United States v. Dalm/Dissent Stevens

Justice STEVENS, with whom Justice BRENNAN and Justice MARSHALL join, dissenting.

This is not a decision that will be much celebrated or often cited. Few cases are affected, and not a single brief amicus curiae was filed. The Court reserves in a footnote an issue that would render obsolete its holding. The case casts a shadow on the Executive-and on this Court-but otherwise has no apparent importance.

Indeed, the Court's opinion is remarkable not at all for what it says but rather for what it leaves unsaid. The majority's passing of sovereign immunity and jurisdiction masks what is the ultimate question before us: whether a statute of limitations otherwise barring a refund of federal income tax is tolled by Government conduct that this Court has censured as "immoral" and tantamount to "a fraud on the taxpayer's rights." See Bull v. United States, 295 U.S. 247, 261, 55 S.Ct. 695, 700, 79 L.Ed. 1421 (1935). The Court today offers a jurisdictional apology when it could-and should-follow the just rule of the Bull case.

* This case is remarkably similar to its 55-year-old precursor. The Bull case involved an attempt by the Government to collect income tax on partnership distributions received by the estate of a deceased partner. The Commissioner of Internal Revenue had already collected an estate tax on the distributions on the assumption that they constituted part of the estate corpus. The Commissioner contended, first, that the same transactions could constitute both corpus and income and thus be subject to both an estate tax and an income tax, and, second, that, in any event, the statute of limitations barred a recovery of the estate tax. This Court rejected the Commissioner's first argument, and characterized as follows his claim that the Government could retain the estate tax while collecting a second tax on the same transaction pursuant to an inconsistent theory: "The United States, we have held, cannot, as against the     claim of an innocent party, hold his money which has gone      into its treasury by means of the fraud of its agent.  United      States v. State Bank, 96 U.S. 30 [24 L.Ed. 647].  While here      the money was taken through mistake without any element of      fraud, the unjust retention is immoral and amounts in law to      a fraud on the taxpayer's rights." 295 U.S., at 261, 55     S.Ct., at 700.

This case involves an equally unjust retention of a previously paid tax. The Government has collected an income tax on a transfer of $180,000 to respondent while retaining the gift tax previously paid on the same transfer. The Court's decision assumes, as the summary judgment record requires, that when the Government compromised its claim for an income tax deficiency, it allowed respondent no credit for the gift tax that had previously been paid. Thus, the critical fact that made the Government's position in Bull immoral is present here: a single taxable event has been subjected to two taxes on mutually inconsistent theories.

Even with the parallel between Bull and this case clearly in mind, most readers of the majority's opinion must wonder how this case ever came before our Court, and why the majority must recite so much law to decide it. According to the majority, respondent chose to litigate in the Tax Court the deficiency assessed against her, and, having made this choice, cannot "then seek to reopen the matter and override the statute of limitations for the sole purpose of seeking recoupment." Ante, at 611. This may seem fair enough, but also plain enough: A legal claim that might have been settled in an earlier proceeding is usually barred by rules of claim preclusion. If the claim is not barred by the settlement agreement in this case, then surely the Government can-without any help from this Court-avoid such problems in the future by drafting its settlement agreements more carefully. There is accordingly no justification for the Court's exercise of certiorari jurisdiction in this case, a discretionary act which has done nothing more useful than deprive the twice-taxed respondent in this case of a remedy for a wrong done by the Government.

Two facts explain why the Government does not rely on principles of claim preclusion as a defense in this case. The first is this: It is undisputed by the parties to this case that the Tax Court lacked jurisdiction to consider recoupment of the gift tax payment against the income tax deficiency. According to the Government, respondent cannot, and for that reason did not, raise her equitable recoupment claim in the Tax Court: "respondent's choice of the Tax Court forum precluded her from claiming equitable recoupment against the income tax deficiency." Reply Brief for United States 6. The Government acknowledges that respondent may have had a sound claim for recoupment, but insists that to pursue this claim she should have "paid the 1976 and 1977 income tax deficiencies and then brought a timely refund suit in district court or the Claims Court." Id., at 3-4.

The second fact is this: an affluent taxpayer, but not a less fortunate one, can pay a deficiency assessment and file suit for a refund. It is undisputed that if respondent had the means to do so, she could have recovered the gift tax that had been paid in 1976 by a refund action filed after she received the notice of income tax deficiency in 1983, even though the statute of limitations had long since run. One might infer from the posture of this case-as respondent's counsel represented to the Court-that respondent's limited means foreclosed this avenue of relief for her. She therefore challenged the deficiency in the Tax Court.

