Flora v. United States

• Citation: 357 U.S. 63,2 L.Ed.2d 1165,78 S.Ct. 1079
• Decision Date: 16 June 1958
• Docket Number: No. 492,492
• Parties: Walter W. FLORA, Petitioner, v. UNITED STATES of America
• Court: United States Supreme Court

357 U.S. 63

78 S.Ct. 1079

2 L.Ed.2d 1165

Walter W. FLORA, Petitioner,

v UNITED STATES of America.

No. 492.

Argued May 20, 1958.

Decided June 16, 1958.

Petition for rehearing pending, see 79 S.Ct. 112.

Mr. Randolph W. Thrower, Atlanta, Ga., for the petitioner.

Mr. John N. Stull, Washington, D.C., for the respondent.

Mr. Chief Justice WARREN delivered the opinion of the Court.

The issue in this case is whether a taxpayer must pay the full amount of an income tax deficiency before he may challenge its correntness by a suit for refund under 28 U.S.C. § 1346(a)(1), 28 U.S.C.A. § 1346(a)(1).

During 1950 petitioner suffered losses on the sale of certain commodities and futures. He reported them as ordinary losses, but the Commissioner of Internal Revenue characterized them as capital losses. A deficiency assessment was levied in the amount of $28,908.60, including interest. Petitioner made two payments that totaled $5,058.54, and then submitted a claim for refund of that amount. The claim was disallowed. On Aug. 3, 1956, petitioner brought this action under 28 U.S.C. § 1346(a)(1), 28 U.S.C.A. § 1346(a)(1), for refund. The United States moved to dismiss for want of jurisdiction and for failure to state a claim upon which relief could be granted. The district judge held that because petitioner had not paid the full amount of the deficiency he 'should not maintain' the action. Because the question had not been resolved by the Court of Appeals, however, he deemed it advisable to pass upon the merits, and upon doing so entered judgment for defendant United States. 142 F.Supp. 602, 604. The Court of Appeals for the Tenth Circuit vacated the judgment and remanded with instructions to dismiss, holding that the complaint 'failed to state a claim' because petitioner had not paid the entire assessment for the period in question. 246 F.2d 929, 931.¹ We granted certiorari, 355 U.S. 881, 78 S.Ct. 150, 2 L.Ed.2d 112, to resolve the conflict between that decision and Bushmiaer v. United States, 8 Cir., 230 F.2d 146.²

The pertinent jurisdictional statute, 28 U.S.C. § 1346(a)(1), 28 U.S.C.A. § 1346(a)(1), reads as follows:

'(a) The district courts shall have original jurisdiction, concurrent with the Court of Claims, of:

'(1) Any civil action against the United States for the recovery of any internal-revenue tax alleged to have been erroneously or illegally assessed or collected, or any penalty claimed to have been collected without authority or any sum alleged to have been excessive or in any manner wrongfully collected under the internal-revenue laws * * *.' (Emphasis supplied.)

In matters of statutory construction the duty of this Court is to give effect to the intent of Congress, and in doing so our first reference is of course to the literal meaning of words employed. The principle of strict construction of waivers of sovereign immunity, United States v. Michel, 282 U.S. 656, 51 S.Ct. 284, 75 L.Ed. 598, and the sharp division of opinion among the lower courts on the meaning of the pertinent statutory language suggest the presence of ambiguity in what might otherwise be termed a clear authorization to sue for the refund of 'any sum.' Consequently, a thorough consideration of the relevant legislative history is required.

Section 1346 was originally enacted as Section 1310(c) of the Revenue Act of 1921.³ Its essential language seems to have been copied from R.S. § 3226, the predecessor of the present claim-for-refund statute, 26 U.S.C. (Supp. V) § 7422(a), 26 U.S.C.A. § 7422(a). Those statutes use language identical to that appearing above to provide that no suit for the refund of a 'tax,' 'penalty,' or 'sum' shall be maintained until similar relief has been sought from the Secretary or his delegate.⁴ The meaning that has been ascribed to this language in the claim-for-refund statute provides the key to what Congress intended when it used that language in the jurisdictional provision.

The original claim-for-refund statute, Section 19 of the Revenue Act of July 13, 1866, provided that no suit should be maintained in any court for the recovery of 'any tax alleged to have been erroneously or illegally assessed or collected, until appeal shall have been duly made to the commissioner of internal revenue * * *.'⁵ On this 'appeal' the Commissioner was empowered to 'remit, refund, and pay back' all taxes or penalties improperly assessed or collected.⁶ When the appeal requirement was restated in Section 3226 of the Revised Statutes,⁷ Congress added the 'penalty' and 'sum' clauses, bringing together for the first time the three-way division that survives in 26 U.S.C. (Supp. V) § 7422(a), 26 U.S.C.A. § 7422(a), and 28 U.S.C. § 1346(a)(1), 28 U.S.C.A. § 1346(a)(1). The revisers left no indication of what significance, if any, was to be attached to this addition.

