1. Paragraph (e) of § 278 of the Revenue Act of June 2, 1924,
providing:
"This section shall not (1) authorize the assessment of a tax or
the collection thereof by distraint or by a proceeding in court if,
at the time of the enactment of this Act, such assessment,
distraint, or proceeding was barred by the period of limitation
then in existence, or (2) affect any assessment made or distraint
or proceeding in court begun, before the enactment of this
Act,"
does not render invalid waivers executed after the date of the
Act with respect to income taxes, the assessment and collection of
which had become barred before that date. P.
288 U. S.
422.
2. The purpose of paragraph (d) of § 250 of the Revenue Act of
1921 and paragraph (c) of § 278 of the Revenue Act of 1924 was not
to grant authority for waivers or to limit their effect, but to
remove doubt of their validity by expressly recognizing them. P.
288 U. S.
423.
3. Paragraph (e) of § 278 of the 1924 Act does not qualify
paragraph (c). P.
288 U.S.
424.
75 Ct.Cls. 155;
id. 186; 59 F.2d 290, affirmed.
Certiorari, 287 U.S. 589, to review a judgment rejecting claims
for the recovery of money paid under income tax assessments.
Page 288 U. S. 421
MR. JUSTICE BRANDEIS delivered the opinion of the Court.
These cases arose out of the same transaction, and present, on
substantially the same facts, the same question of law. Reference
will be made in the opinion only to the
McDonnell
case.
The action was brought by McDonnell in the Court of Claims on
November 4, 1929 to recover $4,549.03, with interest from the date
of payment, October 23, 1926. McDonnell filed his individual income
tax return for 1917 on April 1, 1918, and paid the amount shown
thereon to be due. The sum now sought to be recovered was paid to
the collector of internal revenue for the Second district of New
York pursuant to an assessment of an additional income tax for the
year 1917, which was made by the Commissioner of Internal Revenue
on October 9, 1926. There had been a waiver on February 23, 1926,
of the statutory limitation upon the time for making the
assessment. Claims for refund were made on December 27, 1928, and
May 31, 1929, alleging that the waiver was invalid and that the
amount claimed was collected after the running of the statute. The
claims for refund were rejected on March 6, 1929, and July 25,
1929. The Court of Claims entered judgment for the defendant. 59
F.2d 290. Because of conflict of the decision with that in
Uncasville Manufacturing Co. v. Commissioner, 55 F.2d 893,
certiorari was granted, limited to the question of the validity of
the waiver under § 278(e) of the Revenue Act of 1924. 287 U.S.
589.
The waiver was given under the following circumstances:
McDonnell was in 1917 a member of the firm of McDonnell &
Truda, which in that year filed its income tax return and paid the
taxes therein shown to be due. On March 18, 1923 -- that is, within
five years after the filing of the return and before the expiration
of the period allowed by § 250(d) of the Revenue Act of 1921
for
Page 288 U. S. 422
assessment and collection of an additional tax -- the
Commissioner made a jeopardy assessment against the firm of
$100,005.14. On November 30, 1925 -- that is, after the expiration
of the statutory period for making an additional assessment against
the plaintiff -- the Commissioner notified the plaintiff that the
amount payable by the firm for additional tax should, because of
errors, be reduced to $24,863.28, but that a reduction of the
liability of the partnership necessitated additional taxes to the
individual members of the firm, and that he would not make the
reduction to the firm unless plaintiff and his partner would waive
the statute of limitations so as to permit additional individual
taxes, and would pay the amounts assessed against them. Each gave
the waiver requested, and paid the amount now sought to be
recovered.
It is conceded by McDonnell that the tax was payable unless it
was barred by the period of limitations prescribed in § 250(d) of
the Revenue Act of 1921 or § 277(a)(2) of the Revenue Act of 1924.
It is conceded by the government that it was so barred unless the
limitation was removed by the waiver signed by McDonnell on
February 23, 1926, which, by its terms, purported to extend to
December 31, 1926, the time within which the Commissioner could
assess additional taxes for the year 1917.
McDonnell claims that the Revenue Act of June 2, 1924, renders
the waiver ineffective because the assessment of the tax had been
barred on April 1, 1923. The contention is that, since the period
of limitation had expired before the passage of the 1924 Act, the
waiver was inoperative under the express terms of paragraph (e) of
§ 278 of that Act, which declares:
"This section shall not (1) authorize the assessment of a tax or
the collection thereof by distraint or by a proceeding in court if
at the time of the enactment of this Act such assessment,
distraint, or proceeding was barred by the
Page 288 U. S. 423
period of limitation then in existence, or (2) affect any
assessment made, or distraint or proceeding in court begun, before
the enactment of this Act. [
Footnote 1]"
The contention of the petitioner, expressed in different terms,
is that waivers executed subsequent to June 2, 1924, are invalid
where the date of filing the return was such that the five-year
period for assessment elapsed before June 2, 1924. Obviously, the
waiver would have been good if executed before June 2, 1924, the
period of limitation expiring when it did, for, in that event, the
assessment would not have been "barred by the period of limitation"
at the time of the enactment of the 1924 Act. The fact that the
waiver was executed after the running of the statute of limitations
does not render it invalid.
