such distinction being absolutely point-

less in view of 26 U.S.C. § 7422 (b), Petitioner is at a loss to

explain the Trial Court’s action, or to explain the failure of the

Seventh Circuit to address this portion of the Trial Court’s

action.

Perhaps the most disturbing aspect of the Trial Court’s

action in distinguishing Rosenman solely upon the absence

hereof a protest letter lies in the potential impact of this entire

litigation. The language of the Trial Court’s decision has found

its way into the taxation press, and the progress of this liti-

gation is being watched by at least one tax service. Denial of

the Writ here requested would result in the perception of the

public that this Court has approved the requirement of the

Trial Court that a protest letter is required to preserve the tax-

payer’s rights under Rosenman, and in spite of 26 U.S.C. 8

7422 (b), every prudent taxpayer will be well advised to tender

funds “under protest,” and to accompany every remittance

with an out-moded, and statutorily unnecessary protest letter.

The existence of the intervening Seventh Circuit decision,

to which the requested Writ would be addressed, is of no assis-

tance in alleviating this problem for two reasons. As the Seventh

Circuit has forbidden publication of its decision, the public

can only assume that its affirmance of the Trial Court has |

approved the Trial Court’s meaningless requirement. But even

if the Seventh Circuit’s decision were published, its failure to

refute the Trial Court’s position would be perceived as tacit

approval, still requiring prudent taxpayers to flood the Depart-

ment of the Treasury with protest letters.

The only way the decision in the instant action can stand

is for Rosenman to have been overruled by the United States

District Court for the Southern District of Indiana or by the

9.

Seventh Circuit. Although each has apparently tried to do so,

neither has the authority to do so. This Court’s holding in

Rosenman is still the law, and it should be applied in the

instant action. The only way for that to happen is for this

Court to issue a Writ or Certiorari, and review and reverse the

decision of the Seventh Circuit in this action.

Il.

There is a Conflict Between Circuits as to the

Proper Interpretation of 26 U.S.C. § 6511.

Section 6511 (a) of Title 26 provides, in part, that its

two-year Statute of Limitations begins to run at the time the

tax is “paid.” The proper meaning of “payment” as con-

templated by this statute has been the topic of a number of

decisions of United States District Courts and Courts of Appeal,

as well as this Court’s Rosenman v. United States, 323 U.S.

658 (1945). These decisions have consistently held that a tax

cannot be “paid” until an amount of tax exists which can be

paid, so that “payment” as used in 28 U.S.C. § 6511 (a) does

not mean a mere transfer of funds to the Government by a

person or entity potentially subject to a tax. Rather, some

fo..n of assessment is required before there can be a “pay-

ment” within the meaning of that statute. The point at which

such tax liability comes into being, so that there can be a

“payment” within the meaning of this statute, is one of the

issues now before the Court.

In Thomas v. Mercantile National Bank, 204 F. 2d 943

(Sth Cir. 1953), the Fifth Circuit decided that the Statute of

Limitations, then three years, did not begin to run until the

amount of an overpayment became ascertainable. This con-

struction is consistent with traditional construction of Statutes

of Limitations providing that such limitations periods do not

begin to run until the cause of action accrues and is reasonably

discoverable by the person in whose favor such cause of action

exists. In this regard, it is important to remember that we are

dealing in this action with two distinct entities, the estate of

-10-

Robert Viehe and the estate of Marjorie L. Viehe. When the

overdrafts in the estate of Robert Viehe were discovered, on

or about February 1, 1974, there resulted a decrease in the

amount payable from the estate of Robert Viehe to the estate

of Marjorie L. Viehe, the estate of Marjorie L. Viehe being the

primary beneficiary under the estate of Robert Viehe. As a

result, although the facts supporting the claim for refund based

upon the overdraft in Robert Viehe’s estate may have been

reasonably discoverable by Robert Viehe’s estate immediately

upon Robert Viehe’s death, the facts underlying the claim for

refund of the estate of Marjorie L. Viehe, based upon the

reduced amount to be received from the estate of Robert

Viehe could not have been discovered, and, indeed, did not

exist, prior to the actual discovery of those facts, i.e., the dis-

covery of the overdrafts in Robert Viehe’s account on or about

February 1, 1974, or until the State of Indiana subsequently

thereto approved the reduction in the distribution from the

Robert Viehe Estate to the Marjorie L. Viehe Estate (repre-

sented by Petitioner).

