Olshausen v. CIR

• Decision Date: 19 January 1960
• Docket Number: No. 16183.,16183.
• Citation: 273 F.2d 23
• Parties: George OLSHAUSEN, Petitioner, v. COMMISSIONER OF INTERNAL REVENUE, Respondent.
• Court: U.S. Court of Appeals — Ninth Circuit

273 F.2d 23 (1959)

George OLSHAUSEN, Petitioner, v. COMMISSIONER OF INTERNAL REVENUE, Respondent.

No. 16183.

United States Court of Appeals Ninth Circuit.

December 10, 1959.

Rehearing Denied January 19, 1960.

COPYRIGHT MATERIAL OMITTED

George Olshausen, San Francisco, Cal., for appellant.

Charles K. Rice, Asst. Atty. Gen., Helen A. Buckley, Lee A. Jackson, I. Henry Kutz, Karl Schmeidler, Attorneys, Department of Justice, Washington, D. C., for respondent.

Before HEALY, ORR and HAMLIN, Circuit Judges.

ORR, Circuit Judge.

For failure to file declarations of estimated tax for the years 1952 and 1953, the Commissioner of Internal Revenue pursuant to § 294 of the Internal Revenue Code of 1939, 26 U.S.C.A. § 294, assessed additions to petitioner's tax as penalties for said failure¹ and also for substantial underestimate of estimated tax.² The Tax Court sustained the findings of the Commissioner and taxpayer petitions for review.

At the time of argument and submission of the case, there was pending for hearing before the Supreme Court of the United States the case of Commissioner of Internal Revenue v. Acker, 1959, 80 S.Ct. 144, in which the question of whether sections 294(d)(1)(A) and 294 (d) (2) provided cumulative penalties for failing to file was under consideration. The Tax Court had held in the instant case that the Commissioner was correct in assessing two penalties for the reason that petitioner's failure to file a declaration amounted to an estimation of zero tax and, therefore, was a substantial underestimate. Petitioner challenges this holding. We have withheld our opinion pending a determination of the question by the Supreme Court. A decision in the Acker case was recently rendered wherein it was held that the two sections were not cumulative: that section 294 (d) (2) has no application in the case of a failure to file a declaration of estimated tax. The decision as we read it settles another controversy existing between the Commissioner and the petitioner, to wit, that the addition to the tax as provided in section 294 (d) (1) (A) is a penalty.

While the case of Commissioner of Internal Revenue v. Acker resolves the cumulative penalty issue in favor of petitioner, he presents other claimed errors which require disposition:

Petitioner argues that the deficiency notice procedure set up in the Code (§ 272 I.R.C.1939, 26 U.S.C.A. § 272) cannot be used in enforcing the additions to the tax under § 294 where there is no deficiency in the tax apart from the additions. The following cases are opposed to petitioner's contention: Davis v. Dudley, D.C.W.D.Pa.1954, 124 F.Supp. 426; Myers v. C.I.R., 1957, 28 T.C. 12; Newsom v. C.I.R., 1954, 22 T.C. 225, affirmed per curiam, 5 Cir., 1955, 219 F.2d 444.³ Before the creation of the Tax Court (originally the Board of Tax Appeals), the rule was "pay first and litigate later." The deficiency notice procedure now provides taxpayers with the alternative of petitioning the Tax Court within 90 days after the deficiency notice is issued and being able to contest the assessment before that court without having to pay the assessment first. § 272 I.R.C.1939. This was intended to benefit taxpayers. 65 Cong.Rec. 2429. We are impressed by the reasoning employed in Davis v. Dudley, supra: "* * * The imposition of the delinquency penalties in subdivisions 294(d)(1)(A) and (B) depends exclusively upon the judgment of the Commissioner. Hence, in the absence of unequivocal language to the contrary, * * * we think that this type of penalty should be construed as a deficiency in order that the judgment of the Commissioner may be tested by the Tax Court as a safeguard against erroneous assessments and compulsory payment pending final decision." (At page 428). This court in Granquist v. Hackleman, 9 Cir., 264 F.2d 9, cited the above mentioned cases with approval "* * * to illustrate a recognition in the courts of the underlying reasons in favor of affording a taxpayer a prepayment review in the Tax Court * * * Where the statute does not specifically, by its precise language, take away this right, * * * we believe that the taxpayer should be afforded an opportunity to file suit in the Tax Court to determine his liability. The requirement of a 90 day deficiency notice affords this right to the taxpayer." 28 T.C. at page 15.

