Cappellini v. Commissioner of Internal Revenue
| Decision Date | 15 January 1929 |
| Docket Number | Docket No. 25926-25928. |
| Parties | HENRY CAPPELLINI, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. SERAFINO CINCI, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. GUIDO FUNARI, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. |
| Court | U.S. Board of Tax Appeals |
Moultrie Hitt, Esq., Clarence A. Miller, Esq., G. Kirby Munson, Esq., and Willard Carlson, Esq., for the petitioners.
Ellsworth C. Alvord, Esq., Clark T. Brown, Esq., M. N. Fisher, Esq., Frederic P. Lee, Esq., and William Burry, Jr., Esq., for the respondent.
A. S. Weill, Esq., Hugh Satterlee, Esq., and A. E. Graupner, Esq., as amici curiae.
These proceedings were upon agreement ordered consolidated for hearing and decision and involve liabilities of transferees under the provisions of section 280 of the Revenue Act of 1926. Respondent has determined liabilities of petitioners as transferees in the following amounts, plus any accrued interest:
Henry Cappellini _____________________________________ $2,134.18
Serafino Cinci _______________________________________ 4,268.39
Guido Funari _________________________________________ 2,134.18
At the hearing respondent, by amended answer, pleaded that the liabilities of Henry Cappellini and Guido Funari each amounted to $4,268.39, plus any accrued interest. The only error alleged is that section 280 of the Revenue Act of 1926 is in conflict with the Constitution of the United States and therefore void in that (1) it confers judicial power on respondent, contrary to section 1 of Article III; (2) that it deprives petitioners of their property without due process of law, contrary to the Fifth Amendment; (3) it makes petitioners liable for a tax upon income not received by them, contrary to the provisions of section 2 of Article I and the Sixteenth Amendment; and (4) that the tax imposed is a direct tax levied without apportionment and not upon income, contrary to the provisions of the Sixteenth Amendment. Point 4 was waived by counsel for petitioners. The facts were stipulated and from the stipulation we make the following findings of fact.
FINDINGS OF FACT.
The petitioners were throughout the year 1920 and at all times since then have been, and now are residents of Masontown, Fayette County, Pa.
The Masontown Coal Co. was incorporated on August 20, 1917, under the laws of the State of Pennsylvania, for the purpose of mining and selling coal.
The entire capital stock of said company consisted of 80 shares of the par value of $100 each and at the time of the distribution hereinafter described and at all times prior thereto was owned and held as follows:
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| | Number
Stockholder | Address | of shares
| | owned
----------------------------------|--------------------------------|-------------
James Bushick ___________________ | Masontown, Pa ________________ | 20
Henry Cappellini ________________ | ____ do ______________________ | 20
Serafino Cinci __________________ | ____ do ______________________ | 20
Guido Funari ____________________ | ____ do ______________________ | 20
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The Masontown Coal Co. filed an income and profts-tax return for the calendar year 1920 showing a liability for Federal income and profits taxes in the sum of $1,733.14, which amount was duly paid. Thereafter the respondent determined that additional Federal income and profits taxes in the sum of $4,268.39 were due for the year 1920 from the said Masontown Coal Co. The aforesaid additional taxes were correctly determined by the respondent and have not been paid by or for the said Masontown Coal Co.
On or about August 1, 1920, said company sold all its assets for cash and on or about August 15, 1920, distributed the entire proceeds of the sale to the aforesaid stockholders in proportion to their respective holdings of stock and without consideration. Since the distribution the corporation has had no assets whatever and has transacted no business and engaged in no corporate activity. No formal steps have been taken to dissolve the corporation.
Prior to the mailing of the deficiency notices in these proceedings, the said additional income and profits taxes were duly assessed against the Masontown Coal Co. by the respondent, notice and demand were duly served on said company by the Collector of Internal Revenue for the 23rd District of Pennsylvania for the payment of the additional income and profits taxes determined by the respondent to be due, and said taxes remaining unpaid, a warrant for distraint was duly issued, served, and returned wholly unsatisfied by reason of the fact that the said corporation had, and since the date of said distribution has had, no assets or capital whatsoever.
