U.S. Supreme Court PHILLIPS v. COMMISSIONER OF INTERNAL REVENUE, 283 U.S. 589 (1931)

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ment is that such liability (except where a lien had attached before the transfer) is dependent upon questions of law and fact which have heretofore been adjudicated by courts; that to confer upon the Commissioner power to determine these questions in the first instance offends against the principle of the separation of the powers; and that the inherent denial of due process is not saved by the provisions for deferred review in a suit to recover taxes paid, or, in the alternative, for an immediate appeal to the Board of Tax Appeals with the right to review its determination in the courts, because there are limitations and conditions in either method of judicial review.

Section 280(a)(1) provides the United States with a new remedy for enforcing the existing 'liability, at law or in equity.' The quoted words are employed in the statute to describe the kind of liability to which the new remedy is to be applied and to define the extent of such liability. The obligation to be enforced is the liability for the tax. Russell v. United States, 278 U.S. 181, 186, 49 S. Ct. 121; United States v. Updike, 281 U.S. 489, 493, 494 S., 50 S. Ct. 367. The proceeding is one to collect the revenue. That Congress deemed the section necessary in order to make the tax-collecting system more effective is established, not only by the fact of enactment, but also by the reports of the committees. [Footnote 4]

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The right of the United States to collect its internal revenue by summary administrative proceedings has long been settled. [Footnote 5] Where, as here, adequate opportunity is afforded for a later judicial determination of the legal rights, summary proceedings to secure prompt performance of ecun iary obligations to the government have been consistently sustained. Compare Cheatham v. United States, , 88-89; Springer v. United States, 102 U.S. 586, 594; Hagar v. Reclamation District No. 108, 111 U.S. 701, 708-709, 4 S. Ct. 663. Property rights must yield provisionally to governmental need. Thus, while protection of life and liberty from administrative action alleged to be illegal may be obtained promptly by the writ of habeas corpus, United States v. Woo Jan, 245 U.S. 552, 38 S. Ct. 207; Ng Fung Ho v. White, 259 U.S. 276, 42 S. Ct. 492, the statutory prohibition of any 'suit for the purpose of restraining the assessment or collection of any tax' postpones redress

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for the alleged invasion of property rights if the exaction is made under color of their offices by revenue officers charged with the general authority to assess and collect the revenue. [Footnote 6] Snyder v. Marks, 109 U.S. 189, 3 S. Ct. 157; Dodge v. Osborn, 240 U.S. 118, 36 S. Ct. 275; Graham v. Du Pont, 262 U.S. 234, 43 S. Ct. 567. This prohibition of injunctive relief is applicable in the case of summary proceedings against a transferee. Act of May 29, 1928, c. 852, 604, 45 Stat. 791, 873 (26 USCA 2604). Proceedings more summary in character than that provided in section 280, and involving less directly the obligation of the taxpayer, were sustained in Murray's Lessee v. Hoboken Land & Improvement Co., 18 How. 272. It is urged that the decision in the Murray Case was based upon the peculiar relationship of a collector of revenue to his government. The underlying principle in that case was not such relation, but the need of the government promptly to secure its revenues.

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ment and collection meanwhile may be stayed by giving a bond to secure payment. Act of February 26, 1926, c. 27, 1001, 44 Stat. 9, 109 (26 USCA 1224 and note); Act of May 29, 1928, c. 852, 603, 45 Stat. 791, 873 ( 26 USCA 1224). There may be a further review by this court on certiorari. These provisions amply protect the transferee against improper administrative action. Compare Hurwitz v. North, , 46 S. Ct. 384.

