Sirian Lamp Co. v. Manning

• Decision Date: 24 January 1941
• Citation: 36 F. Supp. 539
• Parties: SIRIAN LAMP CO. v. MANNING, Collector of Internal Revenue.
• Court: U.S. District Court — District of New Jersey

36 F. Supp. 539

SIRIAN LAMP CO. v. MANNING, Collector of Internal Revenue.

District Court, D. New Jersey.

January 24, 1941.

Charles G. Hodgins, of Hackensack, N. J. (Howe P. Cochran, of Washington, D. C., of counsel) for plaintiff.

William F. Smith, U. S. Atty., of Trenton, N. J., Samuel O. Clark, Jr., Asst. Atty. Gen., and Andrew D. Sharpe and Carl J. Marold, Sp. Assts. to Atty. Gen., for the Government.

FORMAN, District Judge.

Plaintiff filed its income tax return for the year 1929 and paid the tax shown to be due thereon. Thereafter, the Commissioner of Internal Revenue assessed a deficiency in tax for the year 1929 in the amount of $8,330.17, together with interest of $2,626.83, or a total of $10,959. The assessment of this deficiency resulted from the inclusion in the plaintiff's income of a single item of $94,440.86, received by plaintiff as a royalty. On July 19, 1938, the plaintiff paid to the defendant, on account of the total assessment of $10,959, the sum of $1,150. On July 20, 1938, the plaintiff filed its claim for refund, demanding the return of the payment of $1,150, which claim was rejected by the Commission on November 21, 1938. Plaintiff alleges that the entire assessment of $10,959 was erroneous, in that the amount of $94,440.84 was not income but the exchange of a capital account, and seeks the adjudication of that issue.

Defendant has filed a motion to dismiss the complaint on the grounds that this court has no jurisdiction to entertain this suit, and that the complaint fails to state a cause of action. The principal grounds of the motion are that, since it appears on the face of the complaint that this is an action to recover a partial payment of an income tax when the payment of the entire tax has not been made, the action is premature and the plaintiff has not satisfied the jurisdictional requisite of making full payment of the tax.

Express statutory guidance in the disposition of this matter is lacking. The relevant statute states that "No suit or proceeding shall be maintained in any court for the recovery of any internal revenue tax alleged to have been erroneously or illegally * * * collected * * * until a claim for refund or credit has been duly filed with the Commissioner * * *." 26 U.S.C.A. Int.Rev.Code, § 3772 (a) (1).

It is a general proposition that under our system of tax collection one must pay first and litigate afterwards. Cheatham v. United States, 92 U.S. 85, 23 L.Ed. 561; State Railroad Tax Cases, 92 U.S. 575, 613, 23 L.Ed. 663. But, since we are more particularly interested in how much one must pay as a condition precedent to litigation, we find that neither the statute nor this proposition is completely dispositive.

In the case of Friebele v. United States, D.C., 20 F.Supp. 492, this court indicated that due to the divisible nature of stamp tax assessments a suit for refund could be maintained without payment of the entire assessment. We specifically pointed out, however, that stamp tax assessments, were distinguishable from income tax and estate tax assessments, and that decisions concerning those types of taxes requiring payment as a condition precedent to litigation were not controlling.

Light is thrown upon the problem in a case decided in our own circuit, Suhr v. United States, 3 Cir., 18 F.2d 81. Therein, suit was brought for the recovery of an alleged overpayment of income taxes when there existed a deficiency assessment against the claimant in excess of the alleged claim for refund. The court stated:

"The fact that plaintiff was entitled to a refund * * * did not give him authority to resort to the courts if he owed the Government any taxes for that year. He was simply entitled to have the overpayment credited against his other tax liability. * * *

"There is no provision for refund to the taxpayer of any excess payment of any installment of part of his tax, if the whole tax for the year has not been paid." 18 F.2d 81, 82.

Our attention has been directed to what the plaintiff construes to be a conflicting decision, Coates v. United States, 111 F.2d 609, decided in the Second Circuit, in which the court states:

"The defendant urges that the district court did not have jurisdiction of the...