Flora v. United States

PETITIONER:Flora
RESPONDENT:United States
LOCATION:Trailways Bus Terminal

DOCKET NO.: 492
DECIDED BY: Warren Court (1957-1958)
LOWER COURT: United States Court of Appeals for the Tenth Circuit

CITATION: 362 US 145 (1960)
ARGUED: May 20, 1958
DECIDED: Jun 16, 1958
REHEARING GRANTED: Jun 22, 1959
REARGUED: Nov 12, 1959
DECIDED: Mar 21, 1960

Facts of the case

Question

  • Oral Reargument – November 12, 1959
  • Audio Transcription for Oral Reargument – November 12, 1959 in Flora v. United States

    Audio Transcription for Oral Argument – May 20, 1958 in Flora v. United States

    Earl Warren:

    Number 492, Walter W. Flora versus United States of America.

    Mr. Thrower.

    Randolph W. Thrower:

    Mr. Chief Justice, may it please the Court.

    This case that’s here rises on writ of certiorari to the United States Court of Appeals for the Tenth Circuit.

    The single question involved in this case is whether or not the District Court had jurisdiction of a suit to recover an alleged overpayment of tax.

    The facts here are not in dispute.

    The taxpayer filed his return and in his return, deducted a large loss as being an ordinary loss.

    The commissioner, upon investigation, disallowed the loss asserting that it was a capital loss and does not deducted — not deductible and asserted a deficiency which was subsequently assessed in the amount of approximately $28,000.

    In response to notice and demand, the taxpayer paid a little more than $5000.

    He, thereafter, filed a claim for refund.

    That claim was rejected on the merits.

    The taxpayer then brought this suit to recover the payments that had been made.

    The Government, in answering the complaint, pleaded that there had been no overpayment, that as a matter of fact, an additional amount was owed and counterclaimed for the balance of the unpaid assessment of about $23,000.

    At the same time, it also moved in effect to dismiss the complaint on the grounds that the entire assessment had not been paid before bringing the suit.

    Now the question here is whether or not that motion to dismiss should have been granted.

    It is, we believe, as if A sues B to recover a payment which he assessed to have been erroneous and excessive.

    B responds that A not only owed the amount that was paid but also owes an additional amount and B counterclaims for that additional amount as the Government did here.

    Now under all normal concepts of pleadings and jurisdiction, this response goes to the merits of the claim and the counterclaim but does not go to the jurisdiction of the Court.

    Now we submit simply that the normal concepts of jurisdiction apply in this case.

    Now the parties agreed that jurisdiction in the case rests upon a construction of Section 1346 (a) of Title 28 of the United States Code which was familiarly referred to as the Tucker Act of 1887.

    Now if I may read certain pertinent portions of that Section it provides, “The District Courts shall have original jurisdiction, concurrent with the Court of Claims, of 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, of any penalty and so forth, or of any sum alleged to have been excessive or in any manner wrongfully collected under the internal revenue law.”

    Now the Government, if I properly understand its brief, admits that the literal meaning of this language does support jurisdiction.

    Now such an admission, that we believe, is required by the statute, the words, “Any civil action for the recovery of any internal-revenue tax or of any sum alleged to have been excessive or in any manner wrongfully collected,” are very broad and very comprehensive.

    As a matter of fact —

    Earl Warren:

    Would it make any difference in your case if he had only paid small amounts, say pay $5 instead of $5000?

    Would that be any difference in your case?

    Randolph W. Thrower:

    Mr. Chief Justice, we believe that it would not.

    Earl Warren:

    It would not.

    That’s all I (Voice Overlap) —

    Randolph W. Thrower:

    May I state further in that connection.

    Randolph W. Thrower:

    If we think that the amount that is paid would be of significance only if the taxpayer upon making this small payment was thereafter free to withhold the balance of the tax.

    We think it is clear that he is not and I will develop, if I may, —

    Earl Warren:

    — that’s all right.

    Randolph W. Thrower:

    — argument a little further on.

    With respect to the language of this statute which I read in part, no words of restriction whatsoever are included.

    It would be, in fact, difficult for us to suggest any language which could be added to broaden this description if it did not already cover up.

