United States v. Price

PETITIONER:United States
LOCATION:Superior Court of Bibb County

DECIDED BY: Warren Court (1958-1962)
LOWER COURT: United States Court of Appeals for the Ninth Circuit

CITATION: 361 US 304 (1960)
ARGUED: Dec 09, 1959
DECIDED: Jan 18, 1960

Facts of the case


  • Oral Argument – December 09, 1959 (Part 1)
  • Audio Transcription for Oral Argument – December 09, 1959 (Part 1) in United States v. Price

    Audio Transcription for Oral Argument – December 09, 1959 (Part 2) in United States v. Price

    Earl Warren:

    Mr. McLane, you may proceed.

    W. Lee McLane, Jr.:

    Thank you Mr. Chief Justice.

    Mr. Justice Frankfurter asked at the end of the last session whether we were relying upon the literal language of the statute and that is correct.

    However, in the brief, we’ve attempted to add some small amount of legislative history to the literal language of the statute in an effort to aid the Court in determining how this particular section should be interpreted today.

    And I would like to emphasize before I sit down a little bit of that legislative history.

    In the first place, when this Section 272 (d) was first inserted into the Revenue Act of 1926, it was the act of thought not apparent.

    In other words Section 272 is a procedural section by which a taxpayer is afforded a method of going to the Tax Court of the United States.

    It is not a section which restricts the Commissioner from collecting the tax under certain circumstances as a matter of emphasis I understand.

    But then when Section 272 (d) was added to the Act in 1926, it provided, and I’d like to read directly from the Senate Finance Committee Report, that the law provide that where deficiency is assessed, there shall be assessed at the same time interest at the rate of 6% from the time the deficiency should’ve been paid to the date of assessment, in order to commit the taxpayer to pay the tax and stop the running of interest.

    The Committee recommends in Section 274 (d), which was the predecessor of 272 (d), of the bill that the taxpayer at any time be permitted to waive in writing the restrictions on the Commissioner against assessing and collecting the tax, but without taking away the right of the taxpayer to take the case to the Board.

    Now, it is our view that since there is only one way that the taxpayer may take the case to the Board of Tax Appeals, i.e., a statutory notice of deficiency having been issued that this language simply means that a taxpayer wants to have the right to waive the restrictions against assessment and stop the running of interest after he had first received a notice of deficiency.

    In 1933, the first of the decisions of the Ninth Circuit which held these waivers to be premature and invalid was handed down and that was the case filed Mutual Lumber versus Poe.

    The position of the Court was reaffirmed in 1935 in a case entitled McCarthy versus Commissioner and those were the only two cases dealing with the validity of these waivers under Section 272 (d) until about 1938.

    At that time, a Subcommittee of the Ways & Means Committee of the House of Representatives proposed, and I quote from the language of that report, “As the result of two decisions of the Circuit Court of Appeals for the Ninth Circuit, Mutual Lumber versus Poe, McCarthy versus Commissioner, a valid waiver cannot be given by a taxpayer prior to the formal determination of the Commissioner as evidenced by a 60 or 90-day letter that there is a deficiency in tax.”

    Although that report was issued, no amendment was made in 1938.

    Then in 1942, the Commissioner of Internal Revenue proposed an Administrative Procedural Code in which again, there was a provision proposed to remedy this situation.

    That code or proposal was not adopted.

    However, in 1954; the Congress finally did make a change in this section which is now before the Court, Section 272 (d), and they added the words whether or not a notice of deficiency has been added.

    Now, the taxpayer submits that this legislative history sustains the proposition that these waivers could not be valid unless a prior notice of deficiency had first been issued.

    Earl Warren:

    Mr. McLane, what has been —

    W. Lee McLane, Jr.:

    Yes sir.

    Earl Warren:

    — the practice of the — of the Commissioner between the time this 1938 proposal was made and the 1954 change in the statute?

    Did they continue to use these waivers in the manner they’ve been used in this case or not?

    W. Lee McLane, Jr.:

    Yes that is correct Your Honor, except there is one interesting feature.

    I was at one time with Chief Counsel’s office of the Bureau of Internal Revenue, and at that time, they were used in the manner in which they were used in this case.

    However, I would like to point out to the Court that in almost every case which the Government has cited here, the waiver form was entitled at the top; waiver of right to file petition in the Tax Court of United States.

    Then, as a result of some of the decisions, the form of the waiver was changed and the provision at the top provided waiver of restrictions on assessment and collection of deficiency in the tax.

