Source: https://supreme.justia.com/cases/federal/us/262/234/
Timestamp: 2019-04-25 14:06:28+00:00

Document:
1. Under § 3224, Rev.Stats., federal taxing officers who, in the course of general jurisdiction over the subject matter, have made an assessment and claim that it is valid cannot be enjoined from collecting the tax upon the ground that the assessment is illegal. P. 262 U. S. 254.
2. One who would contest the validity of a federal tax upon the ground that the assessment and the right to distrain were barred by a statutory time limitation should pay the tax and sue to recover it, and not seek relief by a suit to enjoin the Collector from distraining for the tax. P. 262 U. S. 255.
3. Under § 252 of the Revenue Act of 1918, reenacted in the Revenue Act of 1921, a taxpayer whose return of income was due March 15, 1916, and against whom an additional assessment was made December 31, 1919, could pay the amount of the assessment, make his claim therefor, and, if that were rejected, have at least until March 15, 1921, within which to sue to recover back the payment. P. 262 U. S. 256.
4. A taxpayer cannot, by delaying payment of an assessment until his right to sue to recover it back is barred by limitations, make a case so extraordinary and entirely exceptional as to render Rev.Stats., § 3224, inapplicable to his suit to enjoin collection by distraint. P. 262 U. S. 256. Lipke v. Lederer, 259 U. S. 557; Hill v. Wallace, id., 259 U. S. 44, and other cases distinguished.
of such assessment as void, because not made within the statutory time limit therefor and because made on a dividend of corporate shares which were not income (involving a question afterward determined adversely in United States v. Phellis, 257 U. S. 156) held entitled under § 252 of Revenue Act 1921, and § 3226, Rev.Stats., as amended by Revenue Act of March 4, 1923, c. 276, 42 Stat. 1504, to pay the tax assessed, bring suit to recover it back, and, in such suit, to raise questions as to the value of the stock and the amount of resulting tax, and also as to whether the assessment was barred by statutory time limitation. P. 262 U. S. 258.
In a reorganization of a Dupont Powder Company of New Jersey and the organization of a new Dupont Powder Company of Delaware to take over many of the assets of the old company, the complainant, in the year 1915, received 75,534 shares of the common stock of the Delaware company of the par value of $100 each. The transaction was the subject of consideration by this Court in United States v. Phellis, 257 U. S. 156, where it was determined that shares in the Delaware company received by stockholders of the New Jersey company, as the complainant received his at the rate of two in the Delaware company in exchange for one in the New Jersey company, was a separation of past accumulation of profits from the capital of the New Jersey company and a distribution to the stockholders, and thus constituted taxable income under the Income Tax Law of 1913.
in March, 1916, of his income for the year 1915, in which he did not include these shares. In November, 1917, the department began an investigation into the liability of the complainant to pay an income tax on his shares of stock in the Delaware company, and finally ordered an assessment of $1,576,015.06. The complainant was notified of this assessment made December 31, 1919. He replied the next day that as his return for 1915 was filed before March 15, 1916, and as the law required any assessment for additional amount to be made within three years, and that period had expired, the assessment and demand for payment were illegal. On February 2, 1920, a hearing was granted to counsel for complainant by the Commissioner of Internal Revenue.
Thereafter, by agreement between the stockholders similarly situated, one stockholder, Phellis, paid the tax due under a similar assessment and brought suit in the Court of Claims to recover it. Counsel for the complainant herein took part in the argument of that case. The Court of Claims gave judgment against the United States, but, on appeal, the judgment was reversed. The opinion of the court was handed down November 21, 1921. All claims for abatement had been held and not decided by the Commissioner under an agreement with the counsel in the Phellis case. Thereafter the Commissioner rejected complainant's claim for abatement. The bill of complainant was filed January 30, 1922. The district court granted the temporary injunction. The circuit court of appeals, on appeal, affirmed the temporary injunction for the reasons stated in the opinion of the district court.