It is argued that such review by the Board of Tax Appeals and Circuit Court of Appeals is constitutionally inadequate because of the conditions and limitations imposed. Specific objection is made to the provision that collection will not be stayed while the case is pending before the Circuit Court of Appeals, unless a bond is filed; and also to the rule under which the Board's findings of fact are treated by that court as final if there is any evidence to support them. [Footnote 9] As to the first of these objections, it has already been shown that the right of the United States to exact immediate payment and to relegate the taxpayer to a suit for recovery is paramount. The privilege of delaying payment pending immediate judicial review, by filing a bond, was granted by the sovereign as a matter of grace solely for the convenience of the tax-

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payer. [Footnote 10] Nor is the second objection of weight. It has long been settled that determinations of fact for ordinary administrative purposes are not subject to review. Johnson v. Drew, 171 U.S. 93, 99, 18 S. Ct. 800; Public Clearing House v. Coyne, 194 U.S. 497, 508, 24 S. Ct. 789; United States v. Ju Toy, 198 U.S. 253, 263, 25 S. Ct. 644; Red 'C' Oil Co. v. North Carolina, 222 U.S. 380, 394, 32 S. Ct. 152; Mutual Film Co. v. Industrial Commission, 236 U.S. 230, 246, 35 S. Ct. 387. Compare Williamsport Wire Rope Co. v. United States, 277 U.S. 551, 560, 48 S. Ct. 587. Save as there may be an exception for issues presenting claims of constitutional right, such administrative findings on issues of fact are accepted by the court as conclusive if the evidence was legally sufficient to sustain them and there was no irregularity in the proceedings. Reetz v. Michigan, 188 U.S. 505, 507, 23 S. Ct. 390; Lieberman v. Van De Carr, 199 U.S. 552, 562, 26 S. Ct. 144; Douglas v. Noble, 261 U.S. 165, 167, 43 S. Ct. 303; Tagg Bros. & Moorhead v. United States, 280 U.S. 420, 443, 50 S. Ct. 220,74 L . Ed. 524.11 The adequacy of the scope of review offered by the Revenue Act of 1926 in the case of a deficiency determined directly against the taxpayer was assumed in Old Colony Trust Co. v. Commissioner, , 49 S. Ct. 499; and this procedure is now thoroughly established. 12 Questions of fact involved in proceedings against transferees are no different or more complex than those often encountered in determining the direct liability of a tax-

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payer. [Footnote 13] The alternative judicial review provided is adequate in both cases.

Second. It is urged by amici curize that the method of assessment and collection permitted by section 280(a)(1) cannot be applied where, as in the case at bar, the transfer of assets, upon which the transferee's liability is based, occurred prior to the enactment of the Revenue Act of 1926; and, moreover, that if applied retroactively to such transfer, the section would be unconstitutional. The power of Congress to provide an additional remedy for the enforcement of existing liabilities is clear. Compare Graham & Foster v. Goodcell, 282 U.S. 409, 427, 51 S. Ct. 186. It is clear also that Congress intended that the section should be available for enforcing the liability of a transferee in respect to taxes 'imposed ... by any prior income, excess-profits, or War- Profits Tax Act,' irrespective of the time at which the transfer was made. The need for a more effective and expedient remedy was not limited to liabilities of transferees thereafter arising. To have so limited the operation of the section would, at least as to earlier acts, have seriously impaired the value of the new remedy. [Footnote 14]

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tation unless Congress provides that it shall be. United States v. Nashville, Chattanooga & St. Louis Ry. Co., , 6 S. Ct. 1006; Chesapeake & Delaware Canal Co., 250 U.S. 123, 125, 39 S. Ct. 407; E. I. Dupont de Nemours & Co. v. Davis, 264 U.S. 456, 462, 44 S. Ct. 364. The detailed limitation periods specified in section 280 evidence the intention that they alone shall be applicable to the proceedings therein authorized.

