Under 28 U.S.C. § 1346(a)(1), a Federal District Court does not
have jurisdiction of an action by a taxpayer for refund of a part
payment made by him on an assessment for an alleged deficiency in
his income tax. The taxpayer must pay the full amount of the
assessment before he may challenge its validity in an action under
§1346(a)(1).
Flora v. United States, 357 U. S.
63, reaffirmed. Pp.
362 U. S.
146-177.
(a) The language of § 1346(a)(1) can more readily be construed
to require payment of the full tax before suit than to permit suit
for recovery of a part payment. Pp.
362 U. S.
148-151.
(b) The legislative history of § 1346(a)(1) is barren of any
clue to the congressional intent on this issue; but that section is
a jurisdictional provision which is a keystone in a carefully
articulated and quite complicated structure of tax laws; since
enactment of its precursor in 1921, Congress has several times
acted upon the assumption that § 1346(a)(1) requires full payment
before suit; and any evidence of a contrary intent is too weak and
insubstantial to justify destroying the existing harmony of the tax
statutes. Pp.
362 U. S.
151-158.
(c) In establishing the Board of Tax Appeals (now the Tax
Court), Congress acted upon the assumption that full payment of the
tax assessed was a condition precedent for bringing suit for refund
in a District Court, and it chose to establish the Board as a
different forum where the validity of an assessment could be
litigated without prior payment in full. Pp.
362 U. S.
158-163.
(d) To permit such a suit in a District Court would be
inconsistent with the purpose of § 405 of the Revenue Act of 1935,
which amended the Declaratory Judgment Act so as to except disputes
"with respect to Federal taxes." Pp.
362 U. S.
164-165.
(e) To permit such a suit in a District Court would generate the
very problems which Congress believed it had solved by § 7422(e) of
the Internal Revenue Code of 1954. Pp.
362 U. S.
165-167.
(f) A different conclusion is not required by the administrative
practice prior to 1940, nor by a few inconsequential exceptions
to
Page 362 U. S. 146
the otherwise uniform belief prior to 1940 that full payment had
to precede suit in a District Court for refund. Pp.
362 U. S.
167-175.
(g) Requiring taxpayers to pay assessments in full before suing
in a District Court will not necessarily subject them to undue
hardships, since they may appeal to the Tax Court without first
paying anything. Pp.
362 U. S.
175-177.
246 F.2d 929 affirmed.
MR. CHIEF JUSTICE WARREN delivered the opinion of the Court.
The question presented is whether a Federal District Court has
jurisdiction under 28 U.S.C. § 1346(a)(1), of a suit by a taxpayer
for the refund of income tax payments which did not discharge the
entire amount of his assessment.
This is our second consideration of the case. In the 1957 Term,
we decided that full payment of the assessment is a jurisdictional
prerequisite to suit,
357 U. S. 357 U.S.
63. Subsequently the Court granted a petition for rehearing. 360
U.S. 922. The case has been exhaustively briefed and ably argued.
After giving the problem our most careful attention, we have
concluded that our original disposition of the case was
correct.
Under such circumstances, normally a brief epilogue to the prior
opinion would be sufficient to account for our decision. However,
because petitioner, in reargument, has placed somewhat greater
emphasis upon certain contentions than he had previously, and
because our dissenting colleagues have elaborated upon the reasons
for their
Page 362 U. S. 147
disagreement, we deem it advisable to set forth our reasoning in
some detail, even though this necessitates repeating much of what
we have already said.
THE FACTS
The relevant facts are undisputed and uncomplicated. This
litigation had its source in a dispute between petitioner and the
Commissioner of Internal Revenue concerning the proper
characterization of certain losses which petitioner suffered during
1950. Petitioner reported them as ordinary losses, but the
Commissioner treated them as capital losses and levied a deficiency
assessment in the amount of $28,908.60, including interest.
Petitioner paid $5,058.54 and then filed with the Commissioner a
claim for refund of that amount. After the claim was disallowed,
petitioner sued for refund in a District Court. The Government
moved to dismiss, and the judge decided that the petitioner "should
not maintain" the action, because he had not paid the full amount
of the assessment. But since there was a conflict among the Courts
of Appeals on this jurisdictional question, and since the Tenth
Circuit had not yet passed upon it, the judge believed it desirable
to determine the merits of the claim. He thereupon concluded that
the losses were capital in nature, and entered judgment in favor of
the Government.
142 F.
Supp. 602. The Court of Appeals for the Tenth Circuit agreed
with the district judge upon the jurisdictional issue, and
consequently remanded with directions to vacate the judgment and
dismiss the complaint. 246 F.2d 929. We granted certiorari because
the Courts of Appeals were in conflict with respect to a question
which is of considerable importance in the administration of the
tax laws. [
Footnote 1]
Page 362 U. S. 148
THE STATUTE
The question raised in this case has not only raised a conflict
in the federal decisions, but has also in recent years provoked
controversy among legal commentators. [
Footnote 2] In view of this divergence of expert opinion,
it would be surprising if the words of the statute inexorably
dictated but a single reasonable conclusion. Nevertheless, one of
the arguments which has been most strenuously urged is that the
plain language of the statute precludes, or at the very least
strongly militates against, a decision that full payment of the
income tax assessment is a jurisdictional condition precedent to
maintenance of a refund suit in a District Court. If this were
true, presumably we could but recite the statute and enter judgment
for petitioner -- though we might be pardoned some perplexity as to
how such a simple matter could have caused so much confusion.
Regrettably, this facile an approach will not serve.
Section 1346(a)(1) provides that the District Courts shall have
jurisdiction, concurrent with the Court of Claims, of
"(1) Any civil action against the United States for the recovery
of
any internal revenue tax alleged to have been
erroneously or illegally assessed or collected, or
any
penalty claimed to have been collected
Page 362 U. S. 149
without authority or any sum alleged to have been excessive or
in any manner wrongfully collected under the internal revenue laws.
. . ."
(Emphasis added.)
It is clear enough that the phrase "any internal revenue tax"
can readily be construed to refer to payment of the entire amount
of an assessment. Such an interpretation is suggested by the nature
of the income tax, which is "[
a] tax . . . imposed for
each taxable year," with the "amount of
the tax"
determined in accordance with prescribed schedules. [
Footnote 3] (Emphasis added.) But it is
argued that this reading of the statute is foreclosed by the
presence in § 1346(a)(1) of the phrase "any sum." This contention
appears to be based upon the notion that "any sum" is a catchall
which confers jurisdiction to adjudicate suits for refund of part
of a tax. A catchall the phrase surely is, but to say this is not
to define what it catches. The sweeping role which petitioner
assigns these words is based upon a conjunctive reading of "any
internal revenue tax," "any penalty," and "any sum." But we believe
that the statute more readily lends itself to the disjunctive
reading which is suggested by the connective "or." That is, "any
sum," instead of being related to "any internal revenue tax" and
"any penalty," may refer to amounts which are neither taxes nor
penalties. Under this interpretation, the function of the phrase is
to permit suit for recovery of items which might not be designated
as either "taxes" or "penalties" by Congress or the courts. One
obvious example of such a "sum" is interest. And it is significant
that many old tax statutes described the amount which was to be
assessed under certain circumstances as a "sum" to be added to the
tax, simply as a
Page 362 U. S. 150
"sum," as a "percentum," or as "costs." [
Footnote 4] Such a rendition of the statute, which is
supported by precedent, [
Footnote
5] frees the phrase "any internal revenue tax" from the
qualifications imposed upon it by petitioner and permits it to be
given what we regard as its more natural reading -- the full tax.
Moreover, this construction, under which each phrase is assigned a
distinct meaning, imputes to Congress a surer grammatical touch
than does the alternative interpretation, under which the "any sum"
phrase completely assimilates the other two. Surely a much clearer
statute could have been written to authorize suits for refund of
any part of a tax merely by use of the phrase "a tax or any portion
thereof," or simply "any sum paid under the internal revenue laws."
This Court naturally does not review congressional enactments as a
panel of grammarians; but neither do we regard ordinary principles
of English prose as irrelevant to a construction of those
enactments.
Cf. Commissioner v. Acker, 361 U. S.
87.
We conclude that the language of § 1346(a)(1) can be more
readily construed to require payment of the full tax before suit
than to permit suit for recovery of a part
Page 362 U. S. 151
payment. But, as we recognized in the prior opinion, the
statutory language is not absolutely controlling, and consequently
resort must be had to whatever other materials might be relevant.
[
Footnote 6]
LEGISLATIVE HISTORY AND HISTORICAL BACKGROUND
Although frequently the legislative history of a statute is the
most fruitful source of instruction as to its proper
interpretation, in this case, that history is barren of any clue to
congressional intent.
The precursor of § 1346(a)(1) was § 1310(c) of the Revenue Act
of 1921, [
Footnote 7] in which
the language with which we are here concerned appeared for the
first time in a jurisdictional statute. Section 1310(c) had an
overt purpose unrelated to the question whether full payment of an
assessed tax was a jurisdictional prerequisite to a suit for
refund. Prior to 1921, tax refund suits against the United States
could be maintained in the District Courts under the authority of
the Tucker Act, which had been passed in 1887. [
Footnote 8] Where the claim exceeded $10,000,
however, such a suit could not be brought, and in such a situation,
the taxpayer's remedy in District Court was against the
Collector.
Page 362 U. S. 152
But, because the Collector had to be sued personally, no
District Court action was available if he was deceased. [
Footnote 9] The 1921 provision, which
was an amendment to the Tucker Act, was explicitly designed to
permit taxpayers to sue the United States in the District Courts
for sums exceeding $10,000 where the Collector had died. [
Footnote 10]
The ancestry of the language of § 1346(a)(1) is no more
enlightening than is the legislative history of the 1921 provision.
This language, which, as we have stated, appeared in substantially
its present form in the 1921 amendment, was apparently taken from
R.S. § 3226 (1878). But § 3226 was not a jurisdictional statute at
all; it simply specified that suits for recovery of taxes,
penalties, or sums could not be maintained until after a claim for
refund had been submitted to the Commissioner. [
Footnote 11]
Thus, there is presented a vexing situation -- statutory
language which is inconclusive and legislative history which is
irrelevant. This, of course, does not necessarily mean that §
1346(a)(1) expresses no congressional intent with respect to the
issue before the Court; but it does make that intent uncommonly
difficult to divine.
It is argued, however, that the puzzle may be solved through
consideration of the historical basis of a suit to recover a tax
illegally assessed. The argument proceeds as follows: a suit to
recover taxes could, before the Tucker
Page 362 U. S. 153
Act, be brought only against the Collector. Such a suit was
based upon the common law count of assumpsit for money had and
received, and the nature of that count requires the inference that
a suit for recovery of part payment of a tax could have been
maintained. Neither the Tucker Act nor the 1921 amendment indicates
an intent to change the nature of the refund action in any
pertinent respect. Consequently, there is no warrant for importing
into § 1346(a)(1) a full payment requirement.
For reasons which will appear later, we believe that the
conclusion would not follow even if the premises were clearly
sound. But, in addition, we have substantial doubt about the
validity of the premises. As we have already indicated, the
language of the 1921 amendment does, in fact, tend to indicate a
congressional purpose to require full payment as a jurisdictional
prerequisite to suit for refund. Moreover, we are not satisfied
that the suit against the collector was identical to the common law
action of assumpsit for money had and received. One difficulty is
that, because of the Act of February 26, 1845, c. 22, 5 Stat. 727,
which restored the right of action against the Collector after this
Court had held that it had been implicitly eliminated by other
legislation, [
Footnote 12]
the Court no longer regarded the suit as a common law action, but
rather as a statutory remedy which, "in its nature, [was] a remedy
against the Government."
Curtis' Administratrix v.
Fiedler, 2 Black 461,
67 U. S. 479.
On the other hand, it is true that none of the statutes relating to
this type of suit clearly indicate a congressional intention to
require full payment of the assessed tax before suit. [
Footnote 13] Nevertheless, the
opinion of this Court in
Cheatham v. United States,
92 U. S. 85,
prevents us from accepting the
Page 362 U. S. 154
analogy between the statutory action against the Collector and
the common law count. In this 1875 opinion, the Court described the
remedies available to taxpayers as follows:
"So also, in the internal revenue department, the statute which
we have copied allows appeals from the assessor to the commissioner
of internal revenue; and, if dissatisfied with his decision,
on
paying the tax, the party can sue the collector; and, if the
money was wrongfully exacted, the courts will give him relief by a
judgment, which the United States pledges herself to pay."
"
* * * *"
". . . While a free course of remonstrance and appeal is allowed
within the departments before the money is finally exacted, the
general government has wisely made
the payment of the tax
claimed, whether of customs or of internal revenue, a
condition precedent to a resort to the courts by the party against
whom the tax is assessed. . . . If the compliance with this
condition [that appeal must be made to the Commissioner and suit
brought within six months of his decision] requires the party
aggrieved to pay the money, he must do it. He cannot, after the
decision is rendered against him, protract the time within which he
can contest that decision in the courts by his own delay in paying
the money. It is essential to the honor and orderly conduct of the
Government that its taxes should be promptly paid and drawbacks
speedily adjusted, and the rule prescribed in this class of cases
is neither arbitrary nor unreasonable. . . ."
