Proposed Tax Assessment Against the United States Postal Service

April 22, 1977
77-22 MEMORANDUM OPINION FOR THE
ACTING ASSISTANT ATTORNEY GENERAL,
TAX DIVISION
Proposed Tax Assessment Against the United States
Postal Service
This is in response to your request for our opinion as to the available
remedies to resolve a dispute between the Internal Revenue Service
(IRS) and the Postal Service. In our opinion, the question for consider­
ation is the justiciability of a dispute between the IRS and another
executive branch entity regarding Federal taxes to be paid by the latter.
We conclude that there is no reasonable basis to believe that such a
dispute over the allocation of funds between two executive agencies, a
matter that does not concern any adverse private person as a “real
party in interest,” is justiciable. If formally asked this question by the
Postal Service and IRS, we would so respond. Having so concluded,
we see no need for us to consider the question of what administrative
steps must be taken to bring the matter into a litigating posture.
The dispute involves the Airport and Airway Revenue Act of 1970,
which imposes a 5 percent tax on the amount paid for the transporta­
tion of property by air. 26 U.S.C. §4271.1 The tax is imposed upon the
person making the transportation payment subject to the tax. The
legislative history of the statute clearly indicates that the Postal Service
1 T he provision reads in pertinent part as follows:
§ 4271. Imposition o f tax
(a) In general.—T here is hereby imposed, upon the am ount paid w ithin o r w ithout
the U nited States for the taxable transportation . . . of p roperty a tax equal to S
percent o f the am ount so paid for such transportation. T h e tax imposed by this
subsection shall apply only to am ounts paid to a person engaged in the business o f
transporting property by air for hire.
(b) By w hom paid.—
(1) In general.—. . . the tax imposed by subsection (a) shall be paid by the
person making the paym ent subject to tax.
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is subject to the transportation tax,2 and, so far as we are aware, the
Postal Service has not disputed this. The particular issue concerns the
proper computation of the tax. The IRS in Revenue Ruling 74-512
required the Postal Service to pay the 5 percent tax not only on the
line haul charge it pays to air carriers for transportation of mail, etc.,
but also on terminal handling charges, including receipt of mail, load­
ing, unloading, and transfer of mail between planes. The Postal Service
disagrees with this interpretation o f § 4271 and has refused payment of
the tax on the terminal handling charges, although it has apparently
paid the line haul charges.
Section 4291 of Title 26 provides, with certain exceptions, that per­
sons receiving payments for services or facilities subject to tax 3 shall
collect the tax from the person making the payment; but an administra­
tive regulation, Treas. Reg. § 154.2-1(f)(1), provides that in the case of
amounts subject to tax that are paid by the Postal Service, the tax shall
be paid directly to the IR S by the Postal Service as if it were a
collecting agent.4
We understand that the IRS is presently holding in abeyance a
proposed tax assessment of some $10 million against the Postal Service.
The IRS has raised the question whether it may follow its regular
assessment procedure, under which the Postal Service would be re­
quired to pay the tax, claim a refund, and bring suit against the United
States for the refund in order to contest the IRS’ interpretation of
§4271.
The leading case on the issue of justiciability in this context is United
States v. I.C.C., 337 U.S. 426 (1949). The question there was whether
the United States as a shipper was barred from challenging in the
Federal courts an Interstate Commerce Commission order denying the
Government a recovery in damages for the exaction of an allegedly
unlawful railroad rate. Both the Commission and the United States
were made defendants, the latter because of the statutory requirement
that any action to set aside an order of the Commission had to be
2 T h e H ouse C om m ittee report states:
T h e exem ptions for transportation furnished to State and local governm ents, the
U nited States, and nonprofit educational organizations are term inated. R em oving the
exem ption for transportation furnished to the U nited States subjects the Post Office
to the 5 percent property tax o n am ounts it pays for the transportation o f mail by air.
It did not seem appropriate t o continue special exem ptions for these governm ental
and educational organizations since this tax is now generally view ed as a user charge.
In this situation there would appear to be no reason w hy these governm ental and
educational organizations should not pay for their share o f the use o f the airw ay
facilities. H. Rep. No. 601, 91st Cong., 1st Sess., at 46 (1969). A ccord, S. Rep. No.
706, 91st C ong., 2d Sess., at 18 n. 5 (1970).
3 A cco rd in g to Rev. Rul. 74-512, in m ost cases the Postal Service pays an air c arrier to
perform these services.
4 T h e IR S has inform ed us th a t although T reas. Reg. § 154.2—1(f)(1) arguably is con­
tra ry to §4291, in its view, if th e Postal S ervice paid the claimed tax pursuant to this
regulation, the Postal Service w ould not be barred from bringing suit for a refund by the
rule th at a m ere volunteer who p a y s a tax m ay not sue for a refund. T h e refund statutes
and regulations d o not expressly c o v e r this situation. See 26 U.S.C. § 6415.
