Opinion ID: 371173
Heading Depth: 3
Heading Rank: 2

Heading: Relief Limited to Taxes Actually Paid

Text: 19 The Government also argues that even if payment of the disputed taxes for 1967 is not a jurisdictional requirement for a refund suit in a later year, actual payment of taxes for the year of receipt is a requirement in order to state a claim for relief under § 1341. We agree that actual relief under § 1341 is available only to the extent that the income repaid in the later year was actually subject to taxation in the year of receipt. See Skelly Oil Co., 394 U.S. at 684-86, 89 S.Ct. 1379. Nothing in § 1341, however, makes payment of taxes for the year of receipt a requirement of maintaining a suit under its provisions. Moreover, the taxes for 1967 were not paid because the Shipleys contested the deficiency in the Tax Court. We do not believe Congress intended that taxpayers be penalized for exercising their right to litigate in the Tax Court where such a result is not clearly required by the Code. In the present case, we believe that the purpose of both § 1341 and the statute establishing the Tax Court can be given effect without violating other provisions of the Code by the District Court's staying the § 1341 proceedings until the Tax Court litigation is completed. 20  'The power to stay proceedings is incidental to the power inherent in every court to control the disposition of causes on its docket . . . . A stay pending the outcome of the litigation in another court between the same parties, involving the same or controlling issues is an acceptable means of avoiding unnecessary duplication of judicial machinery.'  Aetna State Bank v. Altheimer, 430 F.2d 750, 755 (7th Cir. 1970), Overruled on other grounds, Calvert Fire Ins. v. Will, 560 F.2d 792, 796 (7th Cir. 1977), Rev'd on other grounds, 437 U.S. 655, 98 S.Ct. 2552, 57 L.Ed.2d 504 (1978). This court has previously held that where a pending administrative proceeding might render the relief sought in district court unnecessary, it is proper for the district court to stay the case before it pending the outcome of the administrative proceeding. Chronicle Publishing Co. v. National Broadcasting Co., 294 F.2d 744, 748-49 (9th Cir. 1961); See Reep v. United States, 557 F.2d 204, 208 (9th Cir. 1977). It has also been held that it is not improper for a party to file an action in the district court to toll the statute of limitations, even though a pending administrative proceeding might resolve the issue, and that it is proper in such circumstances for the district court to stay the case before it pending the outcome of the administrative proceedings. O'Hare Int'l Bank v. Lambert, 459 F.2d 328, 331-32 (10th Cir. 1972); Cf. In re Standard Gas & Elec. Co., 16 F.R.D. 221, 222-23 (D.Del.1954) (suit filed to avoid waiver of claim that district court has primary jurisdiction). 21 In the present case, it is impossible for the district court action to proceed without the benefit of the Tax Court decision. As noted previously, a taxpayer may obtain a credit or deduction under § 1341 only to the extent the funds restored were subject to taxation in the year of receipt. Skelly Oil Co., 394 U.S. at 685, 89 S.Ct. 1379. Thus, if the Tax Court determines that the funds received by the Shipleys from Capron were not properly included in gross income by the Commissioner, those funds would not be taxable in the year of receipt and the Shipleys may not claim a credit or deduction under § 1341. It would therefore be inappropriate for the district court actually to grant a refund when it is not yet clear whether the 1967 receipts are properly subject to taxation, See Id., and declaratory relief is barred by 28 U.S.C. § 2201. As noted above, we believe it is also inappropriate for the district court to deny relief merely because the Tax Court proceedings are still pending. Thus, we think a stay is the proper procedure. Neither the Government nor the taxpayer would be prejudiced thereby. The Government need not pay the claimed refund pending the outcome of the Tax Court proceedings, and the Shipleys do not need the refund to pay the 1967 tax liability until the Tax Court has determined that tax is due. 22 The Government contends that if the taxpayer is permitted to maintain a refund suit under § 1341 while the taxes on the returned income are still being contested in the Tax Court, the taxpayer may be able to obtain a refund based on taxes never paid. We note simply that such a result will not occur if the refund suit is stayed until a final decision is rendered by the Tax Court. We also note that the Government's suggestion that a suit under § 1341 be permitted only where the taxpayer has paid the taxes for the year of receipt would not eliminate the possibility of the taxpayers receiving a windfall. Suppose a taxpayer in similar circumstances paid his taxes for the prior year, but then instituted a suit for refund in the district court and then, while that suit was pending, instituted a § 1341 suit for a refund, claiming a credit for the taxes paid. Unless the § 1341 action were stayed, the taxpayer could possibly recover under § 1341 and also obtain a refund for the year of receipt. Thus a stay in that instance would also be appropriate. We do not believe that Congress intended to prohibit the courts from using stays, a well-established means of coordinating closely related litigation to avoid such conflicting or unjust results. 23 The Government argues finally that in seeking a credit equal to taxes overpaid in 1967, when the taxes due for that year have not yet been finally determined, the Shipleys are seeking a declaratory judgment, which is expressly prohibited in an action concerning Federal taxes, 28 U.S.C. § 2201. We cannot agree. If the refund action is stayed pending the outcome of the Tax Court action, the amount of taxes due in 1967 will be settled before trial in the present case is commenced, and no declaratory relief will be required. 24 The judgment of the district court is reversed and remanded for further proceedings consistent with this opinion.