1. A judgment for a refund of income taxes in a suit against the
Collector is not a bar to a later suit against the United States
for an additional refund of income taxes for the same year, paid to
the same Collector.
Sage v. United States, 250 U. S.
33. P.
316 U. S.
260.
2. The taxpayer sold all its assets for a consideration
consisting of cash and the assumption by the purchaser of certain
obligations, including federal taxes for previous years. The
purchaser paid part of these taxes in 1920, and the remainder in
1921 and 1922. In determining a deficiency for 1920, the
Commissioner used a lower basis of the assets sold than was used by
the taxpayer, and included in the selling price the full amount of
the taxes which the purchaser had assumed. The taxpayer, having
paid, sued the Collector and recovered a refund based upon the
Commissioner's understatement of the basis of the assets sold.
Held, that the judgment against the Collector did not bar
a suit against the United States claiming further refund on the
ground that the taxes assumed by the purchaser which were not paid
in 1920 were not taxable as income of that year. Pp.
316 U. S. 259,
316 U. S.
264.
92 Ct.Cls. 358, 36 F. Supp. 332, affirmed.
Page 316 U. S. 259
Certiorari, 313 U.S. 584, to review a judgment granting a refund
of money erroneously collected as income tax.
MR. JUSTICE FRANKFURTER delivered the opinion of the Court.
This is a suit against the United States to recover taxes for
the year 1920. In that year the taxpayer, the respondent here, sold
its business and all its assets to another corporation. The
consideration consisted of cash and the assumption of certain of
the respondent's obligations, including federal taxes for previous
years. The purchaser paid part of these taxes in 1920, the
remainder in 1921 and 1922. In determining a deficiency for the
year 1920, the Commissioner employed a lower basis of the assets
sold than was used by the respondent. The Commissioner computed the
selling price by including the full amount of the taxes which the
purchaser agreed to assume. After paying the assessed tax, the
respondent filed a claim for refund, alleging only that the
Commissioner had understated the basis of the assets sold. In due
course, a suit was brought against the Collector in the District
Court. A settlement was reached under which judgment for the
taxpayer was entered. In accordance with their agreement, neither
party appealed.
Thereafter, the respondent filed a second refund claim,
asserting that the taxes assumed by the purchaser which were not
paid in 1920 were not taxable to the respondent in that year. This
claim was rejected, and a suit against the United States was begun
in the Court of Claims.
Page 316 U. S. 260
Holding that the judgment against the Collector in the District
Court was not
res judicata of the taxpayer's claim in this
suit against the United States, the Court of Claims (with one judge
dissenting) gave judgment for the respondent. 36 F. Supp. 332. In
view of the importance of this question in the administration of
the federal income tax law and its relation to the decision in
Moore Ice Cream Co. v. Rose, 289 U.
S. 373, we brought the case here. 314 U.S. 705.
Nearly a quarter-century ago, in
Sage v. United States,
250 U. S. 33, this
Court, upon full consideration, announced the doctrine that the
United States is a "stranger" to a judgment resulting from a suit
brought against a collector, and that such a judgment is therefore
not a bar in a subsequent action upon the same claim against the
United States. This was not a novel doctrine. The result was drawn
from the conception of a suit against a collector as "personal,"
since he was personally responsible for illegally exacting monies
under the claim that they were due as taxes. Such a "personal"
remedy against the collector, derived from the common law action of
indebitatus assumpsit, has always been part of our fiscal
administration. Unless the application given to this remedy by the
doctrine of the
Sage case has been displaced by Congress
or renounced by later decisions of this Court, the judgment must
stand. Concededly Congress has not done so. And, although
recognition has been made of the technical nature of a suit against
a collector, no support can be found for the contention that the
Sage doctrine has been discarded as an anachronism. On the
contrary, the rule has been reaffirmed in an unbroken line of
authority.