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brought against the United States. A three-judge district court dis­
missed the case on the ground that the Government could not sue itself.
The Supreme Court reversed in a unanimous opinion, holding that
“courts must look behind names that symbolize the parties to determine
whether a justiciable case or controversy is presented,” at 430. It
viewed the case as one involving controversies of a type that were
traditionally justiciable, stating at 430-431:
The basic question is whether railroads have illegally exacted sums
of money from the United States. Unless barred by statute, the
Government is not less entitled than any other shipper to invoke
administrative and judicial protection. To collect the alleged illegal
exactions from the railroads the United States instituted proceed­
ings before the Interstate Commerce Commission. In pursuit of the
same objective the Government challenged the legality of the
Commission’s action. This suit therefore is a step in proceedings to
settle who is legally entitled to sums of money, the Government or
the railroads. The order if valid would defeat the Government’s
claim to that money. But the Government charged that the order
was issued arbitrarily and without substantial evidence. . . . Con­
sequently, the established principle that a person cannot create a
justiciable controversy against himself has no application here.
In our opinion, the Court’s analysis does not support the position that
the Postal Service and IRS are entitled to judicial resolution of their
dispute. The only significant similarity is that the dispute involves large
sums of money; otherwise, the situations are markedly dissimilar. In
United States v. I.C.C., as the Court noted, “the basic question [was]
whether railroads have illegally exacted sums of money from the
United States”; here the basic question is which of two governmental
entities is entitled to money appropriated by Congress. It is in essence
an interagency dispute. The question of which agency should have the
money is peculiarly inappropriate for judicial determination; we do not
believe that a question of this kind is one that, in the words of the
Court, “involves controversies of a type which are traditionally justicia­
ble.” 337 U.S. at 430.
Subsequent judicial holdings confirm our view. The lower court
decisions following United States v. I.C.C. have interpreted it as up­
holding Federal jurisdiction over a suit by the Government against
itself only if one of the real parties in interest is a truly adverse private
party. United States v. Easement and Right o f Way, 204 F. Supp. 837(D. Tenn. 1962), was a condemnation suit brought by the Tennessee
Valley Authority (TVA) in which it sought to join as a defendant the
Farmers Home Administration (FHA), Department of Agriculture,
which held a mortgage security interest in the land involved. The court
held that this could not be done, stating that “there could not be any
issue between the TV A and the FHA, both being the United States,
which this Court could litigate or adjudicate. Any differences between
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these agencies would at most be interagency disputes which are not
subject to settlement by adjudication.” 204 F. Supp. at 839. A similar
analysis was applied in Ishverlal M adanlal & Co. v. SS Vishva Mangal,
358 F. Supp. 386 (D. N.Y. 1973), a suit brought by the Indian Supply
Mission on behalf of the Indian government against a vessel and its
ow ner (a corporation formed by the merger of a private corporation
and a second corporation wholly owned by the Indian government) for
damage to the cargo. Although the plaintiff was the Supply Mission,
the real party in interest was the cargo insurer. The court held that the
suit .was justiciable. It interpreted United States v. I. C. C. as holding that
the courts should “look to the real parties in interest and to the nature
of the underlying controversy in order to ascertain whether or not
there is a real controversy and jurisdiction exists.” 358 F. Supp. at 390.
The court noted that in U.S. ex rel. Chapman v. F.P.C., 345 U.S. 153(1953), a proceeding by the Secretary of the Interior for judicial review
of an order by the Federal Power Commission, the real party in interest
adverse to the Secretary was a private power company licensed by the
Commission.
In Chapman, the Supreme Court did not discuss the justiciability
issue.5 The only Supreme Court opinion to address this question since
United States v. I.C.C. is United States v. Nixon, 418 U.S. 683 (1974),
which involved quite unusual facts. In Nixon, the Court upheld the
jurisdiction of a Federal district court over the Special Prosecutor’s
attempt to enforce a documentary subpoena directed to President
Nixon, w ho claimed executive privilege. The President argued that
there was no case or controversy because the dispute was solely an
intrabranch dispute between members o f the executive branch. The
Supreme Court rejected this argument, citing United States v. I.C.C.,
and other decisions of the Court.8 It noted that the material was sought
for use in a Federal grand jury proceeding, and that the enforceability
of a subpoena and the claim of a privilege were traditionally justiciable
issues (at 696-697). Moreover, the concrete adverseness necessary to
sharpen the issues was present. See, 418 U.S. at 697. Although the
Special Prosecutor was an agent o f the executive branch, he had been
delegated the authority by the Attorney General to challenge the Presi­
dent’s refusal to produce evidence.
A lthough a number of the cases cited by the Court involved intra­
branch disputes, they provide little guidance, because the Court did not
discuss the issue. See, United States v. Marine Bancorporation, 418 U.S.
