FLORA v. UNITED STATES
No. 492, October Term, 1957
Supreme Court of the United States
Decided March 21, 1960
Rehearing granted June 22, 1959
362 U.S. 145
Arguеd May 20, 1958. - Decided June 16, 1958. - Reargued November 12, 1959.
Assistant Attorney General Rice reargued the cause for the United States. With him on the brief on reargument were Solicitor General Rankin, Harry Baum and Marvin W. Weinstein.
MR. CHIEF JUSTICE WARREN delivered the opinion of the Court.
The question presented is whether a Federal District Court has jurisdiction under
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. 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
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.1
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.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.
“(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 аny 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.)
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.3 (Emphasis added.) But it is argued that this reading of the statute is foreclosed by the presence in
We conclude that the language of
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
The ancestry of the language of
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
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
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 commоn-law action of assumpsit for money had and received. One difficulty is that, because of the
“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,
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 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 68. Equally important is the fact that the Court was construing the claim-for-refund statute from which, as amended, the language of
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
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.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.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
his tax, bring suit for the recovery thereof and thus secure a judicial determination on the questions involved, he can not, 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.”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 assess-
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 оf staying collection,22 and it may well be that Congress so provided in order to alleviate hardships caused by the long-standing 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 prelitigation payment as a jurisdictional requirement was not another important
Notes
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 88-89.
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 126 (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 538 (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. 1943); 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. Okla. 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, 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.
“[N]othing contained in [the Act of Mar. 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 and 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.”
“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 to-day 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 alreаdy 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.
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. 19. . . . [N]o suit shall be maintained in any court for the recovery of any tax alleged to have been erroneously or illegally
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. 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.)
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. 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.“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 . . . .”
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.
The Federal Declaratory Judgment Act of 193426 was amended by § 405 of the Revenue Act of 1935 expressly to except disputes “with respect to Federal taxes.”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, hаs 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.”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.29 Peti-
tioner 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,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
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 69—we feel obliged to comment upon the material introduced upon reargument. The
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.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.
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 Govern
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
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 Brampton 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
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 (1955); Peters v. Smith, 123 F. Supp. 711 (D. C. E. D. Pa. 1954), rev‘d, 221 F. 2d 721 (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 Friеbele v. United States, 20 F. Supp. 492 (D. C. N. J. 1937).
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
Affirmed.
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
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 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
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
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
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. 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
“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 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
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
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,
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
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.
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, 730-733 (1866), that taxpayers had the same right of action against Collectors to recover illegally collected internal revenue taxes.8
The United States was first made directly suable in District Courts for tax refunds by the Act of Mar. 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
The gist of
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)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 revenue 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.”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,
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
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 collection15 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.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
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,19 but, since the creation of the Tax Court, any taxpayer has a method of withholding payment, immune
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
No one has suggested that Congress could not constitutionally confer jurisdiction upon District Courts to entertain suits against the United States to recover sums
“The district courts shall have original jurisdiction ... of ... Any 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
By
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.
“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.“§ 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 Foundry Co. v. United States, 69 Ct. Cl. 158, 38 F. 2d 144. See H. R. Rep. No. 1337, 83d Cong., 2d Sess. 109, A431; S. Rep. No. 1662, 83d Cong., 2d Sess. 148, 610.
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
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
(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 аn 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
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), rev‘d, 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), rev‘d, 92 F. 2d 344 (C. A. 3d Cir. 1937) (only interest unpaid); Welch v. Hassett, 15 F. Supp. 692 (D. C. Mass. 1936), rev‘d, 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 uncleаr 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.
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.”
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 lаrge 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.”