Flora v. United States (362 U.S. 145)/Opinion of the Court

The question presented is whether a Federal District Court has jurisdiction under 28 U.S.C. § 1346(a)(1), 28 U.S.C.A. § 1346(a)(1), of a suit by a taxpayer for the refund of income tax payments which did not discharge the entire amount of his assessment.

This is our second consideration of the case. In the 1957 Term, we decided that full payment of the assessment is a jurisdictional prerequisite to suit, 357 U.S. 63, 78 S.Ct. 1079, 2 L.Ed.2d 1165. Subsequently the Court granted a petition for rehearing. 360 U.S. 922, 79 S.Ct. 1430, 3 L.Ed.2d 1538. The case has been exhaustively briefed and ably argued. After giving the problem our most careful attention, we have concluded that our original disposition of the case was correct.

Under such circumstances, normally a brief epilogue to the prior opinion would be sufficient to account for our decision. However, because petitioner in reargument has placed somewhat greater emphasis upon certain contentions than he had previously, and because our dissenting colleagues have elaborated upon the reasons for their disagreement, we deem it advisable to set forth our reasoning in some detail, even though this necessitates repeating much of what we have already said.

The Facts.

The relevant facts are undisputed and uncomplicated. This litigation had its source in a dispute between petitioner and the Commissioner of Internal Revenue concerning the proper characterization of certain losses which petitioner suffered during 1950. Petitioner reported them as ordinary losses, but the Commissioner treated them as capital losses and levied a deficiency assessment in the amount of $28,908.60, including interest. Petitioner paid $5,058.54 and then filed with the Commissioner a claim for refund of that amount. After the claim was disallowed, petitioner sued for refund in a District Court. The Government moved to dismiss, and the judge decided that the petitioner 'should not maintain' the action because he had not paid the full amount of the assessment. But since there was a conflict among the Courts of Appeals on this jurisdictional question, and since the Tenth Circuit had not yet passed upon it, the judge believed it desirable to determine the merits of the claim. He thereupon concluded that the losses were capital in nature and entered judgment in favor of the Government. 142 F.Supp. 602. The Court of Appeals for the Tenth Circuit agreed with the district judge upon the jurisdictional issue, and consequently remanded with directions to vacate the judgment and dismiss the complaint. 246 F.2d 929. We granted certiorari because the Courts of Appeals were in conflict with respect to a question which is of considerable importance in the administration of the tax laws.

The question raised in this case has not only raised a conflict in the federal decisions, but has also in recent years provoked controversy among legal commentators. In view of this divergence of expert opinion, it would be surprising if the words of the statute inexorably dictated but a single reasonable conclusion. Nevertheless, one of the arguments which has been most strenuously urged is that the plain language of the statute precludes, or at the very least strongly militates against, a decision that full payment of the income tax assessment is a jurisdictional condition precedent to maintenance of a refund suit in a District Court. If this were true, presumably we could but recite the statute and enter judgment for petitioner-though we might be pardoned some perplexity as to how such a simple matter could have caused so much confusion. Regrettably, this facile an approach will not serve.

Section 1346(a)(1) provides that the District Courts shall have jurisdiction, concurrent with the Court of Claims, of

'(1) Any civil action against the United States for the     recovery of any internal-revenue tax alleged to have been      erroneously or illegally assessed or collected, or any      penalty claimed to have been collected without authority or any sum alleged to have been excessive      or in any manner wrongfully collected under the      internal-revenue laws *  *  * .' (Emphasis added.)

