                                                                                                                           Opinions of the United
1994 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit


10-4-1994

Freck v. IRS
Precedential or Non-Precedential:

Docket 93-7007




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                  UNITED STATES COURT OF APPEALS
                      FOR THE THIRD CIRCUIT

                           ___________

                           No. 93-7007
                           ___________


                 LUCY FRECK, a/k/a Lucy Cameron,
                                     Appellant

                                  v.

                    INTERNAL REVENUE SERVICE,
                                     Appellee

                           ___________

          Appeal from the United States District Court
             for the Middle District of Pennsylvania
                (D.C. Civil Action No. 90-02141)

                           ___________

           Submitted Under Third Circuit LAR 34.1(a)
                         July 21, 1993


    PRESENT:   STAPLETON, HUTCHINSON and ROTH, Circuit Judges

                     (Filed October 6, 1994)

                           ____________

Lucy Freck
P.O. Box 411
Gilbert, PA     18331
               Pro Se Appellant

Michael L. Paup, Esquire
  Acting Assistant Attorney General
James J. West, Esquire
  United States Attorney
Gary R. Allen, Esquire
Gilbert S. Rothenberg, Esquire
Curtis C. Pett, Esquire
United States Department of Justice
Tax Division
P.O. Box 502
Washington, DC       20044
                 Attorneys for Appellee
                             ____________

                       OPINION OF THE COURT
                           ____________


HUTCHINSON, Circuit Judge.



          Appellant, Lucy Freck ("Freck"), a/k/a Lucy Cameron,

appeals pro se a judgment the United States District Court for
the Middle District of Pennsylvania entered against her and in

favor of the United States on her claims for refunds of income

taxes the Internal Revenue Service ("IRS")1 collected for 1978,

1979, and 1980.2   During each of these three tax years, Freck and

a man named William Cameron ("Cameron") signed and filed joint

income tax returns.   When Freck signed these returns, she thought

that she was Cameron's common law wife but neither New York nor

New Jersey, the only two states in which Freck and Cameron

cohabitated, recognize common law marriage.   Freck seeks refund

of a payment of $32,500.00 that a lawyer remitted to IRS out of a

settlement fund due her and her current husband, Stephen Freck,

without instruction as to its application.    The fund arose from

1
 . The caption to this case lists Internal Revenue Service as
appellee. Neither the Commissioner of the IRS nor the IRS is
necessarily the proper party to a suit. See Brennan v.
Commissioner, 581 F. Supp. 28, 29 (E.D. Mich.) (amending caption
to read United States), aff'd, 752 F.2d 187 (6th Cir. 1984);
Krouse v. United States Gov't Treasury Dep't, 380 F. Supp. 219
(C.D. Cal. 1974).
2
 . The district court entered judgment against Freck on the
merits of her 1978 refund claim and dismissed Freck's claims for
refunds for years 1979 and 1980 for lack of subject matter
jurisdiction. Freck v. I.R.S., 810 F. Supp. 597, 601-02 (M.D.
Pa. 1992).
an unrelated state lawsuit settled in 1988.   IRS contends it was

entitled to the settlement funds by virtue of tax liens arising

out of taxes assessed against Cameron and Freck on income

attributable to Cameron for tax years 1978, 1979 and 1980 and, in

the absence of instructions, that it was entitled to credit the

payment first to interest and principal for the earliest years or

in the manner most advantageous to the government.   The district

court concluded that Freck could not qualify for relief from the

assessment under 26 U.S.C.A. § 6013(e)(1) (West Supp. 1994) as an

innocent spouse because she was never married to Cameron.    It

then accepted IRS's argument that she was equitably estopped from

asserting she was not liable for taxes on Cameron's income

because of IRS's reliance on her innocent misrepresentation that

Freck was Cameron's wife in giving him the benefit of the lower

joint rates he was not entitled to as a single person during

taxable years now closed.

