Cappellini v. Commissioner

14 B.T.A. 1269, 1929 BTA LEXIS 2960

• Court: United States Board of Tax Appeals
• Decided: January 15, 1929
• Docket: Docket Nos. 25926-25928.
• Status: Published

Opinions

OPINION.

ARUndell :

The facts have been stipulated and both parties have in these proceedings directed their arguments to the constitutionality of section 280 of the Revenue Act of 1926. Both parties have also urged that the Board not only has the power, but it is its duty to determine the constitutionality of that section. The position of respondent is that the section is constitutional. The petitioners contend that section 280 is unconstitutional and in their petitions assign as error the following:

(a) The action of the Commissioner of Internal Revenue in proposing to assess against this petitioner, as transferee of the assets of the Masontown Coal Company, now dissolved, the sum of $2,134.18, plus any penalty and accrued interest, representing unpaid income and profits tax assessed against that company for 1920.

(b) The action of the Commissioner of Internal Revenue in purporting to proceed under the provisions of section 280 of the Revenue Act of 1926, and proposing to assess against this petitioner the tax alleged to be due from the Masontown Coal Company, now dissolved, for the reason that said section 280 of the Revenue Act of 1926 is in conflict with the Constitution of the United States, unconstitutional and void, and the Commissioner of Internal Revenue is without authority to propose to assess said tax against this petitioner.

(c) Section 280 of the Revenue Act of 1926 is unconstitutional and void for that it violates and contravenes the provisions of the Constitution of the United States in this:

1. It confers judicial power on the Commissioner of Internal Revenue contrary to the provisions of Section 1, Article 3.

2. It deprives this petitioner of his property without due process of law, contrary to the provisions of the Fifth Amendment.

3. It makes this petitioner liable for tax upon income not received by him, contrary to the provisions of the Sixteenth Amendment.

4. The tax imposed is a direct tax, levied without apportionment, and not in income, contrary to section 2 of Article 1, and the Sixteenth Amendment.

While the assignments of error do not in terms attack the jurisdiction of the Board, an analysis of the question raised by petitioners shows that their position goes much deeper than appears on the surface and necessarily involves a consideration of the power and duties of the Board, for the reason that the section attacked is the one by which petitioners come before the Board. The assignments do not call attention to a particular part of the section which is claimed to be unconstitutional, but the charge made is that the entire system set up by the statute, which provides for a determination in the first instance by the Commissioner and a review of that determination by the Board, is unconstitutional. The attack is on the entire system and carries with it as much a charge that the Board is without power as that the Commissioner is without power. That the petitioners are not unaware of this fact plainly appears from page 78 of their brief, whei’ein it is stated:

It necessarily follows, therefore, that neither the Commissioner of Internal Revenue nor the Board of Tax Appeals has the legal power to determine the liability, at law or in equity, of a transferee of property of a taxpayer, in respect of the tax sought to be imposed by virtue of Section 2S0, and that this section is unconstitutional because of its attempt to confer upon the Commissioner of Internal Revenue, and incidentally upon the Board of Tax Appeals a part of the judicial power of the United States.

In the view we take of the matter it is not necessary to determine whether the Board, which is specifically placed in the executive branch of the Government, may pass on the constitutionality of an act of Congress, or whether in fact section 280 is or is not constitutional. It is only by invoking the provisions of section 280 that petitioners may come to the Board, for' it is that section alone which gives the Board jurisdiction of these proceedings. It is a well settled principle that one can not invoke the aid of a statute conferring jurisdiction and at the same time attack the validity of the statute so invoked. This principle we believe is firmly established by the decisions of the Supreme Court.

In Great Falls Mfg. Co. v. Attorney General, 124 U. S. 581, the plaintiff, pursuant to an act of Congress, sued in the Court of Claims to recover damages for the taking of its property, and then filed a bill in the Circuit Court, alleging, inter alia, that the act of Congress giving the right to sue in the Court of Claims was unconstitutional on several grounds, and praying for a restraining order against the Attorney General and Secretary of War, or, if it should be found that the property had been legally condemned, that an issue be framed triable by jury to ascertain the amount of damages. The Supreme Court said (at p. 589):

It is, however, contended that the act is, in all of its parts, unconstitutional and void. The grounds upon which the plaintiff rests this contention are: that the act makes no provision by which compensation for property taken under it can be constitutionally adjusted and determined; that it does not provide for the ascertainment of such compensation by the verdict of a jury; that it compels the plaintiff to have recourse to the Court of Claims, which is a court unknown to the Constitution, being neither a court of equity such as was known at the adoption of that instrument, nor a court of law proceeding according to the rules of common law, but only a board of referees, constituted by one party to hear such cases as another party will consent to submit to its determination, and without power to enforce its judgment against the party by whom it is created; and that it directs property to be taken and the owner thereof dispossessed, without making provision for just compensation.

