Flora v. United States, 357 U.S. 63 (1958)
|
Section 1346 was originally enacted as Section 1310 (c) of the
Revenue Act of 1921. 3 Its essential
language seems to have been copied from R. S. 3226, the
predecessor of the present claim-for-refund statute, 26 U.S.C.
(Supp. V) 7422 (a). Those statutes use language identical to
that appearing above to provide that no suit for the refund of a
"tax," "penalty," or "sum" shall be maintained until similar
relief has been sought from the Secretary or his delegate.
4 The meaning that has been ascribed
to this language in the claim-for-refund statute provides the
key to what Congress intended when it used that language in the
jurisdictional provision.
[357 U.S. 63, 66]
The original claim-for-refund statute, Section 19 of the
Revenue Act of July 13, 1866, provided that no suit should be
maintained in any court for the recovery of "any tax alleged to
have been erroneously or illegally assessed or collected, until
appeal shall have been duly made to the commissioner of internal
revenue . . . ." 5 On this "appeal"
the Commissioner was empowered to "remit, refund, and pay back"
all taxes or penalties improperly assessed or collected.
6 When the appeal requirement was
restated in Section 3226 of the Revised Statutes,
7 Congress added the "penalty" and
"sum" clauses, bringing together for the first time the
three-way division that survives in 26 U.S.C. (Supp. V) 7422 (a)
and 28 U.S.C. 1346 (a) (1). The revisers left no indication of
what significance, if any, was to be attached to this addition.
During the period of this formative legislation refund suits
could not be brought against the United States because of its
sovereign immunity. Tax litigation took the form of an action of
assumpsit against the collector.
[357 U.S. 63, 67] See Philadelphia v.
Collector, 5 Wall. 720. 8 Such suits
were of course subject to the provision in Section 19 of the
1866 Act that they must be preceded by "appeal" to the
Commissioner. The meaning of that command, which later became R.
S. 3226 and eventually, as amended, 26 U.S.C. (Supp. V) 7422
(a), was considered in Cheatham v. United States,
92 U.S. 85 . There, in response to an appeal, the
Commissioner of Internal Revenue had set aside the first
assessment of taxpayer's 1864 income taxes and directed the
local assessor to make a second one. The taxpayer paid the
second assessment and sued the collector for refund. The Court
held that by failing to appeal from the second assessment the
taxpayer failed to comply with Section 19 and hence had no right
of action. In the course of its opinion the Court made this
careful statement of the remedies then available to taxpayers
who sought to contest the correctness of their tax:
"So also, in the internal-revenue department, the statute
which we have copied allows appeals from the assessor to the
commissioner of internal revenue; and, if dissatisfied with
his decision, on paying the tax the party can sue the
collector; and, if the money was wrongfully exacted, the
courts will give him relief by a judgment, which the United
States pledges herself to pay.
". . . While a free course of remonstrance and appeal is
allowed within the departments before the money is finally
exacted, the general government has wisely made the payment
of the tax claimed, whether of customs or of internal
revenue, a condition precedent to a resort to the courts by
the party against whom the tax is assessed. . . . If the
compliance with this condition [that suit must be brought
within six months of the Commissioner's decision] requires
the party aggrieved to pay the money, he must do it. He
cannot, after the decision is rendered against him, protract
the time within which he can contest that decision in the
courts by his own delay in paying the money. It is essential
to the honor and orderly conduct of the government that its
taxes should be promptly paid, and drawbacks speedily
adjusted; and the rule prescribed in this class of cases is
neither arbitrary nor unreasonable. . . .
"The objecting party can take his appeal. He can, if the
decision is delayed beyond twelve months, rest his case on
that decision; or he can pay the amount claimed, and
commence his suit at any time within that period. So, after
the decision, he can pay at once, and commence suit within
the six months. . . ." 9
(Emphasis added.)
|
From this carefully considered dictum it is unmistakably clear that
the Court understood the statutes of that time to require full
payment of an assessed tax as a condition precedent to the right to sue
the collector for a refund. This understanding of the statutory
scheme appears to have prevailed for the succeeding fifty or sixty
years. It was never suggested that the addition in R. S. 3226 of the
clause beginning "any sum" effected any change. The Cheatham case was
decided after that [357
U.S. 63, 69] addition was made, and it gave no indication
that the "condition precedent" of which it spoke had already been
abrogated by Congress. Consistent with that understanding, there does
not appear to be a single case before 1940 in which a taxpayer attempted
a suit for refund of income taxes without paying the full amount the
Government alleged to be due. Court opinions that took occasion to
comment on the extent of payment are consistent with the Cheatham
declaration, 10 and that case has
continued to be cited with approval to the present day.
11 Such was the understanding of the
necessity for full payment in the suit against the collector.
Since the statute now under consideration, 28 U.S.C. 1346 (a) (1),
employs language identical to that in the statute under which the
full-payment understanding developed, R. S. 3226, a construction
requiring full payment would appear to be more consistent with the
established meaning of the statutory language. Furthermore, the
situation with respect to tax suits against the United States at the
time 28 U.S.C. 1346 (a) (1) was enacted, the express purpose of its
enactment, and subsequent
[357 U.S. 63, 70] expressions of congressional intent all
suggest that the principle of full payment was to be preserved.