          Freck contends the settlement funds were paid to IRS by

her adversary's counsel without her knowledge and that she had no

opportunity to tell IRS how to apply them.    She also argues that

if she is barred from claiming an "innocent spouse" exemption

under 26 U.S.C.A. § 6013(e)(1)3 because her common law marriage


3
.   This exemption provides:

          (e) Spouse relieved of liability in certain
          cases.--

               (1)       In general.--Under regulations
               prescribed by the Secretary, if--
is not recognized by New York or New Jersey, she should be

allowed to amend her returns to reflect her status as a single

taxpayer for her own 1978, 1979 and 1980 tax years, all of which

do remain open.4
(..continued)
                    (A) a joint return has been made
                    under this section for a taxable
                    year,

                    (B) on such return there is a
                    substantial understatement of tax
                    attributable to grossly erroneous
                    items of one spouse,

                    (C) the other spouse establishes
                    that in signing the return he or
                    she did not know, and had no
                    reasons to know, that there was
                    such substantial understatement,
                    and

                    (D) taking into account all the
                    facts and circumstances, it is
                    inequitable to hold the other
                    spouse liable for the deficiency in
                    tax for such taxable year
                    attributable to such substantial
                    understatement,

          then the other spouse shall be relieved of
          liability for tax (including interest,
          penalties, and other amounts) for such
          taxable year to the extent such liability is
          attributable to such substantial
          understatement.

26 U.S.C.A. § 6013(e)(1).
4
 . A tax year may be closed by virtue of the statute of
limitations or res judicata. Generally, the amount of any tax
imposed must be assessed within three years after the return was
filed, unless there has been a substantial omission from gross
income in which case the tax may be assessed within six years
after the return was filed. See 26 U.S.C.A. §§ 6501(a),
6501(e)(1)(A) (West Supp. 1994). After these statutory periods
of limitations have run, the tax year is closed for purposes of
          The district court found the payment made on Freck's

behalf was voluntary but failed to make any finding as to whether

Freck had an opportunity to exercise her right to direct the

application of that payment.    We believe a taxpayer who

volunteers a payment should be given an opportunity to tell IRS

how to allocate her payment against any unsatisfied assessments

against her.   Therefore, we will remand the case for further

proceedings so the district court can make a finding on whether

Freck had that opportunity.    Because of IRS's strict insistence
(..continued)
tax assessment unless certain stringent requirements, not
applicable to this case, are met under 26 U.S.C.A. §§ 1311-14
(West 1988) (allowing government to correct error made in prior
closed tax year).

    A claim for credit or refund of an overpayment of any tax for
which the taxpayer is required to file a return must be filed
within three years from the time the return was filed or two
years from the time the tax was paid, whichever is later. If no
return was filed by the taxpayer, the claim for a refund must be
filed within two years from the time the tax was paid. See id.
§ 6511(a).

    Freck's 1978, 1979 and 1980 tax years are open because IRS
assessed the tax within six years after the returns were filed,
and Freck sought a refund within two years after paying the
assessment. However, it was not until after the statute of
limitations had run on the prior years that IRS discovered Freck
and Cameron were not married. Therefore IRS is time-barred from
recalculating the taxes Cameron would have owed under the higher
rate IRS contends should have been applied. Brief for Appellee
at 33. IRS produced no evidence showing how much it lost by
relying on Freck's innocent misrepresentation of her status as
Cameron's spouse. Freck testified it was about $6,250.00. IRS's
allocation of the payment left Freck with taxes of about
$15,000.00 still due instead of about $2,500.00 that would still
be due if the payments had been allocated as she wished. It also
left her with a liability for $32,000.00 in interest that IRS
continues to accrue on the $15,000.00 balance of tax that it
claims. See infra notes 6 & 9 for original deficiencies and
balances due after IRS allocation.
on its legal right to allocate the payment made on Freck's behalf

in the manner most advantageous to the government and so leave

Freck with a large and ever-growing liability for an assessment

of tax and interest on income that was not hers, we also believe

the district court should not have accepted IRS's equitable

estoppel argument without considering whether IRS's appeal to

equity was foreclosed by the equitable maxim that he who desires

equity must be willing to do equity.



                                 I.

            Freck and Cameron lived together in New Jersey and New

York for about ten years, from 1972 until 1982.     Neither state

recognizes common law marriages, and Freck and Cameron never took

steps to legitimize their relationship through any type of formal

ceremony.   They did have three children.    Cameron was the sole

breadwinner for all five members of his family.     He started his

business career as a "runner" on the New York Commodity Exchange.

In 1980, he incorporated the "L and B" Trading Corporation ("L

and B") to conduct business as a commodities trader.     He was "L

and B's" sole stockholder.

            IRS has been unable to produce the filed original of

Freck's and Cameron's returns for any of the years in question.

At trial, it offered what appears to be a copy of the 1978 tax

return on which Freck's signature appears as Lucy Cameron.       The

district court admitted the copy.     IRS does not have either

originals or copies of Freck's or Cameron's returns for 1979 and
1980, but records it also offered and admitted at trial indicate

that joint returns were filed for these years.