Soon after the decision in the
Sage case, the question
was presented whether an action against a collector could be
continued against his successor. This Court held that it could not,
because the
Sage case had settled that such a suit was
"personal."
See Smietanka v.Indiana
Steel
Page 316 U. S. 261
Co., 257 U. S. 1;
Union Trust Co. v. Wardell, 258 U.
S. 537. In
Bankers' Coal Co. v. Burnet,
287 U. S. 308, a
suit against a collector with respect to taxes for the years
1914-1919 had resulted in a determination that the taxpayer was
entitled to a depletion allowance of five cents per ton on coal
mine royalties. It was contended that this determination was
res judicata of that issue in a subsequent action against
the Commissioner relating to taxes for later years. The Court,
again relying on the
Sage case, rejected the argument in
these words:
"With respect to this contention, it is sufficient to say that
the suit in the District Court was not against the Commissioner of
Internal Revenue, the respondent here, but against the collector,
judgment against whom is not
res adjudicata against the
Commissioner or the United States."
287 U.S. at
287 U. S.
312.
The Government leans heavily upon
Moore Ice Cream Co. v.
Rose, 289 U. S. 373. In
that case, the constitutionality of § 1014 of the Revenue Act of
1924, 43 Stat. 253, 343, providing that a taxpayer may recover an
unlawful federal tax even though he paid the tax without protest,
was upheld as applied to a payment without protest made prior to
the enactment of the provision. In reaching this conclusion, the
Court noted that, under R.S. § 989, 28 U.S.C. § 842, a collector
who acts under the directions of the Secretary of the Treasury, or
other proper officer of the Government,
"is entitled as of right to a certificate converting the suit
against him into one against the government. . . . A suit against a
collector who has collected a tax in the fulfillment of a
ministerial duty is today an anomalous relic of bygone modes of
thought. He is not suable as a trespasser, nor is he to pay out of
his own purse. He is made a defendant because the statute has said
for many years that such a remedy shall exist, though he has been
guilty of no wrong, and though another is to pay. . . . There may
have been utility in such procedural
Page 316 U. S. 262
devices in days when the government was not suable as freely as
now. . . . They have little utility today, at all events where the
complaint against the officer shows upon its face that in the
process of collecting he was acting in the line of duty, and that,
in the line of duty, he has turned the money over. In such
circumstances, his presence as a defendant is merely a remedial
expedient for bringing the government into court."
289 U.S. at
289 U. S.
381-383.
The Government urges that, even though the
Moore Ice
Cream case was not concerned with the conclusiveness of a
judgment in a suit against the collector, its rationale undermined
the
Sage doctrine. But such has not been the influence of
the
Moore Ice Cream case on the subsequent course of
decisions relevant to our purpose.
Tait v. Western Maryland Ry.
Co., 289 U. S. 620,
decided by a unanimous Court three weeks after the decision in the
Moore Ice Cream case, is incontrovertible proof that the
Sage doctrine was left unimpaired. The Court there held
that a judgment in a suit against the Commissioner was binding in a
subsequent action against the United States and the collector. The
doctrine in the
Sage case was explicitly reaffirmed:
"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.
1;
Graham and 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. S.
308,
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."
298 U.S. at
298 U. S.
627.
More recently, in
Sunshine Coal Co. v. Adkins,
310 U. S. 381,
where the principle of
res judicata was applied to
Page 316 U. S. 263
suits to which an administrative agency was a party, the Court
again expressly adhered to the doctrine of the
Sage
case:
"Cases holding that a judgment in a suit against a collector for
unlawful exaction is not a bar to a subsequent suit by or against
the Commissioner or the United States (
Sage v. United
States, 250 U. S. 33;
Bankers'
Pocahontas Coal Co. v. Burnet, 287 U. S.
308) are not in point, since the suit against the
collector is 'personal, and its incidents, such as the nature of
the defenses open and the allowance of interest, are
different.'"
