262 U.S. 234
43 S.Ct. 567
67 L.Ed. 965
Argued April 30, 1923.
Decided May 21, 1923.
This is a proceeding by certiorari to review the action of the Circuit Court of Appeals of the Third Circuit in affirming on appeal a temporary injunction granted by the District Court of Delaware restraining the then Collector of Internal Revenue for the District of Delaware from levying a distraint against the property of the complainant, Alfred I. Dupont, to collect the sum of $1,576,015.06 assessed against him by the Commissioner of Internal Revenue.
In a reorganization of a Dupont Powder Company of New Jersey and the organization of a new Dupont Powder Company of Delaware to take over many of the assets of the old company, the complainant in the year 1915 received 75,534 shares of the common stock of the Delaware company of the par value of $100 each. The transaction was the subject of consideration by this court in United States v. Phellis, 257 U. S. 156, 42 Sup. Ct. 63, 66 L. Ed. 180, where it was determined that shares in the Delaware company received by stockholders of the New Jersey company, as the complainant received his, at the rate of two in the Delaware company in exchange for one in the New Jersey company, was a separation of past accumulation of profits from the capital of the New Jersey company and a distribution to the stockholders, and thus constituted taxable income under the Income Tax Law of 1913 (38 Stat. 114).
The complainant filed a return and an amended return in March, 1916, of his income for the year 1915, in which he did not include these shares. In November, 1917, the department began an investigation into the liability of the complainant to pay an income tax on his shares of stock in the Delaware company and finally ordered an assessment of $1,576,015.06. The complainant was notified of this assessment made December 31, 1919. He replied the next day that as his return for 1915 was filed before March 15, 1916, and as the law required any assessment for additional amount to be made within three years, and that period had expired, the assessment and demand for payment were illegal. On February 2, 1920, a hearing was granted to counsel for complainant by the Commissioner of Internal Revenue.
On March 8, 1920, complainant filed a claim for the abatement of the assessment of $1,576,051.06 as void, because made after the limitation of three years had expired, and because the tax was on something that was not income under the law.
Thereafter by agreement between the stockholders similarly situated, one stockholder, Phellis, paid the tax due under a similar assessment and brought suit in the Court of Claims to recover it. Counsel for the complainant herein took part in the argument of that case. The Court of Claims gave judgment against the United States, but on appeal the judgment was reversed. The opinion of the court was handed down November 21, 1921. All claims for abatement had been held and not decided by the Commissioner under an agreement with the counsel in the Phellis Case. Thereafter the Commissioner rejected complainant's claim for abatement. The bill of complainant was filed January 30, 1922. The District Court granted the temporary injunction. The Circuit Court of Appeals on appeal affirmed the temporary injunction for the reasons stated in the opinion of the District Court.
Mr. Solicitor General Beck, of Washington, D. C., for petitioner.
[Argument of counsel from pages 238-240 intentionally omitted]
Mr. Wm. A. Glasgow, Jr., of Philadelphia, Pa., for respondent.
[Argument of Counsel from pages 241-254 intentionally omitted]
Mr. Chief Justice TAFT delivered the opinion of the Court.
Section 3224, Revised Statutes (Comp. St. § 5947), 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, 23 L. Ed. 561; State Railroad Taxes, 92 U. S. 575, 613, 23 L. Ed. 663, and in Snyder v. Marks, 109 U. S. 189, 193, 3 Sup. Ct. 157, 27 L. Ed. 901, 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 paragraph 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. Plate, 139 U. S. 591, 11 Sup. Ct. 646, 35 L. Ed. 273, in Pittsburg Ry. v. Board of Public Works, 172 U. S. 32, 19 Sup. Ct. 90, 43 L. Ed. 354, in Pacific Whaling Co. v. United States, 187 U. S. 447, 451, 452, 23 Sup. Ct. 154, 47 L. Ed. 253, in Dodge v. Osborn, 240 U. S. 118, 121, 36 Sup. Ct. 275, 60 L. Ed. 557, and in Bailey, Collector, v. George, 259 U. S. 16, 42 Sup. Ct. 419, 66 L. Ed. 816.
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 section 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 section 252 of the Revenue Act of 1918 (40 Stat. 1085, c. 18 [Comp. St. Ann. Supp. 1919, § 6336 1/8 uu]), re-enacted in the Revenue Act of 1921 (42 Stat. pt. 1, p. 268, c. 136), 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, R. S., the amount of the excess shall be credited against any income * * * taxes, or installments thereof, then due from the tax payer under any other return, and any balance of such excess shall be immediately refunded to the tax payer: 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 tax payer.'
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, section 252 limited his right to pay and sue to recover. Under such a construction and application of section 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, 42 Sup. Ct. 63, 66 L. Ed. 180), 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 section 3224, Revised Statutes, 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 tha 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, 42 Sup. Ct. 549, 66 L. Ed. 1061, and Regal Drug Corporation v. Wardell, 260 U. S. 386, 43 Sup. Ct. 152, 67 L. Ed. ——, decided December 11, 1922, were not cases of enjoining taxes at all. They were illegal penalties in the nature of punishment for a criminal offense. Pollock v. Farmers' Loan & Trust Co., 157 U. S. 429, 15 Sup. Ct. 673, 39 L. Ed. 759, and Brushaber v. Union Pacific R. R. Co., 240 U. S. 1, 36 Sup. Ct. 236, 60 L. Ed. 493, Ann. Cas. 1917B, 713, L. R. A. 1917D, 414, were suits by stockholders against corporations to restrain the corporations from paying taxes alleged to be unconstitutional. Hill v. Wallace, 259 U. S. 44, 42 Sup. Ct. 453, 66 L. Ed. 822, 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 (42 Stat. 187), 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, 42 Sup. Ct. 168, 66 L. Ed. 253, Id., 257 U. S. 615, 42 Sup. Ct. 96, 66 L. Ed. 398. Under these extraordinary and most exceptional circumstances, it was held that section 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, 259 U. S. 557, 42 Sup. Ct. 549, 66 L. Ed. 1061, 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 section 252 of the Revenue Act of 1921, in connection with section 3226, Revised Statutes, as amended by the same Revenue Act of 1921 (42 Stat. 314, § 1318), 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 section 252 and section 3226, Revised Statutes, by the Act of March 4, 1923 (Public No. 527), 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.