1. A limitation of five years declared by §§ 250(d) of the
Revenue Acts of 1918 and 1921, and § 277(a)(2) of the Revenue Act
of 1924, upon the time within which income and profits taxes may be
assessed and suits begun to collect them, is inapplicable to a suit
on a bond given within that time under par. 14(a), § 234(a), of the
Revenue Act of 1918, to secure payment, with interest, of taxes
which have been returned and assessed but payment of which has been
postponed pending decision of a claim for abatement submitted by
the taxpayer. P.
279 U. S.
374.
Page 279 U. S. 371
2. The making of the bond in such case gives the United States a
cause of action separate and distinct from the already existing
cause of action to collect the taxes, and the taxpayer, by thus
securing postponement of collection, waives the limitation of five
years that would have applied had no bond been given. P.
279 U. S.
375.
3. Section 1106(a) of the Revenue Act of 1926, providing that
the bar of the statute of limitations against the United States in
respect of any internal revenue taxes shall not only bar the
remedy, but shall extinguish the liability, does not affect an
action on a bond given
ut supra. P.
279 U. S.
376.
27 F.2d 782 reversed.
Certiorari, 278 U.S. 597, to review a judgment of the circuit
court of appeals which affirmed a judgment of the district court
dismissing the complaint in an action to enforce a bond given by
The John Barth Company and its surety to secure payment of taxes.
See also 276 U.S. 606.
MR. CHIEF JUSTICE TAFT delivered the opinion of the Court.
This was a suit by the United States, through its district
attorney for the Eastern district of Wisconsin, against the John
Barth Company, a corporation of Wisconsin, and the United States
Fidelity & Guaranty Company, a corporation of Maryland. The
subject matter of the suit is the recovery of the amount due on a
bond in the sum of $60,000 whereby the respondents bound
themselves
Page 279 U. S. 372
jointly and severally to pay to the United States the sum
therein named under the following circumstances and conditions:
On June 25, 1919, the United States Commissioner of Internal
Revenue assessed income and profits taxes against the Barth Company
for the year 1918 in the sum of $126,182.81, and of this sum the
company paid $74,764.40. On September 15, 1919, and March 17, 1925,
the company filed claims for the abatement of $39,501.58 of the
taxes thus assessed. The Barth Company, as principal, and the
United States Fidelity & Guaranty Company, as surety, in
consideration of the United States' refraining from and suspending
the collection of taxes thus outstanding against the Barth Company
for the year 1918, pending consideration and adjudication of the
foregoing claims for abatement, executed and delivered a bond on
September 20, 1919, binding them to pay
"on notice and demand by the collector . . . any part of such
tax found by the Commissioner to be due, with interest at the rate
of 12 percent per annum from the time such tax would have been due,
had no such claim been filed."
The Barth Company filed its claim of abatement on the ground
that it had sustained a substantial loss resulting from a material
reduction of the value of its inventory for the taxable year and
from actual payment after the close of the taxable year of rebates
in pursuance of contracts entered into during such year upon sales
made during the year.
On March 25, 1926, the Commissioner considered the claims,
allowed about $10,000, and rejected the rest, in the sum of
$29,842.32. The Barth Company was notified, and payment under the
bond of the tax as determined, with interest thereon, requested on
February 27, 1926, and on April 5 and 20, 1926, but the Barth
Company refused to pay. On August 10 and 27, 1926, the Guaranty
Company
Page 279 U. S. 373
was notified of the rejection of the abatement claims in the sum
above stated, and of the amount and interest due, but that company
also refused payment. The suit was authorized by the Commissioner
of Internal Revenue.
To the petition, respondents filed a demurrer
"for the reason that . . . the action was not commenced within
the time limited by law which time is prescribed by §§ 205d [250d]
of the Revenue Acts of 1918 and 1921, and §§ 277a-2, 278d, and 278e
of the Revenue Act of 1924, and §§ 277a-3, 278d, 278e, and 1106a of
the Revenue Act of 1926."
The district court sustained the demurrer, the United States
elected to stand on its complaint, and judgment was entered
dismissing the complaint.
The United States carried the judgment on writ of error to the
circuit court of appeals, which, after an unsuccessful effort to
certify to this Court certain questions, which were dismissed (276
U.S. 606), heard the writ of error, and affirmed the judgment of
the district court. 27 F.2d 782. The case is now here on writ of
certiorari.
Paragraph 14(a), § 234(a) of the Revenue Act of 1918, c. 18, 40
Stat. 1057, provides that:
"At the time of filing return for the taxable year 1918, a
taxpayer may file a claim in abatement based on the fact that he
has sustained a substantial loss . . . resulting from any material
reduction . . . of the value of the inventory for such taxable
year, or from the actual payment after the close of such taxable
year of rebates in pursuance of contracts entered into during such
year upon sales made during such year. In such case, payment of the
amount of the tax covered by such claim shall not be required until
the claim is decided, but the taxpayer shall accompany his claim
with a bond in double the amount of the tax covered by the claim,
with sureties satisfactory to the
Page 279 U. S. 374
Commissioner, conditioned for the payment of any part of such
tax found to be due, with interest. If any part of such claim is
disallowed, then the remainder of the tax due shall, on notice and
demand by the collector, be paid by the taxpayer with interest at
the rate of 1 percentum per month from the time the tax would have
been due had no such claim been filed."