    The Government would, nevertheless, have this Court read into this language the proviso that suit may not be brought where the entire amount claimed by the Government has not yet been paid.

    Now there is no way we can see where such language can be read into the statute.

    The Government, in reality, is asking for an amendment of the statute to add this proviso rather than simply for statutory construction.

    Felix Frankfurter:

    Is this — is the scope of this decision restricted to tax refunds suits or does it have, on imagination, is equal to conjuring up the case but it have applications and suits by confected or in other situation where a similar financial relationship is established, namely, a suit is brought and the plaintiff hasn’t fully satisfied his obligation?

    Do you understand — am I to understand that this is a specialized tax refund suit problem or it doesn’t seem to be because it’s — the question arises under the general Tucker Act?

    Randolph W. Thrower:

    Mr. Justice Frankfurter, it is —

    Felix Frankfurter:

    (Inaudible) clear?

    Randolph W. Thrower:

    It is — I understand your question.I think that the — it is specialized in the sense that it is raised by the Government only in this type of case.

    I would —

    Felix Frankfurter:

    In — and in the District Court and not in the Court of Claims?

    This is a Tucker Act problem, is it?

    This is a supplement tax — tax refund suit problem?

    Randolph W. Thrower:

    The same question, I am confident, would be raised by the Government in a suit in the Court of Claims would also be raised by the Government in a suit against a collector or director personally which does not arise under of the Tucker Act but it would be raised under a different section.

    As to the specialized nature of it, I would see no more justification for reading this proviso into these sections then reading it into other (Voice Overlap) —

    Felix Frankfurter:

    Well, I’m saying whatever restriction there may be must derive from tax legislation, other substantive tax legislation or context of tax liabilities and obligations and rights and not derive from the terms of the Tucker Act.

    That’s what I’m saying.

    Principally, I can imagine a suit against the Secretary of Treasury for some obligations before you by the United States on a contract basis, by the same question, I’ve arrived, is that right?

    Randolph W. Thrower:

    Well it is here a question of — of construction of a statute to express the intent of Congress as reflected in the statute.

    The Government refers to a number of statute as supporting its position but we submit that there is no statute which directly or indirectly reflects or suggests this proviso while a reference is made by the Government to the particular language of Section 1346 (a).

    That was introduced as we point out in our reply brief only in 1921.

    Felix Frankfurter:

    Where — is that 1346 (a)?

    Randolph W. Thrower:

    Yes.

    Felix Frankfurter:

    Where is that?

    Randolph W. Thrower:

    That is set forth on page 2 of Petitioner’s original brief.

    Randolph W. Thrower:

    It’s also set forth early in the — on page 2 of the Government’s brief.

    Now that language, may I add here, was introduced in 1921 by a statute which the Government in its brief admits was not intended to cover this problem and yet it relies on that section to support the proviso that is —

    Felix Frankfurter:

    1346 (a) (2)?

    Where is that?

    I don’t find it.

    Randolph W. Thrower:

    1346 (a) (1), it would be.

    Felix Frankfurter:

    Okay.

    Randolph W. Thrower:

    Set forth on —

    Felix Frankfurter:

    Yes.

    Randolph W. Thrower:

    — page 2 of our original brief.

    Now, it is our position that the statute is clear on its phase that it incorporates normal concepts of jurisdiction that there is no suggestion of the unusual proviso urged by the Government and that it is not necessary to go beyond that.

    We’ll refer briefly to some of the arguments made in the Government’s brief which have been accepted by the court below.

    The Government, for one thing, relies upon general statements made from time to time in decisions of this Court which are stated in generalities which by no stretch of the imagination show that the Court was directing its attention to the particular problem which we have here of a taxpayer who faces an assessment that is greater than he is able to pay but asserts that what he has paid is an overpayment of tax.

    The Government also ignores what was settled authority in this field for many years prior to the decision below.

    This case — this question first rose before the Court of Appeals for the Second Circuit in 1940 and there was a clear rejection of the Government’s argument, that was in Coates versus United States, where the Court there stated that these arguments, as I have said, go to the merits of the claim or counterclaim and they do not go to the jurisdiction of the Court.

    In the following year, the Court of Appeals for the Third Circuit in an action against the director or collector reached the same results.

