Opinion
Docket No. 67563.
1959-11-23
EARLE C. PARKS AND BERNICE D. PARKS, PETITIONERS, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
Earle C. Parks, Esq., pro se. Raymond T. Mahon, Esq., for the respondent.
Earle C. Parks, Esq., pro se. Raymond T. Mahon, Esq., for the respondent.
1. Determination of deficiency as to 1952 held not barred by petitioners' claim of ‘accord and satisfaction.’
2. Addition to tax under section 294(d)(1)(A), I.R.C. 1939, sustained.
Respondent determined deficiencies in petitioners' income tax and additions thereto, as follows:
+-------------------------------------------------------------+ ¦ ¦ ¦Additions to tax, I.R.C. 1939 ¦ +------+------------+-----------------------------------------¦ ¦Year ¦Deficiency ¦Sec. 294 (d) (1) (A) ¦Sec. 294 (d) (2) ¦ +------+------------+----------------------+------------------¦ ¦1952 ¦$2,279.36 ¦None ¦$833.59 ¦ +------+------------+----------------------+------------------¦ ¦1954 ¦949.66 ¦$1,184.92 ¦710.96 ¦ +-------------------------------------------------------------+
The principal questions are:
1. Was there an ‘accord and satisfaction’ between petitioners and respondent with respect to petitioners' income tax liability for 1952 so as to preclude respondent from assessing additional taxes for that year?
2. Are petitioners relieved of liability for addition to tax under section 294(d)(1)(A) for failure to file a declaration of estimated tax for 1954 by reason of certain alleged representations made by or in the presence of an assistant district director of internal revenue?
FINDINGS OF FACT.
Petitioners, husband and wife residing in Belmont, Massachusetts, filed joint income tax returns for the calendar years 1952 and 1954 with the district director of internal revenue for the district of Massachusetts. Earle C. Parks, hereinafter referred to as petitioner, is a practicing attorney at law and is a member of the bars of the Commonwealth of Massachusetts, the United States District Court for Massachusetts, the United States Supreme Court, and the Tax Court of the United States.
Petitioners filed their 1952 return on or about March 16, 1953, reporting a tax of $14,705.88 and a ‘balance of tax due’ in the amount of $11,613.88 after withholding and payments on their 1952 Declaration of Estimated Tax. Petitioners did not then pay the balance due. At that time they also owed back taxes for the years 1950 and 1951 which, pursuant to an arrangement made at some undisclosed time, they were paying at the rate of $1,000 a month. By March 1954, $10,000 of petitioners' 1952 taxes as reported on the 1952 return remained unpaid, and a lien had been placed upon real estate owned by petitioner to insure payment of such tax.
In March 1954, petitioner was called to a conference at the Boston office of the district director. Present at this conference were petitioner, his law partner, Frank C. Hession, and two revenue agents attached to the district director's office. Petitioner was informed of the lien that had been placed upon his property and was requested to make payment of the balance due on his 1952 return. As a result of this conference and an examination of petitioner's books and records incident thereto, it was agreed that the lien would be lifted if petitioner raised the requisite $10,000 by placing a mortgage on his home. Shortly thereafter, at a second conference, petitioner paid the amount due with a check representing the proceeds of a mortgage placed on his home, and the lien was discharged. Present at this second conference were petitioner, the assistant district director, Charles J. King, and two revenue agents, one of whom had attended the earlier conference. After presentation of the check for 1952, such payments to be applied firs against petitioner's tax liability for 1953, and then against his liability for 1954. Although some discussion was had with respect to petitioner's possible liability for ‘penalties' for 1954, neither King, nor any other internal revenue official present at the conference, represented to petitioner that only one ‘penalty’ would be assessed against him in the event he failed to file a declaration of estimated tax for 1954. Petitioners failed to file a declaration of estimated tax for 1954.
