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KOEHNEMANN v. UNITED STATES

November 10, 1970

RENARD A. KOEHNEMANN, PLAINTIFF,
v.
UNITED STATES OF AMERICA, DEFENDANT.



The opinion of the court was delivered by: Will, District Judge.

MEMORANDUM OPINION

This is a suit for refund of federal excise taxes and penalties allegedly overpaid for the first quarter of 1963. The United States has counterclaimed for certain additional federal excise taxes and penalties, together with statutory interest thereon which has been assessed, but remains uncollected, for the period 1959 to 1965. Both parties have submitted the cause for disposition on Cross Motions for Summary Judgment pursuant to Rule 56 of the Fed.R.Civ.P. Jurisdiction is present under 28 U.S.C. § 1346(a)(1).

Only two issues are now before the court for determination. The first is whether or not the sale of wedding bands bearing liturgical symbols is exempt from the federal excise tax imposed under Section 4001 of the Internal Revenue Code of 1954. The second is whether or not plaintiff is foreclosed from raising the argument that his failure to file excise tax returns was due to reasonable cause.

The relevant facts are as follows. Plaintiff is a jeweler by trade and became involved in the sale of religious books, medals and related items in 1946. From 1948 through 1966 plaintiff specialized in the design and manufacture of chalices, altar vessels and so-called liturgical wedding bands. It is uncontested that the wedding bands created by plaintiff were of original design and engraved with liturgical symbols of the sacrament of Christian marriage. Moreover, these bands were impressed with religious quotations and it is argued that the exemption of articles "used for religious purposes" is applicable because of these symbols and quotations.

During an audit of an individual who supplied materials to the plaintiff, the Internal Revenue Service (IRS) discovered that the plaintiff had never prepared or filed excise tax returns respecting his wedding bands sales. The IRS ascertained that the taxpayer owed excise taxes under Section 4001 of $6,480.38 on his sales of wedding bands during the period 1959 to the second quarter of 1965, inclusive. That amount, plus interest thereon of $2,639.02 and penalties of $1,620.14 under Section 6651 of the Internal Revenue Code, was assessed against plaintiff on September 27, 1968. On October 29, 1968, plaintiff-taxpayer paid $73.79, which constituted satisfaction of the assessed tax, interest and penalty respecting the first quarter of 1963. Plaintiff initiated his refund claim in this Court on February 10, 1969.

The Commissioner of Internal Revenue authorized the assertion of a counterclaim in this proceeding in the amount of $8,069.42 plus interest. By virtue of certain sales estimates submitted by plaintiff, a revised excise tax deficiency, penalties and interest thereon was assessed. The parties have stipulated, therefore, that if this Court rules in plaintiff's favor on the motion for summary judgment, the proper amount of the judgment to be entered against defendant is $73.79 plus interest thereon from October 29, 1968, and if defendant prevails on all grounds, the proper amount of the judgment to be entered against plaintiff is $4,933.35 representing tax, and $1,249.74 representing penalty, plus interest.

The gravamen of plaintiff's lawsuit is that his sale of so-called liturgical wedding bands is exempt from the excise tax imposed under Section 4001 of the 1954 Internal Revenue Code.*fn1 Defendant argues that such sales are not exempt.

Section 4001 of the Internal Revenue Code of 1954 (26 U.S.C.) provides in pertinent part as follows:

Sec. 4001 IMPOSITION OF TAX

    There is hereby imposed upon the following articles
  sold at retail a tax equivalent to 10 percent of the
  price for which so sold:
    All articles commonly or commercially known as
    jewelry, whether real or imitation.
    Articles made of, or ornamented, mounted or fitted
    with precious metals or imitations thereof.

This section imposes an excise tax on the retail sale of all articles "commonly or commercially known as jewelry." See, also, Section 48.4001-2(a) of The Manufacturers and Retailers Excise Tax Regulations which provides in part:

  * * * jewelry in general includes articles designed
  to be worn on the person or on apparel for the
  purpose of adornment and which in accordance with
  custom or ordinary usage or ...

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