As a result, we are here confronted with a fact situation

substantially similar to that confronted by the Fifth Circuit

in Thomas v. Mercantile National Bank, supra, wherein that

Court stated that the Statute of Limitations did not begin to

run until the amount of the overpayment became ascertainable.

The gist of Thomas is that “payment” does not occur

until the latter of the transfer of funds and assessment of the

tax. The Seventh Circuit, in the instant action, applied a rule

completely opposite from that stated by the Fifth Circuit in

Thomas, by refusing to decide that the two-year Statute of

Limitations began to run on or about February 1, 1974, or .

on the date of assessment of the tax (which date is unknown

to Petitioner), but rather decided that the Statute began to

run on the date of the filing of the return, July 7, 1972. The

rule adopted by the Seventh Circuit in this action not only

_ directly conflicts with the rule adopted by the Fifth Circuit

in Thomas, supra, but also imposes an oppressive burden upon

taxpayers. The Seventh Circuit rule establishes the result that

the limitations period of 26 U.S.C. § 6511 (a) can begin to run

obtS

long before the taxpayer Knows, or has any reasonable basis to

know, that grounds for the claim so limited even exist.

As argued by the United States of America in its Brief

before the United States Court of Appeals for the Seventh

Circuit, and as acknowledged by the Seventh Circuit in its

opinion rendered herein, one purpose of the Statute of Limi-

tations is to insert an element of finality into actions by the

United States of America and other potential defendants.

However, finality is not the only goal which is relevant to the

determination of the Statute of Limitations. Statutes of

Limitations generally, including the limitations period imposed

by 26 U.S.C. § 6511 (a), also establish a reasonable time after

a cause of action accrues, and after the person in whose favor

such cause of action runs has a reasonable opportunity to dis-

cover the existence of such cause of action, in which the person

in possession of such potential cause of action may evaluate

the merits of such claim and attempt to resolve it prior to

having such cause of action cut off by the running of the

statutory period. To hold, as did the Seventh Circuit in this

action, that such period begins to run before such cause of

action exists, or the nature of such cause of action can rea-

sonably be determined, is contrary to the purpose of establish-

ing a reasonable time in which to bring a cause of action, as

defined by the statutory limitations period, and conflicts with

the decision of the Fifth Circuit in Thomas v. Mercantile

National Bank, supra.

The Government in its Brief and Oral Argument in the

Court of Appeals, as well as the Court of Appeals itself in its

decision in this action, went to great lengths to state that the

construction of the Statute of Limitations contained at 26

U.S.C. $ 6511 (a) whereby such limitations period begins to

run at the date of formal assessment rather than at the date of

the filing of the return or transfer of funds, is cumbersome and

should not be applied. Determination of the date of final

assessment of the tax is no more difficult to discern than is

the date of the filing of the return or the transfer of funds.

That being as it may, such argument of the Government and the

position of the Court of Appeals is neither relevant nor appro-

42.

priate. In spite of such arguments, this Court held in Rosenman

that the limitations period begins to run at the time of assess-

ment, not the time of the filing of the return, and such holding

remains the law until changed by this Court. The concern of

the Government and the Court of Appeals that such a rule is

for some reason improper is simply immaterial in view of the

holding of this Court in Rosenman that such rule is the law.

The Fifth Circuit in Thomas recognized that such was the

holding of Kosenman in determining that “payment’’ within

the meaning of 26 U.S.C. § 6511 (a) does not, and cannot,

occur prior to the date of assessment. In deciding that it is

the date of the filing of the return, and not the date of assess-

ment, which, together with the transfer of funds, constitutes

“payment” and commences the running of the limitations

period, the Seventh Circuit finds itself in conflict, not only

with the decision of this Court in Rosenman, but also with

the Fifth Circuit in Thomas. The Department of the Treasury

did not seek review of the decision of the Fifth Circuit in

Thomas.

