United States v. Shipley

• Decision Date: 12 June 1912
• Docket Number: 1 (1,507).
• Citation: 197 F. 265
• Parties: UNITED STATES v. SHIPLEY.
• Court: U.S. Court of Appeals — Third Circuit

197 F. 265

UNITED STATES v. SHIPLEY.

No. 1 (1,507).

United States Court of Appeals, Third Circuit.

June 12, 1912

J. Y Brinton, Asst. U.S. Atty., of Philadelphia, Pa., and J Whitaker Thompson, U.S. Atty., for the United States.

Edward W. Evans, of Philadelphia, Pa., and Walter Penn Shipley, for defendant in error.

Before GRAY and BUFFINGTON, Circuit Judges, and BRADFORD, District judge.

GRAY Circuit Judge.

This is an appeal from the decision of the United States District Court for the Eastern District of Pennsylvania, in favor of the defendant in error, the plaintiff below, in a suit for the refunding of taxes under the provisions of section 3, Act June 27, 1902 (32 Stat. 406), directing the Secretary of the Treasury to refund taxes paid on contingent beneficial interests not vested prior to July 1, 1902.

The plaintiff below is the surviving executor of the will of Thomas P. Cope, of Philadelphia, who died October 22, 1900. By his will, the testator bequeathed to his widow an annuity during her life, together with all his real estate for her life, and gave the remainder of his estate to his children in equal shares, two of these shares being given in trust. The income from the personal estate was insufficient to pay the annuity, and a portion of the principal was required each year for that purpose. Under the War Revenue Act of June 13 1898, imposing a tax upon legacies, the Internal Revenue Department, on October 10, 1901, claimed and collected from the plaintiff a tax upon the shares of the testator's children in his personal estate, the aggregate value of these shares being taken to be the value of the total personal estate, less the value of the widow's life interest. Section 3 of the act of June 27, 1902, above referred to, providing for the refunding of taxes paid on the interest not vested prior to July 1, 1902, is as follows:

'Sec. 3. That in all cases where an executor, administrator or trustee shall have paid, or shall hereafter pay any tax upon any legacy or distributive share of personal property under the provisions of the act approved June thirteenth, eighteen hundred and ninety-eight, entitled, 'An act to provide ways and means to meet war expenditures, and for other purposes,' and amendments thereof, the Secretary of the Treasury be, and he is hereby authorized and directed to refund out of any money in the Treasury not otherwise appropriated, upon proper application being made to the Commissioner of Internal Revenue, under such rules and regulations as may be prescribed, so much of said tax as may have been collected on contingent beneficial interests which shall not have become vested prior to July first, nineteen hundred and two. And no tax shall hereafter be assessed or imposed under said act approved June thirteenth, eighteen hundred and ninety-eight, upon or in respect of any contingent beneficial interest which shall not become absolutely vested in possession or enjoyment prior to said July first, nineteen hundred and two.'

Under the provisions of this section, the plaintiff, on May 4, 1908, presented a claim to the Internal Revenue Department for a refund of this tax paid on the shares of the testator's children, but the claim was refused, except as to the sum of $63.23, assessed upon the capital of the two trust shares, on the ground that the executors had no authority under the will for retaining the entire personal estate during the life of the widow, to pay her annuity (the same having been so retained by order of the orphans' court of Philadelphia), but should have purchased an annuity, and that therefore the entire estate, over and above the personal effects bequeathed to the widow and the value of her annuity, should have been treated as divided among the six children, the shares of four of them vesting absolutely and the shares of two vesting as life estates.

Suit was accordingly brought in the court below by the plaintiff, on June 26, 1908, under the 'Tucker' Act (authorizing such suits in the District Courts of the United States) for the refund of the taxes so paid and alleged to fall within the provisions of section 3 of the Refunding Act, as above recited. The demurrer by the government to the statement of claim was overruled by the court below and judgment thereon entered in favor of the plaintiff for the amount of tax claimed to be refunded. It is not contended by the counsel for the government that the taxes so collected were not properly within the classification of taxes required to be refunded by the said act, as being contingent beneficial interests which did not become vested prior to July 1, 1902, and the decision of the court below was not questioned upon its merits, but upon two propositions covered by the assignments of error:

(1) That section 3 of the said Refunding Act, upon which plaintiff's claim is based, confers upon the Secretary of the Treasury exclusive jurisdiction to determine who are entitled to its benefits, and that such determination is not reviewable in the court below or in this court.

