Diescher v. Commissioner , 18 B.T.A. 353 ( 1929 )

ALFRED J. DIESCHER, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Diescher v. Commissioner

Docket No. 13121.

United States Board of Tax Appeals

18 B.T.A. 353; 1929 BTA LEXIS 2070;

November 27, 1929, Promulgated

---

1. The collection of taxes for 1917, assessed before the effective date of the Revenue Act of 1924, is barred unless proceedings therefor are instituted within five years from the filing of the return. Russell v. United States,278 U.S. 181">278 U.S. 181.

2. In the circumstances herein the waiver upon which the respondent relies was invalid because it was signed under duress and at the date of the deficiency notice said respondent was without authority to determine additional taxes for 1917.

Joseph G. Carey, Esq., and Mark H. Adams, Esq., for the petitioner.

Arthur H. Murray, Esq., for the respondent.

---

LANSDON

The respondent has asserted a deficiency in income tax for the year 1917 in the amount of $86,670.72. For his causes of action in seeking a redetermination of such deficiency the petitioner avers:

(1) That at the date of the deficiency notice the statute of limitations had run against any additional tax liability for the year 1917;

(2) That the Commissioner erroneously valued certain shares of stock received by the petitioner at $160 per share and that such valuation was grossly excessive;

(3) That the taxable event resulting in the asserted deficiency occurred in the year 1916 and not in 1917, as alleged by the Commissioner; and

(4) That the alleged taxable income upon which the deficiency is based was not profit resulting from a business transaction but was in fact a gift received by the petitioner in the year 1916.

FINDINGS OF FACT.

The petitioner is an individual, a resident of Winfield, Kans. In November of the year 1916, he entered into a written contract with one Hale, in which he agreed to deliver to Hale 333 shares of the capital stock of the Eureka Oil Co., a Kansas corporation, for which he was to receive 1,665 shares of the Eureka Oil Co., a Delaware corporation, to be thereafter organized by said Hale. Pursuant to such agreement he delivered the shares of the Kansas corporation to Hale in November, 1916, and in February, 1917, after organization of said Delaware corporation, received from him the 1,665 shares of stock in that corporation. At the date of the contract the stock of the Kansas corporation had a fair market value of $100 per share and at the date of their issue in February, 1917, the parties have stipulated and we find that the stock of the Delaware corporation had a fair market value of $100 per share. There were no material changes in the value of stock of the Kansas corporation between November, 1916, and February, 1917, nor was there any change in the value of the assets paid in to the Delaware corporation between such dates.

The petitioner timely made and filed his individual income-tax return for the year 1917 and the same was received by the collector of internal revenue at Oklahoma City, Okla., on March 29, 1918. Such return disclosed taxable income in the amount of $204,751.69, and tax liability in the amount of $51,078.40, and did not include in gross income any profit realized from the sale or exchange of his stock in the Kansas corporation for the stock of the Delaware corporation. Upon audit of such return the Commissioner determined additional tax liability thereon and assessed the same against the petitioner on March 13, 1923, in the amount of $4,698.96.

Thereafter, in February, 1924, the Commissioner, through a revenue agent at Pittsburgh, Pa., asked the petitioner to sign a waiver of the statute of limitations as to his additional tax liability for the year 1917, and stated that if such waiver was not signed a fraud penalty for the year in question would be imposed. Upon advice of an attorney petitioner refused to sign a waiver, and following such refusal, in April, 1924, the respondent made an additional assessment against the petitioner of $41,709.04 in taxes for said year, to which he added a 100 per cent penalty for fraud, amounting to $97,486.40. Thereafter, and on October 15, 1925, petitioner by telegraph requested a conference with the Deputy Commissioner of Internal Revenue, with a view to closing the case entirely. In reply to such telegram and on October 16, 1925, the Solicitor of Internal Revenue advised the petitioner by telegraph that the requested conference would be granted on October 21, 1925, "first provided taxpayer files in this office prior to that date, waivers under which assessment may be made of any additional tax which may be found due for 1916 and 1917."