"The objecting party can take his appeal. He can, if the
decision is delayed beyond twelve months,
Page 362 U. S. 155
rest his case on that decision; or he can
pay the amount
claimed, and commence his suit at any time within that period.
So, after the decision, he can pay at once, and commence suit
within the six months. . . ."
92 U.S. at
92 U. S. 88-89.
(Emphasis added.)
Reargument has not changed our view that this language reflects
an understanding that full payment of the tax was a prerequisite to
suit. Of course, as stated in our prior opinion, the
Cheatham statement is dictum; but we reiterate that it
appears to us to be "carefully considered dictum." 357 U.S. at
357 U. S. 68.
Equally important is the fact that the Court was construing the
"claim for refund" statute from which, as amended, the language of
§ 1346(a)(1) was presumably taken. [
Footnote 14] Thus, it seems that, in
Cheatham,
the Supreme Court interpreted this language not only to specify
which claims for refund must first be presented for administrative
reconsideration, but also to constitute an additional qualification
upon the statutory right to sue the Collector. It is true that the
version of the provision involved in
Cheatham contained
only the phrase "any tax." But the phrase "any penalty" and "any
sum" were added well before the decision in
Cheatham;
[
Footnote 15] the history of
these amendments makes it quite clear that they were not designed
to effect any change relevant to the
Cheatham rule;
[
Footnote 16] language
in
Page 362 U. S. 156
opinions of this Court after
Cheatham is consistent
with the
Cheatham statement; [
Footnote 17] and, in any event, as we have indicated,
we can see nothing in these additional words which would negate the
full payment requirement.
Page 362 U. S. 157
If this were all the material relevant to a construction of §
1346(a)(1), determination of the issue at bar would be inordinately
difficult. Favoring petitioner would be the theory that, in the
early nineteenth century, a suit for recovery of part payment of an
assessment could be maintained against the Collector, together with
the absence of any conclusive evidence that Congress has ever
intended to inaugurate a new rule; favoring respondent would be the
Cheatham statement and the language of the 1921 statute.
There are, however, additional factors which are dispositive.
We are not here concerned with a single sentence in an isolated
statute, but rather with a jurisdictional provision which is a
keystone in a carefully articulated and quite complicated structure
of tax laws. From these related statutes, all of which were passed
after 1921, it is apparent that Congress has several times acted
upon the assumption that § 1346(a)(1) requires full payment before
suit. Of course, if the clear purpose of Congress at any time had
been to permit suit to recover a part payment, this subsequent
legislation would have to be disregarded. But, as we have stated,
the evidence pertaining to this intent
Page 362 U. S. 158
is extremely weak, and we are convinced that it is entirely too
insubstantial to justify destroying the existing harmony of the tax
statutes. The laws which we consider especially pertinent are the
statute establishing the Board of Tax Appeals (now the Tax Court),
the Declaratory Judgment Act and § 7422(e) of the Internal Revenue
Code of 1954.
THE BOARD OF TAX APPEALS
The Board of Tax Appeals was established by Congress in 1924 to
permit taxpayers to secure a determination of tax liability before
payment of the deficiency. [
Footnote 18] The Government argues that the Congress
which passed this 1924 legislation thought full payment of the tax
assessed was a condition for bringing suit in a District Court;
that Congress believed this sometimes caused hardship; and that
Congress set up the Board to alleviate that hardship. Petitioner
denies this, and contends that Congress' sole purpose was to enable
taxpayers to prevent the Government from collecting taxes by
exercise of its power of distraint. [
Footnote 19]
We believe that the legislative history surrounding both the
creation of the Board and the subsequent revisions of the basic
statute supports the Government. The House Committee Report, for
example, explained the purpose of the bill as follows:
"The committee recommends the establishment of a Board of Tax
Appeals to which a taxpayer may appeal
prior to the
payment of an additional assessment of income, excess profits,
war profits, or estate taxes.
Although a taxpayer may, after
payment of
Page 362 U. S. 159
his tax, bring suit for the recovery thereof, and thus
secure a judicial determination on the questions involved, he
cannot, in view of section 3224 of the Revised Statutes, which
prohibits suits to enjoin the collection of taxes, secure such a
determination prior to the payment of the tax. The right of appeal
after payment of the tax is an incomplete remedy, and does little
to remove the hardship occasioned by an incorrect assessment. The
payment of a large additional tax on income received several years
previous and which may have, since its receipt, been either wiped
out by subsequent losses, invested in nonliquid assets, or spent,
sometimes forces taxpayers into bankruptcy, and often causes great
financial hardship and sacrifice. These results are not remedied by
permitting the taxpayer
to sue for the recovery of the tax
after this payment. He is entitled to an appeal and to a
determination of his liability for the tax prior to its payment.
[
Footnote 20]"
(Emphasis added.)
Moreover, throughout the congressional debates are to be found
frequent expressions of the principle that payment of the full tax
was a precondition to suit: "pay his tax . . . , then . . . file a
claim for refund"; "pay the tax, and then sue"; "a review in the
courts after payment of the tax"; "he may still seek court review,
but he must first pay the tax assessed"; "in order to go to court,
he must pay his assessment"; "he must pay it [his assessment]
Page 362 U. S. 160
before he can have a trial in court"; "pay the taxes adjudicated
against him, and then commence a suit in a court"; "pay the tax . .
. , [t]hen . . . sue to get it back"; "paying his tax and bringing
his suit"; "first pay his tax, and then sue to get it back"; "take
his case to the district court -- conditioned, of course, upon his
paying the assessment." [
Footnote 21]
Petitioner's argument falls under the weight of this evidence.
It is true, of course, that the Board of Tax Appeals procedure has
the effect of staying collection, [
Footnote 22] and it may well be that Congress so provided
in order to alleviate hardships caused by the longstanding bar
against suits to enjoin the collection of taxes. But it is a
considerable leap to the further conclusion that amelioration of
the hardship of pre-litigation payment as a jurisdictional
requirement was not another important
Page 362 U. S. 161
motivation for Congress' action. [
Footnote 23] To reconcile the legislative history with
this conclusion seems to require the presumption that all the
Congressmen who spoke of payment of the assessment before suit as a
hardship understood -- without saying -- that suit could be brought
for whatever part of the assessment had been paid, but believed
that, as a practical matter, hardship would nonetheless arise
because the Government would require payment of the balance of the
tax by exercising its power of distraint. But if this was, in fact,
the view of these legislators, it is indeed extraordinary that they
did not say so. [
Footnote
24]
Page 362 U. S. 162
Moreover, if Congress' only concern was to prevent distraint, it
is somewhat difficult to understand why Congress did not simply
authorize injunction suits. It is interesting to note in this
connection that bills to permit the same type of prepayment
litigation in the District Courts as is
Page 362 U. S. 163
possible in the Tax Court have been introduced several times,
but none has ever been adopted. [
Footnote 25]
In sum, even assuming that one purpose of Congress in
establishing the Board was to permit taxpayers to avoid distraint,
it seems evident that another purpose was to furnish a forum where
full payment of the assessment would not be a condition precedent
to suit. The result is a system in which there is one tribunal for
prepayment litigation and another for post-payment litigation, with
no room contemplated for a hybrid of the type proposed by
petitioner.
Page 362 U. S. 164
THE DECLARATORY JUDGMENT ACT
The Federal Declaratory Judgment Act of 1934 [
Footnote 26] was amended by § 405 of the
Revenue Act of 1935 expressly to except disputes "with respect to
Federal taxes." [
Footnote
27] The Senate Report explained the purpose of the amendment as
follows:
"Your committee has added an amendment making it clear that the
Federal Declaratory Judgments Act of June 14, 1934, has no
application to Federal taxes. The application of the Declaratory
Judgments Act to taxes would constitute a
radical
departure from the long continued policy of Congress (as
expressed in Rev.Stat. 3224 and other provisions) with respect to
the determination, assessment, and collection of Federal taxes.
Your committee believes that the orderly and prompt determination
and collection of Federal taxes should not be interfered with by a
procedure designed to facilitate the settlement of private
controversies, and that existing procedure both in the Board of Tax
Appeals and the courts affords ample remedies for the correction of
tax errors. [
Footnote
28]"
(Emphasis added.)
It is clear enough that one "radical departure" which was
averted by the amendment was the potential circumvention of the
"pay first and litigate later" rule by way of suits for declaratory
judgments in tax cases. [
Footnote 29] Petitioner
Page 362 U. S. 165
would have us give this Court's imprimatur to precisely the same
type of "radical departure," since a suit for recovery of but a
part of an assessment would determine the legality of the balance
by operation of the principle of collateral estoppel. With respect
to this unpaid portion, the taxpayer would be securing what is in
effect -- even though not technically -- a declaratory judgment.
The frustration of congressional intent which petitioner asks us to
endorse could hardly be more glaring, for he has conceded that his
argument leads logically to the conclusion that payment of even $1
on a large assessment entitles the taxpayer to sue -- a concession
amply warranted by the obvious impracticality of any judicially
created jurisdictional standard midway between full payment and any
payment.
SECTION 7422(e) OF THE 1954 CODE
One distinct possibility which would emerge from a decision in
favor of petitioner would be that a taxpayer might be able to split
his cause of action, bringing suit for refund of part of the tax in
a Federal District Court and litigating in the Tax Court with
respect to the remainder. In such a situation, the first decision
would, of course, control. Thus, if, for any reason, a litigant
would prefer a District Court adjudication, [
Footnote 30] he might sue for a small portion of
the tax in that tribunal while at the same time protecting the
balance from distraint by invoking the protection of the Tax Court
procedure. On the other hand, different questions would arise if
this device were not employed. For example, would the Government be
required to file a compulsory counterclaim for the unpaid
Page 362 U. S. 166
balance in District Court under Rule 13 of the Federal Rules of
Civil Procedure? If so, which party would have the burden of proof?
[
Footnote 31]
Section 7422(e) of the 1954 Internal Revenue Code makes it
apparent that Congress has assumed these problems are nonexistent
except in the rare case where the taxpayer brings suit in a
District Court and the Commissioner then notifies him of an
additional deficiency. Under § 7422(e), such a claimant is given
the option of pursuing his suit in the District Court or in the Tax
Court,
but he cannot litigate in both. Moreover, if he
decides to remain in the District Court, the Government may -- but
seemingly is not required to -- bring a counterclaim, and if it
does, the taxpayer has the burden of proof. [
Footnote 32] If we
Page 362 U. S. 167
were to overturn the assumption upon which Congress has acted,
we would generate upon a broad scale the very problems Congress
believed it had solved. [
Footnote 33]
These, then, are the basic reasons for our decision, and our
views would be unaffected by the constancy or inconstancy of
administrative practice. However, because the petition for
rehearing in this case focused almost exclusively upon a single
clause in the prior opinion
"there does not appear to be a single case before 1940 in which
a taxpayer attempted a suit for refund of income taxes without
paying the full amount the Government alleged to be due,"
357 U.S. at
357 U. S. 69 --
we feel obliged to comment upon the material introduced upon
reargument. The
Page 362 U. S. 168
reargument has, if anything, strengthened, rather than weakened,
the substance of this statement, which was directed to the question
whether there has been a consistent understanding of the "pay first
and litigate later" principle by the interested government agencies
and by the bar.
So far as appears,
Suhr v. United States, 18 F.2d 81,
decided by the Third Circuit in 1927, is the earliest case in which
a taxpayer in a refund action sought to contest an assessment
without having paid the full amount then due. [
Footnote 34] In holding that the District Court
had no jurisdiction of the action, the Court of Appeals said:
"None of the various tax acts provide for recourse to the courts
by a taxpayer until he has failed to get relief from the proper
administrative body or has paid all the taxes assessed against him.
The payment of a part does not confer jurisdiction upon the courts.
. . . There is no provision for refund to the taxpayer of any
excess payment of any installment or part of his tax, if the whole
tax for the year has not been paid."
Id. at 83.
Page 362 U. S. 169
Although the statement by the court might have been dictum,
[
Footnote 35] it was in
accord with substantially contemporaneous statements by Secretary
of the Treasury A. W. Mellon, by Under Secretary of the Treasury
Garrard B. Winston, by the first Chairman of the Board of Tax
Appeals, Charles D. Hamel, and by legal commentators. [
Footnote 36]
Page 362 U. S. 170
There is strong circumstantial evidence that this view of the
jurisdiction of the courts was shared by the bar at least until
1940, when the Second Circuit Court of Appeals rejected the
Government's position in
Coates v. United States, 111 F.2d
609. Out of the many thousands of refund cases litigated in the
pre-1940 period -- the Government
Page 362 U. S. 171
reports that there have been approximately 40,000 such suits in
the past 40 years -- exhaustive research has uncovered only nine
suits in which the issue was present, in six of which the
Government contested jurisdiction on part payment grounds.
[
Footnote 37] The
Government's failure to
Page 362 U. S. 175
raise the issue in the other three is obviously entirely without
significance. Considerations of litigation strategy may have been
thought to militate against resting upon such a defense in those
cases. Moreover, where only nine lawsuits involving a particular
issue arise over a period of many decades, the policy of the
Executive Department on that issue can hardly be expected to become
familiar to every government attorney. But, most important, the
number of cases before 1940 in which the issue was present is
simply so inconsequential that it reinforces the conclusion of the
prior opinion with respect to the uniformity of the pre-1940 belief
that full payment had to precede suit.