These are questions of much interest, and their examination, in the light of the authorities, might not be altogether unprofitable. But this opinion need not be extended for the purpose of such an examination; for the questions propounded are not material in the determination of the present case. They have become immaterial by the act of the plaintiff in instituting suit against the United States in the Court of Claims. In that suit compensation was sought for its property taken for public use, while the present suit proceeds upon the ground that it has not been lawfully taken, and that it is entitled to be placed in possession thereof. Congress prescribed a particular mode for ascertaining the compensation which claimants of property taken for the purposes indicated in the act of 1882 were entitled to receive. It gave them liberty to proceed by suit against the United States before a designated tribunal, which, since the passage of the act of March 17, 1866, 14 Stat. 9, has exercised “ all the functions of a court,” from whose judgment appeals regularly lie to this court. United States v. Klein, 13 Wall. 145; United States v. Jones, 119 U. S. 477; Gordon v. United States, 117 U. S. 697. The plaintiff, by adopting that mode, has assented to the taking of its property by the Government for public uses, and has agreed to submit the determination of the question of compensation to the tribunal named by Congress. By the very act of suing in the Court, of Claims, under the statute of 1882, it has not only waived the right, if such, right it had, to compensation in advance of the taking of its property, but the right, if such it had, to demand that the amount of compensation be determined, by a jury.

To the same effect are Daniels v. Tearney, 102 U. S. 415; Electric Co. v. Dow, 166 U. S. 489; Grand Rapids & Indiana Ry. Co. v. Osborn, 193 U. S. 17; Merchants Heat & L. Co. v. Clow & Sons, 204 U. S. 286; Wall v. Parrot Silver & Copper Co., 244 U. S. 407; Booth Fisheries v. Industrial Commission, 271 U. S. 208; and Hirsh v. Block (App. D. C.), 267 Fed. 614.

In Merchants Heat & L. Co. v. Clow & Sons, supra, the defendant was sued in the United States Circuit Court. A motion to quash the return of service was overruled, to which exception was taken, and thereafter defendant appeared, pleaded the general issue, and also' set up a counterclaim on the contract on which it was being sued. The case went to the Supreme Court on the question of jurisdiction of the Circuit Court. The Supreme Court said in its opinion:

We assume that the defendant lost no rights by pleading to the merits, as required, after saving its rights. Harkness v. Hyde, 98 U. S. 476; Southern Pacific Co. v. Denton, 146 U. S. 202. But by setting up its counterclaim the defendant became a plaintiff in its turn, invoiced the jurisdiction of the court in the same action and by invoicing submitted to it.

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There is some difference of opinion in the decisions as to when a defendant becomes so far an actor as to submit to the jurisdiction, but we are aware of none as to the proposition that when he does become an actor in a proper sense he submits. De Lima v. Bidwell, 182 U. S. 1, 174; Fisher v. Shropshire, 147 U. S. 133, 145; Farmer v. National Life Association, 138 N. Y. 265, 270. (Italics ours.)

The case of Hirsh v. Block, supra, involved the so-called Ball Kent Law (41 Stat. 298), which provided a procedure for the eviction of. tenants resident in the District of Columbia by giving notice to the tenant, referring disputes to the Kent Commission, thence by appeal to the Court of Appeals of the District of Columbia. Hirsh, believing the Act unconstitutional, did not follow the procedure thereby established, but instituted a landlord and tenant proceeding in the municipal court. The opinion of the Court of Appeals reads, in part:

The right of plaintiff to question the constitutionality of the act in this proceeding is assailed. It is urged that he should have pursued the remedy prescribed in the act, and, if unsuccessful, appeal. But plaintiff would be in poor position to question the jurisdiction which he had himself invoked, merely because of an adverse decision. If he should invoke the aid of the statute, and suffer defeat before the commission, he would estop himself to seek further relief on the ground of the unconstitutionality of the act. He would not be permitted to thus experiment with the law. Electric Co. v. Dow, 166 U. S. 489, 17 Sup. Ct. 646, 41 L. Ed. 1088; Wight v. Davidson, 181 U. S. 371, 21 Sup. Ct. 616, 45 L. Ed. 900; Shepard v. Barron, 194 U. S. 553, 24 Sup. Ct. 737, 48 L. Ed. 1115; Daniels v. Tearney, 102 U. S. 415, 26 L. Ed. 187; Grand Rapids, etc. Ry. Co. v. Osborn, 193 U. S. 17, 24 Sup. Ct. 310, 48 L. Ed. 598.