It is clear enough that the phrase 'any internal-revenue tax' can readily be construed to refer to payment of the entire amount of an assessment. Such an interpretation is suggested by the nature of the income tax, which is 'A tax * *  * imposed for each taxable year,' with the 'amount of the tax' determined in accordance with prescribed schedules. (Emphasis added.) But it is argued that this reading of the statute is foreclosed by the presence in § 1346(a)(1) of the phrase 'any sum.' This contention appears to be based upon the notion that 'any sum' is a catchall which confers jurisdiction to adjudicate suits for refund of part of a tax. A catchall the phrase surely is; but to say this is not to define what it catches. The sweeping role which petitioner assigns these words is based upon a conjunctive reading of 'any internal-revenue tax,' any penalty,' and 'any sum.' But we believe that the statute more readily lends itself to the disjunctive reading which is suggested by the connective 'or.' That is, 'any sum,' instead of being related to 'any internal-revenue tax' and 'any penalty,' may refer to amounts which are neither taxes nor penalties. Under this interpretation, the function of the phrase is to permit suit for recovery of items which might not be designated as either 'taxes' or 'penalties' by Congress or the courts. One obvious example of such a 'sum' is interest. And it is significant that many old tax statutes described the amount which was to be assessed under certain circumstances as a 'sum' to be added to the tax, simply as a 'sum,' as a 'percentum,' or as 'costs.' Such a rendition of the statute, which is supported by precedent, frees the phrase 'any internal-revenue tax' from the qualifications imposed upon it by petitioner and permits it to be given what we regard as its more natural reading-the full tax. Moreover, this construction, under which each phrase is assigned a distinct meaning, imputes to Congress a surer grammatical touch than does the alternative interpretation, under which the 'any sum' phrase completely assimilates the other two. Surely a much clearer statute could have been written to authorize suits for refund of any part of a tax merely by use of the phrase 'a tax or any portion thereof,' or simply 'any sum paid under the internal revenue laws.' This Court naturally does not review congressional enactments as a panel of grammarians; but neither do we regard ordinary principles of English prose as irrelevant to a construction of those enactments. Cf. Commissioner of Internal Revenue v. Acker, 361 U.S. 87, 80 S.Ct. 144, 4 L.Ed.2d 127.

We conclude that the language of § 1346(a)(1) can be more readily construed to require payment of the full tax before suit than to permit suit for recovery of a part payment. But, as we recognized in the prior opinion, the statutory language is not absolutely controlling, and consequently resort must be had to whatever other materials might be relevant.

Legislative History and Historical Background.

Although frequently the legislative history of a statute is the most fruitful source of instruction as to its proper interpretation, in this case that history is barren of any clue to congressional intent.

The precursor of § 1346(a)(1) was § 1310(c) of the Revenue Act of 1921, in which the language with which we are here concerned appeared for the first time in a jurisdictional statute. Section 1310(c) had an overt purpose unrelated to the question whether full payment of an assessed tax was a jurisdictional prerequisite to a suit for refund. Prior to 1921, tax refund suits against the United States could be maintained in the District Courts under the authority of the Tucker Act, which had been passed in 1887. Where the claim exceeded $10,000, however, such a suit could not be brought, and in such a situation the taxpayer's remedy in District Court was against the Collector. But because the Collector had to be sued personally, no District Court action was available if he was deceased. The 1921 provision, which was an amendment to the Tucker Act, was explicitly designed to permit taxpayers to sue the United States in the District Courts for sums exceeding $10,000 where the Collector had died.

The ancestry of the language of § 1346(a)(1) is no more enlightening than is the legislative history of the 1921 provision. This language, which, as we have stated, appeared in substantially its present form in the 1921 amendment, was apparently taken from R.S. § 3226 (1878). But § 3226 was not a jurisdictional statute at all; it simply specified that suits for recovery of taxes, penalties, or sums could not be maintained until after a claim for refund had been submitted to the Commissioner.

Thus there is presented a vexing situation-statutory language which is inconclusive and legislative history which is irrelevant. This, of course, does not necessarily mean that § 1346(a)(1) expresses no congressional intent with respect to the issue before the Court; but it does make that intent uncommonly difficult to divine.

It is argued, however, that the puzzle may be solved through consideration of the historical basis of a suit to recover a tax illegally assessed. The argument proceeds as follows: A suit to recover taxes could, before the Tucker Act, be brought only against the Collector. Such a suit was based upon the common-law count of assumpsit for money had and received, and the nature of that count requires the inference that a suit for recovery of part payment of a tax could have been maintained. Neither the Tucker Act nor the 1921 amendment indicates an intent to change the nature of the refund action in any pertinent respect. Consequently, there is no warrant for importing into § 1346(a)(1) a full-payment requirement.