CONCLUSION

Each of the reasons herein set forth constitutes a suf-

ficient basis for the issuance of a Writ of Certiorari to review

the Judgment and Opinion of the Seventh Circuit.

Respectfully submitted,

JACK A. STONE,

Attorney for Petitioner

STONE and KECK

1402 Old National Bank Building

Evansville, Indiana 47708

(812) 424-5558

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APPENDIX

CONTENTS

Page

Judgment Order of United States Court of Appeals

ee RS CR a a 14

Memorandum Order of United States Court of

Appeals for the Seventh Circuit ................. 15

Memorandum of Decision of United States District

Court for the Southern District of Indiana,

Ns se das at cae 25

Judgment of United States District Court for the

Southern District of Indiana, Evansville

eee ee ue a ieg ea kes Ae RSME OAS EO 29

-14-

APPENDIX

Unpublished Per Curiam Order

UNITED STATES COURT OF APPEALS

FOR THE SEVENTH CIRCUIT

Chicago, Illinois 60604

May 18, 1979

Before

Hon. LUTHER M. SWYGERT, Circuit Judge

Hon. ROBERT A. SPRECHER, Circuit Judge

Hon. WILLIAM J. BAUER, Circuit Judge

No. 78-2514 ) Appeal from the

OLD NATIONAL BANK IN EVANSVILLE, ) United States

Personal Representative of the ) District Court

Estate of Marjorie L. Viehe, ) for the Southern

Plaintiff-Appellant, ) District of

vs. ) Indiana, Evans-

UNITED STATES OF AMERICA, ) ville Division

Defendant-Appellee. ) No. EV 78-48-C

This cause came on to be heard on the transcript of the

record from the United States District Court for the Southern

District of Indiana, Evansville Division, and was argued by

counsel.

On consideration whereof, it is ordered and adjudged by

this court that the judgment of the said District Court in this

cause appealed from be, and the same is hereby, AFFIRMED,

with costs, in accordance with the order of this court entered

this date.

-15-

UNITED STATES COURT OF APPEALS

For the Seventh Circuit

Chicago, Illinois 60604

ARGUED: April 16, 1979

Unpublished Order May 18,1979 |

Not To Be Cited

Per Circuit Rule 35 Before

Hon. LUTHER M. SWYGERT, Circuit Judge

Hon. ROBERT A. SPRECHER, Circuit Judge

Hon. WILLIAM J. BAUER, Circuit Judge

OLD NATIONAL BANK IN EVANSVILLE, ) Appeal from the

Personal Representative of the ) United States

Estate of Marjorie L. Viehe, ) District Court

Plaintiff-Appellant, ) for the Southern

. ) District of

No. 78-2514 vs. )‘Indiana, Evans-

) ville Division.

UNITED STATES OF AMERICA, ) No. EV 78 C 48

Defendant-Appellee. ) S. Hugh Dillin,

) Judge

ORDER

Plaintiff appeals from a judgment of the district court

which denied the plaintiff's tax refund claim on the ground

that the refund claim had not been timely filed. We agree and

Plaintiff is the estate of Marjorie Viehe who died on

-16-

October 8, 1971. Marjorie Viehe’s husband had predeceased

her by one month. As a result, her estate included property

acquired from his estate. On February 1, 1974, it was dis-

covered that certain overdrafts by Robert Viehe had not been

taken into account, resulting in an overvaluation of his estate

and, consequently, of Marjorie Viehe’s estate. Robert’s estate

filed claims for both state and federal estate tax refunds. On

June 20, 1975, Robert’s estate received a state tax refund in

the amount of $508. On July 29, 1975, Marjorie’s estate filed

a refund claim.

The plaintiff's request for a refund was denied because

the refund claim was filed more than three years after the

estate tax return had originally been filed, on July 7, 1972.