5 T h e C o u rt observed that the S ecretary had standing, but it stated that the difference
in view s betw een the members o f the C o u rt precluded a single opinion on this issue, and
that setting out the divergent view s w ould “not further clarification o f this com plicated
specialty o f federal jurisdiction, th e solution o f w hose problem s is in any event m ore o r
less determ ined by the specific circum stances o f individual situations . . . 345 U.S. at
156.
• T h e C o u rt stated (p. 693): “T h e m ere assertion o f a claim o f an ‘intra-branch dispute,’
w ith o u t m ore, has never operated to defeat federal jurisdiction; justiciability does not
depend on such a surface inquiry."
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602 (1974); United States v. Connecticut National Bank, 418 U.S. 656(1974); Powell v. McCormack, 395 U.S. 486 (1969);7 Federal Marine
Board v. Isbrandtsen, 356 U.S. 481, 483 n. 2 (1958); Secretary o f Agricul­
ture v. United States, 347 U.S. 645 (1954); United States ex rel. Chap­
man, supra; I.C.C. v. Jersey City 322 U.S. 503 (1944).
Thus the few cases dealing explicitly with this problem require at a
minimum that there be an issue of the kind traditionally viewed as
justiciable, and also that there be sufficient adverseness to sharpen the
issues. With regard to the adverseness of the parties, the Postal Service,
like the Special Prosecutor in Nixon and the regulatory agencies in­
volved in United States v. I.C.C. and U.S. ex rel. Chapman v. F.P.C.,
has a degree of independence from the executive branch. It is an
“ independent establishment of the executive branch of the Government
of the United States.” 39 U.S.C. §201. [Emphasis added.] It was re­
moved from direct political control,8 and given considerable indepen­
dence in managing its finances.9 It has the authority to sue and be sued
in its official name, 39 U.S.C. §401(1), and, with the prior consent of
the Attorney General, it may employ its own attorneys to conduct its
litigation. 39 U.S.C. § 409(d).
But we do not believe that there is a nongovernmental “real party in
interest” here. Congress intended to apply the tax in §4271 to the
transportation of the mails and other transportation *'furnished to the
United S t a t e s [Emphasis added.]10 We recognize that the individual
users of the mails and of the airports and airways have an interest in the
outcome of this dispute; the mail rates may increase if the Postal
Service’s costs increase, and a decrease in revenues collected under
§4271 might ultimately result in the imposition of a higher rate of tax
on those who use the airports and airways. However, these broad
interest groups are not identifiable individuals or entities like the rail­
roads and private power companies in United States v. I.C.C. and U.S.
ex rel. Chapman, respectively, who were active parties in the agency
7 T he C ourt did reject the argum ent that the case was nonjusticiable because judicial
review w ould im properly interfere w ith the functioning o f the coordinate legislative
branch. 395 U.S. at 548-49.
“ A Board o f G o vernors is appointed by the President for a fixed term . 39 U.S.C. § 202.
These G overnors, not the President, “shall appoint and shall have the pow er to rem ove
the Postm aster G eneral . . [and to fix his] pay and term o f service . . . 39 U.S.C.
§ 202(c). T he G o vernors and the Postm aster G eneral then appoint his D eputy and fix his
term. 39 U.S.C. § 202(d). See H.R. Rep. No. 1104, 91st Cong., 2d Sess. at 11-13 (1970);
H .R D oc. No. 313, 91st Cong., 2d Sess. at 52.
• In enacting the Postal R eorganization A ct, C ongress’ purpose was to authorize the
operation o f the Postal Service in “a business-like w ay.” H.R. Rep. No. 1104, 91st Cong.,
2d Sess. 11 (1970). T he Postal Service Fund is available to the Service w ithout fiscal year
limitation. 39 U.S.C. § 2003. It is required to submit a yearly budget, including a state­
ment o f the am ounts it requests to be appropriated, and the President is required to
include these am ounts “w ith his recom m endations but w ithout revision, in the budget
transm itted to C ongress.” 39 U.S.C. § 2009. It is authorized to “determ ine the character
of, and necessity for, its expenses,” to "determ ine and keep its ow n system o f accounts,”
to "settle and com prom ise claims by o r against it,” and “sue and be sued in its official
nam e." 39 U.S.C. §401.
10 H.R. Rep. No. 601, supra, n. 2.
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and judicial proceedings, vigorously defending their private interests. In
contrast, nearly all citizens use the mails, and of course many individ­
uals and businesses use both the mails and the airports and airways. The
interests represented by both the Postal Service and the IRS are facets
of the public interest, not truly private interests adverse to those of the
Federal Government as a whole.
For the foregoing reasons, it is our opinion that the question here
involved in not susceptible of resolution by the courts.
L eon U lm an
Deputy Assistant Attorney General
Office o f Legal Counsel
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