The opinion of the court was delivered by: WARD
Plaintiff, Lucille P. Kahn ("Mrs. Kahn"), has moved for summary judgment, pursuant to Rule 56, Fed. R. Civ. P., in this action against the United States of America ("the government") for a tax refund. For the reasons hereinafter stated, plaintiff's motion is denied and the complaint is dismissed.
Mrs. Kahn and her late husband, David E. Kahn ("Mr. Kahn"), filed a joint federal income tax return for the year 1943. The Internal Revenue Service ("IRS") determined that there was a deficiency of $33,096.08 due from the Kahns. Plaintiff and her husband then jointly filed a petition in the Tax Court for a redetermination of the alleged deficiency. That proceeding culminated in a decision in favor of the Commissioner of Internal Revenue ("the Commissioner") on April 8, 1953.
On September 22, 1953, the IRS assessed
against plaintiff and Mr. Kahn the deficiency of $33,096.08, plus accrued interest of $18,902.85.
The Second Circuit affirmed the decision of the Tax Court on January 25, 1955.
On September 14, 1959, Mr. Kahn signed his name to a tax collection waiver extending the statute of limitations on collection of the assessment until December 31, 1961. The name "Lucille P. Kahn" is also handwritten on this waiver. However, the parties have stipulated that the signature is not that of plaintiff. Mrs. Kahn insists that she did not authorize anyone to sign her name to this form and that, prior to 1969, she had no knowledge or information that anyone had done so. Mr. Kahn and plaintiff executed another tax collection waiver covering the 1943 assessment on December 28, 1960. This waiver extended the statute of limitations until December 31, 1965. On October 26, 1965, the Kahns signed an additional waiver extending the statute of limitations on collection with regard to the 1943 assessment until December 31, 1970.
Mr. Kahn died in December, 1968, without sufficient assets to pay the tax liability. Shortly thereafter, plaintiff decided to sell the family residence, which had been purchased with her personal assets and of which she had at all times been sole owner. In order to do so, she had to remove the tax liens which had been placed upon it in connection with the 1943 and other tax deficiencies. About this time, plaintiff's son obtained from the IRS all tax collection waivers relating to the 1943 liability. The son noted that the 1959 form did not bear his mother's true signature and concluded that the statute of limitations barred satisfaction of the liability from Mrs. Kahn's assets. Because of time constraints involved in the sale of the house, plaintiff paid the full amount of the assessed deficiency and interest, $102,634.51, on December 15, 1969. The payment, however, was made without prejudice to her right to sue for a tax refund.
Plaintiff subsequently filed an administrative refund claim which was rejected by the IRS "since collection of the tax and interest was effected prior to the expiration of the statute." She then commenced the present action, claiming that the September 14, 1959 waiver was invalid as to her and that the Commissioner was barred from collecting the 1943 deficiency because the statute of limitations on collection expired prior to the execution of a valid waiver. Plaintiff also charges that the Commissioner acted improperly in computing compound interest on the deficiency. The government's position is that, in view of the statutory provision for tolling the statute of limitations, the time for collection had not expired when plaintiff signed a subsequent waiver on December 28, 1960.
Alternatively, the government contends, under agency principles of authorization and ratification, that the September 14, 1959 waiver was, in fact, valid and binding on plaintiff although it was not signed by her. Because the Court agrees that the statute of limitations had not expired when the December 28, 1960 waiver was executed, it need not determine the validity of the September 14, 1959 waiver.
The Statute of Limitations
It is necessary to consider four sections of the Internal Revenue Code of 1939 ("the 1939 Code")
in order to calculate whether the statute of limitations on collection was still running at the time plaintiff executed the December 28, 1960 waiver. Section 275(a)
establishes the general rule that income tax must be assessed within three years of the filing of a tax return. Section 276(c)
provides that income tax must be collected within six years of its assessment unless, prior to the expiration of the six-year period, the Commissioner and taxpayer have agreed in writing to a different collection period. The period agreed upon may be further extended by subsequent written agreements made before the expiration of the period consented to previously.
the focal point of the controversy here, suspends the running of the statute of limitations on assessment and collection in certain specified circumstances, including
(in any event, if a proceeding in respect of the deficiency is placed on the docket of the Tax Court, until the decision of the Tax Court becomes final), and for sixty days thereafter.
states that if the decision of the Tax Court is appealed and the Court of Appeals affirms, the decision of the Tax Court is not final until the expiration of the period for filing a petition for certiorari. If a petition for certiorari is filed and denied, the decision is not final until the time of such denial.
Applying these principles to the present case, the Kahns' petitioning for a redetermination of the tax deficiency found by the Commissioner suspended the running of the three-year statute of limitations on assessment which had begun to run when the Kahns filed their 1943 return. Int. Rev. Code of 1939 §§ 275(a), 277. It is clear that, had no assessment been made during the course of those proceedings, the statute of limitations would have remained suspended until some time after
March 26, 1955, sixty days after January 25, 1955, the date the Second Circuit affirmed the decision of the Tax Court. Id. §§ 277, 1140; see, e.g., Olds & Whipple v. United States, 86 Ct. Cl. 705, 22 F. Supp. 809, 819 (1938). Moreover, if, prior to the commencement of the deficiency proceeding, an assessment had been made, triggering the running of the statute of limitations on collection, it is equally clear that the bringing of the proceeding would have tolled that statute until after March 26, 1955. Id. §§ 276(c), 277, 1140; see, e.g., United States v. Maxwell, 459 F.2d 22 (5th Cir. 1972); United States v. Shahadi, 340 F.2d 56 (3d Cir.), cert. denied, 381 U.S. 903, 14 L. Ed. 2d 285, 85 S. Ct. 1447 (1965).
In the instant case, however, the IRS made its assessment on September 22, 1953, after the decision of the Tax Court, but prior to the decision on appeal. Upon the making of the assessment, the statute of limitations on collection began to run. Id. § 276(c). Thus, absent a valid waiver or any tolling of the limitations period, the time for collection would have expired on September 22, 1959. Id.
The parties are in agreement with regard to all of the foregoing. Their dispute is over the applicability of § 277 once the statute of limitations on collection began to run on September 22, 1953. The government contends that because the Tax Court decision in the Kahns' proceeding for a redetermination of the deficiency was not final at that time, § 277 dictated the tolling of the statute of limitations on collection simultaneously with its commencement and that the statute remained tolled until 60 days after the decision of the Tax Court became final which, as plaintiff has admitted, was some time after March 26, 1955. Plaintiff, having conceded that the statute of limitations on collection would have been tolled until this time had the assessment been made prior to the commencement of the deficiency proceeding, nevertheless contends that the § 277 provision for suspension of the statute of limitations on collection does not apply in a case such as the instant one where the Commissioner has voluntarily made an assessment after a decision by the Tax Court, but before that decision has become final. Plaintiff bases this argument on the fact that § 277 provides for suspension if a proceeding " is placed" on the docket of the Tax Court (emphasis added). Plaintiff claims ...