Graham v. Du Pont , 43 S. Ct. 567 ( 1923 )

262 U.S. 234 (1923)

GRAHAM, INDIVIDUALLY AND AS FORMER COLLECTOR OF INTERNAL REVENUE, ET AL.
v.
du PONT.

No. 846.

Supreme Court of United States.

Argued April 30, 1923. Decided May 21, 1923. CERTIORARI TO THE CIRCUIT COURT OF APPEALS FOR THE THIRD CIRCUIT.

Mr. Solicitor General Beck, with whom Mr. Nelson T. Hartson and Mr. Chester A. Gwinn were on the briefs, for petitioners.

Mr. William A. Glasgow, Jr., with whom Mr. Henry P. Brown was on the brief, for respondent.

Mr. Solicitor General Beck in reply.

MR. CHIEF JUSTICE TAFT, after stating the case as above, delivered the opinion of the Court.

Section 3224, Rev. Stats., provides that "No suit for the purpose of restraining the assessment or collection of any tax shall be maintained in any court." In Cheatham v. United States, 92 U.S. 85, 88; State Railroad Tax Cases, 92 U.S. 575, 613, and in Snyder v. Marks, 109 U.S. 189, 193, it was said that the system prescribed by the United States in regard to both customs duties and internal revenue taxes, of stringent measures not judicial, to collect them, with appeals to specified tribunals and suits to recover back moneys illegally exacted, was a system of corrective justice intended to be complete, and enacted under the right belonging to the government to prescribe the conditions on which it would subject itself to the judgment of the courts in the collection of its revenues. In the exercise of that right, it declares by § 3224 that its officers shall not be enjoined from collecting a tax claimed to have been unjustly assessed, when those officers, in the course of general jurisdiction over the subject matter in question, have made the assessment and claim that it is valid. This view has been approved in Shelton v. Platt, 139 U.S. 591; in Pittsburgh, etc., Ry. v. Board of Public Works, 172 U.S. 32; in Pacific Steam Whaling Co. v. United States, 187 U.S. 447, 451, 452; in Dodge v. Osborn, 240 U.S. 118, 121, and in Bailey v. George, 259 U.S. 16.

The District Court recognized the sweep of these decisions in respect of the contention of the complainant that the assessment of this tax and the threatened distraint to collect it were barred by limitations under the statute, and was of opinion that as a rule such attacks upon the validity of the tax could only be heard and considered after the tax had been paid in a suit to recover it back. In this view we fully concur.

The District Court, however, thought that an exception to the operation of § 3224 must arise when it appeared, as it held it did appear here, that no provision of law existed by which if the taxpayer when he filed his bill for an injunction had paid the tax assessed, he could bring a suit to recover it back because it would be barred by the statutory limitation of time in which such a suit could be brought.

The court based its conclusion on § 252 of the Revenue Act of 1918, c. 18, 40 Stat. 1085, reenacted in the Revenue Act of 1921, c. 136, 42 Stat. 268, which reads as follows:

"If, upon examination of any return of income made pursuant to. . . the Act of October 3, 1913 . . . it appears that an amount of income . . . tax has been paid in excess of that properly due, then, notwithstanding the provisions of section 3228 of the Revised Statutes, the amount of the excess shall be credited against any income . . . taxes, or installment thereof, then due from the taxpayer under any other return, and any balance of such excess shall be immediately refunded to the taxpayer: Provided, That no such credit or refund shall be allowed or made after five years from the date when the return was due, unless before the expiration of such five years a claim therefor is filed by the taxpayer."

The return was due March 15, 1916. The assessment was made December 31, 1919. The complainant might then have paid the tax and would have had two years in which to make his claim, and if rejected, to sue to recover it back if, as he now submits, § 252 limited his right to pay and sue to recover. Under such a construction and application of § 252, suit must have been brought on or before March 15, 1921. This is what Phellis did (United States v. Phellis, 257 U.S. 156) and there was no question raised as to his right to bring the suit in the Court of Claims to recover back the tax paid by him if it had proved to be illegally assessed and collected. Certainly complainant could not, by delaying his payment until his right to sue to recover it back expired, make a case so extraordinary and entirely exceptional as to render § 3224, Rev. Stats., inapplicable.

If it be said that he was waiting for the Commissioner to act on his claim for abatement of the assessment, it is enough to say that the Commissioner's delay until after the decision of the Phellis Case in November 1921, was due to agreement by the parties. Nor was he prevented from paying the assessment by his claim for abatement.

The cases complainant's counsel rely on do not apply. The cases of Lipke v. Lederer, 259 U.S. 557, and Regal Drug Corporation v. Wardell, 260 U.S. 386, were not cases of enjoining taxes at all. They were illegal penalties in the nature of punishment for a criminal offense. Pollock v. Farmer's Loan & Trust Co., 157 U.S. 429, and Brushaber v. Union Pacific R.R. Co., 240 U.S. 1, were suits by stockholders against corporations to restrain the corporations from paying taxes alleged to be unconstitutional. Hill v. Wallace, 259 U.S. 44, was in part a suit like the foregoing. It was a bill filed by members of the Chicago Board of Trade to prevent the governing board from applying to the Secretary of Agriculture to have the Board of Trade designated as a "contract market" under the Future Trading Act on the ground that the act was unconstitutional and its operation would impair the value of the Board to its members. Without such designation, no member could have sold grain for future delivery without paying a prohibitive tax, and if he sold without paying the tax, he was subjected to heavy criminal penalties. To pay such a tax on each of the many thousands of transactions on the Board, and to sue to recover them back would have been utterly impracticable. It would have blocked the entire future grain business of the country and would have seriously injured not only the members of the Board but also the producing and consuming public. This phase of the situation was so clear that the Government in effect consented to the temporary injunction. See Hill v. Wallace, 257 U.S. 310, s.c. 615. Under these extraordinary and most exceptional circumstances, it was held that § 3224 was not applicable to prevent an injunction against collection of such a prohibitive tax imposed for the purpose of regulating the future grain business with all the unnecessary and disastrous consequences its enforcement would entail if the act was unconstitutional. Hill v. Wallace should, in fact, be classed with Lipke v. Lederer, supra, as a penalty in the form of a tax. Certainly we have no such case here.

This conclusion renders it unnecessary for us to consider whether § 252 of the Revenue Act of 1921, in connection with § 3226, Rev. Stats., as amended by the same Revenue Act of 1921, barred complainant's right to pay the tax and sue to recover it back at the time of filing his bill, as held by the District Court. It is certain that by the amendments to § 252 and § 3226, Rev. Stats., by the Act of March 4, 1923, c. 276, 42 Stat. 1504, the complainant is given the right now to pay the tax, and sue to recover it back, and in such a suit to raise the questions as to the value of the stock and the amount of the resulting tax and also as to the bar of time against the assessment which he attempted to raise in the bill.

The decree of the Circuit Court of Appeals is reversed and the case is remanded to the District Court with directions to dissolve the temporary injunction and to dismiss the bill.

Reversed.