A word should also be said about the argument that requiring
taxpayers to pay the full assessments before bringing suits will
subject some of them to great hardship. This contention seems to
ignore entirely the right of the taxpayer to appeal the deficiency
to the Tax Court without paying a cent. [
Footnote 38] If he permits his time for filing such an
appeal to expire, he can hardly complain that he has been unjustly
treated, for he is in precisely the same position as any other
person who is barred by a statute of limitations. On the other
hand, the Government has a substantial interest in protecting the
public purse, an interest which would be substantially impaired if
a taxpayer could sue in a District Court without paying his tax in
full. It is instructive to note that, as of June 30, 1959, tax
cases pending in the Tax Court involved $920,046,748, and refund
suits in other courts involved $446,673,640. [
Footnote 39]
Page 362 U. S. 176
It is quite true that the filing of an appeal to the Tax Court
normally precludes the Government from requiring payment of the
tax, [
Footnote 40] but a
decision in petitioner's favor could be expected to throw a great
portion of the Tax Court litigation into the District Courts.
[
Footnote 41] Of course, the
Government can collect the tax from a District Court suitor by
exercising its power of distraint -- if he does not split his cause
of action -- but we cannot believe that compelling resort to this
extraordinary procedure is either wise or in accord with
congressional intent. Our system of taxation is based upon
voluntary assessment and payment, not upon distraint. [
Footnote 42] A full payment
requirement will promote the smooth functioning of this system; a
part payment rule would work at cross-purposes with it. [
Footnote 43]
In sum, if we were to accept petitioner's argument, we would
sacrifice the harmony of our carefully structured twentieth century
system of tax litigation, and all that
Page 362 U. S. 177
would be achieved would be a supposed harmony of § 1346(a)(1)
with what might have been the nineteenth century law had the issue
ever been raised. Reargument has but fortified our view that §
1346(a)(1), correctly construed, requires full payment of the
assessment before an income tax refund suit can be maintained in a
Federal District Court.
Affirmed.
[
Footnote 1]
The decision of the Court of Appeals in
Flora
conflicted with
Bushmiaer v. United States, 230 F.2d 146
(C.A. 8th Cir.).
Cf. Coates v. United States, 111 F.2d 609
(C.A. 2d Cir.);
Sirian Lamp Co. v. Manning, 123 F.2d 776
(C.A. 3d Cir.);
Suhr v. United States, 18 F.2d 81 (C.A. 3d
Cir.),
semble.
[
Footnote 2]
As will appear later, prior to 1940, the general view was that
full payment was a jurisdictional prerequisite. But a substantial
difference of opinion arose after 1940, when the Court of Appeals
for the Second Circuit decided
Coates v. United States,
111 F.2d 609, against the Government.
See Riordan, Must
You Pay Full Tax Assessment Before Suing in the District Court? 8
J.Tax. 179; Beaman, When Not to Go to the Tax Court: Advantages and
Procedures in Going to the District Court, 7 J.Tex. 356; Rudick and
Wender, Federal Income Taxation, 32 N.Y.U.L.Rev. 751, 777-778;
Note, 44 Calif.L.Rev. 956; Note, 2 How.L.J. 290.
[
Footnote 3]
See I.R.C. (1954), §§ 1(a), 1(b)(1), 68A Stat. 5, 6.
The same general pattern has existed for many years.
See,
e.g., §§ 116, 117, of the Act of June 30, 1864, c. 173, 13
Stat. 281-282.
[
Footnote 4]
Revenue Act of 1924, c. 234, § 275(a), 43 Stat. 298; Revenue Act
of 1918, c. 18, § 250(e), 40 Stat. 1084; Act of June 6, 1872, c.
315, § 21, 17 Stat. 246; Act of June 30, 1864, c. 173, § 119, 13
Stat. 283.
See also Helvering v. Mitchell, 303 U.
S. 391,
303 U. S.
405.
[
Footnote 5]
Lower courts have given this construction to the same three
phrases in certain "claim for refund" and limitations provisions in
prior tax statutes.
United States v. Magoon, 77 F.2d 804;
Union Trust Co. v. United States, 5 F. Supp. 259, 261
("The natural definition of "tax" comprehends one "assessment" or
one tax in the entire amount of liability"),
affirmed, 70
F.2d 629, 630 ("We agree with the District Court that "tax,"
"penalty," and "sum" refer to distinct categories of illegal
collections and "tax" includes the entire tax liability as assessed
by the Commissioner");
United States v. Clarke, 69 F.2d
748;
Hills v. United States, 50 F.2d 302, 73 Ct.Cl. 128;
55 F.2d 1001, 73 Ct.Cl. 128;
cf. Blair v. Birkenstock,
271 U. S. 348.
[
Footnote 6]
In the prior opinion, we stated that, were it not for certain
countervailing considerations, the statutory language "might . . .
be termed a clear authorization" to sue for the refund of part
payment of an assessment. 357 U.S. at
357 U. S. 65. It
is quite obvious that we did not regard the language as clear
enough to preclude deciding the case on other grounds. Moreover, it
could at that time be assumed that the terms of the statute favored
the taxpayer, because eight members of the Court considered the
extrinsic evidence alone sufficient to decide the case against him.
Although we are still of that opinion, we now state our views with
regard to the bare words of the statute because the argument that
these words are decisively against the Government has been urged so
strenuously.
[
Footnote 7]
42 Stat. 311.
[
Footnote 8]
24 Stat. 505, as amended, 28 U.S.C. §§ 1346, 1491.
See
United States v. Emery, Bird, Thayer Realty Co., 237 U. S.
28.
[
Footnote 9]
Smietanka v. Indiana Steel Co., 257 U. S.
1.
[
Footnote 10]
See H.R.Conf.Rep. No. 486, 67th Cong., 1st Sess. 57;
remarks of Senator Jones, 61 Cong.Rec. 7506-7507. Another amendment
was added in 1925 giving the right to bring refund suits against
the United States where the Collector was out of office. 43 Stat.
972. And, in 1954, both the $10,000 limitation and the limitation
with respect to the Collector's being dead or out of office were
eliminated. 68 Stat. 589.
[
Footnote 11]
The text of R.S. § 3226 is set forth in
note 16 infra, together with a more
detailed account of the origin and development of the pertinent
statutory language. The successor of R.S. § 3226 is I.R.C. (1954),
§ 7422(a), 68A Stat. 876.
[
Footnote 12]
See Cary v.
Curtis, 3 How. 236.
[
Footnote 13]
E.g., Act of Feb. 26, 1845, c. 22, 5 Stat. 727; Act of
Mar. 3, 1863, c. 74, 12 Stat. 729; Act of June 30, 1864, c. 173, §
44, 13 Stat. 239-240.
[
Footnote 14]
See note 16
infra.
[
Footnote 15]
Cheatham was decided in O.T. 1875, while the phrases in
question were added to the statute on June 6, 1872.
See
note 16 infra, for
a discussion of the statute involved in
Cheatham and its
amendment.
[
Footnote 16]
Section 19 of the Act of July 13, 1866, c. 184, 14 Stat. 152,
was involved in
Cheatham. That section provided:
"Sec. 19. . . . [N]o suit shall be maintained in any court for
the recovery of any tax alleged to have been erroneously or
illegally assessed or collected, until appeal shall have been duly
made to the Commissioner of Internal Revenue. . . ."
The phrases "any penalty" and "any sum" were first introduced
into the statute in § 44 of the Act of June 6, 1872, c. 315, 17
Stat. 257-258, which read as follows:
"Sec. 44. That all suits and proceedings for the recovery
of
any internal tax alleged to have been erroneously assessed or
collected,
or any penalty claimed to have been collected
without authority,
or for any sum which it is alleged was
excessive, or in any manner wrongfully collected, shall be brought
within two years next after the cause of action accrued and not
after; and all claims for the refunding
of any internal tax or
penalty shall be presented to the Commissioner of Internal
Revenue within two years next after the cause of action accrued,
and not after. . . ."
(Emphasis added.)
"A careful reading of this statute discloses the absurd result
which would flow from construing the addition of the 'any sum'
language to affect the full payment rule, which, under this
argument, would be based upon the 'any tax' phrase in the 1866
statute. That is, since the 'any sum' phrase occurs only in the
statute of limitations portion of the 1872 statute, and not in the
'claim for refund' provision, a person would be able to bring a
suit for part payment without filing a claim for refund."
There were no material changes in R.S. § 3226, which
provided:
"Sec. 3226. No suit shall be maintained in any court for the
recovery of any internal tax alleged to have been erroneously or
illegally assessed or collected, or of any penalty claimed to have
been collected without authority, or of any sum alleged to have
been excessive or in any manner wrongfully collected, until appeal
shall have been duly made to the Commissioner of . . . Internal
Revenue. . . ."
It is no doubt true, as petitioner says, that these various
amendments were designed to require submission of all litigable
claims to the Commissioner; but, as we have explained, this
indicates no more than an intent to cover taxes, penalties, and
sums which might, strictly speaking, be neither taxes nor
penalties.
[
Footnote 17]
Kings County Savings Institution v. Blair, 116 U.
S. 200,
116 U. S. 205
(1886) ("No claim for the refunding of taxes can be made according
to law and the regulations until after the taxes have been paid. .
. . [N]o suit can be maintained for taxes illegally collected,
unless a claim therefor has been made within the time prescribed by
the law");
Pollock v. Farmers' Loan & Trust Co.,
157 U. S. 429,
157 U. S. 609
(1895) (dissenting opinion) ("The same authorities [including the
Cheatham case] have established the rule that the proper
course, in a case of illegal taxation, is to pay the tax under
protest or with notice of suit, and then bring an action against
the officer who collected it");
Bailey v. George,
259 U. S. 16,
259 U. S. 20 (1922)
("They might have paid the amount assessed under protest and then
brought suit against the collector. . . ."). This view of
Cheatham also corresponds to that of the Court of Appeals
in this case. 246 F.2d at 930.
See also Bushmiaer v. United
States, 230 F.2d 146, 152-155 (dissenting opinion).
[
Footnote 18]
43 Stat. 336.
[
Footnote 19]
I.R.C. (1954), § 6331, 68A Stat. 783. The Government has
possessed the power of distraint for almost 170 years.
See
Act of Mar. 3, 1791, c. 15, § 23, 1 Stat. 204.
[
Footnote 20]
H.R.Rep. No. 179, 68th Cong., 1st Sess. 7. The Senate Committee
on Finance filed a similar report. S.Rep. No. 398, 68th Cong., 1st
Sess. 8.
The reference to R.S. § 3224 in the House Report clearly was
meant simply to demonstrate that a determination prior to payment
be way of an injunction suit was not possible because of the
statutory bar to such a suit. This anti-injunction provision has
been law for many decades.
See Act of Mar. 2, 1867, c.
169, § 10, 14 Stat. 475. It is now § 7421 of the Internal Revenue
Code of 1954, 68A Stat. 876.
[
Footnote 21]
See 65 Cong.Rec. 2621, 2684, 8110; 67 Cong.Rec. 525,
1144, 3529, 3755.
As we have indicated, some of these remarks were made during
debates over proposed changes in the Board of Tax Appeals
legislation during the middle of the 1920's, but they all reflect
Congress' understanding of the pre-1924 procedure and of the
changes which were made by establishment of the Board. For example,
shortly after the Board legislation was passed, Congress considered
and rejected a proposal to make appeal to the Board and then to a
Circuit Court of Appeals the taxpayer's sole remedy. In the course
of the debate, a number of Senators discussed at length the
taxpayer's right to bring a refund action in court. Some of the
cited quotations are taken from that debate. The following remark
of Senator Fletcher is also illuminating:
"Mr. FLETCHER. . . . I think the most important right that is
preserved here . . . is the right to go into the district court by
the taxpayer upon the payment of the tax.
I do not think that
we ought to allow him to do that unless he does pay the tax; but
when he pays the tax, his right to go into the district court is
preserved."
67 Cong.Rec. 3529. (Emphasis added.)
See also the materials quoted in
note 24 infra.
[
Footnote 22]
See I.R.C. (1954), § 6213(a), 68A Stat. 771. For the
pertinent 1924 legislation,
see Revenue Act of 1924, c.
234, § 274, 43 Stat. 297.
[
Footnote 23]
In
Old Colony Trust Co. v. Commissioner, 279 U.
S. 716,
279 U. S. 721,
this Court expressed the view that the Board
"was created by Congress to provide taxpayers an opportunity to
secure an independent review . . . in advance of their paying the
tax found by the Commissioner to be due. Before the act of 1924,
the taxpayer could only contest the Commissioner's determination of
the amount of the tax after its payment."
[
Footnote 24]
There are a few interchanges among Senators which might be
construed to indicate that they were thinking in terms of
preventing distraint, but the same passages demonstrate even more
clearly that these Senators also intended to eliminate the
necessity of full payment as a prerequisite to suit. For example,
the following debate occurred when Senator Reed, who was a member
of the Committee on Finance, proposed an amendment which would have
a permitted a taxpayer to refuse to pay the deficiency even after
the Board had ruled against him and which would have required the
Government to sue in a District Court.
