United States v. Donovan

RECOMMENDED FOR FULL-TEXT PUBLICATION
Pursuant to Sixth Circuit Rule 206 2 United States v. Donovan No. 02-3260
ELECTRONIC CITATION: 2003 FED App. 0386P (6th Cir.)File Name: 03a0386p.06 DIVISION, APPELLATE SECTION, Washington, D.C., for
Appellant. Irving Bell, Cleveland, Ohio, for Appellee.
UNITED STATES COURT OF APPEALS _________________
FOR THE SIXTH CIRCUIT OPINION
_________________ _________________
UNITED STATES OF AMERICA , X BOGGS, Chief Circuit Judge. The United States appeals
- the order of summary judgment entered by the district court,
Plaintiff-Appellant, dismissing its complaint against Patrick Donovan, in which
-
- No. 02-3260 it sought to reduce to judgment certain tax assessments. For
v. - the following reasons, we reverse and remand to the district
> court so that it may enter summary judgment in favor of the
, government.
PATRICK M. DONOVAN , -
Defendant-Appellee. - I
N
Appeal from the United States District Court Donovan was a responsible officer at J.A. Clark
for the Northern District of Ohio at Akron. Mechanical, Inc. (“Clark”) during 1985 and 1986. Clark
No. 01-01457—James Gwin, District Judge. failed to pay certain employment tax liabilities that were
withheld from employees’ wages. The IRS determined that
Submitted: June 17, 2003 Donovan was a person responsible for Clark’s failure to pay
the withheld taxes, and that he willfully allowed other
Decided and Filed: October 31, 2003 creditors to be paid ahead of the government. The IRS made
an assessment against Donovan “for unpaid tax liabilities for
Before: BOGGS, Chief Circuit Judge; GILMAN, Circuit trust fund related penalties,” pursuant to I.R.C. § 6672. The
Judge; and MARBLEY, District Judge.* assessment was made on March 16, 1989 in the amount of
$154,570.13.
_________________
The government had ten years after assessment to bring suit
COUNSEL to collect the tax liability, unless an exception to the ten-year
statute of limitations existed. I.R.C. § 6502(a)(1). The statute
ON BRIEF: Robert J. Branman, David English Carmack, of limitations could be extended by an agreement in writing
UNITED STATES DEPARTMENT OF JUSTICE, TAX by the IRS and Donovan before the expiration of the ten-year
limit. I.R.C. § 6502(a)(2). Several months prior to March 16,
1999, the date the statute of limitations would expire,
Donovan made the IRS an offer in compromise on IRS Form
*
The Honorable Algenon L. Marbley, United States District Judge for
the Southern District of Ohio, sitting by designation.
1
No. 02-3260 United States v. Donovan 3 4 United States v. Donovan No. 02-3260
656. Form 656 contains an explicit agreement by which the judgment in favor of Donovan was proper. The government
statute of limitations is extended. timely appealed.
On April 18, 2000, Donovan sent the IRS a withdrawal of II
his offer in compromise. The IRS sent a return letter, dated
April 28, 2000, acknowledging the withdrawal of the offer, Summary judgment is appropriate when the evidence
stating that “[y]our offer is considered withdrawn as of submitted shows “that there is no genuine issue as to any
04/18/00.” material fact and that the moving party is entitled to a
judgment as a matter of law.” Fed. R. Civ. P. 56(c). The
On June 13, 2001, the government filed this suit. The total district court correctly concluded that no genuine issues of
amount due as of May 18, 2001 was $466,936.21. Donovan material fact remained, but that the sole question at issue was
filed a motion for summary judgment, arguing that the suit a question of law: when the statute of limitations began to
was barred by the statute of limitations. The district court run. This court reviews the grant of summary judgment de
entered summary judgment in favor of Donovan. novo, using the same standard as the district court. Cornist v.
B.J.T. Auto Sales, Inc., 272 F.3d 322, 326 (6th Cir. 2001).
