Old Colony Trust Co v. Commissioner of Internal Revenue

• Citation: 73 L.Ed. 918,49 S.Ct. 499,279 U.S. 716
• Decision Date: 03 June 1929
• Docket Number: No. 130,130
• Parties: OLD COLONY TRUST CO. et al. v. COMMISSIONER OF INTERNAL REVENUE. Re
• Court: United States Supreme Court

279 U.S. 716

49 S.Ct. 499

73 L.Ed. 918

OLD COLONY TRUST CO. et al.

v COMMISSIONER OF INTERNAL REVENUE.

No. 130.

Reargued April 15, 1929.

Decided June 3, 1929.

[Syllabus from pages 716-718 intentionally omitted] Messrs. Arthur A. Ballantine and George E. Cleary, both of New York City, for Old Colony Trust Co. and others.

The Attorney General and Mr. Alfred A. Wheat, of Washington, D. C., for Commissioner of Internal Revenue.

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

We have before us for consideration two questions certified from the same Circuit Court of Appeals, No. 130 and No. 129. They are presented upon different statements of facts, and the cases reach the certifying court in different ways, but the questions are so nearly alike that the certifying judges deemed it convenient to present them in consolidated form. We prefer to separate the questions, discuss and decide No. 130 first, and then consider No. 129.

No. 130 comes here by certificate from the Circuit Court of Appeals for the First Circuit. The action in that court was begun by a petition to review a decision of the United States Board of Tax Appeals. The petitioners are the executors of the will of William M. Wood, deceased. On June 27, 1925, before Mr. Wood's death, the Commissioner of Internal Revenue notified him by registered mail of the determination of a deficiency in income tax against him for the years 1919 and 1920, under the Revenue Act of 1918 (40 Stat. 1057). The deficiency was revised by the Commissioner August 18, 1925. An appeal was taken to the Board of Tax Appeals, which was filed October 27, 1925. A hearing before the Board, April 11, 1927, resulted in a decision November 12, 1927. The Board approved the action of the Commissioner, and found a deficiency in the federal income tax return of Mr. Wood for the year 1919 of $708,781.93, and for the year 1920 of $350,837.14. The petition for review was perfected December 23, 1927, pursuant to the Revenue Act of 1926, § 283(j), and sections 1001 to 1005, c. 27, 44 Stat. 9, 65, 109; 26 USCA § 1064(j), and §§ 1224-1228, and rule 38 of the First Circuit Court of Appeals.

The facts certified to us are substantially as follows:

William M. Wood was president of the American Woolen Company during the years 1918, 1919, and 1920. In 1918 he received as salary and commissions from the company $978,725, which he included in his federal income tax return for 1918. In 1919 he received as salary and commissions from the company $548,132.87, which he included in his return for 1919.

August 3, 1916, the American Woolen Company had adopted the following resolution, which was in effect in 1919 and 1920:

'Voted: That this company pay any and all income taxes, State and Federal, that may hereafter become due and payable upon the salaries of all the officers of the company, including the president, William M. Wood; the comptroller, Parry C. Wiggin; the auditor, George R. Lawton; and the following members of the staff, to wit: Frank H. Carpenter, Edwin L. Heath, Samuel R. Haines and William M. Lasbury, to the end that said persons and officers shall receive their salaries or other compensation in full without deduction on account of income taxes, State or Federal, which taxes are to be paid out of the treasury of this corporation.'

This resolution was amended on March 25, 1918, as follows:

'Voted: That, referring to the vote passed by this board on August 3, 1916, in reference to income taxes, State and Federal, payable upon the salaries or compensation of the officers and certain employees of this company, the method of computing said taxes shall be as follows, viz.:

"The difference between what the total amount of his tax would be, including his income from all sources, and the amount of his tax when computed upon his income excluding such compensation or salaries paid by this company."

Pursuant to these resolutions, the American Woolen Company paid to the collector of internal revenue Mr. Wood's federal income and surtaxes due to salary and commissions paid him by the company, as follows:

                     Taxes for 1918 paid in 1919.... $681,169 88
                 
                     Taxes for 1919 paid in 1920..... 351,179 27
                 

The decision of the Board of Tax Appeals here sought to be reviewed was that the income taxes of $681,169.88 and $351,179.27 paid by the American Woolen Company for Mr. Wood were additional income to him for the years 1919 and 1920.

The question certified by the Circuit Court of Appeals for answer by this Court is:

'Did the payment by the employer of the income taxes assessable against the employee constitute additional taxable income to such employee?'

The first point presented to us is that of the jurisdiction of this Court to answer the question of law certified. It requires us to examine the original statute providing for the Board of Tax Appeals under the Revenue Act of 1924, and the amending act of 1926.

