#### MERRIE N. CLOWES, AS SOLE SURVIVING EXECUTRIX UNDER THE LAST WILL AND TESTAMENT OF LUCRETIA C. CLOWES, DECEASED, v. THE UNITED STATES.

[No. 34435.

Decided June 14, 1920.]

*On Defendants' Demurrer.*

*Refund of inheritance taw; laches.*— Where suit is brought on December 31, 1919, under the act of June 27, 1902, 32 Stat., 406, for the refund of inheritance taxes assessed and collected on June 18, 1902, under section 29 of the act of June 13, 1898, 30 Stat., 448, and application has been made to the Treasury Department February 18, 1916, and rejected April 19, 1916, the plaintiff: is barred by laches and can not recover.

*The Reporter's*statement of the case:

*Mr. Charles H.*Bradley, with whom was *Mr. Assistant . Attorney General Frank*Davis, *Jr.,*for the demurrer.

*Mr. R. B. 3. Lyon*opposed. *Lyon & Lyon*were on the briefs.

The only point in controversy in the case at bar is, was the claim filed in the Treasury Department February 18, 1916, barred by the limitations contained in the act of July 27, 1912?

The facts in the case are admitted on demurrer and as the laws of the State of New York (Code of Civil Procedure, secs. 1819, 2718, 2721, 2722, and 2723) give the period of *447administration as one year from the date of issuance of letters testamentary, said date in case at bar being September 13,1901, and by virtue of said laws, that such debts, charges and expenses incident to the administration of the estate had not, and could not have been fully ascertained prior to July 1, 1902, nor were the legatees under the will entitled to receive in absolute possession or enjoyment any part of the personal estate prior to July 1,1902, nor was any part of the same distributed to them, the legacies upon which the tax was collected under section 29, of the act of June 13, 1898, were clearly contingent beneficial interests which did not become vested in absolute possession or enjoyment prior to July 1, 1902, and such tax is refundable under the third section of the act of June 27, 1902. *United States*v. Jones, 236 U. S., 106; *McCoach*v. Pratt, 236 TJ. S., 562.

The tax in the case at bar was assessed and collected on the 18th day of June, 1902, and application for the refund of the entire amount of same was properly and duly filed in the Treasury Department on February 18,1916, and rejected on April 19, 1916.

We contend that the taxes assessed and collected from this estate were not illegal taxes; in fact, we concede that at the time of the collection of said tax, they were properly assessed and legally collected and the Government was clearly entitled to the same by virtue of the provisions contained in section 29 of the war revenue act of June 13, 1898; that it was not until the enactment of the act of June 27, 1902, that the plaintiff had any right to seek a refundment of these taxes, this act being clearly an act of grace and bounty on the part of the Government for refunding taxes assessed and collected on contingent beneficial interests as defined by section 3 of that act which did not become vested in absolute possession or enjoyment prior to July 1, 1902, such as in the case at bar, and therefore, the suit in the instant case is not for the return of moneys collected as illegal taxes but is brought for the clear purpose of obtaining moneys which Congress directed to be refunded as an act of grace and bounty on the part of the Government. *United States*v. *War dwell,*172 U. S., 48.

*448In *Thatcher*v. *United*States, 149 Fed., 902, the court said:

“The answer to this contention of the United States is simple. The petition before the courts is not based upon the illegality of the tax, which it nowhere asserts. It seeks only the free bounty of the Government given by the act of 1902, which reads as follows:

“ ‘ The petitioners could not at any time have maintained suit to recover the tax as having been illegally collected. They had paid it voluntarily, not under protest. Their claim to a refund, if they had any, was moral only, and not legal. It appealed only to the Government’s sense of fairness and could be satisfied only by the bounty of the United States given upon such terms as Congress saw fit to impose.