    So, that while it is true that the Commissioner has used these waiver forms in the manner which they were used here, I think the question was at least that the taxpayer knew, that is the taxpayer who was not represented by counsel, what he was waiving, because there is nothing in the terminology of the waiver form which advices a taxpayer who is not a lawyer that he is waiving his right to appeal to the Tax Court of the United States.

    All it says is that he’s waiving his right, waiving whatever restrictions there are on assessment and collection of the deficiency.

    Charles E. Whittaker:

    Now, why would that —

    W. Lee McLane, Jr.:


    Charles E. Whittaker:

    — (Inaudible) that no exemptions maybe made if the 90-day letter was given, until after the 90 days had expired and not even then until if the proceeding has been brought (Inaudible)

    W. Lee McLane, Jr.:

    Well, of course Your Honor it’s our view that it can’t be waived until the notice has been issued and there has been a determination of the deficiency.

    Charles E. Whittaker:

    I still don’t understand why, when you have a notice, a 90-day notice when you have considered to the — and if only relevant for difference which you have to make, it would have been you would have got the 90-day letter, since you wouldn’t have it due to litigate in a Court’s action.

    W. Lee McLane, Jr.:

    Well, Your Honor, it seems to me that if– if you view these waiver forms that’s concerning to an assessment or agreeing to default, in other words, that one is inclined to say that a taxpayer should not be permitted to stand upon a technical position as no notice of deficiency has been issued.

    I don’t view them as such and I suggest to the Court that the Commissioner does not view them as such, because the very terms of the waiver itself provide that they are not a determination of the taxpayer’s tax liability.

    The note that follows at the bottom of the waiver forms states flatly that they are not the final closing agreements and that further deficiencies may be determined.

    Charles E. Whittaker:

    You don’t question about that, you can pay stopping interest, the next day buy reclaim for refund when and it’s denied six months expire whichever first occurs to (Inaudible) your money back.

    W. Lee McLane, Jr.:

    That is true Your Honor.

    Assuming the taxpayer has the funds to pay the tax.

    In this case, there were no such funds and that’s why the Commissioner was forced to sue in the District Court for judgment, in order to have that judgment in the event the taxpayer subsequently obtain funds.

    I — I know that this argument that the Commissioner makes that really this is not such a disastrous situation because taxpayer can pay the tax and subsequently sue for a refund is valid to the extent that it has a taxpayer involved who has the funds to pay a tax but there are many who do not.

    And I would say that in reply to Mr. Justice Black’s question that if you look at this as though it were a contract or an agreement despite what the language of the section provides that you may say that the taxpayer should be bound by it.

    However, I would like to emphasize that the waiver form itself states that it is filed pursuant to the provisions of Section 272 (d).

    And now we are back to 272 (d) which gets us to the point that Mr. Justice Stewart, I’m sorry Mr. Justice Stewart and Mr. Justice Brennan raised that in Section 272 (d), it states that the taxpayer shall have the right at any time to waive the restrictions on the assessment and collection of the whole or any part of the deficiency.

    And it is the two words, “the deficiency,” which the taxpayer relies on Your Honor.

    The words “the deficiency” it seems to us must be interpreted by referring to Subsection 272 (a) which is the same section and you will find those two words in the second sentence of Section 272 (a).

    They are the last two words.

    It says, “For a redetermination of the deficiency.”

    A reading of that sentence refers one back to the first sentence of Section 272 (a) which states, “If the Commissioner determines that there is a deficiency in respect to the tax.”

    And it was the view of the Ninth Circuit and it is our view that those words qualify Section 272 (d), that is, there must be a determination of the deficiency before a taxpayer may waive or file a valid waiver under Section 272 (d).

    Charles E. Whittaker:

    There must — there must be (Inaudible)

    W. Lee McLane, Jr.:

    That is correct Your Honor.

    Charles E. Whittaker:

    That is you give — receive 30-day letter and you have a negotiation?

    W. Lee McLane, Jr.:

    That I do not know, I did not represent these taxpayers.

    However, let us assume that that was the case Mr. Justice Whittaker, the — the 30-day letter creates no rights to go to any Court to litigate or to dispute the matter except within the confines of the Treasury Department itself.

    Now, the Government has used the number of taxpayers and the amount of revenue that’s involved here as some indication of the importance of this decision.

    I of course cannot compete with the millions of dollars that may be involved but I would like to point this out to the Court that this decision, this view of the Ninth Circuit has been the law in that Circuit since 1933.

