Oak Worsted Mills v. United States, J-180.

• Decision Date: 17 February 1930
• Docket Number: No. J-180.,J-180.
• Citation: 38 F.2d 699
• Parties: OAK WORSTED MILLS v. UNITED STATES.
• Court: U.S. Claims Court

38 F.2d 699 (1930)

OAK WORSTED MILLS v. UNITED STATES.

No. J-180.

Court of Claims.

February 17, 1930.

Guil Barber and William Meyerhoff, both of Washington, D. C., for plaintiff.

George H. Foster, of Washington, D. C., and Herman J. Galloway, Asst. Atty. Gen., for the United States.

Before BOOTH, Chief Justice, and GREEN, WILLIAMS, LITTLETON, and GRAHAM, Judges.

GREEN, Judge.

On the submission of this case it was contended by counsel for plaintiff that the tax in this case, having been determined under the so-called relief provisions of sections 327 and 328 of the Act of 1918 (40 Stat. 1093), the matter of the amount of the tax was governed by the discretion of the Commissioner in applying these provisions, and that, having once determined the amount, he could not by a second and later determination increase the amount which he had originally fixed for the tax, and, as the matter was within the discretion of the Commissioner, his original determination was final and conclusive both upon him and this court. It is now urged by brief in argument on the motion for a new trial that this point receive further consideration, and, as there are other cases on the docket involving the same question, it has been thought best to file this opinion supplemental to the one heretofore rendered.

At the outset, to avoid confusion of thought, it should be kept in mind that the question under consideration is not whether the Commissioner's action under the sections of the law above referred to is reviewable by this court. That question was settled by the Williamsport Wire Rope Co. Case, 277 U. S. 551, 48 S. Ct. 587, 72 L. Ed. 985, wherein it was held that this court had no jurisdiction to review his decision in such cases. The question in the case at bar is whether the Commissioner had authority to redetermine, change, or modify his original determination or reassess an additional amount against the plaintiff. Counsel for plaintiff, however, taking the Williamsport Wire Rope Co. Case, supra, as the basis for his argument, contends that the action of the Commissioner was final, and for that reason could not be changed even by himself when once it was made. It would seem a rather surprising doctrine that, if the Commissioner discovered the next day or the next month that he had made a gross error that he had no authority to correct it, but for reasons hereinafter stated we shall not discuss this point. Plaintiff's counsel cites a number of cases which he claims hold that, when a tribunal or an official is authorized to act with discretionary power, when that authority has once been exercised, no further authority exists; and that, where lawful authority is delegated to an administrative officer, his acts in an administrative way are not subject to change or review. For the purposes of the argument, it may be conceded that, where the acts of the officer are administrative in their nature, a different principle prevails with reference to the review thereof than when he acts in a quasi judicial capacity. Nevertheless, it is uniformly held that the decisions of such tribunal or officer may be set aside on the ground of fraud or mistake, and it has also been held that an administrative officer whose decision is conclusive upon the courts may review and change his original decision, provided that no rights have become vested such as would arise from the issuance of a patent, a certificate, or something of that nature. Love v. Flahive, 205 U. S. 195, 199, 27 S. Ct. 486, 51 L. Ed. 768. Plaintiff also contends that in such event the burden of proof is upon the party seeking to have the decision changed to establish the fraud or mistake, and that even then it can only be done by a court and not by the officer or tribunal itself. The cases cited to support this rule would seem to show that it only applies when the government is seeking to set aside the act of one of its own officials. In Austin Co. v. Commissioner of Internal Revenue, 8 B. T. A. 628, affirmed (C. C. A.) 35 F.(2d) 910, 912, this particular question was involved in a case of the same nature as the one before us. With reference to the additional assessment made by the Commissioner, the court said:

"There is a presumption that he performed his duty." Citing United States v. Chemical Foundation, 272 U. S. 1, 47 S. Ct. 1, 71 L. Ed. 131.