«£ * * * The act of 1902 fixes no time in which the claim for a refund must be filed with the collector and no department regulation has been called to the attention of the court. * * * That the tax paid by the petitioners was illegally collected is irrelevant to the issues raised by the petition.’ ”

So, too, in *United States*v. Shipley, 197 Fed., 265, 272, the court said:

“The refunding act admittedly contains neither expressly nor by implication any limitation within which application must be made to the Secretary of the Treasury or any office of the Treasury Department.”

$ $ $ $ *

“ It hardly needs argument to support the statement that if the limitation prescribed in section 3228 does not *proprio*vigore, apply to claims made under the special refunding act of June 27, 1902, it is entirely beyond the power of the Secretary of the Treasury or the Commissioner of Internal Revenue to prescribe such a limitation. To hold otherwise would bring us to the absurd conclusion that the Secretary in the guise of a regulation, could curtail or diminish the right which Congress, by lawful enactment, had conferred upon a designated class of persons. If he could by any regulation have adopted the two years period of section 3228. he could have likewise have prescribed any longer or shorter period.”

See also *Rosenfeld*v. Scott, 232 Fed., 509.

The act of July 27, 1912, however, did not destroy or modify rights created by the refunding provision of the third section of the act of June 27, 1902, where the tax *449sought to be refunded was collected prior to June 27, 1902. The defendants rely upon the fact that this claim was not presented to the Treasury Department for refund prior to January 1, 1914, but on February 18, 1916, and that the suit is barred by the limitation in the act of July 27, 1912, 87 Stat., 240, which provides:

“That all claims for the refunding of any internal tax alleged to have been erroneously or illegally assessed or collected * * * may be presented to the Commissioner of Internal Revenue on or before the first day of January, 1914, and not thereafter.”

We contend that the act of July 27, 1912, confines itself entirely to the refund of claims for internal revenue erroneously or illegally assessed or collected under the revenue act of June 13, 1898, *supra,*and has no relation whatsoever to the claims for refund of moneys originally collected in the form of taxes where no right of action existed for the recovery of the same at the time of the collection, such as in the case at bar, and the relief given was a mere act of bounty or grace on the part of the Government, which for the first time gave the plaintiff a legal right on the passage of the refunding act of June 27, 1902, which was subsequent to the payment of the tax in this case. The limitation contained in the act of July 27, 1912, *supra,*has no application to this case for the reason that the act only barred claims wherein the taxes when paid “ was erroneously assessed and illegally collected.”

This position taken by us is emphasized by the recent decision of the Supreme Court of the United States in the case of *Coleman*v. *United States,*250 U. S., p. 30, wherein the tax was assessed and collected under section 29 of the war revenue act of June 13, 1898, on the 29th day of May, 1903, a year subsequent to the passage of the refunding act of June 27, 1902, and this was made an illegal tax by the last sentence contained in section 3 of the aforesaid act. Bearing this fact in mind, the court held in said case:

“ * * * The present tax had not been collected when the act of June 27, 1912, was passed, but was collected *450afterwards contrary to its terms. There was little bounty in its application to such a case. No argument can make it plainer than do the words themselves that the act of 1912 applies to the present claim and that it was presented too late.”

The Coleman case by no means decided that the refunding act of July 27, 1912, repealed by implication or otherwise the refunding act of June 27, 1902, so far as claims arising under section 3 thereof where the taxes were properly assessed and legally collected by the United States prior to June 27, 1902.

The allegations of the petition to which defendants demur are sufficiently set forth in the opinion of the court.

Per Curiam:

The question presented is upon demurrer to the petition upon the general ground that it does not state facts sufficient to constitute a cause of action and that the claim presented to the Commissioner of Internal Kevenue was not presented within the time required by law, and the suit is therefore barred.

The petition alleges in substance that Lucretia C. Clowes, a resident of the city of New York, died testate on the 16th day of March, 1901, letters testamentary were duly issued on the 13th of September, 1901, and that on June 18, 1902, there was assessed and collected from the executors under section 29 of the act of June 13, 1898 (30 Stat., 448), an inheritance tax upon legacies to the amount of $4,249.35. It is averred further that upon the date of the assessment and collection of such tax, the time prescribed by the statutes of the State of New York for the presentation of claims against the estate had not expired and that in fact none of the legacies upon which said tax was assessed and collected had vested in possession or enjoyment before the 1st day of July, 1902.

