1. Where interest on tax refunds is allowed by statute, a suit
for the interest after refund of a tax is maintainable in the Court
of Claims.
Stewart v. Barnes, 153 U.
S. 456, distinguished. P.
270 U. S.
168.
2. Under § 1324(a) of the Revenue Act of November 23, 1921,
which provides that, upon the allowance of a claim for the refund
of internal revenue taxes paid, interest shall be allowed and paid
upon the total amount of such refund "to the date of such
allowance," the date to which the interest runs is neither the date
of actual repayment nor the date on which the Commissioner of
Internal Revenue first decides that there has been an
overassessment and refers the matter to the Collector for
examination and report of the amounts to be refunded, but the date
on which the Commissioner approves the amount thus ascertained for
payment. P.
270 U. S.
169.
3. The above section dates the interest (a) from the time when
the tax was paid, if it was paid "under a specific protest setting
forth in detail the basis of and reasons for such protest," but (b)
from six months after the date of filing claim for refund if there
was no protest or payment pursuant to additional assessment.
Held, that, in order to date the interest from time of
payment of tax, the protest under which it was paid must set forth
a specific and valid reason for a refund. P.
270 U. S.
171.
4. Where a tax payment was less than the amount illegally
assessed, due to deduction of the discount allowed on anticipatory
payments by § 1009 of the Revenue Act of October 3, 1917, the
amount refundable, with interest, was the amount actually paid, not
including the discount. P.
270 U. S. 173.
59 Ct.Cls. 727 reversed.
Page 270 U. S. 164
Appeal from a judgment of the Court of Claims allowing, in part,
claims for recovery of interest on the amounts of refunded tax
payments.
MR. CHIEF JUSTICE TAFT delivered the opinion of the Court.
This is an appeal from a judgment of the Court of Claims under §
242 of the Judicial Code. The judgment was entered May 19, 1924,
and the appeal was allowed July 3, 1924. The judgment dismissed the
petition of the plaintiffs upon findings of fact. The Girard Trust
Company and the other appellants are trustees of the estate of
Alfred F. Moore, deceased.
Their claims are for interest not paid on refunds of taxes paid
them. The proposed income tax upon the Moore estate for 1920, as
originally returned early in 1921, was $196,202.61. On March 15,
1921, and on June 15, 1921, quarterly payments of the tax, which
amounted to $49,050.66, each were paid to the collector. On August
2, 1921, the trustees for the estate filed a claim for the refund
of the two installments, aggregating $98,101.32, already paid, and
claim for abatement of the two remaining quarterly installments not
yet paid, aggregating the same amount. The claim for abatement was
allowed in its entirety, and the claim for the refund in large
part. The action of the department began December 9, 1922, in a
schedule form, signed by the Commissioner of Internal Revenue,
including an item of overassessments, and marked, "Approved by the
Commissioner of Internal
Page 270 U. S. 165
Revenue, for transmission to the proper accounting officers for
credit and refund." This was transmitted to the Collector of
Internal Revenue for the First District of Pennsylvania to examine
the account of the taxpayer, to report back the amount to be
refunded and the amount to be credited on taxes due and unpaid. The
Collector made the report. The Assistant Commissioner of Internal
Revenue confirmed the report, and the Commissioner directed the
refund January 16, 1923. On February 20, 1923, the trustees
received by mail a certificate of overassessment dated February 10,
1923, stating that, since $196,202.61 was assessed, whereas
$13,663.89 was the correct tax, there had been an overassessment of
$182,538.72, and that the amount of this overassessment had been
applied as follows:
Amount abated . . . . $98,101.29
Amount credited . . . 21.41
Amount refunded . . . 84,416.02
With this certificate was a check for $84,416.02, the amount of
the refund without interest. Since filing the petition in this
case, the trustees received, under date of October 5, 1923, a check
for $4,318.97, interest on the refund and the credit of $21.41 from
six months after the filing of the claim for refund to December 9,
1922.
Moore's estate made return to the Collector of Internal Revenue
for excess profits tax for the year 1917 of $108,140.15, and on
March 21, 1918, paid to the Collector of Internal Revenue
$107,372.36, the amount of the tax less the credit of $767.79
allowed for payment in advance of the time fixed by law, June 15,
1918. Ascertaining that the trustees of a trust estate were not
subject to excess profits tax, on August 2, 1921, they filed a
claim for refund of the entire tax of $108,140.15. This claim was
approved by the Commissioner of Internal Revenue for $107,372.36,
on December 9, 1922, under the prescribed schedule form in which
this item was marked
Page 270 U. S. 166
"Approved by the Commissioner of Internal Revenue for
transmission to the proper accounting officer for credit and
refund." It was sent to the proper Collector of Internal Revenue,
who reported it back to the Bureau. It was approved by the
Assistant Commissioner, and the refund was finally approved by the
Commissioner January 16, 1923. On February 7, 1923, the plaintiffs
received by mail a certificate of overassessment dated February 6,
1923, for $107,372.36, together with a check for $112,864.53, the
difference, $5,492.17, being interest on the amount refunded from
the date six months after the filing of the claim to December 9,
1922.