The plaintiff then instituted the present action. The administra-

tor of the estate did not argue before the district court that

this untimely filing was the result of excusable neglect. In-

stead, the administrator urges that the statute of limitations

on refund claims began running no earlier than the time the

overdrafts were discovered, and thus the administrator urges

that his claim was timely filed. The district court rejected this

construction of the statute, as do we.

II

No refund suit may be maintained unless a timely refund

claim has been filed with the IRS. 26 U.S.C. § 7422 (a). The

provision which defines the time limitations for filing a claim

provides:

Claim for credit or refund of an overpayment of

any tax imposed by this title in respect of which tax

the taxpayer is required to file a return shall be filed by

the taxpayer within 3 years from the time the return was

filed or 2 years from the time the tax was paid, which-

ever of such periods expires the later ....

26 U.S.C. § 6511 (a). This statute, in the clearest and simplest

stan — —--

£9

of terms, requires that Marjarie Viehe’s claim have been filed

before July 8, 1975, three years after filing (payment having

been remitted with the filing).

To avoid this result, the administrator urges that the

“time the tax was paid,” which actuates the two-year period,

is the time at which the cause of action underlying the claim

accrues. That time, he argues, was at the earliest February 1974

when the overdrafts were discovered. Under this theory the

July 1975 filing would be timely. This claim is based on

plaintiff's reading of Rosenman vy. United States, 323 USS.

658 (1945).

Rosenman involved the construction of a predecesor

statute to the one under consideration here. That statute per-

mitted only refund claims made within “three years . . . after

payment.” 323 U.S. at 659. In Rosenman, payment was due

on Christmas of 1934. On Christmas Eve, 1934, the estate

delivered a check for $120,000 to the IRS, not in the spirit

of the season but rather “under protest and duress, and solely

for the purpose of avoiding penalties and interest.”” The IRS

had extended the filing deadline to February 25, 1935, and on

that date the estate filed a return showing approximately

$80,000 in taxes due from the estate. One month later, the

IRS advised the estate that the reported amount due had been

applied from the $120,000 tendered in satisfaction of the

estate’s liability. Three years later, in March, 1938, the estate

filed a refund claim for the remaining balance. After that,

the audit of the estate was completed, and the IRS determined

that a net tax of $128,759.08 was due. In April, 1938, the

estate tendered the balance due. Shortly thereafter the IRS

rejected the March refund claim. On May 20, 1940, the estate

filed a refund claim for $24,717.12 based on additional, pre-

viously unclaimed deductions. The IRS rejected the portion

of this claim in excess of the amount paid in April, 1938, on

the ground that the $120,000 payment had been made more

than three years before the claim.

-18-

The Supreme Court held that the refund claim was not

barred by the statute of limitations. The Court considered both

the date on which the IRS applied $80,000 of the $120,000

refund to the plaintiff's tax liability and the date on which the

plaintiff tendered the deficiency payment for tax in excess of

$120,000 as dates of payment. The court rejected the govern-

ment’s contention that the original payment of $120,000 was

the date of payment which triggered the three-year period:

[O]n December 24, 1934, the taxpayer did not dis-

charge what he deemed a liability nor pay one that

was asserted. There was merely an interim arrangement

to cover whatever contingencies the future might define.

The tax obligat'on did not become defined until April

1938 [the date on which the audit was completed and

the deficiency tendered].

323 U.S. at 662.

Rosenman does not supply the controlling principles for

this case. In Rosenman the original payment was made before

the return was even filed; and, when it was filed, the govern-

ment’s application of a portion of the pre-payment was deemed

by the Court to be a payment within the terms of the limitation

provision. In this case, however, the original payment was in-

stead a payment “to discharge what he [the taxpayer] deemed

to be a tax liability” and was not made before either the govern-

ment or the taxpayer had asserted the amount believed to be

due. Thus, Rosenman supplies no reason to characterize the

original payment in anyway that would avoid the application

of the limitations provision.!