It is further averred that on the 18th day of February, 1916, the petitioner filed an application in the Treasury-Department praying for the refunding of all of said tax so assessed and collected, predicating said claim upon the act of June 27, 1902 (32 Stat., 406), which application was *451rejected by the Secretary of the Treasury on the 19th day of April, 1916. This action was commenced December 31, 1919.

The theory of the defendant in support of the demurrer is that the plaintiff was required by the act of July 27, 1912, 37 Stat., 240, to file a claim on or before January 1. 1914, and that not having filed a claim within that time the action is barred. The defendant relies upon the case of *Coleman*v. *United States,*250 U. S., 30. The theory of the plaintiff is that the sum sued for is within the refunding provisions of the third section of the act of June 27, 1902, that that act contains no limitation as to the time within which application for refunding must be made, that the act of July 27, 1912 did not destroy or modify any rights created by said third section of the act of June 27, 1902, and that the tax when assessed and collected was not erroneously assessed, but having been assessed and collected prior to the passage of the act of June 27, 1902, was a legal assessment. The contention further is that the act of July 27, 1912, and section 3228 of the Revised Statutes and similar provisions, apply only to erroneous assessment; that the cause of action did not accrue until an application for refunding had been denied by the Secretary of the Treasury, and that action was not barred until six years thereafter.

The contention of the plaintiff is ingenious, but a consideration of the lengths to which it would lead us and other infirmities preclude its adoption. It is predicated largely upon a technical or strict construction of the word “ erroneous ” in its relation to the assessment and collection of taxes. We are not prepared to conclude that Congress, in its liberality with reference to the readjustment of taxation matters under the Spanish War revenue act, intended any such technical construction of that word. Rather are we inclined to believe that when Congress passed the act of July 27, 1912, and again opened the doors for applications for refunding of taxes assessed under the act of 1898, it intended, aside from any new rights created, not only to extend once more to claimants who had rested upon their rights an opportunity to assert them, but also to reerect the barrier as of the 1st day of January, 1914.

*452But there is another view of the matter which is for consideration. If the plaintiff’s theory be correct, there would be absolutely no limit to the time within which claims for the refunding of taxes under the act of June. 27,1902, might be presented. In this particular case it appears that the claim was not presented for about 14 years after the passage of that act. If no specific statute is to be invoked as limiting the time within which such claim must be presented, if the act of July 27, 1912, has no application thereto and the right rests solely upon the act of June 27, 1902, it seems to us that under that act it must be held that claims must be presented within a reasonable time, and the period of two years provided by section 3228, Kevised Statutes, might even, by analogy, be regarded as reasonable, and that one who allows a claim of that sort to rest for a period of 14 years has been guilty of laches such as should bar a recovery. If a claim of thir nature may lie dormant 14 years, it may lie dormant an indefinite time, and we can not conceive that such a rule may properly be invoked.

Finally, and upon still another ground, we must conclude that plaintiff’s theory is itself erroneous. It requires, in effect, the conclusion that a tax upon a contingent beneficial interest which had not vested in possession or enjoyment was legal under section 29 of the act of June 13, 1898, but was rendered illegal by the act of June 27, 1902. It is not our view that Congress by the latter act intended to render something illegal which had theretofore been legal but that it intended to declare the proper construction of the first named act, correct an erroneous construction upon the part of the taxing authorities, provide for reimbursement and prohibit the continuance of the error. In other words, a tax upon a contingent beneficial interest which had not vested in possession or enjoyment was not authorized by section 29 of the act of 1898 and such an assessment was erroneous irrespective of the remedial act of June 27, 1902. *United States*v. Jones, 236 U. S. 106, and cases cited sustain this view.

For the reasons stated we conclude that the demurrer to the petition must be sustained.