"Mr. REED of Missouri. . . ."
"
* * * *"
"The practice, as I understand it, has been to require the
taxpayer to pay in the amount of the increased assessment, and then
to allow him to get it back, if he can. In addition to this,
distraints frequently have been issued seizing the property of the
citizen. . . ."
"
* * * *"
"Mr. SWANSON. What are the processes by which a citizen who has
overpaid can get back his money under the existing law?"
"Mr. REED of Missouri. As I understand it, he pays his tax. Then
he makes an application for a return of it. That is heard through
the long, troublesome processes which exist. . . . When the
Treasury is satisfied . . . the taxpayer can go into court at that
time. In the meantime, however, he has had to pay his money."
"
* * * *"
"Mr. SWANSON. Does the Senator mean that, if there is a dispute,
the tax is not assessed permanently against him until the board
reaches its final decision?"
"Mr. SMOOT. Until the board of appeals finally passes upon it,
and after that, if he wants to go to court, he can do so, but, in
order to go to court, he must pay his assessment."
"Mr. REED of Missouri. He must pay it before he can have a trial
in court."
"
* * * *"
"Mr. WALSH of Montana. Mr. President, the hardships . . . in
connection with the collection of these taxes is a very real one. .
. . At least two or three instances have come under my notice, and
my assistance has been asked in cases where the assessing officers
have . . . assessed against the [taxpayer] delinquent taxes of such
an amount that he found it impossible to pay in advance and secure
redress through the ordinary proceeding in a court of law, simply
because it would bankrupt him to endeavor to raise the money. He
was therefore obliged to suffer a distraint. . . ."
"
* * * *"
". . . After the board of review determines the matter, it seems
to me, that is as far as the Government ought to be interrupted in
the matter of the collection of its revenues. Then the taxpayer
would be obliged to pay the tax and take his ordinary action at law
to recover whatever he claims was exacted of him illegally."
65 Cong.Rec. 8109-8114.
A somewhat similar exchange occurred during the 1926 debate over
a proposal to prohibit refund suits where an appeal had been taken
to the Board.
"Mr. REED of Missouri. . . . Now, just one further
question:"
"Why is it that a taxpayer can not be given his day in court by
direct action, without first requiring him to pay the tax that is
assessed? I know I shall be met with the statement that it would
mean interminable delay to the Government, but it frequently
happens that the tax that is assessed is ruinous, and that the
taxpayer can not raise the money. . . ."
"
* * * *"
"In my own personal experience, I have had two clients who were
absolutely ruined by assessments that were unjust and that could
not have stood up in a court of justice. . . . [A]nd it was no
protection to them to say, 'Pay your taxes and then go into court,'
because they did not have the money to pay the taxes, and could not
raise the money to pay the taxes and be out of the money two or
three years."
"
* * * *"
". . . I think the bill needs just one more amendment in this
particular, and that is a provision that any citizen can go into
court without paying any tax and resist the payment. In the
meantime, I agree that the Government, for its own protection,
ought to be allowed, perhaps, in such a case as that, to issue a
distraint. But the idea that a man must first pay his money and
then sue to get it back is anomaly in the law."
67 Cong.Rec. 3530-3533.
Senator Reed later proposed that the appeal from the Board be to
the District Court, instead of to the Circuit Court of Appeals, and
Senator Wadsworth, a member of the Finance Committee Asked:
"Does the Senator not think that other provision in the bill
which permits the taxpayer to take his case to the district court
-- conditioned, of course, upon his paying the assessment -- meets
the situation?"
67 Cong.Rec. 3755.
[
Footnote 25]
S. 1569, 81st Cong., 1st Sess.; S. 384, 82d Cong., 1st Sess.;
H.R. 150 and H.R. 246, 83d Cong., 1st Sess.
[
Footnote 26]
48 Stat. 955, as amended, 28 U.S.C. §§ 2201, 2202.
[
Footnote 27]
49 Stat. 1027.
[
Footnote 28]
S.Rep. No. 1240, 74th Cong., 1st Sess. 11
[
Footnote 29]
"Should the Declaratory Judgment Act be held to apply to tax
cases, it will mean a complete reversal of our present scheme of
taxation. The principle of 'pay first and litigate later' will be
changed to 'litigate first and pay later.' This principle has never
before been departed from."
Wideman, Application of the Declaratory Judgment Act to Tax
Suits, 13 Taxes 539, 540.
[
Footnote 30]
For some practitioners' views on the desirability of litigating
tax cases in Federal District Courts,
see Dockery, Refund
Suits in District Courts, 31 Taxes 523; Yeatman, Tax Controversies,
10 Tex.B.J. 9.
[
Footnote 31]
These problems have already occurred to the bar.
See
Riordan, Must You Pay Full Tax Assessment Before Suing in the
District Court? 8 J.Tax. 179, 181.
[
Footnote 32]
"Sec. 7422. CIVIL ACTIONS FOR REFUND."
"
* * * *"
"(e) STAY OF PROCEEDINGS. -- If the Secretary or his delegate
prior to the hearing of a suit brought by a taxpayer in a district
court or the Court of Claims for the recovery of any income tax,
estate tax, or gift tax (or any penalty relating to such taxes)
mails to the taxpayer a notice that a deficiency has been
determined in respect of the tax which is the subject matter of
taxpayer's suit, the proceedings in taxpayer's suit shall be stayed
during the period of time in which the taxpayer may file a petition
with the Tax Court for a redetermination of the asserted
deficiency, and for 60 days thereafter. If the taxpayer files a
petition with the Tax Court, the district court or the Court of
Claims, as the case may be, shall lose jurisdiction of taxpayer's
suit to whatever extent jurisdiction is acquired by the Tax Court
of the subject matter of taxpayer's suit for refund. If the
taxpayer does not file a petition with the Tax Court for a
redetermination of the asserted deficiency, the United States may
counterclaim in the taxpayer's suit, or intervene in the event of a
suit as described in subsection (c) (relating to suits against
officers or employees of the United States), within the period of
the stay of proceedings notwithstanding that the time for such
pleading may have otherwise expired. The taxpayer shall have the
burden of proof with respect to the issues raised by such
counterclaim or intervention of the United States except as to the
issue of whether the taxpayer has been guilty of fraud with intent
to evade tax. This subsection shall not apply to a suit by a
taxpayer which, prior to the date of enactment of this title, is
commenced, instituted, or pending in a district court or the Court
of Claims for the recovery of any income tax, estate tax, or gift
tax (or any penalty relating to such taxes)."
68A Stat. 877.
The possibility of dual jurisdiction in this type of situation
was confirmed by cases such as
Camp v. United States, 44
F.2d 126, and
Ohio Steel Foundary Co. v. United States, 38
F.2d 144, 69 Ct.Cl. 158.
See H.R.Rep. No. 1337, 83d Cong.,
2d Sess. 109, A431; S.Rep. No. 1662, 83d Cong., 2d Sess. 148,
610.
[
Footnote 33]
For additional evidence of recent congressional understanding of
the jurisdictional requirement of § 1346(a)(1),
see the
House Report which explained the 1954 amendment abolishing the
$10,000 limitation on tax suits against the United States, 68 Stat.
589. After explaining the taxpayer's right to contest a deficiency
in the Tax Court, the report states: "The taxpayer may, however,
elect to pay his tax and thereafter bring suit to recover the
amount claimed to have been illegally exacted." H.R.Rep. No. 659,
83d Cong., 1st Sess. 2.
[
Footnote 34]
Petitioner cites two earlier cases in which the Government
failed to raise the jurisdictional issue.
Bowers v.
Kerbaugh-Empire Co., 271 U. S. 170
(1926);
Cook v. Tait, 265 U. S. 47
(1924). The Government distinguishes these cases on the ground
that, although the total tax for the year had not been paid, the
full amount due at the time of suit had been paid. This situation
occurred because, under § 250(a) of the Revenue Act of 1921, c.
136, 42 Stat. 264, the tax was paid in four installments, and the
plaintiffs in
Cook and
Bowers apparently had paid
the due installments. While we do not suggest that the statute will
support this type of distinction, adoption of it by the Government
or by the bar would not in any way impair the substantial
consistency of the view that full payment has for many decades been
a prerequisite to suit in District Court. An error as to the
applicability of a principle to a unique factual situation does not
mean that the principle itself has been rejected.
[
Footnote 35]
The ground for the decision may have been that the District
Court had no jurisdiction because the taxpayer was contesting the
legality of the balance of the assessment before the Board of Tax
Appeals.
[
Footnote 36]
In welcoming the members of the Board of Tax Appeals on July 16,
1924, Under Secretary Winston described the difficulties which had
arisen in the past.
". . . Under the law, a tax, once assessed, had to be paid by
the taxpayer, and then his remedy was to sue for its recovery. He
must first find the cash for a liability for which he may not have
provided. . . . The first interest of all of the people is, of
course, that the Government continue to function, and, to do this,
it must have the means of prompt collection of the necessary
supplies to keep it going, that is, taxes. The method was,
therefore, the determination by the Commissioner of the amount of
tax due, its collection and suit to recover. . . . [T]he tax as
assessed had to be paid, and the taxpayer was left to his remedy in
the courts. The payment of the tax was often a great hardship on
the taxpayer, meaning in general that he had to raise the cash for
an unexpected liability which might not be lawfully due."
Treas. Dept. Press Release, July 16, 1924.
See also
remarks by Under Secretary Winston in addressing the Seventeenth
Annual Conference of the National Tax Association in September
1924, Proceedings of Seventeenth National Conference 271.
In commenting upon the Board of Tax Appeals legislation, which
contemplated leaving the taxpayer to his District Court remedy if
the decision of the Board was adverse, Secretary of the Treasury
Mellon stated:
"The taxpayer, in the event that decision [of the Board] is
against him, will have to pay the tax according to the assessment
and have recourse to the courts. . . ."
67 Cong.Rec. 552.
On September 17, 1924, the first Chairman of the Board, Charles
D. Hamel, read a paper before the Seventeenth Annual Conference of
the National Tax Association on Taxation which contained the
following remark:
"Prior to the enactment of the Act of 1924 . . . , [i]f the
decision on the appeal [to the Commissioner] was in favor of the
government, the taxpayer, only after payment of the tax, had the
right to protest the correctness of the decision in the courts. . .
."
Proceedings 277-278.
One of the clearest statements of the rule by a commentator is
to be found in Bickford, Court Procedure in Federal Tax Cases (Rev.
ed. 1929) 3, 7-8, 9, 119.
"There are, however, certain other conditions which must be
complied with before a suit is maintainable under this section.
Briefly stated, these are as follows:"
"1. The tax must have been paid."
"2. After payment, the taxpayer must have filed with the
Commissioner . . . a sufficient claim for the refund of the taxes
sued for."
"
* * * *"
"The first requirement is obvious. We have, in the preceding
portions of this volume, found that a proceeding commenced in the
Board of Tax Appeals is the only exception to the rule that no
review by the courts is permissible at common law or under the
statutes, until the tax has been paid and the Government assured of
its revenue."
Id. at 119.
See also Hamel, The United States Board of Tax Appeals
(1926), 10; Klein, Federal Income Taxation (1929), 1372, 1642,
1643; Mellon, Taxation: The People's Business (1924), 62-63;
Ballantine, Federal Income Tax Procedure, Lectures on Taxation,
Columbia University Symposium (1932), 179, 192-193; Caspers,
Assessment of Additional Income Taxes for Prior Years, 1 Nat.
Income Tax Mag. (Oct. 1923), 12; Graupner, The Operation of the
Board of Tax Appeals, 3 Nat. Income Tax Mag. (1925), 295.
But
see Smith, National Taxes, Their Collection, and Rights and
Remedies of the Taxpayer, 8 Geo.L.J. 1, 3 (Apr. 1920).
See also Beaman, When Not to Go to the Tax Court:
Advantages and Procedures in Going to the District Court, 7 J.Tax.
(1957), 356 ("(T)he
Bushmiaer case [permitting suit for
part of the tax] . . . runs counter to a long tradition of
administrative practice and interpretation. . . ."); Rudick and
Wender, Federal Income Taxation, 32 N.Y.U.L.Rev. (1957), 751,
777-778 ("It is generally said that a taxpayer has two remedies if
he disagrees with a determination of the Commissioner. He may pay
the deficiency, file a claim for refund, and sue for the tax in the
district court. . . . Alternatively, the taxpayer may petition the
Tax Court for review of a deficiency prior to payment. The recent
Bushmiaer case is a third alternative. . . . [T]he
Bushmiaer case conflicts with more than thirty years of
experience in the administration and collection of taxes.").
(Footnote omitted.)
[
Footnote 37]
Petitioner cites a number of cases in support of his argument
that neither the bar nor the Government has ever assumed that full
payment of the tax is a jurisdictional prerequisite to suit for
recovery. The following factors rob these cases of the significance
attributed to them by the petitioner:
(a) A number of them, although cited by petitioner in his
petition for rehearing, were later conceded by him, after his
examination of government files, not to be in point.