310 U.S. at
310 U. S. 403.
And, earlier in this term, in
United States v. Kales,
314 U. S. 186, in
speaking of the right of a taxpayer to maintain separate suits
against a collector and the government for tax payments made to two
collectors on income derived from a single transaction in a single
tax year, the Court said:
"The judgment against the collector is a personal judgment to
which the United States is a stranger except as it has obligated
itself to pay it.
See Sage v. United States, supra; Smietanka
v. Indiana Steel Co., supra, 257 U. S.
4-5. While the statutes have, for most practical
purposes, reduced the personal liability of the collector to a
fiction, the course of the legislation indicates clearly enough
that it is a fiction intended to be acted upon to the extent that
the right to maintain the suit and its incidents, until judgment
rendered, are to be left undisturbed. . . . The right to pursue the
common law action against the collector is too deeply imbedded in
the statutes and judicial decisions of the United States to admit
of so radical a departure from its traditional use and consequences
as the Government now urges, without further Congressional
action."
314 U.S. at
314 U. S.
199-200.
In summary, therefore, an imposing series of opinions has
fortified the original authority of the
Sage doctrine. No
doubt the precise question raised in each of these cases was
different from the one now before us, and each case might have been
decided without reference to the principles
Page 316 U. S. 264
underlying the rule in the
Sage case. But this only
serves to emphasize the obduracy of the doctrine as part of the
historical scheme of revenue administration. It would have been
easy in all of these cases to dissipate the force of the doctrine
which the
Sage case represents by rejecting it and resting
the decision in that case upon the alternative ground afforded by
the Act of July 27, 1912, c. 256, 37 Stat. 240. That this long line
of cases should have referred to and relied upon the
Sage
case without rejecting the doctrine for which it was cited only
underlines still further its persistence.
Even when this Court found that the common law right to sue the
collector had argumentatively been withdrawn,
See Cary v.
Curtis, 3 How. 236, Congress promptly restored that
right. Act of February 26, 1845, c. 22, 5 Stat. 727. The problem of
legal remedies appropriate for fiscal administration rests within
easy Congressional control. Congress can deal with the matter
comprehensively, unembarrassed by the limitations of a litigation
involving only one phase of a complex problem. The Government
itself does not now ask us to jettison the whole notion of suing a
collector personally. It merely asks us to eliminate one
consequence of that conception. In the field of custom duties,
Congress has devised a comprehensive and interrelated scheme of
administrative and judicial remedies.
See Act of June 17,
1930, 46 Stat. 590, 734, 19 U.S.C. §§ 1514-1515; Freund,
Administrative Powers over Persons and Property, pp. 553-60. If the
doctrine of the
Sage case is now to be abandoned, such a
determination of policy in the administration of the income tax law
should be made by Congress, which maintains a Joint Committee on
Internal Revenue Taxation charged with the duty of investigating
the operation of the federal revenue laws and recommending such
legislation as may be deemed desirable.
Affirmed.
Page 316 U. S. 265
MR. JUSTICE JACKSON took no part in the consideration or
decision of this case.
MR. JUSTICE BLACK, MR. JUSTICE DOUGLAS, and MR. JUSTICE BYRNES
dissent for the reasons (1) that here, unlike the situation in
United States v. Kales, 314 U. S. 186, the
taxpayer had but a single cause of action and could have raised
every issue with respect to the validity of the taxes in the
earlier suit; (2) that here, unlike the situation in
Sage v.
United States, 250 U. S. 33,
250 U. S. 38-39,
there had been no intervening legislation which created rights and
lifted the bar of the judgment in the earlier suit, and (3) that in
the earlier suit the United States became "a party to the judgment
as a matter of law" (Griswold,
Res Judicata in Federal Tax
Cases, 46 Yale L.Journ. 1320, 1342), since, in these days, the
presence of the collector as a defendant who acts "in the line of
duty" is "merely a remedial expedient for bringing the government
into court."
Moore Ice Cream Co. v. Rose, 289 U.
S. 373,
289 U. S.
383.