Phillips v. Commissioner of Internal Revenue

• Citation: 283 U.S. 589,75 L.Ed. 1289,51 S.Ct. 608
• Decision Date: 25 May 1931
• Docket Number: No. 455,455
• Parties: PHILLIPS et al. v. COMMISSIONER OF INTERNAL REVENUE
• Court: United States Supreme Court

283 U.S. 589

51 S.Ct. 608

75 L.Ed. 1289

PHILLIPS et al.

v COMMISSIONER OF INTERNAL REVENUE.

No. 455.

Argued April 23, 1931.

Decided May 25, 1931.

[Syllabus from pages 589-591 intentionally omitted] Mr. Elkan Turk, of New York City, for petitioners.

The Attorney General and Mr. G. A. Youngquist, Asst. Atty. Gen., for respondent.

Mr. Justice BRANDEIS delivered the opinion of the Court.

In 1919, the Coombe Garment Company, a Pennsylvania corporation, distributed all of its assets among its stockholders, and then dissolved. Thereafter, the Commissioner of Internal Revenue made deficiency assessments against it for income and profits taxes for the years 1918 and 1919. A small part of these assessments was collected, leaving an unpaid balance of $9,306.36. I. L. Phillips, of New York City, had owned one-fourth of the company's stock and had received $17,139.61 as his distributive dividend. Pursuant to section 280(a) (1) of the Revenue Act of 1926, c. 27, 44 Stat. 9, 61, 26 USCA § 1069(a)(1), the Commissioner sent due notice that he proposed to assess against, and collect from, Phillips the entre r emaining amount of the deficiencies. No notice of such deficiencies was sent to any of the other transferees, and no suit or proceedings for collection was instituted against them. Upon petition by Phillips' executors for a redetermination, the Board of Tax Appeals held that the estate was liable for the full amount. 15 B. T. A. 1218. Its order was affirmed by the United States Circuit Court of Appeals for the Second Circuit. 42 F.(2d) 177. Because of conflict in the decisions of the lower courts¹ a writ of certiorari was granted. 282 U. S. 828, 51 S. Ct. 82, 75 L. Ed. —.

Stockholders who have received the assets of a dissolved corporation may confessedly be compelled, in an appropriate proceeding, to discharge unpaid corporate taxes. Compare Pierce v. United States, 255 U. S. 398, 41 S. Ct. 365, 65 L. Ed. 697. Before the enactment of section 280(a)(1), such payment by the stockholders could be enforced only by bill in equity or action at law. ² Section 280(a)(1) provides that the liability of the transferee for such taxes may be enforced in the same manner as that of any delinquent taxpayer. ³

The procedure prescribed for collection of the tax from a stockholder is thus the same as that now followed when payment is sought directly from the corporate taxpayer. This procedure is now generally known, and some parts of it will later be considered in detail. As applied directly to the taxpayer, its constitutionality is not now assailed. Compare Old Colony Trust Co. v. Commissioner, 279 U. S. 716, 49 S. Ct. 499, 73 L. Ed. 918. But it is contended that to apply it to stockholder transferees violates several constitutional guaranties; that additional obstacles are encountered if it is applied to transfers made before the enactment of section 280(a)(1); that the specific liability here sought to be enforced is governed by the law of Pennsylvania and barred by its statute of limitations; and that, in no event, can the stockholder be held liable for more than his pro rata share of the unpaid corporate tax.

First. The contention mainly urged is that the summary procedure permitted by the section violates the Constitution because it does not provide for a judicial determination of the transferee's liability at the outset. The argu- ment is that such liability (except where a lien had attached before the transfer) is dependent upon questions of law and fact which have heretofore been adjudicated by courts; that to confer upon the Commissioner power to determine these questions in the first instance offends against the principle of the separation of the powers; and that the inherent denial of due process is not saved by the provisions for deferred review in a suit to recover taxes paid, or, in the alternative, for an immediate appeal to the Board of Tax Appeals with the right to review its determination in the courts, because there are limitations and conditions in either method of judicial review.

Section 280(a)(1) provides the United States with a new remedy for enforcing the existing 'liability, at law or in equity.' The quoted words are employed in the statute to describe the kind of liability to which the new remedy is to be applied and to define the extent of such liability. The obligation to be enforced is the liability for the tax. Russell v. United States, 278 U. S. 181, 186, 49 S. Ct. 121, 73 L. Ed. 225; United States v. Updike, 281 U. S. 489, 493, 494, 50 S. Ct. 367, 74 L. Ed. 984. The proceeding is one to collect the revenue. That Congress deemed the section necessary in order to make the tax-collecting system more effective is established, not only by the fact of enactment, but also by the reports of the committees.⁴