Sometime after the second conference, ‘in either the fall of 1954 or the spring of 1955,‘ a revenue agent named James Hooley examined petitioner's books and records for 1952, 1953, and 1954. This examination covered a period of 10 months during which time Hooley spent 2 or 3 days per month in petitioners' office. Petitioner did not hear from Hooley again after the expiration of the 10-month period. A month or two after Hooley's departure, petitioner's books for 1952, 1953, and 1954 were examined again by a revenue agent named Martin Berg. Berg visited petitioner's office every day for a period of 3 weeks. Petitioner told both Hooley and Berg that he objected to their examinations with respect to 1952 on the ground that thay year had been ‘settled’ or ‘closed.’
Form 872, attached to petitioners' 1952 return and entitled ‘Consent Fixing Period of Limitation Upon Assessment of Income and Profits Tax’ was executed by petitioners on January 24, 1956, and by the Commissioner on February 16, 1956; it extended to June 30, 1957, the period for assessing additional income tax for the taxable year 1952. On July 6, 1956, petitioner received respondent's letter of intent to determine deficiencies for 1952, 1953, and 1954, and petitioner filed a protest thereto on July 31, 1956. The protest stated in part as follows:
1952— this return was priorly audited and finally settled and a tax lien removed. Taxpayers claim no further adjustment is due, nor any penalty chargeable.
1954— taxpayers object to penalties imposed, especially under Sec. 194(d)(1) (A) upon ground that director's office advised paying taxes due for prior years and that no penalty would be charged.
The deficiency notice involved in this case was mailed to petitioner on March 4, 1957.
OPINION.
RAUM, Judge:
1. Petitioners do not challenge the correctness of the Commissioner's determination as to 1952. Instead, they argue that there has been an ‘accord and satisfaction,‘ a compromise or settlement for 1952, between them and the then collector of internal revenue for the Boston district; and that the Commissioner is therefore precluded from determining any deficiency as to 1952.
(a) In the first place, it is highly dubious whether this issue is properly pleaded. Rule 7(c)(4)(B) of our Rule of Practice requires a petitioner to include in paragraph 4 of his petition ‘clear and concise assignments of each and every error which the petitioner alleges to have been committed by the Commissioner in the determination of the deficiency,‘ and provides further that '(e)ach assignment of error shall be lettered.’ Also, the same rule provides that paragraph 5 of the petition must contain ‘(c)lear and concise lettered statements of the facts upon which the petitioner relies as sustaining the assignments of error.’ See Nathan Goldsmith, 31 T.C. 56, 63.
These requirements are not idle technicalities. It is important to the orderly conduct of a lawsuit that both the Court and the opposing party be properly informed by the pleadings as to precisely what issues are presented for decision.
Petitioner's paragraph 4, to the extent that it relates to the year 1952, consists of two sentences which are set forth in full in the margin.
The first sentence deals with the basic deficiency and nothing therein, or in the schedules referred to, in any way is concerned with the defense of ‘accord and satisfaction.’ The second sentence deals only with the so-called ‘penalty,‘ and nothing set forth therein could possibly be described as a ‘clear and concise’ assignment of error based on ‘accord and satisfaction.’ To be sure, the second sentence does undertake to say that the ‘penalty’ was in error ‘for the reasons set forth hereafter,'
‘4. The determination of tax set forth in the notice of deficiency for the year 1952 is based in the main upon the disallowance of certain cash expenditures for alleged depreciable furniture, fixtures and office equipment, and certain other minor adjustments upon audit, all as more fully set forth in Exhibit B, Schedules 1 and 1-A attached hereto. The penalty of $833.59 for substantial under-estimation of the estimated tax for the year 1952 under Section 294(d)(2) of the 1939 Code was in error for the reasons set forth hereafter, as well as being precluded by Section 3631 of the Internal Revenue Code of 1939.’
and there is some language in paragraph 5, which, in the light of the contention made by petitioner for the first time at the hearing, could possibly be construed to relate to ‘accord and satisfaction.’ But, at best from petitioner's point of view, (1) paragraph 4 itself is faulty under our rules, (2) it deals in this regard only with the ‘penalty’ and not with the basic tax, and (3) even if paragraph 5 may be engrafted upon paragraph 4— a situation not contemplated by our rules, since we look to paragraph 4 for assignments of error and to paragraph 5 for allegations of fact backing up such assignments— the allegations in paragraph 5 are not of such character as to present clearly an accord and satisfaction issue without further elaboration. However, it is not necessary to decide this issue merely upon the pleadings, for it is clear in any event that the point is without merit.
