Graham v. Dup Nt, 846

Decision Date21 May 1923
Docket NumberNo. 846,846
PartiesGRAHAM v. DUP NT
CourtU.S. Supreme Court

This is a proceeding by certiorari to review the action of the Circuit Court of Appeals of the Third Circuit in affirming on appeal a temporary injunction granted by the District Court of Delaware restraining the then Collector of Internal Revenue for the District of Delaware from levying a distraint against the property of the complainant, Alfred I. Dupont, to collect the sum of $1,576,015.06 assessed against him by the Commissioner of Internal Revenue.

In a reorganization of a Dupont Powder Company of New Jersey and the organization of a new Dupont Powder Company of Delaware to take over many of the assets of the old company, the complainant in the year 1915 received 75,534 shares of the common stock of the Delaware company of the par value of $100 each. The transaction was the subject of consideration by this court in United States v. Phellis, 257 U. S. 156, 42 Sup. Ct. 63, 66 L. Ed. 180, where it was determined that shares in the Delaware company received by stockholders of the New Jersey company, as the complainant received his, at the rate of two in the Delaware company in exchange for one in the New Jersey company, was a separation of past accumulation of profits from the capital of the New Jersey company and a distribution to the stockholders, and thus constituted taxable income under the Income Tax Law of 1913 (38 Stat. 114).

The complainant filed a return and an amended return

Page 336

in March, 1916, of his income for the year 1915, in which he did not include these shares. In November, 1917, the department began an investigation into the liability of the complainant to pay an income tax on his shares of stock in the Delaware company and finally ordered an assessment of $1,576,015.06. The complainant was notified of this assessment made December 31, 1919. He replied the next day that as his return for 1915 was filed before March 15, 1916, and as the law required any assessment for additional amount to be made within three years, and that period had expired, the assessment and demand for payment were illegal. On February 2, 1920, a hearing was granted to counsel for complainant by the Commissioner of Internal Revenue.

On March 8, 1920, complainant filed a claim for the abatement of the assessment of $1,576,051.06 as void, because made after the limitation of three years had expired, and because the tax was on something that was not income under the law.

Thereafter by agreement between the stockholders similarly situated, one stockholder, Phellis, paid the tax due under a similar assessment and brought suit in the Court of Claims to recover it. Counsel for the complainant herein took part in the argument of that case. The Court of Claims gave judgment against the United States, but on appeal the judgment was reversed. The opinion of the court was handed down November 21, 1921. All claims for abatement had been held and not decided by the Commissioner under an agreement with the counsel in the Phellis Case. Thereafter the Commissioner rejected complainant's claim for abatement. The bill of complainant was filed January 30, 1922. The District Court granted the temporary injunction. The Circuit Court of Appeals on appeal affirmed the temporary injunction for the reasons stated in the opinion of the District Court.

Mr. Solicitor General Beck, of Washington, D. C., for petitioner.

[Argument of counsel from pages 238-240 intentionally omitted] Mr. Wm. A. Glasgow, Jr., of Philadelphia, Pa., for respondent.

[Argument of Counsel from pages 241-254 intentionally omitted]

Page 254

Mr. Chief Justice TAFT delivered the opinion of the Court.

Section 3224, Revised Statutes (Comp. St. § 5947), provides that 'no suit for the purpose of restraining the assessment or collection of any tax shall be maintained in any court.' In Cheatham v. United States, 92 U. S. 85, 88, 23 L. Ed. 561; State Railroad Taxes,

Page 255

92 U. S. 575, 613, 23 L. Ed. 663, and in Snyder v. Marks, 109 U. S. 189, 193, 3 Sup. Ct. 157, 27 L. Ed. 901, it was said that the system prescribed by the United States in regard to both customs duties and internal revenue taxes, of stringent measures not judicial, to collect them, with appeals to specified tribunals and suits to recover back moneys illegally exacted, was a system of corrective justice intended to be complete, and enacted under the right belonging to the government to prescribe the conditions on which it would subject itself to the judgment of the courts in the collection of its revenues. In the exercise of that right, it declares by paragraph 3224 that its officers shall not be enjoined from collecting a tax claimed to have been unjustly assessed, when those officers, in the course of general jurisdiction over the subject-matter in question, have made the assessment and claim that it is valid. This view has been approved in Shelton v. Plate, 139 U. S. 591, 11 Sup. Ct. 646, 35 L. Ed. 273, in Pittsburg Ry. v. Board of Public Works, 172 U. S. 32, 19 Sup. Ct. 90, 43 L. Ed. 354, in Pacific Whaling Co. v. United States, 187 U. S. 447, 451, 452, 23 Sup. Ct. 154, 47 L. Ed. 253, in Dodge v. Osborn, 240 U. S. 118, 121, 36 Sup. Ct. 275, 60 L. Ed. 557, and in Bailey, Collector, v. George, 259 U. S. 16, 42 Sup. Ct. 419, 66 L. Ed. 816.

The District Court recognized the sweep of these decisions in respect of the contention of the complainant that the assessment of this tax and the threatened distraint to collect it were barred by limitations under the statute, and was of opinion that as a rule such attacks upon the validity of the tax could only be heard and considered after the tax had been paid in a suit to recover it back. In this view we fully concur.

The District Court, however, thought that an exception to the operation of section 3224 must arise when it appeared, as it held it did appear here, that no provision of law existed by which if the taxpayer when he filed his bill for an injunction had paid the tax assessed, he could bring a suit to recover it back because it would be barred by the statutory limitation of time in which such a suit could be brought.

Page 256

The court based its conclusion on section 252 of the Revenue Act of 1918 (40 Stat. 1085, c. 18 [Comp. St. Ann. Supp. 1919, § 6336 1/8 uu]), re-enacted in the Revenue Act of 1921 (42 Stat. pt. 1, p. 268, c. 136), which reads as follows:

'If upon examination of any return of income made pursuant to * * * the Act of October 3, 1913, * * * it appears that an amount of income * * * tax has been paid in excess of that properly due, then, notwithstanding the provisions of section 3228, R. S., the amount of the excess shall be credited against any income...

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