            Freck could not recall signing the tax returns but

testified at trial she would probably have done so if Cameron had

asked her to.    Freck took no part in managing the family's

finances beyond handling the basic household expenses out of an

allowance Cameron provided her.    Freck also said that if she did

sign the joint returns for 1978, 1979, and 1980, she would have

accepted the figures Cameron presented to her without any reason

to believe they were false.

            In October of 1979, Freck and Cameron purchased a home

at 9 Euclid Avenue, Ridgefield Park, New Jersey.    They made a

$7,000.00 down payment and financed the $50,000.00 balance with a

mortgage.    Freck testified that she became aware that Cameron was

experiencing financial difficulties as a result of his trading on

the commodities exchange sometime during that year.    By 1981,

Cameron was in arrears on periodic payments due on the mortgage

and delinquent on the real estate taxes assessed against the

home.

            On their 1978 tax return, Cameron reported a gross

income of $13,200.00 and, improperly using the joint rates,

claimed a refund of $703.00.    In 1979, Freck and Cameron received

a refund of $89.00, again with the improper benefit of the joint

rates.   In 1980, they reported a tax liability of $15,125.00 but

failed to pay it.    The district court found Freck acted

innocently without any intent to mislead IRS.
          In 1982, Freck and Cameron separated.   Freck continued

to reside at the 9 Euclid Avenue address; Cameron moved to 173

Martin Avenue, Staten Island, New York.   On February 23, 1983,

Freck and Cameron sold a two-thirds interest in the residence at

9 Euclid Avenue to Freck's brother and sister-in-law and a one-

third interest to Freck's brother Thomas, for a total of

$62,500.00.   Freck and her three children continued to reside at

9 Euclid Avenue, and Thomas later transferred his one-third

interest in the property back to Freck.

          Cameron's abandonment of his family forced Freck and

her children to go on welfare in April 1983.   They remained on

the welfare rolls until January 1986, but Freck attended college

during this time, and in 1986 she obtained full time employment

as a secretary.   In April 1987, Freck married Stephen Freck.     The

Frecks took up residence at 9 Euclid Avenue.

          In 1983 IRS performed an audit and recalculated Freck

and Cameron's tax liabilities, using the rates applicable to

joint returns, as follows:


1978      corrected taxable income   $32,510.00
               tax deficiency                      $ 7,118.005

1979      corrected taxable income   $61,255.00
               tax deficiency                      $19,778.00




5
 . The IRS also assessed a fraud penalty of $3,559.00 against
Cameron for the 1978 tax year. No fraud penalty was assessed
against Freck.
1980      corrected taxable income   $36,158.00
               tax deficiency                      $ 8,274.00

                          Total Deficiencies       $35,170.006



See Appendix ("App.") at 35, 38.

          On December 9, 1983, IRS sent Freck and Cameron a

statutory notice of deficiency by certified mail addressed to 173

Martin Avenue and sent a copy of the notice to 9 Euclid Avenue,

also by certified mail.   The notice mailed to 173 Martin Avenue,

Cameron's last known address, was returned to IRS marked "return

to sender, moved left no address."   Freck admits that she resided

at 9 Euclid Avenue in December 1983 but denies receiving the

notice of deficiency.   When neither Cameron nor Freck paid the

deficiencies or filed a timely petition for review by the Tax

Court, see 26 U.S.C.A. §§ 6213-14, 7442 (West 1989), IRS assessed

the deficiencies pursuant to section 6213(c) and, in June 1987,

filed a notice of federal tax lien against 9 Euclid Avenue

pursuant to 26 U.S.C.A. §§ 6321, 6323(f) (West 1989 & Supp.

1994).
          That same year, Freck became involved in a dispute with

the brother and sister-in-law who had jointly acquired record

title to a two-thirds undivided interest in the 9 Euclid Avenue

property as a result of the 1983 sale.   They filed an action in

state court against the Frecks and her other brother Thomas.     The

parties agreed to settle this case in September 1988.   Under the

6
 . IRS's allocation of the $32,500.00 payment left Freck still
owing about $15,000.00 in taxes. See supra note 4 and infra
note 9.
settlement, the Frecks were to receive $40,000.00 in exchange for

whatever interest they had in the 9 Euclid Avenue property.7

          On September 27, 1988, Mark Winkler, Esquire of the law

firm of Woodcock & Kingman mailed IRS a check for $32,500.00 from

the settlement fund in exchange for a release of the tax lien

against the property. The letter stated:
               Pursuant to our conversation [today]
          enclosed please find a certified check in the
          amount of $32,500 concerning Lucy Freck and a
          copy of the closing statement.