Each of the petitioners herein received from the Masontown Coal Co. by virtue of said distribution the amount of $5,000.
The petitioners herein are transferees of the property of the Masontown Coal Co. within the meaning of section 280 of the Revenue Act of 1926 to the extent of $5,000 each.
The facts have been stipulated and both parties have in these proceedings directed their arguments to the constitutionality of section 280 of the Revenue Act of 1926. Both parties have also urged that the Board not only has the power, but it is its duty to determine the constitutionality of that section. The position of respondent is that the section is constitutional. The petitioners contend that section 280 is unconstitutional and in their petitions assign as error the following:
(a) The action of the Commissioner of Internal Revenue in proposing to assess against this petitioner, as transferee of the assets of the Masontown Coal Company, now dissolved, the sum of $2,134.18, plus any penalty and accrued interest, representing unpaid income and profits tax assessed against that company for 1920.
(b) The action of the Commissioner of Internal Revenue in purporting to proceed under the provisions of section 280 of the Revenue Act of 1926, and proposing to assess against this petitioner the tax alleged to be due from the Masontown Coal Company, now dissolved, for the reason that said section 280 of the Revenue Act of 1926 is in conflict with the Constitution of the United States, unconstitutional and void, and the Commissioner of Internal Revenue is without authority to propose to assess said tax against this petitioner.
(c) Section 280 of the Revenue Act of 1926 is unconstitutional and void for that it violates and contravenes the provisions of the Constitution of the United States in this:
1. It confers judicial power on the Commissioner of Internal Revenue contrary to the provisions of Section 1, Article 3.
2. It deprives this petitioner of his property without due process of law, contrary to the provisions of the Fifth Amendment.
3. It makes this petitioner liable for tax upon income not received by him, contrary to the provisions of the Sixteenth Amendment.
4. The tax imposed is a direct tax, levied without apportionment, and not in income, contrary to section 2 of Article 1, and the Sixteenth Amendment.
While the assignments of error do not in terms attack the jurisdiction of the Board, an analysis of the question raised by petitioners shows that their position goes much deeper than appears on the surface and necessarily involves a consideration of the power and duties of the Board, for the reason that the section attacked is the one by which petitioners come before the Board. The assignments do not call attention to a particular part of the section which is claimed to be unconstitutional, but the charge made is that the entire system set up by the statute, which provides for a determination in the first instance by the Commissioner and a review of that determination by the Board, is unconstitutional. The attack is on the entire system and carries with it as much a charge that the Board is without power as that the Commissioner is without power. That the petitioners are not unaware of this fact plainly appears from page 78 of their brief, wherein it is stated:
It necessarily follows, therefore, that neither the Commissioner of Internal Revenue nor the Board of Tax Appeals has the legal power to determine the liability, at law or in equity, of a transferee of property of a taxpayer, in respect of the tax sought to be imposed by virtue of Section 280, and that this section is unconstitutional because of its attempt to confer upon the Commissioner of Internal Revenue, and incidentally upon the Board of Tax Appeals a part of the judicial power of the United States.
In the view we take of the matter it is not necessary to determine whether the Board, which is specifically placed in the executive branch of the Government, may pass on the constitutionality of an act of Congress, or whether in fact section 280 is or is not constitutional. It is only by invoking the provisions of section 280 that petitioners may come to the Board, for it is that section alone which gives the Board jurisdiction of these proceedings. It is a well settled principle that one can not invoke the aid of a statute conferring jurisdiction and at the same time attack the validity of the statute so invoked. This principle we believe is firmly established by the decisions of the Supreme Court.
In Great Falls Mfg. Co. v. Attorney General, 124 U. S. 581, the plaintiff, pursuant to an act of Congress, sued in the Court of Claims to recover damages for the taking of its property, and then filed a bill in the Circuit Court, alleging, inter alia, that the act of Congress giving the right to sue in the Court of Claims...
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