These two facts explain what the majority does not: why we are not addressing a simple case of res judicata. It is clear that the basis for respondent's equitable recoupment claim did not exist until it was determined that the payment made in 1976 was taxable as income. Thus, respondent could apparently obtain a forum to hear her equitable recoupment claim only by seeking a refund of the previously paid gift tax-an action which all agree was barred by limitations when respondent received the notice of deficiency in 1983.

When that determination was made-that is to say, when the income tax case was settled-respondent promptly asserted her recoupment claim in the only forum available. Indeed, she filed her claim for a gift tax refund even before the settlement agreement was consummated. In view of the fact that the character of the 1976 transaction remained in dispute until the claim was filed, none of the policy reasons that normally support the application of a statute of limitations is implicated by this case.

The Court nevertheless denies respondent the relief devised by the Bull Court. Ignoring both the policies underlying the statute of limitations and the principles of just conduct underlying Bull, the Court confronts respondent with the majestic voices of "jurisdiction" and "sovereign immunity"-voices that seem to have a haunting charm for this Court's current majority.

The Court that decided the Bull case reasoned not in obeisance to these siren-like voices but rather under the reliable guidance of a bright star in our jurisprudence: the presumption that for every right there should be a remedy. See Marbury v. Madison, 5 U.S. (1 Cranch) 137, 162-163, 2 L.Ed. 60 (1803). Without any sacrifice of technical propriety, the Bull Court could have found that the lapse of time had divested the Court of Claims of jurisdiction to allow the taxpayer credit for the previously paid estate tax. It easily avoided that unjust result, however, by relying on the special features of the tax collection procedures that impose burdens on the taxpayer unlike those imposed on ordinary litigants. The net effect of its analysis was to hold that in a refund action based on the multiple and inconsistent taxation of a single transaction, the taxpayer is to be treated as though she were the defendant even though she is actually the plaintiff.

I would adopt the same course in this case. By initiating a proceeding to recover income tax based on the 1976 payment, the Government waived the time bar that would otherwise have precluded a claim for refund of the gift tax. Had respondent paid the deficiency and asserted the claim for a gift tax refund as a second count in one action, even this Court would agree that the claim was timely. If we adopt the Court's reasoning in Bull, it is proper to treat the second count of the refund action as timely even when the income tax issues are litigated before the Tax Court, because the deficiency assessment was sufficient to put in issue the right to recoupment and to justify treating the taxpayer as a defendant, rather than a plaintiff. If it was not too late for the Government to litigate the tax consequences of the 1976 payment, it should not be too late for the taxpayer to do so. "A different result here [is] a reproach to our jurisprudence." United States v. State Bank, 96 U.S. 30, 36, 24 L.Ed. 647 (1878).

It may reasonably be said that the disposition in Bull involved an unusually flexible treatment of legal categories. The rights of a plaintiff are construed by reference to the status of a defendant so as to permit, in effect, the equitable tolling of a limitations period. A doctrinal innovation that appears imaginative may, however, be nothing more than the necessary expression of an exception to a generally appropriate definition. This particular exception deserves the status of a legal rule by virtue of our decision in Bull. There is no reason to retreat from the direction of that precedent today.

There is, moreover, nothing especially sober or unflinching about the majority's disposition of this case. Quite the contrary is true. The majority's approach depends upon showing that this Court is constrained by tightly drawn jurisdictional boundaries, but, as the majority concedes, the relevant jurisdictional statute speaks in "spacious terms." Ante, at 601. Indeed, the statute confers jurisdiction not only over 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," but also over any such action to recover "any sum alleged to have been excessive or in any manner wrongfully collected under the internal revenue laws." 28 U.S.C. § 1346(a)(1) (1982 ed.).