    The other decisions in conflict thereto had been the law since about 1939 or 1940 I think Moore versus Cleveland Railroad was decided in 1940.

    Therefore, this is a problem which has existed for at least 25 years.

    Earl Warren:

    Have they followed — have they followed the practice of this decision in the — in the Ninth Circuit that was proclaimed since 1933?

    W. Lee McLane, Jr.:

    No the Commissioner has not issued a notice of deficiency in the Ninth Circuit in order to sustain the validity of the waiver form.

    He has adopted the same practice that he has used throughout the country —

    Earl Warren:

    Throughout the country.


    W. Lee McLane, Jr.:

    — that is not issuing the notice of deficiency once the waiver form as executed.

    Earl Warren:


    W. Lee McLane, Jr.:

    So that if the Government is in difficulty now on a nationwide basis, I submit to the Court that it is because the case is now here on appeal, because prior to the petition for certiorari, there was only one circuit which adapted this view that was the Ninth Circuit.

    The other two circuits had adapted the contrary position and so had the Court of Claims.

    I would like to suggest to the Court if it has the time that Roos versus U.S., a Court of Claims case that dealt with this problem and there is language in that opinion which indicates that the judge who wrote the opinion believed that the Senate Finance Committee language of 1926 stating that such a waiver could be executed but without taking away the right of the taxpayer to go to the Board meant that the taxpayer could not waive his right to go to the Tax Court of the United States.

    One other point —

    Earl Warren:

    Do you recall that Mr. Heffron’s said about, that I asked him about that and — and he made an explanation of what you have in mind.

    W. Lee McLane, Jr.:

    I’m sorry Your Honor I don’t understand —

    Earl Warren:

    Well, I — I told him that it was little troublesome to —

    W. Lee McLane, Jr.:

    Oh, yes.

    Earl Warren:

    — in that statement —

    W. Lee McLane, Jr.:


    Earl Warren:

    But without taking away the right of the taxpayer — of the taxpayer to take the case to the Board and he had an explanation for that I say, do you have in mind so you could answer?

    W. Lee McLane, Jr.:

    Yes I have his explanation but I am — it’s very frank to say I don’t follow it, because the language very clearly says that without taking away the right of the taxpayer to take the case to the Board.

    I don’t think the case refers to an overpayment.

    I think it refers to the determination of the deficiency.

    Now, one other and final point that I’d like to make and answer to a question that was raised was whether — I think Mr. Justice Whittaker raised that, whether a taxpayer didn’t obtain a great deal of (Inaudible) by virtue of the fact that the tax could be assessed immediately after the waiver form or at the 90-day letter had been issued, immediately after the 90-day letter had been issued.

    The — the Commissioner is not required to assess the tax once the 90-day letter had been issued, he may wait until the appropriate statute of limitations has expired before assessing the tax if there’s no waiver form executed.

    That is if a 90-day letter is issued and a taxpayer does not appeal to the Tax Court, he may wait until a year or two years has gone by assuming there is that much time left and the running of the statute of limitations for the assessment of the tax.

    It is his practice however to assess the tax fairly shortly after the 90-days has run.

    Hugo L. Black:

    Yes, as I understand the (Inaudible) when the 90-day waiver has been passed, 90-day — (Inaudible) re-determination filed in the 90 days, the Commissioner is not required to within that time to make this reference.

    W. Lee McLane, Jr.:

    Except as required by the statute of limitations.

    Hugo L. Black:


    W. Lee McLane, Jr.:

    That is correct Your Honor.

    Hugo L. Black:

    And what’s the significance to it?

    W. Lee McLane, Jr.:

    Well I thought Your Honor had pointed out that the taxpayer was obtaining a great deal of benefit by having executed a waiver form such as we have in this case regardless of whether or not a notice of deficiency had been issued.

    Hugo L. Black:

    Well, my point was, as I understood, isolate it immediately upon receipt of notice that there was to be a deficiency assessment, a plea to that assessment and then (Inaudible) pay without interest.

    W. Lee McLane, Jr.:

    That is correct Your Honor.

    If — if the conclusion has reached that such a waiver form is valid without a notice of deficiency.

    That is he does stop the running of interest if this waiver form is valid without the notice of deficiency having been issued prior thereto.

    Thank you.

    Earl Warren:

    Mr. Heffron.

    Howard A. Heffron:

    I’d like to quote from the respondent’s statement of the problem which gave rise to the statute under consideration.