    Now, the Government grounds much of its entire argument here upon the assumption that the bringing of this suit, in some way, restrains the director from the collection of the balance of the tax but it does not appoint to anything which would cause such restraint.

    No restraint was sought here.

    There is no case that I know of that would support such restraint.

    There is no legislation that would support.

    (Inaudible)

    Randolph W. Thrower:

    Yes.

    An assessment was made.

    The — a notice and demand was served.

    There were two payments, installment payments made in satisfaction — in partial satisfaction of the notice and demand.

    The taxpayer filed a claim for refund two years after the date — more than two years after the date of the assessment — this suit was brought.

    There was ample opportunity for the director to collect the balance of this tax if there has been ability to pay.

    (Inaudible)

    Randolph W. Thrower:

    He can take all of his profits with the exception of a few work animals, a few school books, some furniture, kitchen equipment and the like.

    The Government here in this type of case which sees upon inability to pay, to deny the taxpayer the right ever to contest what he is to contest, ever to seek to recover of what he is able to pay and what he claims to be an overpayment.

    Felix Frankfurter:

    Did you say that this provision was in the original Tucker Act, this very provision?

    Randolph W. Thrower:

    No, it was not.

    Felix Frankfurter:

    When did this come into this?

    Randolph W. Thrower:

    This was introduced only in 1921.

    Felix Frankfurter:

    And before that, that’s what I assume, but before that there couldn’t be the this kind of (Inaudible) could it, at all?

    Could you (Inaudible).

    Randolph W. Thrower:

    Oh — oh yes, yes.

    Felix Frankfurter:

    Before 1921.

    Randolph W. Thrower:

    Before that, we could, under the Tucker Act, bring an action to recover a tax as being founded our right to –sue being founded upon a law of the United States.

    Felix Frankfurter:

    But the general — the general provision (Inaudible)

    Randolph W. Thrower:

    Yes.

    And this Court so held in two cases.

    One, Emery, Bird, Thayer Realty Company case which is cited and then another case cited at the same time which is not cited.

    Felix Frankfurter:

    It brings me to my — to my difficulty.

    Under the general Tucker Act — under the general — under the old Tucker Act before you had this special authorization in tax matters, you could sue the United States under the — because a consent was given, because there was a contract or — or a property had been taken, etcetera.

    Could you sue before there was a loss, before you had established your loss?

    What you’re asking in effectively to this kind of a case is that the declaratory judgment that he’s wrong in his interpretation of the law.

    Randolph W. Thrower:

    May I —

    Felix Frankfurter:

    Isn’t that true?

    Randolph W. Thrower:

    No.

    I would like, if I may Mr. Justice Frankfurter —

    Felix Frankfurter:

    You’re not out of pocket.

    Randolph W. Thrower:

    We have paid $5058 —

    Felix Frankfurter:

    Which you conceded —

    Randolph W. Thrower:

    — which we contend is an overpayment of tax.

    We filed a claim for refund to recover the $5058.

    That claim for refund was rejected on the merit.

    Now, we filed that claim shortly before the statute would have run.

    It’s clear that the statute in requiring the filing of the claim within two years, contemplates that such a claim may be filed.

    It was filed.

    Randolph W. Thrower:

    It was rejected on the merit under Section 6532 (a) of the Internal Revenue Code.

    We had two years following rejection to suit.

    We did bring suit within the two-year period.

    If we had not brought suit within the two-year period, our — our action would have been barred by the statute of limitations.

    Now, the Government’s argument here would attribute to Congress the intent to create this incongruity that where there is an inability to pay the total amount of an assessment.

    We must, nevertheless, file our claims to recover what is paid or the statute will run.Where that claim is rejected, we must bring out suit within two years or the statute will run.

    Felix Frankfurter:

    The Chief Justice asks you whether it made any difference of how much or how little and you said, “No.”

    You have to pay some part of the allegedly illegal assessment?

    Randolph W. Thrower:

    Well, under the law, we are required to pay the entire amount of the assessment if we are able to pay.

    Under the law, the director has limitless power to collect.

    And I — I —

    Felix Frankfurter:

    But may have gone to — but may gone to a — the appropriate District Court and say this is an allegedly — this isn’t a wrong — an illegal assessment and we want to get a declaration that it is without paying any portion of it.