1 There is substantial authority for the proposition that

when the taxpayer files a return showing an amount of

taxes due and accompanies it with a remittance for that

amount, payment within the meaning of section 6511 has

taken place. See Ameel v, United States, 426 F. 2d 1270

(6th Cir. 1970); Lewyt Corp. v. Commissioner, 215,F. 2d

518 (2d Cir. 1954); Charles Leich & Co. v. United States,

329 F. 2d 649 (Ct. Cl. 1964).

-19-

The plaintiff attempts to avoid this reading of Rosenman

by urging that its holding merely represents a specific appli-

cation of the general principle that statutes of limitations only

begin to run when the cause of action has accrued. That, plain-

tiff argues, was the time of assessment in Rosenman and in this

case would be either the time at which the check overdrafts

were discovered or the time at which the IRS formally assessed

the estate’s tax liability. We note initially that his general

principle is clearly contrary to the language of the statue itself.

The statutory time limitation clearly represents an attempt by

Congress to minimize the administrative burdens imposed by

permitting refund claims. Congress must necessarily have con-

templated that some refunds, based on subsequently discovered

facts, would be left unpaid. Acceptance of plaintiff’s strained

construction, allowing refund claims filed within three years of

the accrual of the cause of action, would impose the very

burdens Congress sought to avoid. This interpretation would

permit refund claims for an indefinite period after the. tax-

payer’s remittance whenever new information relating to the

taxpayer’s estate surfaced.? .

Plaintiff's construction is also at odds with the relevant

- It is because of the clear conflict of such an interpre-

tation with the language and evident purpose of the

limitations provision that we do not believe that the

Supreme Court’s statement that not until assessment

‘““was there such a claim as could start the time running

.. -” should be read as importing a cause of action inter-

pretation into the statute. 323 U.S. at 661.

-20-

case law.2 In Kreiger v. United States, 539 F. 2d 317 (3d

Cir. 1976), the plaintiffs had invested in and received payments

from, a firm later revealed to be nothing but a “vast ‘Ponzi

Scheme.’ ” Upon discovering the true nature of the firm’s

operation, the texpayer-plaintiff sought to recharacterize the

tax treatment of the payments from the firm, treating them as

a tax-free. return of principal instead of earned interest. The

claim was denied as untimely, and the court of appeals upheld

this denial, despite the timing of the discovery of the firm’s

fraudulent practices, noting, “a rule by which a tax refund

claimant could always escape summary dismissal for untime-

liness by pleading a scenario of third-party concealment...

would be an unreasonable burden upon orderly administrative

function.” Jd. at 322. This principle has even been applied in

the more compelling situation where the government partici-

pates in concealing the overpayments from the taxpayer. Bryan

v. United States, 99 F.2d 549 (10th Cir. 1938), cert. denied,

305 U.S. 611 (1939). Certainly these situations would present

a more persuasive case for applying equitable principles to

overcome the limitations statute’s policy of easing admini-

3 Plaintiff's citation of Waldken v. United States, 255 F. 2d

681 (6th Cir. 1958), cert. denied, 378 U.S. 825 (1958),

to support the position that the statute commences to

run with the accrual of the cause of action is unper-

suasive. In Waldken, the refund claim was based on a

subsequent court determination that a will other than the

one which served as the basis for the estate tax return

was the valid final will. The Court, however, noted that .

the claim was time barred even if the admission of the

second will to probate was the date actuating the limi-

tations period, and thus any of its statements with regard

to the beginning of the period are dicta. Furthermore,

the decision does not support the cause of action princi-

pal urged by the plaintiff since the cause of action did

not accrue until the second will was determined to Be the

valid, final will - a date after its admission to probate.

-21-

strative burdens than the instant case where no such conceal-

ment is even alleged. See also United States v. Zacks, 375 U.S.

59 (1963) (refund claim resulting from Congressional retro-

active change in tax treatment of patent royalties barred by

statute of limitations). We are therefore reluctant to find any

principle so clearly contrary to the manifest intent of Congress

and the relevant case law embodied in Rosenman.

