Simmons Mfg. Co. v. Routzahn

• Decision Date: 16 January 1933
• Docket Number: No. 6011.,6011.
• Citation: 62 F.2d 947
• Parties: SIMMONS MFG. CO. v. ROUTZAHN, Collector of Internal Revenue.
• Court: U.S. Court of Appeals — Sixth Circuit

62 F.2d 947 (1933)

SIMMONS MFG. CO. v. ROUTZAHN, Collector of Internal Revenue.

No. 6011.

Circuit Court of Appeals, Sixth Circuit.

January 16, 1933.

H. D. Palmer, of Cleveland, Ohio (Griswold, Green, Palmer & Kapp, of Cleveland, Ohio, on the brief), for appellant.

J. B. Osmun, of Cleveland, Ohio (Wilfred J. Mahon, of Cleveland, Ohio, and C. M. Charest and Henry L. Young, both of Washington, D. C., on the brief), for appellee.

Before MOORMAN, HICKENLOOPER, and SIMONS, Circuit Judges.

SIMONS, Circuit Judge.

Appellant, a taxpayer, sued at law for the recovery of income, and profit taxes, and, from judgment in favor of the collector, appeals.

The question presented arises from the following facts: Additional income and profit taxes for 1918 were assessed against the taxpayer on March 19, 1924, within the statutory time therefor. A claim for abatement was filed, and on November 19, 1924, rejected. On February 16, 1925, the collector issued a warrant of distraint, but on the taxpayer's promise to furnish a bond refrained from serving it, whereupon the taxpayer, in April, 1925, gave a surety bond running to the collector, reciting the filing of the claim for abatement, and conditioned upon the payment of "such portion of the tax as may be found due and payable"; the taxpayer contending, however, that on the merits of the case no tax was due or payable. The completed return having been filed June 15, 1919, the bond was given after the applicable five-year period of limitation had run. The Revenue Act of 1928 became effective May 29, 1928. Section 607 thereof (26 USCA § 2607) classified as overpayments taxes assessed or paid after the expiration of the period of limitation properly applicable, while section 611 (26 USCA § 2611) made an important exception thereto. The two sections are printed in the margin.¹ On October 19, 1929, and more than one year after the enactment of the 1928 act, another warrant of distraint was issued by the collector, and under its authority the disputed taxes were collected October 21, 1929. Claim for refund seasonably filed was denied. The suit in the District Court against the collector followed. Is the taxpayer prevented from recovering the collection by the giving of the bond?

The taxpayer contends that the collection is a recoverable overpayment within the provisions of section 607, supra; that, even though a claim for abatement was filed, the collection is not within the exception of section 611 because made after one year from the passage of the act; that the bond was not a waiver; that no contractual obligation resulted from it because there was no tax liability at the time it was given, and therefore no consideration to sustain it; that, if the taxpayer had paid the tax instead of giving bond, it could have recovered it back, wherefore the bond can be given no greater effect as a defense than actual payment; that there was no acknowledgment of indebtedness; that there was no subsequent finding of a tax due; and that the bond was given under duress.

The solution of the problem before us is not unattended with difficulty. The precise question has never been answered by the Supreme Court of the United States. It appeared in the cases of Mascot Oil Company, Inc., v. United States (Heiner, Collector, v. Erie Coal & Coke Co.), 282 U. S. 434, 51 S. Ct. 196, 75 L. Ed. 444. In the Mascot Case, the taxpayer made a deposit in escrow with a bank to cover the amount of the tax, but, when the collector demanded payment, it was made by the taxpayer under protest and not from the deposit. In the Heiner Case a bond had been given to secure payment of the tax. The making of the deposit in the former case, and the giving of the bond in the latter, were after the applicable statute of limitations had run, and in each case the taxpayer insisted that the statute had not thereby been waived. The question of waiver was, however, laid aside in both cases because of the circumstance that the collections had been made prior to the passage of the 1928 act, or within one year thereafter, and in consequence the taxpayers were not protected from the operation of section 611 of that act. This, in conformity with the decision in Graham & Foster v. Goodcell, 282 U. S. 409, 51 S. Ct. 186, 192, 75 L. Ed. 415, decided the same day. In the recent case of Gulf States Steel Co. v. United States, 53 S. Ct. 69, 77 L. Ed. ___, decided November 7, 1932, the bond sued upon was given after the period of limitation, but, as it continued the protection afforded by two previous bonds, the first having been given within the period, it is also not decisive. We are therefore left to rely upon reason and analogy rather than upon precedent for the solution of the problem that confronts us.