               As we discussed, upon receipt of the
          check you will release the discharge of 9
          Euclid Avenue, Ridgefield Park, New Jersey as
          recorded in Federal Lien Book 166 at page
          130, and the lien will be cancelled of record
          as to this property.



App. at 47.   The record contains a copy of a check dated

September 27, 1988 made out to IRS in the amount of $32,500.00

drawn on a bank account held by Woodcock & Kingman.    The closing

statement is not part of the record before us, and neither the

letter nor the check reveal who Woodcock & Kingman represented.

          Nevertheless, the district court found that Freck

voluntarily made the payment to IRS through counsel.    It noted


7
 . Freck alleges that $20,000.00 of this sum was to be paid to
her and the remaining $20,000.00 was to be paid to Stephen Freck.
Stephen Freck is not a party to the action. Freck does not
explain why her brother Thomas was not entitled to a share of the
$40,000.00, and the record does not explain the means by which
Thomas's interest passed to the Frecks. The district court,
however, states that in Freck's brief she explained that "at some
point, Thomas [] transferred his one-third interest in the Euclid
Avenue property to Lucy Freck." Freck, 810 F. Supp. at 600; see
also Brief of Appellant at 3.
that the issue of whether Freck had been given an opportunity to

tell IRS how to allocate the payment had been raised during the

bench trial but the court did not consider either the legal

effect of any lack of opportunity to allocate a voluntary payment

or make any finding of fact as to whether Freck had any such

opportunity.   In any event, Winkler gave no specific directions

to IRS about how this amount was to be applied in his letter

forwarding the Woodcock & Kingman certified check.

          The IRS applied $19,435.19 of the $32,500.00 against

penalties and interest it had accrued on the 1978 tax assessment

and the principal assessed for that year, fully discharging

Freck's liabilities for that year.   The remaining $13,064.81 was

then applied to Freck's 1979 tax assessment.   IRS's records

indicate that this left a balance for 1979 of about $39,000.00

still outstanding against Freck as of December 31, 1991, made up

of approximately $7,000.00 in taxes plus approximately $32,000.00

in penalties and interest for that year.8   None of the $32,500.00


8
 . On appeal, IRS's brief notes that as of January 16, 1992,
Freck owed $39,782.12 for 1979 and $31,477.54 for 1980. Brief
for Appellee at 15 note 2. It is not possible to determine
independently from the record on appeal the amount and nature of
the individual penalties involved. Presumably the 1979 and 1980
liabilities continue to grow as interest accrues on the reduced
balance. Assessments are generally presumed valid and establish
a prima facie case of liability against a taxpayer, see United
States v. Janis, 428 U.S. 433, 440-41 (1976); Welch v. Helvering,
290 U.S. 111, 115 (1933); Psaty v. United States, 442 F.2d 1154,
1158-61 (3d Cir. 1971). A taxpayer in a refund action has the
burden of showing they are incorrect, id., but we are not certain
how an inability or failure on IRS's part to balance its figures
or explain why it cannot do so affects the assessments'
presumptive validity.
was left to apply to Freck's 1980 tax assessment of $7,827.00 or

penalties and accrued interest on the 1980 deficiency.9

           Following Winkler's remittance of the $32,500.00

payment to IRS, Freck's counsel, Robert Fee, filed amended

returns seeking a refund on Freck's behalf for the years 1978,

1979, and 1980.   On these returns, Freck contended that her

correct filing status was single and that she herself had no

taxable income during any of these years.   She therefore sought a

$32,500.00 refund for the tax year 1978, $50.00 for 1979 and

$50.00 for 1980.10   Freck also asserted that she was not aware

that any tax deficiency had been asserted against her until July

1990 when an IRS auditor in Allentown, Pennsylvania reviewed her

1978 refund claim for $32,500.00 and denied it.

          After IRS denied Freck's refund claims, she filed this

action in district court pursuant to 28 U.S.C.A. § 1346(a)(1)

(West 1993) to recover the $32,500.00 Attorney Winkler had sent

IRS.   The court granted Freck permission to proceed in forma

pauperis on January 25, 1991.   IRS filed its answer on May 3,

1991 and, on February 10, 1992, moved to dismiss Freck's action.

