1. In computing income tax, the Commissioner of Internal Revenue
and Board of Tax Appeals denied the right of a corporation to
deduct from gross income an amortized proportion of the discount on
sales of bonds by its predecessors. On appeal to the Circuit Court
of Appeals, the right was sustained. Held
judgment worked an estoppel against the United States and the
Collector in later litigation with the corporation as to its right
to make like deductions for subsequent years under the same
statutory provisions and Treasury regulations. Pp. 289 U. S. 623
289 U. S.
2. It will not be inferred that Congress, merely by adopting the
scheme of annual tax periods, and without express declaration of
purpose, intended to abolish the doctrine of res judicata
in tax cases, and thus to deprive government and taxpayer of relief
from redundant litigation of identical questions as to the
liability of the same taxpayer under the same taxing provisions.
United States v. Stone & Downer, 274 U.
, respecting res judicata
cases, distinguished. P. 289 U. S.
Page 289 U. S. 621
3. The effect of res judicata
cannot be avoided by
showing that an inadvertent or erroneous concession was made at the
former trial as to the materiality, bearing, or significance of the
facts or questions then before the court. P. 289 U. S.
4. Where a question has been adjudged as between a taxpayer and
the government or its official agent, the Commissioner of Internal
Revenue, the Collector being an official inferior in authority and
acting under them, is in such privity with them that he is estopped
by the Judgment. P. 289 U. S. 627
62 F.2d 933 affirmed.
Certiorari to review the affirmance of a judgment for the
plaintiff, the respondent here, in a consolidation of actions for
the recovery of excess tax payments. See also
53 F.2d 211
(District Court in this case), and 33 F.2d 695 (Circuit Court of
Appeals in an earlier case).
MR. JUSTICE ROBERTS delivered the opinion of the Court.
Between the years 1902 and 1908, the Western Maryland Rail Road
Company, a Maryland corporation, sold and issued at a discount
large amounts of its first mortgage bonds. In foreclosure
proceedings under a second mortgage, its entire property was sold
to a reorganization committee representing second mortgage
bondholders, and a new company formed under the name The
Page 289 U. S. 622
Maryland Railway Company took title to all the assets and
operated the railroad. In 1911, the latter issued and sold at a
discount additional bonds secured by the first mortgage of the
In 1917, the Western Maryland Railway Company was consolidated,
pursuant to Maryland statutes, with some seven subsidiaries. The
new corporation so formed, named Western Maryland Railway Company,
recognized as its own obligations the outstanding first mortgage
bonds issued by its two predecessors. In computing this company's
income tax for the years 1918 and 1919, the Commissioner of
Internal Revenue refused to allow as a deduction from gross income
an amortized proportion of the discount on the sales of bonds by
the first and second companies. The Board of Tax Appeals sustained
the ruling. [Footnote 1
Circuit Court of Appeals for the Fourth Circuit reversed the
decision of the Board. [Footnote
In returns for 1920, 1921, and 1922, the company neglected to
take any deduction for amortization of the bond discount in
question. It made timely claim for refund for all three years, and,
upon denial, brought a suit for the amount claimed against the
petitioner, as Collector, and also sued the United States for
refund of the alleged overpayment for 1920. Deductions taken on the
same ground for 1923, 1924, and 1925 were disallowed by the
Commissioner, the resulting deficiencies in tax were paid under
protest, claims for refund filed and disallowed, and suit brought
against the petitioner as Collector. The District Court
consolidated the cases and tried them without a jury on an agreed
stipulation. That court found that no facts were presented which
had not been before the Board of Tax Appeals in the litigation over
the 1918 and 1919 taxes, that the parties were concluded by the
Page 289 U. S. 623
former decision, and rendered judgment for the respondent,
] which the Circuit
Court of Appeals affirmed. [Footnote 4
The petitioner seeks a reversal on the merits, asserting that a
judgment in a suit concerning income tax for a given year cannot
estop either of the parties in a later action touching liability
for taxes of another year. He urges further that, if this position
is not well taken, he is not concluded by the former judgment
because neither the proofs nor the parties are the same as in the
1. The scope of the estoppel of a judgment depends upon whether
the question arises in a subsequent action between the same parties
upon the same claim or demand or upon a different claim or demand.
In the former case, a judgment upon the merits is an absolute bar
to the subsequent action. In the latter, the inquiry is whether the
point or question to be determined in the later action is the same
as that litigated and determined in the original action.
Cromwell v. County of Sac, 94 U. S.
, 94 U. S.
-353; Southern Pacific R. Co. v. United
States, 168 U. S. 1
168 U. S. 48
United States v. Moser, 266 U. S. 236
266 U. S. 241
Since the claim in the first suit concerned taxes for 1918 and 1919
and the demands in the present actions embraced taxes for
1920-1925, the case at bar falls within the second class. The
courts below held the lawfulness of the respondent's deduction of
amortized discount on the bonds of the predecessor companies was
adjudicated in the earlier suit. The petitioner, admitting the
question was in issue and decided in respect of the bonds issued by
the second company, and denying, for reasons presently to be
stated, that this is true as to the bonds of the first company,
contends that, as to both, the decision of the Court of Appeals is
erroneous for the reason that the thing adjudged in a
Page 289 U. S. 624
suit for one year's tax cannot affect the rights of the parties
in an action for taxes of another year.
As petitioner says, the scheme of the revenue acts is an
imposition of tax for annual periods, and the exaction for one year
is distinct from that for any other. But it does not follow that
Congress, in adopting this system, meant to deprive the government
and the taxpayer of relief from redundant litigation of the
identical question of the statute's application to the taxpayer's
This Court has repeatedly applied the doctrine of res
in actions concerning state taxes, holding the
parties concluded in a suit for one year's tax as to the right or
question adjudicated by a former judgment respecting the tax of an
earlier year. New Orleans v. Citizens' Bank, 167 U.
