264 F.2d 9
Ralph C. GRANQUIST, District Director of Internal Revenue for the District of Oregon, Appellant,
Margaret HACKLEMAN, Appellee.
United States Court of Appeals Ninth Circuit.
February 13, 1959.
Andrew F. Oehmann, Acting Asst. Atty. Gen., Lee A. Jackson, I. Henry Kutz, Fred E. Youngman, George W. Beatty, Attorneys, Department of Justice, Washington, D. C., C. E. Luckey, U. S. Atty., Edward J. Georgeff, Asst. U. S. Atty., Portland, Or., for appellant.
Richard H. M. Hickok, Bend, Or., for appellee.
Before DENMAN, POPE and HAMLIN, Circuit Judges.
HAMLIN, Circuit Judge.
This is an appeal by R. C. Granquist, District Director of Internal Revenue for the District of Oregon, appellant herein, from a judgment of the District Court declaring void certain assessments for additions to tax due from the Estate of Abe Hackleman and from Margaret Hackleman for the taxable years 1953 and 1954. The assessment was occasioned by the late filing of such returns. Appeal is also taken from the order enjoining appellant from assessing such additions to the tax without complying with the deficiency procedure set out in the Internal Revenue Codes of 1939 and 1954.
Abe Hackleman died April 17, 1953. On June 6, 1956, Margaret Hackleman, appellee herein and widow of Abe Hackleman, filed with appellant (District Director of Internal Revenue for the District of Oregon) income tax returns for herself for 1953 and 1954 and for the Estate of Abe Hackleman for 1953 and 1954, and paid the taxes and interest due thereon. On or about June 6, 1956, appellant assessed against Abe and Margaret Hackleman additional income taxes for the years 1953 and 1954 by reason of the late filing of the returns for those years. On or about the same date appellant also assessed against the Estate of Abe Hackleman additional income taxes for the years 1953 and 1954 by reason of the late filing of the returns for those years. These assessments for 1953 and 1954 were not jeopardy assessments and statutory notices of deficiency required by § 272(a) of the Internal Revenue Code of 1939 and § 6212 of the 1954 Code were not issued prior to the making of the assessments.
An action was commenced by appellee in the District Court to enjoin collection of the amounts assessed as penalties for the late filing of the returns and to invalidate the assessments for these penalties upon the ground that statutory deficiency notices were not issued prior to the making of the assessments.
Appellee made a motion for summary judgment in her favor, that the assessments made against her individually and against the Estate of Abe Hackleman be declared void and without legal effect, and for a judgment enjoining the District Director from assessing said additions to tax without complying with the deficiency procedure set out in the Internal Revenue laws. Likewise, appellant made a motion for a summary judgment in his favor, that the additions to taxes against appellee were properly assessed and did not require the sending of the deficiency ninety-day letter preliminary to assessment, and on the ground that the District Court was without jurisdiction to enjoin the collection of these assessments under the provisions of § 7421(a) of the Internal Revenue Code of 1954.
The District Court granted appellee's motion for summary judgment and further ordered that appellant be enjoined from assessing said additions to the tax without complying with the deficiency procedure provided for in §§ 6212 and 6213, Title 26 U.S.C.A. This appeal followed.
Section 291 of the Internal Revenue Code of 1939 sets out the additions to the tax that would be due in the event the tax was not paid on time. Under the 1954 Code the additions to the tax for late filing were set out in § 6651 of the Internal Revenue Code of 1954.
The questions involved in this appeal are whether these additions to the tax are subject to the restrictions imposed upon the assessment of deficiencies in income tax as provided by § 272(a) (1) of the Internal Revenue Code of 1939 (governing the 1953 returns) and § 6213 (governing the 1954 returns). If they are, a nintey-day letter must be sent to the taxpayer within which time the taxpayer may file an action in the Tax Court to determine the propriety of the Commissioner's action.
The question of whether these additions to the tax under the 1939 Code were deficiencies requiring the ninety-day letter was before the Court in United States v. Erie Forge Co., 3 Cir., 1951, 191 F.2d 627, 630, certiorari denied 343 U.S. 930, 72 S.Ct. 759, 96 L.Ed. 1339. There, the Court specifically held that the language of § 291 of the Internal Revenue Code of 1939 required a holding that the penalty described in § 291 as "an addition to the tax" could be assessed and collected without the ninety-day letter.