During the period of this formative legislation refund suits could not be brought against the United States because of its sovereign immunity. Tax litigation took the form of an action of assumpsit against the collector. See City of Philadelphia v. Diehl, 5 Wall. 720, 18 L.Ed. 614.⁸ Such suits were of course subject to the provision in Section 19 of the 1866 Act that they must be preceded by 'appeal' to the Commissioner. The meaning of that command, which later became R.S. § 3226 and eventually, as amended, 26 U.S.C. (Supp. V) § 7422(a), 26 U.S.C.A. § 7422(a), was considered in Cheatham v. United States, 92 U.S. 85, 23 L.Ed. 561. There, in response to an appeal, the Commissioner of Internal Revenue had set aside the first assessment of taxpayer's 1864 income taxes and directed the local assessor to make a second one. The taxpayer paid the second assessment and sued the collector for refund. The Court held that by failing to appeal from the second assessment the taxpayer failed to comply with Section 19 and hence had no right of action. In the course of its opinion the Court made this careful statement of the remedies then available to taxpayers who sought to contest the correctness of their tax:

'So also in the internal-revenue department, the statute which we have copied allows appeals from the assessor tothe commissioner of internal revenue; and, if dissatisfied with his decision, on paying the tax the party can sue the collector; and, if the money was wrongfully exacted, the courts will give him relief by a judgment, which the United States pledges herself to pay.

'* * * While a free course of remonstrance and appeal is allowed within the departments before the money is finally exacted, the general government has wisely made the payment of the tax claimed, whether of customs or of internal revenue, a condition precedent to a resort to the courts by the party against whom the tax is assessed. * * * If the compliance with this condition (that suit must be brought within six months of the Commissioner's decision) requires the party aggrieved to pay the money, he must do it. He cannot, after the decision is rendered against him, protract the time within which he can contest that decision in the courts by his own delay in paying the money. It is essential to the honor and orderly conduct of the government that its taxes should be promptly paid, and drawbacks speedily adjusted; and the rule prescribed in this class of cases is neither arbitrary nor unreasonable. * * *

'The objecting party can take his appeal. He can, if the decision is delayed beyond twelve months, rest his case on that decision; or he can pay the amount claimed, and commence his suit at any time within that period. So, after the decision, he can pay at once, and commence suit within the six months. * * *'⁹ (Emphasis added.)

From this carefully considered dictum it is unmistakably clear that the Court understood the statutes of that time to require full payment of an assessed tax as a condition precedent to the right to sue the collector for a refund. This understanding of the statutory scheme appears to have prevailed for the succeeding fifty or sixty years. It was never suggested that the addition in R.S. § 3226 of the clause beginning 'any sum' effected any change. The Cheatham case was decided after that addition was made, and it gave no indication that the 'condition precedent' of which it spoke had already been abrogated by Congress. Consistent with that understanding, there does not appear to be a single case before 1940 in which a taxpayer attempted a suit for refund of income taxes without paying the full amount the Government alleged to be due. Court opinions that took occasion to comment on the extent of payment are consistent with the Cheatham declaration,¹⁰ and that case has continued to be cited with approval to the present day.¹¹ Such was the understanding of the necessity for full payment in the suit against the collector.

Since the statute now under consideration, 28 U.S.C. § 1346(a)(1), 28 U.S.C.A. § 1346(a)(1), employs language identical to that in the statute under which the full-payment understanding developed, R.S. § 3226, a construction requiring full payment would appear to be more consistent with the established meaning of the statutory language. Furthermore, the situation with respect to tax suits against the United States at the time 28 U.S.C. § 1346(a)(1), 28 U.S.C.A. § 1346(a)(1) was enacted, the express purpose of its enactment, and subse- quent expressions of congressional intent all suggest that the principle of full payment was to be rpeserved.

The jurisdictional provision that is now 28 U.S.C. § 1346(a)(1), 28 U.S.C.A. § 1346(a)(1) was first enacted in Section 1310(c) of the Revenue Act of 1921. ¹² At that time the United States was already suable in the District Courts. Since 1887 the Tucker Act had allowed suit against the United States for claims less than $10,000 'founded upon * * * any law of Congress * * *,'¹³ and that language included suits to obtain refund of income taxes. United States v. Emery, Bird, Thayer Realty Co., 237 U.S. 28, 35 S.Ct. 499, 59...