    Randolph W. Thrower:

    We are —

    Felix Frankfurter:

    Could you do that?

    Randolph W. Thrower:

    — to state it technically not seeking such a declaration.

    Felix Frankfurter:

    You know you’re not but —

    Randolph W. Thrower:

    We are seeking to recover an overpayment which we claim was not due now as I stated before.

    We think — we submit that the amount of our payment would be significant only if, in some way, we were able to use this as a device to avoid payment but we’re not.

    Felix Frankfurter:

    I’m asking you whether you have to pay any portion of what you claim to be an illegal assessment.

    Randolph W. Thrower:

    Oh, yes.

    Yes.

    We — we —

    Felix Frankfurter:

    And then why the statute says, “Alleged to have been erroneously or illegally assessed or collected.”

    Is that some other provision of a statute which requires payment?

    The Court of Claims —

    Randolph W. Thrower:

    May — may it please the Court.

    I think it has always been read into this section —

    Felix Frankfurter:

    But you must —

    Randolph W. Thrower:

    — that we cannot claim.

    It is for the recovery and we cannot — that section there refers to recovery.

    Randolph W. Thrower:

    We cannot recover an amount unless that amount has been paid.

    Felix Frankfurter:

    Well, illegally assessed is not — can’t be construed in that way.

    It means collecting payment.

    Randolph W. Thrower:

    Well it — it says, “Illegally assessed or collected,” and it says, of any sum —

    Felix Frankfurter:

    That’s where I’m driving at.

    The illegally — the illegally assessed is not given forth because you must say something.

    As you point out the statute also says, “The recovery of what is illegally assessed.”

    So that’s kind of strange craftsmanship isn’t it?

    Randolph W. Thrower:

    Well, it is a succession of words which described the nature of the action.

    The broadest description of all is, “Or any sum which is alleged to have been excessive.”

    (Inaudible) that requires you to file a claim for refund —

    Randolph W. Thrower:

    That’s right.

    (Inaudible)

    Randolph W. Thrower:

    That’s right.

    That shows clear contemplation that there has been a payment —

    (Inaudible)

    Randolph W. Thrower:

    — which we —

    Does the record shows that you are not able to (Inaudible)

    Randolph W. Thrower:

    The record does not show that in this case.

    In most of the cases cited, that is not shown.

    To draw a distinction where (Inaudible)

    Randolph W. Thrower:

    The point we would make is, that he does have that shown.

    He cannot pay and refrain because, as Mr. Justice Whittaker brought out by his question, the director has unlimited powers to take everything that the man has.

    Felix Frankfurter:

    (Inaudible)

    Randolph W. Thrower:

    That is precisely it.

    Felix Frankfurter:

    (Inaudible)

    Randolph W. Thrower:

    That is precisely the question.

    Earl Warren:

    Mr. Stull.

    John N. Stull:

    Mr. Chief Justice, may it please the Court.

    From the merits of this controversy, there was one single issue whether losses incurred in commodity transactions where deductible in full as ordinary losses as a taxpayer contends or deductible as limited to capital losses as the Government contends.

    John N. Stull:

    As a result of the disagreement and inability to get together in the administrative procedures, a single — single unified deficiency was determined by the Commissioner of $27,000.Of this amount of that $5000 was paid, claim for refund was filed and rejected and suit was brought.

    The District Court decided that it did not have jurisdiction because the entire amount of the tax claimed to be due had not been paid.

    But because the Tenth Circuit did not pass on that jurisdictional problem, it went ahead on the merits and held for the Government and the merits.

    The Tenth Circuit never got to the merits, we just affirmed on the jurisdictional point.

    So that point is not before this Court.

    The question is whether the District Court or the Court of Claims has jurisdiction where only part of the asserted deficiency is paid.

    Now we think that under the decisions of this Court which admittedly had not absolutely passed on this problem but we think the guideposts are there and under the whole statutory scheme for the collection of taxes that it’s obvious that Congress never intended to allow a suit to be brought in the District Court or the Court of Claims unless the complete amount, the entire amount claimed has been paid.

    Section 1346 (a) of the Judicial Code and Section 7422 (a) of the Internal Revenue Code of 1954 contained very much the — contained the same language.

