FLORA v. UNITED STATES.

(362 U.S. 145)

ON REHEARING.

No. 492, October Term, 1957. Argued May 20, 1958. Decided June 16, 1958.Rehearing granted June 22, 1959.-Reargued November 12, 1959. Decided March 21, 1960.

Under 28 U.S.C. § 1346 (a) (1), a Federal District Court does not have jurisdiction of an action by a taxpayer for refund of a part payment made by him on an assessment for an alleged deficiency in his income tax. The taxpayer must pay the full amount of the assessment before he may challenge its validity in an action under § 1346 (a) (1). Flora v. United States, 357 U.S. 63, reaffirmed. Pp. 146-177.

(a) The language of § 1346 (a) (1) can more readily be construed to require payment of the full tax before suit than to permit suit for recovery of a part payment. Pp. 148-151.

(b) The legislative history of § 1346 (a) (1) is barren of any clue to the congressional intent on this issue; but that section is a jurisdictional provision which is a keystone in a carefully articulated and quite complicated structure of tax laws; since enactment of its precursor in 1921 Congress has several times acted upon the assumption that § 1346 (a) (1) requires full payment before suit; and any evidence of a contrary intent is too weak and insubstantial to justify destroying the existing harmony of the tax statutes. Pp. 151–158. (c) In establishing the Board of Tax Appeals (now the Tax Court), Congress acted upon the assumption that full payment of the tax assessed was a condition precedent for bringing suit for refund in a District Court, and it chose to establish the Board as a different forum where the validity of an assessment could be litigated without prior payment in full. Pp. 158-163.

(d) To permit such a suit in a District Court would be inconsistent with the purpose of § 405 of the Revenue Act of 1935, which amended the Declaratory Judgment Act so as to except disputes "with respect to Federal taxes." Pp. 164-165.

(e) To permit such a suit in a District Court would generate the very problems which Congress believed it had solved by § 7422 (e) of the Internal Revenue Code of 1954. Pp. 165–167.

(f) A different conclusion is not required by the administrative practice prior to 1940 nor by a few inconsequential exceptions to [146] the otherwise uniform belief prior to 1940 that full payment had to precede suit in a District Court for refund. Pp. 167-175.

(g) Requiring taxpayers to pay assessments in full before suing in a District Court will not necessarily subject them to undue hardships, since they may appeal to the Tax Court without first paying anything. Pp. 175–177. 246 F. 2d 929, affirmed.

Randolph W. Thrower reargued the cause for petitioner. With him on the brief on reargument were A. G. McClintock, William A. Sutherland and George L. Cohen.

Assistant Attorney General Rice reargued the cause for the United States. With him on the brief on reargument were Solicitor General Rankin, Harry Baum and Marvin W. Weinstein.

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MR. CHIEF JUSTICE WARREN delivered the opinion of the Court. The question presented is whether a Federal District Court has jurisdiction under 28 U.S.C. § 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. Subsequently the Court granted a petition for rehearing. 360 U.S. 922. 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 [147] 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.1

The question raised in this case has not only raised a conflict in the federal decisions, but has also in recent years provoked controversy

1 The decision of the Court of Appeals in Flora conflicted with Bushmiaer v. United States, 230 F. 2d 146 (C.A. 8th Cir.). Cf. Coates v. United States, 111 F. 2d 609 (C.A. 2d Cir.); Sirian Lamp Co. v. Manning, 123 F. 2d 776 (C.A. 3d Cir.); Suhr v. United States, 18 F.2d 81 (C.A. 3d Cir.), semble.