(b) A number of the cited cases involved excise taxes. The
Government suggests -- and we agree -- that excise tax deficiencies
may be divisible into a tax on each transaction or event, and
therefore present an entirely different problem with respect to the
full payment rule.
(c) The cases arising after 1940 are insignificant. Once the
Second Circuit Court of Appeals had ruled against the Government in
Coates, taxpayers would naturally be much more inclined to
sue before full payment, and the Government might well decide not
to raise the objection in a particular case for reasons relating to
litigation strategy.
(d) In some of the cases, the only amount remaining unpaid at
the time of suit was interest. As we have indicated, the statute
lends itself to a construction which would permit suit for the tax
after full payment thereof without payment of any part of the
interest.
(e) In some of the cases, the Government was not legally
entitled to collect the unpaid tax at the time of suit, either
because the tax system at the time permitted installment payment
(
see note 34
supra), because the unpaid portion had not yet been
assessed, or for some other reason. Although the statute may not
support any distinction based on facts of this nature, it is quite
understandable that a taxpayer might have predicated a suit upon
the theory that the distinction was meaningful, and that the
Government might not have contested it, whether because it agreed
or for tactical reasons.
In the light of these considerations, we regard the following
pre-1941 cases as immaterial:
Baldwin v. Higgins, 100 F.2d
405 (C.A. 2d Cir. 1938) (petitioner concedes);
Sampson v.
Welch, 23 F. Supp.
271 ( D.C.S.D.Cal.1938) (same);
Charleston Lumber Co. v.
United States, 20 F. Supp.
83 (D.C.S.D.W.Va.1937) (same);
Sterling v.
Ham, 3 F. Supp.
386 (D.C.Me.1933) (same);
Farmers' Loan & Trust Co. v.
Bowers, 15 F.2d 706 (D.C.S.D.N.Y.1926),
modified, 22
F.2d 464 (1927),
reversed, 29 F.2d 14 (C.A. 2d Cir. 1928)
(same);
Heinemann Chemical Co. v. Heiner, 36-4 CCH Fed.Tax
Serv. � 9302 (D.C.W.D.Pa.1936),
reversed, 92 F.2d 344
(C.A. 3d Cir. 1937) (only interest unpaid);
Welch v.
Hassett, 15 F. Supp.
692 (D.C.Mass.1936),
reversed, 90 F.2d 833 (C.A. 1st
Cir. 1937),
aff'd, 303 U. S. 303
(1938) (full assessment paid);
Leavitt v. Hendricksen,
37-4 CCH Fed.Tax Serv. � 9312 (D.C.W.D.Wash.1937) (no unpaid
assessment);
Bowers v. Kerbaugh-Empire Co., 271 U.
S. 170 (1926) (all due installments paid);
Cook v.
Tait, 265 U. S. 47 (1924)
(same).
Four pre-1941 cases remain. Of these, only two are clearly cases
in which the jurisdictional issue was present and not raised by the
Government.
Tsivoglou v. United States, 31 F.2d 706 (C.A.
1st Cir. 1929);
Thomas v. United States, 85 Ct.Cl. 313, 18
F. Supp. 942 (1937);
McFadden v. United
States, 20 F. Supp.
625 (D.C.E.D.Pa.1937), is in the "doubtful" category. There,
the Commissioner had granted the taxpayer an extension of time for
payment of 80% of his assessment, and the suit was for the
remaining 20%, which had been paid. The relevant facts of the last
case,
Peerless Paper Box Mfg. Co. v.
Routzahn, 22 F.2d 459
(D.C.N.D.Ohio 1927), are so unclear that the case means nothing.
The Government had applied an admitted 1918 overpayment to a 1917
deficiency, but the deficiency was greater than the overpayment.
The taxpayer sued to recover this overpayment, and whether there
had been full payment at the time of suit depends upon whether the
suit is regarded as one for refund of 1917 or 1918 taxes.
Nor can we agree entirely with petitioner's evaluation of a
second group of pre-1941 cases -- those in which the issue
allegedly was present and the Government did raise it, but lost.
Five of these cases involved primarily the troublesome concurrent
jurisdiction problem that arose before passage of § 7422(e) of the
1954 Code when a taxpayer both appealed to the Tax Court and
brought suit in a Federal District Court.
Brampton Woolen Co.
v. Field, 55 F.2d 325 (D.C.N.H.1931),
reversed, 56
F.2d 23 (C.A. 1st Cir. 1932),
certiorari denied, 287 U.S.
608;
Camp v. United States, 44 F.2d 126 (C.A. 4th. Cir.
1940);
Emery v. United States, 27 F.2d 992
(D.C.W.D.Pa.1928);
Old Colony R. Co. v. United
States, 27 F.2d 994
(D.C.Mass.1928);
Ohio Steel Foundry Co. v. United States,
69 Ct.Cl. 158, 38 F.2d 144 (1930). In all of these cases except
Camp, it appears that the Government did raise the part
payment question. It is true that the contention did not prevail,
but this is not very meaningful. In the first place, this question
was quite subordinate to the major issue, concurrent jurisdiction.
In the second place, the Government won in
Brampton on
another jurisdictional ground. And finally, in contrast to
Flora, in both
Camp and
Ohio Steel
Foundry, the full assessment had been paid at the time suit
was brought; it was only later that an additional deficiency was
asserted by the Commissioner.
To these cases should be added
Riverside Hospital v.
Larson, 38-4 CCH Fed.Tax Serv. � 9542 (D.C.S.D.Fla.1938),
where the Government raised the full payment question and won, and
Suhr v. United States, 14 F.2d 227 (D.C.W.D.Pa.1926),
aff'd, 18 F.2d 81 (C.A. 3d Cir. 1927), another concurrent
jurisdiction case where the Government raised the issue and won,
although the grounds for the decision are not entirely clear.
This, then, is how we see the pre-1941 situation: of 14 cases
originally cited as being cases in which the jurisdictional issue
was present but not raised by the Government, five have been
conceded by petitioner not to be in point; six, and possibly seven,
are distinguishable for various reasons; and only two, or possibly
three, remain. Of five cases cited as being cases in which the
jurisdictional issue was raised by the Government, only one,
Coates v. United States, 111 F.2d 609 (C.A. 2d Cir. 1940),
or at most three, really involved the
Flora question. When
to these are added
Riverside, where the Government won,
Suhr, where it may have won, and
Bramptpon Woolen
Co., where it won in the Court of Appeals on another
jurisdictional ground, the box score is as follows: two or three
cases in which the Government failed to raise the issue; one, or
possibly three, cases in which the Government argued the question
and lost; one case in which it argued the question and won; one
case in which it argued the question and may have won; and one case
in which it raised the issue and prevailed on another
jurisdictional defense -- a total of nine cases, at most, in which
the issue was presented, out of which the Government contested
jurisdiction in six. Of course, this calculation may not be
precise; but, in view of the many thousands of tax refund suits
which have been brought during the decades in question, it is an
accurate enough approximation to reflect a general understanding of
the jurisdictional significance of "pay first, litigate later."
It would be bootless to consider each of the post-1940 cases
cited by petitioner or to list the multitude of cases cited by the
Government in which the jurisdictional issue has been raised. As we
have stated, we believe these cases have no significance
whatsoever. However, perhaps it is worth noting that all but a
handful of the cases which petitioner, in the petition for
rehearing, asserted to be ones in which the Government failed to
raise the jurisdictional issue would be immaterial even if they
were pre-
Coates. Thus, for example, petitioner has
conceded error with respect to three cases.
Dickstein v.
McDonald, 149 F.
Supp. 580 (D.C.M.D.Pa.1957),
aff'd, 255 F.2d 640 (C.A.
3d Cir. 1958);
O'Connor v. United States, 76 F. Supp.
962 (D.C.S.D.N.Y.1948);
Terrell v. United
States, 64 F. Supp.
418 (D.C.E.D.La.1946). A number of the cases involved excise
taxes.
E.g., Griffiths Dairy v. Squire, 138 F.2d 758 (C.A.
9th Cir. 1943);
Auricchio v. United States, 49 F. Supp.
184 (D.C.E.D.N.Y.1943). In some of the cases, only interest
remained unpaid.
Raymond v. United States, 58-1 U.S.T.C. �
9397 (D.C.E.D.Mich.1958);
Hogg v. Allen, 105 F. Supp.
12 (D.C.M.D.Ga.1952). And some of the cases arose in the Third
Circuit after a decision adverse to the Government in
Sirian
Lamp Co. v. Manning, 123 F.2d 776 (C.A. 3d Cir. 1941).
Gallagher v. Smith, 223 F.2d 218 (C.A. 3d Cir. 1955);
Peters v. Smith, 123 F. Supp. 711 (D.C.E.D.Pa.1954),
rev'd, 221 F.2d 721 (C.A. 3d Cir. 1955). It might be noted
also that
Jones v. Fox, 162 F.
Supp. 449 (D.C.Md.1957), cited as a case in which the
Government argued the jurisdictional question and lost, was an
excise tax case in which the court distinguished our prior decision
in
Flora because of the divisibility of the excise tax.
Another such decision during the pre-1941 period was
Friebele
v. United States, 20 F. Supp.
492 (D.C.N.J.1937).
[
Footnote 38]
Petitioner points out that the Tax Court has no jurisdiction
over excise tax cases.
See 9 Mertens, Law of Federal
Income Taxation (Zimet Rev.1958), § 50.08. But this fact provides
no policy support for his position, since, as we have noted, excise
tax assessments may be divisible into a tax on each transaction or
event, so that the full payment rule would probably require no more
than payment of a small amount.
See note 37 supra.
[
Footnote 39]
Of this $446,673,640, District Court suits involved
$222,177,920; Court of Claims suits, $220,247,436; and state court
suits, $4,248,284.
[
Footnote 40]
See note 22
supra.
[
Footnote 41]
The practical effects which might result from acceptance of
petitioner's argument are sketched in Lowitz, Federal Tax Refund
Suits and Partial Payments, 9 The Decalogue J. 9, 10:
"Permitting refund suits after partial payment of the tax
assessment would benefit many taxpayers. Such a law would be open
to wide abuse, and would probably seriously impair the government's
ability to collect taxes. Many taxpayers, without legitimate
grounds for contesting an assessment, would make a token payment
and sue for refund, hoping at least to reduce the amount they would
ultimately have to pay. In jurisdictions where the District Court
is considered to be a 'taxpayer's court,' most taxpayers would use
that forum instead of the Tax Court. Conceivably such legislation
could cause the chaotic tax collection situations which exist in
some European countries, since there would be strong impetus to a
policy of paying a little and trying to settle the balance."
[
Footnote 42]
See Helvering v. Mitchell, 303 U.
S. 391,
303 U. S. 399;
Treas.Regs. on Procedural Rules (1954 Code) § 601.103(a).
[
Footnote 43]
See Riordan, Must You Pay Full Tax Assessment Before
Suing in the District Court? 8 J.Tax. 179, 181:
"1. If the Government is forced to use these remedies
[distraint] on a large scale, it will affect adversely taxpayers'
willingness to perform under our voluntary assessment system."
"2. It will put the burden on the Government to seek out for
seizure the property of every taxpayer who chooses to sue for the
refund of a partial payment. Often, the Government will not be able
to do this without extraordinary and costly effort, and, in some
cases, it may not be able to do it at all."
"3. The use of the drastic collection remedies would often cause
inconvenience and perhaps hardship to the creditors, debtors,
employers, employees, banks and other persons doing business with
the taxpayer."
MR. JUSTICE FRANKFURTER.
I should like to append a word to my Brother WHITTAKER's
opinion, with which I entirely agree.
While
Dobson v. Commissioner, 320 U.
S. 489, is no longer law, the opinion of the much
lamented Mr. Justice Jackson, based as it was on his great
experience in tax litigation, has not lost its force insofar as it
laid bare the complexities and perplexities for judicial
construction of tax legislation. For one not a specialist in this
field to examine every tax question that comes before the Court
independently would involve in most cases an inquiry into the
course of tax legislation and litigation far beyond the facts of
the immediate case. Such an inquiry entails weeks of study and
reflection. Therefore, in construing a tax law, it has been my rule
to follow almost blindly accepted understanding of the meaning of
tax legislation, when that is manifested by long continued,
uniform
Page 362 U. S. 178
practice, unless a statute leaves no admissible opening for
administrative construction.
Therefore, when advised in connection with the disposition of
this case after its first argument that
"there does not appear to be a single case before 1940 in which
a taxpayer attempted a suit for refund of income taxes without
paying the full amount the Government alleged to be due"
(
357 U.S.
63 at
357 U. S. 69), I
deemed such a long continued, unbroken practical construction of
the statute controlling as to the meaning of the Revenue Act of
1921, now 28 U.S.C. § 1346(a)(1). Once the basis which for me
governed the disposition of the case was no longer available, I was
thrown back to an independent inquiry of the course of tax
legislation and litigation for more than a hundred years, for all
of that was relevant to a true understanding of the problem
presented by this case. This involved many weeks of study during
what is called the summer vacation. Such a study led to the
conclusion set forth in detail in the opinion of my Brother
WHITTAKER.
MR. JUSTICE WHITTAKER, with whom MR. JUSTICE FRANKFURTER, MR.
