Appeal from the United States District Court for the Northern District of Illinois, Eastern Division - No. 74 C 497 ABRAHAM LINCOLN MAROVITZ, Judge.
Castle, Senior Circuit Judge, Tone, Circuit Judge, and Grant, Senior District Judge.*fn*
This tax refund action presents the issue of whether one who is not liable for a tax but pays it to remove a lien against his property may sue for a refund under 28 U.S.C. § 1346(a) (1). We answer in the negative, as did the District Court. On the other major issue in the case, we reverse a summary judgment and order a trial on the applicability of the "innocent spouse" provision of 26 U.S.C. § 6013(e).
Plaintiff and her husband were divorced on August 26, 1971, at which time the divorce court found that the couple's total assets had a value of approximately $400,000. About half this amount was cash the husband had obtained by secretly liquidating a corporation owned by the couple and by appropriating the contents of joint bank accounts and other assets. These funds were secreted by the husband and have never been found, despite the government's diligent efforts. The divorce court awarded plaintiff one-half the couple's assets, ordering the husband to convey $25,000 in cash and certain property, free of encumbrances. The husband was also ordered to "save the plaintiff harmless" from any income tax claims or liens.
Four months before the entry of the divorce decree, the Internal Revenue Service assessed deficiencies based on transferee liability against the husband for unpaid taxes owed by the corporation. $554.52 was assessed for 1967 and $3,780.22 for 1968. After entry of the decree, a deficiency of $19,511.04 was assessed against plaintiff and her husband jointly for the tax on the income realized by the husband in liquidating the business in 1968.*fn1 After the entry of the divorce decree, the government filed tax lien notices on the basis of these assessments.
Included in the property transferred to plaintiff under the divorce decree was the family house, title to which was encumbered by tax liens resulting from the assessments described above. She sold the house to raise cash and, in order to deliver a clear title, paid the taxes.
Besides failing to discharge the tax liens, plaintiff's husband had failed in other respects to comply with property settlement provisions of the divorce decree. Alleging claims against him totaling at least $88,000, she filed suit in a state court alleging that he had secretly transferred $60,000 to his sister. In settlement of this suit, plaintiff released all her claims against her husband and his sister, in return for $42,500. A consent decree incorporating these terms was entered.
After her claims for refund of the taxes she had paid were denied by the IRS, plaintiff filed this action. Jurisdiction was based on 28 U.S.C. § 1346(a)(1), which applies to
"[any] civil action against the United States for the recovery of any internal-revenue tax alleged to have been erroneously or illegally assessed or collected, or any penalty claimed to have been collected without authority or any sum alleged to have been excessive or in any manner wrongfully collected under the internal-revenue laws."
The government filed a third-party complaint against plaintiff's husband.
The District Court ruled that it lacked jurisdiction over the claim for refund of the transferee tax and granted summary judgment against plaintiff on the claim for refund of the 1968 joint tax. The government's third-party complaint was dismissed. We affirm the District Court on the jurisdictional question, but reverse the summary judgment on the 1968 joint tax and direct reinstatement of the third-party claim.
The assessment of the transferee tax is not challenged. The issue is whether plaintiff, who was not personally liable for the tax but paid it to remove an encumbrance from the title to her land, can sue for a refund of the payment. Both parties agree that only "the taxpayer" can bring a refund suit ...