Rosenman, we believe, can be explained within the terms

of the statute and without recourse to the broader principle

urged by the taxpayer. The ordinary meaning of “payment” of

a liability, for taxes or otherwise, does not encompass transfers

of money into escrow or “suspense” accounts pending a deter-

mination of ultimate liability. Indeed, there can be no pay-

ment of tax within the meaning of the statute until the tax

itself is at least tentatively determined. Thus, the Rosenman

opinion made it clear that such transfers were not payments of

tax: “The Government does not consider such advances of

estimated taxes as tax payments. They are, as it were, pay-

ments in escrow.” 323 U.S. at 662 (emphasis supplied).

Plaintiff claims that such a reading of “payment” is

unsatisfactory because it makes the determination of whether

payment occurred depend on the intent of the taxpayer, a

result which would reward the litigious and recalcitrant tax-

payer and penalize the willing taxpayer. Plaintiff also claims

that determining the intent of the taxpayer is difficult and

provides an unworkable standard. On the contrary, this inter-

pretation of payment does not at all depend on the intent of

the taxpayer. Instead, in the instances of payments with a

filed return, payment occurs at filing; and in the instances of

prepayment before a filed return, payment occurs at assess-

ment from the prepaid deposit. This is the case regardless

whether the taxpayer “intends” these payments to be final

22>

or not.

4 See United States v. Dubuque Packing Co., 233 F.2d

453 (8th Cir. 1956) upholding the district court’s con-

clusion that;

{I]n the case of a proper tax return, the return itself

defines the obligation, but where a taxpayer makes a

transfer of money to the collector, the transfer itself

does not define the tax obligation. Some further act

is necessary.

Id. at 459.

Another type of case - those in which an amount is

remitted with a filed return and the government later

asserts a proposed deficiency in the amount shown due

on the return - should be noted. In such a case the tax-

payer may often forward the deficiency amount to avoid

interest and penalties even though the deficiency has not

been finalized by an audit and an assessment certified by

the IRS. Such remittances, like remittances before filing,

are made in advance of the determination of an uncer-

tain liability and thus are not payments of a tax liability.

See Thomas v. Mercantile National Bank, 204 F.2d 943

(Sth Cir. 1953):

Until the Commissioner certified the assessment

. there was no deficiency assessment, and no lia-

bility on the part of the taxpayer, and consequently

nothing to pay. The sum deposited . . . was merely

an advance deposit to cover additional tax liability

_ expected to arise thereafter.

Id. at 944. Thus, this third class of cases involve amounts to

be determined later, as opposed to cases such as the instant

one where the amount shown on the return is presumed to be

a final amount owing.

-23-

We must conclude that the statute requires us to con-

sider the plaintiff's remittance with his tax return as payment

actuating the limitatioh period. Even if the statute permits

the courts to imply some equitable doctrines, the application

of the statute in this case results in no inequities.5 The admini-

strator discovered the overdrafts in February, 1974, more than

one year before the deadline for filing refund claims. Even were

we to accept the taxpayer’s dubious argument that his claim

for a refund on Marjorie’s estate could not be asserted until

the state paid refunds to Robert’s estate based on the overdraft,

that would still have left more than two weeks in which to file

5 It is for this reason that several of the cases cited by

plaintiff as supportive of its interpretation of the statute

are unpersuasive. In Reeves v. United States, 154 F.

Supp. 673 (W.D. Pa. 1957), the diminution of the estate

giving rise to the refund claim was based on the govern-

ment’s assertion of additional income taxes owed by the

estate. Thus; as the court pointed out, delay in filing

the estate tax refund was the “fault” of the government

in delaying its assertion of the estate’s income tax defi-

ciencies and thus it would have been unjust to apply the

limitations period. No such inequity appears in this case.

Bankers Trust Co. v. United States, 438 F.2d 1046 (2d

Cir. 1971), and Duncan v. United States, 148 F.Supp.