We agree with the reasoning of the Erie Forge case.
In the 1954 Code however, § 6651 was adopted, which was in essence the same as § 291 of the 1939 Code, except that the following language in § 291 was omitted from § 6651:
"The amount so added to any tax shall be collected at the same time and in the same manner and as a part of the tax unless the tax has been paid before the discovery of the neglect, in which case the amount so added shall be collected in the same manner as the tax."
Reference to that portion of the Erie Forge case set out in the margin (Footnote 6) indicates to what extent the Third Circuit relied on the above quoted language in reaching its decision.
However, language similar to that shown as omitted from § 6651, providing for the collection of additions to tax was placed in § 6659 of the 1954 Code, but with additional language indicating that any addition to the tax under § 6651 —
"* * * shall be considered a part of such tax for the purpose of applying the provisions of this title relating to the assessment and collection of such tax (including the provisions of subchapter B of chapter 63, relating to deficiency procedures for income, estate, and gift taxes)." § 6659(b).
Thus, § 6659(b) clearly entitles a taxpayer to a ninety-day letter and prepayment review in the Tax Court without reference to whether or not these "additions to the tax" are technically "deficiencies".
Appellee's major concern, of course, is whether these assessments are subjected to the same restrictions as those imposed upon the collections of the deficiencies, and not whether these assessments may properly be called deficiencies.
In the case of Davis v. Dudley, D.C.Pa. 1954, 124 F.Supp. 426, 428, Judge Marsh, who was a member of the court that decided the Erie Forge case, had a similar situation before him arising under § 294(d) of the Internal Revenue Code of 1939. Section 294(d) provides for the imposition of penalties for substantial underestimation of estimated taxes, for failure to file timely a Declaration of Estimated Tax, and for failure to pay within the time prescribed, any installment of Declared Estimated Tax. § 294(d) does not, however, contain the language quoted above which was contained in § 291 of the 1939 Code but which was omitted from § 6651 of the 1954 Code.
The reasoning of Judge Marsh in Davis v. Dudley, supra, appeals to us. It is set out below.
The Tax Court was created to afford the taxpayer an opportunity to litigate his liability for taxes without being required to first pay those taxes and then sue for their return. To require a taxpayer to take such action may in many cases be a substantial hardship to him.
Both the District Courts and the Tax Court have applied the rationale of Davis v. Dudley, supra, in cases arising under § 294(d) and its counterpart in the 1954 Code, § 6654. The following cases have held that § 294(d) or § 6654 assessments were "deficiencies" and thus that taxpayer was entitled to the ninety-day letter and the attendant pre-payment review: Newsom v. Commissioner, 1954, 22 T.C. 225, affirmed per curiam, 5 Cir., 1955, 219 F.2d 444 (§ 294(d); Myers v. Commissioner, 1957, 28 T.C. 12 (§ 294 (d); Marbut v. Commissioner, 1957, 28 T.C. 687 (§ 294(d); Muse v. Enochs, D.C.Miss.1958, 164 F.Supp. 561 (§ 6654).
Although the above cited cases hold that § 294(d) and § 6654 assessments are deficiencies, we are not convinced that a like holding in the instant case is either warranted or necessary in determining whether § 6651 assessments are to be subject to deficiency procedures.
The above cases are cited to illustrate a recognition in the courts of the underlying reasons in favor of affording a taxpayer a pre-payment review in the Tax Court. The reasons that recommend these restrictions on the collection of § 294(d) and § 6654 assessments are equally applicable to the collection of § 6651 assessments. The Tax Court should be an available forum for the determination of whether the taxpayer's failure to file on time was "due to reasonable cause and not due to willful neglect."
There is a question, however, whether the assessments in the instant case may properly be called deficiencies. Reference is made to § 6211, which defines a deficiency, and to § 6659, which sets forth the applicable rules for the collection of the subject § 6651 assessments.
§ 6211, in relevant part, defines a deficiency as "the amount by which the tax imposed by subtitles A or B exceeds the excess of * * * (A) the amount shown as the tax by the taxpayer upon his return * * *" [Emphasis added.]