In § 250(d), the provision is:
"Except in the case of false or fraudulent returns with intent
to evade the tax, the amount of tax due under any return shall be
determined and assessed by the Commissioner within five years after
the return was due or was made, and no suit or proceeding for the
collection of any tax shall be begun after the expiration of five
years after the date when the return was due or was made."
Section 250(d) refers to a failure of the Commissioner of
Internal Revenue to pass upon the return made by the taxpayer and
to assess the tax. It is the determination preceding the assessment
that is referred to in that section. If there is no determination
and assessment within five years after the return is made, or after
the return should have been made, then the statute bars an
assessment and the collection of the tax due. But § 250(d) does not
apply to the proceeding under paragraph 14(a), which relates to a
case in which there is a return with a resulting assessment, as
there was here, and the taxpayer seeks to reduce the assessed tax
by presenting a claim for an abatement of part of it, and to avoid
the collection of that part, pending action on the claim for
abatement, by giving a bond. In this case, there was a return and
there was an assessment, but the bond was given well within the
five years after the return, and, when the bond was given, it
required the obligees, if the abatement was not allowed, to pay
interest from the time such tax would have been due had no such
claim been filed. In other words, the limitation
Page 279 U. S. 375
of § 250(d) has no application to a situation following a claim
of abatement and the giving of bond.
The plain purpose of paragraph 14(a) was to effect a
substitution for the obligation arising under the return and
assessment to pay the tax, of the contract entered into in the bond
to pay any part of the tax found to be due upon the subsequent
determination of the Commissioner, and this with interest at the
rate of 1 percent per month from the time the tax would have been
due had no such claim been filed. Of course, it is not difficult,
in the somewhat complicated provisions, to suggest, as on behalf of
respondent it has been suggested, that some other than the ordinary
inference to be given to this set of facts should be drawn, but the
common sense view of the return and the delay in the payment due
after the claim of abatement and the giving of the bond is as
already stated. The making of the bond gives the United States a
cause of action separate and distinct from an action to collect
taxes which it already had. The statutes now pleaded to bar the
suit cannot be extended by implication to a suit upon a subsequent
and substituted contract. The postponement of the collection of the
taxes returned was a waiver of the statutory limitation of five
years that would have applied had the voluntary return of the
taxpayer stood and no bond been given. If there is any limitation
applicable to a suit on the bond, it is conceded that it has not
yet become effective.
Section 250(d) of the Revenue Act of 1921, c. 136, 42 Stat. 227,
265, repeats the limitation of 1918, adding thereto "unless both
the Commissioner and the taxpayer consent in writing to a later
determination, assessment, and collection of the tax," and, like §
250(d) of the Act of 1918, has no relevancy or effect here. The
Revenue Act of 1924, § 277(a)(2) c. 234, 43 Stat. 253, repeats a
similar limitation of five years. Section 1106(a) of the
Page 279 U. S. 376
Revenue Act of 1926, c. 27, 44 Stat. 9, 113, provides that the
bar of the statute of limitations against the United States in
respect of any internal revenue tax shall not only operate to bar
the remedy, but shall extinguish the liability. This last Act was
repealed as of the date of its enactment.
See § 612, c.
852, 45 Stat. 791, 875.
The government contends that this restores and gives life to the
tax retroactively. It is not necessary for us to examine this
claim, for the reason that the Act of 1926 does not affect, and was
not intended to affect, the obligation arising out of the bond.
Such bonds are not referred to in the amendments of 1921 or 1924 or
1926, nor in any way is the taxpayer expressly or impliedly
relieved from such contracts. To avoid the result usually ensuing
from the return which he himself made, the taxpayer was permitted
by a bond temporarily to postpone the collection and to substitute
for his tax liability his contract under the bond. The object of
the bond was not only to prevent the immediate collection of the
tax, but also to prevent the running of time against the
government. The taxpayer has obtained his object by the use of the
bond, and he should not object to making good the contract by which
he obtained the delay he sought.
It is hardly necessary to refer to authority to justify this
conclusion, but it is sustained by
United States v. Onken Bros.
Co., 23 F.2d
367;
Gray Motor Co. v. United States, 16 F.2d 367;
United States v. Rennolds, 27 F.2d 902;
McCaughn v.
Philadelphia Barge Co., 27 F.2d
628;
United States v. United States Fidelity & Guaranty
Co., 221 F. 27;
Raymond v. United States, Fed.Cas.
No. 11596.
The judgment of the circuit court of appeals should be reversed,
and the cause remanded for further proceedings.
Reversed.