Pennsylvania Cement Co. v. Bradley Contracting Co.

274 F. 1003 | S.D.N.Y. | 1920

HOUGH, Circuit Judge

(after stating the facts as above). Perhaps the shortest way of stating the problem before the court is this: What reason is presented forbidding the present declaration of a dividend? I think no reason exists except the attitude of the United States, which has presented no claim and refuses to declare its intentions (if any it has) in the premises.

The relations of receivers, executors and other similar fiduciaries toward income faxes levied under the Constitution as affected by recent amendments is not a subject as yet much mooted in the courts.

One must regard first the taxing statute itself, and, second, any general legislation directed against or personally affecting the fiduciaries.

[1,2] As to the statute itself, it must be admitted that in one sense the United States has no present claim — i. e., no presently provable claim — against these receivers, if the proceeds of the judgment against the city of New York are to be regarded as income of 1920. This necessarily follows from the fact that an income tax is not upon any specific sum of money, but is a personal tax, measured by sums of money received (or possibly accrued) to the person taxed during a certain period — i. e., the calendar year — and the year 1920 is not expired.

[3] Analogies are often misleading, yet I cannot but think the analogy of bankruptcy instructive. In bankruptcy it is clear law that a claim not due is not provable, and that a discharge is valid only against provable debts. Therefore, without having recourse to any of the statutes giving preference or priority to the United States, there is no claim presently existing on the part of the taxing power. It is therefore difficult for me to see how this court can at present consider the validity of a claim that does not legally exist.

The statute directed against fiduciaries to insure their preservation of the rights of the United States date back to the eighteenth century, and have been interpreted in numerous cases, none of which presents facts similar to the present. See Gould and Tucker’s Notes to sections 3466, 3467, U. S. Rev. Stat., and notes in Comp. Stat. §§ 6372, 6373.

[4] My inference from these statutes and the decisions under them is that, while receivers are not mentioned by name or title, they are within the purview of the act. It is of course possible to read these statutes so narrowly as to say that they speak always of “debts due to the United States,” and that, therefore, if a fund be distributed when there is no debt actually due to the United States, the custodian of the fund cannot be held to a personal liability when the debt subsequently arises. Cut I cannot so read the statutes. There has been a great deal of judicial juggling with such words as “due” and “payable,” and in a certain inchoate sense an income tax is due as soon as there is an income; but the tax is “solvendum in futuro,” and it becomes payable only when the solution or assessment is accomplished. A fiduciary who hastened distribution before the due date of a tax, and then said, 1 have nothing to pay with, would, in my judgment, he personally responsible, and any court which facilitates such a distribution would he chargeable with judicial wrongdoing.

There is another inquiry germane to this case which seems to me to be answered for this circuit by In re Heller, 258 Fed. 208, 169 C. C. A. 276, viz.: J£ there is any income taxable or otherwise, whose is it? Is it the income of the corporation or the income of the receivers? In the case cited it was held that under the act of 1916 (section 13c [Comp. St. § 6336m]) only net income earned by a “trustee while operating the business of a banxrupt corporation” was taxable. In other words, if this money is income at all, it is the receivers’ income, and not that of the corporation.

But the receivers are advised that the United States may settle,, assess or levy a tax against them in the year 1921; wherefore if it is their income they are assuredly not justified in depriving themselves of the means of satisfying the demand of which they have notice.

While the contention of the, creditors (who naturally want a dividend and want it now) is not put in exactly the following manner, I think it is substantially this, viz: That any demand for income tax payable out of the moneys presently in the hands of the receivers is so wholly without warrant of law and so contrary to every natural principle of justice that the court is authorized, if not required, to order a present distribution without regard to such a shadow of a legal shade as a demand for income taxes to be made next year.

This is an attractive proposition, because every piece of information or evidential element necessary for decision is in a sense presented on this motion. That is, it is known what the receivers have been doing, where they got the money from, what the money represents, and who are presently entitled to share in it.

[5] Consideration has been given to the cases cited by the creditors. In every one of them there is one thing present which is here absent, viz. a party legally to be required instantly to present his rights for adjudication; but in this instance what is really asked for is what in England (and I believe in New Jersey and other states) is called a “declaratory judgment.” This means, as I take it, that one having no present demand presently enforceable, but who can be shown to be about to present a demand, as upon the extinction of a life interest or the like, can be compelled to come into court and have his future rights adjudicated. Experience has shown that this is a good thing, but it is not law in the courts of the United States nor those of New York, and very regretfully I am compelled to the opinion that this court is without present power to pass on the rights of the United States as to any sum or sums of money received by these receivers in the year 1920 and asserted to be income by the taxing authorities of the United States. I can see no method of compelling the officers of the United States to declare a policy, give an opinion, make a promise, or obey an order in the premises until after the 15th day of March, 1921, at the earliest.

This is a serious matter for the creditors; it was the hope of the court that some assistance would be given in the distribution of this estate by the government. None has been given, nor do I perceive any immediate prospect thereof; and it is therefore ordered: >

(1) That the receivers be instructed to declare no dividend herein until the further order of the court; and

(2) That they advise as far as possible the representatives of the creditors of this estate that the reason for this order is that the taxing authorities of the United btates assert a demand substantially against this fund which is not legally capable of present adjudication except by consent, which consent has been withheld.

(3) The receivers are instructed to continue reasonable efforts to arrive at an adjustment or submission of this controversy, and to report from time to time to tne court regarding their success or failure.

The foregoing is directed to be filed as an order. No other or more formal order is deemed necessary, and it is made without prejudice to any future, further, or similar proceeding.

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