Brampton Woolen Co. v. Field

• Decision Date: 22 January 1931
• Citation: 55 F.2d 325
• Parties: BRAMPTON WOOLEN CO. v. FIELD, Internal Revenue Collector.
• Court: U.S. District Court — District of New Hampshire

55 F.2d 325 (1931)

BRAMPTON WOOLEN CO. v. FIELD, Internal Revenue Collector.

District Court, New Hampshire.

January 22, 1931.

Francis W. Johnston, of Claremont, N. H., and Henry M. Ward and Harry A. Fellows, both of Washington, D. C., for plaintiff.

Raymond U. Smith, U. S. Atty., of Concord, N. H., for defendant.

MORRIS, District Judge.

This is an action brought by the Brampton Woolen Company, a corporation having its principal place of business in Newport, in the district of New Hampshire, against John H. Field, United States collector of internal revenue for the district of New Hampshire, to recover the sum of $82,561.70, revenue tax assessed on the 1918 income which the plaintiff alleges was illegally exacted by the defendant and was paid under protest.

The writ was filed March 11, 1930. On April 8, 1930, the defendant, appearing specially for the purpose only of objecting to the jurisdiction of the court, filed a special plea alleging that this court ought not to have or take jurisdiction of said action, specifying the following reasons: (1) "Because the case is in effect a suit against the United States of America, it being brought against the Collector of Internal Revenue in his official capacity and involves over $10,000. (2) Because an action against the Collector is not a proper method of reviewing an assessment by the Commissioner of Internal Revenue which stands as final unless reviewed by the Board of Tax Appeals on a proper petition brought for that purpose." (3) Because a petition for a redetermination of a deficiency assessment for the calendar year 1918 was filed by this plaintiff with the United States Board of Tax Appeals on or about March 1, 1927, which appeal was decided adversely to the plaintiff and can only be reviewed by the Circuit Court of Appeals. (4) Because a payment has not been made in full of the income and profits tax for the year 1918. (5) Because at various dates between February 14, 1924, and November 15, 1926, the plaintiff filed various waivers of limitations on the determination, assessment, and collection of the income, excess profits, or war profits taxes of said plaintiff for the year 1918. (6) Because the Board of Tax Appeals and the Circuit Court of Appeals on review have been given exclusive jurisdiction to pass upon all questions involved in the assessment and determination of the facts of the year involved when an appeal has been taken to such Board from the decision of the Commissioner.

The plaintiff filed a replication to defendant's plea to the jurisdiction April 21, 1930. On April 23, 1930, the cause was heard upon defendant's plea to the jurisdiction, since which time written arguments have been filed by both parties.

The material facts appearing in the pleadings are as follows: A tentative return on form 1031T, which was provided by the Commissioner of Internal Revenue was filed March 14, 1919. This return showed a tax for the year ending December 31, 1918, of $120,000, of which the first quarterly payment of $30,000, was made by the plaintiff. The final and completed return of the plaintiff made on form 1120 was filed June 11, 1919. The tax computed on the face of the final return amounted to $73,657.76, and on or before June 15, 1919, the plaintiff paid to said collector the difference between the sum of the first two installments, and the amount first paid to it, $6,828.88, and thereafter on the succeeding quarterly days September 15 and December 15, 1919, or thereabouts, it paid to the collector the two remaining installments then due, making a total of taxes paid for the year 1918, $73,657.76.

Thereafter on March 13, 1924, the Commissioner of Internal Revenue made a jeopardy deficiency assessment against the plaintiff for the year 1918, on account of its income and excess profits tax in the amount of $62,001.27.

The defendant alleges that between February 14, 1924, and November 15, 1926, various waivers of limitations on the determination, assessment, and collection of the tax for 1918 were made. The plaintiff in its replication denies the filing of these waivers.

On or about September 3, 1929, the defendant, John H. Field, collector of internal revenue, served upon the plaintiff a second notice and demand for income tax, and in said notice threatened, if payment of the tax and interest was not received within ten days, to collect the same with costs and seizure and sale of the plaintiff's property. Thereupon, in order to avoid such seizure and sale of its property and under such threat of seizure and sale contained in said notice, the plaintiff paid to the defendant under protest the sum of $82,561.70, which covered the assessment of $62,001.27, with interest. The plaintiff now seeks to recover in this action the amount so assessed and collected because it says more than five years had elapsed since the date when the plaintiff filed its final return of its income and excess profits taxes for the year 1918, and more than five years since the date of payment of the last installment of its tax for the year 1918, to wit, December 15, 1919.