The dispute centers on when the statute of limitations began
to run again: (1) on April 18, 2000, the date Donovan faxed The offer in compromise was memorialized on IRS Form
his letter withdrawing the offer, and the date the return letter 656. Form 656 contains several provisions relevant to this
indicated that his offer was considered withdrawn; or appeal. Item 8 outlines the conditions to which Donovan
(2) April 28, 2000, the date the IRS acknowledged the agreed by submitting the offer. Paragraph (e) of that item
withdrawal in writing. Donovan argues that the period the reads: “I/we waive and agree to the suspension of any
offer was pending ended on April 18, which would cause the statutory periods of limitation (time limits provided for by
statute of limitations to expire on June 4, 2001. The law) for IRS assessment and collection of the tax liability for
government argues that the period the offer was pending the tax periods identified in item (5).” Paragraph (m) reads:
expired on April 28, 2000, and that the statute of limitations “The offer is pending starting with the date an authorized IRS
ended on June 14, 2001. official signs this form and accepts my/our waiver of the
statutory periods of limitation. The offer remains pending
The district court stated in its opinion that Form 656 was a until an authorized IRS official accepts, rejects or
contract, and thus had to be interpreted under contract law. It acknowledges withdrawal of the offer in writing.” The
found that the terms were clear and unambiguous, and that immediately following paragraph, paragraph (n), reads: “The
there were no issues of fact to be determined. The court went waiver and suspension of any statutory periods of limitation
on to state that the contract’s interpretation required the court for assessment and collection of the amount of the tax liability
to discern the parties’ intent. It concluded that the intent of described in item (5), continues to apply: while the offer is
the parties was to interpret the agreement terms to comport pending (see (m) above) . . . and for one additional year
with the IRS’s standard practice, as the agreement was on an beyond each of the time periods identified in this paragraph.”
IRS standard form. The court concluded that IRS’s standard
practice was to consider the withdrawal of a settlement offer The government argues that the offer in compromise was
effective as of the date the taxpayer wrote his letter of “pending” until the withdrawal was acknowledged, and the
withdrawal. Therefore the suit was untimely and summary exact language of the acknowledgment letter does not affect
No. 02-3260 United States v. Donovan 5 6 United States v. Donovan No. 02-3260
the form waiving the statute of limitations. It cites the terms of Form 656. We find persuasive the government’s
language of paragraph (m), which reads: “The offer remains argument that the date of the effective withdrawal of the offer
pending until an authorized IRS official . . . acknowledges is a different matter from that of the date when the offer is no
withdrawal of the offer in writing.” It argues that some longer “pending” pursuant to paragraph (m). It may indeed
affirmative action by the government, accepting the offer, be true, as the district court states, that “the withdrawal of an
rejecting the offer, or acknowledging its withdrawal, is offer in compromise is effective as of the date the taxpayer
required in order to set the statue of limitations running again. writes his letter of withdrawal.” That judgment, however,
The government argues that the form letter sent to Donovan would be true as a matter of substantive contract law. See
contains the effective withdrawal date merely to indicate that Restatement (Second) of Contracts § 42 (1981). However,
the government can no longer accept the offer in compromise, the statute of limitations question turns on when the offer
and that this has nothing to do with when the statute of ceases to be “pending” under paragraph (m) of Form 656.
limitations begins to run again. The latter controls when the statute of limitations begins to
run again.
The question of whether the language of an agreement is
ambiguous is a question of law. Parret v. Am. Ship Bldg. Co., An objection could be made that the government could
990 F.2d 854, 858 (6th Cir. 1993). Once the language of a control and manipulate the statute of limitations simply by
contract has been held to be ambiguous, the interpretation of failing to acknowledge the withdrawal of an offer. That
such language is a question of fact that turns on the intent of argument, which we do not address here, could arise in a
the parties. Ibid. A court, however, may not use extrinsic future case if there appeared to be a factual basis for it. Here,
evidence to create an ambiguity; the ambiguity must be however, the government cannot possibly be charged with
“apparent on the face of the contract.” Schachner v. Blue unreasonable delay in sending an acknowledgment of the
Cross and Blue Shield of Ohio, 77 F.3d 889, 893 (6th Cir. withdrawal seven business days after receiving a letter
1996). withdrawing the offer in compromise.
The district court first found that the terms of the contract The district court erred in granting summary judgment to
were clear and unambiguous. Having done so, it was error for Donovan. The statute of limitations began to run again on
it to go on and attempt to discern the intent of the parties. April 28, 2000, the date of the acknowledgment in writing of
The intent of the parties is best determined by the plain the withdrawal of the offer in compromise. The suit is not
language of the contract. United States v. Hodgekins, 28 F.3d untimely.
610, 614 (7th Cir. 1994) (holding that extension of the statute
of limitations on IRS Form 2750 is given effect in accordance III
with its plain meaning).
For all of the reasons set forth above, we REVERSE and
While we recognize that Form 656 could have been more REMAND to the district court with instructions to enter
clearly drafted, and perhaps should be, the key language of summary judgment in favor of the government.
Form 656 – that the “offer remains pending until an
authorized IRS official . . . acknowledges the withdrawal of
the offer in writing” – is unambiguous on its face. The IRS
acknowledgment letter itself does not contradict the plain