JUSTICE HARLAN, and MR. JUSTICE STEWART join, dissenting.
A deep and abiding conviction that the Court today departs from
the plain direction of Congress expressed in 28 U.S.C. § 1346(a),
defeats its beneficent purpose, and repudiates many soundly
reasoned opinions of the federal courts on the question presented,
compels me to express and explain my disagreement in detail.
In his income tax return for the year 1950, petitioner deducted
in full, as ordinary in character, the losses he had suffered in
commodity transactions in that year, but the Commissioner viewed
those losses as capital in
Page 362 U. S. 179
character, and proposed, by his 90-day letter, the assessment of
a deficiency in the amount of $27,251.13, plus interest. Petitioner
did not petition the Tax Court for a redetermination of the
proposed deficiency, and the Commissioner assessed it on March 27,
1953. In April and June, 1953, petitioner paid to the Commissioner
a total of $5,058.54 upon the assessment, and timely thereafter
filed a claim for refund of that sum. The claim was rejected on
July 13, 1955, and, on August 3, 1956, petitioner brought this
action against the United States in the District Court for Wyoming
to recover the amount paid, alleging,
inter alia, that
said sum "has been illegally and unlawfully collected" from him,
and he prayed judgment therefor with interest from the date of
payment.
At the trial, the Government prevailed on the merits,
142 F.
Supp. 602, but the Court of Appeals, without reaching the
merits, remanded with directions to dismiss, holding that because
the petitioner had not paid the entire amount of the assessment,
the District Court had no jurisdiction of the action. 246 F.2d 929.
We granted certiorari and, after hearing, affirmed the judgment of
the Court of Appeals.
357 U. S. 357 U.S.
63. On June 22, 1959, we granted a petition for rehearing and
restored the case to the docket. 360 U.S. 922. It has since been
rebriefed, reargued and again submitted.
The case is now presented in a very different posture than
before, as certain vital contentions that were previously made are
now conceded to have been erroneous.
The question presented is whether a Federal District Court has
jurisdiction of an action by a taxpayer against the United States
to recover payments made to the Commissioner upon, but which
discharged less than the entire amount of, an illegal
assessment.
The answer to that question depends upon whether the United
States has waived its sovereign immunity to, and
Page 362 U. S. 180
has consented to, such a suit in a District Court. The
applicable jurisdictional statute is 28 U.S.C. § 1346(a). It
provides:
"The district courts shall have original jurisdiction,
concurrent with the Court of Claims, of:"
"(1) Any civil action against the United States for the recovery
of any internal revenue tax alleged to have been erroneously or
illegally assessed or collected, or any penalty claimed to have
been collected without authority
or any sum alleged to have
been excessive or in any manner wrongfully collected under the
internal revenue laws."
(Emphasis added.)
In its former opinion, the Court recognized that the words of
the statute might "be termed a clear authorization to sue for the
refund of
any sum,'" 357 U.S. at 357 U. S. 65,
but it concluded that Congress had left room in the statute for an
implication that the waiver of immunity and grant of jurisdiction
applied only to refund suits in which the entire amounts of
assessments had been paid. Advocating the existence of that
implication, the Government contended and urged that, from the time
of the decision in Cheatham v. United States, 92 U. S.
85, in 1875 until the decision in Coates v. United
States, 111 F.2d 609 (C.A. 2d Cir.), in 1940, there was an
unquestioned understanding and uniform practice that full payment
of an assessment was a condition upon the right to sue for refund,
and, finding what it then accepted as adequate support for that
contention, the Court was persuaded that, since no subsequent
statute had purported to change it, such unquestioned understanding
so long and uniformly applied was still effective.
Support for that asserted unquestioned understanding and uniform
practice was principally derived from two sources. First,
statements in
Cheatham v. United States, supra, were
thought to have enunciated a full payment
Page 362 U. S. 181
doctrine [
Footnote 2/1] which
seemed never to have been directly questioned. Second, the
contention was accepted that
"there does not appear to be a single case before 1940 in which
a taxpayer attempted a suit for refund of income taxes without
paying the full amount the Government alleged to be due."
357 U.S. at
357 U. S.
69.
The Government now concedes that the second contention was
erroneous. There were, for example, two cases in this Court
(
Cook v. Tait, 265 U. S. 47
(1924);
Bowers v. Kerbaugh-Empire Co., 271 U.
S. 170 (1926)), in which taxpayers had sued for refunds
after having paid only
Page 362 U. S. 182
portions (in one case $298.34 of an assessment of $1,193.38, in
the other $5,198.77 of an assessment of $10,320.14) of the amounts
assessed against them. It was not contended by the Government in
either of those cases that there was any want of jurisdiction, and
this Court considered and decided both upon the merits. [
Footnote 2/2] Petitioner has now cited many
other tax refund cases, decided in the lower courts prior to 1940,
in which taxpayers had paid, and sued to recover, less than the
whole of assessments alleged to have been illegal, and in which
cases the Government did not question jurisdiction. [
Footnote 2/3] The Government concedes that,
in
Page 362 U. S. 183
at least two of these (
Thomas v. United States, 85
Ct.Cl. 313, 18 F. Supp. 942 (1937);
Tsivoglou v. United
States, 31 F.2d 706 (C.A. 1st 1929),
aff'g 27 F.2d 564
(D.C.Mass.1928)) taxpayers had paid, and sued to
Page 362 U. S. 184
recover, less than the whole of deficiency assessments, and that
the Government did not question jurisdiction in either of them.
Prior to the decision in the present case, there were two decisions
in the Courts of Appeals that fully treated with the precise
question here presented. Both held that District Courts have
jurisdiction over actions to recover partial payments upon
assessments alleged to have been illegal.
Coates v. United
States, 111 F.2d 609 (C.A. 2d Cir. 1940);
Bushmiaer v.
United States, 230 F.2d 146 (C.A. 8th Cir. 1956). [
Footnote 2/4] Certainly, the cited cases
and the Government's concession preclude
Page 362 U. S. 185
a conclusion that there ever was an unquestioned understanding
and uniform practice that full payment of an assessed deficiency
was a condition upon the jurisdiction of a District Court to
entertain a suit for refund.
In the light of the foregoing, it is clear that nothing in
Cheatham v. United States, supra, fairly may be said to
hold that full payment of an illegally assessed deficiency is a
condition upon the jurisdiction of a District Court to entertain a
suit for refund. No such issue was involved in that case. There,
the assessment had been fully paid, and the only issue was whether
a proper claim for refund was a condition precedent to the
maintenance of a suit to recover the amount alleged to have been
illegally collected. Not only were the statements there made
respecting "payment of the tax" pure dictum, but even the language
there used did not embrace, and certainly was not directed to, the
question whether full payment of an assessment is a condition upon
the jurisdiction of a District Court to entertain a suit for
refund.
I pass, then, to an examination of the history of the present
jurisdictional provision, § 1346(a), and the scheme of the present
tax law to determine whether there is any real support for the
Government's contention that a proper reading of the language of §
1346(a) requires an implied qualification to its obvious
self-explanatory meaning, so that full payment of an assessment,
alleged to have been illegal, is made a condition upon the
jurisdiction of a District Court to entertain a suit for
refund.
Judicial proceedings for refund of United States taxes in
federal courts originated, without express statutory authority, by
suits against Collectors (now District Directors), before the
United States had made itself amenable to suit.
Elliott v.
Swartwout, 10 Pet. 137 (1836), recognized the
existence of a right of action against a Collector of Customs for
refund of duties
Page 362 U. S. 186
illegally assessed and paid under protest. [
Footnote 2/5] The doctrine of the action, based
upon the common law count of assumpsit for money had and received,
was thus formulated:
"[W]here money is illegally demanded and received by an agent,
he cannot exonerate himself from personal responsibility by paying
it over to his principal if he has had notice not to pay it
over."
10 Pet. at
35 U. S. 158.
As a result of that case, Collectors of Customs who collected
monies, paid under protest, resorted to the practice of withholding
such amounts from the Government as indemnity against loss should a
refund suit against them be successful.
See Plumb, Tax
Refund Suits Against Collectors of Internal Revenue, 60 Harv.L.Rev.
685, 688-689. That practice led to abuses, and facilitated
peculation under the guise of self-protection. Because of the
wholesale frauds of Swartwout, the New York Collector (
see
Swartwout, 18 Dictionary of American Biography (1936), 238-239),
Congress, in 1839, expressly prohibited such withholdings by
Customs Collectors pending the possibility, or the result, of
litigation against them. Act of March 3, 1839, c. 82, § 2, 5 Stat.
348. Six years later, in 1845, this Court held that this Act, by
reducing the Collector to "the mere bearer of those sums [duties]
to the Treasury," terminated the right of action against the
Collector for refund, for, being deprived of the right to withhold
payment to his principal, he was no longer under an implied promise
to refund illegally collected duties to the taxpayer.
Cary v.
Curtis, 3 How. 236,
44 U. S. 241
(1845).
This created the intolerable condition of denying to taxpayers
any remedy whatever in the District Courts to recover amounts
illegally assessed and collected, and -- doubtless also influenced
by the vigorous dissents of Mr.
Page 362 U. S. 187
Justice Story and Mr. Justice McLean in that case -- induced
Congress to pass the Act of Feb. 26, 1845, c. 22, 5 Stat. 727,
[
Footnote 2/6] which was the first
statute expressly giving taxpayers the right to sue for refund of
taxes illegally collected. That Act, in substance, provided that
nothing contained in the Act of March 3, 1839 (c. 82, § 2, 5 Stat.
348), should be construed to take away or impair the right of any
person who had paid duties under protest to any Collector of
Customs, which were not lawfully "payable in part or in whole," to
maintain an action at law against the Collector to recover such
amounts. It is evident that Congress, by that statute, was merely
concerned to reverse the consequences of
Cary v. Curtis,
supra, and to restore the right of action against Collectors
which had originally been sustained in
Elliott v. Swartwout,
supra. Neither the terms of that statute nor such knowledge as
is available of its history [
Footnote
2/7] reveals any limiting purpose except that
Page 362 U. S. 188
the protest be made in writing before or at the time of the
payment.
While that statute, the Act of Feb. 26, 1845, referred only to
refunds of customs duties, this Court held in
City of
Philadelphia v. The Collector, 5 Wall. 720,
72 U. S.
730-733 (1866), that taxpayers had the same right of
action against Collectors to recover illegally collected internal
revenue taxes. [
Footnote 2/8]
The United States was first made directly suable in District
Courts for tax refunds by the Act of March 3, 1887, c. 359, 24
Stat. 505, commonly known as the Tucker Act, which conferred
jurisdiction on the District Courts over
"All claims [against the United States, not exceeding $1,000]
founded upon the Constitution of the United States or any law of
Congress, . . . or upon any contract, expressed or implied, with
the Government of the United States, or for damages, liquidated or
unliquidated, in cases not sounding in tort, in respect of which
claims the party would be entitled to redress against the United
States either in a court of law, equity, or admiralty if the United
States were suable."
This jurisdictional grant
Page 362 U. S. 189
was held, in
United States v. Emery, Bird, Thayer Realty
Co., 237 U. S. 28
(1915), to have included jurisdiction over suits for tax refunds,
as claims "founded upon" the internal revenue laws. The general
language of that Act, the Tucker Act, was most evidently not
intended to, and did not, impose any new conditions upon the
preexisting right to sue (the Collector) for the refund of taxes
illegally collected, save for a monetary limit of $1,000, which was
increased to $10,000 in 1911. [
Footnote
2/9]
The gist of § 1346(a), [
Footnote
2/10] with which we are now concerned, first appeared in the
jurisdictional statute in 1921, as part of the Revenue Act of 1921,
c. 136, § 1310(c), 42 Stat. 311. The reason for its appearance is
entirely unrelated to the question whether full payment of an
assessment is a condition precedent to a suit for refund. Under the
Tucker Act, as it stood in 1921, the United States could not be
sued in a District Court for a tax refund of more than $10,000.
Taxpayers with larger claims could pursue either their old remedy
-- which continued to be available and is today -- against the
Collector in the District Courts or their remedy against the United
States in the Court of Claims. But the right of suit against the
Collector was impaired in 1921 by the decision in
Smietanka v.
Indiana Steel Co., 257 U. S. 1 (1921).
It held that such actions against the Collector were personal in
character, and not maintainable against his successor in office.
Hence, if the Collector had died or ceased to be
Page 362 U. S. 190
in office, a taxpayer with a refund claim of more than $10,000
had no remedy in a District Court. The portion of the Revenue Act
of 1921 that is now embodied in § 1346(a) was an amendment of the
Tucker Act and was designed to preserve to taxpayers with claims of
more than $10,000 a District Court remedy, even where the Collector
had died or was out of office, by suit against the United States.
The legislative history makes this purpose plain. [
Footnote 2/11]
The relevant portion of the 1921 Amendment to the Tucker Act --
part of the Revenue Act of 1921 (c. 136, § 1310(c), 42 Stat. 311)
[
Footnote 2/12] -- was apparently
taken from a provision in Revised Statutes § 3226 (1875) that
"No suit shall be maintained in any court for the recovery of
any internal tax alleged to have been erroneously or illegally
assessed or collected, or of any penalty claimed to have been
collected without authority, or of any sum alleged to have been
excessive or in any manner wrongfully collected, until appeal shall
have been duly made to the Commissioner of [the] Internal Revenue.