For reasons which will appear later, we believe that the conclusion would not follow even if the premises were clearly sound. But in addition we have substantial doubt about the validity of the premises. As we have already indicated, the language of the 1921 amendment does in fact tend to indicate a congressional purpose to require full payment as a jurisdictional prerequisite to suit for refund. Moreover, we are not satisfied that the suit against the collector was identical to the common-law action of assumpsit for money had and received. One difficulty is that, because of the Act of February 26, 1845, c. 22, 5 Stat. 727, which restored the right of action against the Collector after this Court had held that it had been implicitly eliminated by other legislation, the Court no longer regarded the suit as a common-law action, but rather as a statutory remedy which 'in its nature (was) a remedy against the Government.' Curtis's Administratrix v. Fiedler, 2 Black 461, 479, 17 L.Ed. 273. On the other hand, it is true that none of the statutes relating to this type of suit clearly indicate a congressional intention to require full payment of the assessed tax before suit. Nevertheless, the opinion of this Court in Cheatham v. United States, 92 U.S. 85, 23 L.Ed. 561, prevents us from accepting the analogy between the statutory action against the Collector and the common-law count. In this 1875 opinion, the Court described the remedies available to taxpayers as follows:

'So also, in the internal-revenue department, the statute     which we have copied allows appeals from the assessor to the      commissioner of internal revenue; and, if dissatisfied with      his decision, on paying the tax the party can sue the      collector; and, if the money was wrongfully exacted, the      courts will give him relief by a judgment, which the United      States pledges herself to pay.

' * *  * While a free course of remonstrance and appeal is      allowed within the departments before the money is finally      exacted, the general government has wisely made the payment      of the tax claimed, whether of customs or of internal      revenue, a condition precedent to a resort to the courts by      the party against whom the tax is assessed. * *  * If the      compliance with this condition (that appeal must be made to      the Commissioner and suit brought within six months of his      decision) requires the party aggrieved to pay the money, he      must do it. He cannot, after the decision is rendered against     him, protract the time within which he can contest that      decision in the courts by his own delay in paying the money. It is essential to the honor and orderly conduct of the     government that its taxes should be promptly paid, and      drawbacks speedily adjusted; and the rule prescribed in this      class of cases is neither arbitrary nor unreasonable. * *  *

'The objecting party can take his appeal. He can, if the     decision is delayed beyond twelve months, rest his case on that decision; or he can pay the amount      claimed, and commence his suit at any time within that      period. So, after the decision, he can pay at once, and     commence suit within the six months *  *  * .' 92 U.S. at pages      88-89, 23 L.Ed. 561. (Emphasis added.)

Reargument has not changed our view that this language reflects an understanding that full payment of the tax was a prerequisite to suit. Of course, as stated in our prior opinion, the Cheatham statement is dictum; but we reiterate that it appears to us to be 'carefully considered dictum.' 357 U.S. at page 68, 78 S.Ct. at page 1083. Equally important is the fact that the Court was construing the claim-for-refund statute from which, as amended, the language of § 1346(a)(1) was presumably taken. Thus it seems that in Cheatham the Supreme Court interpreted this language not only to specify which claims for refund must first be presented for administrative reconsideration, but also to constitute an additional qualfication upon the statutory right to sue the Collector. It is true that the version of the provision involved in Cheatham contained only the phrase 'any tax.' But the phrase 'any penalty' and 'any sum' were added well before the decision in Cheatham; the history of these amendments makes it quite clear that they were not designed to effect any change relevant to the Cheatham rule; language in opinions of this Court after Cheatham is consistent with the Cheatham statement; and in any event, as we have indicated, we can see nothing in these additional words which would negate the full-payment requirement.

If this were all the material relevant to a construction of § 1346(a)(1), determination of the issue at bar would be inordinately difficult. Favoring petitioner would be the theory that, in the early nineteenth century, a suit for recovery of part payment of an assessment could be maintained against the Collector, together with the absence of any conclusive evidence that Congress has ever intended to inaugurate a new rule; favoring respondent would be the Cheatham statement and the language of the 1921 statute. There are, however, additional factors which are dispositive.

We are not here concerned with a single sentence in an isolated statute, but rather with a jurisdictional provision which is a keystone in a carefully articulated and quite complicated structure of tax laws. From these related statutes, all of which were passed after 1921, it is apparent that Congress has several times acted upon the assumption that § 1346(a)(1) requires full payment before suit. Of course, if the clear purpose of Congress at any time had been to permit suit to recover a part payment, this subsequent legislation would have to be disregarded. But, as we have stated, the evidence pertaining to this intent is extremely weak, and we are convinced that it is entirely too insubstantial to justify destroying the existing harmony of the tax statutes. The laws which we consider especially pertinent are the statute establishing the Board of Tax Appeals (now the Tax Court), the Declaratory Judgment Act, 28 U.S.C.A. § 2201 et seq., and § 7422(e) of the Internal Revenue Code of 1954.