The decision of the Court of Appeals was reversed by the Supreme Court (256 U. S. 135) solely on the question of the constitutionality of the Act.

The case of In re Fassett, 142 U. S. 479, was a petition by the collector of customs for a writ of prohibition against the judge of the United States District Court. Under process issued by that court the marshal had taken into his custody a vessel theretofore seized by the collector for customs duties. Under the customs law then in force the decision of the collector as to “ the rate and amount ” of duties was final unless the importer objected, in which event the case was referred to a board of three general appraisers. The decision of the board was to be final except where an application for review of the questions of fact and law was filed in the United States Circuit Court.

The question was whether a libel by the owner of the vessel would lie to recover it from the collector of customs. The Supreme Court held that it would, on the ground that, had the importer proceeded by appeal to the appraisers and to the Circuit Court he would have been estopped to raise the fundamental question of whether the article in fact was imported. The language of the court is:

Nor can the court of review pass upon any question which the collector had not original authority to determine. The collector had no authority to make any determination regarding any article which is not imported merchandise; and if the vessel in question here is not imported merchandise, the court of review would have no jurisdiction to determine any matter regarding that question, and could not determine the very fact which is in issue under the libel in the District Court, on which the rights of the libellant depend.

tinder the Customs Administration Act, the libellant, in order to have the benefit of proceedings thereunder, must concede that the vessel is imported merchandise, which is the very question put in contention under the libel, and must make entry of her as imported merchandise, with an invoice and a consular certificate to that effect, and thus estop himself from maintaining the fact which he alleges in his libel, that she is not imported merchandise.

In re Fassett, supra, was cited with approval and discussed at length by the Supreme Court in De Lima v. Bidwell, 182 U. S. 1, 175.

The latest pronouncement that we find*on this principle by the Supreme Court is in Booth Fisheries v. Industrial Commission, supra, decided May 24, 1926, in which the court not only adhered to the rule announced in the case above, but somewhat extended it and applied it to facts closely analogous to those before us. That case involved the Wisconsin Compensation Act, which was not obligatory but gave employers the right to elect to become subject to it. Failing to so elect, an employer was not bound to respond in a proceeding before the Industrial Commission, but might await a suit for damages for injuries or wrongful death and make his defense at law before a court and jury. The Supreme Court held:

In view of sucb an opportunity for choice, the employer who elects to accept the law may not complain that, in the plan for assessing the employer’s compensation for injury sustained, there is no particular form of judicial review. This is clearly settled by the decision of this Court in Hawkins v. Bleakly, 243 U. S. 210, 216.

More than this, the employer in this case having elected to accept the provisions of the law, and such benefits and immunities as it gives, may not escape its burdens by asserting that it is unconstitutional. The election is a -waiver and estops such complaint. Daniels v. Tearney, 102 U. S. 415; Grand Rapids & I. R. Co. v. Osborn, 193 U. S. 17.

The rule as expressed in the above cases is, we believe, the proper one to be applied in these proceedings. From the authorities cited and quoted it appears to be the settled rule as laid down by the Supreme Court that one who invokes jurisdiction submits to it, and having submitted to it, waives all right to interpose any objection. It seems to be equally well established that one can not take advantage of a statute and then question its constitutionality. This rule has particular force where one has an election of remedies as in the instant proceedings. The petitioners were not required to appeal to-the Board for an adjudication of the dispute between them and the respondent. Their action in so doing was entirely voluntary. It was not the only course open to them. That this is true clearly appears from the Conference Report on the Revenue Bill of 1926 (69th Cong.. 1st sess., Rept. No. 356), wherein it is stated (p. 43) :

Without in any way changing the extent of such liability of the transferee under existing law, the amendment enforces such liability (whether in respect of the tax as originally returned by the taxpayer or a deficiency therein) in the same manner as liability for a tax deficiency is enforced; that is, notice by tho Commissioner to the transferee and opportunity either to pay and sue for refund or else to proceed before the Board of Tax Appeals, with review by the courts.

It has been suggested by way of argument that the Board is the only forum in which petitioners may obtain a determination of the question of the constitutionality of section 280. We know of no reason why a transferee may not refrain from proceeding before the Board, pay the amount demanded and seek redress by a suit for refund, and in that proceeding question the constitutionality of section 280.