The Board of Tax Appeals, established by section 900 of the Revenue Act of 1924, tit. 9, c. 243, 43 Stat. 253, 336 (26 USCA § 1211, note, et seq.), was created by Congress to provide taxpayers an opportunity to secure an independent review of the Commissioner of Internal Revenue's determination of additional income and estate taxes by the Board in advance of their paying the tax found by the Commissioner to be due. Before the act of 1924, the taxpayer could only contest the Commissioner's determination of the amount of the tax after its payment. The Board's duty under the act of 1924 was to hear, consider, and decide whether deficiencies reported by the Commissioner were right.

Section 273 of that act (26 USCA § 1047) defined a 'deficiency' to be the amount by which the tax imposed exceeded the amount shown by the return of the taxpayer after the return was increased by the amounts previously assessed or disallowed. There was under the act of 1924 no direct judicial review of the proceedings before the Board of Tax Appeals. But each party had the unhindered right to seek separate action by a court of competent jurisdiction to test the correctness of the Board's action. Such court proceedings were to be begun within one year after the final decision of the Board.

Section 274(b); 26 USCA § 1049, note, provided that, if the Board determined there was a deficiency, the amount so determined should be assessed and paid upon notice and demand from the collector. No part of the amount determined as a deficiency by the Commissioner, but disallowed as a deficiency by the Board, could be assessed, but the Commissioner was at liberty, notwithstanding the decision of the Board against him, to bring a suit in a proper court against the taxpayer to collect the alleged deficiency.

On the other hand, by section 900(g); 26 USCA § 1218, note, it was provided that, in any suit brought by the Commissioner, or by the taxpayer to recover any amounts paid in pursuance of a decision of the Board, the findings of the Board were prima facie evidence of the facts.

By the Revenue Act of 1926, this procedure was changed, and a direct judicial review of the Board's decision was substituted.

The act of 1926 also enlarged the original jurisdiction of the Board of Tax Appeals to consider deficiencies beyond those shown in the Commissioner's notice, if the Commissioner made such a claim at or before the hearing (section 274(e); 26 USCA § 1048c), and also to determine that the taxpayer not only did not owe the tax but had over paid (section 284(e); 26 USCA § 1065, note).

The chief change made by the act of 1926 was the provision for direct judicial review of the Board's decisions by the filing by the Commissioner or the taxpayer of a petition for review in a Circuit Court of Appeals or the Court of Appeals of the District of Columbia under rules adopted by such courts.

It is suggested that the proceedings before the Circuit Courts of Appeals or the District Court of Appeals on a petition to review are and can not be judicial, for they involve 'no case or controversy,' and without this a Circuit Court of Appeals, which is a constitutional court (Ex parte Bakelite Corporation, No. 17, Original, 279 U. S. 438, 49 S. Ct. 411, 73 L. Ed. —, decided May 20, 1929) is incapable of exercising its judicial function. This view of the nature of the proceedings we cannot sustain.

The case is analogous to the suits which are lodged in the Circuit Courts of Appeals upon petition or finding of an executive or administrative tribunal. It is not important whether such a proceeding was originally begun by an administrative or executive determination, if, when it comes to the court, whether legislative or constitutional, it calls for the exercise of only the judicial power of the court upon which jurisdiction has been conferred by law. The jurisdiction in this cause is quite like that of Circuit Courts of Appeals in review of orders of the Federal Trade Commission. Federal Trade Commission v. Eastman Kodak Co., 274 U. S. 623, 47 S. Ct. 688, 71 L. Ed. 1238; Silver Co. v. Federal Trade Commission (C. C. A.) 292 F. 752. There are other instances of a like kind which can be cited. United States v. Ritchie, 17 How. 525, 534, 15 L. Ed. 236; Interstate Commerce Commission v. Brimson, 154 U. S. 447, 469, 14 S. Ct. 1125, 38 L. Ed. 1047; Stephens v. Cherokee Nation, 174 U. S. 445, 477, 19 S. Ct. 722, 43 L. Ed. 1041. See, also, Fong Yue Ting v. United States, 149 U. S. 698, 714, 13 S. Ct. 1016, 37 L. Ed. 905.

It is not necessary that the proceeding to be judicial should be one entirely de novo. It is enough that, before the judgment which must be final has been invoked as an exercise of judicial power, it shall have certain necessary features. What these are has been often declared by this Court. Perhaps the most comprehensive definitions of them are set forth in Muskrat v. United States, 219 U. S. 346, 356, 31 S. Ct. 250, 55 L. Ed. 246, where this Court entered into the inquiry what was the exercise of judicial power as...