And with reference to the claim that the Commissioner lacked authority to make any further assessment, the court also said:

"Even though there was lack of authority to make such assessment upon a changed view of the same facts, there was not lack of authority to make it where there was fraud or mistake of law or fact in the original assessment. In this situation the burden was on the petitioner to show that the commissioner's action grew out of circumstances which did not warrant it."

But it would require too much time and space to review the decisions recited on behalf of plaintiff, and we do not think it necessary to analyze them, for the reason that in our opinion they have no application whatever to the case at bar, and we can rest our decision firmly on other grounds. Our reasons for this holding are set out below.

A full consideration of the question now under consideration requires that we should go somewhat into the history of the income and profits tax system in force at the time when the tax in question was assessed. The first experience of this country with an income tax was at the time of the Civil War and for a short period thereafter. During that period the rates of the tax compared to those now in force were very low, and the administrative provisions of the law were few and simple. The recovery of an amount overpaid could only be obtained in the same manner as an overpayment of any other tax, that is, when the payment had been made under protest and suit brought to recover the amount overpaid. This income tax law was repealed and finally adjudged unconstitutional. In 1913, the Constitution having been amended, another income tax law was placed upon our statute books. Here again the rates were, comparatively speaking, quite low, the administrative provisions few and simple, in no case was the act of the commissioner discretionary, and no changes were made in the method of obtaining refunds in proper cases. After this country became involved in the World War it became necessary to greatly increase the rates of income and profits taxes, which was done first by the act of 1916 and then by the act of 1918, under which the taxes in question in this case were levied. It became evident — in fact, was a matter of common knowledge — that the application of these high rates through a tax with which neither the government officials nor the citizenship of the country were familiar gave rise to numerous errors, inequalities, and hardships, both in favor and against the taxpayers, which called for action by Congress. The result was that an entirely new body of laws was built up under which, while the administrative proceedings were in part governed by authorized Treasury regulations, for the most part they were ordered and directed by statutes in a manner which compared to the methods theretofore existing may be said to be exceedingly specific. These statutory provisions applied to the income and profits taxes. To what extent they applied to other taxes it is not necessary for us to herein determine. The special object and purpose thereof was to make clear and plain, so far as possible, the procedure in administering the income and profits taxes, and they are to be found in connection with the revenue acts which imposed them. These acts made great changes in the proceedings for the assessment and collection of taxes and also for the refund of taxes erroneously or wrongfully collected. For the first time they provided for limitations upon the assessment and collection of taxes, for the refund of taxes, although no protest had been made when they were paid, and eventually gave the right to have the question of the taxpayer's liability judicially determined without having first paid the tax. So also while Congress was thus making the path of the taxpayer easier and more definite, it prescribed limitations on his right to object to assessments and claim refunds. It was also important that the government as well as the taxpayer should be protected from errors and mistakes that might enter into the assessment and collection of taxes.

The ultimate question in the case is not whether the decision of the Commissioner was final, but when it became final; and that, as we shall see, was only when the statute of limitations had run against the government. With the evident purpose of making it clear when the decision of the Commissioner became final, Congress, in the act of 1921, included a comprehensive and sweeping provision applying to all cases under the income and profits taxes with reference to the time when a case was finally settled, showing definitely when assessments made by the Commissioner became final, so that no further action could be taken. As the assessment which plaintiff claims was final was not made until 1922, this provision unquestionably applied thereto. It is found in a separate title of the act (42 Stat. 308), headed in manner and form as set out below:

"Title XIII. — General Administrative Provisions."

This major division was also subdivided, and in one of these subdivisions we find section 1312 of the same act (42 Stat. 313), which, in our opinion, clearly controls the judgment in this and similar cases. This section with its subhead is set out below in exactly the form that it appears in the act as passed by Congress:

"Final Determinations and Assessments

"Sec. 1312. That if after a determination and assessment in any case the taxpayer has without protest paid in whole any tax or penalty, or accepted any abatement, credit, or refund based on such determination and assessment, and an agreement is made in writing...