It is argued, however, that it is necessary for us to determine our jurisdiction, the presumption being at all stages against it in bodies of limited jurisdiction, and to do this we must determine the validity of section 280. This argument is probably based on the theory that if section 280 is invalid any steps that may be taken under it would be null and void. We can agree that it is our duty in every case to determine whether it comes within our jurisdiction, and if it does not, to so declare even if the question is not raised by the parties. We have so held ever since the decision in Frost Superior Fence Co., 1 B. T. A. 1096. See also Southern California, Loan Association, 4 B. T. A. 223, and cases there cited. But this determination, in our opinion, does not require an examination into the validity of the law which the parties invoke as the means of coming before us. We do not find that the courts have gone further than to determine jurisdictional facts, such as diversity of citizenship (Grace v. American Central Ins. Co., 109 U. S. 278), the amount in controversy (Washer v. Bullitt County, 110 U. S. 558), or the subject matter of the controversy (Ex parte Smith, 94 U. S. 455), and we have not been referred to any cases wherein a court will look to the validity of the law under which the parties come before it to determine its jurisdiction. If a court must question the validity of the law giving it jurisdiction in all circumstances, there would be no point to the decisions holding a plaintiff may not question the jurisdiction he had invoked, for the court would be required to raise the question on its own motion. All acts of Congress are presumed to be constitutional. On the pleadings in these cases we quite plainly have jurisdiction. The jurisdictional allegations in the petitions are clear and specific and are admitted by the respondent. There is nothing on the face of the pleadings or in the stipulated facts which would cause inquiry into our jurisdiction, and we think it unnecessary to go beyond these to search for any right to take jurisdiction. But, it is argued, if section 280 violates constitutional rights and it is our duty to declare in favor of the supreme law, the Constitution, and if the section is unconstitutional, any steps that we take under it are void. It is a sufficient answer that constitutional rights may be waived (Pierce v. Somerset Railway, 171 U. S. 641, 648; Kearney v. Case, 12 Wall. 275, 281; Bank of Columbia v. Olney, 4 Wheat. 235), and if any constitutional rights of petitioners are violated by section 280 they have waived them by initiating the proceeding permitted by that section.

' It is no longer open to question that transferees of corporate assets, other than bona fide creditors or purchasers, take the assets charged with a trust in favor of creditors. Wood v. Dummer, 3 Mason, 308; Fed. Case No. 17944; Curran v. Arkansas, 15 How. 304, 307. It also seems to be settled that in transferee cases a money judgment may be obtained, even under some circumstances where the distribution is of property other than money, but the transferee can not be called upon to respond in any amount greater than the portion he has received. McWilliams v. Excelsior Coal Co., 298 Fed. 884, 886. United States v. Garbutt, 27 Fed. (2d) 1000.

There remain only the questions of whether all stockholder-transferees must be made parties, and the extent of the liability. In the case of Ogilvie v. Knox Insurance Co., 20 How. 308, a creditors’ bill was brought to compel subscribers to the capital stock of the corporation to pay their subscriptions and to satisfy the judgment against the corporation out of the sum so paid. Upon the objection that the bill was defective for want of proper parties, the court held:

The creditors’Of the corporation are seeking satisfaction out of the assets of the company to which the defendants are debtors. If the debts attached are sufficient to pay their demands, the creditors need lode no further. They are not hound to settle up all the affairs of this corporation, and the equities between its various stockholders, corporators, or debtors. If A is bound to pay his debts to the corporation in order to satisfy its creditors, he cannot defend himself by pleading that these complainants might have got their satisfaction out of B as well. (Italics ours.)

In Hatch v. Dana, 101 U. S. 204, the court quotes from Marsh v. Burroughs, 1 Woods 468, as follows:

If a creditor were to be stayed until all such parties could be made to contribute their proportionate share of the liability, he might never get his money.

In Wood v. Dummer, supra, it is said:

The general rule is, that all persons materially interested, either as plaintiffs or defendants, are to be made parties. There are exceptions, just as old and well founded, as the rule itself. Where the parties are beyond the jurisdiction, or are so numerous, that it is impossible to join them all, a court of chancery will make such a decree, as it can, without them.

These cases satisfy us that it is not necessary in this case to bring all the transferees before the Board, but that the Commissioner may proceed, as he has done, against any one or more.

However, since the arguments and briefs in these proceedings were directed almost entirely to the constitutionality of section 280 and the right of the Board to entertain and determine that question, and dealt but slightly with 'the question of the extent of the liability of transferees, that is, whether each is liable for the full amount of the transferor’s liability or only for a pro rata share, we deem it but fair that an opportunity be afforded the parties to argue and brief this question. To that end the cases will be set down for further argument at a convenient date.

Reviewed by the Board.