9
 . Thus, after Freck had paid $32,500.00 against taxes of about
$35,000.00 on income attributable to the man who deserted her,
IRS asserts, on the basis of an equitable doctrine, that its
reliance on an incorrect misstatement, on which the evidence on
the record shows it lost approximately $5,200.00, justifies it in
collecting from Freck about $47,000.00 more in principal and
interest as of December 31, 1991 with simple interest on a
$15,000.00 balance of principal continuing to accrue. See also
supra notes 4 & 6.
10
 . Freck remitted the additional $50.00 for 1979 and $50.00 for
1980 when she filed the amended returns.
In its answer, it also alleged that it was unable to locate

Cameron.   Freck opposed IRS's motion to dismiss.   On June 26,

1992, the court issued an order denying IRS's motion to dismiss.

           A bench trial began on August 6, 1992, and on

December 3, 1992, the court entered judgment against Freck and in

favor of the United States.   In an accompanying memorandum

opinion, the court concluded that it lacked jurisdiction over

Freck's 1979 and 1980 refund claims because Freck was only

entitled to bring a refund action in district court for the years

in which she had fully paid the tax assessed against her.      Freck,

810 F. Supp. at 601-02 (citing Flora v. United States, 362 U.S.

145 (1960)).   Therefore, the court limited its merits analysis to

Freck's refund claim for tax year 1978.   Id.   It found that Freck

had innocently signed the joint returns Cameron presented to her,

but concluded she was not eligible for relief under section

6013(e)(1) as an innocent spouse because she was not married to

Cameron under applicable state law.   Id. at 602-03.   On

principles of equitable estoppel, the court then upheld IRS's

argument that Freck's innocent misrepresentation of her joint

filing status with Cameron prevented her from amending her

returns to reflect her single status because the innocent

misrepresentation induced IRS to accept less tax from Cameron

than he would have owed filing singly.    Id. at 603-04.    Finally,

the district court found that IRS had met the requirements of

section 6212 of the Tax Code by sending a statutory notice of

deficiency to Freck by certified mail.    Freck's failure to
receive it became immaterial under the statute because the notice

was mailed to her last known address.   Id. at 604.

           Freck filed a timely notice of appeal.     The district

court's subject matter jurisdiction is dependent on 28 U.S.C.A.

§ 1346(a)(1).   We have appellate jurisdiction over the district

court's final order pursuant to 28 U.S.C.A. § 1291 (West 1994).



                                II.

           On appeal, Freck argues that the district court erred

when it concluded that it only had jurisdiction for the tax year

1978.   She contends that if she had been given an opportunity to

tell IRS how to allocate the $32,500.00 payment, she would have

told it to apply the payment to the tax owed for the years 1978,

1979 and 1980 exclusive of penalties and interest.     She asserts

the $32,500.00 payment would have covered all the tax owed for

1978 and 1979 plus part of the tax owed for 1980 and the district

court would therefore have had jurisdiction over her refund claim

for 1979 as well as her claim for 1978.11   We have plenary review

over the district court's ruling that it lacked subject matter

jurisdiction.   Bumberger v. Insurance Co. of North Am., 952 F.2d

764, 766 (3d Cir. 1991).12

11
 . Freck appears to argue that such an application could also
have covered her 1980 tax deficiency, but the record indicates
that the $32,500.00 payment would not have covered the principal
amounts assessed against her for all three years. See also supra
notes 6 & 9.
12
 . We note that our preliminary inquiry into jurisdiction also
tends to require some preliminary inquiry into the merits of
Freck's argument on allocation of the $32,500.00 payment.
                               III.

          Section 1346(a)(1) provides:
               (a) The district courts shall have
          original jurisdiction . . . of:

                    (1) 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[.]



28 U.S.C.A. § 1346(a)(1) (in relevant part).   In Flora, the

United States Supreme Court held that section 1346(a)(1) requires

a tax assessment to be paid in full for the year for which a

refund is claimed before a district court can gain subject matter

jurisdiction over the refund claim for that year.13   Flora, 362

U.S. at 150, 163; see also Psaty v. United States, 442 F.2d 1154,

1158 (3d Cir. 1971).   Because IRS decided to apply the $32,500.00
payment first to interest, penalties and tax for the earliest

year, 1978, the 1979 assessment against Freck has not been fully


13
 . If a party does not make full payment of a particular tax
assessment, he or she can only challenge the assessment in the
Tax Court. To do so, however, the taxpayer must file her Tax
Court petition within ninety days of the date IRS sent its
statutory notice of deficiency. See 26 U.S.C.A. § 6213(a) (West
Supp. 1994). The taxpayer's failure to receive a notice properly
mailed to the taxpayer's last known address does not extend or
toll the ninety days. See Tadros v. Commissioner, 763 F.2d 89,
91-92 (2d Cir. 1985). Here, the ninety days is long past, and
thus Freck has no remedy absent full payment of the assessed tax.
discharged and no credit at all has been given against the 1980

assessment.

