Graham v. Du Pont - 262 U.S. 234 (1923)
U.S. Supreme Court
Graham v. Du Pont, 262 U.S. 234 (1923)
Graham v. Du Pont
Argued April 30, 1923
Decided May 21, 1923
262 U.S. 234
1. Under § 3224, Rev.Stats., federal taxing officers who, in the course of general jurisdiction over the subject matter, have made an assessment and claim that it is valid cannot be enjoined from collecting the tax upon the ground that the assessment is illegal. P. 262 U. S. 254.
2. One who would contest the validity of a federal tax upon the ground that the assessment and the right to distrain were barred by a statutory time limitation should pay the tax and sue to recover it, and not seek relief by a suit to enjoin the Collector from distraining for the tax. P. 262 U. S. 255.
3. Under § 252 of the Revenue Act of 1918, reenacted in the Revenue Act of 1921, a taxpayer whose return of income was due March 15, 1916, and against whom an additional assessment was made December 31, 1919, could pay the amount of the assessment, make his claim therefor, and, if that were rejected, have at least until March 15, 1921, within which to sue to recover back the payment. P. 262 U. S. 256.
4. A taxpayer cannot, by delaying payment of an assessment until his right to sue to recover it back is barred by limitations, make a case so extraordinary and entirely exceptional as to render Rev.Stats., § 3224, inapplicable to his suit to enjoin collection by distraint. P. 262 U. S. 256. Lipke v. Lederer, 259 U. S. 557; Hill v. Wallace, id., 259 U. S. 44, and other cases distinguished.
5. A taxpayer whose income return for the year 1915 was filed before March 15, 1916, and who was assessed additionally December 31, 1919, and, on March 8, 1920, filed a claim for abatement
of such assessment as void, because not made within the statutory time limit therefor and because made on a dividend of corporate shares which were not income (involving a question afterward determined adversely in United States v. Phellis, 257 U. S. 156) held entitled under § 252 of Revenue Act 1921, and § 3226, Rev.Stats., as amended by Revenue Act of March 4, 1923, c. 276, 42 Stat. 1504, to pay the tax assessed, bring suit to recover it back, and, in such suit, to raise questions as to the value of the stock and the amount of resulting tax, and also as to whether the assessment was barred by statutory time limitation. P. 262 U. S. 258.
284 F. 1017 reversed.
This is a proceeding by certiorari to review the action of the circuit court of appeals of the Third Circuit in affirming on appeal a temporary injunction granted by the district court of Delaware restraining the then Collector of Internal Revenue for the District of Delaware from levying a distraint against the property of the complainant, Alfred I. Dupont, to collect the sum of $1,576,015.06 assessed against him by the Commissioner of Internal Revenue.
In a reorganization of a Dupont Powder Company of New Jersey and the organization of a new Dupont Powder Company of Delaware to take over many of the assets of the old company, the complainant, in the year 1915, received 75,534 shares of the common stock of the Delaware company of the par value of $100 each. The transaction was the subject of consideration by this Court in United States v. Phellis, 257 U. S. 156, where it was determined that shares in the Delaware company received by stockholders of the New Jersey company, as the complainant received his at the rate of two in the Delaware company in exchange for one in the New Jersey company, was a separation of past accumulation of profits from the capital of the New Jersey company and a distribution to the stockholders, and thus constituted taxable income under the Income Tax Law of 1913.
The complainant filed a return and an amended return
in March, 1916, of his income for the year 1915, in which he did not include these shares. In November, 1917, the department began an investigation into the liability of the complainant to pay an income tax on his shares of stock in the Delaware company, and finally ordered an assessment of $1,576,015.06. The complainant was notified of this assessment made December 31, 1919. He replied the next day that as his return for 1915 was filed before March 15, 1916, and as the law required any assessment for additional amount to be made within three years, and that period had expired, the assessment and demand for payment were illegal. On February 2, 1920, a hearing was granted to counsel for complainant by the Commissioner of Internal Revenue.
On March 8, 1920, complainant filed a claim for the abatement of the assessment of $1,576,051.06 as void, because made after the limitation of three years had expired, and because the tax was on something that was not income under the law.
Thereafter, by agreement between the stockholders similarly situated, one stockholder, Phellis, paid the tax due under a similar assessment and brought suit in the Court of Claims to recover it. Counsel for the complainant herein took part in the argument of that case. The Court of Claims gave judgment against the United States, but, on appeal, the judgment was reversed. The opinion of the court was handed down November 21, 1921. All claims for abatement had been held and not decided by the Commissioner under an agreement with the counsel in the Phellis case. Thereafter the Commissioner rejected complainant's claim for abatement. The bill of complainant was filed January 30, 1922. The district court granted the temporary injunction. The circuit court of appeals, on appeal, affirmed the temporary injunction for the reasons stated in the opinion of the district court.