Court Opinion

ID: 9444940
Source: CourtListenerOpinion
Date Created: 2023-08-03 21:16:31.084558+00
Date Added: 2024-06-11T17:30:04.515703
License: Public Domain

WOODROUGH, Circuit Judge
(dissenting) .
Prior to 1924 an income taxpayer who felt himself aggrieved by the Commissioner’s determination of his tax could only contest it in a court action after paying the amount assessed. Congress created the Board of Tax Appeals, an administrative body within Congressional control, in that year in order to temper the harshness of that situation and to provide such taxpayer an expeditious means of contesting taxes found against him in advance of paying principal or interest. Thereafter, as fully explained by the Supreme Court in Phillips v. Commissioner, 283 U.S. 589, 51 S.Ct. 608, 75 L.Ed. 1289, the aggrieved taxpayer has had two choices: (1) to contest the assessment before the Board (or its successor, Tax Court) without prepaying *153tax or interest, or (2) to pay the tax and sue in District Court to get back any illegal excess paid and interest. The Commissioner has been administering the collection of income taxes on that basis for more than thirty years. The collectors have understood it to be according to law, millions of taxpayers have had it so explained to them and believed it, and it has been found to work. In recognition the Congress has raised the status of the Tax Board and made it a Tax Court which functions continuously at the will of Congress.
The taxpayers, appellants here, have undertaken to pursue a third course. They made relatively small payments “in partial satisfaction of [their] assessed tax liability for each of the years 1942 and 1943” then filed claims for refund on form 843, on which it was indicated that the Claim was for Refund of taxes illegally, erroneously or excessively collected and upon disallowance of the claim they filed their complaint herein. It alleges that the income tax liability asserted against them was illegally and erroneously assessed and that the amounts of the partial payments were illegally and erroneously collected. The prayer is for judgment for the amounts of the partial payments with interest, costs and disbursements. The appeal is to reverse the judgment of dismissal of the action entered by the trial court on motion. D.C., 131 F.Supp. 589.
I think the system of tax collection applied since 1924 which affords the taxpayer only the two means of contesting the validity of income taxes assessed against him is supported by the law and that there is no legal sanction for predicating a civil action for recovery of tax upon token payments as has been here attempted.
It is true there never has been any statute declaring in so many words that taxpayers are limited to the two choices of ways to contest their taxes. It is necessary to consider several statutory provisions to get at it, but I see no reason to believe that the administration of the tax system on the basis of the two choices is or has been without support in the law. It accords, I think, with the will of Congress sufficiently expressed that courts may not interfere with the collecting of taxes in the first instance.
As a fundamental Congress prohibits the courts from using their equity powers to interfere with tax collection by 26 U.S.C.A. § 7421, which provides that no suit for the purpose of restraining or enjoining the assessment or collection of any tax shall be maintained in any court. That is an absolute prohibition (with rare exceptions) which has prevented the equity action for nearly a hundred years and still stands.
But Congress did not stop at preventing the courts from using their equity powers to interfere with the collecting. It would obviously not accomplish the prevention of court interference with tax collection if the courts were left free to adjudicate taxes to be illegal in other forms of action before they are collected.
Accordingly, section 1346(a), 28 U.S. C.A.1 and section 7422, 26 U.S.C.A., both amended in 1954, are directed to judicial powers respecting tax suits other than in equity. They confer and delimit the power of the District Court over suits by taxpayers against the United States to contest taxes. Both sections are consistent with and confirmative of the intent of Congress expressed in section 7421, to prohibit the courts from interfering with the collecting of taxes in the first instance.
The first section, 1346(a), is in the form of affirmatively conferring jurisdiction upon the District Court of a civil action against the United States for “the recovery of any internal-revenue tax”.
The language “civil action against the United States for the recovery of * * tax” found in this section is a phrase of art. The only sense in which a taxpayer can be said to recover a tax from govern*154ment is in the sense that a tax has been assessed against and collected from him and he recovers his money back because of adjudication that the tax is void.
All of that is implicit in the phrase of the section. It may seem clumsy but it is old and there is no reason to doubt what Congress meant by it. To speak of a taxpayer recovering an uncollected tax from the government simply does not make sense. The tax that can be recovered must be complete. Both levied and collected. The income tax system has been administered, as I think rightly, on the basis that the action against the United States which Congress authorizes “to recover a tax” means an action to recover the amount of a tax that has been collected and ought to be “recovered” because of invalidity of the tax or collection.
So considered, section 1346(a) reflects exactly the same purpose that Congress manifested in 7421(a). It was meant to prevent court interference with collecting taxes in the first instance.2
The other section, 7422(a), headed Civil Actions For Refund is complementary to 1346(a). Section 1346(a) affirmatively confers jurisdiction of suits to recover taxes, and 7422(a) by prohibitory expressions regulates the procedure. The prohibition is against the maintenance of the action which is authorized in 1346(a) “for the recovery of any internal-revenue tax” “until a claim for refund or credit has been duly filed * * according to * * * the regulations * * * ”
The purpose of limiting the right to maintain the action for recovery of tax until claim for refund has been filed is to provide for administrative examination of the taxpayer’s claim of illegality in assessment and collection of the tax before suit for recovery of the tax can be maintained. He must show the administrative officer before he can show the court what he claims respecting illegality in the assessment and collection of the tax.
The language of the section is entirely in accord with 7421(a) and 1346(a) and continues to indicate the intent of Congress to prevent court interference with tax collecting. Though there is no definition of the claim for refund, it is plainly intended to be identical with the complaint in “the action to recover the tax” and must claim a right'to have a refund of a tax wrongfully assessed and collected. The form 843 duly filed by the taxpayers stated that it should have indicated on it by an X in the proper block that the claim for refund was for “Refund of Taxes Illegally, and Erroneously or Excessively Collected * * * ”. No provisions of the law justify maintenance of an action to adjudicate invalidity of a tax in order to recover a token payment that has been made thereon.
Congress did not intend to prevent courts from adjudicating against the United States at some stage upon the validity of any tax laid against a taxpayer. But Congress can and has prohibited judicial interference with the collecting of the tax in the first instance. Wisely and rightly in view of the relation of the tax collecting to the existence of government.
No weight should be ascribed in deciding this case to existence of powers to collect unpaid portions of taxes by seizures. We are concerned here with the lawfulness of the system of income tax administration of the United States as it has been and is conducted. The billions are collected under it in the faith that it is lawful. We must uphold it or strike it down solely upon our answer to *155that question, whether it is or not. In the case before us plaintiffs are attempting to obtain adjudication upon the validity of taxes that have not been collected. They have delivered partial payments insignificant compared to the tax and request adjudication that the whole tax is illegal. I think all that is presented is an ingenious device to induce the court to disobey the long settled and fundamental prohibition that has been lawfully (and wisely) directed against courts interfering with the collecting of taxes in the first instance.
I would affirm the well considered judgment of the District Court.

. See. 1346(a) was amended “to delete the jurisdictional limitations of $10,000 imposed on suits to recover taxes.” Sec. 7422 is merely codification so far as relevant here,

. The section also includes authorization of a civil action to recover from the United States “any sum alleged to have been excessive or in any manner wrongfully collected under the internal-revenue laws” but that provision can have no application to this action which by the complaint is for recovery of taxes based on the ai-legations that payment of $2500 was made in partial satisfaction of assessed tax liability and “the defendant illegally and erroneously determined and assessed the additional income tax liability asserted for 1942 [and 1943] and illegally and erroneously collected the $2500 of taxes paid by the estate for that year.”