Fifth. It is contended that, even if petitioners are liable, the amount determined is excessive; and that the findings of the Board of Tax Appeals in the present case are insufficient to support an assessment of the entire balance of the deficiencies. It is first urged that the estate of Phillips can be assessed only for its pro rata share of the deficiency, according to the ratio which the stock held by him bore to the total outstanding stock of the corporate taxpayer at the time of dissolution. The argument is that the federal Equity Rules require that all stockholders be brought in as necessary parties and be proportionately subjected to liability. While it is permissible for a respondent to bring in other stockholders or transferees by a cross-bill, 15 this procedure is founded upon the desire not to urde n the courts with a multiplicity of suits. Compare Hatch v. Dana, , 211. Such rule of convenience is not applicable in summary administrative proceedings like that provided by section 280(a)(1). One who receives corporate assets upon dissolution is severally liable, to the extent of assets received, for the payment of taxes of the corporation; and other stockholders or transferees need not be joined. [Footnote 16]

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that Phillips' liability for the tax is limited to a pro rata share of the assets finally distributed, that is, to one-quarter of the unpaid deficiency. But the plain import of the findings is that there was a single distribution which took several months to complete; and there is no question that the entire assets were thereby distributed. Moreover, such argument, urged for the first time here, comes too late. For while the burden was on the Commissioner to prove before the Board that Phillips was liable as a transferee, the facts in the case at bar were stipulated; and it was agreed that the date of complete liquidation was September 27, 1919, by which time petitioners' decedent had received his full share of the distributed assets. Since it was stipulated that the final transfers of assets were without consideration, that they completely exhausted the corporate assets, that the balance of the deficiencies, assessed against the corporation, remains unpaid, and that the distributive dividend received by Phillips was in excess of the remaining tax liability, the burden resting upon the Commssio ner was sustained.

Affirmed. Footnotes

Footnote 1 Compare Owensboro Ditcher & Grader Co. v. Lucas (D. C.) 18 F.(2d) 798; Mid-Continent Petroleum Corporation v. Alexander (D. C.) 35 F.(2d) 43; Routzahn v. Tyroler (C. C. A.) 36 F.(2d) 208. See also Felland v. Wilkinson (D. C.) 33 F.(2d) 961; Cappellini v. Commissioner, 14 B. T. A. 1269.

Footnote 2 Such proceedings to obtain payment of corporate income and profits taxes from stockholders or other transferees have been frequently brought. See United States v. McHatton (D. C.) 266 F. 602; Updike v. United States ( C. C. A.) 8 F.(2d) 913, certiorari denied, 271 U.S. 661, 46 S. Ct. 473; United States v. Capps Mfg. Co. (D. C.) 9 F.(2d) 79, affirmed (C. C. A.) 15 F.(2d) 528; United States v. Fairall (D. C.) 16 F.( 2d) 328; United States v. Klausner (C. C. A.) 25 F.(2d) 608; United States v. Armstrong (C. C. A.) 26 F. (2d) 227; United States v. Garbutt (D. C.) 27 F.(2d) 1000, modified (C. C. A.) 35 F.(2d) 924; United States v. Pann ( D. C.) 23 F.(2d) 714, affirmed (C. C. A.) 44 F.(2d) 321. Compare United States v. Boss & Peake Automobile Co. (D. C.) 285 F. 410, affirmed (C. C. A.) 290 F. 167; Dreyfuss Dry Goods Co. v. Lines (D. C.) 18 F.(2d) 611, reversed (C. C. A.) 24 F.(2d) 29; United States v. Snook (D. C.) 24 F.(2d) 844, reversed, sub. nom. Austin v. United States (C. C. A.) 28 F. (2d) 677; United States v. Updike (D. C.) 25 F.(2d) 746, affirmed (C. C. A.) 32 F.( 2d) 1; Id., 281 U.S. 489, 50 S. Ct. 367; People's Industrial Life Ins. Co. v. United States (C. C. A.) 29 F.(2d) 650.