The contentions of the Trustees are that the allowances of
interest on the refunds are not sufficient under the statute.
Section 250(b) of the Revenue Act of November 23, 1921, 42 Stat.
227, 264, c. 136, provides:
"As soon as practicable after the return is filed, the
Commissioner shall examine it. If it then appears that the correct
amount of the tax is greater of less than that shown in the return,
the installments shall be recomputed. If the amount already paid
exceeds that which should have been paid on the basis of the
installments as recomputed, the excess so paid shall be credited
against the subsequent installments, and if the amount already paid
exceeds the correct amount of the tax, the excess shall be credited
or refunded to the taxpayer in accordance with the provisions of §
252."
Section 252 of the above Act, 42 Stat. 268 provides:
"That if, upon examination of any return . . . , it appears that
an amount of income, war profits, or excess profits 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, war profits, or excess
profits taxes, or installment thereof, then due from the taxpayer
under any other return, and any balance of such excess shall be
immediately refunded to the taxpayer. . . . "
Page 270 U. S. 167
Section 1324(a) of the same statute, 42 Stat. 316, contains the
provision as to interest as follows:
"That, upon the allowance of a claim for the refund of or credit
for internal revenue taxes paid, interest shall be allowed and paid
upon the total amount of such refund or credit at the rate of
one-half of 1 percentum per month to the date of such allowance, as
follows: (1) if such amount was paid under a specific protest
setting forth in detail the basis of and reasons for such protest,
from the time when such tax was paid, or (2) if such amount was not
paid under protest, but pursuant to an additional assessment, from
the time such additional assessment was paid, or (3) if no protest
was made and the tax was not paid pursuant to an additional
assessment, from six months after the date of filing of such claim
for refund or credit. The term 'additional assessment,' as used in
this section, means a further assessment for a tax of the same
character previously paid in part."
The claims made by the trustees, appellants here, are, first,
that the government erred in its construction of § 1324, by which
it allowed interest, not to the dates of payments of the refunds
February 20 and February 7, 1913, but only to the date when the
Commissioner approved the schedule finding the amount of the
overassessments and transmitted the schedule to the accounting
officers December 9, 1922. The interest between December 9, 1922,
down to the dates of payment amounts to $2,028.11. The question is
whether the words "to the date of the allowance" mean to the date
of the decision of the Commissioner that an overassessment has been
made,
i.e., to December 9, 1922, to the final approval of
the refund by the Commissioner January 16, 1923, or to the date of
payment.
The next claim of the trustees is for $3,889.67, and this turns
on the question whether, under § 1324, the interest on the refund
for the 1920 taxes should be calculated
Page 270 U. S. 168
under clause (1) in that section as for a payment made under a
specific protest, or whether as upon a payment under clause (3) for
which no protest was made. The Commissioner held that no sufficient
protest had been made, and therefore allowed interest not from the
time of payment as provided under clause (1), but from six months
after the filing of the claim for refund under clause (3), which
made a difference of $3,889.67.
The third claim of the trustees is for $767.79. This is based on
the fact that, under the Revenue Act of October 3, 1917, 40 Stat.
300, 326, c. 63, § 1009, a credit on taxes to be paid in advance,
calculated at the rate of 3 percent per annum upon the amount so
paid from the date of payment to the date fixed by law for payment
was allowed, and the amount paid was $767.79 less than the amount
assessed. The claim for refund was allowed for the amount actually
paid, but not for the discount. The trustees now seek to recover
the discount.
The Court of Claims dismissed the petition for all these claims
on the authority of
Stewart v. Barnes, 153 U.
S. 456. The taxpayer in that case had already received
and accepted the principal of the amount improperly collected by a
Collector of Internal Revenue, and this was an action for the
interest. This Court held that the taxpayer could not maintain an
independent action for interest for the reason that, in such cases,
interest is considered as damages, does not form the basis of the
action, and is only an incident to the recovery of the principal
debt. We do not think that it controls this case. The payment of
interest in the
Stewart case was not expressly provided
for in the Act. In this case, there is statutory provision for it,
and it is analogous to a suit in debt or covenant in which the
contract specifically provides for payment of interest on the
principal debt. In such cases, the authorities all hold that the
acceptance of the payment of the principal debt does not preclude a
further suit for the interest unpaid.
