Sweet v. Commissioner of Internal Revenue

• Decision Date: 29 May 1941
• Docket Number: No. 3676.,3676.
• Parties: SWEET et al. v. COMMISSIONER OF INTERNAL REVENUE.
• Court: U.S. Court of Appeals — First Circuit

120 F.2d 77 (1941)

SWEET et al. v. COMMISSIONER OF INTERNAL REVENUE.

No. 3676.

Circuit Court of Appeals, First Circuit.

May 29, 1941.

John T. Noonan and Herrick, Smith, Donald & Farley, all of Boston, Mass. (Oscar A. Schlaikjer and Conrad W. Oberdorfer, both of Boston, Mass., of counsel), for petitioners.

Samuel O. Clark, Jr., Asst. Atty. Gen., and Sewall Key and Warren F. Wattles, Sp. Assts. to Atty. Gen., for the Commissioner of Internal Revenue.

Before MAGRUDER, MAHONEY, and WOODBURY, Circuit Judges.

MAGRUDER, Circuit Judge.

This is an unusual petition, wherein the taxpayers have taken heart from a recent decision of the Supreme Court and seek to reopen an old tax case which was decided against them in 1939. Able briefs have been filed in favor of and in opposition to the petition.

In their joint return for the calendar year 1933 the petitioner Maude W. Sweet and her husband, since deceased, deducted the net losses sustained by the wife upon sales and exchanges of noncapital assets in the taxable year from the net gains of the husband upon like sales and exchanges. The Commissioner disallowed this deduction and on May 22, 1936, gave notice of a deficiency against the taxpayers on the ground that § 23(r) of the Revenue Act of 1932, 47 Stat. 183, 26 U.S.C.A. Int.Rev. Acts, page 493, did not sanction such a deduction. A petition was duly filed before the Board of Tax Appeals asking for a redetermination of the deficiency. On June 30, 1938, the Board entered its decision affirming the Commissioner's determination, and adjudging "that there is a deficiency of $70,816.09 in income tax for 1933". Thereupon the taxpayers petitioned this court for a review of the Board's decision. On March 2, 1939, we affirmed the decision of the Board, Sweet v. Commissioner, 1 Cir., 102 F.2d 103, upon the authority of a case in the Second Circuit, Pierce v. Commissioner, 100 F.2d 397, 121 A.L.R. 647. Thereafter the taxpayers duly applied to the Supreme Court of the United States for a writ of certiorari, but that court, on May 1, 1939, denied the writ. Sweet v. Commissioner, 307 U.S. 627, 59 S.Ct. 829, 83 L.Ed. 1510.

In two later cases, Helvering v. Janney (Gaines v. Helvering), decided December 9, 1940, reported together in 311 U.S. 189, 61 S.Ct. 241, 85 L.Ed. ___, 131 A. L.R. 980, the Supreme Court construed the comparable provision of the Revenue Act of 1934, 48 Stat. 714, 26 U.S.C.A. Int.Rev. Acts, page 664 et seq., in a manner which we may assume to be in square conflict with the interpretation we put upon § 23(r) of the Act of 1932. Because of these later pronouncements the taxpayers seek to reopen a litigation that was supposed to have been finally terminated when the Supreme Court denied their petition for certiorari in May, 1939.

Even apart from special limitations in the revenue act, we probably would have no power to recall our mandate passed down at a previous term. Nachod v. Engineering & Research Corp., 2 Cir., 108 F.2d 594. This is not denied by the taxpayers. Further, they concede that the outstanding mandate of this court, commanding further proceedings in conformity with our decree of affirmance, constitutes an obstacle which now prevents the Board of Tax Appeals from entertaining a motion to reopen and revise its decision. But they assert that this obstacle will be removed if this court grants them leave to file such a motion before the Board. The petition now before us prays such leave. Petitioners invoke as an analogy the filing of a bill of review in the trial court after affirmance of a decree on appeal, pursuant to leave of the appellate court granted at a subsequent term. National Brake & Electric Co. v. Christensen, 254 U.S. 425, 431, 41 S.Ct. 154, 65 L. Ed. 341; In re Gamewell Fire-Alarm Tel. Co., 1 Cir., 73 F. 908.

It is contended by the Government that the matter is controlled by specific provisions of the revenue act. We agree.

Section 272(b) and (h) of the Revenue Act of 1932, 47 Stat. 169, 234-35, 26 U.S. C.A. Int.Rev.Acts, pages 559, 560, reads, with italics added:

"(b) Collection of Deficiency Found by Board. If the taxpayer files a petition with the Board, the entire amount redetermined as the deficiency by the decision of the Board which has become final shall be assessed and shall be paid upon notice and demand from the collector. No part of the amount determined as a deficiency by the Commissioner but disallowed as such by the decision of the Board which has become final shall be assessed or be collected by distraint or by proceeding in court with or without assessment."

