Court Opinion

ID: 9445586
Source: CourtListenerOpinion
Date Created: 2023-08-03 21:33:57.135238+00
Date Added: 2024-06-11T17:30:20.427438
License: Public Domain

HINCKS, Circuit Judge
(dissenting).
The case turns on § 272 of the Code of 19391 which says: “If * * * the Commissioner determines that there is a deficiency * * * ” (emphasis supplied), within ninety days after notice by the Commissioner “the taxpayer may file a petition with the Tax Court of the United States for a redetermination of the deficiency.”
*15The cardinal objective of § 2722 was to provide a procedure whereby at his option the taxpayer might obtain an independent review of the tax deficiency as determined by the Commissioner in advance of payment. Old Colony Trust Co. v. Commissioner of Internal Revenue, 279 U.S. 716, 721, 49 S.Ct. 499, 73 L.Ed. 918; Everett Knitting Works, 1 B.T.A. 5; Ventura Consolidated Oil Fields v. Rogan, 9 Cir., 86 F.2d 149, certiorari denied 300 U.S. 672, 57 S.Ct. 610, 81 L.Ed. 878. Not only did the optional pro•cedure thus provided enable the taxpayer to litigate the deficiency in advance of payment, but also it a orded other advantages both practical and legal. For instance, a taxpayer mig t occasionally desire a «determination by the Tax Court-a tribunal composed of tax specialists — m preference to a plenary ac- , . , , tion m a district court, especially if the „ ,, , , , , ., former were able to act and decide more promptly. Review by the Tax Court might be preferred because there the Commissioner cannot depart from the position taken in his notice of deficiency without assuming the burden of proof, Tauber, 24 T.C. 179, 185; Briggs, 15 T.C.M. 440, 451 (April 16, 1956). More important considerations are that in an action at law on a claim for a refund in the district court the burden is on the taxpayer to disprove every justification •advanced by the Government for retaining the tax payment and that Government claims against the taxpayer, even though barred by the statute of limitations, may be offset against his claim for refund. Lewis v. Reynolds, 284 U.S. 281, 52 S.Ct. 145, 76 L.Ed. 293; United States v. Pfister, 8 Cir., 205 F.2d 538. The very fact that § 272(a) (1) expressly gives the taxpayer a right to enjoin assessment and collection until he has been given the prescribed opportunity for a redetermination by the Tax Court, shows that Congress considered the right important. Its importance is further attested by the legislative care to provide opportunity for a redetermination by the Tax Court even in cases of jeopardy assessments under § 273(b) and (c).
The defendant-collector argues3 that a taxpayer’s access to the Tax Court under § 272 dependg literhUy upon the existence of the stated condition, viz.: adetermination by the Commissioner “that there is a deficiency,’’-that is to say, a deficjency jn existence when the determinatíon ig made; ^ if the Commissioner deferg Wg determination until a once_ ... „ . , ,, , , ,. existing deficiency shall have been elim- , mated by the accrual of a carry-back „ _ , • . , under § 710 of the Code as amended, the result 18 that § 272 18 no lon«er aP" Plicable and the taxpayer can challenge a determination of the deficiency which, although discharged by a carry-back, gave rise to a continuing liability for interest, only by paying the interest assessed and then suing in the district court for its recovery.^ In other words, the defendant maintains that although § 272 entitles a taxpayer to a redetermination by the Tax Court of a disputed deficiency for the purpose of assessing and collecting the principal amount of a tax deficiency, it does not entitle him to a redetermination for the purpose of assessing and collecting interest on a disputed tax deficiency. My brothers seem to have accepted this contention.
*16With this thesis I am unable to agree. Section 272(a) of the 1939 Code derives from § 274 of the Act of 1924 and first appeared in its present form in § 272 of the Act of May 28, 1938, c. 289, 52 Stat. 535. In 1938, there was no provision under then existing tax law for a carry-back the effect of which might be to discharge or abate an existing deficiency: under the structure of that tax law as it then existed every deficiency in the tax reported, unless voluntarily reported and paid by the taxpayer, continued in existence until determined by the Commissioner. Consequently, under the Act of 1938 — as also under the Code of 1939 — § 272 was intended to apply, and literally did apply, to every deficiency determined by the Commissioner: the taxpayer at his option could utilize the § 272 procedure to obtain a redetermination of each and every deficiency in the tax law which the Commissioner was authorized to determine.