Page 270 U. S. 169
Fake v. Eddy, 15 Wend. (N.Y.) 76;
Kimball v.
Williams, 36 App.D.C. 43;
New York Trust Co. v. Detroit
Railway Co., 251 F. 514;
King v. Phillips, 95 N.C.
245;
Bennett v. Federal Coal & Coke Co., 70 W.Va. 456;
Robbins v. Cheek, 32 Ind. 328. And the same rule obtains
where the obligation is one that, by statute, bears interest.
National Bank v. Mechanic's Bank, 94 U. S.
437;
Hobbs v. United States, 19 Ct.Cls. 220;
New York v. United States, 31 Ct.Cls. 276;
Crane v.
Craig, 230 N.Y. 452;
Bowen v. Minneapolis, 47 Minn.
115;
Blair v. United States ex rel. Birkenstock, 6 F.2d
679.
We are therefore brought to the merits of the case. First, what
is the meaning in § 1324 of the words "to the date of such
allowance" to which interest is to be paid on refunds? The Treasury
Department, by its regulations of 1922, construed this provision as
follows:
"A claim for refund or credit is allowed within the meaning of
the statute when the Commissioner approves the schedule in whole or
in part, for transmission to the proper accounting officer, for
credit or refund."
And this is the holding of the Comptroller General. 1 Decisions
Compt.Gen. 411, 412. He says:
"To compute interest to the date of actual payment would be
wholly impracticable from an administrative standpoint, and I have
no doubt that this phase of the matter was considered by the
Congress in providing that the interest should be allowed to the
date of allowance, rather than to the date of payment of the
claim."
If Congress had intended that interest should be allowed to the
date of the payment, it seems to us it would have said so.
Allowance, in its ordinary sense, does not mean payment, and, in
the practical administration of the Treasury Department, the two
things are quite different. The one is a decision by the competent
authority that the payment should be made. The other is the actual
payment.
Page 270 U. S. 170
The Commissioner of Internal Revenue is the final judge in the
administrative branch of the government to decide that an
overassessment has been made and that a refund or credit should be
granted, and when he has made that decision finally, he has allowed
the claim for the refund or credit of the taxes paid within the
meaning of the section.
It is said that this is a remedial statute, and was intended to
require the government to recoup the taxpayer unjustly dealt with
by paying interest during the whole time the money was detained.
That was doubtless its general purpose. But the statute is to be
construed in the light of the difficulties of the government
bookkeeping and accounting. To have made the interest calculable to
the date of actual payment would have led to uncertainty and
confusion, as the Comptroller General indicates, and it was
doubtless for that reason that Congress qualified its desire to pay
interest for the exact time during which the money was detained to
a date which was practical from an administrative standpoint. Nor
does the fact that, pending the carrying out of the direction of
the Commissioner of Internal Revenue to make the refund, he might
reverse himself, change the finality of his decision allowing the
refund. If he does so, the date fixed as the date of the allowance
under the section is changed, of course; but the mere fact that he
can reverse a final allowance does not prevent its being a final
allowance, any more than, when a court renders a judgment, its
ability within the term to set it aside or change it affects its
finality if it is not changed. We think, therefore, that the words
"to the date of such allowance" do not carry interest to be paid on
refunds down to the time of payment.
We cannot concur, however, in the view of the Treasury
Department that the date of the allowance of the claim, as intended
by the statute, is the date when the Commissioner first decides
that there has been an overassessment
Page 270 U. S. 171
and sends upon a proper form his decision to the Collector of
Internal Revenue, who made the collection and keeps the account
with the taxpayer. The findings and the exhibits show that the
course of business is that the Collector, on receiving from the
Commissioner the schedule as to the overassessment, examines his
books and reports back to the Bureau the amount which should be
credited on taxes due and the amount to be refunded, that this is
examined by the Assistant Commissioner and then is delivered to the
Commissioner, who makes it effective by his approval. Until it
reaches him and is approved by him, the refund cannot be paid. This
we think is the real date of allowance. Until that time, the exact
amount of the refund is not fixed finally by competent authority.
This date would seem to be just as certain and convenient from an
administrative standpoint as that of the original decision of the
Commissioner, and it is certainly more in conformity to the general
purpose of Congress to relieve the overassessed taxpayer by paying
compensatory interest on money unjustly taken and kept by the
government. We think, therefore, that the trustees are entitled to
recover from the government interest on both the refund for the
taxes of 1917 and that for those of 1920 from December 9, 1922, to
January 16, 1923.