"(h) Final Decisions of Board. For the purposes of this title the date on which a decision of the Board becomes final shall be determined according to the provisions of section 1005 of the Revenue Act of 1926."

Again, § 322 of the same act, 47 Stat. 242-43, 26 U.S.C.A. Int.Rev.Acts, page 571, provides (italics added):

"(a) Authorization. Where there has been an overpayment of any tax imposed by this title, the amount of such overpayment shall be credited against any income, war-profits, or excess-profits tax or installment thereof then due from the taxpayer, and any balance shall be refunded immediately to the taxpayer.

* * *

"(c) Effect of Petition to Board. If the Commissioner has mailed to the taxpayer a notice of deficiency under section 272(a) and if the taxpayer files a petition with the Board of Tax Appeals within the time prescribed in such subsection, no credit or refund in respect of the tax for the taxable year in respect of which the Commissioner has determined the deficiency shall be allowed or made and no suit by the taxpayer for the recovery of any part of such tax shall be instituted in any court except —

"(1) As to overpayments determined by a decision of the Board which has become final; and

"(2) As to any amount collected in excess of an amount computed in accordance with the decision of the Board which has become final; and

* * *

"(d) Overpayment Found by Board. If the Board finds that there is no deficiency and further finds that the taxpayer has made an overpayment of tax in respect of the taxable year in respect of which the Commissioner determined the deficiency, the Board shall have jurisdiction to determine the amount of such overpayment, and such amount shall, when the decision of the Board has become final, be credited or refunded to the taxpayer. * * *"

Therefore the case hinges on whether the Board's decision of June 30, 1938, has become "final" within the meaning of the revenue act; if it has, then § 272(b) requires that the amount of the deficiency so determined shall be assessed and shall be paid upon notice and demand from the Collector, and assuming that the deficiency tax has since been paid, § 322(c) expressly forbids the Commissioner to make any credit or refund in respect of the tax for the taxable year in question.

In § 1005(a) of the Revenue Act of 1926, 44 Stat. 110, 111, 26 U.S.C.A. Int. Rev.Acts, page 314 (now 26 U.S.C.A. Int.Rev.Code, § 1140), Congress set out in meticulous detail the dates on which decisions of the Board of Tax Appeals become final. This section is copied in full in the footnote.¹ Section 1005(a) (3) fits the case at bar like a glove. It is there provided that the decision of the Board becomes final "Upon the denial of a petition for certiorari, if the decision of the Board has been affirmed or the petition for review dismissed by the Circuit Court of Appeals." Thus the Board's decision became final when the Supreme Court denied certiorari on May 1, 1939, or perhaps upon the lapse of twenty-five days thereafter, during which period, under the rules of the Supreme Court, the petitioners might have asked for a rehearing. We add this qualification because it might possibly be held that a petition for certiorari is not finally denied within the meaning of § 1005 (a) (3) until the lapse of the brief stated period during which the Supreme Court, by its rules, invites a petition for rehearing. Cf. Ortiz v. Public Service Commission, 1 Cir., 108 F.2d 815, 816.

The important case is Helvering v. Northern Coal Co., 293 U.S. 191, 55 S.Ct. 3, 79 L.Ed. 281, involving an interpretation of § 1005(a) (4) of the Revenue Act of 1926, which provides that a Board decision becomes final "Upon the expiration of thirty days from the date of issuance of the mandate of the Supreme Court, if such Court directs that the decision of the Board be affirmed or the petition for review dismissed." In that case this court had affirmed a decision of the Board holding that there was no collectible deficiency. The Supreme Court affirmed our judgment by an equally divided court and its mandate issued on November 29, 1933. Thereafter, on March 5, 1934, Helvering v. Newport Co., 291 U.S. 485, 54 S.Ct. 480, 78 L.Ed. 929, was decided. Contending that in this case the court decided in the Government's favor the precise question which we had ruled against the Government in Helvering v. Northern Coal Co., the Government on May 21, 1934, filed a petition for rehearing in the latter case. Since this petition was filed at the same term of court, there is no doubt that the Supreme Court ordinarily would have had power to set aside or modify its judgment. But the court held that under § 1005(a) (4) it had no power to entertain a petition for rehearing after the expiration of 30 days from the date of issuance of its mandate.²

In effect, the present petitioners must contend that the Government in the Northern Coal Co. case misconceived its remedy; that instead of applying to the Supreme Court for a rehearing it should have petitioned the Supreme Court for leave to present to the Board of Tax Appeals a motion to reopen and revise its decision. We cannot believe that this would have put the Government in any better case. If the power of the Supreme Court to revise its judgment of affirmance is thus so sharply limited, it would be strange indeed to find that the Board is given...