    They say no suit — well 7422 (a) says, “No suit or proceeding shall be maintained at any court for the recovery of any internal revenue tax alleged to have been erroneously assessed or collected without bringing a suit for refund first, the claim — filing a claim for refund first.”

    Now, essentially that same language was in the Civil War Taxing Act of 1866.

    That Act says that, “No suit shall be maintained in any court for the recovery of any tax alleged to have been erroneously or illegally assessed or collected.”

    That’s pretty close to 7422 (a) with which we’re concerned here.

    This Court in the Cheatham case in 1875 which concerned a question of limitations.

    Discussed the question of whether the sovereign had to make very strict rules for the collection of its taxes and they pointed out that if the Government has to take strict measures for the orderly and prompt collection of its taxes and they said in that connection that the general Government has made payments of the tax claimed a condition precedent to resort to the Courts by the party against whom the tax is assessed.

    (Inaudible)

    John N. Stull:

    Well, Your Honor —

    You think that you can get a partial payment (Inaudible)

    John N. Stull:

    Well Honor — Your Honor, I think that the short answer to it is that Congress never provided for this particular procedure.

    But as far as we’re concerned, distraint is a last resort.

    (Inaudible)

    John N. Stull:

    That is true.

    We can distrain but we think that distraint is the last resort in any of this cases that for example, if this Court is going to say that we’re wrong in this case, then instead of the two methods for predetermining deficiencies asserted by the Government, there will be three.

    There will be a hybrid method, part from the Tax Court, part from the District Court and —

    Felix Frankfurter:

    (Inaudible)

    John N. Stull:

    Yes sir.

    Felix Frankfurter:

    (Inaudible)

    John N. Stull:

    Yes sir.

    Felix Frankfurter:

    (Inaudible)

    John N. Stull:

    Yes sir.

    Felix Frankfurter:

    (Inaudible)

    John N. Stull:

    That’s right sir.

    Felix Frankfurter:

    (Inaudible)

    John N. Stull:

    Yes sir.

    Felix Frankfurter:

    That’s wrong?

    John N. Stull:

    That’s his own fault Your Honor because Congress has already — has already given him a method for not having to pay that tax.

    And if he refuses and turns his back on that method, then he has lost his other procedure.

    Now as far as Mr. Justice Harlan’s question goes on this distraint business, I think it would probably create three classes of taxpayers.

    Ones who go to the Tax Court, the ones that go to the District Court or the Court of Claims and then the judgment proof type who get this particular hybrid method, the people who have their assets abroad or have it in the hands of corporations so that the Government can’t get them.

    There are lots of people like that where we cannot get the assets.

    We wouldn’t be able to collect them, these people, so our distraint — pardon me sir.

    Felix Frankfurter:

    Can you tell me what (Inaudible)

    John N. Stull:

    But he had 90 days Your Honor in which to make up his mind whether he’s going to pay this tax or whether he is going to petition the Tax Court.

    During that 90 days, there was absolutely nothing the commissioner could do to collect that tax.

    So he had the — if he’s outside United States, he has 150 days to make up his mind as to which avenue that Congress has provided that he wants to have his taxes redetermined.

    (Inaudible)

    John N. Stull:

    The Government would?

    Yes.

    John N. Stull:

    The Government would rather —

    (Inaudible)

    John N. Stull:

    Well Your Honor, the Department of Justice may have nothing to do with the Tax Court and we’re perfectly satisfied with the District Court.

    Felix Frankfurter:

    But — but — the same would lie beyond that question maybe differently stated.

    Isn’t it a valid consideration, I’m passing on this question that the litigation would be cause — would take its cause through the Tax Court rather — rather a District Court not because you’d rather but because that’s a wider — that’s the wider basis for the relationship between tax assessment and judicial determination.

    John N. Stull:

    Well, sir —

    Felix Frankfurter:

    (Inaudible) I’m suggesting.

    John N. Stull:

    Courts always appeal to the Circuit Courts of Appeals from the Tax Court.

    Felix Frankfurter:

    Yes.

    That’s what I said.

    That’s what I’m suggesting, that you go to the specialized court and then go to the Court of Appeals.

