Gulf States Steel Co. v. United States

56 F.2d 43

• Court: Court of Appeals for the Fifth Circuit
• Decided: February 19, 1932
• Docket: 6325
• Status: Published

Opinions

HUTCHESON, Circuit Judge.

This is an appeal from a verdict and judgment that appellants had breached the conditions of and were liable on a bond executed September 9, 1925, to stay the collection, pending disposition of a claim for its abatement, of an additional assessment made by the commissioner in April 1921, for the year 1917. This bond, conditioned “that the principal or surety, or both, shall pay to the Collector so much of the amount of,the claim as is not abated, together with penalties and interest thereon, as provided by law,” recited the assessment of the additional tax, the filing of claim for abatement; the prior execution of a bond by the Gulf States Steel Company securing the payment “of so much of the additional assessment, penalties and interest as is not abated,” and the deposit of Liberty Loan bonds as security.

The appeal presents the single question whether the finding by the Board of Tax Appeals on a petition for redetermination of deficiency filed after the commissioner had rejected the taxpayer’s claim for abatement, that “there is no deficiency for the year 1917, because the statutes of limitation have run against the collection,” abated the additional assessment within the meaning of the bond.

The District Judge concluded that it did not. He was of the opinion that the finding of the board had the effect not at all of abating any part of the tax, but of- formally declaring that, because barred, it was not collectible. He was of the opinion that the finding of the board that limitation had run added nothing to the fact that it had, and that the case was ruled by United States v. John Barth Co., 279 U. S. 370, 49 S. Ct. 366, 73 L. Ed. 743. We are of the same opinion. That case held: “The making of the bond gives the United States a cause of action separate and distinct from an action to collect taxes which it already had. * * * The postponement of the collection of the taxes returned was a waiver of the statutory limitation of five years that would have applied had the voluntary return of the taxpayer stood, and no bond been given.” Page 375 of 279 U. S., 49 S. Ct. 366, 367. And that: “The object of the bond was not only to prevent the immediate collection of the tax but also to prevent the running of time against the government. The taxpayer has obtained his objeet by the use of the bond, and he should not objeet to making good the contract by which he obtained the delay he sought.” Page 376 of 279 U. S., 49 S. Ct. 366, 367.

Appellants insist that by the different conditions in the bonds there is a great gulf fixed between this and the Barth Case. That in the Barth Case the agreement, which was to pay “any part of such tax found by the Commissioner to be due,” was breached because the commissioner did find an amount due, and there was no recourse from his finding; that the agreement in this case is to pay “so much of the amount of the claim as is not abated”; and that it was all abated. We think the language of the two bonds is, in legal effect, the same; the only difference is that one speaks affirmatively, the other negatively. The Barth bond was in words an agreement to pay what was found to be due. The bond here was in effect the same, for it was an agreement to pay all but what was found not due. In the Barth Case a part only of the tax was found to be due; here it all was.

The commissioner considered and rejected all claims set up against the assessment. Finding it to have been duly made, he was without power to, and he did not, abate any of it. The board, under the jurisdiction which is the only one it has under the statutes to redetermine deficiencies asserted by the commissioner (Appeal of Morefield, 4 B. T. A. 394), was at first petitioned to review the findings of the commissioner and to determine that the assessment had not, in whole or in part, been duly laid. If it had done so, that determination would, to the extent the assessment was found invalid, have resulted in an abatement of the tax. It did not, however, do this; instead, it confined its attention to and based its finding of no deficiency on the point raised in the amended petition filed March 4, 1927, that “the payment of the alleged deficiency had been extinguished by the running of the statutes of limitation, and that collection of such deficiency was barred.” This is not a finding that the tax or any part of it should be abated. It does not abate any part of it. It is but a formal judgment that the tax, as tax, is, because the bar of limitation has fallen, not collectible. Since it is this and no more, it has the effect upon the suit on the bond here, and no more, that the fact found in the Barth Case and the legal conclusion there announced, that time had run against the tax and that it was therefore uncollectible, had on the suit on the bond there.

A brief statement of the facts of this case whieh are undisputed, and as brief a consideration of the meaning of “abated?’ used in the bond, will, we think, suffice to show the correctness of these conclusions. .

The Gulf States Steel Company, hereafter called “the company,” made its return of assessment for 1917 on March 22, 1918. In April, 1921, the commissioner made the additional assessment of $153,815.30 which furnishes the spring of the controversy here. On May 6, 1921, the company on Form 47, revised April, 1918, filed claim for abatement taxes erroneously and illegally assessed. This claim demanded the abatement of the additional assessment on the ground “that said additional assessment is unwarranted and illegal” in the respects that it incorrectly computed invested capital, allowed a deduction of only 7 per cent, instead of 8 per cent., and disallowed as invested capital, certain interest paid.” Oh Mareh 13, nine days before the five years after the return was made had run, upon demand of the tax collector for payment, the company and the American Surety Company executed a bond in favor of the collector in the sum of $175,350 conditioned that the contractors “will indemnify the Collector against all loss, costs, damage and expense to whieh he may be put by reason of having allowed the Gulf States Steel Company to withhold the payment to him of the sum of $153,815.30 claimed due by it under the War Revenue Act of 1917 pending the filing of additional facts and information in support of claim for abatement of said amount heretofore filed by it.” On April 23, 1925, the company executed an agreement which, after reciting that it and the American Surety Company had executed the bond above in support “of a claim for abatement of assessment, penalties and interest,” and that it was desirous of relieving the above-bound surety and further securing the payment of any amount due, pledged with the collector $200,000 of Liberty bonds, and obligated the undersigned “to pay to the Collector such amount of the claim as is not abated, together with all costs, damages, penalties and interest.” On September 9, 1925, appellants executed the bond sued on here, whieh after reciting the assessment of the additional income tax for the year 1917, that a claim for the abatement of the additional tax was filed with the collector, the execution of the bond of April 3, 1925, and the deposit in lieu of surety of Liberty bonds, obligated the collector to release and surrender the Liberty bonds to the company, and the appellants to “pay to the Collector so much of the amount of the claim as is not abated, together with penalties and interest thereon.”

