Graham v. Dup Nt

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.