When the device of the carry-back was introduced into the structure of the income and excess profits tax law by the Revenue Act of 1942,4 the obvious purpose was to provide for the reduction of the taxpayer’s tax liability and thus to reduce or abate any possible or asserted deficiency which might otherwise be determined, — not to rescind or modify the taxpayer's rights under § 272 to a re-determination of disputed deficiencies. There is no Congressional history to show, and no conceivable reason to suggest, an intent to exclude from the § 272 review, which had been provided for every deficiency, deficiencies which, if they ever existed, had been abated by a carry-back accrued prior to the determination of the deficiency. Under § 292 of the Code, interest on a tax deficiency accrues as an integral part of the tax liability: interest and principal are assessed and collected at the same time and by the same procedure. An authoritative determination of a deficiency is a prerequisite to the accrual of the taxpayer’s liability not only for the principal of the deficiency but also for interest thereon. If a taxpayer is entitled to a redeter-mination by the Tax Court of the Commissioner’s determination of an existing deficiency prior to the assessment of the deficiency and of interest thereon, I think he is equally entitled to such a redetermination of a disputed deficiency, which — if it ever did exist — had been abated as a result of a carry-back, prior to the assessment of interest thereon. Otherwise a semantic accident operates to frustrate the legislative objective.
Although, as my brothers have noted, the procedure provided in § 274 for the liquidation of claims against bankrupt taxpayers is somewhat different from that generally provided for the determination of deficiencies, I am unable to see how that difference strengthens the defendant’s position. Surely the fact that in a bankruptcy case the Commissioner must prove his claim in the bankruptcy court thus entitling the taxpayer to an adjudication in advance of payment, as § 274 provides, does not suggest that a solvent taxpayer may not petition the Tax Court for a final determination of a deficiency in advance of payment.
The cases cited by the Government, and indeed those cited by my brothers, seem to me not to justify the dismissal below. It will serve no useful purpose to analyze these cases individually. In some, as the majority opinion notes, “the court approved a procedure whereby a taxpayer may be required to pay a disputed sum of interest without an opportunity to secure a prior determination.” But in none of these cases was the dispute as to interest an underlying and consistently maintained dispute as to the validity of the Commissioner’s determination of the deficiency upon which the claim of interest depended.
I would hold that for failure to comply with the procedure prescribed by § 272 *17there has been no valid assessment. The fact that the statute of limitations has run so that it is now too late for the Commissioner to make an enforceable assessment after compliance with § 272, is of course not a pertinent consideration. I would reverse in order that the appellant might have the injunctive relief under § 272 to which — as I believe— it is entitled.

. All references in this opinion to statutory sections and titles are to the Internal Revenue Code of 1939, unless otherwise indicated.

. Section 272 by its express terms is applicable to taxes “imposed by this chapter,” i. e., Chapter 1 of Subtitle A, which includes income and excess profits taxes. That it is not applicable to the comparatively simple miscellaneous taxes imposed under Subtitle B of the Code is a fact which, though noted in the majority •opinion, 1 find of no pertinence to the problem presented by this appeal which involves a disputed deficiency asserted ■under the complex provisions of the law imposing excess profits taxes.

. Implicit in this argument is the proposi- ■ tion that under the rule of Manning v. Seeley Tube & Box Co., 338 U.S. 561, 70 S.Ct. 386, 94 L.Ed. 346, when a deficiency exists for a time until abated or canceled by a carry-back, the liability for interest accruing on the deficiency during the period of its existence survives the abatement of the deficiency by the carry-back. The appellant does not dispute this proposition.

. Section 153 of the 1942 Act, § 122 of the 1939 Code as amended, provided for the carry-back of net operating loss deductions. And § 204 of the 1942 Act, § 710(c) of said Code as amended, provided for the carry-back of unused excess profits credits.