Pursuant to the telegram from the Solicitor, the petitioner and his attorney appeared for conference at the time and place designated. Sometime after such conference began the representatives of the Commissioner refused to proceed further unless petitioner would sign a waiver as requested in the telegram from the Solicitor. Petitioner's attorney advised him not to sign such waiver, but, fearing that the Commissioner would proceed at once to collect the deficiency and penalty theretofore assessed in the respective amounts of $41,709.04 and $97,486.40, petitioner signed the following:

INCOME AND PROFITS TAX WAIVER

For Taxable Years Ended Prior to January 1, 1922.

OCTOBER 21, 1925.

In pursuance of the provisions of existing Internal Revenue Laws Alfred J. Diescher, a taxpayer of Winfield, Kansas, and the Commissioner of Internal Revenue hereby waive the time prescribed by law for making any assessment of the amount of income, excess-profits, or war-profits taxes due under any return made by or on behalf of said taxpayer for the years 1916 and 1917 under existing revenue acts, or under prior revenue acts.

This waiver of the time for making any assessment as aforesaid shall remain in effect until December 31, 1926, and shall then expire except that if a notice of a deficiency in tax is sent to said taxpayer by registered mail before said date and (1) no appeal is filed therefrom with the United States Board of Tax Appeals then said date shall be extended sixty days, or (2) if an appeal is filed with said Board then said date shall be extended by the number of days between the date of mailing of said notice of deficiency and the date of final decision by said Board.

(Signed) ALFRED J. DIESCHER,

Taxpayer.

D. H. BLAIR, CAD

Commissioner.

On or about February 6, 1926, the Commissioner mailed to petitioner the deficiency notice which is the basis for this proceeding. In the statement attached thereto additional tax in the amount of $40,262.72 was asserted, which together with the amounts of $4,698.96 and $41,709.04, assessed as additional taxes in March, 1923, and April, 1924, make up the total tax of $86,670.72, which is here in controversy.

The statement further shows that in his audit respondent determined profit accruing to the petitioner out of his aforesaid stock transaction upon a basis which fixed a value of the Kansas corporation stock at $100 per share and the Delaware corporation stock received at $160 per share; also, further profit to petitioner through the sale of 952 1/4 shares of the Delaware corporation stock during the year, which cost to petitioner was fixed at $160 per share. In the same letter the penalty in the amount of $97,486.40, which had been assessed April 2, 1925, was treated as an overassessment with the following explanation thereof attached:

The Solicitor of Internal Revenue has given further consideration to your case and holds that the penalty indicated in Bureau letter of April 2, 1924, should not be asserted.

On March 3, 1926, a certificate of overassessment abating the penalty assessment in the amount of $97,486.40 was issued to the petitioner.

OPINION.

LANSDON: Petitioner's first assignment of error raises the statute of limitations against the proposed assessment, also against the collection of the two prior assessments made March 20, 1923, and April 14, 1924, respectively, included in the deficiency asserted by respondent's audit letter dated February 6, 1926. The basic return in this case was filed March 29, 1918, and since each of the two assessments whose collection is thus challenged, was made prior to the effective date of the Revenue Act of 1924, they are governed by the five-year period of limitation then in effect. ; ; ; .

No proceedings having been instituted for the collection of either of these assessments before five years from the filing of said return, and the period of collection not having been waived, it follows that their collection is now barred. ; ; .

Petitioner's first assignment of error, in so far as it pertains to these prior assessments, must be sustained. In respect to the additional assessment of $40,262.72, proposed in the audit letter, authority is claimed by respondent for its assertion by virtue of the waiver executed October 21, 1925. The petitioner contends that this waiver having been executed long after the running of the statute of limitations, is void for the want of consideration; also that its execution was procured under duress and is, therefore, without binding force. Petitioner's first objection to this waiver must be overruled in view of our prior holdings sustaining waivers executed after the expiration of the statute. ; ; ; ; : ; ; .