Where the transferee took property subject to the tax lien of the United States, the lien could be enforced by summary proceeding. Rev. Stat . 3185-3205 (26 USCA 114-134); Mansfield v. Excelsior Refinery Co., 135 U.S. 326, 336, 10 S. Ct. 825; Blacklock v. United States, 208 U.S. 75, 87, 28 S. Ct. 228. Or by an action in equity. Rev. Stat. 3207. Compare title 26, U.S.C. 115, 136 (26 USCA 115, 136); Heyward v. United States (C. C. A.) 2 F.(2d) 467; In re Glover-McConnell Co. (D. C.) 9 F. (2d) 683, 686. See, also, United States v. Capital City Dairy Co. (D. C.) 252 F. 900, 904; United States v. Haar ( C. C. A.) 27 F.(2d) 250, 251, certiorari denied, 278 U.S. 634, 49 S. Ct. 32, 73 Ed. 551.

Footnote 3 'The liability, at law or in equity, of a transferee of property of a taxpayer, in respect of the tax ... imposed ... any prior income, excess-profits, or War-Profits Tax Act' shall 'be assessed, collected and paid in the same manner ... as ... a deficiency in a tax imposed by this title (including the provisions in case of delinquency in payment after notice and demand, the provisions authorizing distraint and proceedings in court for collection, and the provisions prohibiting claims and suits for refunds).' 44 Stat. 61, 26 USCA 1069(a)(1). This remedy is in addition to proceedings to enforce the tax lien or actions at law and in equity. Act of February 26, 1926, c. 27, 1122(b), 44 Stat. 9, 121; Act of May 29, 1928, c. 852, 617(b), 45 Stat. 791, 877 (26 USCA 2617(b ). Compare United States v. Greenfield Tap & Die Corp. (D. C.) 27 F.(2d) 933; United States v. Updike (D. C.) 25 F.(2d) 746, 747, affirmed (C. C. A .) 32 F.(2d) 1, 4; Id., , 50 S. Ct. 367.

Footnote 4 Conference Report to accompany H. R. 1, H. Rep. No. 356, 69th Cong., 1st Sess., February 22, 1926, p. 44, states that the section 'makes the procedure for the collection of the amount of the liability of transferees conform to the procedure for the collection of taxes ... for procedural purposes the transferee is treated as a taxpayer would be treated.' Compare H. Rep. No. 2, 70th Cong., 1st Sess., December 7, 1927, pp. 31-32: 'Section 280 of the 1926 Act has proved a very effective and necessary method of stopping tax evasion through the various favorite methods recognized by everyone prior to the 1926 Act. The enforcement of the liability through court process had been ineffective and the amount of revenue lost through mala fide transfers or through corporate distribution of assets was admittedly large.'

Footnote 5 Cheatham v. United States, 92 U.S. 85, 89; State Railroad Tax Cases, 92 U.S. 575, 615; Springer v. United States, 102 U.S. 586, 593; Dodge v. Osborn, 240 U.S. 118, 120, 36 S. Ct. 275; Graham v. Du Pont, 262 U.S. 234, 255, 43 S. Ct. 567. The earliest federal excise tax acts contained provisions for suit, or levy by distraint and sale. E. g., Act of March 3, 1791, c. 15, 23, 1 Stat. 199, 204; Act of December 21, 1814, c. 15, 5, 3 Stat. 152, 154; Act of January 9, 1815, c. 21, 26, 3 Stat. 164, 173; Act of January 18, 1815, c. 22, 5, 3 Stat. 180, 182; Id., c. 23, 9, 3 Stat. 186, 188. Similarly, a tax lien on lands and chattels was early introduced. Act of July 22, 1813, c. 16, 19, 3 Stat. 22, 30; Act of January 9, 1815, c. 21, 24, 3 Stat. 164, 172. Compare Act of March 3, 1815, c. 100, 12-15, 3 Stat. 239, 241.