264 (D. Mass. 1957) both involve claims based. upon

deductions for attorney’s fees incurred by an estate in

contesting a tax-deficiency. Just as in Reeves, these

claims resulted from the government’s actions in asserting

the deficiency and not from the later discovery of grounds

for a retum. This government involvement obviously

alters the equities.

-24-

the claims.6 Thus, the estate had ample opportunity in this

case to file its claims.

AFFIRMED.

6 In Kreiger v. United States, 539 F.2d 317 (3d Cir. 1976),

discussed in note 2 supra, the court denied the refund

claim in a situation similar to, if not more difficult than,

the case before us. The court aiso noted that the result

was not inequitable since the estate still had more than

a year to file the claim after the time they could have

discovered the basis of the claim by reasonable diligence.

Id. at 322.

———— .

-25-

UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF INDIANA

EVANSVILLE DIVISION

OLD NATIONAL BANK IN EVANSVILLE, )

Personal Representative of the

Estate of Marjorie L. Vielie,

Plaintiff,

Vs- NO. EV 78-48-C

UNITED STATES OF AMERICA,

i ae ed

Defendant.

MEMORANDUM OF DECISION

Background

Plaintiff is the personal representative of the Estate of

Marjorie L. Viehe (decedent). The cause is before the Court

on defendant’s motion to dismiss for lack of subject matter

jurisdiction. Defendant pleads the statute of limitations.

The complaint is for refund of estate tax paid. Dece-

dent died on October 8, 1971, and a federal estate tax return

was properly filed on July 7, 1972. A check for payment of

tax then due was enclosed with the return. Plaintiff later filed

for a refund based on a revaluation of decedent’s interest in

a particular trust. “New facts” had made the revaluation

necessary. The Internal Revenue Service granted the refund on

February 27, 1974. Plaintiff filed a second claim for refund

based on yet another valuation of the same interest, precipi-

tated by the discovery of more “new facts.” Paragraph IV of

the complaint. By way of explaining these revaluations, plain-

-26-

tiff alleges that the trust in question was a marital trust which

was settled by decedent’s husband, and which inured to dece-

dent shortly before her death. The value of this trust, it is

alleged, was incapable of determination until just before the

second claim for refund was filed.

Discussion

The merits of plaintiff's claim are not in issue. The sole

and dispositive question is whether the complaint is to be dis-

missed because the statute of limitations has tolled.

The language of the rule, found in 29 U.S.C. § 6511 (a),

is clear. Claim for credit or refund must be made within

“| . . 3 years from the time the return was filed or 2

years from the time the tax was paid, whichever of such

periods expires the later . . .”

The return was filed and the tax paid on July 7, 1972. Exhibits

A and B to defendant’s brief. The claim here in dispute was

made on July 29, 1975. More than three years had elapsed.

Plaintiff argues and cites cases for the proposition that

the running of the statute did not start with the 1972 filing

and payment. The first of these cases is Rosenman v. United

States, 323 U.S. 658, 89 L.Ed. 535 (1945). The executors

in that case paid the Internal Revenue Service $120,000 on

December 24, 1935. The payment was accompanied by a letter

of transmittal wiiich made it clear that the payment was under

protest and to avoid penalties and interest. 89 L.Ed. at 538.

In April, 1938, a deficiency was assessed by the Commissioner

of Internal Revenue which gave rise to the claim for refund.

At 539. The claim for refund was filed on May 20, 1940. The

Court held that the $120,000 did not constitute a payment

which would set the statute running, but called it “merely a

‘deposit’ and not a ‘payment’... .” At 540. The statute,

therefore, did not begin to run until the deficiency was assessed,

and the executors were therefore not barred.

No such caveat of contingency accompanied the plain-

-27-

tiffs original payment in-this case. The letter states that the

check was “‘in payment” of the tax liability as calculated at that

time. Exhibit B to defendant’s brief. Moreover, in Rosenman

the government was not permitted to interpose the statute of

limitations when the cause of action grew out of a later defi-

ciency assessment, initiated by the government. In the instant

case, no subsequent extra liability has been asserted by the

government; in fact a refund to plaintiff has already been made.