On January 8, 1927, the Commissioner of Internal Revenue made a determination of plaintiff's liability to a second deficiency assessment for the year 1918, in the amount of $2,224.95, and notified the plaintiff thereof by notice mailed January 8, 1927. On March 1, 1927, plaintiff appealed to the Board of Tax Appeals for a redetermination of plaintiff's liability for this deficiency assessment and assigned as errors, (a) the failure of the Commissioner to allow as a deduction from gross income in the year 1918 depreciation of plaintiff's machinery at the rate of 15 per cent. per annum; and (b) the Commissioner's failure to allow as a deduction from gross income in the year 1918 additional salaries paid to the amount of $30,000.

The Board of Tax Appeals sustained the determination of the Commissioner in a decision promulgated February 11, 1930. It is admitted that the United States Circuit Court of Appeals for the First Circuit has jurisdiction to review said determination of the Board of Tax Appeals, but it is denied that the jurisdiction of said Board of Tax Appeals is exclusive.

The plaintiff denies that its right to a refund of the $82,561.70 in any way depends upon the validity of the second deficiency assessment of $2,224.95. It is alleged that the collector has not made a demand for the payment of the latter sum, and it is admitted that it has never been paid.

The plaintiff claims and alleges that all proceedings on the part of the collector of internal revenue and on the part of the United States for the collection of the first deficiency assessment which with interest amounts to $82,561.70, was barred by the limitations of time fixed for the collection of such taxes by the acts of 1918, 1921, 1924, 1926, and 1928, and in particular by the terms and provisions of the Revenue Act of 1926, and such liability was not revived by the act of 1928.

The plaintiff alleges that on or about the 16th day of October 1929, and within the time limited by law, a claim for refund of said sum of $82,561.70, was filed with the defendant collector setting forth as a reason why said refund should be granted that the collection was barred by the statute of limitations. The plaintiff further alleges that thereafter within six months from the date of the filing of the claim for a refund, to wit, on the 6th day of December 1929, the Commissioner of Internal Revenue wholly disallowed plaintiff's claim.

Two additional causes of action are set forth in plaintiff's declaration, both of which are dependent upon the failure of the first cause of action. First, plaintiff claims that a deduction from gross income of $30,000, the amount of increased salaries of its officers for the year 1918, was wholly wrongfully disallowed by the Commissioner. Second, The plaintiff claims that, owing to war-time activities, its machinery suffered extraordinary and unusual depreciation in excess of the normal depreciation of 7½ per cent. which was allowed by the Commissioner. Such additional depreciation was disallowed, and the plaintiff now seeks to establish an additional 7½ per cent. depreciation, or total depreciation of 15 per cent.

As already indicated, the defendant in its plea to the jurisdiction of this court claims that the action in effect is one against the United States, and, the amount in issue exceeding $10,000, it is cognizable only by the Court of Claims, that the only other method of determining the issues is by appeal to the Board of Tax Appeals, and, that method having been pursued as to a part of the 1918 tax, the plaintiff has made an election, and the whole matter must be determined under the statutory procedure provided by Congress.

The plaintiff replies that the common-law right of action against the collector of taxes still exists, and that the present action is of that character and may be maintained.

I will first give consideration to the question of whether such common-law right of action is still maintainable against a collector of internal revenue or whether the machinery provided by Congress in the several internal revenue acts of recent years is exclusive.

The case of United States v. Emery, Thayer Realty Co., 237 U. S. 30, 35 S. Ct. 499, 500, 59 L. Ed. 825, was an action in the Court of Claims to recover the amount of taxes paid under protest. Objection to the jurisdiction was pressed by the government upon the ground that the only remedy was a suit against the collector. In the course of the opinion Mr. Justice Holmes says, "The right to sue the collector for an unjustified collection was given by the common law." This statement, however, is hardly applicable to the present state of the law. See Arnson v. Murphy, 109 U. S. 238, 3 S. Ct. 184, 27 L. Ed. 920; 243 Rev. St. § 3226 (as amended 26 USCA § 156). At the present time actions against collectors cannot be maintained until after certain statutory...