The majority correctly recognizes that this blanket waiver of immunity can be converted into a jurisdictional straitjacket only by recourse to limitations spelled out elsewhere. The majority would find these limitations in § 7422 and § 6511(a) of the Internal Revenue Code. The first of these provisions stipulates that no tax refund suit "shall be maintained . . . until a claim for refund or credit has been duly filed with the Secretary, according to the provisions of law in that regard, and the regulations of the Secretary established in pursuance thereof." 26 U.S.C. § 7422(a) (1982 ed.). The second provision establishes a statute of limitations applicable to actions for refund of taxes paid by filing a return or by means of a stamp. 26 U.S.C. § 6511(a) (1982 ed.). It is the latter of these two provisions which gives the majority the shackles it seeks: the statute of limitations in § 6511(a) is a provision of law that, under § 7422(a), restricts the capacity of taxpayers to maintain suits. Denominating respondent's suit an action for refund of overpaid gift tax, the majority declares there can be "no doubt" that the combined operation of § 7422(a) and § 6511(a) strips the federal courts of the jurisdiction otherwise accorded by 28 U.S.C. § 1346(a)(1) (1982 ed.) over the recoupment suit.

I have no doubt that § 6511 prescribes the statute of limitations applicable to actions for the refund of overpaid gift tax, and that, if this were such an action, the section would at least support the majority's argument. This suit is not, however, technically a suit for the refund of overpaid gift tax within the meaning of § 6511(a). The gravamen of respondent's claim is not that the gift tax was overpaid, but that it was unjustly retained. According to the Bull Court, "[w]hile here the money was taken through mistake without any element of fraud, the unjust retention is immoral and amounts in law to a fraud on the taxpayer's rights." 295 U.S., at 261, 55 S.Ct., at 700. In my opinion, a sum fraudulently retained under the internal revenue laws is an amount included within § 1346(a)(1)'s provision for recovery of "any sum . . . in any manner wrongfully collected under the internal-revenue laws." The jurisdictional grant expressly distinguishes such wrongfully collected sums from those sums which are simply "excessive," and from taxes "erroneously or illegally assessed or collected." These latter phrases would appear to cover actions for refund of an overpaid gift tax, but the payment fraudulently retained in this case is better characterized as a "sum . . . wrongfully collected." Likewise, § 6511(a) by its express terms applies only to actions for refund of an "overpayment of any tax" paid by means of a return or a stamp. It is odd to speak of the overpayment of a fraud, and one is not ordinarily required to file a return in order to be defrauded-even when the sovereign is the malefactor. I conclude that, technically speaking, this action is one for the recoupment of tax wrongfully collected because fraudulently retained, and not for the refund of tax overpaid. The plain language of § 1346(a)(1) accords jurisdiction over respondent's suit, and the terms of § 6511(a) do not divest it. The majority's affection for plain language seems to end where its devotion to sovereign immunity begins.

The majority is able to complete its argument only by inventing a small, but blatant, fiction: that respondent is bringing a suit for the refund of overpaid gift tax within the meaning of 26 U.S.C. § 6511(a) (1982 ed.). This minor fiction is then conscripted by the majority's strategy to serve the vainest of all legal fictions, the doctrine of sovereign immunity. The doctrine has its origin in the ancient myth that the "[K]ing can do no wrong." See 1 W. Blackstone, Commentaries * 238. Whatever might be said in favor of this polite falsehood in English law, the doctrine is an anomalous import within our own. See Nevada v. Hall, 440 U.S. 410, 414-415, 99 S.Ct. 1182, 1185, 59 L.Ed.2d 416 (1979); see also Will v. Michigan Dept. of State Police, 491 U.S. 58, 87, 109 S.Ct. 2304, 2321, 105 L.Ed.2d 45 (1989) (STEVENS, J., dissenting). Its persistence cannot be denied but ought not to be celebrated. Nor should its fictive origin ever be forgotten. There is no cause to expand the doctrine, and we do better to interpret § 1346(a)(1) by the light of equity and with due regard for the practicalities of revenue collection discussed in Bull.

To be useful, legal concepts must accommodate most disputes without the dissonance accompanying blended categories, but must also permit such flexibility when judgment demands it. It is not surprising that our concepts should be stressed when the Government taxes a citizen twice upon inconsistent theories and then subjects the citizen to a choice among competing fora, each of which provides only half a remedy. It is equally unsurprising, and in fact encouraging, that such problems occur so rarely that Congress has not made any explicit provision for them.

What is surprising is that this Court believes the equitable decision of the Court of Appeals in need of correction. The Court today has taken discretionary jurisdiction over a case of no broad import, and has undone equity by rendering an opinion true to neither the spirit nor the letter of American law. The Court takes its stand upon the grave declaration that a "distinction that has jurisdiction as its central concept is not meaningless." Ante, at 606. I am not sure what this solemn truism means, but I do know that it does not decide this case.

Because I am unable to discover any just reason for distinguishing this case from Bull, I respectfully dissent.