Court Opinion

ID: 9639125
Source: CourtListenerOpinion
Date Created: 2023-08-22 16:05:36.168154+00
Date Added: 2024-06-11T18:10:12.834492
License: Public Domain

MORTON, Circuit Judge
(dissenting).
.1 regret that I am unable to agree with the opinion of my brethren. As the question presented is, as fax as I have been able to discover, a novel one, I will state briefly my views upon it. I shall refer to the parties plaintiff and defendant as they appeared in the original action.
The Commissioner granted the plaintiff’s application for special assessment under sections 327 and 328 of the Revenue Act of 1918. He made certain refunds and apparently closed the matter on that basis. Later, “no fraud by the taxpayer being claimed, or mistake of fact being shown” (majority opinion), the Commissioner undertook to set aside the special assessment and to reassess the tax in the ordinary way. The question is whether he had the right to do so. He acted within the prescribed period of limitations. None of the decisions referred to in the majority opinion present at all this situation.
I take it to be settled,law that an assessment in the ordinary manner may be reopened and additional taxes assessed, until barred by the statute of limitations, and that this is equally true as to special assessments. Burnet v. Porter, 283 U. S. 230, 51 S. Ct. 416, 75 L. Ed. 996; McIlhenny v. Commissioner (C. C. A.) 39 F.(2d) 356; Oak Worsted Mills v. United States (Ct. Cl.) 36 F.(2d) 529. But may the Commissioner grant and -withdraw the right to special assessment as his mind changes?
The statute itself provides two methods of assessing income and profits taxes, the ordinary and the special. They are radically different in principle; both are equally statutory. In the ordinary method, the income is determined and the statute is then applied to the result. It is wholly immaterial how the tax compares with what other similar concerns are paying. Apparently assessment in this way was found occasionally to work great injustice in individual cases, and sections 327 and 328 were enacted in order to meet such situations. They provide for “special” assessments so called by which the tax liability, computed in the ordinary manner, is compared with “the average tax of representative corporations engaged in a like or similar trade or business” (section 328 (a), and is adjusted accordingly. It is a more flexible method, and leaves much to the judgment of the Commissioner.
The purpose of the special assessment provision is, as therein stated, to prevent “exceptional hardship evidenced by gross dispro*343portion between the tax computed without benefit of this section and the tax computed by reference to the representative eorp orations specified in section 328.” It rests with the Commissioner to decide which way a corporation’s tax ought to be assessed, whether ordinarily or specially. His decision on that point is final. There can be no review at the instance of the taxpayer. Williamsport Wire Rope Co. v. United States, 277 U. S. 551, 48 S. Ct. 587, 72 L. Ed. 985. It seems to me that, in the absence of fraud or mistake the Commissioner’s decision is equally binding on the government. The Commissioner’s determination of the amount of any tax is held not binding, only because statutory provisions regarding the compromise of tax liabilities are regarded as requiring that result. See section 1312, title 13, Revenue Act of 1921, 42 Stats. 308, 313. Apart from this provision, it seems |>robable that the Commissioner’s determinations of amounts would, in the absence of fraud or mistake, be binding and conclusive. See Woodworth v. Kales, 26 F.(2d) 178 (C. C. A. 6th), an able opinion by Judge Denison. That decision has been doubted, but only for the reason that it has been thought to give too little weight to the compromise provisions just referred to. See Oak Worsted Mills Co. v. United States (Ct. Cl.) 36 F.(2d) 529; Id. (Ct. Cl.) 38 F.(2d) 699.
These provisions have no bearing on the present question. The reasoning of Wood-worth v. Kales is applicable to it. The Commissioner had the duty to decide which of the two methods specified in the statute should be followed in assessing the plaintiff’s tax. Upon considering the matter, he decided that “exceptional hardship,” etc., would be imposed upon the plaintiff if the tax were assessed in the ordinary way; and he therefore decided that the tax should be specially assessed. Having made this decision he was still free to change it later, if satisfied that fraud had been practiced, or that he had acted under a mistake of any kind. But where, as here, neither fraud nor mistake entered into his decision, I do not think it is open to the Commissioner to play fast and loose with such a basic question of fact. In deciding it, he exercises quasi judicial power. Such power does not rest on mere caprice.
There appears to be no decision by the Supreme Court which throws much light on the question. In a recent case, United States v. Great Northern Ry. Co. (November 7, 1932) 287 U. S. 144, 53 S. Ct. 28, 30, 77 L. Ed. 223, the Interstate Commerce Commuission had made in favor of a carrier partial certificates which upon final settlement proved to "be largely in excess of what the carrier was entitled to. The question was whether the carrier was liable to refund the excess. The court, after pointing out that there had been neither fraud nor mistake, “but merely a revision of judgment in respect of matters of opinion” (Cardozo, J.), held that the judgment of the Commission bound the United States and that the excess was not recoverable. There is nothing unusual in the view that administrative officers may have, within their sphere of aetion, jwwer to bind the' United States. See United States v. Kaufman, 96 U. S. 567, 24 L. Ed. 792; United States v. Real Estate Savings Bank, 104 U. S. 728, 26 L. Ed. 908; Bank of Green-castle’s Case, 15 Ct. Cl. 225. In the ease of Hostetter’s Bitters, 32 Op. Attys. Gen. 481, the Attorney General advised the Commissioner of Internal Revenue that, when a tax had been refunded, the Commissioner was without power to retake the amount from the taxpayer under the exercise of the taxing power, unless fraud or mistake of law wore shown. The Attorney General said: “The Commissioner was authorized, in at least a quasi-judicial capacity, to pass on the question and determine whether the taxes had been properly collected or not. His decision on that question was binding on the government.” Page 486 of 32 Op. Attys. Gen. In Austin Co. v. Commissioner (C. C. A.) 35 F.(2d) 910, it was said: “Even though there was lack of authority [in the Commissioner] to make such assessment upon a changed view of the same facts [italics mine], there was not lack of authority to make it where there was fraud or mistake of law or fact in the original assessment.” Moorman, J., page 912 of 35 F.(2d). Where fraud or mistake of law appear, the government has ample remedv. Kelley v. United States (C. C. A.) 30 F.(2d) 193.
The fact that under Williamsport Wire Rope Co. v. United States, 277 U. S. 551, 48 S. Ct. 587, 72 L. Ed. 985, it is absolutely discretionary with the Commissioner whether to grant a special assessment tends, I think, rather to support the view that, when the Commissioner has once decided to do so, and his decision has been acted on by both the government and the taxpayer, he is not at liberty to reverse it on a mere change of mind. To permit him to do so gives a power which hardly escapes arbitrariness, and makes issues which may be of vast consequence to the taxpayer depend rather upon personal whim than upon the judicial process.
*344I have some difficulty iu discovering in the record all the facts necessary to a .consideration of this appeal; but, as my brethren regard the record as sufficient, I am content to do so.
On Petition for Rehearing.
The petition for rehearing must be denied. We think, however, that the last sentence in the opinion of the court should be stricken out and in its place the following inserted:
“If there was no mistake as to the facts on which the commissioner based his special determination, nevertheless on re-examination of the records in his office he may have discovered new facts as to the income of other corporations in the same line of business and was entitled to the presumption that he acted on additional facts. Williamsport Wire Rope Co. v. United States, 277 U. S. 551, 560, 561, 48 S. Ct. 587, 72 L. Ed. 985.”
On page 341 of the opinion of the court, at the'close of the paragraph ending with the words “but was not admitted,” the following should be added:
“The court, however, stated and plaintiff’s counsel admitted that the deposition contained no evidence material to the question in the ease.”
The order is: Petition for rehearing denied.