Fidelity & Deposit Co. of Maryland v. Helvering

• Decision Date: 15 April 1940
• Docket Number: No. 7434.,7434.
• Citation: 112 F.2d 205,72 App. DC 120
• Parties: FIDELITY & DEPOSIT CO. OF MARYLAND v. HELVERING, Commissioner of Internal Revenue, et al.
• Court: U.S. Court of Appeals — District of Columbia Circuit

72 App. DC 120, 112 F.2d 205 (1940)

FIDELITY & DEPOSIT CO. OF MARYLAND v. HELVERING, Commissioner of Internal Revenue, et al.

No. 7434.

United States Court of Appeals for the District of Columbia.

Decided April 15, 1940.

Geo. E. H. Goodner, of Washington, D. C., for appellant.

David A. Pine, U. S. Atty., John W. Fihelly, Asst. U. S. Atty., and Sewall Key, Sp. Asst. to Atty. Gen., and E. E. Angevine and John A. Gage of the Department of Justice, all of Washington, D. C., for appellees.

Before GRONER, Chief Justice, and MILLER and VINSON, Associate Justices.

VINSON, Associate Justice.

This is an appeal from an order of the District Court awarding the appellees $6,500 on an injunction bond for that amount executed by one Mertz with the Fidelity and Deposit Company of Maryland as surety.

Since one of the questions presented concerns the application to be given a Statute of Limitations, in the statement of relevant facts the time and sequence of events must be noted with some particularity.

On March 15, 1921, Edward P. Mertz (the taxpayer) filed a return with the Collector of Internal Revenue for the year 1920 indicating no tax liability for that year. In December, 1921, the Commissioner of Internal Revenue assessed a deficiency against the taxpayer of $16,600.89. The taxpayer filed an abatement claim with the Commissioner and, after considering it, he notified the taxpayer by letter dated May 22, 1925, that the tax would be reduced $1,009.31, and advised him that he had 60 days in which to appeal the assessment to the United States Board of Tax Appeals, an agency created by the Revenue Act of 1924, 26 U.S.C.A. Int.Rev.Acts, page 1 et seq. Within the 60 day period the taxpayer took the appeal. The Board promulgated its final order of redetermination on March 9, 1927 reducing the tax liability to $6,533.07. In August of the same year a deputy collector notified the taxpayer that unless the tax was paid he would utilize a distraint warrant to collect the same. The amount demanded totaled $5,582.52 and represented the tax liability as determined by the Board, plus interest, less overassessments for prior years as determined by the Commissioner (hereinafter referred to as the tax).

On September 19, 1927, the taxpayer filed a bill of complaint in the District Court naming the Commissioner of Internal Revenue and certain other officials as defendants (appellees herein). Reference was made to sections of the Revenue Acts of 1921 and 1924¹ which, it was asserted, required collection of the tax within five years after the date of the filing of the return. Relief prayed for was an injunction against collection of the tax by distraint or any other method. A temporary injunction was granted February 13, 1928 at which time the following bond was executed:

"Edward P. Mertz, the plaintiff, and Fidelity and Deposit Company of Maryland, surety * * *, hereby undertake for ourselves and each of us, * * * to make good to the defendants all damages not to exceed the sum of Six Thousand Five Hundred dollars ($6500.00) by them suffered or sustained by reason of wrongfully and inequitably suing out the injunction * *, and stipulate that the damages may be ascertained in such manner as the Court shall direct, and that, on dissolving the injunction, the Court may give judgment thereon against the principal and surety for said damages in the decree dissolving the injunction, or in a further decree after ascertainment of the amount of said damages."

Later the injunction was made permanent — the District Court being of the view that the tax was barred by the applicable Statute of Limitations. An appeal was taken to this court and we held that, whether the tax was barred or not, the District Court was without jurisdiction to entertain the case by virtue of § 3224 of the Revised Statutes.² The case was reversed and remanded with instructions to dismiss the bill. Pursuant thereto the District Court dissolved the injunction. At the same time it awarded the appellees the amount of the bond and from this order the Fidelity and Deposit Company, surety on the bond, appeals.

As the appellant points out, the bond was drawn not to insure payment of the tax if due, but to reimburse the appellees for loss occasioned by the injunction if wrongful. Hence, the appellees were entitled to the amount of the bond only if damaged to that extent by the injunction. The appellant contends they suffered no damage and, in support of its contention, presents three alternative propositions.