          Freck contends that she should have had an opportunity

to tell IRS how to allocate the $32,500.00 pursuant to Revenue

Ruling 73-305.14   She claims that Woodcock & Kingman, the law

firm which made the payment to IRS, did not represent her and did

not give her an opportunity to tell IRS how to allocate her

voluntary payment to the deficiencies for the years in question.

She also contends that IRS intentionally took the money directly

from Woodcock & Kingman so that Freck would not have a chance to

allocate the payment.15   She argues that if she had the chance,

she would have told IRS to apply the payment solely to the tax

assessed against her instead of interest and penalties and that


14
 .   Revenue Ruling 73-305 states, in pertinent part:

          A partial payment of assessed tax, penalty,
          and interest made by a cash method taxpayer
          with directions as to its application will be
          so applied. A partial payment on assessed
          deficiencies . . . received without
          instructions for its application will be
          applied to tax, penalty, and interest in that
          order, starting with the earliest
          period. . . .

Rev. Rul. 73-305, 1973-2 C.B. 43. IRS seems to have followed
this ruling in allocating the payment on Freck's behalf, even
though it now seems to contend allocation should be governed by
Revenue Ruling 79-284, 1979-2 C.B. 83, which IRS argues gives it
discretion to allocate partial payments in whatever manner best
serves the government.
15
 . Freck also states IRS itself did not know what her
deficiencies for 1979 and 1980 were at that time, nor did it tell
her so that she could have made an informed allocation of the
payment if she had been given the opportunity.
her tax liabilities for both 1978 and 1979 would have been

extinguished.   According to Freck, only the principal amount of

any annual income tax assessment, and not penalties or interest

thereon, need be paid in full in order to give a district court

subject matter jurisdiction over a refund claim for any

particular year pursuant to 28 U.S.C.A. § 1346(a)(1).    Brief for

Appellant at 12-13 (citing Kell-Strom Tool Co. v. United States,

205 F. Supp. 190, 193-94 (D. Conn. 1962) (Flora does not require

payment of interest, only payment of tax assessed)).16    Thus, if

Freck had been given a chance to allocate the payment the

district court found voluntary, as she now says she would, IRS

would have had to apply the $32,500.00 to principal for all three

years instead of first to the interest, penalties and principal

that had accrued for 1978.   The district court would then have

had jurisdiction over Freck's 1979 refund claim as well as the

1978 claim.17

16
 . The IRS does not specifically argue to the contrary on
appeal, and the cases it cites hold only that a taxpayer must pay
the full amount of a tax assessment before the taxpayer may seek
a refund of the tax in district court. See, e.g., Rocovich v.
United States, 933 F.2d 991, 993 (Fed. Cir. 1993) (district court
had no jurisdiction over estate's refund action where estate had
only paid part of assessed estate tax before bringing action,
absent limited exceptions not available here); Curry v. United
States, 774 F.2d 852, 854 (7th Cir. 1985) (district court had no
jurisdiction over taxpayer's refund action where taxpayer had
failed to pay assessed tax in full before bringing action);
Ardalan v. United States, 748 F.3d 1411, 1413 (10th Cir. 1984)
(same); Psaty v. United States, 442 F.2d 1154, 1158-59 (3d Cir.
1971) (holding taxpayer must pay full amount of indivisible tax
assessment or penalty before taxpayer can challenge its validity
in district court).
17
 . Freck's argument on allocation would not affect the 1980
assessment. Accordingly, the district court could still lack
            IRS, relying on various revenue rulings, contends it

has an absolute right to decide how any partial payment shall be

applied as against interest, penalties or principal unless the

taxpayer specifically directs the manner in which a voluntary

partial payment is to be applied.    When a taxpayer, for whatever

reason, fails to specify how a payment should be applied, IRS

says it has discretion to allocate the payments "to tax, penalty,

and interest in a manner serving the best interest of the

Service."    Rev. Rul. 79-284, 1979-2 C.B. 83.   Conceding a

taxpayer's right to tell it how to allocate a voluntary partial

payment, IRS goes on to assert that the taxpayer must specify the

allocation she desires at the time the payment is made to IRS.

