283 U.S. 589 (1931), 455, Phillips v. Commissioner of Internal Revenue

Docket Nº:No. 455
Citation:283 U.S. 589, 51 S.Ct. 608, 75 L.Ed. 1289
Party Name:Phillips v. Commissioner of Internal Revenue
Case Date:May 25, 1931
Court:United States Supreme Court
 
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Page 589

283 U.S. 589 (1931)

51 S.Ct. 608, 75 L.Ed. 1289

Phillips

v.

Commissioner of Internal Revenue

No. 455

United States Supreme Court

May 25, 1931

Argued April 23, 1931

CERTIORARI TO THE CIRCUIT COURT OF APPEALS

FOR THE SECOND CIRCUIT

Syllabus

1. Stockholders who have received the assets of a dissolved corporation may be compelled to discharge therefrom the unpaid federal taxes on the income and excess profits of the corporation. P. 592.

2. Under the Revenue Act of 1926, § 280(a)(1), and Act of May 29, 1928, this liability of the transferee, "at law or in equity," may be enforced summarily in the same manner as that of any delinquent taxpayer, as well as by proceedings to enforce the tax lien or by actions at law or in equity. Id.

3. The rule that the United States may collect its internal revenue by summary administrative proceedings if adequate opportunity be afforded for a later determination of legal rights applies to taxes assessed against transferees of corporate property. P. 593.

4. The procedure provided in § 280(a)(1) satisfies the requirements of due process because two alternative methods of eventual judicial review are available to the transferee: (a) he may contest his liability by bringing an action, either against the United States or the Collector, to recover the amount paid, or (b) he may avail himself of the provisions for immediate redetermination of the liability by the Board of Tax Appeals, and, if dissatisfied, may have a further review by the Circuit Court of Appeals, and possibly by this Court on certiorari. P. 597.

Page 590

5. The review by the Board of Tax Appeals and the Circuit Court of Appeals is not to be deemed constitutionally inadequate because the tax may be collected while the case is before that court unless a bond is filed, or because the Board's findings of fact are to be treated by that court as final if there is any evidence to support them. P. 599.

6. The right of the taxpayer to stay payment pending immediate judicial review, by filing a bond, is a privilege granted by the sovereign as an act of grace. Id.

7. Save as there may be an exception for issues presenting claims of constitutional right, such administrative findings on issues of fact are accepted by the court as conclusive if the evidence was legally sufficient to sustain them and there was no irregularity in the proceedings. P. 600.

8. The method of assessment and collection permitted by § 280(a)(1) was intended to apply, and is constitutionally applicable, where the transfer of assets occurred before the enactment of the Revenue Act, of 1926. P. 601.

9. Assuming that the liability "at law and in equity" of the transferees of corporate assets to meet federal taxes incurred by their corporation may vary according to the laws of the States of incorporation, this does not make the tax provision invalid either as an unconstitutional delegation of federal taxing power to the States or as a departure from the requirement of geographical uniformity. P. 602.

10. The time within which the summary proceeding to enforce liability for the tax of a corporation may be taken against a stockholder transferee of its assets is determined by the federal Act, and not by the state statute of limitations on suits against stockholders. P. 602.

11. One who receives corporate assets upon dissolution of the corporation is severally liable, to the extent of the assets received, for the payment of income and excess profits taxes of the corporation. P. 603.

12. In a summary proceeding under § 280, Revenue Act of 1926, to collect such taxes from one such transferee, the Government is not obliged to join other transferees and marshal the assets of the corporation so as to adjust the rights of the various stockholders. P. 604.

42 F.2d 177, affirmed.

Page 591

CERTIORARI, 282 U.S. 828, to review a judgment affirming the action of the Board of Tax Appeals, 15 B.T.A. 1218, in sustaining certain deficiency tax assessments.

BRANDEIS, J., lead opinion

MR. JUSTICE BRANDEIS delivered the opinion of the Court.