[
Footnote 2/13]"
In that context, it is clear that the language "any tax," "any
penalty" or "any sum" had no reference to what payments were
required to precede a suit for refund. Quite evidently, its
function was only to describe, in broadest terms,
Page 362 U. S. 191
the claims for refund which were required to be submitted to the
Commissioner before suit might be brought thereon. What reasonable
basis is there for ascribing to Congress, by reason of its
insertion of this language into the Tucker Act, an intent to
require full payment of an illegal assessment as a condition upon
the jurisdiction of a District Court to entertain a suit for
refund? The change was a jurisdictional one in a jurisdictional
statute, and the language, it is almost necessary to assume, was
chosen because, in another statute, it referred to all of the
actions which could be brought for refund of internal revenue
taxes.
The Government heavily relies on statements made in Congress
pertaining to the establishment in 1924 of the Board of Tax Appeals
(since 1942, designated the Tax Court) and its reorganization in
1926. It asserts that these statements demonstrate a congressional
understanding that the broad language in § 1346(a) excludes
jurisdiction of District Courts to entertain suits to recover only
partial payments of assessments alleged to be illegal. It is true
that those statements, some of which are reproduced in the margin,
[
Footnote 2/14] are consistent
with the Government's
Page 362 U. S. 192
interpretation of that section. But, as with the statements in
Cheatham v. United States, supra, they are not directed to
the question we have here, and are too imprecise for the drawing of
such a far-reaching inference, involving, as it does, the
interpolation of a drastic qualification
Page 362 U. S. 193
into the otherwise plain, clear and unlimited provisions of the
statute.
The Tax Court was created to alleviate hardships occasioned by
the fact that the collection of assessments, however illegal, could
not be enjoined. And the Government argues that the hardships which
motivated Congress to establish the Tax Court would not have
existed if a taxpayer could, as the petitioner did here, pay only
part of a deficiency assessment and then, by way of a suit for
refund, litigate the legality of the assessment in a District
Court. But that procedure would not then, nor today, afford any
sure relief to taxpayers from the hardships which troubled Congress
in 1924, for it is undisputed that the institution of a suit for
refund of a partial payment of an assessment does not stay the
Commissioner's power of collection [
Footnote 2/15] by distraint or otherwise, and a
taxpayer with the property or means to pay the balance of the
assessment cannot avoid its payment, except through the
Commissioner's acquiescence and failure to exercise his power of
distraint. [
Footnote 2/16]
The Government argues, with some force, that our tax legislation
as a whole contemplates the Tax Court as the forum for adjudication
of deficiencies, and the District Courts and Court of Claims as the
forums for adjudication of refund suits. This, in general, is true,
and it is also true that to hold that full payment of
assessments
Page 362 U. S. 194
is not a condition upon the jurisdiction of District Courts to
entertain suits for refund is to sanction what may be called a
"hybrid" remedy in the District Courts, for the suit of the
taxpayer who has paid only part of an assessment and has sued for
refund will, under application of the principles of collateral
estoppel, determine the legality of the remainder of the deficiency
as well as his right to refund of the amount paid. But such dual
determinations are possible under the present law, [
Footnote 2/17] and it is difficult to
conceive how they may create sufficient disharmony to justify such
a strained interpretation of the plain words of § 1346(a) as the
Government's contention would require. [
Footnote 2/18]
Nor is the argument sound that to hold that full payment of an
illegal assessment is not a condition upon the jurisdiction of
District Courts to entertain suits for refund would unduly hamper
the collection of taxes, by encouraging taxpayers to withhold
payment of large portions of assessments while prosecuting
litigation for the refund of the part already paid. Not only is it
true that the institution of a suit for refund does not stay
collection, [
Footnote 2/19] but,
since the creation of the Tax Court, any taxpayer has a method of
withholding payment, immune
Page 362 U. S. 195
from distraint, [
Footnote
2/20] until the legality of the assessment is finally
determined. Any delay in collection which might be caused by
holding that full payment of an assessment is not a condition upon
the jurisdiction of a District Court to entertain a suit for refund
would be of the same order as the delay incident to adjudication by
the Tax Court, and would not create so incongruous a result as to
justify giving an otherwise clear and unlimited statute a strained
and unnatural meaning.
Petitioner, on the other hand, suggests that, if it be held that
full payment of illegal assessments is a condition upon the
jurisdiction of District Courts in refund suits, not only will the
words of § 1346(a) be disregarded, but great hardships upon
taxpayers will result, and that such an intention should not
lightly be implied. Where a taxpayer has paid, upon a normal or a
"jeopardy" assessment, either voluntarily or under compulsion of
distraint, a part only of an illegal assessment, and is unable to
pay the balance within the two-year period of limitations,
[
Footnote 2/21] he would be
deprived of any means of establishing the invalidity of the
assessment and of recovering the amount illegally collected from
him, unless it be held, as it seems to me Congress plainly provided
in § 1346(a), that full payment is not a condition upon the
jurisdiction of District Courts to entertain suits for refund.
[
Footnote 2/22] Likewise,
taxpayers
Page 362 U. S. 196
who pay assessments in installments would be without remedy to
recover early installments that were wrongfully collected should
the period of limitations run before the last installment is
paid.
No one has suggested that Congress could not constitutionally
confer jurisdiction upon District Courts to entertain suits against
the United States to recover sums
Page 362 U. S. 197
wrongfully collected under, but which did not discharge the
whole of, illegal assessments. Nor can it be denied that Congress
has provided in § 1346(a) that:
"The district courts shall have original jurisdiction . . . of .
. . [a]ny civil action against the United States
for the
recovery of . . . any sum alleged to have been excessive or in any
manner wrongfully collected under the internal revenue
laws."
(Emphasis added.) English words more clearly expressive of the
grant of jurisdiction to Federal District Courts over such cases
than those used by Congress do not readily occur to me.
It must, therefore, be concluded that there is no sound reason
for implying into § 1346(a) a limitation that full payment of an
illegal assessment is a condition upon the jurisdiction of a
District Court to entertain a suit for refund. Inasmuch as no
contradiction or absurdity is created by so doing, I think it is
our duty to rely upon the words of § 1346(a), rather than upon
unarticulated implications or exceptions. Particularly is this so
in dealing with legislation in an area such as internal revenue,
where countless rules and exceptions are the subjects of frequent
revisions and precise refinements.
By § 1346(a), Congress expressed its purpose to waive sovereign
immunity to suits, and to grant jurisdiction to District Courts
over suits, to recover "any sum alleged to have been excessive or
in any manner wrongfully collected under the internal revenue
laws." Surely these words do not limit the waiver of immunity or
the grant of jurisdiction to actions in which the entire amounts of
illegal assessments have been paid. Even if the words "any internal
revenue tax" or "any penalty," when read in isolation and most
restrictively, could be thought to contemplate only the entire
amount of an illegal assessment,
Page 362 U. S. 198
the concluding phrase -- "or any sum alleged to have been
excessive or in any manner wrongfully collected" -- leaves no room
or basis for any such construction of the statute as a whole.
Judged by its text and its history in relation to other provisions
of the tax laws, as must be done, I cannot doubt that Congress
plainly expressed its intention to waive sovereign immunity to
suits, and to grant jurisdiction to District Courts over suits,
against the United States to recover "any sum" alleged to have been
wrongfully collected. Petitioner's complaint here alleged that the
$5,058.54 which he had paid to the Commissioner upon the questioned
assessment "has been illegally and unlawfully collected" from him.
The complaint, therefore, stated a cause of action within the
jurisdiction of the District Court.
But the Court does not so see it. The majority now hold, despite
the statute, that full payment of an illegal assessment is a
condition upon the jurisdiction of a District Court to entertain a
suit for refund. It therefore seems appropriate, in order
eventually to avoid the harsh injustice of permitting the
Government unlawfully to collect and retain taxes that are not
owing, to express the hope that Congress will try again.
[
Footnote 2/1]
The language of
Cheatham relied upon by this Court in
its first opinion was the following:
"So also, in the Internal Revenue Department, the statute which
we have copied allows appeals from the assessor to the Commissioner
of Internal Revenue, and, if dissatisfied with his decision, on
paying the tax, the party can sue the collector; and if the money
was wrongfully exacted, the courts will give him relief by a
judgment, which the United States pledges herself to pay."
"
* * * *"
". . . While a free course of remonstrance and appeal is allowed
within the Departments before the money is finally exacted, the
General Government has wisely made the payment of the tax claimed,
whether of customs or of internal revenue, a condition precedent to
a resort to the courts by the party against whom the tax is
assessed. . . . If the compliance with this condition [that suit
must be brought within six months of the Commissioner's decision]
requires the party aggrieved to pay the money, he must do it. He
cannot, after the decision is rendered against him, protract the
time within which he can contest that decision in the courts by his
own delay in paying the money. It is essential to the honor and
orderly conduct of the Government that its taxes should be promptly
paid and drawbacks speedily adjusted, and the rule prescribed in
this class of cases is neither arbitrary nor unreasonable. . .
."
"The objecting party can take his appeal. He can, if the
decision is delayed beyond twelve months, rest his case on that
decision; or he can pay the amount claimed, and commence his suit
at any time within that period. So, after the decision, he can pay
at once, and commence suit within the six months. . . ."
92 U.S. at
92 U. S.
88-89.
[
Footnote 2/2]
The Government now seeks to distinguish these two cases because
they arose under the Revenue Act of 1921, Act of Nov. 23, 1921, c.
136, 42 Stat. 227, and because § 250(a) of which permitted the
taxpayer at his option, to pay the tax in four tri-monthly
installments, rather than all at once. The taxpayers in both
Cook v. Tait and
Bowers v. Kerbaugh-Empire Co.
did choose to pay in installments, and the Government points to the
fact that, at the time the suits were brought, all installments due
had been paid, although the full assessment had not. The Government
therefore would seem to take the position that the whole tax need
not be paid, so long as the taxpayer, when he initiates
the suit, has paid
"all that the taxpayer was at that time legally obligated to
pay, and all (in the absence of a so-called jeopardy assessment)
that the Commissioner was at that time legally empowered to
collect."
(It should be pointed out that, in
Cook v. Tait and
Bowers v. Kerbaugh-Empire Co., installments fell due
immediately after suit was begun, and before hearing or
adjudication; these installments were not paid as they came due.)
It seems almost unnecessary to say that the words of the
jurisdictional statute simply will not support this fine
distinction urged by the Government; nor is there the least support
for it (there is, if anything, contradiction) in the material the
Government cites to establish an understanding of the full payment
requirement.
[
Footnote 2/3]
The lower court' decisions cited by petitioner, that were
rendered prior to 1940, in which taxpayers had paid, and sued to
recover, less than the whole of assessments alleged to have been
illegal, and in which the Government did not question jurisdiction,
are:
Tsivoglou v. United States, 31 F.2d 706 (C.A. 1st
Cir. 1929);
Heinemann Chemical Co. v. Heiner, 92 F.2d 344
(C.A. 3d 1937);
Thomas v. United States, 85 Ct.Cl. 313, 18
F. Supp. 942 (1937);
Peerless Paper Box Mfg. Co. v.
Routzahn, 22 F.2d 459
(D.C.N.D.Ohio 1927);
Welch v. Hassett, 15 F. Supp.
692 (D.C.Mass.1936);
McFadden v. United
States, 20 F. Supp.
625 (D.C.E.D.Pa.1937);
Leavitt v. Hendricksen, 37-2
U.S.T.C. � 9312 (D.C.W.D.Wash.1937).
In justice to counsel for both parties, it seems appropriate to
observe -- what every lawyer knows -- that cases such as these, in
which there "lurked in the record" questions that were not raised
or decided, are not discoverable by any ordinary means of
reference. Without doubt, this fact accounts for the failure of
counsel to take account of or to cite, and of this Court to find,
those cases on the first hearing.
Petitioner has cited a number of other cases, decided by the
lower courts prior to and during 1940, that sought recovery of
partial payments upon assessments, and in each of which the
Government did challenge, but unsuccessfully, the jurisdiction of
the courts, namely,
Coates v. United States, 111 F.2d 609
(C.A. 2d Cir. 1940);
Camp v. United States, 44 F.2d 1269
(C.A. 4th Cir. 1930);
Ohio Steel Foundry Co. v. United
States, 69 Ct.Cl. 158, 38 F.2d 144 (1930);
Emery v. United
States, 27 F.2d 992
(D.C.W.D.Pa.1928);
Old Colony R. Co. v. United
States, 27 F.2d 994
(D.C.Mass.1928).
Petitioner has also cited 22 similar cases, decided by the lower
courts since 1940. In 17 of them (
Kavanagh v. First National
Bank, 139 F.2d 309 (C.A. 6th Cir. 1943);
Griffiths Dairy,
Inc., v. Squire, 138 F.2d 758 (C.A. 9th Cir. 1943);
United
States v. Pfister, 205 F.2d 5389 (C.A. 8th Cir. 1953);
Gallagher v. Smith, 223 F.2d 218 (C.A. 3d Cir. 1955);
Perry v. Allen, 239 F.2d 107 (C.A. 5th Cir. 1956);
Auricchio v. United States, 49 F. Supp. 184
(D.C.E.D.N.Y.1973);
Professional Golf Co. v. Nashville Trust
Co., 60 F. Supp. 398 (D.C.M.D.Tenn.1945);
Jack Little
Foundation v. Jones, 102 F. Supp. 326 (D.C.W.D.Okl. 1951);
Hogg v. Allen, 105 F. Supp.
