The opinion of the court was delivered by: MADDEN
This action was instituted by plaintiffs, Herbert A. Hill and Alfred E. Hill, in their respective capacities as executors of the estate of Alfred W. Hill, deceased, against the defendant, United States of America, to recover estate taxes in the sum of $ 11,218.73 which allegedly were erroneously and illegally assessed and collected by said defendant from the plaintiffs. Jurisdiction is conferred upon the Court by 28 U.S.C. 1346(a)(1).
The matter is presently before this Court on cross-motions for summary judgment. There are no controverted issues of material fact. The essential facts have been agreed upon by the parties and are contained in an amended stipulation of facts filed herein. The sole question presented for determination is whether or not under the stipulated facts, hereinafter set forth, the plaintiffs are precluded from maintaining this action under the three year limitation prescribed by Section 910 of the Internal Revenue Code of 1939 (26 U.S.C. 910).
On January 13, 1950, the plaintiffs, executors of the estate of Alfred W. Hill who died October 6, 1948, filed a federal estate tax return which was due January 6, 1950, on behalf of the decedent's estate, which return indicated an estate tax liability in the amount of $ 12,532.89. Enclosed therewith was a remittance by check in that exact amount. Said check was processed by the Collector's office in the regular course of business. The remittance was credited to the taxpayer's account on January 13, 1950, and was not placed in the Collector's suspense account. A form receipt dated Jan. 13, 1950 and bearing the Collector's stamp marked, 'Paid, Jan. 18, 1950' was issued. On January 19, 1950, the plaintiffs made a remittance of $ 14.42 representing interest due on the tax of $ 12,532.89 from January 6, 1950 to January 13, 1950. A form receipt dated Jan. 19, 1950 and bearing the Collector's stamp marked, 'Paid, Jan. 20, 1950' was issued therefor. On February 14, 1950, the Commissioner of Internal Revenue signed the Assessment Certificate which assessed the tax and interest due from the estate in the amount of $ 12,547.31. To the Certificate is annexed the Assessment List which includes an itemization of the remittances made by the plaintiffs.
Subsequently, having been advised of a proposed deficiency of $ 7,461.55 found by the estate tax examiner who audited the return, the plaintiffs, on November 6, 1950, filed a waiver consenting to the assessment and collection of said deficiency. A remittance of $ 7,000 was made in part payment of the proposed deficiency on October 30, 1950, for which a form receipt dated Oct. 30, 1950 and bearing the Collector's stamp marked, 'Paid, Jan. 23, 1951' was issued. Thereafter, in accordance with a government letter notifying the plaintiffs of the balance due on said deficiency and interest thereon, a further remittance of $ 829.55 was made by the plaintiffs on January 15, 1951, for which a form receipt dated January 15, 1951 and bearing the Collector's stamp marked, 'Paid, Jan. 17, 1951' was issued. On January 19, 1951, the Commissioner of Internal Revenue signed the Assessment Certificate assessing the deficiency tax and interest due from the estate in the amount of $ 7,829.55. To this Certificate is annexed the Assessment List wherein the remittances made by the plaintiffs in payment of said deficiency and interest are itemized.
By letter dated April 26, 1951, the defendant gave notice to the plaintiffs that the gross estate tax was $ 20,606.26 but that upon appropriate evidence a credit of $ 611.82 for state inheritance taxes would be allowed. After having supplied such evidence the plaintiffs were notified by letter dated June 1, 1951, that the credit was allowed, that the final determination of estate tax due was $ 19,994.44, and that if said amount was already paid, together with accrued interest, no further action on their part would be required.
Sometime thereafter it was discovered by the plaintiffs that a debt of $ 85,835.25 owing by the decedent to the Woodbury Amusement Company was erroneously omitted by them from Schedule 'K' of the Federal Estate Tax Return filed, and was not taken into consideration in the computation of the estate tax by either the plaintiffs or the defendant. Therefore, on the basis of said omission the plaintiffs, on January 5, 1954, filed with the Director of Internal Revenue a claim for refund in the amount of $ 19,291.90, together with interest. Confirmation of the omission having been made by the defendant, an estate tax examiner re-computed the tax on the estate and found it to be $ 1,315.16 and not $ 19,994.44 as previously assessed (an over-assessment of $ 18,680.28).
The Director of Internal Revenue denied the claim in part, allowing only a refund of $ 9,994.75 consisting of the payment of $ 7,829.55 ($ 7,461.55 plus interest of $ 368.00), made in behalf of the deficiency, and $ 2,165.20 interest thereon. This constituted a rejection of the claim for refund to the extent of $ 11,218.73 (over-assessment of $ 18,680.28 less the refund of $ 7,461.55 of over-assessment); see footnote (1).
It is the contention of the defendant that while the plaintiffs' claim for refund, filed on January 5, 1954, was timely asserted as to the tax assessed as a deficiency it was not timely asserted as to the $ 12,532.89 tax first paid and assessed. The defendant argues that the three year limitation on the assertion of claims for refund commences to run from the date when the tax is paid, hence from January 13, 1950, the date on which the plaintiffs made their remittance by the check of $ 12,532.89, or from February 14, 1950, the date when the tax was formally assessed by the Commissioner. The plaintiffs, on the other hand, argue that the three year limitation commences to run from the date the Commissioner assesses the tax and not from the date the tax is paid, and hence, from January 19, 1951, the date of the formal assessment by the Commissioner of the deficiency tax. The plaintiffs would not consider February 14, 1950 the commencement date since they claim that notice of a formal assessment must be given to the taxpayer within a reasonable time before the limitation commences to run and no notice was given them until April 26, 1951, and June 1, 1951, and that the earliest date to which it can reasonably relate is January 19, 1951.
Section 910 of the Internal Revenue Code of 1939, supra, provides:
The statute is clear; it requires the assertion of claims for refund within three years next after the payment of the tax alleged to have been erroneously or illegally assessed or collected. It is the date of the payment of the tax from which the period of limitation commences to run and not the date of the assessment of said tax.
The Code does not define 'payment' as employed in the context of the above quoted section nor does it determine what acts constitute 'payment' thereunder. However, from an examination of the cases in which the courts have had occasion to pass upon the question of what constitutes 'payment' it is apparent that the question was determined in each case upon its own particular facts.
In Rosenman v. United States, 1945, 323 U.S. 658, 65 S. Ct. 536, 89 L. Ed. 535, the Court reviewed the facts before it and determined the matter according to what the parties had arranged and intended by such arrangements; thus on page 662 of 323 U.S., on page 538 of 65 S. Ct.:
'* * * There was merely an interim arrangement to cover whatever contingencies the future might define. The tax obligation did not become defined until April 1938. And this is the practical construction which the Government has placed upon such arrangements. The Government does not consider such advances of estimated taxes as tax payments. They are, as it were, payments in escrow. They are set aside, as we have noted, in special suspense accounts established for depositing money received when no assessment is then outstanding against the taxpayer. The receipt by the Government of moneys under such an arrangement carries no more significance than would the giving of a surety bond. ...