First, it is argued that since that part of the District Court's decision holding the tax barred was neither appealed from nor disturbed on appeal, it is the "law of the case" binding in any further litigation in respect to the tax. It is clear, of course, that if the tax was barred by the statute of limitations at the time the bill was filed the appellees could not have been damaged by the injunction. The District Court decision that the tax was barred cannot, however, be the "law of the case" for the reason that, as we held in our previous opinion, the District Court was without jurisdiction in the premises. Its decision therefore had no binding effect whatsoever.³

The second proposition, advanced by appellant, is that the tax was in fact barred at the time the bill of complaint was filed. Reference is made to certain sections of the 1921 and 1924 Revenue Acts⁴ which, it is asserted, prohibited collection of the tax later than five years after the taxpayer filed his return. Absent any interruption, that period would have expired March 15, 1926, considerably before the taxpayer filed his bill or secured the injunction against collection of the tax. Although it appears that the applicable period of limitation was extended by the Revenue Act of 1926,⁵ we need not rest our decision on that ground for we are of the opinion that the taxpayer's appeal from the assessment of the Commissioner to the Board of Tax Appeals suspended the running of the limitation period so that even a five year period of limitation had not yet expired when the bill was filed or the injunction granted.

It will be recalled that the Commissioner assessed the deficiency against the taxpayer in December, 1921. Thereafter the taxpayer filed an abatement claim which the Commissioner disposed of finally May 22, 1925. At that time, the taxpayer was notified that he might, within a 60 day period, appeal to the Board of Tax Appeals. He availed himself of this privilege. The Board was created by the Revenue Act of 1924 and thereunder it was provided that the period of limitation within which the tax might be collected was suspended from the date notice was given the taxpayer of the right to appeal until a final decision of the Board.⁶ Although the jurisdiction of the Board under the 1924 Act to entertain an appeal from an assessment made prior to its enactment was not free from doubt,⁷ a taxpayer who took such an appeal or his privy in interest should not be heard to gainsay that the limitation period was thereby extended.⁸ We need not base our decision on this ground, however, for, in the Revenue Act of 1926, Congress confirmed the Board's jurisdiction in such cases. This latter Act became effective February 26, 1926, and § 283 (f) thereof, together with certain complementary sections, provided that, in such a case as we here consider, the limitation period should be suspended by an appeal to the Board from the date notice was given the taxpayer of the right to appeal until six months and 60 days after the rendition of the Board's decision.⁹ Against these positive provisions of the 1926 Revenue Act inferences sought to be drawn from other sections cannot prevail. Moreover, the principal objections made by the appellant to application of these sections of the 1926 Act were conclusively disposed of by the Supreme Court in Brown & Sons Lumber Co., v. Burnet, 282 U.S. 283, 51 S.Ct. 140, 75 L.Ed. 343, wherein it was held that the provisions of the Act for suspension of the running of the limitation period were by their terms retroactively applicable to appeals pending at the time of its enactment.¹⁰

In view of the foregoing, we think it clear that under the Revenue Act of 1926 the running of the limitation period within which the tax might be collected was suspended from May 22, 1925, the date the Commissioner notified the taxpayer of his right to appeal to the Board, until November 8, 1927, six months and 60 days after the Board's decision of March 9, 1927. Thus the limitation period was suspended for a period of two years, five months and 17 days. A five year limitation period starting to run from the date the return was filed, March 15, 1921, and extended by the period of suspension, two years, five months and 17 days, would not have expired until August 31, 1928, considerably after the taxpayer filed his bill of complaint (September 19, 1927) and secured his injunction (February 13, 1928) against the collection of the tax. Thus the tax was not barred when either of these events occurred.

We come then to the third and last point advanced by the appellant. It is charged that the order of the District Court awarding the full amount of the bond to the appellees is not supported by any proof that the injunction caused damage.

The injunction bond provided that the parties thereto would "make good to the defendants (appellees) all damages not to exceed the sum of Six Thousand Five Hundred dollars ($6500.00) by them suffered or sustained by reason of wrongfully and inequitably suing out the injunction * *". The order of the District Court awarding the appellees the full amount of the bond must be regarded as a finding that the injunction damaged them to that extent, i. e., that the government unobstructed could have largely collected the tax whereas it was uncollectible on dissolution of the restraint.¹¹ We are of the opinion that finding is supported by the record.

For the sake of clarity, we shall...