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Curry v. United States

October 14, 1985

HAROLD D. CURRY AND MAGDALENE CURRY, PLAINTIFFS-APPELLANTS,
v.
UNITED STATES OF AMERICA, DEFENDANT-APPELLEE



Appeal from the United States District Court for the Southern District of Indiana, Indianapolis Division. No. 83 C 1563, Hugh S. Dillin, Judge.

Author: Wood

Before WOOD and EASTERBROOK, Circuit Judges, and DUMBAULD, Senior District Judge.*fn*

WOOD, Circuit Judge.

These two hardworking taxpayers of modest combined income have gotten themselves into an unusual tax fix which we cannot remedy for them.

Harold Curry worked at a truck terminal, his wife Magdalene as a secretary; together they earned about $25,000 a year. In order to supplement their salaries they opened their own part-time business on the side. This business, known as HD Curry Truck and Tire Repair, offered emergency service to those suffering flat tires. A job ticket was prepared for each tire repaired. From time to time the Currys sent their customers invoices reflecting the total of the job tickets, and any amounts still owing from prior invoices. The Currys concede their bookkeeping, recordkeeping, and bank records were a bit deficient and disorganized.

Believing that they did not owe any taxes on their tire business, the Currys did not file personal income tax returns for a number of years. In 1979, however, they became concerned about their failure to file, took their records to their accountant, and asked him to prepare returns for the years missed, including 1975 and 1976, the years pertinent to this appeal.

After taking a look at the pile of disorganized job tickets and invoices, the accountant, a CPA, assigned the project to a staff accountant. The staff accountant arrived at a gross income figure using only the invoices and ignoring the job tickets. Because many of the invoices contained amounts due from prior invoices this approach resulted in double counting of many receipts and thus greatly overstated gross income.

When the Currys took a look at the 1975 and 1976 returns they immediately recognized that the profit figures did not reflect the true state of their flat tire business. They contacted their accountant who advised that since the returns were late the Currys should file them as prepared and later file amended returns to straighten it out.

For 1976 the original return reflected a $47,880 profit from their part-time tire business. Even after taking into account what had been withheld from their salaries, the return indicated that the Currys owed $20,442. The amended return, however, showed not only that the Currys did not owe any additional tax, but also that they were entitled to a refund from what had been withheld.

Similarly, for 1975 the original return showed a substantial flat tire business profit of $23,805. The amended return showed a substantial loss entitling the Currys to a refund of some of the amounts witheld [sic] from their salaries. Combined, the 1975 and 1976 amended returns showed that the Currys were entitled to a refund of approximately $8,400.

Upon receipt of the amended returns the IRS decided to perform an audit. But when the IRS arrived at the accountant's office to perform the audit the accountant could not locate the Currys' records, apparently having lost them during a recent office move. Without records to audit the IRS did not approve the refund nor issue a notice of deficiency for what was shown to be due on the original returns.*fn1

The Currys wanted to contest the denial of the refund, but since the IRS had not issued a notice of deficiency they could not proceed in the Tax Court. See I.R.C. § 6521; Rule 13, Rules of Practice and Procedure of the United States Tax Court (May 1, 1979). They therefore filed for refund in the federal district court where notice of deficiency is not a jurisdictional prerequisite. The government filed a motion to dismiss for lack of subject matter jurisdiction arguing that the district court lacked jurisdiction under 28 U.S.C. § 1346(a)(1) because the Currys had not prepaid the approximately $60,000 in taxes shown to be owed on their original returns. Judge Dillin granted the government's motion to dismiss. We affirm.

28 U.S.C. § 1346(a)(1) provides that

(a) The district courts shall have original jurisdiction, concurrent with the ...


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