    John N. Stull:

    Yes sir.

    Felix Frankfurter:

    And if there’s an allowable construction, you say that’s a valid thing to take into consideration.

    Felix Frankfurter:

    Is that right?

    John N. Stull:

    That’s right.

    (Inaudible)

    John N. Stull:

    That’s right sir.

    (Inaudible)

    John N. Stull:

    If he sues in the District Court and the District Court has jurisdiction.

    Yes, sir.

    (Inaudible)

    John N. Stull:

    That’s right.

    (Inaudible)

    John N. Stull:

    And of course there are many advantages Your Honor to go into the Tax Court just as there are advantages to go into the District Court.

    The Tax Court, for instance as Mr. Justice Frankfurter said, a body of experts and there are also all sorts of procedural things in the Tax Court.

    Felix Frankfurter:

    (Inaudible)

    John N. Stull:

    Well, many taxpayers too Your Honor.

    Felix Frankfurter:

    (Inaudible) — you have to prefer a lot of District Courts.

    John N. Stull:

    And if —

    Felix Frankfurter:

    (Inaudible)

    John N. Stull:

    If Congress is going to let anybody go into District Court anytime they want to, then there’s no reason in having a Tax Court as far as I could see.

    Felix Frankfurter:

    (Inaudible)

    John N. Stull:

    That’s correct.

    Felix Frankfurter:

    (Inaudible)

    John N. Stull:

    I think that if we look at the whole history of this thing and particularly at the legislative history on the formation of the Tax Court that it’s pretty clear because when Congress formed the Tax Court, they specifically said and we have a legislative history in our brief on pages 14 and 15, that it specifically recognize this hardship of people who could not sue unless they had to pay the entire amount claimed.

    (Inaudible)

    John N. Stull:

    Yes sir.

    And we’re collecting it sir.

    Well, in the history, if you got on the Tax Court, you can — as soon as you get your 90-day letter, you can pay immediately and if you’re right, you get it back with 6% interest but the Congress recognize that there was a hardship to these people who could not pay the amount claimed, so they created the Tax Court.

    And where it is the hardship, if these people can go and get relief in the District Court if they pay $5, $1.05 and file a claim for refund and get it back.

    There is no hardship in that case.

    Felix Frankfurter:

    (Inaudible)

    John N. Stull:

    That is right, they can’t.

    John N. Stull:

    And Congress thought that there was that hardship so therefore they created the Tax Court.

    Felix Frankfurter:

    (Inaudible)

    John N. Stull:

    Why did he let it go by Your Honor?

    He knows that that is his remedy.

    Congress gave it to him.

    Felix Frankfurter:

    (Inaudible)

    John N. Stull:

    Well, if he’s completely broke, he can go into bankruptcy then we have to assess the tax and prove like any other claim in bankruptcy.

    Felix Frankfurter:

    (Inaudible)

    John N. Stull:

    No sir, I meant but even in your example, it was the fellow’s own fault because I’m judgment proof, I’m not going to pay this thing.

    I’m just going to ride this thing through.

    Let the Government come well for the money.

    Felix Frankfurter:

    (Inaudible)

    John N. Stull:

    Well, it’s in your mind too, Your Honor.

    William J. Brennan, Jr.:

    Well, Mr. Stull, —

    John N. Stull:

    Yes sir?

    William J. Brennan, Jr.:

    — actually, does this congressional history show much more than that Congress wanted to provide a forum for a review where nothing at all was paid by the Tax Court?

    John N. Stull:

    That’s true, Your Honor but —

    William J. Brennan, Jr.:

    Well, how he —

    John N. Stull:

    — what’s the difference between —

    William J. Brennan, Jr.:

    How he —

    John N. Stull:

    — 5 cents or nothing at all?

    William J. Brennan, Jr.:

    Well how do you spread — expand that into a prohibition against suing for a refund the part where he’s paid (Inaudible)

    I rather read this as saying that Congress thought that many taxpayers faced with the deficiency assessment help us to pay anything at all (Inaudible) of form which they could test out —

    John N. Stull:

    That’s right sir.

    William J. Brennan, Jr.:

    — that division.