For the ancient English practise of summary seizure of the property of a debtor of a Crown debtor, by means of an immediate extent in the second degree, see West, The Law and Practice of Extents, cc. 1-3, 24; Chitty, Laws of the Prerogative of the Crown, pp. 261, 303-07; Price, Laws and Course of the Exchequer, c. XIV; Robertson, Civil Proceedings By and Against the Crown, c. III, pp. 203-04, 206-07. As to the adoption of the writ in this country, see Hackett v. Amsden, 56 Vt. 201, 206, 207. Compare McMillen v. Anderson, 95 U.S. 41.

Footnote 6 Rev. Stat. 3224 (26 USCA 154). There is no substantial relaxation of this principle in the provision that, while an appeal is pending before the Board of Tax Appeals, no proceeding by distraint may be taken, and, notwithstanding Rev. Stat. 3224, such proceeding may be enjoined. Act of February 26, 1926, c. 27, 274(a), 44 Stat. 9, 55 (26 USCA 1048); Act of May 29, 1928, c. 852, 272(a), 45 Stat. 791, 852 (26 USCA 2272(a); Peerless Woolen Mills v. Rose (C. C. A.) 28 F.(2d) 661. For even in such case, if the Commissioner believes the assessment or collection of the tax will be endangered by delay, he may make an immediate jeopardy assessment and collect by distraint unless the taxpayer files a bond. Act of February 26, 1926, c. 27, 279, 44 Stat. 9, 59 (2 USC A 1051, 1063); Act of May 29, 1928, c. 852, 273, 45 Stat. 791, 854 (26 USCA 2273); Salikoff v. McCaughn (D. C.) 24 F. (2d) 434. Compare Burnet v. Chicago Railway Equipment Co., 282 U.S. 295, 303, 51 S. Ct. 137. The paramount right of the United States to require immediate payment, or surety therefor, is not diminished.

Footnote 7 The same rule is applied to eminent domain proceedings by a state. Sweet v. Rechel, , 16 S. Ct. 43; Backus v. Fort Street Union Depot Co., 169 U.S. 557, 18 S. Ct. 445; Williams v. Parker, 188 U.S. 491, 23 S. Ct. 440; Bragg v. Weaver, 251 U.S. 57, 62, 40 S. Ct. 62; Hays v. Port of Seattle, 251 U.S. 233, 238, 40 S. Ct. 125; Joslin Manufacturing Co. v. Providence, 262 U.S. 668, 677, 43 S. Ct. 684.

Footnote 8 It is asserted that these latter provisions, added by the Revenue Act of 1928, could not render valid an assessment void under section 280 of the 1926 act. But as the objection relates only to the remedy and the hearing before the Board was not held until November, 1928, that is, after the 1928 act was in effect, any alleged defect was cured.

Footnote 9 Avery v. Commissioner (C. C. A.) 22 F.(2d) 6, 7, 55 A. L. R. 1277; Geo. Feick & Sons Co. v. Blair, 58 App. D. C. 168, 26 F.(2d) 540, 542; Bishoff v. Commissioner (C. C. A.) 27 F.(2d) 91, 92; Conklin-Zoone-Loomis Co. v. Commissioner (C. C. A.) 29 F.(2d) 698, 700; E. G. Robichaux Co. v. Commissioner (C. C. A.) 32 F.(2d) 780, 781; Meinrath Brokerage Co. v. Commissioner (C. C. A.) 35 F.(2d) 614, 616. The further objection that this mode of review may deprive the taxpayer of a jury trial contrary to the Seventh Amendment, is unfounded. Even in the alternative action to recover taxes alleged to have been illegally collected, the right 'to a jury ... is not to be found in the Seventh Amendment ... but merely arises by implication from the provisions of section 3226, Revised Statutes, ... which has reference to a suit at law.' Wickwire v. Reinecke, 275 U.S. 101, 105, 48 S. Ct. 43, 45.

Footnote 10 See Williamsport Wire Rope Co. v. United States, , 562, Note 7, 48 S. Ct. 587; Russell v. United States, 278 U.S. 181, 186, 187 S., 49 S. Ct. 121; Old Colony Trust Co. v. Commissioner, 279 U.S. 716, 721, 49 S. Ct. 499.