The reference to section 3631 has nothing to do with ‘accord and satisfaction.’ It relates to ‘unnecessary examinations or investigations,‘ and petitioner in his opening statement to the Court has made clear that he does not now challenge the deficiency by reason of allegedly multiple audits made by Government agents.
(b) On the merits of this issue, petitioner has failed to establish any ‘accord and satisfaction,‘ compromise or settlement for 1952 which would preclude respondent from assessing additional taxes with respect to that year. As was stated in Victoria R. Johnston, 19 B.T.A. 630,633: ‘The action of the Commissioner in determining the deficiency is presumably correct and the burden is upon the petitioner * * * to show the contrary.’ Petitioner has failed to carry that burden. No written agreement evidencing ‘an accord and satisfaction’ was ever drafted or signed by the parties, nor was there any exchange of correspondence which might be interpreted as such an agreement. Moreover, there is no basis in the facts and circumstances material to the year 1952 from which an ‘accord and satisfaction’ might be implied. Although the Government agreed to discharge its tax lien upon payment by petitioner of the balance of tax due on the face of the return, it is settled that such an agreement does not operate as an ‘accord and satisfaction’ with respect to petitioner's total tax liability for the year in question, nor does it estop respondent from thereafter assessing additional taxes and penalties. George H. Baker,24 T.C. 1021, 1025; see Joseph T. Miller, 23 T.C. 565, affirmed 231 F.2d 8 (C.A. 5). Petitioner's testimony on direct, if credible, tends merely to establish his own conclusion that the year 1952 was ‘closed.’ There is no evidence that there was any controversy at that time between the parties as to the amount of liability for 1952, or that petitioner did anything more than pay the taxes reported on the return. Petitioners have failed to show that there was any consideration for an accord and satisfaction in respect of any additional liability. Moreover, we are not satisfied by the evidence that respondent agreed to accept petitioner's check in complete satisfaction of the 1952 tax liability. And finally, in any event, even if the subordinate revenue officials present at the second conference informally agreed to accept petitioner's payment as an ‘accord and satisfaction’ for 1952, such an agreement would not be a compromise pursuant to the exclusive statutory method of compromise authorized by section 3761, I.R.C. 1939, and would not be binding on the Commissioner. Botany Worsted Mills v. United States, 278 U.S. 282; Leach v. Nichols, 23 F.2d 275 (C.A. 1); L. Loewy & Son, Inc. v. Commissioner, 31 F.2d 652 (C.A.2), affirming 11 B.T.A. 596; Hughson v. United States, 59 F.2d 17 (C.A. 9), certiorari denied 187 U.S. 630; Hanby v. Commissioner, 67 F.2d 125 (C.A. 4), affirming 26 B.T.A. 670; Joyce v. Gentsch, 141 F.2d 891 (C.A. 6); Bank of New York v. United States, 170 F.2d 20 (C.A. 3); Victoria R. Johnston, supra; Henry Hudson, 39 B.T.A. 1075; George H. Baker, supra.
2. As to the year 1954, petitioners do not contest the basic deficiency of $949.66, but they do argue that the addition to tax under section 294(d)(1)(A) is improper since petitioner was allegedly assured at the second conference at the director's office that ‘only one penalty would be assessed.’ Although we are satisfied that there was some discussion at that conference with respect to penalties, we are far from satisfied on the evidence— in the absence of more precise testimony as to the nature of the alleged representations— that petitioner received any such assurance. The burden of proof in this respect was on petitioners, and by reason of their failure to meet that burden we have found as a fact that no such representations were made. Petitioners did not in fact file a declaration for 1954, and we hold that the addition to tax under section 294(d)(1)(A) was justified. However, the Supreme Court's decision in Commissioner v. Acker, 361 U.S. 87, makes clear that the further addition under section 294(d)(2) for substantial underestimation was improper. In the circumstances, the section 294(d)(1)(A) addition is approved, but the section 294(d)(2) addition is disapproved.
Decision will be entered in accordance with the foregoing opinion.