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
Page 262 U. S. 235
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
Page 262 U. S. 236
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.
Page 262 U. S. 254
MR. CHIEF JUSTICE TAFT delivered the opinion of the Court.
Section 3224, Revised Statutes, provides that "no suit for the
purpose of restraining the assessment or collection of any tax
shall be maintained in any court." In
Cheatham v. United
States, 92 U. S. 85,
92 U. S. 88;
State Railroad Tax
Cases,
Page 262 U. S. 255
92 U. S. 575,
92 U. S. 613,
and in
Snyder v. Marks, 109 U. S. 189,
109 U. S. 193,
it was said that the system prescribed by the United States in
regard to both customs duties and internal revenue taxes of
stringent measures, not judicial, to collect them, with appeals to
specified tribunals and suits to recover back moneys illegally
exacted, was a system of corrective justice intended to be
complete, and enacted under the right belonging to the government
to prescribe the conditions on which it would subject itself to the
judgment of the courts in the collection of its revenues. In the
exercise of that right, it declares by paragraph 3224 that its
officers shall not be enjoined from collecting a tax claimed to
have been unjustly assessed when those officers, in the course of
general jurisdiction over the subject matter in question, have made
the assessment and claim that it is valid. This view has been
approved in
Shelton v. Platt, 139 U.
S. 591, in
Pittsburg Ry. v. Board of Public
Works, 172 U. S. 32, in
Pacific Whaling Co. v. United States, 187 U.
S. 447,
187 U. S.
451-452, in
Dodge v. Osborn, 240 U.
S. 118,
240 U. S. 121,
and in
Bailey v. George, 259 U. S. 16.
The district court recognized the sweep of these decisions in
respect of the contention of the complainant that the assessment of
this tax and the threatened distraint to collect it were barred by
limitations under the statute, and was of opinion that, as a rule,
such attacks upon the validity of the tax could only be heard and
considered after the tax had been paid in a suit to recover it
back. In this view we fully concur.
The district court, however, thought that an exception to the
operation of § 3224 must arise when it appeared, as it held it did
appear here, that no provision of law existed by which if the
taxpayer when he filed his bill for an injunction had paid the tax
assessed, he could bring a suit to recover it back because it would
be barred by the statutory limitation of time in which such a suit
could be brought.
Page 262 U. S. 256
The court based its conclusion on § 252 of the Revenue Act of
1918, c. 18, 40 Stat. 1085, reenacted in the Revenue Act of 1921,
c. 136, 42 Stat. 268, which reads as follows:
"If upon examination of any return of income made pursuant to .
. . the Act of October 3, 1913, . . . it appears that an amount of
income . . . tax has been paid in excess of that properly due,
then, notwithstanding the provisions of § 3228 of the Revised
Statutes, the amount of the excess shall be credited against any
income . . . taxes, or installments thereof, then due from the
taxpayer under any other return, and any balance of such excess
shall be immediately refunded to the taxpayer:
Provided,
that no such credit or refund shall be allowed or made after five
years from the date when the return was due unless, before the
expiration of such five years, a claim therefor is filed by the
taxpayer."
The return was due March 15, 1916. The assessment was made
December 31, 1919. The complainant might then have paid the tax,
and would have had two years in which to make his claim, and, if
rejected, to sue to recover it back if, as he now submits, § 252
limited his right to pay and sue to recover. Under such a
construction and application of § 252, suit must have been brought
on or before March 15, 1921. This is what Phellis did (
United
States v. Phellis, 257 U. S. 156),
and there was no question raised as to his right to bring the suit
in the Court of Claims to recover back the tax paid by him, if it
had proved to be illegally assessed and collected. Certainly
complainant could not, by delaying his payment until his right to
sue to recover it back expired, make a case so extraordinary and
entirely exceptional as to render § 3224, Rev.Stats.,
inapplicable.
If it be said that he was waiting for the Commissioner to act on
his claim for abatement of the assessment, it is enough to say that
the Commissioner's delay until after the decision of the
Phellis case in November, 1921, was
Page 262 U. S. 257
due to agreement by the parties. Nor was he prevented from
paying the assessment by his claim for abatement.
The cases complainant's counsel rely on do not apply. The cases
of
Lipke v. Lederer, 259 U. S. 557, and
Regal Drug Corp. v. Wardell, 260 U.
S. 386, were not cases of enjoining taxes at all. They
were illegal penalties in the nature of punishment for a criminal
offense.
Pollock v. Farmers' Loan & Trust Co.,
157 U. S. 429, and
Brushaber v. Union Pacific R. Co., 240 U. S.
1, were suits by stockholders against corporations to
restrain the corporations from paying taxes alleged to be
unconstitutional.
Hill v. Wallace, 259 U. S.
44, was in part a suit like the foregoing. It was a bill
filed by members of the Chicago Board of Trade to prevent the
governing board from applying to the Secretary of Agriculture to
have the Board of Trade designated as a "contract market" under the
Future Trading Act (42 Stat. 187), on the ground that the act was
unconstitutional and its operation would impair the value of the
board to its members. Without such designation, no member could
have sold grain for future delivery without paying a prohibitive
tax, and if he sold without paying the tax, he was subjected to
heavy criminal penalties. To pay such a tax on each of the many
thousands of transactions on the board, and to sue to recover them
back, would have been utterly impracticable. It would have blocked
the entire future grain business of the country, and would have
seriously injured not only the members of the board, but also the
producing and consuming public. This phase of the situation was so
clear that the government in effect consented to the temporary
injunction.
See Hill v. Wallace, 257 U.
S. 310, 257 U.S. 615. Under these extraordinary and most
exceptional circumstances, it was held that § 3224 was not
applicable to prevent an injunction against collection of such a
prohibitive tax imposed for the purpose of regulating the future
grain
Page 262 U. S. 258
business with all the unnecessary and disastrous consequences
its enforcement would entail if the act was unconstitutional.
Hill v. Wallace should, in fact be classed with
Lipke
v. Lederer, 259 U. S. 557, as
a penalty in the form of a tax. Certainly we have no such case
here.
This conclusion renders it unnecessary for us to consider
whether § 252 of the Revenue Act of 1921, in connection with §
3226, Revised Statutes, as amended by the same Revenue Act of 1921,
barred complainant's right to pay the tax and sue to recover it
back at the time of filing his bill, as held by the district court.
It is certain that, by the amendments to § 252 and § 3226, Revised
Statutes, by the Act of March 4, 1923 (Public No. 527), the
complainant is given the right now to pay the tax, and sue to
recover it back, and in such a suit to raise the questions as to
the value of the stock and the amount of the resulting tax and also
as to the bar of time against the assessment which he attempted to
raise in the bill.
The decree of the circuit court of appeals is reversed, and the
case is remanded to the district court, with directions to dissolve
the temporary injunction and to dismiss the bill.
Reversed.