The Board of Tax Appeals.

The Board of Tax Appeals was established by Congress in 1924 to permit taxpayers to secure a determination of tax liability before payment of the deficiency. The Government argues that the Congress which passed this 1924 legislation thought full payment of the tax assessed was a condition for bringing suit in a District Court; that Congress believed this sometimes caused hardship; and that Congress set up the Board to alleviate that hardship. Petitioner denies this, and contends that Congress' sole purpose was to enable taxpayers to prevent the Government from collecting taxes by exercise of its power of distraint.

We believe that the legislative history surrounding both the creation of the Board and the subsequent revisions of the basic statute supports the Government. The House Committee Report, for example, explained the purpose of the bill as follows:

'The committee recommends the establishment of a Board of Tax     Appeals to which a taxpayer may appeal prior to the payment      of an additional assessment of income, excess-profits,      war-profits, or estate taxes. Although a taxpayer may, after     payment of his tax, bring suit for the recovery thereof and thus secure      a judicial determination on the questions involved, he can      not, in view of section 3224 of the Revised Statutes, which      prohibits suits to enjoin the collection of taxes, secure      such a determination prior to the payment of the tax. The     right of appeal after payment of the tax is an incomplete      remedy, and does little to remove the hardship occasioned by      an incorrect assessment. The payment of a large additional     tax on income received several years previous and which may      have, since its receipt, been either wiped out by subsequent      losses, invested in nonliquid assets, or spent, sometimes      forces taxpayers into bankruptcy, and often causes great      financial hardship and sacrifice. These results are not     remedied by permitting the taxpayer to sue for the recovery      of the tax after this payment. He is entitled to an appeal     and to a determination of his liability for the tax prior to      its payment.' (Emphasis added.)

Moreover, throughout the congressional debates are to be found frequent expressions of the principle that payment of the full tax was a precondition to suit: 'pay his tax * *  * then *  *  * file a claim for refund'; 'pay the tax and then sue'; 'a review in the courts after payment of the tax'; 'he may still seek court review, but he must first pay the tax assessed'; 'in order to go to court he must pay his assessment'; 'he must pay it (his assessment) before he can have a trial in court'; 'pay the taxes adjudicated against him, and then commence a suit in a court'; 'pay the tax *  *  * (t)hen *  *  * sue to get it back'; 'paying his tax and bringing his suit'; 'first pay his tax and then sue to get it back'; 'take his case to the district court-conditioned, of course, upon his paying the assessment.'

Petitioner's argument falls under the weight of this evidence. It is true, of course, that the Board of Tax Appeals procedure has the effect of staying collection, and it may well be that Congress so provided in order to alleviate hardships caused by the long-standing bar against suits to enjoin the collection of taxes. But it is a considerable leap to the further conclusion that amelioration of the hardship of prelitigation payment as a jurisdictional requirement was not another important motivation for Congress' action. To reconcile the legislative history with this conclusion seems to require the presumption that all the Congressmen who spoke of payment of the assessment before suit as a hardship understood-without saying-that suit could be brought for whatever part of the assessment had been paid, but believed that, as a practical matter, hardship would nonetheless arise because the Government would require payment of the balance of the tax by exercising its power of distraint. But if this was in fact the view of these legislators, it is indeed extraordinary that they did not say so. Moreover, if Congress' only concern was to prevent distraint, it is somewhat difficult to understand why Congress did not simply authorize injunction suits. It is interesting to note in this connection that bills to permit the same type of prepayment litigation in the District Courts as is possible in the Tax Court have been introduced several times, but none has ever been adopted.

In sum, even assuming that one purpose of Congress in establishing the Board was to permit taxpayers to avoid distraint, it seems evident that another purpose was to furnish a forum where full payment of the assessment would not be a condition precedent to suit. The result is a system in which there is one tribunal for prepayment litigation and another for post-payment litigation, with no room contemplated for a hybrid of the type proposed by petitioner.

The Federal Declaratory Judgment Act of 1934 was amended by § 405 of the Revenue Act of 1935 expressly to except disputes 'with respect to Federal taxes.' The Senate Report explained the purpose of the amendment as follows:

'Your committee has added an amendment making it clear that     the Federal Declaratory Judgments Act of June 14, 1934, has      no application to Federal taxes. The application of the     Declaratory Judgments Act to taxes would constitute a radical      departure from the long-continued policy of Congress (as      expressed in Rev.Stat. 3224 and other provisions) with      respect to the determination, assessment, and collection of      Federal taxes. Your committee believes that the orderly and     prompt determination and collection of Federal taxes should      not be interfered with by a procedure disigned to facilitate      the settlement of private controversies, and that existing      procedure both in the Board of Tax Appeals and the courts      affords ample remedies for the correction of tax errors.'      (Emphasis added.)