The jurisdictional provision that is now 28 U.S.C. 1346 (a) (1) was
first enacted in Section 1310 (c) of the Revenue Act of 1921.
12 At that time the United States was
already suable in the District Courts. Since 1887 the Tucker Act had
allowed suit against the United States for claims less than $10,000
"founded upon . . . any law of Congress . . .,"
13 and that language included suits to
obtain refund of income taxes. United States v. Emery, Bird, Thayer
Realty Co.,
237 U.S. 28 . Since R. S. 3226 was cast in the broadest of terms,
its requirement that refund suits be preceded by an "appeal" to the
Commissioner clearly applied to the Tucker Act cases, United States v.
Michel,
282 U.S. 656 , and the related requirement that full payment must be
made prior to suit seems to have been assumed to be equally applicable.
For amounts in excess of the $10,000 Tucker Act limitation the taxpayer
could invoke his old remedy against the collector.
The complementary nature of the two District Court remedies was
impaired when this Court re-emphasized the rule requiring the collector
to be sued personally. A suit against the office or the successor in
office of a deceased collector could not be maintained. Smietanka v.
Indiana Steel Co.,
257 U.S. 1 (1921). Senator Jones of New Mexico interrupted floor
debate on the Revenue Act of 1921 to call attention to this decision. In
his view it meant that when the particular collector was dead a taxpayer
suing for more than $10,000 had to bring suit in the Court of Claims. In
addition to the extra expense and inconvenience of litigating in
Washington, a Court of Claims
[357 U.S. 63, 71] judgment carried no
interest. The Senator proposed an amendment, stating:
"What is here proposed is that we shall remedy that situation by
providing that where the collector to whom the revenue was paid has
died then the claimant may sue the United States. It simply brings
about an equitable situation and prevents the taxpayer from having
to suffer the hardships which would be brought upon him simply
through the accident of the death of the collector to whom he paid
the money. I offer the amendment for the purpose of remedying that
situation." 14
The amendment, which was accepted without further comment, conferred
jurisdiction on the District Court,
"Concurrent with the Court of Claims, of any suit or proceeding,
commenced after the passage of the revenue act of 1921, for the
recovery of any internal revenue tax alleged to have been
erroneously or illegally assessed or collected, or of any penalty
claimed to have been collected without authority or any sum alleged
to have been excessive or in any manner wrongfully collected under
the internal-revenue laws, even if the claim exceeds $10,000, if the
collector of internal revenue by whom such tax, penalty, or such was
collected is dead at the time such suit or proceeding is commenced."
15
The amendment's narrow-stated purpose refutes any suggestion that
Congress intended further to expand or even
[357 U.S. 63, 72]
to restate the jurisdiction of the District Court in refund suits
brought against the United States. As we have seen, the District Courts
already had such jurisdiction under the Tucker Act, and there is no
indication that Congress intended any change in the terms on which that
action was made available other than the change that was clearly set
forth. The statute that is now 28 U.S.C. 1346 (a) (1) was enacted merely
to remove the jurisdictional amount limitation of the Tucker Act in the
special situation where the collector could not be sued. See Lowe Bros.
Co. v. United States,
304 U.S. 302, 305 . The House Conference Report and a contemporary
Treasury Department declaration confirm this view of the statute's
effect. 16
The similarity of essential language leaves no doubt that the terms
of the jurisdictional provision were copied from the claim-for-refund
statute, R. S. 3226, as amended by Section 1318 of the Revenue Act of
1921. 17 The fact that this language
had for many years been considered to require full payment before suing
the collector, and the fact that the avowed purpose of the 1921
amendment was merely to cure an inadequacy in the suit against the
collector, combine as persuasive indications that no change was intended
in the full-payment principle declared in Cheatham v. United States,
supra.