    But I don’t see anything in this which says that where they paid part they’re not still — that’s not still available to the District Court if they want to sue for recovery (Voice Overlap) —

    John N. Stull:

    Well I can’t see — Your Honor, I can’t see the reason for being concerned about these people.

    William J. Brennan, Jr.:

    We’re talking about the reason.

    Where is that anything in this that you referred us to (Voice Overlap) —

    John N. Stull:

    They talk about — they talk about hardship.

    John N. Stull:

    Where is the hardship if you can have your questions tried out in the District Court if there’s only a dollar paid?

    If it’s only necessary to pay.

    William J. Brennan, Jr.:

    The hardships that they’re talking about is that anything at all should have to be paid on deficiency before testing the validity of the deficiency.

    John N. Stull:

    Well, there aren’t many people who couldn’t raise a dollar, Your Honor or 5 cents or 1 cent as far Mr. Thrower’s argument goes.

    What he is in effect saying, it’s true he paid $5000 in this case which is a pretty substantial amount to me but the next fellow is going to pay $5 and $1.05 and then he would get a declaratory judgment and the Declaratory Judgment Act that came in 1935 was amended immediately to say that federal taxes should not be included in that.

    William O. Douglas:

    But that’s an expressed exception.

    John N. Stull:

    Yes sir.

    It’s an expressed exception because they said that that would be contrary to the whole history of the collection of taxes to allow declaratory judgment and I can’t see any difference between paying a dollar or 5 cents or $100 or whatever it is the fellow feels like paying and getting a declaratory judgment.

    And as far as going after the people go, it’s going to mean that the wage earner who owns a house, we could go sell his house, we can attach his salary, we can sell his car, we can attach his bank account but it’s going to be the clever operator who has the tax that tied up who is going to be able to get a jury trial without ever having paid anything more than a tiny token amount where as the ordinary citizen whom the collector can distrain on is going to be able to only either go to the Tax Court without a jury trial or take up the money and pay it.

    Now if these fellows have to pay the tax sometime anyway, if they’re wrong in their determination, they’re just trying to have it tried out first and it’s true, I suppose, that you can always take up somebody who didn’t know about the Tax Court, something like that.

    There will always be somebody around like that.

    If that’s the case, it seems to us that Congress should take care of that particular situation but Congress has given them only two ways to contest their taxes and it seems to us that those two ways are separate remedies and they’re exclusive remedies.

    (Inaudible)

    John N. Stull:

    Your Honor this — this first came up in the Third Circuit in the Suhr case in 1927 and the Third Circuit agreed with us.

    It was not litigated again until the Coates case in 1941 and that case contains a great deal of language which is helpful to the taxpayer.

    We think it’s distinguishable on a number of grounds and one of them is the Government’s fault.

    The Government never brought to the attention of the Second Circuit the history, the legislative history and the reasons performed in the Tax Court.

    In any event, the tax what has already paid by the time the district judge came on for hearing.

    And furthermore, the Second Circuit has — without adverting to that case, made statements in a number of subsequent and more recent cases which are not directly on this subject but seemed to us to indicate that they would have little trouble being a distinguishing or overruling that case at the present time for instance, in the Bendheim case.

    They say that the taxpayer has two independent procedures open to him.

    The taxpayer should not be allowed to pick and choose a little from each for his own benefit.

    Payment of the amount claimed to be due is prerequisite to a suit for refund in a federal court.

    The Third Circuit, in that same year, came out with Sirian Lamp case which was a case against the director and without adverting to their original Suhr case, held in favor of the taxpayer’s position here.

    The Bushmiaer case in the Eighth Circuit with one dissent, also, held in favor of the taxpayer.

    Then this case came up in the Tenth Circuit and held in favor of the Government.

    We think that the earlier cases are distinguishable that the Second Circuit has practically overruled its own decision in the Coates case and that the only two cases with which we’re concerned at the moment are this case and the Bushmiaer case.

    William O. Douglas:

    Eighth Circuit?

    John N. Stull:

    The Eighth Circuit is Bushmiaer.

    Yes, Your Honor.

    Earl Warren:

    Mr. Thrower.

    Randolph W. Thrower:

    Mr. Chief Justice, members of the Court.