The right of the United States to collect its internal revenue by summary administrative proceedings has long been settled.⁵ Where, as here, adequate opportunity is afforded for a later judicial determination of the legal rights, summary proceedings to secure prompt performance of ecun iary obligations to the government have been consistently sustained. Compare Cheatham v. United States, 92 U. S. 85, 88-89, 23 L. Ed. 561; Springer v. United States, 102 U. S. 586, 594, 26 L. Ed. 253; Hagar v. Reclamation District No. 108, 111 U. S. 701, 708-709, 4 S. Ct. 663, 28 L. Ed. 569. Property rights must yield provisionally to governmental need. Thus, while protection of life and liberty from administrative action alleged to be illegal may be obtained promptly by the writ of habeas corpus, United States v. Woo Jan, 245 U. S. 552, 38 S. Ct. 207, 62 L. Ed. 466; Ng Fung Ho v. White, 259 U. S. 276, 42 S. Ct. 492, 66 L. Ed. 938, the statutory prohibition of any 'suit for the purpose of restraining the assessment or collection of any tax' postpones redress for the alleged invasion of property rights if the exaction is made under color of their offices by revenue officers charged with the general authority to assess and collect the revenue.⁶ Snyder v. Marks, 109 U. S. 189, 3 S. Ct. 157, 27 L. Ed. 901; Dodge v. Osborn, 240 U. S. 118, 36 S. Ct. 275, 60 L. Ed. 557; Graham v. Du Pont, 262 U. S. 234, 43 S. Ct. 567, 67 L. Ed. 965. This prohibition of injunctive relief is applicable in the case of summary proceedings against a transferee. Act of May 29, 1928, c. 852, § 604, 45 Stat. 791, 873 (26 USCA § 2604). Proceedings more summary in character than that provided in section 280, and involving less directly the obligation of the taxpayer, were sustained in Murray's Lessee v. Hoboken Land & Improvement Co., 18 How. 272, 15 L. Ed. 372. It is urged that the decision in the Murray Case was based upon the peculiar relationship of a collector of revenue to his government. The underlying principle in that case was not such relation, but the need of the government promptly to secure its revenues.

Where only property rights are involved, mere postponement of the judicial enquiry is not a denial of due process, if the opportunity given for the ultimate judicial determination of the liability is adequate. Springer v. United States, 102 U. S. 586, 593, 26 L. Ed. 253; Scottish Union & National Insurance Co. v. Bowland, 196 U. S. 611, 631, 25 S. Ct. 345, 49 L. Ed. 619. Delay in the judicial determination of property rights is not uncommon where it is essential that governmental needs be immediately satisfied. For the protection of public health, a state may order the summary destruction of property by administrative authorities without antecedent notice of hearing. Compare North American Cold Storage Co. v. Chicago, 211 U. S. 306, 29 S. Ct. 101, 53 L. Ed. 195, 15 Ann. Cas. 276; Hutchinson v. Valdosta, 227 U. S. 303, 33 S. Ct. 290, 57 L. Ed. 520; Adams v. Milwaukee, 228 U. S. 572, 584, 33 S. Ct. 610, 57 L. Ed. 971. Because of the public necessity, the property of citizens may be summarily seized in war-time. Central Union Trust Co. v. Garvan, 254 U. S. 554, 566, 41 S. Ct. 214, 65 L. Ed. 403; Stoehr v. Wallace, 255 U. S. 239, 245, 41 S. Ct. 293, 65 L. Ed. 604; United States v. Pfitsch, 256 U. S. 547, 553, 41 S. Ct. 569, 65 L. Ed. 1084. Compare Miller v. United States, 11 Wall. 268, 296, 20 L. Ed. 135; International Paper Co. v. United States, 282 U. S. 399, 51 S. Ct. 176, 75 L. Ed. 410; Russian Volunteer Fleet Corporation v. United States, 282 U. S. 481, 51 S. Ct. 229, 75 L. Ed. 473. And at any time, the United States may acquire property by eminent domain, without paying, or determining the amount of the compensation before the taking. Compare Kohl v. United States, 91 U. S. 367, 375, 23 L. Ed. 449; United States v. Jones, 109 U. S. 513, 518, 3 S. Ct. 346, 27 L. Ed. 1015; Crozier v. Fried Krupp Aktiengesellschaft, 224 U. S. 290, 306, 32 S. Ct. 488, 56 L. Ed. 771.⁷

The procedure provided in section 280(a)(1) satisfies the requirements of due process because two alternative methods of eventual judicial review are available to the transferee. He may contest his liability by bringing an action, either against the United States or the collector, to recover the amount paid. This remedy is available where the transferee does not appeal from the determination of the Commissioner, and the latter makes an assessment and enforces payment by distraint; or where the transferee voluntarily pays the tax and is thereafter denied administrative relief. Compare United States v. Emery, Bird, Thayer Realty Co., 237 U. S. 28, 31; Wickwire v. Reinecke, 275 U. S. 101, 105, 48 S. Ct. 43, 72 L. Ed. 184; Williamsport Wire Rope Co. v. United States, 277 U. S. 551, 560, 48 S. Ct. 587, 72 L. Ed. 985. Or the transferee may avail himself of the provisions for immediate redetermination of the liability by the Board of Tax Appeals, since all provisions governing this mode of review are made applicable by section 280. Compare Routzahn v. Tyroler (C. C. A.) 36 F.(2d) 208, 209. Thus within sixty days after the Commissioner determines that the transferee is liable...