On May 12, 1926, the claim for abatement was rejected by the commissioner. The company, notified that it had sixty days within which to file a petition with the Board of Tax Appeals for a redetermination of the deficiency assessment, filed its petition attacking the assessment as not duly laid. In July, 1928, the board disposed of the matter on the plea of limitation set up in the amended petition. It found that “the collection of the deficiency, if any, in income and excess profits taxes for the year 1917 is barred by the statutes of limitation, and there is no deficiency for that year.”

Appellants, taking their definition of “abate” from Webster, “7 Law. (a) To bring entirely down or demolish; to put an end to; to do away with, as to abate a nuisance; to abate an action, (b) To nullify; to make void,” declare that that is what has occurred here. The board has demolished and done away with the tax, therefore it has abated it.

We think appellants’ erroneous view of this case springs from the error into which they have fallen here, of giving to the word “abate” the meaning generally attached to it in legal proceedings of a quashal, a meaning which in its context and as applied to the subject-matter dealt with here, it does not have. Carrying always the general meaning of “to reduce; lessen, diminish,” the word “abate” has many shades of meaning, both in general usage and in law. It is a technical word applicable to and used in many relations, and like all such words, it takes its color and content frqm the context of the subject-matter with which it deals. Webster’s International Dictionary; Bouv. Law Dict. (Rawles 3d Rev.) vol. 1, p. 6. As applied to taxation, the subject with which this bond is precisely concerned, it has and has long had, a clear and definite meaning.

“An abatement supposes the assessment not duly made. If the tax be wholly abated, it is as if no assessment had been made; and if the tax be partially abated, and the residue paid, then all that has been duly assessed has been paid;” Billerica v. Chelmsford, 10 Mass. 396.

“It presupposes some error or mistake in the assessment, and is to be made on the application of the party aggrieved, who has been assessed beyond his due proportion. * * * It is an authority to the assessors, to amend an erroneous assessment; and when sueh assessment is made, it is the diminished and corrected tax, and not the original erroneous one, which the law considers to be the tax duly assessed.” Inhabitants of Shrewsbury v. Inhabitants of Salem, 19 Pick. (Mass.) 390.

This is the nature and position of proceedings in abatement of internal revenue taxes. They assume, indeed the forms used declare, that the taxes claimed have been illegally and erroneously assessed. They seek in advance of compulsory payment to have this determined and the assessment amended. They seek, they expect, no relief, except that which flows from a finding that the assessment has in whole or in part, not been duly made. They are not appropriate to, they do not present, matters of defense to the collection of the tax. They have no force in themselves to defend or stay it. They do go, however, to the very root of the assessment, denying that it has been duly made, and seeking its amendment. The filing of such claims though diminishing under the Revenue Acts of 1921 and 1924, and practically nonexistent under those of 1926 and 1928, has long been a familiar practice in connection with the collection of income taxes. Montgomery on Income Tax Procedure, p. 268 et seq.; Holmes, Federal Taxes, (6th Ed.) §§ 806, 816, 817, 907, and 908. It has had no function, no effect, except to stay collection while the correctness of the assessment is being re-examined, in order to save the government and taxpayer alike from the nuisance of having to pay a tax, erroneously assessed, only to recover it back again by suit. In jeopardy eases, and in many others where abatement claims like the one in question here have been filed, bonds have been given. Holmes, Federal Taxes (6th Ed.) § 801. Neither the filing of the claim nor the giving of the bond prevents time from running against the collection of the tax as sueh, nor do they preserve any remedy which but for the bar, might be available to collect the tax. Bowers v. N. Y. & Albany Lighterage Co., 273 U. S. 346, 47 S. Ct. 389, 71 L. Ed. 676; Russell v. U. S., 278 U. S. 181, 49 S. Ct. 121, 73 L. Ed. 255. The pendency of sueh claim did not prevent the collector from proceeding with the collection of the tax, or the taxpayer from paying the tax and thereafter in a suit for its return, raising the question not only as to the amount of tax due, but as to the bar of time. Graham v. Du Pont, 262 U. S. 257, 43 S. Ct. 567, 67 L. Ed. 965. The giving of the bond, however, did create a new right in the government upon which, wholly apart from the tax, it may sue. U. S. v. John Barth'Co., supra. It is upon this contract right, and not for the tax, that the government now sues.

The record shows not only no finding that the assessment referred to in the bond was illegal or erroneously laid, but an affirmative finding by the commissioner not reversed by the board, that it was not. Defendants are liable on their bond.

The judgment is affirmed.