Lumbard, Chief Judge, Smith, Circuit Judge, and Levet, District Judge.*fn*
Julius Ruderman brought this refund suit to recover interest charges assessed against him as transferee of the assets of D.I. Stone Co., Inc., and paid under protest.*fn1 The district court denied the claim and we affirm that denial.
All the facts have been stipulated. During the years 1943-1945, Ruderman was the president and 50% stockholder of D.I. Stone Co., Inc., a New York corporation engaged in the manufacture and sale of ladies blouses.*fn2 Wishing to maintain production despite wartime shortages, Stone purchased some of its material on the black market at prices above the O.P.A. maxima. The illegal purchases were not recorded on Stone's books and, when the finished products were sold, some of the sales were not recorded either. The receipts from these unrecorded sales were retained by Ruderman and allegedly disbursed in amounts approximating the total unrecorded sales receipts. The corporation took no corresponding income tax deduction.
On March 2, 1954, a statutory notice of deficiency (90-day letter) was sent to Stone for taxes plus penalties aggregating $356,035.40, attributable to the unreported sales during the years 1943-1945.*fn3 On the same day, 90-day letters were sent to Ruderman and his wife for taxes plus penalties for the year 1943 aggregating $18,058.92*fn4 and to Ruderman alone for taxes plus penalties aggregating $56,396.28 for the years 1944-1945,*fn5 attributable to Ruderman's alleged receipt of distributions from Stone, in the nature of dividends, which were not reported as income.*fn6
Ruderman and Stone petitioned the Tax Court for a redetermination of the alleged deficiencies.*fn7 Prior to the taking of testimony, the question of offsets or allowances for cash actually paid to the suppliers was raised by the court. Since the Commissioner had allowed nothing for these payments even though Ruderman had alleged that they approximated the total unrecorded sales income, the court suggested an adjournment to determine whether a compromise and settlement could be effected.
The parties held several conferences concerning the matters then before the Tax Court as well as the question of Ruderman's transferee liability and, on May 27, 1956, the parties entered into stipulations that Stone was liable for taxes plus penalties aggregating $205,943.40*fn8 and that Ruderman was personally liable for taxes plus penalties aggregating $30,980.54.*fn9 These stipulations were filed with the Tax Court on June 1, 1956 and a decision was entered accordingly.
On the same day the parties entered into the above stipulations, Ruderman's counsel attempted to dispose of the alleged transferee liability by submitting a Form 870-AD*fn10 wherein it was proposed that the entire transferee liability alleged against Ruderman be reduced to $62,072.70.
After the Form 870-AD was executed by the parties, an audit statement was prepared by the I.R.S. and forwarded to Ruderman. On August 3, 1956, Ruderman was notified that there had been assessed against him, as transferee of Stone's assets, taxes and fraud penalties totaling $62,072.70*fn11 plus interest in the amount of $24,077.40 computed from the respective due dates of the 1944 and 1945 income tax returns of Stone to the date of assessment which was August 3, 1956.
Ruderman made payments in complete discharge of his personal and transferee liability. Payment of the $24,077.40 which had been asserted as interest on the transferee liability was made under written protest. On November 9, 1961, Ruderman filed claims for refunds of the payments made on the interest charges and then commenced two actions for refunds which were later consolidated for trial.
Ruderman first argues that the government's acceptance of his offer to settle the transferee liability constituted a compromise and settlement or an accord and satisfaction of the total liability under New York law, and thus, no interest charges could be asserted against him. The district court held that "the parties had contemplated the payment of interest as allowed by law" and had not intended the government's acceptance of the Form 870-AD to preclude either further claims by the government or challenges thereto by Ruderman. We agree.
United States v. Prince, 348 F.2d 746 (2 Cir. 1965) is authority for the proposition that the nature of the Form 870-AD agreement is a matter of federal rather than state law. We held in Prince that the Form 870-AD is neither a closing agreement nor is it a compromise*fn12 and that the government may assert further liability subsequent to its acceptance of the Form.
Ruderman's second argument is that "actual fraud," a sine qua non to the government's assertion of interest liability, was not shown, and thus the interest charges are not permissible. The district court held that on the basis of the stipulated facts, Ruderman's participation in the fraud as determined by New York law could be inferred and that interest was properly chargeable.
Both plaintiff and the government agreed in the district court that the question of whether Ruderman, as transferee, was liable for interest was dependent upon New York law. The government concedes in its brief that it is bound here by that concession with the caveat that it "wishes to leave the issue open for other cases." Accordingly, on the ...