Daniel Reeves, Inc. v. Anderson, 340.

• Decision Date: 21 July 1930
• Docket Number: No. 340.,340.
• Citation: 43 F.2d 679
• Parties: DANIEL REEVES, Inc., v. ANDERSON, Collector of Internal Revenue.
• Court: U.S. Court of Appeals — Second Circuit

43 F.2d 679 (1930)

DANIEL REEVES, Inc., v. ANDERSON, Collector of Internal Revenue.

No. 340.

Circuit Court of Appeals, Second Circuit.

July 21, 1930.

Charles H. Tuttle, U. S. Atty., of New York City (Walter H. Schulman, Asst. U. S. Atty., of New York City, of counsel), for appellee.

Herman Goldman, of New York City (Elkan Turk and Arthur Rothstein, both of New York City, Benjamin Wiener, of Brooklyn, N. Y., and Donald Bourne, of New York City, of counsel), for appellant.

Before L. HAND, AUGUSTUS N. HAND, and CHASE, Circuit Judges.

L. HAND, Circuit Judge.

The taxpayer filed its return for 1919 on March 11, 1920, and during the year paid the taxes disclosed. The Commissioner assessed a deficiency in March, 1924; the collector made demand for it on April 5, 1924; the taxpayer filed a claim for abatement on the sixteenth of that month. There matters rested without change until September 28, 1925, when the claim was rejected and on November 14, 1925, the taxpayer paid the deficiency with interest under threat by the collector. After proper preliminary steps this suit was brought against the collector in November, 1927. The question is whether the delay in collecting the tax from March 11, 1920, the date of the return, to November 14, 1925, made the collector's act a tort on which a cause of action arose for money had and received.

In spite of the extraordinary differences in judicial opinion which the situation has evoked — differences which only the Supreme Court can eventually settle — the underlying facts are not complicated. Section 250 (d) of the Revenue Act of 1918 (40 Stat. 1083) set a limitation of five years after return upon the Commissioner's power to "determine and assess" the amount of the tax. The same section in the Revenue Act of 1921 (42 Stat. 265) reduced the period to four years; but kept it at five as to assessments under the act of 1918. Until 1924 the Treasury had no longer period within which to collect taxes through the courts, than to assess them, so that, if the Commissioner assessed the tax on the last day of the proper period, he could begin no "suit or proceeding in court" to collect it. He had not in practise paid much attention to this feature of the law because he supposed until February, 1927, that he had power for an indefinite time after assessment to distrain, and this was ordinarily remedy enough. The decision of the Supreme Court in Bowers v. N. Y. & Albany Lighterage Co., 273 U. S. 346, 47 S. Ct. 389, 71 L. Ed. 676, which held that distress was barred along with "suits and proceedings," disappointed this assurance and there was thereafter no way to collect, once the time to assess had expired. Sections 607 and 611 of the Revenue Act of 1928 (26 US CA §§ 2607, 2611) were passed after this decision; the first made the assessment or payment of any tax after the period of limitation had expired an "overpayment" and gave the taxpayer a "credit or refund" for it, thus leaving matters as they had been, except to repeal section 1106 (a) of the Revenue Act of 1926 (26 USCA § 1249 note). The second section excepted from the operation of the first all taxes assessed before the act of 1924 went into effect, upon condition that the taxpayer had filed a claim for abatement which had stayed collection.

The distinction was a fair one. Section 278 (d) of the Revenue Act of 1924 (26 USCA § 1061 note) had given the Treasury six years after assessment to collect, and while it took until January, 1929, finally to settle it that this applied only to assessments made after June 2, 1924, the effective date of the act of 1924 (Russell v. U. S., 278 U. S. 181, 49 S. Ct. 121, 73 L. Ed. 255), that had apparently been already divined as a possibility. So it followed that while the Treasury had six years after assessment to collect taxes assessed after June 2, 1924, it had only four or five years from the return as to all assessed theretofore. Although the Commissioner had misconceived the law as to these, Congress made no effort to reclaim them by reimposition; the delay remained a final bar. Only in case the taxpayer had positively caused the Treasury's inaction by demanding a rehearing, was his advantage taken from him. Congress refused to convert indulgence into immunity; certainly nothing could be more reasonable. We have only to determine whether the plan conceived in this spirit has miscarried.

Specifically the arguments by which this exemption is sought to be secured are, first, that collection was not "stayed" by the claim for abatement. If by this is meant that the claim raised no legal bar to collection, the argument is unanswerable; it did not. So far as we can discover no statute before 1924 gave such an effect to a claim for abatement except section 234 (a) (14) of the Revenue Act of 1918 (40 Stat. 1079). This had to be filed with the return and not in response to an assessment, and was limited to inventory losses and rebates. Section 611, Revenue Act 1928, certainly did not refer to these. Section 279 of the Revenue Act of 1924 (26 USCA § 1063 note) did indeed provide for a compulsory stay of collection, but only in the case of jeopardy assessments levied under section 274 (d) of that act (26 USCA § 1051 note). Aside from the limited scope of this section, it did not reach the only assessments touched by section 611, those levied before June 2, 1924. Thus, if we construe "stayed" to mean a legal bar, we should give the section no scope whatever. Patently it must refer to those cases in which the collector did not proceed with enforcement while the Commissioner was engaged in passing upon the claim for abatement; such a stay has in practise been recognized as ancillary to the Commissioner's power to remit (title 26, § 149, U. S. Code 26 USCA § 149). Had he insisted upon collection before disposing of the claim, the taxpayer would with some justice have been vocal in protest. It is ungenerous now to complain that he did not do so.

Next, the plaintiff says that, if "stayed" means a voluntary stay, the record must show that the claim was the cause of it, and does not. The assessment was collectible as soon as made; no effort was in fact made to collect it till the claim was disposed of; the sequence of the two suggests a causal relation between them. Moreover, to suppose that the collector meanwhile withheld action for any other reason than because his collection might turn out to be unwarranted, is to assume that he was slack in his duty; we are entitled to assume the opposite. Article 1032 of Regulations 45 puts collection in his discretion in such circumstances; his inaction would have been without excuse except for the claim. Regardless of the eventual burden of proof on the issue, the presumption is that the delay was caused by the claim; and there was no proof to meet it.

The next point demands more attention. The argument runs as follows: Section 607, Revenue Act 1928, provides that a tax assessed or paid after the period had expired should be "credited or refunded." Section 611 is merely an exception from this provision; it does not give any right to the Treasury to hold money which it had no right to hold before. Section 607 was passed to be rid of the effect of section 1106 (a) of the Revenue Act of 1926, which had provided that although the expiration of the period of limitation of a tax extinguished the debt, the Commissioner should not credit or refund it unless it was not in fact due when the taxpayer paid it. This section we held not to prevent an action for money had Ellay Co. v. Bowers (C. C. A.) 25 F.(2d) 637; it follows that at that time the taxpayer could have got a "refund" by action, though he could not from the Commissioner. All that section 607 has done is to restore the administrative remedy which section 1106 (a) took away, leaving the taxpayer in possession of all remedies, except against the Commissioner (section 611), in cases where he had induced the delay. Since, however, the remedy of an action at law existed all along, and since it did not therefore need any assistance from section 607, section 611 is irrelevant. It was not intended as an affirmative limitation upon pre-existing remedies.

This argument is not dependent alone upon the word "refund" in section 607; it has a broader historical basis, and it must be confessed that it is plausible. We think it impossible however so to...