Petitioner urges, however, that we construe the statute as not affording taxpayers this right in order to avoid alleged "serious constitutional questions." Having taken advantage of the deficiency notice procedure by filing a petition in the Tax Court without paying the tax first, petitioner now makes the claim that he was deprived thereby of a jury trial. Such deprivation was due to his own act. If he desired a jury trial, he should have paid the tax first and then sued for a refund in the district court. There is no right to a jury trial without paying first as a statutory matter (Flora v. United States, 1958, 357 U.S. 63, 78 S.Ct. 1079, 2 L.Ed.2d 1165) and no right to a jury trial at all in tax matters as a constitutional requirement (Wickwire v. Reinecke, 1929, 275 U.S. 101, 48 S.Ct. 43, 72 L.Ed. 184). The Sixth Amendment to the Constitution applies only to criminal proceedings. Even though § 294(d)(1) (A) imposes a penalty (Commissioner v. Acker, supra), it has long been settled that Congress may provide civil proceedings for the collection of penalties which are civil or remedial sanctions rather than punitive, and provide that the determination of the facts upon which the liability for such a penalty is based may be by executive officers or administrative agencies. Helvering v. Mitchell, 1938, 303 U.S. 391, 58 S.Ct. 630, 82 L.Ed. 917; Oceanic Steam Nav. Co. v. Stranahan, 1909, 214 U.S. 320, 29 S.Ct. 671, 53 L.Ed. 1013; Hepner v. United States, 1909, 213 U.S. 103, 29 S.Ct. 474, 53 L.Ed. 720; Passavant v. United States, 1893, 148 U.S. 214, 13 S.Ct. 572, 37 L.Ed. 426. The court in Helvering v. Mitchell held that the double jeopardy clause had no application in a proceeding to assert an additional tax of 50% of a deficiency due to fraud imposed by § 293(b) of the Revenue Act of 1928 since such a proceeding was a civil one. The court stated: "The remedial character of sanctions imposing additions to a tax has been made clear by this Court in passing upon similar legislation. They are provided primarily as a safeguard for the protection of the revenue and to reimburse the Government for the heavy expense of investigation and the loss resulting from the taxpayer's fraud." 303 U.S. at page 401, 58 S.Ct. at page 634. The additions to the tax imposed by § 294(d)(1)(A) are equally remedial in character. Congress has, therefore, properly provided civil proceedings in which assessment of such additions may be tested. The Sixth Amendment has no application to such proceedings. See Walker v. United States, 5 Cir., 1957, 240 F.2d 601.

Petitioner asserts in the alternative that he is entitled to a jury trial by reason of the Seventh Amendment to the Constitution which guarantees a jury trial where required at common law. He contends that what we have here is an action of common law debt for which a jury trial was required. If this were true, all actions for the collection of taxes would be actions of debt, as would all other statutory proceedings involving a sum of money. Such a broad view of the common law action of debt is not tenable. Petitioner cites United States v. Regan, 1914, 232 U.S. 37, 34 S.Ct. 213, 58 L.Ed. 494, and Hepner v. United States, supra, in support of his contention. The Supreme Court in both of those cases was applying a statute which provided that the penalty imposed therein "* * * may be sued for and recovered by the United States * * * as debts of like amount are recovered in the courts of the United States * * *." 213 U.S. 103, 29 S.Ct. 475 Alien Immigration Act, § 5, 34 Stat. 898, 900. This is an express requirement that an action to recover the penalty be prosecuted as a common law action of debt. The dicta in these cases, therefore, do not stand for the broad proposition, urged by petitioner, that statutory penalties are always recovered in common law actions of debt. We have under consideration in the instant case a proceeding provided for by statute to test the validity of a penalty assessed pursuant to that statute. No such action existed at common law, and, therefore, no jury trial is required by the Seventh Amendment.

Petitioner asserts that a further constitutional issue arises if we construe the statute as giving the Tax Court jurisdiction to determine the propriety of additions to the tax assessed pursuant to § 294. He argues that when a case comes into the Tax Court, Rule 32 of that court, 26 U.S.C.A. (I.R.C.1954) § 7453, places an unconstitutional burden on taxpayers by requiring them to prove that their failure to file was due to reasonable cause rather than willful neglect. The answer is that it is not Rule 32 of the Tax Court which places the burden on the taxpayer, but § 294 itself (see footnote 1 supra). The burden of proof, therefore, would be the same in the district court or the court of claims. Where one fact (willful neglect) is a logical conclusion from another (failure to file), there is no constitutional infirmity in presuming the second fact from the first, thus putting the burden of proof on the protestant. See Boynton v. Pedrick, 2 Cir., 1955, 228 F.2d 745, certiorari denied, 351 U.S. 938, 76 S.Ct. 835, 100 L.Ed. 1465, rehearing denied, 351 U.S. 990, 76 S.Ct. 1046, 100 L.Ed. 1503, and see also Helvering v. Taylor, 1935, 293 U.S. 507, 515, 55 S.Ct. 287, 79 L.Ed. 623. An almost impossible burden would be placed on the government if it had to prove willful neglect by evidence in addition to a taxpayer's failure to file, whereas the taxpayer can easily explain his failure if good cause therefor existed. The allocation of the burden of proof made by § 294 is, therefore, founded in good common sense and fair play....