Cadwalader v. Sturgess

• Citation: 297 F. 73
• Decision Date: 29 February 1924
• Docket Number: 3058.
• Parties: CADWALADER et al. v. STURGESS, Internal Revenue Collector. [1]
• Court: United States Courts of Appeals. United States Court of Appeals (3rd Circuit)

297 F. 73

CADWALADER et al. v. STURGESS, Internal Revenue Collector. ^[1]

No. 3058.

United States Court of Appeals, Third Circuit.

February 29, 1924

Herbert Noble and Scott Scammell, both of New York City, for appellants.

Walter G. Winne, U.S. Atty, of Hackensack, N.J., and Charles P Hutchinson, Sp. Asst. U.S. Asst., of Trenton, N.J. (Nelson T Hartson, Solicitor of Internal Revenue, and Chester A. Gwinn both of Washington, D.C., of counsel), for appellee.

Before WOOLLEY and DAVIS, Circuit Judges, and THOMSON, District Judge.

WOOLLEY Circuit Judge.

This case raises a question of the proper procedure to be followed by one who seeks to avoid payment of federal taxes which he believes have been illegally assessed or are about to be illegally collected. It does not concern any question of the legality of the assessment or collection of taxes, although to this statement, we are quite aware, the appellants will not agree.

In September, 1919, the Commissioner of Internal Revenue assessed an additional tax of $356,178.95 against the executors of Charles G. Roebling on personal income of their decedent for the year 1917. After notice and demand for payment, made October 10, 1919, the executors filed a claim for abatement. The Commissioner of Internal Revenue allowed the claim by eliminating the interest amounting to $60,594.76 and by reducing the principal by $75,290.33, and rejected it in the sum of $220,293.86. Within the time provided by law the executors filed a claim for abatement of the assessment as revised, amounting with interest to $240,120.31. The record does not disclose that this claim has been determined. After notice and demand for payment of the last named sum and interest, made April 26, 1923, the executors of Charles G. Roebling, instead of paying the amount demanded and proceeding for its recovery in the usual way, brought this suit by bill in equity to restrain its collection, alleging, in substance, that the Collector of Internal Revenue named therein is threatening to collect from them by distraint the sum assessed as additional tax; that the threatened distraint is prohibited by the five-year limitation contained in the federal statute; that there is no authority in law for the collection of the tax for which distraint is threatened; and that, if the threatened distraint is not enjoined, they, the executors, will be without legal remedy, or, if any they have, it will be wholly inadequate. On motion of the Collector, the District Court dismissed the bill by force of section 3224 of the Revised Statutes (Comp. St. Sec. 5947) and on authority of Graham v. Du Pont, 262 U.S. 234, 43 Sup.Ct. 567, 67 L.Ed. 965. The case is here on the complainants' appeal.

The claimed statutory inhibition against the collection of the tax by distraint arises under section 250(d) of the Revenue Act of 1921 (42 Stat. 227) being Comp. St. Ann. Supp. 1923, Sec. 6336 1/8tt, which provides generally for the assessment of taxes under the act and particularly that:

'No suit or proceeding for the collection of any such taxes due under this act or under prior income, excess-profits, or war-profits tax acts, * * * shall be begun, after the expiration of five years after the date when such return was filed. * * * '

On May 5, 1923, when this action was instituted, more than five years had elapsed since April 1, 1918, when the return of Charles G. Roebling was filed, and, according to the complainants' contention, the threatened distraint or seizure of his property, then or later, would constitute a suit or 'proceeding' prohibited by the quoted provision of the act. The complainants further maintain that if such claimed illegal proceeding for the collection of taxes should be instituted by the Collector of Internal Revenue and the tax be collected, they would be prevented from asserting its illegality and recovering it back by an action at law because of the bar of two provisions of the statute,-- first, that of section 252 of the Revenue Act of 1918, 40 Stat. 1085, c. 18, re-enacted in the Revenue Act of 1921, 42 Stat.pt. 1, p. 268, c. 136 (Comp. St. Ann. Supp. 1923, Sec. 6336 1/8uu), which allows a credit on an income tax of any excess paid on a previous tax and a refund of the balance: 'Provided, that no such credit or refund shall be allowed or made after five years from the date when the return was due, unless before the expiration of such five years a claim therefor is filed by the taxpayer;' and second, the bar of section 3226 of the Revised Statutes, as amended by section 1318 of the Revenue Act of 1921 (Comp. St. Ann. Supp. 1923, Sec. 5949), which provides that:

'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, * * * until a claim for refund or credit has been duly filed with the Commissioner of Internal Revenue, according to the provisions of law in that regard, and the regulations of the Secretary of the Treasury established in pursuance thereof. No such suit or proceeding shall be begun before the expiration of six months from the date of filing such claim unless the Commissioner renders a decision thereon within that time, nor after the expiration of five years from the date of the payment of such tax. * * * '

On the contention that these statutory limitations of time in which claim for a refund can be filed and suit be brought to recover a tax paid upon an illegal assessment deprive them of all remedies at law, the complainants filed their bill in equity and rest their right to injunctive relief against the threatened collection of the tax. But they were immediately confronted with section 3224, U.S., which provides that:

'No suit for the purpose of restraining the assessment or collection of any tax shall be maintained in any court.'

The complainants meet this provision of the statute by the statement that, for reasons presently to be mentioned, it does apply to their case.

We shall first inquire, very briefly, into the purpose and force of this general statutory provision.

The Congress, by tax measures enacted from time to time, provides the revenue with which the national government is sustained. It is necessary to the maintenance of the government that the collection of taxes imposed for this purpose shall not be hindered or delayed, either by those who are charged with their payment, or by the courts in their behalf. Therefore the law requires, broadly, that all taxes, even those 'erroneously or illegally assessed,' shall be paid when due. The Congress knew, of course, that injustice would occasionally be done by the enforcement of this necessary rule. Therefore, it...