Union Pac. R. Co. v. Bowers

• Decision Date: 12 March 1928
• Docket Number: No. 208.,208.
• Parties: UNION PAC. R. CO. v. BOWERS, Collector of Internal Revenue.
• Court: U.S. Court of Appeals — Second Circuit

24 F.2d 788 (1928)

UNION PAC. R. CO. v. BOWERS, Collector of Internal Revenue.

No. 208.

Circuit Court of Appeals, Second Circuit.

March 12, 1928.

Before L. HAND, SWAN, and AUGUSTUS N. HAND, Circuit Judges.

AUGUSTUS N. HAND, Circuit Judge (after stating the facts as above).

There is little, if anything, to be added to the opinion of the court below. The plaintiff contends that the statute only contemplated interest upon a deficiency of income tax payments which existed at the time of the examination and audit of the returns by the Commissioner, and says that at the time of such examination the tax had been paid in full, so that there was no deficiency, and could, therefore, be no interest due.

The language of the section applicable is:

"As soon as practicable after the return is filed, the Commissioner shall examine it. If it then appears that the * * * tax is greater or less than that shown in the return, the installments shall be recomputed. * * * If the amount already paid is less than that which should have been paid, the difference * * * (hereinafter called `deficiency'), together with interest thereon at the rate of one-half of 1 per centum per month from the time the tax was due * * * shall be paid upon notice and demand by the collector." (Comp. St. § 6336 1/8tt).

"If it then appears" means appears at the time when the Commissioner makes his examination, but it does not follow that the Commissioner has a right to make his recomputation upon the basis of an amended return filed to correct mistakes. The original return alone has any statutory recognition, and that still showed a "deficiency" of $413,724, in view of the information available at the time the Commissioner made the assessment of $44,475.32, interest due in September, 1925.

It is true that there had meanwhile been a voluntary payment of the sum of $413,724 on June 10, 1925, and the filing of an amended return under the approved practice of the department, and that this payment wiped out the principal of the tax. But it had nothing to do with the basis of the assessment, and was only a credit pro tanto by payment on account of the deficiency which stopped interest running. There is no reason to suppose that the collector could not have refused to receive it, in order to continue interest running upon the deficiency until the Commissioner made his assessment.

That the right to claim large sums of interest covering long periods of time, when the government was not paid its lawful taxes, should depend on a rejection of payments of deficiencies in taxes by willing taxpayers, with all the attendant risks of change of heart, insolvency, or death of the debtor, seems incredible. Nor is an interpretation of the section reasonable which would enable a taxpayer, the incorrectness of whose return is first disclosed to him by a government inspection, to pay his deficiency at the eleventh hour and thus deprive the government of interest, by coming out ahead in a race with the Commissioner. There would be a great temptation to hold back in all doubtful cases, and make voluntary payments at the last minute, in order to avoid paying interest.

It is no answer to the foregoing to say that, under the Revenue Acts prior to 1921, the interest ran upon a deficiency only from the date of assessment notice and demand by the collector, and that such was the settled practice of the department. Kentucky Jockey Club v. Lucas (D. C.) 14 F.(2d) 339. The act of 1918 (40 Stat. 1057), like the act of 1921, and unlike the former acts, made the taxpayer's computation of the tax sufficient notice of the amount, and the instructions printed on the return sufficient demand for payment. But none of the prior acts contained any provision for interest upon a deficiency, even when discovered by a bureau audit, unless, as was not the case here, the...