Court Opinion

ID: 9637549
Source: CourtListenerOpinion
Date Created: 2023-08-22 15:10:08.203113+00
Date Added: 2024-06-11T18:09:57.767164
License: Public Domain

*47SIBLEY, Circuit Judge
(dissenting).
While I think the taxpayer, Gulf States Steel Company, is liable on the first bond given, it and National Surety Company, which signed the third bond only, are not liable on that bond. The surety on the first bond was released in consideration of the signing of the second, but the first bond was not surrendered but held against the principal, and the second expressly states that it was to “further secure the payment of the amount found to be due the United States.” The third bond does not mention the first at all and does not supersede it. The first bond is conditioned “that the Gulf States Steel Company will indemnify the Collector or his successor in office against all loss, cost, damage and expense to which he may be put by reason of having allowed the said Company to withhold payment to him as such Collector of the named tax pending the filing of additional facts and information in support of a claim for abatement of said tax heretofore filed by it.” It having been established that by reason of this delay the collector lost the entire tax, he is by the plain words of this bond entitled to indemnification under it.
As concerns the taxpayer there is a rough justice in saying that since for its benefit the Liberty bonds were put in the place of the liability of the surety on the first bond, and the liability of the surety on the third bond was put in the place of the Liberty bonds, therefore the third bond should stand for the same purposes as the first. But this is neither accurate nor right as to the National Surety Company. Its relation to the United States is purely that of surety for another, and its obligation is therefore one of strict law and measured solely by the bond it signed, fairly interpreted. This bond makes no reference to the first bond, whose terms may have been wholly unknown. It is for a different penalty, and given not to procure delay but the release of the Liberty bonds belonging to the taxpayer. It was not intended to express the same obligation that the first bond did, because its condition is wholly different from that of the first bond. After mentioning the assessed additional tax and the pending claim for abatement, and the giving of the second bond secured by the Liberty bonds which were to be surrendered, it binds the surety “to pay to said Collector so much of the amount of the claim as is not abated, together with penalties and interest thereon as provided by law.” The question is: What do these words fairly mean when used in this connection in 1925? This is a voluntary bond, not taken in pursuance of any statute, but it happens to be in the language provided in the Revenue Act of 1924, § 279 (a), 26 USCA § 1063 note, for bonds given to stay jeopardy assessments. Its language also is substantially that prescribed by Revenue Act of 1928, § 273 (f), 26 USCA § 2273, (f), and is likely to be used in any bond given in connection with a claim for abatement, and its proper construction is important. The case of United States v. John Barth Co., 279 U. S. 370, 49 S. Ct. 366, 367, 73 L. Ed. 743, is not controlling. That ease settled that the bar of limitation falling upon a tax after the giving of a bond made to obtain delay does not affect the contractual liability on the bond. It was said of the statutory bond there involved: “The object pf the bond was not only to prevent the immediate collection of the tax, but also to prevent the running of time against the government. The taxpayer has obtained his object by the use of the bond, and he should not object to making good'the contract by which he obtained the delay he sought.” This language applies to the first bond in this ease, which was given to' obtain and did obtain the delay which ripened the limitation. Had the condition of that bond been less aptly worded and more like that of the third bond, I should be prepared to hold that the makers of it were estopped to defeat their bond on account of the very thing they were to obtain by giving it. Such could not be the fair intention of the parties. But the third bond was given two years and six months after the limitation bar had occurred. It does not stipulate for any delay, and if any was Rad on the faith of it the delay is amply compensated by the penalties and interest promised to be paid. Moreover, the surety on it is not refusing to make good his contract, but only asking that it be enforced according to its terms. The promise is to pay what is not abated. I do not regard as important the language quoted in the majority opinion from Inhabitants of Shrewsbury v. Inhabitants of Salem, 19 Pick. (Mass.) 390, concerning the tax laws of Massachusetts a hundred years ago. The point in that ease was whether a pauper could claim support from a township as having theretofore paid five years’ taxes when in fact some of them had been forgiven him. No, question of abatement by limitation was involved. If it be true that in Massachusetts jurisprudence abatement refers only to error or mistake in an assessment and not to remission of taxes, the contrary is true in the federal jurisprudence. In Rev. St. § 2984 and section 3221 (26 USCA § 151), the Secretary of the *48Treasury was authorized in certain cases to remit taxes duly and properly assessed on imported merchandise or distilled liquors which were