; Third National Bank of Louisville v.
Stone, 174 U. S. 432
Baldwin v. Maryland, 179 U. S. 220
Deposit Bank v. Frankfort, 191 U.
. Compare United States v. Stone & Downer
Co., 274 U. S. 225
274 U. S.
-231. The public policy upon which the rule is
founded has been said to apply with equal force to the sovereign's
demand and the claims of private citizens. Alteration of the law in
this respect is a matter for the lawmaking body, rather than the
courts. New Orleans v. Citizens' Bank, 167
U. S. 398
, 167 U. S. 399
It cannot be supposed that Congress was oblivious of the scope of
the doctrine, and, in the absence of a clear declaration of such
purpose, we will not infer from the annual nature of the exaction
an intent to abolish the rule in this class of cases.
We are not persuaded that the operation of the principle of the
thing adjudged in tax cases will, as petitioner insists, produce
serious inequalities or result in great confusion; but any adverse
consequence in the administration of the law furnishes no
sufficient reason for the abandonment of a rule founded in sound
policy, to the enforcement of which suitors are in justice
Page 289 U. S. 625
We cannot agree that the decision in United States v. Stone
& Downer Co.
requires a reversal of the judgment. The
Court of Customs Appeals had, from its organization, consistently
held the rule of res judicata
inapplicable to its
decisions as to the classification of imported commodities for the
imposition of tariff duties. For some years, that court's
jurisdiction of customs cases was exclusive and final, and its
practice in this respect had come to be settled. After Congress
granted a right of review, we were urged to overturn the practice
and to apply the doctrine of estoppel by judgment in this class of
litigation. The court refused to do so not only because of the
settled practice, but also on account of the unique character of
the questions presented under the tariff acts. The ruling was
justified by considerations which are absent in tax litigation, and
the court mentioned and recognized the authority of the precedents
for estoppel by judgment in the latter.
2. Is the question or right here in issue the same as that
adjudicated in the former action? The pertinent language of the
revenue acts is identical; [Footnote 5
] the regulations issued by the Treasury
remained unchanged; [Footnote
] and, of course, the facts with respect to the sale of the
bonds and the successive ownership of the railroad property were
the same at the time of both trials. The petitioner suggests,
however, that significant facts were stipulated in the present case
which were not made to appear in the former proceeding. He shows
that, in the earlier case, the Commissioner inadvertently
stipulated that the first company "may be taken as identical" with
Page 289 U. S. 626
whereas in the present suit, the exact devolution of title from
the first to the second through the foreclosure and reorganization
is definitely exhibited by the stipulation of the parties. From
this, he concludes that the Circuit Court of Appeals might well
have reached a different result on the merits if the former case
had been more fully and accurately presented. But the Circuit Court
of Appeals has found that all the facts stipulated in the present
cause were before it in the former one, and we accept this finding.
It holds also that the former decision was based on a view of the
law quite as pertinent to the bonds sold by the first company as to
those marketed by the second. The petitioner may not escape the
effect of the earlier judgment as an estoppel by showing an
inadvertent or erroneous concession as to the materiality, bearing
or significance of the facts, provided, as is the case here, the
facts and the questions presented on those facts were before the
court when it rendered its judgment. Compare Deposit Bank v.
Frankfort, 191 U. S. 499
191 U. S.
-511. The very right now contested, arising out of
the same facts appearing in this record, was adjudged in the prior
3. As we have seen, the demand for refund of 1918-1919 taxes was
against the Commissioner of Internal Revenue. The present suits are
against the United States and the Collector. Are the parties the
same or in such privity that the claimed estoppel binds them? The
petitioner concedes that the former judgment is, so far as identity
of parties is concerned, conclusive in the suits in which the
United States is now the defendant, since the Commissioner acted in
the earlier suit in his official capacity and as representative of
the government. This leaves for consideration the question whether
the Commissioner and the Collector are, for purposes of application
of the rule of estoppel, to be regarded as different parties.
Page 289 U. S. 627
In a suit for unlawful exaction, the liability of a Collector is
not official, but personal. Sage v. United States,
250 U. S. 33
Smietanka v. Indiana Steel Co., 257 U. S.
; Graham & Foster v. Goodcell,
282 U. S. 409
282 U. S. 430
And, for this reason, a judgment in a suit to which he was a party
does not conclude the Commissioner or the United States.
Bankers Pocahontas Coal Co. v. Burnet, 287 U.
, 287 U. S. 311
We think, however, that, where a question has been adjudged as
between a taxpayer and the government or its official agent, the
Commissioner, the Collector, being an official inferior in
authority and acting under them, is in such privity with them that
he is estopped by the judgment. See Second National Bank of
Saginaw v. Woodworth, 54 F.2d
; Bertelsen v. White, 58 F.2d
4. These views render unnecessary any consideration of the
merits of the controversy.
12 B.T.A. 889.
Western Maryland R. Co. v. Commissioner,
53 F.2d 211.
62 F.2d 933.
Revenue Act of 1918, § 234(a)(2), 40 Stat. 1057, 1077; Revenue
Act of 1921, § 234(a)(2), 42 Stat. 227, 254; Revenue Act of 1924, §
234(a)(2), 43 Stat. 253, 283, U.S.C. Tit. 26, § 986(a)(2).
Regulations 45 (1920 Edition), Art. 544(a)(3); Art. 563;
Regulations 62 and 65, Art. 545(a)(3); Art. 563.