(2) That any claim which the plaintiff may have had against the said defendant cannot now be maintained, for the reason that, as appears from the plaintiff's statement of claim, the same was not presented to the Commissioner of Internal Revenue within two years next after the alleged cause of action accrued, as required under the provisions of Act June 6, 1872, c. 315, 17 Stat. 257, Rev. St. Sec. 3228 (U.S Comp. St. 1901, p. 2089).

In support of the first proposition, it is argued by the counsel for the government that section 3 of the Refunding Act itself provides for the determination of all questions as to the right to claim a refund under its provisions, and that a discretionary or quasi judicial function is conferred upon the Secretary of the Treasury or the Treasury Department in that respect. The language of the Act relied upon is as follows:

'The Secretary of the Treasury be and he is hereby authorized and directed to refund * * * upon proper application being made to the Commissioner of Internal Revenue, under such rules and regulations as may be prescribed, so much of said tax as may have been collected on contingent beneficial interests which shall not have become vested prior to July 1st, 1902.'

Undoubtedly this language confers upon the Secretary of the Treasury authority to prescribe such rules as may be necessary and proper to secure orderly procedure under the provisions of the act, but we cannot think that more than this was included in the legislative intent. The language of one or two cases relied upon by counsel for the government may seem to support their contention. Nevertheless, we think they may clearly be distinguished in principle from the case at bar. One of these cases-- United States v. Black, 128 U.S. 40, 9 Sup.Ct. 12, 32 L.Ed. 354-- was a case where it was held that the court below had no right, by mandamus, to compel the Commissioner of Pensions to reverse his decision disallowing an application for an increase of pension under certain statutes passed in regard to such increase, and issue the pension applied for. The court held that the act sought to be thus controlled was an executive act, involving executive discretion, and as such not to be controlled by the writ of mandamus. The court goes on to say, however, that if the decision of the Commissioner is overruled by the Secretary of the Interior, on the ground that the applicant comes under the meaning of the law granting the increase, the pensioner is entitled to a rule upon the Commissioner to show cause why a writ of mandamus should not issue to compel him to obey the decision of the Secretary. The interesting opinion of Mr. Justice Bradley in this case is confined to a discussion of the principle upon which mandamus will issue to compel the performance of a merely ministerial duty imposed by law, and the court's want of power to interfere with the action of an executive officer, where he is invested with discretion as to what that action should be, illustrating the distinction by stating that when such an officer refuses to act at all in the exercise of the discretion imposed on him by law, mandamus may issue to compel him to exercise such discretion. In the case before us, the duty imposed upon the Secretary of the Treasury by the Refunding Act is a direct and positive one to refund all taxes collected on certain interests which shall not have become vested prior to a certain date. The duty imposed upon the Secretary is ministerial, and not executive or quasi judicial. Certain persons who paid such taxes as are designated in the act were vested with the right to have them refunded by the government. The act was an act of grace and bounty on the part of the government, while those entitled to it were entitled to it by law, and the Secretary of the Treasury, as custodian of the funds from which such bounty was to be paid, was not empowered by any discretion vested in him by law to refuse the same, or to diminish or impair its value.

Ferry v. United States, 85 F. 550, 29 C.C.A. 345, is another case cited by the plaintiff in error. Suit in that case was brought under Revised Statutes, Sec. 2984 (U.S. Comp. St. 1901, p. 1958), authorizing the Secretary of the Treasury, upon the production of satisfactory proof to him of the actual injury or destruction of merchandise while in the custody of customs officers, etc., to abate or refund the amount of duties paid or accrued thereon. Judge Taft, in delivering the opinion of the Circuit Court of Appeals, said the section referred to--

'Gave the Secretary of the Treasury authority to hear and determine claims for refunds coming within this section. * * * In the case at bar he (the Secretary) rendered his decision that, on...