Second. This second claim turns on the provisos of § 1324 with
reference to protests. The trustees attached to their original
return of income tax for 1920 the following protest:
"Note. -- Profit was made during the year 1920 upon sales of
capital assets as set forth in block C above. This amount of
$349,200.85 is included in the total net income and under
regulations is returned for tax on Form 1040. As the taxpayer is
advised that such sum is not taxable income, under the decision of
Brewster v. Walsh -- District Court for District of
Connecticut made December 16, 1920 -- the report of the amount of
such profit is made and
Page 270 U. S. 172
tax paid thereon only under protest, and only in compliance with
the requirement of the foregoing form and the instructions
thereon."
Both the installments of the income tax paid March 15 and June
15 were paid under this protest. On the 15th of June, however,
there was added to the protest the following memorandum:
"In view of the joint investigation by accountants of both
government and trustees now in progress, with the agreed object of
correcting certain figures, especially those relating to
depreciation, believed to have been erroneously increased, as to
the most important item and ignored as to another item, in the 1920
return of said trustees covering the sale of the three capital
assets in that return set forth, estimating the total of said
profits and the tax payable thereon out of the trust estate."
"Inasmuch as the second quarterly installment of $49,050.60
based upon said estimate is now due, you are hereby notified that
the accompanying payment thereof is made without prejudice to the
right of said trust estate to be hereafter relieved from or
reimbursed for the payment of any tax upon the profits so returned
in excess of the total tax, resulting from such final adjustment
thereof as may be determined, either by agreement, or by the
courts. . . ."
The government's contention is that the distinction made in §
1324, by which the interest to be paid on refunded taxes is to date
from the payment of the taxes in cases where there is a specific
protest setting forth in detail the basis and reasons for such
protest, and by which the interest is to be dated only from six
months after the date of filing the claim for refund or credit when
there is no protest, was intended to favor those who furnished to
the collecting officers by way of specific protest a valid basis
for a refund of the taxes.
We agree with this view. To hold otherwise would be to invite a
protest on any pretended ground by taxpayers
Page 270 U. S. 173
in every case of payment, and would make the protest of no value
to the Treasury or the collecting officers. A protest is for the
purpose of inviting attention of the taxing officers to the
illegality of the collection, so that they may take remedial
measures at once. But if protests are based on reasons of no
validity, they do not accomplish the public purpose for which they
are devised.
In the present case, the protest was based on a decision of the
District Court of Connecticut made December 16, 1920.
Brewster
v. Walsh, 268 F. 207. That case was reversed in
Walsh v.
Brewster, 255 U. S. 536, or
more than two months before the payment of the June 15 installment
by the trustees. The statement added under the June 15 installment
was merely a recital that an investigation was going on between the
government and the trustees, and that, if that turned out to be in
excess of the right amount, the payment was without prejudice to
the recovery of the excess. This was certainly not a protest for
specific reasons, in accordance with the requirement of the
statute. For these reasons, we think that no recovery can be had
for failure to allow interest for the period of the six months
after the date of payment.
Third. The third item of the recovery here sought is for the
$767 of discount allowed by the government upon the amount returned
for taxation on the income for 1917 by the trustees on the excess
profits tax. The tax assessed was $108,140.15. It was not due until
June 15, 1918. Under § 1009 of the Revenue Act of October 3, 1917,
40 Stat. 300, c. 63, it was provided that the Secretary of the
Treasury, under rules and regulations prescribed by him, should
permit taxpayers liable to income and excess profits taxes to make
payments in advance in installments or in whole of an amount not in
excess of the estimated taxes which would be due from them,
provided that the Secretary of the Treasury, under rules and
regulations prescribed by him, might allow credit against such
taxes so
Page 270 U. S. 174
paid in advance of an amount not exceeding three percentum per
annum calculated upon the amount so paid from the date of such
payment to the date fixed by law for such payment, but that no such
credit should be allowed on payments in excess of taxes determined
to be due.
We do not see the basis upon which such recovery can be had. The
taxpayer cannot obtain a refund under the other sections quoted
except for taxes paid. By reason of his payment earlier than
required, he has been permitted to reduce the amount which he
actually paid. But there is no provision in the statute for a
recovery of anything but what he did pay, or for interest on
anything but on what he did pay. We think that, if Congress
intended him to recover interest for his accommodation of the
government by a premature payment of his taxes illegally collected,
it would have made a specific provision for it and have given the
Commissioner special authority.
This disposes of the three claims. The conclusion of the Court
of Claims is therefore affirmed in all respects, except as to the
interest on the refunds on the taxes illegally collected for the
year 1917, and for the year 1920 for the period from the 9th of
December, 1922, to January 16, 1923, which the trustees should
recover.
The judgment is therefore reversed, and the cause is remanded to
the Court of Claims, with directions to enter a judgment in
accordance with this opinion.
Reversed.