66215-61--4

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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

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"(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 [149] 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 [150] "sum," as a "percentum," or as "costs." 4 Such a rendition of

2 As will appear later, prior to 1940 the general view was that full payment was a jurisdictional prerequisite. But a substantial difference of opinion arose after 1940, when the Court of Appeals for the Second Circuit decided Coates v. United States, 111 F. 2d 609, against the Government. See Riordan, Must You Pay Full Tax Assessment Before Suing in the District Court? 8 J. Tax. 179; Beaman, When Not to Go to the Tax Court: Advantages and Procedures in Going to the District Court, 7 J. Tax. 356; Rudick and Wender, Federal Income Taxation, 32 N.Y.U. L. Rev. 751, 777-778; Note, 44 Calif. L. Rev. 956, Note, 2 How. L.J. 290.

3 See I.R.C. (1954), §§ 1(a), 1(b) (1), 68A Stat. 5, 6. The same general pattern has existed for many years. See, e.g., §§ 116, 117, of the Act of June 30, 1864, c. 173, 13

Stat. 281-282.

Revenue Act of 1924, c. 234, § 275 (a), 43 Stat. 298; Revenue Act of 1918, c. 18, $250 (e), 40 Stat. 1084; Act of June 6, 1872, c. 315, § 21, 17 Stat. 246; Act of June 30, 1864, c. 173, § 119, 13 Stat. 283. See also Helvering v. Mitchell, 303 U.S. 391, 405.

the statute, which is supported by precedent,5 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 v. Acker, 361 U.S. 87.

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 [151] 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 1887.8 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. [152] But because the Collector had to be sued personally, no

5 Lower courts have given this construction to the same three phrases in certain claim-for-refund and limitations provisions in prior tax statutes. United States v. Magoon, 77 F. 2d 804; Union Trust Co. v. United States, 5 F. Supp. 259, 261 ("The natural definition of 'tax' comprehends one 'assessment' or one tax in the entire amount of liability"), aff'd, 70 F. 2d 629, 630 ("We agree with the District Court that 'tax,' 'penalty,' and 'sum' refer to distinct categories of illegal collections and 'tax' includes the entire tax liability as assessed by the Commissioner"); United States v. Clarke, 69 F. 2d 748; Hills v. United States, 50 F. 2d 302, 55 F. 2d 1001 (Ct. Cl.); cf. Blair v. Birkenstock, 271 U.S. 348.

In the prior opinion we stated that, were it not for certain countervailing considerations, the statutory language "might. be termed a clear authorization' to sue for the refund of part payment of an assessment. 357 U.S., at 65. It is quite obvious that we did not regard the language as clear enough to preclude deciding the case on other grounds. Moreover, it could at that time be assumed that the terms of the statute favored the taxpayer, because eight members of the Court considered the extrinsic evidence alone sufficient to decide the case against him. Although we are still of that opinion, we now state our views with regard to the bare words of the statute because the argument that these words are decisively against the Government has been urged so strenuously.

7 42 Stat. 311.

824 Stat. 505, as amended, 28 U.S.C. §§ 1346, 1491. See United States v. Emery, Bird, Thayer Realty Co., 237 U.S. 28.

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.10 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.11

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 [153] 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 on 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,12 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. 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."

9 Smietanka v. Indiana Steel Co., 257 U.S. 1.

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10 See H.R. Conf. Rep. No. 486, 67th Cong., 1st Sess. 57; remarks of Senator Jones, 61 Cong. Rec. 7506-7507. Another amendment was added in 1925 giving the right to bring refund suits against the United States where the Collector was out of office. 43 Stat. 972. And in 1954, both the $10,000 limitation and the limitation with respect to the Collector being dead or out of office were eliminated. 68 Stat. 589.

The next of R.S. § 3226 is set forth in note 16, infra, toegther with a more detailed account of the origin and development of the pertinent statutory language. The successor of R.S. § 3226 is I.R.C. (1954), § 7422 (a), 68Ā Stat. 876.

12 See Cary v. Curtis, 3 How. 236.

13 E.g., Act of Feb. 26, 1845, c. 22, 5 Stat. 727; Act of Mar. 3, 1863, c. 74, 12 Stat. 729;: Act of June 30, 1864, c. 173, § 44, 13 Stat. 239-240.