Subtitles A and B refer to §§ 1 to 2524 (Income, Estate and Gift Taxes).
§ 6659(a) (2) provides —
"Any reference in this title to `tax' imposed by this title shall be deemed also to refer to the additions to the tax, additional amounts, and penalties provided by this chapter." [Emphasis added.]
It is conceivable that the above quote from § 6659(a) (2) means that any reference to a tax in the Code includes the subject assessments, and thus that these are taxes within the meaning of § 6211. We believe, however, that it is more reasonable to recognize that § 6211 defines a deficiency in terms of a "tax imposed by subtitle A or B", while § 6659(a) (2) simply authorizes referring to these additions to the tax as "taxes".
§ 6651 assessments may be "taxes", but they are not "taxes imposed by subtitle A or B." In short, the "taxes" that are included in the statutory definition, of deficiencies are limited to those taxes imposed by §§ 1 to 2524, while § 6659(a) (2) allows for referring to additions to tax imposed by §§ 6651 to 6674 as "taxes".
Thus, when § 6211 and § 6659(a) (2) are read together it may be said that these additions to the tax are not included in the statutory definition of "deficiency".
Appellee, however, is not as concerned with what this assessment is called as he is with how it may be collected. § 6659 (b) provides as follows:
"(b) Additions to tax for failure to file return or pay tax. Any addition under section 6651 or section 6653 to a tax imposed by another subtitle of this title shall be considered a part of such tax for the purpose of applying the provisions of this title relating to the assessment and collection of such tax (including the provisions of subchapter B of chapter 63, relating to deficiency procedures for income, estate, and gift taxes)."
We hold that the above warrants a conclusion that § 6651 assessments are limited by the same restrictions as those imposed on the collections of deficiencies; namely, the ninety-day letter and the prepayment review in the Tax Court.
Where the statute does not specifically, by its precise language, take away this right (as we believe it does in § 291, 1939 Code, Erie Forge case, supra), we believe that the taxpayer should be afforded an opportunity to file suit in the Tax Court to determine his liability. The requirement of a ninety-day deficiency notice affords this right to the taxpayer.
Appellant cites Treasury Regulation 301.6659-1, adopted November 16, 1957 (more than a year after taxpayer filed his amended complaint in this case). Appellant contends that its position on this appeal is in accord with the cited Regulation, and that the Regulation should be followed by this Court. Pertinent portions of the Regulation are set forth in the margin with those sections principally relied upon by appellant in boldface.
A Treasury Regulation has the force and effect of law only if it is consistent with and reasonably adapted to the enforcement of a revenue statute. United States v. Grimaud, 1911, 220 U.S. 506, 31 S.Ct. 480, 55 L.Ed. 563; Commissioner v. South Texas Lumber Co., 1948, 333 U.S. 496, 501, 68 S.Ct. 695, 92 L.Ed. 831.
We find that the appellant's interpretation of Section (c) of Regulation 301.6659-1, as illustrated by Example (1) thereunder, is inconsistent with and contrary to the plain meaning of § 6659(b), supra.
To the extent that the Regulation is contrary to § 6659(b) it is not binding on this Court. Miller v. United States, 1935, 294 U.S. 435, 55 S.Ct. 440, 79 L.Ed. 977; Manhattan General Equipment Co. v. Commissioner, 1936, 297 U.S. 129, 56 S.Ct. 397, 80 L.Ed. 528; Helvering v. Safe Deposit & Trust Co. of Baltimore, 4 Cir., 1938, 95 F.2d 806; Kaufman v. United States, 4 Cir., 1942, 131 F.2d 854; Traders National Bank of Kansas City v. United States, D.C. Mo.1956, 148 F.Supp. 278, affirmed in 248 F.2d 667; Scofield v. Lewis, 5 Cir., 1958, 251 F.2d 128.
We hold that under the 1954 Code appellee was entitled to a ninety-day notice for taxes due for the year 1954, but that appellee was not so entitled under the 1939 Code for taxes due for the year 1953.
The judgment of the District Court in favor of the appellee covering the taxes for 1953 is reversed and the judgment of the District Court covering the taxes for 1954 in favor of the appellee is affirmed.