348 F.2d 746

UNITED STATES of America, Plaintiff-Appellee, v. Clarence J. PRINCE, Defendant-Appellant.

No. 438, Docket 29517.

United States Court of Appeals Second Circuit.

Argued May 27, 1965.

Decided July 13, 1965.

*747George F. Lynch, Dept, of Justice, Washington, D. C. (Louis F. Oberdorfer, Asst. Atty. Gen., Lee A. Jackson and David 0. Walter, Dept, of Justice, Washington, D. C., Joseph P. Hoey, U. S. Atty. for the Eastern Dist. of New York and William N. McKee, Jr., Asst. U. S. Atty., on the brief), for plaintiff-appellee.

Robert Conrad, New York City (Goldwater & Flynn, New York City, on the brief), for defendant-appellant.

Before LUMBARD, Chief Judge, and SMITH aud KAUFMAN, Circuit Judges.

J. JOSEPH SMITH, Circuit Judge.

This is an appeal by taxpayer from summary judgment in favor of the United States, entered in the United States District Court for the Eastern District of New York, John F. Dooling, Judge, in an action to collect income taxes assessed for the years 1945 and 1946, including fraud penalties and interest. We conclude that summary judgment was properly entered for the tax assessments and interest thereon, and affirm that portion of the judgment. We conclude that genuine issue as to material facts exists as to the fraud penalties and reverse the judgment so far as it reflects fraud penalties and interest thereon and remand for trial of this issue.

Appellant taxpayer signed a Form 870-AD agreement, entitled “Offer of Waiver of Restrictions on Assessments and Collection of Deficiency in Tax and of Acceptance of Overassessment,” which was subsequently accepted by the Commissioner of Internal Revenue. Under that agreement, taxpayer’s assessments for delinquent taxes for the years 1945 and 1946 were adjusted downward by about 60%, and it was specifically provided therein that if the offer was accepted by the Commissioner, as it was, the case would not be reopened in the absence of fraud, malfeasance, concealment or misrepresentation of material fact, or an important mistake in mathematical calculation. The proposal also stated that it was not drawn under 26 U.S.C. § 7121 which authorizes final closing agreements.

Following non-payment by appellant of the assessments, the Government instituted suit to effect their collection. The Government thereupon moved for an order granting summary judgment for the amount of the assessments plus interest. The District Court, Dooling, D. J., granted summary judgment on the ground that taxpayer did not bring forward any evidence or indicate the existence of specific facts which could suggest that the amounts of taxes and penalties assessed were not due. Taxpayer had stated in his opposing affidavit that he had signed the Form 870-AD in blank to assist his attorney in effecting a settlement and that he had never consented to the assessments that were presumably agreed upon. But, as the District Court noted, these allegations did not impeach the validity of the form, but simply demonstrated taxpayer’s dissatisfaction with the result of entrusting his affairs to counsel. Aside from finding that taxpayer’s affidavit raised no material issues of fact, the court also held (contrary to the Government’s contentions) that the signed 870-AD proposal did not constitute a simple contract because it was not drawn under § 7121 and because there were present no elements of estop-*748pel to preclude taxpayer from disputing the existence of a contract.

We agree with Judge Dooling on the issues of contract and estoppel. We agree further that taxpayer’s affidavit raised no genuine issue of fact as to the validity of the underlying assessment, which is presumptively correct. We hold, however, that this presumption does not apply to the fraud penalties, that the Government’s burden to make out a prima facie case of fraud is not met and that a genuine issue remains for trial. On the showing here, partial summary judgment for the tax assessments and interest thereon was justified, but on the issue of the fraud penalties and interest thereon taxpayer was entitled to a trial.

The tax assessments were presumptively correct. Welch v. Helvering, 290 U.S. 111, 115, 54 S.Ct. 8, 78 L.Ed. 212 (1933). Prince’s affidavit in opposition to the Government’s motion for summary judgment was merely a series of conclusory denials without factual support. “I have denied * * * that I owe any taxes whatsoever”; “I never agreed to the figures”; “I did not consent to the assessment.” The Government’s moving papers showed that the income taxes sought to be collected were duly assessed but not paid. Prince concedes that he signed the waiver form. Even if at the time he signed it, the figures were omitted from the form, as Prince claims, the printed language of the form waived the prior issuance of a notice of deficiency. Prince’s mere conclusory denials did not meet his burden of alleging facts showing that the assessments were erroneous. 9 Mertens, Federal Income Taxation, § 50.61. United States v. Lease, 346 F.2d 696 (2 Cir. 6/9/1965). Mere formal denials and allegations should be pierced upon Rule 56 motions and cannot forestall the award of summary relief. Rule 56(e) as amended1 requires the party opposing summary judgment to “set forth specific facts showing that there is a genuine issue for trial.” The purpose of this amendment was to strengthen the weapon of summary judgment as a device to screen out sham issues of fact. Dressler v. M. V. Sandpiper, 331 F.2d 130 (2 Cir. 1964). So far as the judgment reflected the tax assessments themselves and interest thereon it was therefore well founded.

The situation differs, however, as to the portion of the judgment reflecting the fraud penalties and interest thereon. The assessment of fraud penalties concededly carries no presumption of validity, the burden of proof on this issue resting on the Government both under the Code, 26 U.S.C. § 74542 and the cases, Paddock v. United States, 280 F.2d 563 (2 Cir. 1960); Clark v. C. I. R., 266 F.2d 698 (9 Cir. 1959).3 The Government’s moving papers furnish no factual basis for a finding that the burden is met.

*749The Government’s alternative claims that the entire judgment may be sustained either under a theory of simple contract or a theory of estoppel are not persuasive. We do not write on a clean slate in applying simple contract offer and acceptance theory to the actions of taxpayer and Internal Revenue Service with respect to Form 870-AD, for the Congress has circumscribed the dealings of taxpayer and government representative in the Code, § 71214 and § 7122,5 the requirements of which are not met by Form 870-AD. United States v. Ellis, 264 F.2d 325 (2 Cir. 1959), affirming 154 F.Supp. 32 (S.D.N.Y.1957).6 Nor would the taxpayer be barred from disputing the fraud penalty figures in the Form on any estoppel theory, since, as Judge Dooling pointed out below, far from relying on it “the Government has consciously chosen, in adjusting the tax liabilities involved, that the adjustment shall not be a final closing agreement.” Moreover, on any estoppel theory, issues would exist of justifiable reliance and detriment (the Government concedes, as it must, that if fraud exists there is no statute of limitations on additional assessments) not resolved on the moving papers which would make summary judgment on that basis inappropriate. See Morris White *750Fashions v. United States, 176 F.Supp. 760 (S.D.N.Y.1959).

Judgment affirmed as to amount of tax assessments and interest thereon, reversed and remanded for trial as to fraud penalties and interest thereon.

United States v. Prince
348 F.2d 746

Case Details

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United States v. Prince
Decision Date
Jul 13, 1965
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348 F.2d 746

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United States

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