Irving Snyder, Transferee, Rose Baird, Transferor v. United States , 616 F.2d 1187 ( 1980 )

LOGAN, Circuit Judge.

After examining the briefs and the appellate record, this three-judge panel has determined unanimously that oral argument would not be of material assistance in the determination of this appeal. See Fed.R.App.P. 34(a); Tenth Cir.R. 10(e). This cause is therefore ordered submitted without oral argument.

The United States appeals from an order of the district court granting summary judgment in favor of Irving Snyder in his suit for refund of gift taxes erroneously assessed. The relevant facts are not in dispute.

On May 28, 1973, the Internal Revenue Service (IRS) made a jeopardy assessment against Snyder, as transferee of Rose Baird, for gift taxes, a delinquency penalty, and interest arising out of transactions in 1969 between Baird and Snyder. Between September 1973 and March 1976, additional penalties and interest were added, bringing the total assessment to $55,823.67. Following receipt of a notice of deficiency taxpayer filed with the Tax Court a petition for redetermination of the deficiency, but the petition was dismissed because it was too late, apparently one day past the applicable statute of limitations. See I.R.C. § 6213(a).

When neither Baird nor Snyder paid the assessment, the IRS collected by levying on income from Snyder’s rental properties. The final collection, which completed payment of the full assessment, occurred on March 3, 1976. Snyder filed for refund of the entire amount on July 6, 1976. Conceding that he was erroneously assessed,¹ but relying upon the limitations provision set forth in I.R.C. § 6511, the IRS returned $41,130.03, refusing to refund $14,693.64 because that amount was not paid within two years of the first claim for refund.

Taxpayer instituted this suit in district court contesting the partial disallowance. The trial court granted taxpayer’s motion for summary judgment. In so ruling, the court held that “the two-year period of limitation in § 6511(a) ... did not begin to run until the total assessment had been collected, March 3, 1976, and that the claim for refund was therefore timely filed

The IRS here contends the trial court erred in allowing taxpayer to receive a refund of taxes paid before July 6, 1974. A plain reading of the statutes involved compels the conclusion that the IRS is correct.

For cases in which no return has ever been filed, section 6511(a) establishes a two-year period of limitations from the date the tax was paid in full. But .Congress further qualified the time limitation by restricting the amount recoverable as a refund in certain circumstances. Section 6511(b)(2)(B), applicable here, thus provides in pertinent part,

LIMIT ON AMOUNT OF CREDIT OR REFUND.—

(B) . . . the amount of the credit or refund shall not exceed the portion of the tax paid during the 2 years immediately preceding the filing of the claim.

(Emphasis added.)

The interpretation that a taxpayer must pay all of the assessment within two years of bringing suit or be limited to recovery of the amounts paid within the two-year period has been consistently applied. See Treas.Reg. § 301.6511(b)—1(b)(1)(iii); San Joaquin Light & Power Corp. v. McLaughlin, 65 F.2d 677 (9th Cir. 1933) (construing predecessor of § 6511). Cf. Hutchens Metal Products, Inc. v. Bookwalter, 174 F.Supp. 338 (W.D.Mo.1959), rev’d on other grounds, 281 F.2d 174 (8th Cir. 1960) (taxpayer filing refund claim more than three years after filed return; refund limited to amounts paid within two years of refund claim); Bechelli v. Hofferbert, 111 F.Supp. 631 (D.Md.1953) (same). The provision appears to have been intended by Congress to prevent a taxpayer from extending the time for filing a claim for the entire tax by making small payments from time to time. See S.Rep.No. 398, 68th Cong., 1st Sess. 33 (1924).

The thrust of taxpayer’s principal argument against this construction is that it results in unjustly harsh treatment of a taxpayer not able to liquidate the entire tax liability within two years. The IRS routinely denies refund claims filed before the tax is paid in full, and until the tax is paid the district court cannot consider the validity of the taxpayer’s position. Flora v. United States, 357 U.S. 63, 78 S.Ct. 1079, 2 L.Ed.2d 1165 (1958), op. on rehearing, 362 U.S. 145, 80 S.Ct. 630, 4 L.Ed.2d 623 (1960).

The fatal difficulty with this argument, however, is that Congress has provided an alternative forum for a taxpayer faced with an assessment believed to be erroneous. Without paying any of the disputed tax, Snyder could have petitioned the Tax Court for a redetermination of the deficiency assessed against him and therein litigate the question of his liability for the tax. I.R.C. § 6213. He would not have a right to a jury trial, which may be had only in the district court, but that is the only essential difference. Here taxpayer attempted to petition the Tax Court, but asserts the neglect of his attorney resulted in the dismissal of that petition, which was filed one day out of time. We sympathize with his plight, but writing in a related context, Chief Justice Warren aptly treated the argument taxpayer makes here:

A word should also be said about the argument that requiring taxpayers to pay the full assessments before bringing suits will subject some of them to great hardship. This contention seems to ignore entirely the right of the taxpayer to appeal the deficiency to the Tax Court without paying a cent. If he permits his time for filing such an appeal to expire, he can hardly complain that he has been unjustly treated, for he is in precisely the same position as any other person who is barred by a statute of limitations.

Flora v. United States, 362 U.S. 145, 175, 80 S.Ct. 630, 646, 4 L.Ed.2d 623 (1960) (opinion on rehearing) (footnote omitted).

It is therefore clear that taxpayer’s claim is not time-barred, but his refund is limited to amounts paid on or after July 6, 1974. Since the government has refunded those amounts, he has no further claim.

The judgment is reversed and remanded, with instructions to enter judgment in favor of the United States.

1 . In proceedings related to the 1969 gift tax assessment the Commissioner assessed a deficiency for 1970. This deficiency was litigated in the Tax Court, which held taxpayer did not owe the taxes assessed. Irving Snyder, 66 T.C. 785 (1976). The Commissioner acquiesced in the result in that case. 1978-1 C.B. 2. Since the transactions giving rise to the 1969 gift tax assessment were part of the sequence of events considered by the Tax Court, the Commissioner concedes the merits of taxpayer’s refund claim in this case.