afterwards accidentally destroyed. In both sections the remission before payment, although not for any error in the assessment, is termed an abatement, and after payment a refund; and the Supreme Court uses the word “abate” in that meaning in United States v. Alexander, 110 U. S. 325, 4 S. Ct. 99, 28 L. Ed. 166. A tax may therefore properly be said to be abated not only for errors and mistakes in its assessment, but for matters arising afterwards and before its collection. limitation, whether occurring before or after assessment, was not known until recently as a ground for abatement because limitation did not exist. It was first provided as to assessing deficiencies in income taxes by requiring error to be discovered within three years. A claim for abatement with this limitation as its ground was involved in Graham v. Du Pont, 262 U. S. 234, 43 S. Ct. 567, 67 L. Ed. 965, and apparently filed so early as 1920. The Revenue Act of 1924 established the Board of Tax Appeals as a part of the machinery for assessing deficiencies and correcting assessments theretofore made. Among its earliest decisions is that of National Refining Co., 1 B. T. A. 236, 239, decided Dec. 23rd, 1924, holding that the limitations of the acts of 1918 and 1924 must be noticed in redetermining deficiencies. It was said: “Nowhere does the act contain any limitation on the Board as to what it may consider in determining whether or not a deficiency in tax exists. There is no restriction on the taxpayers’ asserting in his appeal * * * that such tax is in violation of the Constitution, in violation of the provisions of any of the revenue acts, or illegal for any other reason. There is no more cause to prevent it pleading section 277 (a) (2) of the Revenue Act of 1924 [26 USCA § 1057 note] as a reason why a deficiency should not be determined against it than there is to deny it the right to plead any other section of the Act. * * * It appears to be clearly evident that the plea of limitation raises a distinct question as to the liability of the taxpayer for the tax. It is also evident that Congress intended this Board to determine any liability and any taxpayer appealing to it regarding a deficiency imposed prior to payment of the tax.” The ruling was repeated in John W. Collinson, 1 B. T. A. 561, and has been adhered to ever since. Those eases related to determinations made before assessment, but the principle was applied to this very claim for abatement where assessment had been made before notice under the old practice. Gulf States Steel Co. v.. Commissioner, 12 B. T. A. 1244. It is worthy of note that Revenue Act of 1928, § 273 (f), 26 USCA 2273 (f), speaks of any adverse decision of the Board of Tax Appeals as one abating a tax. Its decision is the final judgment of the executive department upon an assessment whether contemplated or under review, superseding and controlling that of the commissioner. 26 USCA § 1048a. When this bond, therefore, was given, limitation as well as error in the assessment was a ground for abating before payment a claim for taxes that was recognized by the Tax Department of the government. When the bond referred to a pending claim for abatement and promised payment of such sum as is not abated, it had plain reference to the final action by the Tax Department which included action by the Board of Tax Appeals on that claim for abatement. It is true that limitation was not at that time named In the claim as a ground for abatement, but it existed and might be added by amendment. Limitation must be considered if urged at any time before the final decision of the board. Alameda Park Co. v. Lucas, 59 App. D. C. 175, 37 F.(2d) 805; Geuder, Paeschke & Frey Co. v. Commissioner (C. C. A.) 41 F.(2d) 308; Enameled Metals Co. v. Commissioner (C. C. A.) 42 F.(2d) 213; Excelsior Motor Mfg. & Supply Co. v. Commissioner (C. C. A.) 43 F.(2d) 968. When the validity of this ground for abatement was established by the decision on February 21st, 1927, in Bowers v. New York & Albany Lit. Co., 273 U. S. 346, 47 S. Ct. 389, 71 L. Ed. 676, there was no estoppel against and no impropriety in urging it. The Board-of Tax Appeals so held, and abated the whole deficiency assessment because of limitation, declining to pass on the other grounds urged for abatement. No part of the tax claim remained unabated, so that there is nothing to be paid under the terms of the bond. The distinction to be taken is between a limitation which ripens after the giving of the bond by reason of delay obtained through the bond, and a limitation which ripened before. The former because of estoppel cannot be taken advantage of to defeat a bond worded like this one, but the latter may. A different ruling forfeits the defense of limitation already accrued on giving the statutory bonds above referred to. The taxing department of the government by a decision on the ground of limitation and a refusal to decide the other grounds cannot deprive this surety of the *49benefit that might have resulted from a consideration of the latter. That department in the regular exercise of its functions having completely abated the deficiency claimed because of a limitation antedating the bond, nothing ought to be exacted under its promise to pay such amount as is not abated. I express no opinion as to whether the present pleadings suffice to assert the liability of the taxpayer under its first bond, but I dissent from the judgment upholding liability of principal and surety under the third bond.