Plaintiff is therefore not aided by Rosenman. |

The other cases cited by plaintiff are equally unsuppor-

tive. Reeves v. United States, 154 F.Supp. 673 (W.D. Pa.

1957), involved a deficiency assessment by the Commissioner

several months after the original payment by the taxpayer.

The statute was held to begin to run at the time the deficiency

assessment was made. Duncan v. United States dealt with

similar circumstances. 148 F.Supp. 264 (D. Mass. 1957).

Walker v. United States, 255 F.2d 681 (6 Cir. 1958),

cert. den. 378 U.S. 825, stands for the proposition that the

statute begins to run upon estate tax payment pursuant to a

first will when the first will is eventually superseded by a second

will. The case is of no help to plaintiff. Schmidt v. C.1LR.,

272 F.2d 423 (9 Cir. 1959), involved, as did Rosenman, a

contingent payment in the nature of a deposit.

Sufficient reason has not been shown to permit the

plaintiff to elude the plain language of 29 U.S.C. § 6511.

Under the section taxpayers are permitted a specific period of

time in which to refine their positions with respect to tax

liability and to appeal to the Commissioner for adjustment of

past transactions. The cases discussed supra indicate that the

time period may be extended if the Commissioner asserts

additional liability on the part of the taxpayer at a time after

the act or acts which initially triggered the running of the

statute. To hold otherwise would be absurd and unfair. Plain-

tiff had three years in which to revise its position. It did so

once within the time period, but was three weeks late with the

second attempt.

Statutes of limitations do not exist simply to force plain-

tiffs to hurry. They are designed to allow aggrieved persons

-28-

a reasonable amount of time in which to invoke the legal

process for the redress of the harm which has befallen them.

A chief reason that any limit at all is imposed is that potential

defendants ought not to be required to live out their days in

fear that an old cause of action will suddenly descend upon

‘them. Repose, after a fair period, is manifestly just. In the

case of the federal revenue system, this principle acquires a

di**zrent cast. The assessment and collection of federal taxes

is itself an undertaking of enormous expense. Orderly and

efficient operation of the taxing mechanism requires a time

after which the government can put a file to rest. Taxpayers

themselves benefit from similar limitations.

These rules are unquestionably hard-edged. If they are

to have meaning, however, they are to be enforced in the

absence of circumstances which compel a contrary result.

The Court is not persuaded that such circumstances exist in

this case.

For the foregoing reasons the complaint will be dis-

missed. Judgment will be entered accordingly.

Dated this 25th day of September, 1978.

S / S. Hugh Dillin

S. Hugh Dillin, Judge

Copies to:

Jack A. Stone, 1402 Old National Bank Building, Evansville,

Indiana, 47708

Virginia Dill McCarty, United States Attorney, 274 U.S. Court-

house, Indianapolis, Indiana, 42604 (Charles Goodloe,

Jr., Assistant)

John S. Miles, Tax Division, Department of Justice, Washington,

D.C., 20530

ear

-29-

UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF INDIANA

EVANSVILLE DIVISION

OLD NATIONAL BANK IN EVANSVILLE,

Personal Representative of the

Estate of Marjorie L. Viehe,

Plaintiff,

— NO. EV 78-48-C

)

)

)

)

)

)

UNITED STATES OF AMERICA, )

)

)

Defendant.

JUDGMENT

The Court having this day filed its Memorandum of

Decision in the above matter in the following words and figures:

(H. I.), now therefore,

IT IS CONSIDERED AND ADJUDGED that plaintiff

take nothing by its complaint and said complaint is hereby

dismissed.

Dated this 25th day of September, 1978.

S / S. Hugh Dillin,

S. Hugh Dillin, Judge

Copies to:

Jack A. Stone, 1402 Old National Bank Building, Evansville,

Indiana, 47708

Virginia Dill McCarty, United States Attorney, 274 U.S. Court-

house, Indianapolis, Indiana, 46204 (Charles Goodloe,

Jr., Assistant)

John S. Miles, Tax Division, Department of Justice, Washington,

D.C., 20530