United States v. Whyel

• Decision Date: 03 August 1928
• Docket Number: No. 3638,3673.,3638
• Parties: UNITED STATES v. WHYEL et al. HEINER, Collector of Internal Revenue, v. HENRY WILHELM CO.
• Court: U.S. Court of Appeals — Third Circuit

28 F.2d 30 (1928)

UNITED STATES v. WHYEL et al.^*

HEINER, Collector of Internal Revenue, v. HENRY WILHELM CO.

Nos. 3638, 3673.

Circuit Court of Appeals, Third Circuit.

August 3, 1928.

In No. 3638:

John D. Meyer, U. S. Atty., and W. J. Aiken, Asst. U. S. Atty., both of Pittsburgh, Pa.

James Walton, of Pittsburgh, Pa., for respondents.

Isaac A. Pennypacker, J. Robert Sherrod and Joseph D. Peeler (Pepper, Bodine, Stokes & Schoch, of Philadelphia, Pa., and Miller & Chevalier, of Washington, D. C., of counsel), amici curiæ.

In No. 3673:

John D. Meyer, U. S. Atty., and W. J. Aiken, Asst. U. S. Atty., both of Pittsburgh, Pa. (A. W. Gregg and I. R. Blaisdell, both of Washington, D. C., of counsel), for plaintiff in error.

Charles E. Young, of Pittsburgh, Pa., for defendant in error.

Before BUFFINGTON, WOOLLEY, and DAVIS, Circuit Judges.

DAVIS, Circuit Judge.

These cases were argued together. While their respective facts differ, they are controlled by the same principle of law and will be disposed of in a single opinion.

In the Whyel Case, the United States brought suit to collect from Harry Whyel and George Whyel, former stockholders of the dissolved Whyel Coal Company and the Whyel Coke Company, additional income and excess profits taxes assessed against the Whyel Coal Company for the calendar year 1918. The company liquidated and surrendered its charter on January 10, 1917. Harry Whyel and George Whyel received all the assets. The return for the coal company was filed with the permission of the collector of internal revenue on October 1, 1919. An additional tax of $37,028.85 was assessed against it on March 22, 1924.

In the case of the Wilhelm Company, a return showing a tax of $64,372.55 was filed for 1917. The return for 1918 showed a tax due of $393.29. On October 1, 1919, the company filed amended returns for those years, claiming that its tax for 1917 was only $37,731.48, instead of $64,372.55, which had been paid, and for 1918 $3,443.01. It filed a return for 1919, showing a tax due the government of $557.24. The result was that the plaintiff company, in its view, had overpaid for the year 1917, but underpaid for 1918, and refused to pay for 1919, and requested that the underpayment of 1918 and the tax for 1919 be credited to it against the overpayment of 1917, and the balance be returned to it. The Commissioner not only refused this request, but stated that plaintiff's true tax liability for 1917 was $76,117.11, instead of $64,372.55, as plaintiff's first return showed, or $37,731.48, as its amended return showed. On October 28, 1925, the Commissioner issued a distress warrant for $3,049.72, which he alleges was due for 1918. This was paid under protest. Again on February 9, 1926, he issued distraint for $557.24, which he claims was due for 1919. This was likewise paid under protest. The company filed a claim for refund of these taxes thus paid, but it was refused, and it thereupon brought suit for the two amounts, $3,049.72 for the year 1918 and $557.24 for 1919, aggregating $3,606.96.

Defendants in error say that the collection of these taxes was illegal, because it was made in each case more than five years after the return was filed, contrary to the limitation provided in section 277 (a) (2) of the Revenue Act of 1924 (26 USCA § 1057 (a) (2); Comp. St. § 6336 1/6zz (4), (a) (2).

The plaintiffs in error, on the contrary, contend that the collection in each case was legal and was in accordance with the provisions of section 278 (d) of the act (26 USCA § 1061; Comp. St. § 6336 1/6zz (5), (d), under which a collection may be made by distraint any time within six years after assessment.

The question is as to which of these two sections control these collections. If 277 (a) (2) does, the collections were illegal, and the judgments should be affirmed; but, if section 278 (d) controls, the collections were legal, and the judgments should be reversed.

Section 277 (a) (2) provides (except as otherwise provided in section 278) that income and excess profits taxes imposed by the Revenue Act of 1918 "shall be assessed within five years after the return was filed, and no proceeding in court for the collection of such taxes shall be begun after the expiration of such period." The distraints and collections, proceeding in court for the collection of these taxes were made and begun more than five years after the returns were filed. They were clearly illegal and barred, if controlled by the limitation provided in this section.

Plaintiffs in error say these collections come within the exception and are controlled by section 278 (d), which provides that, where the assessment is made within the period of five years after the return as provided by section 277, "such tax may be collected by distraint or by proceeding in court, begun within six years after the assessment of the tax." These collections were made within six years after the assessments, and if they are controlled by this section they were clearly legal.

In section 277 (a) (2), both the assessment and the proceeding for the collection of the tax have to occur within five years after the return was filed, but in section 278 (d) only the assessment has to be made within the five years, and the collection by distraint or proceeding may be begun within six years after such assessment.

The difficulty arises over the construction of section 278 (e) (2) of the act (26 USCA § 1062; Comp. St. § 6336 1/6zz (5), (e) (2) which provides that "this section shall not * * * affect any assessment made, or distraint or proceeding in court begun, before the enactment of this act." The plaintiffs in error say the word "affect" means "to lay hold on; to act upon; to produce an effect upon; to impress, influence, or move the mind to; to touch; to change the status of; to act injuriously upon; to invalidate." According to their contention, section 278 (e) (2) does not "act upon," "invalidate," "change the status of," "produce an effect upon" the assessments previously made. "The only effect it produces is the extension of the collection period. It acts upon the collection, not upon the assessment." Defendants in error, on the other hand, say that "affect," as here used, means to "apply to."

Section 278 (e) (1), 26 USCA § 1062, Comp. St. § 6336 1/6zz (5), (e) (1), provides that "this section shall not (1) authorize the assessment of a tax or the collection thereof by distraint or by a proceeding in court if at the time of the enactment of this act such assessment, distraint, or proceeding was barred by the period of limitation then in existence." Subsection (e) (1) does not remove the limitation then existing and authorize an assessment to be made or proceeding to be begun which is already barred, and thus revive a dead cause of action. It is restricted in scope to assessments and collections which are barred and nonexistent. Subsection (e) (2) refers to "any" assessment, distraint or proceeding already begun and not barred. In other words, subsection (e), ...