Footnote 11 Compare Davis v. Massachusetts, 167 U.S. 43, 48, 17 S. Ct. 731; Gundling v. Chicago, 177 U.S. 183, 187, 20 S. Ct. 633; Fischer v. St. Louis, 194 U.S. 361, 371, 24 S. Ct. 673.

Footnote 12 By November 1, 1930, 644 petitions for review under the Revenue Act of 1926 had been decided by the various Circuit Courts of Appeals, and 671 petitions were pending. See statement of the Chairman of the Board of Tax Appeals in Hearing Before the Subcommittee of House Committee on Appropriations, 71st Cong., 3d Sess., January 7, 1931, pp. 19, 26.

Footnote 13 Compare Lonsdale v. Commissioner (C. C. A.) 32 F.(2d) 537; Hoosier Casualty Co. v. Commissioner, 59 App. D. C. 44, 32 F.(2d) 940; Jacobs v. Commissioner (C. C. A.) 34 F.(2d) 233; O'Meara v. Commissioner (C. C. A.) 34 F. (2d) 390; Insurance & Title Guarantee Co. v. Commissioner (C. C. A.) 36 F.(2d) 842; Penney & Long, Inc., v. Commissioner (C. C. A.) 39 F.(2d) 849; Barde Steel Products Corporation v. Commissioner (C. C. A.) 40 F.(2d) 412.

Footnote 14 There is no suggestion in the Committee Reports on the 1926 act that section 280 was to be so limited. A contrary intention is perhaps indicatd by subdivision (b)(2) which provided that, where 'the period of limitation for assessment against the taxpayer expired before the enactment of this Act but assessment against the taxpayer was made within such period,' the Commissioner should have six years in which to make an assessment against the transferee, provided he could do so within one year after the enactment of the 1926 act. Moreover, in all cases, an additional period of one year after the expiration of the period for assessing the taxpayer was given. Compare H. R. Rep. No. 356, 69th Cong., 1st Sess., February 22, 1926, p. 44. Subdivision (c) provides that, in the case of corporations which had been dissolved, the period for assessment of the transferee was to be the same as if such 'termination of existence had not occurred.' These provisions clearly contemplated a dissolution and transfer of assets prior to the passage of the act. Compare United States v. Updike, 281 U.S. 489, 494, 50 S. Ct. 367. In the case at bar, two assessments against the corporate taxpayer had been made prior to 1926.

Footnote 15 Compare Equity Rules 25, 39, 42 (28 USCA 723); Watson v. National Life & Trust Co. (C. C. A.) 162 F. 7.

Footnote 16 Benton v. American National Bank (C. C. A.) 276 F. 368; McWilliams v. Excelsior Coal Co. (C. C. A.) 298 F. 884. Compare United States v. Boss & Peake Automobile Co. (D. C.) 285 F. 410, affirmed (C. C. A.) 290 F. 167; Capps Manufacturing Co. v. United States (C. C. A.) 15 F.(2d) 528; Pann v. United States (C. C. A.) 44 F.(2d) 321. See, also, Adams v. Perryman & Co., 202 Ala. 469, 80 So. 853; Singer v. Hutchinson, 183 Ill. 606, 620, 56 N. E. 388, 75 Am. St. Rep. 133; Kimbrough v. Davies, 104 Miss. 722, 61 So. 697; Bartlett v. Drew, 57 N. Y. 587.

Footnote 17 It was conceded below that, if the other stockholders are insolvent, or absent from the jurisdiction, or cannot be ascertained, they need not be joined. Compare Kennedy v. Gibson, 8 Wall. 498, 506; Second National Bank of Erie v. Georger (D. C.) 246 F. 517, 520; United States v. Armstrong (C. C. A.) 26 F.(2d) 227, 233.