    Referring briefly to the cases, I will call to your attention the fact that the Suhr case referred to in the case in the Court of Appeals for the Third Circuit, that Court 14 years later in Sirian Lamp Company versus Manning, reversed a District Court decision which had, according to the Court of Appeals, misinterpreted Suhr case, and the Suhr case we think is distinguishable.

    It was not even referred to by this Court in Old Colony Trust Company versus Commissioner which is cited in our brief and which deals with a case arising under the 1924 Act, the fist act involving the Board of Tax Appeals where there was an appeal to the Board and thereafter, a suit for refund and the Court pointed out very clearly that that suit could be maintained despite the fact that there was an outstanding assessment of the deficiency of which had not yet been paid.

    The Government has suggested that somehow the taxpayer is at fault who finds himself in this unfortunate position of making himself a judgment proof.

    I think that is entirely unrealistic, almost unconscionable.

    This is the unusual case, most taxpayers fortunately, can pay but their — by reason of an adverse turn of circumstances or otherwise, a taxpayer finding himself unable to pay an assessment pays as he should pay and is required to pay all that he can.It is immoral to withhold that if it is erroneously and illegally collected.

    And this Court so stated in Bull versus United States and to construe these acts, to produce that result, as the Government urges, would be entirely out of keeping with the nature of the action.

    As this Court has stated in numerous times, in the case that’s cited in our brief, this is likened to an action of assumption — general assumption of the common law where the Court is concerned with the abstract justice of the case.Has there been any unjust enrichment.

    If there has been, then it is immoral to retain it even though it was properly collected or legally collected or at least morally collected in the first place.

    And dealing with the Tucker Act, Mr. Justice Holmes, and the Emery, Bird, Thayer, Realty Company case said that this is a great act of justice and it should not be construed with a narrow and adverse eye.

    Now with respect to those reasons why a taxpayer may not go to the Tax Court, taxpayers are frequently called upon to turn square corners but Congress for the last 80 years or more has made every effort to label those corners.

    The taxpayers have not been put on notice that if they failed to file an appeal to the Tax Court and thereafter, find themselves unable to pay an assessment which they consider erroneous, that they can never seek to recover those amounts which they can take.

    Let me call your attention to the facts in the case of Hanchett versus Shaughnessy which is cited in our brief.

    There, there was an assessment of about $10,000, $700 or $800.

    The taxpayer paid $4100.

    He filed a claim for refund.

    It was promptly rejected.

    The facts there show that he had entered into an agreement with the director where he would pay the balance of that assessment at $100 a month which would take, with interest, about six years to pay it all.

    Under the Government’s theory, by the time he got his payments completed even though they were completely erroneous, he would have fully lost his right to recover the early payments.

    There is no disturbance of the ordinary rules of procedure in a case of this sort.

    The director can proceed to distrain if the taxpayer is thought to have assets that he’s not using for the payment.

    Now, Mr. Stull refers to the fact that they should not be required to distrain.

    They’re not required to distrain in this case anymore than the ordinary case.

    The significance of these great powers to collect is the taxpayers voluntarily pay of what they can pay and there’s no more reason, in this case than in any other case, to assume that a taxpayer could defeat the collection, all that there is any defeat to normal procedures of collection within the director’s office.

    The Government has the right, also, to counterclaim as it did in this case that brings before the Court all the issues that are involved.

    Now, Mr. Stull referred to the fact of an existing practice in this regard.

    There’s nothing to support that except the fact that the Government has from time to time lost cases on this point.

    They lost one in 1940 and another in 1941.

    The issue doesn’t seemed to have arisen again until around 1954 and later and it has arisen since that time in three or four — three, I believe, excise tax cases where the Government makes the same arguments that is made here relying on the same statute except for the fact that there, the taxpayer, never has any right to go to the Tax Court.

    The right to appeal to the Tax Court is a relief statute.

    Randolph W. Thrower:

    It gives to the taxpayer the opportunity to restrain further a collection.

    The effect of failing to go to the Tax Court, the only effect is that the taxpayer has lost his opportunity to restrain collection of the tax.

    There’s nothing that was in that relief statute or in its history to indicate that Congress intended to deny jurisdiction to the Court to entertain a claim for refund of taxes that are alleged to be excessive.

    If there are no questions from the Court that concludes the argument —