92 U. S. 575, 92 U. S. 613, and in Snyder v. Marks, 109 U. S. 189, 109 U. S. 193, it was said that the system prescribed by the United States in regard to both customs duties and internal revenue taxes of stringent measures, not judicial, to collect them, with appeals to specified tribunals and suits to recover back moneys illegally exacted, was a system of corrective justice intended to be complete, and enacted under the right belonging to the government to prescribe the conditions on which it would subject itself to the judgment of the courts in the collection of its revenues. In the exercise of that right, it declares by paragraph 3224 that its officers shall not be enjoined from collecting a tax claimed to have been unjustly assessed when those officers, in the course of general jurisdiction over the subject matter in question, have made the assessment and claim that it is valid. This view has been approved in Shelton v. Platt, 139 U. S. 591, in Pittsburg Ry. v. Board of Public Works, 172 U. S. 32, in Pacific Whaling Co. v. United States, 187 U. S. 447, 187 U. S. 451-452, in Dodge v. Osborn, 240 U. S. 118, 240 U. S. 121, and in Bailey v. George, 259 U. S. 16.
The district court recognized the sweep of these decisions in respect of the contention of the complainant that the assessment of this tax and the threatened distraint to collect it were barred by limitations under the statute, and was of opinion that, as a rule, such attacks upon the validity of the tax could only be heard and considered after the tax had been paid in a suit to recover it back. In this view we fully concur.
The district court, however, thought that an exception to the operation of § 3224 must arise when it appeared, as it held it did appear here, that no provision of law existed by which if the taxpayer when he filed his bill for an injunction had paid the tax assessed, he could bring a suit to recover it back because it would be barred by the statutory limitation of time in which such a suit could be brought.
"If upon examination of any return of income made pursuant to . . . the Act of October 3, 1913, . . . it appears that an amount of income . . . tax has been paid in excess of that properly due, then, notwithstanding the provisions of § 3228 of the Revised Statutes, the amount of the excess shall be credited against any income . . . taxes, or installments thereof, then due from the taxpayer under any other return, and any balance of such excess shall be immediately refunded to the taxpayer: Provided, that no such credit or refund shall be allowed or made after five years from the date when the return was due unless, before the expiration of such five years, a claim therefor is filed by the taxpayer."
The return was due March 15, 1916. The assessment was made December 31, 1919. The complainant might then have paid the tax, and would have had two years in which to make his claim, and, if rejected, to sue to recover it back if, as he now submits, § 252 limited his right to pay and sue to recover. Under such a construction and application of § 252, suit must have been brought on or before March 15, 1921. This is what Phellis did (United States v. Phellis, 257 U. S. 156), and there was no question raised as to his right to bring the suit in the Court of Claims to recover back the tax paid by him, if it had proved to be illegally assessed and collected. Certainly complainant could not, by delaying his payment until his right to sue to recover it back expired, make a case so extraordinary and entirely exceptional as to render § 3224, Rev.Stats., inapplicable.
due to agreement by the parties. Nor was he prevented from paying the assessment by his claim for abatement.
business with all the unnecessary and disastrous consequences its enforcement would entail if the act was unconstitutional. Hill v. Wallace should, in fact be classed with Lipke v. Lederer, 259 U. S. 557, as a penalty in the form of a tax. Certainly we have no such case here.
This conclusion renders it unnecessary for us to consider whether § 252 of the Revenue Act of 1921, in connection with § 3226, Revised Statutes, as amended by the same Revenue Act of 1921, barred complainant's right to pay the tax and sue to recover it back at the time of filing his bill, as held by the district court. It is certain that, by the amendments to § 252 and § 3226, Revised Statutes, by the Act of March 4, 1923 (Public No. 527), the complainant is given the right now to pay the tax, and sue to recover it back, and in such a suit to raise the questions as to the value of the stock and the amount of the resulting tax and also as to the bar of time against the assessment which he attempted to raise in the bill.

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