Section 1346 was originally enacted
as Section 1310 (c) of the Revenue Act of 1921.
3 Its essential language seems to have
been copied from R. S. 3226, the predecessor of the present claim-for-refund
statute, 26 U.S.C. (Supp. V) 7422 (a). Those statutes use language
identical to that appearing above to provide that no suit for the
refund of a "tax," "penalty," or "sum" shall be maintained until
similar relief has been sought from the Secretary or his delegate.
4 The meaning that has been ascribed
to this language in the claim-for-refund statute provides the key
to what Congress intended when it used that language in the jurisdictional
provision. [357 U.S. 63, 66]
The original claim-for-refund statute,
Section 19 of the Revenue Act of July 13, 1866, provided that no
suit should be maintained in any court for the recovery of "any
tax alleged to have been erroneously or illegally assessed or collected,
until appeal shall have been duly made to the commissioner of internal
revenue . . . ." 5 On this "appeal"
the Commissioner was empowered to "remit, refund, and pay back"
all taxes or penalties improperly assessed or collected.
6 When the appeal requirement was restated
in Section 3226 of the Revised Statutes,
7 Congress added the "penalty" and "sum" clauses, bringing together
for the first time the three-way division that survives in 26 U.S.C.
(Supp. V) 7422 (a) and 28 U.S.C. 1346 (a) (1). The revisers left
no indication of what significance, if any, was to be attached to
this addition.
During the period of this formative
legislation refund suits could not be brought against the United
States because of its sovereign immunity. Tax litigation took the
form of an action of assumpsit against the collector. [357 U.S.
63, 67] See Philadelphia v. Collector, 5 Wall. 720.
8 Such suits were of course subject
to the provision in Section 19 of the 1866 Act that they must be
preceded by "appeal" to the Commissioner. The meaning of that command,
which later became R. S. 3226 and eventually, as amended, 26 U.S.C.
(Supp. V) 7422 (a), was considered in Cheatham v. United States,
92 U.S. 85 . There, in response to an appeal, the Commissioner
of Internal Revenue had set aside the first assessment of taxpayer's
1864 income taxes and directed the local assessor to make a second
one. The taxpayer paid the second assessment and sued the collector
for refund. The Court held that by failing to appeal from the second
assessment the taxpayer failed to comply with Section 19 and hence
had no right of action. In the course of its opinion the Court made
this careful statement of the remedies then available to taxpayers
who sought to contest the correctness of their tax:
"So also, in the internal-revenue
department, the statute which we have copied allows appeals
from the assessor to the commissioner of internal revenue; and,
if dissatisfied with his decision, on paying the tax the party
can sue the collector; and, if the money was wrongfully exacted,
the courts will give him relief by a judgment, which the United
States pledges herself to pay.
. . . . . [357 U.S. 63, 68]
". . . While a free course of
remonstrance and appeal is allowed within the departments before
the money is finally exacted, the general government has wisely
made the payment of the tax claimed, whether of customs or of
internal revenue, a condition precedent to a resort to the courts
by the party against whom the tax is assessed. . . . If the
compliance with this condition [that suit must be brought within
six months of the Commissioner's decision] requires the party
aggrieved to pay the money, he must do it. He cannot, after
the decision is rendered against him, protract the time within
which he can contest that decision in the courts by his own
delay in paying the money. It is essential to the honor and
orderly conduct of the government that its taxes should be promptly
paid, and drawbacks speedily adjusted; and the rule prescribed
in this class of cases is neither arbitrary nor unreasonable.
. . .
"The objecting party can take
his appeal. He can, if the decision is delayed beyond twelve
months, rest his case on that decision; or he can pay the amount
claimed, and commence his suit at any time within that period.
So, after the decision, he can pay at once, and commence suit
within the six months. . . ." 9
(Emphasis added.)
From this carefully considered dictum
it is unmistakably clear that the Court understood the statutes
of that time to require full payment of an assessed tax as a condition
precedent to the right to sue the collector for a refund.
This understanding of the statutory scheme appears to have prevailed
for the succeeding fifty or sixty years. It was never suggested
that the addition in R. S. 3226 of the clause beginning "any sum"
effected any change. The Cheatham case was decided after that [357
U.S. 63, 69] addition was made, and it gave no
indication that the "condition precedent" of which it spoke had
already been abrogated by Congress. Consistent with that understanding,
there does not appear to be a single case before 1940 in which a
taxpayer attempted a suit for refund of income taxes without paying
the full amount the Government alleged to be due. Court opinions
that took occasion to comment on the extent of payment are consistent
with the Cheatham declaration, 10
and that case has continued to be cited with approval to the present
day. 11 Such was the understanding
of the necessity for full payment in the suit against the collector.