            The cases IRS cites do not deal with the argument Freck

advances; namely, whether a taxpayer whom IRS has deprived of a

contemporaneous opportunity to specify how a voluntary payment

should be allocated at the time it is made may later require IRS

to reallocate the payment.    These cases do not hold that the

failure to specify the allocation desired at the time the payment

is forwarded is invariably fatal; rather, they hold that a

taxpayer who makes a payment without telling IRS how to allocate

(..continued)
jurisdiction over that claim. Nevertheless, if Freck were
successful in her argument that she is not equitably estopped
from refiling as a single person for 1978, issue preclusion could
come into play because that holding could preclude IRS from
challenging Freck's status in suits over the other years.
Accordingly, if Freck is not equitably estopped from claiming
single filer status in 1978, her right to a refund for that year
invalidates the 1978 assessment, leaving the $32,500.00 fully
available against the 1979 and 1980 assessments, which could also
be invalidated under principles of issue preclusion.
it may not later require IRS to reallocate the payment in a

manner more favorable to the taxpayer.     Our research has not

uncovered any cases addressing the narrow issue of whether a

failure to specify an allocation contemporaneously with the

payment automatically destroys the right to allocate when IRS has

obtained funds from a third party without giving the taxpayer an

opportunity to tell that third party how the payment should be

applied.

             Although the district court found that Freck's payment

was voluntarily made and that she did not designate how the

payment was to be allocated, it did not determine whether Freck

had an opportunity to tell IRS how to allocate the payment

pursuant to Revenue Ruling 73-305, even though it acknowledged

this issue was raised by the parties during the bench trial.

Freck, 810 F. Supp. at 602 n.8.     If Freck made the payment

voluntarily, we think she should have been given some opportunity

to allocate it as she wished under either Revenue Ruling 73-305

or 79-284.    See United States v. Pepperman, 976 F.2d 123, 127 (3d

Cir. 1992) (recognizing longstanding IRS policy allowing taxpayer

to allocate voluntary payments but not involuntary payments).

             There is no evidence in the record to support the

district court's finding that Winkler was Freck's attorney.       The

only evidence concerning who Winkler represented was Freck's

testimony that he represented her brother and sister-in-law and

that her counsel was John Analin.    In light of Freck's testimony

and the district court's silence on the issue of Freck's

opportunity to specify the allocation of the payment, we believe
this case should be remanded to the district court so that it can

determine in the first instance whether Freck had an opportunity

to direct IRS on the allocation of her voluntary payment.

          In the event the district court decides that Freck had

an opportunity to tell IRS how to allocate the $32,500.00 payment

but simply failed to do so or chose not to, it may also become

necessary for it to reconsider the equitable estoppel issue this

case raises.   All of the parties to this case as well as the

court itself agree that Freck's misrepresentation was "innocent"

because she did not know she was misrepresenting her marital

status when she signed the joint returns and she did not know the

returns were materially incorrect.18   The determination of
18
 . Because Freck was acting innocently and in good faith in
signing the tax returns, we have trouble understanding the basis
for the award of penalties against her, another matter on which
the record is unclear. We recognize that the penalties were not
imposed for filing a fraudulent or false return, or for
improperly signing the return as a joint return. Moreover,
because Freck signed the return jointly, she is presumably
jointly responsible for paying the tax deficiency that IRS
assessed for the 1978-1980 tax years. IRS mailed Freck a notice
of deficiency and thus, an addition to the tax, a penalty may
have been imposed because she did not pay the deficiency assessed
within ten days of the date of notice and demand. See 26
U.S.C.A. § 6651(a)(3) (West Supp. 1994). Such penalties
decrease, however, as payments of the deficiency are made because
section 6651(b)(3) requires that the tax due, the amount upon
which the penalty is imposed, should be reduced from month to
month as part payments of the tax are made. See id. Under the
Internal Revenue Code applicable to this case, the IRS could also
have imposed a 5% penalty if Freck had negligently filed her tax
return, see 26 U.S.C.A. § 6653(a) (1989) (since amended), or a
75% penalty if Freck had filed the return with fraudulent intent.
See 26 U.S.C.A. § 6653(b) (1989). It might also have advanced a
right to impose a 25% liability if Freck's return substantially
understated income tax. See 26 U.S.C.A. § 6661 (1989). These
penalty provisions were revised in 1989. Act of Dec. 19, 1989,
Pub. L. No. 101-329, 103 Stat. 2395 (codified as amended at 26
U.S.C.A. §§ 6651-6665 (West Supp. 1994)). Presently the IRS may
whether Freck was a "spouse" entitled to innocent spouse relief

is governed by the laws of the state of the marital domicile of

the parties.    See generally Boyer v. Commissioner, 732 F.2d 191,

194 (D.C. Cir. 1984), cert. denied, 469 U.S. 1114 (1985); Estate

of Buckley v. Commissioner, 37 T.C. 664, 672 (1962).   Thus, IRS

is legally correct in its contention that Freck is not entitled

to claim the "innocent spouse" exemption because her common law

marriage is not recognized under the laws of the states of New

York and New Jersey.   See N.J. Stat. Ann. § 37:1-10 (West 1968)