Burnet v. Chicago Railway
Equipment Co., 282 U.S.
Page 288 U. S. 424
295,
282 U. S.
298-299;
Stange v. United States, 282 U.
S. 270,
282 U. S.
273-275. And, confessedly, the waiver would have been
good, executed when it was, if the period of limitation had expired
after June 2, 1924.
Nothing in the legislative history of § 278 indicates an
intention to exclude cases like that at bar from the generality of
those in which waivers may be given. The purpose of Congress in
enacting paragraph (c) of § 278 indicates the contrary. Prior to
the 1921 Act, there was no statutory provision expressly
authorizing waivers, but their execution had grown out of
administrative practice. Doubt as to their validity in the absence
of statute, however, had been raised, and the doubt in that
situation was not removed until the decision in
Aiken v.
Burnet, 282 U. S. 277. The
purpose of Congress in enacting paragraph (d) of § 250 of the
Revenue Act of 1921 and paragraph (c) of § 278 of the Revenue Act
of 1924 was not to grant authority for waivers or to limit their
effect, but to remove that doubt by expressly recognizing them. The
latter paragraph substantially reenacted paragraph (d) of § 250 of
the Revenue Act of 1921. [
Footnote
2]
Both the language and the purpose of paragraph (e) are
consistent with this view. It was pointed out in
Burnet v.
Chicago Railway Equipment Co., 282 U.
S. 295,
282 U. S. 300,
note 5, that paragraph (e) cannot have been intended to qualify
every other subdivision in § 278. The petitioner assumes, in fact
that it does not qualify subdivisions (a) and (b), which provide,
respectively, for assessment at any time in the case of false or
fraudulent returns or failure to file returns, and in the case of
deficiencies attributable to a change in deductions taken in
amortization of war investments. That paragraph (e) does qualify
paragraph (d), which extends the period in
Page 288 U. S. 425
which collection may be made to six years after assessment, was
decided in
Russell v. United States, 278 U.
S. 181. The petitioner argues that, since paragraph (d)
relates only to collection, and since the qualifications of
paragraph (e) apply in terms to assessments, as well, the latter
paragraph must limit paragraph (c), the only remaining subdivision.
But this conclusion does not necessarily follow. Congress may have
inserted the reference to "assessments" in paragraph (e) in order
to make it clear that the extension of time for collections should
in no event be regarded as authorizing an assessment already barred
by the applicable statute of limitations. Moreover, paragraph (d)
alone marked a change in the policy of Congress. [
Footnote 3] Paragraph (e) was inserted to
prevent the section from being given a "retroactive effect."
[
Footnote 4] To apply it to
paragraph (c) would not serve that function. On the contrary, it
would serve to cause a break in the policy of giving effect to
waivers, a policy expressly adopted in the Act of 1921 and avowedly
continued by the Act of 1924. The disclaimer of an intention to
"authorize an assessment" where "such assessment" was already
barred cannot be taken to refer to assessments
Page 288 U. S. 426
which were authorized by § 278 only in the sense that they were
made pursuant to an agreement by the taxpayer of the kind which the
act continued to recognize and sanction.
Affirmed.
* Together with No. 331,
Truda v. United States.
[
Footnote 1]
Act of June 2, 1924, c. 234, § 278(e), 43 Stat. 253, 299, 300.
The preceding paragraphs of the section are as follows:
"(a) In the case of a false or fraudulent return with intent to
evade tax or of a failure to file a return the tax may be assessed,
or a proceeding in court for the collection of such tax may be
begun without assessment at any time."
"(b) Any deficiency attributable to a change in a deduction
tentatively allowed under paragraph (9) of subdivision (a) of §
214, or paragraph (8) of subdivision (a) of § 234, of the Revenue
Act of 1918 or the Revenue Act of 1921, may be assessed, or a
proceeding in court for the collection of such tax may be begun
without assessment at any time."
"(c) Where both the Commissioner and the taxpayer have consented
in writing to the assessment of the tax after the time prescribed
in § 277 for its assessment, the tax may be assessed at any time
prior to the expiration of the period agreed upon."
"(d) Where the assessment of the tax is made within the period
prescribed in § 277 or in this section, such tax may be collected
by distraint or by a proceeding in court, begun within six years
after the assessment of the tax. Nothing in this Act shall be
construed as preventing the beginning, without assessment, of a
proceeding in court for the collection of the tax at any time
before the expiration of the period within which an assessment may
be made."
[
Footnote 2]
See H.Rep. No. 179, 68th Cong., 1st Sess., p. 26;
S.Rep. No. 398, 68th Cong., 1st Sess., p. 32.
[
Footnote 3]
[
Footnote 4]
See Hearings on H.R. 6715 before the Senate Committee
on Finance, 68th Cong., 1st Sess., p. 41 (Statement of A. W. Gregg,
Treasury draftsman).