Briefly summarized, the facts which the Board finds in connection with petitioner's contention that the waiver relating to his tax liability for 1917 was signed under duress are as follows: The tax return in question was timely filed on or about April 1, 1918. In the absence of waivers the statute of limitations tolled all liability thereon five years later or on or about April 1, 1923. In April, 1924, an agent of the Commissioner asked the petitioner to execute a waiver of the statutory time for assessing and collecting any additional tax liability for the years 1916 and 1917. This he refused to do, and following such refusal the agent then told the petitioner that unless he signed such a waiver a fraud penalty would be asserted and additional assessments based thereon would be made. Acting on advice of counsel the petitioner again refused to sign. A short time thereafter, the Commissioner held that the return for 1917 was false and fraudulent and made additional assessments of taxes and penalties in the respective amounts of $41,704.04 and $97,846.40. Later, and as a condition precedent to an office review of his tax liability for 1917, the charges of fraud in connection therewith, and the penalty imposed for such alleged fraud, the petitioner under protest and contrary to the advice of his attorney signed the waiver which he now contends was executed under duress and for that reason is void and invalid. After the waiver was signed the office review was had and on February 5, 1926, the Commissioner mailed the petitioner the letter which is the basis of this proceeding. In such letter it was stated that the fraud penalty assessed on April 2, 1924, should not be asserted and the amount thereof was abated and treated as an overassessment, but the deficiencies theretofore determined for 1917 were reasserted in the total amount of $86,670.72.

The respondent contends that the facts above set out do not show that the waiver in question was executed under duress. He argues that, inasmuch as the law afforded other means for a review of the legality of his acts in asserting and assessing a fraud penalty, he was not obliged to grant an office conference and that his refusal so to do would have deprived the petitioner of no advantage that he then enjoyed. It is true that the petitioner was not limited to an office review to secure relief. After the denial of his claim for abatement he could bring the matter before this Board or he could pay the assessments under protest and sue in the Federal district court for a refund. It is obvious that, if the controversies could be settled by an office conference or review, the petitioner would be saved the trouble and expense of adjudication before the Board or in the district court. The waiver was signed, the conference was held, and the Commissioner contends that as a result thereof the fraud charge was withdrawn and the penalty was abated and that the petitioner can not therefore maintain his averment that the waiver was not a voluntary act or that it was without consideration.

In modern jurisprudence the definition of duress has been enlarged much beyond the narrow limits recognized in the common law. It is now well settled that if an act of one party deprives another of his freedom of will to do or not to do a specific act the party so coerced becomes subject to the will of the other, there is duress, and in such a situation no act of the coerced person is voluntary and contracts made in such circumstances are void because there has been no voluntary meeting of the minds of the parties thereto. See, ; ; ; ; Nelson v. Suddarth (; ; ; .

In the instant proceeding it is obvious that in signing the waiver the petitioner was not acting with a free will, but was coerced by the will of the respondent.

If there was fraud the respondent needed no waiver, since the statute never runs against additional tax due on a false and fraudulent return wilfully made. In these circumstances it is clear that if the petitioner had paid the additional tax and penalty he could have recovered the amount so paid in an action at law. ; ; ; ; . It would seem very strange, therefore, that a document signed under similar pressure of circumstances could be a voluntary act and more binding than the payment of money. The parties to the waiver were not dealing with each other at arm's length and the only election enjoyed by the petitioner was the opportunity to choose what he believed to be the lesser of two evils. The waiver was signed under duress and is invalid. At the date of the deficiency notice herein the five-year period of limitation had run against the petitioner's liability for any additional 1917 taxes and the Commissioner on that date, there being no valid waiver in existence, was without authority to determine the deficiency here in controversy.

In view of our findings and the conclusions reached above, it is unnecessary to consider the remaining questions raised in the pleadings.

Reviewed by the Board.

Decision will be entered for the petitioner.

MURDOCK dissents.