(common law marriages invalid after 1939); Parkinson v. J&S Tool

Co., 313 A.2d 609 (N.J. 1974); N.Y. Dom. Rel. Law § 11 (McKinney

1994); Ram v. Ramharack, 571 N.Y.S.2d 190, 191 (N.Y. Sup. Ct.

1991).

            IRS, after relying on strict legal arguments concerning

its right to allocate the partial payment made on Freck's behalf,

resorts to equitable principles of estoppel to prevent Freck from

denying she was a "spouse" and to preclude her from amending her

tax returns to reflect her own corrected legal status as a single

taxpayer.   If Freck did have an opportunity to instruct IRS how

to apply the payment Winkler made, IRS would be legally correct

in insisting on its right to allocate that payment strictly in

the government's best interest without regard to the effect on

Freck, but in that case it seems to us that IRS's dual argument

(..continued)
impose a 20% penalty for inaccurate returns resulting from
negligence, a disregard of rules or regulations or a substantial
understatement of income tax. 26 U.S.C.A. § 6662 (West Supp.
1994).
that Freck then is estopped from denying she was Cameron's

spouse, even though she cannot claim innocent spouse status, is

not only unfairly inconsistent but fundamentally inequitable.19

Based on a loss of $5,200.00, it seeks to invoke an equitable

estoppel against Freck that will cost her not only the $32,500.00

already paid but will leave her still owing $47,000.00 as of

December 31, 1991 with interest on a balance of about $15,000.00

in principal continuing to accrue.20

          Under these circumstances, before accepting IRS's

argument on behalf of the sovereign federal government, it seems

appropriate for the district court to consider the old equitable

maxims, "He who seeks equity must do equity," which the

chancellors used to apply when they sat as the conscience of a

sovereign king.   We realize, of course, that equitable principles

do not generally preclude IRS from collecting taxes that are

legally owed.   See Office of Personnel Management v. Richmond,

110 S. Ct. 2465, 2469 (1990); Bokum v. Commissioner, 992 F.2d

1136, 1141 (11th Cir. 1993) (citing Heckler v. Community Health

Serv., 467 U.S. 51, 60 (1984)); Keado v. United States, 853 F.2d

1209, 1271-18 (5th Cir. 1988).   We think, however, that these

cases are distinguishable from Freck's case because here IRS

itself relies on equitable principles to collect taxes from Freck

that are not attributable to her income.

19
 . The parties have not raised the doctrine of judicial
estoppel. Therefore, we have no occasion to consider its
application to IRS's seemingly inconsistent arguments.
20
 .   See supra notes 4, 6 & 9.
          If the district court concludes Freck did have an

opportunity to allocate the $32,500.00 payment and that it is

nevertheless appropriate to estop Freck from claiming she was not

married to Cameron, it may also wish to consider whether IRS

should be limited to recovering the difference between Cameron's

tax liability as a single filer and the liability it incorrectly

assessed against him because Freck innocently misrepresented the

couple's right to a joint filing status.    Cf. Restatement

(Second) of Contracts § 90 cmt. d; Bechtel v. Robinson, 886 F.2d

644, 647 (3d Cir. 1989).   Freck claims these differences total

only $1,159.00 for tax year 1978 and $5,194.00 for the full three

years.   IRS has not itself pointed to any other evidence in this

record that would show what amounts Cameron would have owed for

closed years if IRS were limited to reliance damages.



                               IV.

          We will vacate the district court's order entering

judgment against Freck and in favor of the United States and

remand for further proceedings consistent with this opinion.




TO THE CLERK:

          Please file the foregoing opinion.



                                           Circuit Judge
                           October 5, 1994




TO:          P. Douglas Sisk, Clerk

FROM:       Judge Hutchinson

RE:         Freck v. IRS
            No. 93-7007


Dear Doug:



            I enclose the opinion in the above captioned matter for

filing.   The signed original is being forwarded to your office

today by mail.



                                  Sincerely,



                                  William D. Hutchinson
WDH:jam
Enclosure

cc. Judge Stapleton (letter only)
    Judge Roth (letter only)
    Patricia McCafferty, Asst. Systems Manager (letter only)