It is clear enough that one 'radical departure' which was averted by the amendment was the potential circumvention of the 'pay first and litigate later' rule by way of suits for declaratory judgments in tax cases. Petitioner would have us give this Court's imprimatur to precisely the same type of 'radical departure,' since a suit for recovery of but a part of an assessment would determine the legality of the balance by operation of the principle of collateral estoppel. With respect to this unpaid portion, the taxpayer would be securing what is in effect-even though not technically-a declaratory judgment. The frustration of congressional intent which petitioner asks us to endorse could hardly be more glaring, for he has conceded that his argument leads logically to the conclusion that payment of even $1 on a large assessment entitles the taxpayer to sue-a concession amply warranted by the obvious impracticality of any judicially created jurisdictional standard midway between full payment and any payment.

One distinct possibility which would emerge from a decision in favor of petitioner would be that a taxpayer might be able to split his cause of action, bringing suit for refund of part of the tax in a Federal District Court and litigating in the Tax Court with respect to the remainder. In such a situation the first decision would, of course, control. Thus if for any reason a litigant would prefer a District Court adjudication, he might sue for a small portion of the tax in that tribunal while at the same time protecting the balance from distraint by invoking the protection of the Tax Court procedure. On the other hand, different questions would arise if this device were not employed. For example, would the Government be required to file a compulsory counterclaim for the unpaid balance in District Court under Rule 13 of the Federal Rules of Civil Procedure, 28 U.S.C.A.? If so, which party would have the burden of proof?

Section 7422(e) of the 1954 Internal Revenue Code makes it apparent that Congress has assumed these problems are nonexistent except in the rare case where the taxpayer brings suit in a District Court and the Commissioner then notifies him of an additional deficiency. Under § 7422(e) such a claimant is given the option of pursuing his suit in the District Court or in the Tax Court, but he cannot litigate in both. Moreover, if he decides to remain in the District Court, the Government may-but seemingly is not required to-bring a counterclaim; and if it does, the taxpayer has the burden of proof. If we were to overturn the assumption upon which Congress has acted, we would generate upon a broad scale the very problems Congress believed it had solved.

These, then, are the basic reasons for our decision, and our views would be unaffected by the constancy or inconstancy of administrative practice. However, because the petition for rehearing in this case focused almost exclusively upon a single clause in the prior opinion-'there does not appear to be a single case before 1940 in which a taxpayer attempted a suit for refund of income taxes without paying the full amount the Government alleged to be due,' 357 U.S. at page 69, 78 S.Ct. at page 1083-we feel obliged to comment upon the material introduced upon reargument. The reargument has, if anything, strengthened, rather than weakened, the substance of this statement, which was directed to the question whether there has been a consistent understanding of the 'pay first and litigate later' principle by the interested government agencies and by the bar.

So far as appears, Suhr v. United States, 18 F.2d 81, decided by the Third Circuit in 1927, is the earliest case in which a taxpayer in a refund action sought to contest an assessment without having paid the full amount then due. In holding that the District Court had no jurisdiction of the action, the Court of Appeals said:

'None of the various tax acts provide for recourse to the     courts by a taxpayer until he has failed to get relief from      the proper administrative body or has paid all the taxes      assessed against him. The payment of a part does not confer     jurisdiction upon the courts. * *  * There is no provision for      refund to the taxpayer of any excess payment of any      installment or part of his tax, if the whole tax for the year      has not been paid.' Id., at page 83.

Although the statement by the court might have been dictum, it was in accord with substantially contemporaneous statements by Secretary of the Treasury A. W. Mellon, by Under Secretary of the Treasury Garrard B. Winston, by the first Chairman of the Board of Tax Appeals, Charles D. Hamel, and by legal commentators.

There is strong circumstantial evidence that this view of the jurisdiction of the courts was shared by the bar at least until 1940, when the Second Circuit Court of Appeals rejected the Government's position in Coates v. United States, 111 F.2d 609. Out of the many thousands of refund cases litigated in the pre-1940 period-the Govern-