In United States v. John Barth Co., 279 U. S. 370, 49 S. Ct. 366, 368, 73 L. Ed. 743, the suit was by the United States upon a bond to stay collection given prior to the running of the statute. It was there held that the making of the bond gave the United States a cause of action separate and distinct from an action to collect taxes which it already had, and that the statutes pleaded in bar could not be extended by implication to a suit upon a subsequent and substituted contract. It was also held that, by securing postponement of the collection of the taxes returned, the taxpayer waived the statutory limitation of five years that would have applied had the voluntary return of the taxpayer stood and no bond been given. This was on the ground that the object of the bond was not only to prevent the immediate collection of the tax, but also to prevent the running of time against the government, and it was said: "The taxpayer has obtained his object by the use of the bond, and he should not object to making good the contract by which he obtained the delay he sought." In considering the John Barth Case, it must be noted that suit there was on the bond, and not for collection of taxes as such. In the instant case suit is not brought upon the bond; the taxes having been already collected by distraint. The suit is to recover taxes so collected, and the defense relied upon is the taxpayer's obligation under the bond. The difference, therefore, is in our view not material. There is merely a reversal of parties, and, instead of the United States suing upon the bond, it here asserts the bond as a defense.

If the ruling of the Barth Case is not here to be applied, its denial as authority must be based, not only upon distinguishing circumstances, but upon circumstances which require the application of different principles. The one distinguishing circumstance that seems to be important is the fact that the bond in the Barth Case was given before the running of the statute, and the bond with which we are here concerned was given after the statute had run, and this distinction is urged upon us as conclusive by reason of the fact that in the Barth Case the collector refrained from making a collection which he had authority to make, while here the collector had no authority to make the collection. The tax therefore could have been recovered back, and there was no consideration for the bond.

Evaluation of the above contention necessitates a consideration of the state of the law with respect to the remedies available to the collector at the time the bond was given. The statute applicable to the collection here sought to be recovered is the Revenue Act of 1921. Section 250 (d) of that act (42 Stat. 264) provided that no suit or proceeding for the collection of taxes due thereunder should be begun after the expiration of five years after the date when the return was filed. By reason of the decision of the Court of Claims in Toxaway Mills v. United States, 61 Ct. Cl. 363, it was thought that the period of limitation contained in the 1921 act barred collection by suit only, but did not bar collection by distraint proceedings. It was not until the decision of the Supreme Court in Bowers, Collector, v. New York & Albany Lighterage Company, 273 U. S. 346, 47 S. Ct. 389, 71 L. Ed. 676, decided February 21, 1927, that it was known that the holding of the Court of Claims in the Toxaway Case was erroneous. In the meanwhile, collectors everywhere were enforcing collection of taxes in distraint proceedings after the five-year period of limitation had expired. It was under such circumstances that the warrant in the instant case issued, and the bond was given. There is nothing in the record to indicate bad faith on the part of the collector, and it is to be assumed that he was acting under authority thought by him to be possessed. Nor is there anything in the record to indicate that the taxpayer did not have the same understanding of the law. It was to delay immediate collection by distraint that the bond was given. The taxpayer was relieved of immediate payment, and had attained the object noted in the Barth Case by the use of the bond. We cannot think that under these circumstances there was not sufficient or adequate consideration for that instrument.

Other considerations contribute to this view. The taxpayer had filed a claim for abatement. It is true that it had already been rejected, but the bond recited the filing of the claim, and it seems logical to infer from such recital that the taxpayer intended to pursue its claim by petition for rehearing or some other...