In 1919, the Coombe Garment Company, a Pennsylvania corporation, distributed all of its assets among its stockholders, and then dissolved. Thereafter, the Commissioner of Internal Revenue made deficiency assessments against it for income and profits taxes for the years 1918 and 1919. A small part of these assessments was collected, leaving an unpaid balance of $9,306.36. I. L. Phillips, of New York City, had owned one-fourth of the company's stock, and had received $17,139.61 as his distributive dividend. Pursuant to § 280(a)(1) of the Revenue Act of 1926, c. 27, 44 Stat. 9, 61, the Commissioner sent due notice that he proposed to assess against, and collect from, Phillips the entire remaining amount of the deficiencies. No notice of such deficiencies was sent

Page 592

to any of the other transferees, and no suit or proceedings for collection was instituted against them. Upon petition by Phillips' executors for a redetermination, the Board of Tax Appeals held that the estate was liable for the full amount. 15 B.T.A. 1218. Its order was affirmed by the United States Circuit Court of Appeals for the Second Circuit. 42 F.2d 177. Because of conflict in the decisions of the lower courts,1 a writ of certiorari was granted. 282 U.S. 828.

Stockholders who have received the assets of a dissolved corporation may confessedly be compelled, in an appropriate proceeding, to discharge unpaid corporate taxes. [51 S.Ct. 610] Compare Pierce v. United States, 255 U.S. 398. Before the enactment of § 280(a)(1), such payment by the stockholders could be enforced only by bill in equity or action at law.2 Section 280(a)(1) provides that the liability of the transferee for such taxes may be enforced in the same manner as that of any delinquent taxpayer.3

The procedure prescribed for collection of the tax from a stockholder is thus the same as that now followed when payment is sought directly from the corporate taxpayer. This procedure is now generally known, and some parts of it will later be considered in detail. As applied directly to the taxpayer, its constitutionality is not now assailed. Compare Old Colony Trust Co. v. Commissioner, 279 U.S. 716. But it is contended that to apply it to stockholder transferees violates several constitutional guaranties; that

Page 593

additional obstacles are encountered if it is applied to transfers made before the enactment of § 280(a)(1); that the specific liability here sought to be enforced is governed by the law of Pennsylvania and barred by its statute of limitations, and that in no event can the stockholder be held liable for more than his pro rata share of the unpaid corporate tax.

First. The contention mainly urged is that the summary procedure permitted by the section violates the Constitution because it does not provide for a judicial determination of the transferee's liability at the outset. The argument

Page 594

is that such liability (except where a lien had attached before the transfer) is dependent upon questions of law and fact which have heretofore been adjudicated by courts; that to confer upon the Commissioner power to determine these questions in the first instance offends against the principle of the separation of the powers, and that the inherent denial of due process is not saved by the provisions for deferred review in a suit to recover taxes paid, or, in the alternative, for an immediate appeal to the Board of Tax Appeals with the right to review its determination in the courts, because there are limitations and conditions in either method of judicial review.

Section 280(a)(1) provides the United States with a new remedy for enforcing the existing "liability at law or in equity." The quoted words are employed in the statute to describe the kind of liability to which the new remedy is to be applied, and to define the extent of such liability. The obligation to be enforced is the liability for the tax. Russell v. United States, 278 U.S. 181, 186; United States v. Updike, 281 U.S. 489, 493. The proceeding is one to collect the revenue. That Congress deemed the section necessary in order to make the tax collecting system more effective is established not only by the fact of enactment, but also by the reports of the committees.4

Page 595

[51 S.Ct. 611] The right of the United States to collect its internal revenue by summary administrative proceedings has long been settled.5 Where, as here, adequate opportunity is afforded for a later judicial determination of the legal rights, summary proceedings to secure prompt performance of pecuniary obligations to the government have been consistently sustained. Compare Cheatham v. United States, 92 U.S. 85, 85, 89; Springer v. United States, 102 U.S. 586, 594; Hagar v. Reclamation District No. 108, 111 U.S. 701, 708-709. Property rights must yield provisionally to governmental need. Thus, while protection of life and liberty from administrative action alleged to be illegal may be obtained promptly by the writ of habeas corpus, United States v. Woo Jan, 245 U.S. 552; Ng Fung Ho v. White, 259 U.S. 276, the statutory prohibition of any "suit for the purpose of restraining the assessment or collection of any tax " postpones redress

Page 596

for the alleged invasion of property right if the exaction is made under color of their offices by revenue officers charged with the general authority to assess and collect the revenue.6 Snyder v. Marks, 109 U.S. 189; Dodge v. Osborn, 241 U.S. 118; Graham v. du Pont, 262 U.S. 234. This prohibition of injunctive relief is applicable in the case of summary proceedings against a transferee. Act of May 29, 1928, c. 852, § 604, 45 Stat. 791, 873. Proceedings more summary in...

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