When Congress created the Board of Tax Appeals in 1924,
18 it demonstrated a clear understanding
that refund suits could only be maintained upon full payment of the
[357 U.S. 63, 73]
tax alleged to be due. The House Committee proposing the bill
explained its purpose as follows:
"The committee recommends the establishment of a Board of Tax
Appeals to which a taxpayer may appeal prior to the payment of an
additional assessment of income, excess-profits, war-profits, or
estate taxes. Although a taxpayer may, after payment of his tax,
bring suit for the recovery thereof and thus secure a judicial
determination of the questions involved, he can not, in view of
section 3224 of the Revised Statutes, which prohibits suits to
enjoin the collection of taxes, secure such a determination prior to
the payment of the tax. The right of appeal after payment of the tax
is an incomplete remedy, and does little to remove the hardship
occasioned by an incorrect assessment. The payment of a large
additional tax on income received several years previous and which
may have, since its receipt, been either wiped out by subsequent
losses, invested in nonliquid assets, or spent, sometimes forces
taxpayers into bankruptcy, and often causes great financial hardship
and sacrifice. These results are not remedied by permitting the
taxpayer to sue for the recovery of the tax after this payment. He
is entitled to an appeal and to a determination of his liability for
the tax prior to its payment." 19
Petitioner argues that the "hardship" the Board of Tax Appeals was
created to alleviate was not the taxpayer's inability to sue without
paying the whole tax - for petitioner erroneously concludes that the
1921 amendment conferred that right - but the Government's power to
[357 U.S. 63, 74]
collect the balance due while a refund suit was in progress. But
the Committee Report quoted above clearly demonstrates that the hardship
about which the Congress was concerned was the hardship of
pre-litigation payment, not post-litigation collection. Old Colony Trust
Co. v. Commissioner of Internal Revenue,
279 U.S. 716, 721 . 20
The final step in the evolvement of 28 U.S.C. 1346 (a) (1) took place
in the Act of July 30, 1954, 21 which
removed the $10,000 jurisdictional limitation and eliminated the
condition about the collector being dead or out of office. Far from
indicating an intent to allow suit without full payment of the tax due,
the legislative history of that amendment shows a clear understanding of
the Cheatham requirement, and demonstrates a narrow purpose in no way
inconsistent with that requirement. The House Report states:
"The purpose of this bill is to permit taxpayers a greater
opportunity to sue the United States in the district court of their
own residence to recover taxes which they feel have been wrongfully
collected. This is done by removing the jurisdictional limitation of
$10,000 now imposed on such suits." 22
In explaining the present state of the law the Report goes on to point
out that a taxpayer may contest a deficiency assessment by a petition in
the Tax Court. "The tax
[357 U.S. 63, 75] payer may, however," the Report
continues, "elect to pay his tax and thereafter bring suit to recover
the amount claimed to have been illegally exacted."
23
The foregoing study of the legislative history of 28 U.S.C.
1346 (a) (1) and related statutes leaves no room for contention that
their broad terms were intended to alter in any way the Cheatham
principle of "pay first and litigate later."
24 For many years that principle has
been reinforced by the rule that no suit can be maintained for the
purpose of restraining the assessment or collection of any tax.
25 More recently, Congress took care to
except from the operation of the Federal Declaratory Judgments Act any
controversies "with respect to Federal taxes."
26 To ameliorate the hardship produced by these requirements
Congress created a special court where tax questions could be
adjudicated in advance of any payment. But there is no indication of any
intent to create the hybrid remedy for which petitioner contends.
It is suggested that a part-payment remedy is necessary for the
benefit of a taxpayer too poor to pay the full amount of the tax.
Such an individual is free to litigate in the Tax Court without any
advance payment. Where the time to petition that court has expired, or
where for some other reason a suit in the District Court seems more
desirable, the requirement of full payment may in some instances work a
hardship. But since any hardship would grow out of an opinion whose
effect Congress in successive
[357 U.S. 63, 76] statutory revisions has made
no attempt to alter, if any amelioration is required it is now a matter
for Congress, not this Court.
28 U.S.C. §1346
TITLE 28 >
PART IV >
CHAPTER 85 > § 1346
§ 1346. United States as defendant
(a) The district courts shall have original jurisdiction,
concurrent with the United States Court of Federal Claims, of:
(1) Any civil action against the United States for the recovery of
any internal-revenue tax alleged to have been erroneously or
illegally assessed or collected, or any penalty claimed to have been
collected without authority or any sum alleged to have been
excessive or in any manner wrongfully collected under the
internal-revenue laws;
26 U.S.C. §7422
TITLE 26 >
Subtitle F >
CHAPTER 76 >
Subchapter B > § 7422
§ 7422. Civil actions for refund
(a) No suit prior to filing claim for refund
No suit or proceeding shall be maintained in any court for the
recovery of any internal revenue tax alleged to have been
erroneously or illegally assessed or collected, or of any penalty
claimed to have been collected without authority, or of any sum
alleged to have been excessive or in any manner wrongfully
collected, until a claim for refund or credit has been duly filed
with the Secretary, according to the provisions of law in that
regard, and the regulations of the Secretary established in
pursuance thereof.
United States of America v. Forma, Case No. No. 93-6234, 1994
Footnote 14:
"The full payment rule is ultimately a judicial
construction [legislating from the bench, which is ILLEGAL] of the
jurisdictional provision, 28 U.S.C. § 1346(a)(1), that provides for
refund suits in the district courts, see Flora v. United States, 362
U.S. 145 (1960), and the provision itself says nothing about a full
payment requirement. Since a "traditional" application of
the full payment rule in this context can lead to the absurd results
discussed before, see supra note 12, it would not be unreasonable
for a court to hold that Congress meant the full payment requirement
to be applied in a delayed manner whenever the Government has itself
placed the payment issue before a court. In any event, the issue is
not before us today, since irrespective of full payment, the Formas
have clearly failed to meet the condition that an administrative
claim for a refund must be made."
Steele v. United States, 280 F.2d 89 (8th Cir. 1960)
[United States confessed error and stipulated that the full
payment rule for income tax refund actions, discussed in Flora v.
United States, 357 U.S. 63 (1958), does not apply to assessments of
divisible taxes such as the TFRP.]
|