    He says, this prohibition is referring to the prohibitions against assessment created a problem for the taxpayer who did not wish to file a petition in the Tax Court within the 90 days but who desire that interest stopped running on a deficiency.

    We agree with that and we say the way that taxpayer stopped interest from running on a deficiency was by filing the waiver without waiting for the 90-day letter.

    If by hypothesis, he doesn’t want to go to the Tax Court, why do we have to send him on and insist that he pay interest during that entire interval?

    That is what the position of the Government comes down to in this case.

    Now, there is a clear distinction between a notice of deficiency, which is the 90-day letter and the deficiency itself.

    That’s made very clear in the statute which defines deficiency in tax — in Section 271.

    As used in this chapter, deficiency mean the amount by which the tax imposed exceed the excess of the amount shown on the return, the amounts previously assessed, and this would be an amount previously assessed, or the amounts previously collected without assessment as where the taxpayer pays voluntarily.

    Now, on the other hand, the other provisions clearly distinguish the notice itself.

    The deficiency is simply the liability which the Act itself creates, it doesn’t matter who determines it.

    It may never be found out but the deficiency is there.

    It is the true liability of the taxpayer less what he has acknowledged his — his tax.

    For example, 272 (c) provides that the taxpayer does not file a petition in the Tax Court, the deficiency, notice of which has been mailed to him shall be assessed which clearly distinguishes the deficiency itself from the notice.

    The very section we’re discussing here distinguishes it.

    It says, “No assessment of a deficiency shall be made until notice has been mailed to the taxpayer.”

    So, the deficiency is a concept entirely distinct from the notice.

    And it’s the Government that is relying on the definition as contained in the Internal Revenue Code.

    When the waiver provision says you may waive restrictions on the deficiency, the deficiency is not a notice of deficiency it is the liability which is created by the statute less the offsets such as whatever is acknowledged on the return or has been previously collected.

    The entire administrative process, the Internal Revenue Service, from the moment an agent appears on the premises to examine the return is designed to procure one of two results, either to procure agreement from the taxpayer that he will pay the proposed additional amount of tax.

    In which case the taxpayer signs an 870 to stop the running of interest, because since he’s already agreed to pay this amount, there is no reason to go forward with the rest of the administrative procedure and provide him with a 90-day letter or if the taxpayer does not agree to the proposal, he has successive layers of review within the Internal Revenue Service, he can go to a group chief.

    He can file — get a 30-day letter and protest and go to the Appellate Division which is part of the Internal Revenue Service.

    If all of these means avail not to reach a settlement of the dispute, he receives a 90-day letter, so that he can go to the Tax Court if he wants to.

    Charles E. Whittaker:

    You are making perhaps another fact that if the deficiency was there, all the notice does is to identify it.

    Howard A. Heffron:


    The notice is the identification by which the taxpayer can go to the Tax Court and dispute something alleged by the Commissioner as due over and above that, which he has acknowledged is due on his return or in some other way as by the waiver.

    But at every stage of the administrative process as these — these literally thousands and thousands of controversies between agents and taxpayers are resolved, at every stage the taxpayer’s afforded an opportunity, if he agrees with the proposed additional tax, to sign a waiver that closes the case out.

    There is no need to go to the Tax Court; there is no need to issue a 90-day letter.

    We’re stopping the running of interest on behalf of the taxpayer because the Government can immediately collect it and if the Government can collect it, then there’s nothing to take to the Tax Court because there is no deficiency.

    Charles E. Whittaker:

    But doesn’t that mean — but does it mean that (Inaudible) claim for refund which he filed the next day —

    Howard A. Heffron:


    Well that is the difference between the two routes Congress has established to contest tax liability.

    Now, there’s no question here as respondents seem to imply of whether the taxpayer understood this waiver.

    He had full opportunity below and the District Court to raise any question of a stopple of misrepresentation of anything which would impair the binding effects of the waiver.

    That was not done; there is no question of that sort at all in this case.

    As the Government sees that the only question here is construction of the statute and whether when Congress said that no assessment shall be made until a notice has been mailed whether that notice is not a restriction which the taxpayer can waive.

    Now, we say it is clear under the statute that that is a restriction that the taxpayer can waive.

    Now, the respondent has also referred to a Committee report of 1938 which indicates that these cases in the Ninth Circuit had held, there was an invalid waiver.

    Committee also said, “Your Subcommittee, while feeling that the language of the statute is already sufficiently clear, feels compelled to do precisely what was done in the 1954 Code just to make sure.”