12 (D.C.M.D.Ga.1952);
Snyder v. Westover, 107 F. Supp.
363 (D.C.S.D.Cal.1952);
Wheeler v. Holland, 120 F. Supp.
383 (D.C.N.D.Ga.1954);
Peters v. Smith, 123 F. Supp. 711
(D.C.E.D.Pa.1954);
Zukin v. Riddell, 55-2 U.S.T.C. � 9688
(D.C.S.D.Cal.1955);
Lewis v. Scofield, 57-1 U.S.T.C. �
9251 (D.C.W.D.Tex.1956);
McFarland v. United States, 57-2
U.S.T.C. � 9733 (D.C.M.D.Tenn.1957);
Raymond v. United
States, 58-1 U.S.T.C. � 9397 (D.C.E.D.Mich.1958);
Freeman
v. United States, 58-1 U.S.T.C. � 9309 (D.C.S.D.Cal.1958)),
the Government did not question the jurisdiction of the courts, and
in the other five cases (
Bushmiaer v. United States, 230
F.2d 146 (C.A. 8th Cir. 1956);
Sirian Lamp Co. v. Manning,
3 Cir., 1941, 123 F.2d 776 (C.A. 3d Cir. 1941);
Jones v.
Fox, 57-2 U.S.T.C. � 9876 (D.C.Md.1957);
Hanchett v.
Shaughnessy, 126 F. Supp. 769 (D.C.N.D.N.Y.1954);
Rogers
v. United States, 155 F. Supp. 409 (D.C.E.D.N.Y.1957)), the
Government did challenge the jurisdiction of the courts, but
prevailed upon the point only in the last-mentioned case.
[
Footnote 2/4]
Sirian Lamp Co. v. Manning, 123 F.2d 776 (C.A. 3d Cir.
1941),was a suit against the Collector, and therefore did not come
under the jurisdictional provision here in issue, which is
applicable only to suits against the United States. But it held
expressly that a suit for refund may be maintained to recover a
partial payment of an assessment. No one has suggested that the
jurisdictional requirement of the amount of the assessed tax that
must be paid, as a prerequisite to a suit for refund is different
when the suit is against the Collector, with regard to which suits
there is no specific jurisdictional provision, rather than against
the United States.
[
Footnote 2/5]
See also Bend v. Hoyt,
13 Pet. 263,
38 U. S. 267
(1839).
Elliott v. Swartwout seems to have been the first
case in this country expressly to recognize the right.
[
Footnote 2/6]
The Act of Feb. 26, 1845, c. 22, 5 Stat. 727, in pertinent part,
provides:
"[N]othing contained in [the Act of March 3, 1839, c. 82, § 2] .
. . shall take away, or be construed to take away or impair, the
right of any person or persons who have paid or shall hereafter pay
money, as and for duties, under protest, to any collector of the
customs . . . which duties are not authorized or payable in part or
in whole by law, to maintain any action at law against such
collector . . . to ascertain any try the legality and validity of
such demand and payment of duties . . . ; nor shall any action be
maintained against any collector, to recover the amount of duties
so paid under protest, unless the said protest was made in writing,
and signed by the claimant at or before the payment of said duties,
setting forth distinctly and specifically the grounds of objection
to the payment thereof."
[
Footnote 2/7]
The only statements with regard to the purpose of the bill in
Congress which have been found are the remarks of Senators
Huntington and Woodbury, Cong. Globe, 28th Cong., 2d Sess. 195
(1845).
See also 5 Stat. 349, n. (a):
"[Congress being in session when the decision of the court in
the case of
Carey v. Curtis, 3 How. 236,
was made, the following act [the Act of Feb. 26, 1845] was
passed.]"
[
Footnote 2/8]
The Court recognized that internal revenue collectors, like
customs collectors, were required to pay daily into the Treasury
all sums collected under the internal revenue laws. Act of March 3,
1865, c. 78, § 3, 13 Stat. 483. In refusing to reach the same
result as had been reached in
Cary v. Curtis, without an
express saving statute such as the Act of Feb. 26, 1845, the Court
relied upon the provisions in the internal revenue laws that the
Commissioner shall pay all judgments for refunds recovered against
Collectors. Act of March 3, 1863, c. 74, § 31, 12 Stat. 729; Act of
June 30, 1864, c. 173, § 44, 13 Stat. 239; Act of July 13, 1866, c.
184, § 9, 14 Stat. 101, 111.
"Clear implication of the several provisions is that a judgment
against the collector in such a case [a refund suit] is in the
nature of a recovery against the United States, and that the amount
recovered is regarded as a proper charge against the revenue
collected from that source."
City of Philadelphia v. The Collector, 5 Wall. at
72 U. S.
733.
[
Footnote 2/9]
Act of March 3, 1911, c. 231, § 24, 36 Stat. 1093. The monetary
limitation was entirely eliminated in 1954. Act of July 30, 1954,
c. 648, § 1, 68 Stat. 589.
[
Footnote 2/10]
The gist of § 1346(a) provides:
"for the recovery of any internal revenue tax alleged to have
been erroneously or illegally assessed or collected, or any penalty
claimed to have been collected without authority or any sum alleged
to have been excessive or in any manner wrongfully collected under
the internal revenue laws."
28 U.S.C. § 1346(a).
[
Footnote 2/11]
See 61 Cong.Rec. 7506-7507 (1921); H.R.Conf.Rep. No.
486, 67th Cong., 1st Sess. 57 (1921).
[
Footnote 2/12]
See 362
U.S. 145fn2/10|>note 10.
[
Footnote 2/13]
This language was in turn preceded by § 19 of the Revenue Act of
July 13, 1866, c. 184, 14 Stat. 152, which did not include any
reference to "penalties" or "sums":
"[N]o suit shall be maintained in any court for the recovery of
any tax alleged to have been erroneously or illegally assessed or
collected, until appeal shall have been duly made to the
commissioner of internal revenue. . . ."
It is important to note that this was the "claim for refund"
statute in effect at the time of, and that was applicable to,
Cheatham v. United States, supra. Quite unlike § 1346(a),
it made no reference to "any sum."
[
Footnote 2/14]
"The committee [on Ways and Means] recommends the establishment
of a Board of Tax Appeals to which a taxpayer may appeal prior to
the payment of an additional assessment of income, excess profits,
war profits, or estate taxes. Although a taxpayer may, after
payment of his tax, bring suit for the recovery thereof, and thus
secure a judicial determination on the questions involved, he
cannot, in view of section 3224 of the Revised Statutes, which
prohibits suits to enjoin the collection of taxes, secure such a
determination prior to the payment of the tax. The right of appeal
after payment of the tax is an incomplete remedy, and does little
to remove the hardship occasioned by an incorrect assessment. The
payment of a large additional tax on income received several years
previous and which may have, since its receipt, been either wiped
out by subsequent losses, invested in nonliquid assets, or spent
sometimes forces taxpayers into bankruptcy, and often causes great
financial hardship and sacrifice. These results are not remedied by
permitting the taxpayer to sue for the recovery of the tax after
this payment. He is entitled to an appeal and to a determination of
his liability for the tax prior to its payment."
H.R.Rep. No. 179, 68th Cong., 1st Sess. 7 (1924).
"Now it is true that, under the present law, it is possible to
get a judicial review, but it is very slow and expensive. In order
to get a judicial review under the law as it exists today, a man
must pay his tax and pay it under protest; then he must file a
claim for refund; then the Government has six months within which
to accept or reject it; then, after that, he must begin an action
in the courts."
Remarks of Representative Young, 65 Cong.Rec. 2621 (1924).
"The practice, as I understand it, has been to require the
taxpayer to pay in the amount of the increased assessment, and then
to allow him to get it back if he can. In addition to this,
distraints frequently have been issued seizing the property of the
citizen, so that the man whose taxes may have been raised unjustly
may find himself forced to raise a large sum of money at once or
have his property seized."
Remarks of Senator Reed of Missouri, 65 Cong.Rec. 8109
(1924).
"One of the chief arguments presented in the reports of the
committees of both Houses [upon the creation of the Board of Tax
Appeals] was to relieve the taxpayer of the hardship of being
forced to go out and pay his tax before he could have a judicial
consideration of the problems involved in his case. The taxpayer
who was faced with, say, $100,000 of additional tax, and who was
forced to pay that money, very frequently had his credit destroyed,
and sometimes he was forced into bankruptcy in order to meet that
payment. It was a real hardship. The man who had already paid the
tax had gone through the suffering, had filed his claim for refund,
and had his remedy. He has the remedy that he had prior to the
creation of the board."
Statement of Charles D. Hamel, first Chairman of the Board of
Tax Appeals, Hearings before the House Committee on Ways and Means
on the Revenue Revision, 1925, Oct. 19 to Nov. 3, 1925, pp. 922,
923.
[
Footnote 2/15]
"Except as provided in sections 6212(a) and (c), and 6213(a)
[giving a right to petition the Tax Court], no suit for the purpose
of restraining the assessment or collection of any tax shall be
maintained in any court."
Int.Rev.Code, 1954, § 7421. Such a provision has been in the law
since the Act of Mar. 2, 1867, c. 169, § 10, 14 Stat. 475.
[
Footnote 2/16]
Indeed there does not seem to be any way of restraining the
Commissioner from collecting the remainder of a deficiency even
after the taxpayer who has paid part has
won a
suit for refund, the Commissioner thus forcing the taxpayer to
bring another action for refund.
[
Footnote 2/17]
See §§ 7422(e) and 6512 of the Internal Revenue Code of
1954, giving, respectively, the District Courts and the Tax Court
jurisdiction over suits involving both deficiencies and claims for
refund.
[
Footnote 2/18]
The Government suggests that, if this Court permits the
petitioner to maintain his action for refund, it will, as a
consequence, sanction the practice of a taxpayer making only "token
payment," and then, by a suit for refund, adjudicating the legality
of the entire assessment. We are not here concerned with such a
totally different question. Petitioner's payment of $5,058.54 on an
assessment of $27,251.13 certainly was not a "token payment"; nor
could the suit to recover the amount paid be said to be one for a
declaratory judgment -- not permitted "with respect to Federal
taxes" -- under 28 U.S.C. § 2201.
[
Footnote 2/19]
See 362
U.S. 145fn2/15|>note 15.
[
Footnote 2/20]
Except for the provision made for a "jeopardy assessment."
Int.Rev.Code, 1954, § 6861.
[
Footnote 2/21]
See Int.Rev.Code, 1954, §§ 6511, 6532, 26 U.S.C. §§
6511, 6532.
[
Footnote 2/22]
The grossly unfair and, to me, shockingly inequitable result of
today's holding may be laid bare by assuming a commonplace set of
facts: two brothers, doing business as partners -- one having a 60%
and the other a 40% interest in the partnership -- failed in their
business, which was then liquidated in bankruptcy. Thereafter,
based upon the partnership's transactions, the Commissioner
proposed deficiency assessments in income taxes -- one against the
major partner of $6,000 and another against the minor one of
$4,000. Being without funds to employ counsel to prepare, file in
Washington, and prosecute a petition for redetermination in the Tax
Court, none was filed by either of the taxpayers, and the
Commissioner made the assessments as proposed. One year later,
their father died intestate, and thereupon the family homestead
vested equally in his two sons (the taxpayers) under the State's
laws of descent. The tax liens were, of course, instantly impressed
upon their respective interests, and, under warrants of distraint,
the Commissioner sold the homestead. It brought a total of $8,500
($4,250 for the interest of each of the taxpayers). This, of
course, satisfied the assessment and accrued interest against the
minor partner, but left unpaid about $2,000 of the assessment and
accrued interest against the major partner. Both filed claims for
refund, which were denied. The taxpayers then filed separate suits,
presenting identical issues, in the same Federal District Court to
recover the taxes and interest thus collected by the Commissioner.
The cases were consolidated for trial. The Court found that the
assessments were illegal and the taxes wrongfully collected. The
proceeds of the sale of the minor taxpayer's interest being
sufficient to discharge the illegal assessment and accrued interest
against him, the court rendered judgment in his favor for the sum
thus wrongfully collected. But, inasmuch as the proceeds of the
sale were not sufficient to discharge the illegal assessment
against the major partner, and he was financially unable to pay the
balance of it, the Court held that it lacked jurisdiction to allow
his recovery of the $4,250 thus found to have been wrongfully
collected from him under the internal revenue laws. Is this fair?
Is it not shocking? More to the point, is not that result plainly
proscribed by Congress' words in § 1346(a) that:
"
The district courts shall have original jurisdiction . . .
of . . . [a]ny civil action against the United States for the
recovery of . . . any sum alleged to have been excessive or in any
manner wrongfully collected under the internal revenue
laws?"
(Emphasis added.)