Since the statute now under consideration,
28 U.S.C. 1346 (a) (1), employs language identical to that in the
statute under which the full-payment understanding developed, R.
S. 3226, a construction requiring full payment would appear to be
more consistent with the established meaning of the statutory language.
Furthermore, the situation with respect to tax suits against the
United States at the time 28 U.S.C. 1346 (a) (1) was enacted, the
express purpose of its enactment, and subsequent [357 U.S. 63, 70]
expressions of congressional intent all suggest
that the principle of full payment was to be preserved.
The jurisdictional provision that
is now 28 U.S.C. 1346 (a) (1) was first enacted in Section 1310
(c) of the Revenue Act of 1921. 12
At that time the United States was already suable in the District
Courts. Since 1887 the Tucker Act had allowed suit against the United
States for claims less than $10,000 "founded upon . . . any law
of Congress . . .," 13 and that language
included suits to obtain refund of income taxes. United States v.
Emery, Bird, Thayer Realty Co.,
237 U.S. 28 . Since R. S. 3226 was cast in the broadest of terms,
its requirement that refund suits be preceded by an "appeal" to
the Commissioner clearly applied to the Tucker Act cases, United
States v. Michel,
282 U.S. 656 , and the related requirement that full payment
must be made prior to suit seems to have been assumed to be equally
applicable. For amounts in excess of the $10,000 Tucker Act limitation
the taxpayer could invoke his old remedy against the collector.
The complementary nature of the two
District Court remedies was impaired when this Court re-emphasized
the rule requiring the collector to be sued personally. A suit against
the office or the successor in office of a deceased collector could
not be maintained. Smietanka v. Indiana Steel Co.,
257 U.S. 1 (1921). Senator Jones of New Mexico interrupted floor
debate on the Revenue Act of 1921 to call attention to this decision.
In his view it meant that when the particular collector was dead
a taxpayer suing for more than $10,000 had to bring suit in the
Court of Claims. In addition to the extra expense and inconvenience
of litigating in Washington, a Court of Claims [357 U.S. 63, 71]
judgment carried no interest. The Senator proposed
an amendment, stating:
"What is here proposed is that
we shall remedy that situation by providing that where the collector
to whom the revenue was paid has died then the claimant may
sue the United States. It simply brings about an equitable situation
and prevents the taxpayer from having to suffer the hardships
which would be brought upon him simply through the accident
of the death of the collector to whom he paid the money. I offer
the amendment for the purpose of remedying that situation."
14
The amendment, which was accepted
without further comment, conferred jurisdiction on the District
Court,
"Concurrent with the Court of
Claims, of any suit or proceeding, commenced after the passage
of the revenue act of 1921, for the recovery of any internal
revenue tax alleged to have been erroneously or illegally assessed
or collected, or of any penalty claimed to have been collected
without authority or any sum alleged to have been excessive
or in any manner wrongfully collected under the internal-revenue
laws, even if the claim exceeds $10,000, if the collector of
internal revenue by whom such tax, penalty, or such was collected
is dead at the time such suit or proceeding is commenced."
15
The amendment's narrow-stated purpose
refutes any suggestion that Congress intended further to expand
or even [357 U.S. 63, 72] to restate the jurisdiction
of the District Court in refund suits brought against the United
States. As we have seen, the District Courts already had such jurisdiction
under the Tucker Act, and there is no indication that Congress intended
any change in the terms on which that action was made available
other than the change that was clearly set forth. The statute that
is now 28 U.S.C. 1346 (a) (1) was enacted merely to remove the jurisdictional
amount limitation of the Tucker Act in the special situation where
the collector could not be sued. See Lowe Bros. Co. v. United States,
304 U.S. 302, 305 . The House Conference Report and a contemporary
Treasury Department declaration confirm this view of the statute's
effect. 16
The similarity of essential language
leaves no doubt that the terms of the jurisdictional provision were
copied from the claim-for-refund statute, R. S. 3226, as amended
by Section 1318 of the Revenue Act of 1921.
