B-141063, DECEMBER 14, 1959, 39 COMP. GEN. 438

B-141063, DECEMBER 14, 1959, 39 COMP. GEN. 438

CONTRACTS - SET-OFF - TAX DEBTS - JOINT VENTURES A JOINT VENTURE HAVING THE CHARACTERISTICS OF A LIMITED PARTNERSHIP, THE LAWS OF PARTNERSHIP ARE FOR APPLICATION; THEREFORE, THE GENERAL RULE THAT, IN AN ACTION BY A PARTNERSHIP TO RECOVER A DEBT, THE DEFENDANT CANNOT SET OFF AN INDIVIDUAL DEBT DUE HIM BY ONE MEMBER OF THE FIRM, IS FOR APPLICATION TO A FEDERAL TAX DEBT OF ONE OF THE PARTIES TO A JOINT VENTURE ENGAGED IN THE PERFORMANCE OF A GOVERNMENT CONTRACT WHICH DEBT AROSE INDEPENDENTLY OF THE CONTRACT SO THAT THE DEBT MUST BE REGARDED AS THAT OF THE INDIVIDUAL RATHER THAN THE JOINT VENTURE, AND AMOUNTS DUE THE JOINT VENTURE UNDER THE CONTRACT MAY NOT BE APPLIED TO THE TAX DEBT.

TO R. P. NEWSOM, DEPARTMENT OF THE ARMY, DECEMBER 14, 1959:

REFERENCE IS MADE TO A LETTER DATED OCTOBER 20, 1959, WITH ENCLOSURES, FROM THE OFFICE OF THE CHIEF OF FINANCE, FIELD DIVISION, INDIANAPOLIS, INDIANA, FILE NO. FINXE-B 167, FORWARDING YOUR REQUEST OF SEPTEMBER 22, 1959, FOR A DECISION AS TO WHETHER THE SUM OF $7,584.84 DUE N. RYAN COMPANY, INC., AND WESTBURY PAVING CORPORATION UNDER CONTRACT NO. DA-31- 075-ENG-657, MAY BE SET OFF AGAINST THE AMOUNT OWED THE GOVERNMENT BY WESTBURY PAVING CORPORATION FOR UNPAID WITHHOLDING AND FICA TAX ASSESSMENTS.

THE CONTRACT WAS ENTERED INTO ON MAY 26, 1958, BETWEEN THE UNITED STATES AND N. RYAN COMPANY, INC., AND WESTBURY PAVING CORPORATION, A JOINT VENTURE, FOR AN OUTFALL DITCH AT SEYMOUR JOHNSON AIR FORCE BASE, GOLDSBORO, NORTH CAROLINA. BY LETTER OF MAY 25, 1959, THE INTERNAL REVENUE SERVICE ADVISED THE DEPARTMENT OF THE ARMY THAT THE WESTBURY PAVING CORPORATION WAS INDEBTED TO THE UNITED STATES FOR WITHHOLDING AND FICA TAX ASSESSMENTS FOR THE SECOND, THIRD AND FOURTH QUARTERS OF 1957 AND THE FIRST QUARTER OF 1958, IN THE AMOUNT OF $6,718.49 PLUS ACCRUED INTEREST COMPUTED FROM THE DUE DATES TO THE DATE OF PAYMENT. THE INTERNAL REVENUE SERVICE REQUESTED THAT THE NECESSARY STEPS BE TAKEN TO WITHHOLD FROM ANY MONEYS DETERMINED TO BE DUE WESTBURY PAVING CORPORATION UNDER THE CONTRACT INVOLVED, AN AMOUNT SUFFICIENT TO LIQUIDATE ITS UNPAID TAX LIABILITY. THERE IS FOR CONSIDERATION THE PROPRIETY OF THE WITHHOLDING OF FUNDS DUE A JOINT VENTURE TO SATISFY THE INDEPENDENT PRIOR DEBT OF ONE OF THE JOINT VENTURERS.

A JOINT VENTURE HAS BEEN CHARACTERIZED AS A LIMITED PARTNERSHIP ( JONES V. WALKER, 101 N.Y.S. 22, 23), A PARTNERSHIP AD HOC ( CRAY, MCFAWN AND CO. V. HEGARTY, CONROY AND CO., 27 F.1SUPP. 93), AND IS SUBJECT, GENERALLY, TO THE LAWS OF PARTNERSHIP. JONES V. WALKER, SUPRA; KAUMANS V. WHITE STAR GAS AND OIL CO., 63 P.2D 231; KINCADE V. JEFFERY-1DE WITT INSULATOR CORP., 242 F.2D 328, 331. THE GENERAL RULE IS THAT IN AN ACTION BY A PARTNERSHIP TO RECOVER A DEBT, THE DEFENDANT CANNOT SET OFF AN INDIVIDUAL DEBT DUE TO HIM BY ONE MEMBER OF THE FIRM. EDMONDSON V. THOMASSON, 112 VA. 326, 71 S.E. 536; RUZICKA V. RAGER, 305 N.Y. 191, 111 N.E. 2D 878, 39 ALR 2D 288; UNITED STATES V. KAUFMAN, 267 U.S. 408.

THE DEBT HERE INVOLVED AROSE INDEPENDENTLY OF THE CONTRACT. N. RYAN COMPANY, INC., WAS CONNECTED IN NO WAY WITH THE CONTRACT UNDER WHICH THE DEBT AROSE. IN VIEW OF THE RULE STATED IN THE PRECEDING PARAGRAPH, IT APPEARS THAT ANY ACTION TAKEN TO EFFECT COLLECTION OF THE TAX INDEBTEDNESS OF WESTBURY PAVING CORPORATION BY WITHHOLDING MONEYS OWED BY THE UNITED STATES TO THE JOINT VENTURERS UNDER THE CONTRACT INVOLVED WOULD BE OF DOUBTFUL LEGAL VALIDITY.

THE VOUCHER AND ACCOMPANYING PAPERS ARE RETURNED, AND YOU ARE ADVISED THAT IN THE CIRCUMSTANCES THE VOUCHER MAY BE CERTIFIED FOR PAYMENT TO N. RYAN COMPANY, INC., AND WESTBURY PAVING CORPORATION IN THE AMOUNT OF $7,584.84, IF OTHERWISE CORRECT.

WE ARE SENDING A COPY OF THIS DECISION TO THE COMMISSIONER OF INTERNAL REVENUE SERVICE AND YOU MAY WISH TO WITHHOLD PAYMENT ON THE VOUCHER INVOLVED IN ORDER TO AFFORD THAT OFFICE AN OPPORTUNITY TO CONTACT YOUR OFFICE. A COPY OF OUR LETTER TO THE COMMISSIONER IS ENCLOSED.