Court of Claims.
*126 *127 F. W. McReynolds, of Washington, D. C., for plaintiff.
John W. Hussey, of Washington, D. C., and Charles B. Rugg, Asst. Atty. Gen. (H. C. Clark, of Washington, D. C., on the brief), for the United States.
Before BOOTH, Chief Justice, and LITTLETON, WHALEY, WILLIAMS, and GREEN, Judges.
LITTLETON, Judge.
The question in this case is whether the plaintiff may maintain this action to recover an additional tax for 1918 of $3,962.38 paid April 6, 1927, and $729.73, offered and accepted April 12, 1927, in compromise of a 5 per cent. penalty of $198.12 and interest of $1,439.45 on the deficiency, or either of such amounts.
It is urged by the plaintiff, first, that there was no valid compromise since collection of the deficiency, penalty, and interest was barred by the statute of limitation at the time payment was made; second, that the deficiency in tax was not a part of the compromise, and that the statement in the offer that the tax had been paid "without recourse" was without significance; third, that the amount paid in compromise of the penalty and interest is also refundable, inasmuch as liability for the tax was extinguished before the offer in compromise of the penalty and interest was made and the amount thereof paid in 1927; and, fourth, that, since the tax and interest in question were paid after being barred, they must be refunded under section 607 of the Revenue Act of 1928 (26 USCA § 2607), regardless of the compromise agreement.
We are of the opinion that the offer of compromise and its acceptance by the Commissioner, with the approval of the Secretary of the Treasury, finally closed the case, and that plaintiff may not maintain this action to recover the additional tax or the amount paid in lieu of the penalty and interest. The additional *128 tax of $3,962.38 was made a part of the compromise agreement, in which the plaintiff stated that he had paid this tax "without recourse." It is evident from the language of the offer in compromise that its acceptance by the Commissioner was conditioned upon payment of the tax without recourse; the plaintiff's agreement in that regard having become a part of the contract, it must be given effect. Hennessy v. Bacon, 137 U.S. 78, 85, 11 S. Ct. 17, 19, 34 L. Ed. 605; Ely & Walker Dry Goods Co. v. United States (C. C. A.) 34 F.(2d) 429; Parish & Bingham Corp. v. United States (Ct. Cl.) 44 F.(2d) 993; Zemurray v. United States, 64 Ct. Cl. 657; Herbert Du Puy v. United States, 67 Ct. Cl. 348; Lyons v. Fitzpatrick, 52 La. Ann. 697, 27 So. 110. In Hennessy v. Bacon, supra, which involved a compromise, it was stated that "such a settlement ought not to be overthrown, even if the court should now be of opinion that the party complaining of it surrendered rights that the law, if appealed to, would have sustained."
We are unable to agree with the plaintiff that the compromise was invalid because collection of the tax, penalty, and interest was barred at the time paid and compromised. Both plaintiff and the defendant considered that, under section 278 (d) of the Revenue Act of 1924 (26 USCA § 1061 note), the government had six years from the date of the timely assessment in March, 1924, within which to make collection. Plaintiff now insists that the demand of the government was wholly without legal right and was not disputable. We cannot agree that the matters made the subject of the compromise were not disputable.
At the time of the compromise, the highest courts passing upon the question of the government's right to collect had held, in such cases, that, when the limitation period for assessment expired after the date of the enactment of the revenue act of 1924 and assessment of the tax had been timely made, the government had six years from the date of the assessment in which to enforce collection. In November, 1927, this conclusion was reached by the Circuit Court of Appeals, Fifth Circuit, in United States v. Russell et al., 22 F.(2d) 249. The question was not settled until January 2, 1929, by the decision in the case of Russell et al. v. United States, 278 U.S. 181, 49 S. Ct. 121, 73 L. Ed. 255.
In Burnet v. Chicago Railway Equipment Co., 282 U.S. 295, 51 S. Ct. 137, 140, 75 L. Ed. 349, the court said: "Whether or not the Commissioner would have been liable to the taxpayer for a collection made as the result of a jeopardy assessment in 1925, we need not determine. He clearly had the power to make such assessment and thereby compel the filing of a claim for abatement and the giving of a bond, or, if such claim and accompanying bond were not filed, to make collection and relegate respondent to an action at law. In the absence of a determination that this deficiency was barred, it was the Commissioner's duty to proceed to insure the assessment and collection of the tax. * * *" The fact that the parties misconstrued the law did not render the compromise invalid.
Plaintiff insists that section 607 of the Revenue Act of 1928 (26 USCA § 2607) specifically requires the refund of any tax, interest, or penalty paid after the period of limitation properly applicable thereto, if a timely claim is filed. We are of opinion, however, that this section does not apply in a case where the tax, penalty, and interest, paid after the expiration of the period of limitation, were the subject of a compromise agreement.
Plaintiff urges that, if the compromise of April 12, 1927, included the settlement of the additional tax, the first compromise of the penalty for delinquency, July 28, 1921, also included the settlement of the tax liability for 1918, and that the government was thereafter precluded from assessing and collecting any additional tax, penalty, and interest. The record, however, does not justify this conclusion. Plaintiff filed a claim for abatement specifically against the penalty for failure to file a return within the time required. He was advised that the claim would be rejected, but that he had the privilege of submitting an offer of $5 in compromise of the penalty. Accordingly, an offer in that amount was submitted in lieu of the penalty of 25 per cent. of the tax assessed upon the return, which offer was accepted and the penalty was abated. No investigation and audit of the return had been made, and nothing was said in the offer or in the acceptance thereof to indicate that either party intended finally to settle the tax liability.
The petition must be dismissed. It is so ordered.