17 The fact that this language
had for many years been considered to require full payment before
suing the collector, and the fact that the avowed purpose of the
1921 amendment was merely to cure an inadequacy in the suit against
the collector, combine as persuasive indications that no change
was intended in the full-payment principle declared in Cheatham
v. United States, supra.
When Congress created the Board of
Tax Appeals in 1924, 18 it demonstrated
a clear understanding that refund suits could only be maintained
upon full payment of the [357 U.S. 63, 73] tax
alleged to be due. The House Committee proposing the bill explained
its purpose as follows:
"The committee recommends the
establishment of a Board of Tax Appeals to which a taxpayer
may appeal prior to the payment of an additional assessment
of income, excess-profits, war-profits, or estate taxes. Although
a taxpayer may, after payment of his tax, bring suit for the
recovery thereof and thus secure a judicial determination of
the questions involved, he can not, in view of section 3224
of the Revised Statutes, which prohibits suits to enjoin the
collection of taxes, secure such a determination prior to the
payment of the tax. The right of appeal after payment of the
tax is an incomplete remedy, and does little to remove the hardship
occasioned by an incorrect assessment. The payment of a large
additional tax on income received several years previous and
which may have, since its receipt, been either wiped out by
subsequent losses, invested in nonliquid assets, or spent, sometimes
forces taxpayers into bankruptcy, and often causes great financial
hardship and sacrifice. These results are not remedied by permitting
the taxpayer to sue for the recovery of the tax after this payment.
He is entitled to an appeal and to a determination of his liability
for the tax prior to its payment."
19
Petitioner argues that the "hardship"
the Board of Tax Appeals was created to alleviate was not the taxpayer's
inability to sue without paying the whole tax - for petitioner erroneously
concludes that the 1921 amendment conferred that right - but the
Government's power to [357 U.S. 63, 74] collect
the balance due while a refund suit was in progress. But the Committee
Report quoted above clearly demonstrates that the hardship about
which the Congress was concerned was the hardship of pre-litigation
payment, not post-litigation collection. Old Colony Trust Co. v.
Commissioner of Internal Revenue,
279 U.S. 716, 721 . 20
The final step in the evolvement
of 28 U.S.C. 1346 (a) (1) took place in the Act of July 30, 1954,
21 which removed the $10,000 jurisdictional
limitation and eliminated the condition about the collector being
dead or out of office. Far from indicating an intent to allow suit
without full payment of the tax due, the legislative history of
that amendment shows a clear understanding of the Cheatham requirement,
and demonstrates a narrow purpose in no way inconsistent with that
requirement. The House Report states:
"The purpose of this bill is
to permit taxpayers a greater opportunity to sue the United
States in the district court of their own residence to recover
taxes which they feel have been wrongfully collected. This is
done by removing the jurisdictional limitation of $10,000 now
imposed on such suits." 22
In explaining the present state of
the law the Report goes on to point out that a taxpayer may contest
a deficiency assessment by a petition in the Tax Court. "The tax
[357 U.S. 63, 75] payer may, however," the Report
continues, "elect to pay his tax and thereafter bring suit to recover
the amount claimed to have been illegally exacted."
23
The foregoing study of the
legislative history of 28 U.S.C. 1346 (a) (1) and related statutes
leaves no room for contention that their broad terms were intended
to alter in any way the Cheatham principle of "pay first and litigate
later." 24 For many years that
principle has been reinforced by the rule that no suit can be maintained
for the purpose of restraining the assessment or collection of any
tax. 25 More recently, Congress
took care to except from the operation of the Federal Declaratory
Judgments Act any controversies "with respect to Federal taxes."
26 To ameliorate the hardship produced
by these requirements Congress created a special court where tax
questions could be adjudicated in advance of any payment. But there
is no indication of any intent to create the hybrid remedy for which
petitioner contends.
It is suggested that a part-payment
remedy is necessary for the benefit of a taxpayer too poor to pay
the full amount of the tax. Such an individual is free to
litigate in the Tax Court without any advance payment. Where the
time to petition that court has expired, or where for some other
reason a suit in the District Court seems more desirable, the requirement
of full payment may in some instances work a hardship. But since
any hardship would grow out of an opinion whose effect Congress
in successive [357 U.S. 63, 76] statutory revisions
has made no attempt to alter, if any amelioration is required it
is now a matter for Congress, not this Court.
[Flora
v. United States, 357 U.S. 63 (1958)]