Opposition Brief — United States v. Updike

_ In the

Supreme Court of the United States

October Term, 1929

———_()—_—_-

UNITED STATES OF AMERICA, Petitioner,

VS.

NELSON B. UPDIKE, et al.

4

a

BRIEF IN OPPOSITION TO PETITION FOR

WRIT OF CERTIORARI.

,

y,

Francis A. Brogan,

/ ALFRED G. Evick,

¥ Anan Raymonp,

Solicitors for Respondents.

THE COCKLE PRINTING Co.

» LAW BRIEFS, Omana, Neg.

INDEX

Summary of Objections to Petition for Writ of Certiorari Page

1, The application is not made within the time fixed by statute.. 3

2. Reason relied upon for allowance of the writ is not sufficient

under Rule 98 -of thie cowtt..056606..éscscscenccsccn 4

3. Proceedings in court against transferees for the collection of

taxes of the transferor are barred whenever such proceedin

would be barred against the transferor.................... Na

4. Section 278 (d) of the Revenue Act of 1926 bars all proceedings

for the collection of taxes, on the expiration of six years from

the time the assessment was GS ois cab eae oe ea 18

TABLE OF CASES CITED

Court DEcISIONS

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Harrisburg v, Rickards, 119 U. $. 199..°.._. WP aeRap en naseccy bee ces 11

Merchants National Bank v. Se rg 63 Neb. 363

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U.S. v.0 OP I CM, WOO vas cic vicscscccesccccole ee 14

U.S.v. 8t. P.M ee SG Wy WR Os nnd. ances cece cece 24

U.S. v. Snook, 24 Fed. PE MR ttn bde Vouk nduudsoowiciactce ee, oe 6

Wood v. Carpenter, 101 VU. Ne OE TE OE EL DEG LN LENE 10

Board oF TAX APPEALS DECISIONS

Hammersly v. Commissioner. 16 ee Se. EROS A Re stm 6-12

Hynes v. Commissioner, 16 B. i os St Loe es A ours 6-12

Peerless Woolen Mills, 13 B. T. Oi MEM a Wns 4 6 oo cb kk ete 10

spencer 0. Commmationer, 13: B. T. A. 484...., 000.000 16

Wheeler v. Commissioner, 16 B. Bi Me PSEA Fa Ces Choe 6-12

STATUTES AND REVENUE LAWS

ee OE OE AN MN on a gis uel coherent 3

Recs. S67 and S00, Title 28, U. 8. Code... ........00 1-3

Revenue Act of 1916:

Sec, 14

Oe eT ee eee RS DOP OE DOTS PORTE CE WR bod he eb Sab ee eS

tee Mette Ete A a Seas eR PR Oe ee eee SN

II

Page

Revenue Act of 1924

SE OMB Se eA 55 FON WKN SORA CH EGE Cam ESL le pea bs 22

SEE. ERE. SRS SS ESE Si AGRE Os CN 22

ES SURES + FERN PRR TEPER Ce ESE ich ek re Oe eae al oC aie OS Cee a Re 22

RRR 1S RESSEE SEIS pee aes et Ea TE er 22-23-24

PON I RR eg eh gras ree pe en oer et op al a ee 23

SE ROE Sega e ae ac trek os Wg aes 6 6 ho ChE bo ee oh 23

Revenue Act of 1926:

MN I RM sR a I Se oe Pee ws Vion bb obn packee 2-5-18-20-24

Sec. 280 RRA alae seer CEng WE OE ook bd Ug ea hace wD 5-6-12- a

WO TM rier au ay ie gee Ne eee a ae 10

Revenue Act of 1928

Sec. 311 CEO. Oe aw © Oe Sel ew ch 6.08 eo 6.0 Oe 6 0.6.6 Seb 5 be 06 woe b0l8 8b ee 5-6-15

GENERAL COUNSEL’S MEMORANDA

ers ts I nt eS ok Ce ee 8 5-15

Se Aes Us IONE 5 og Wi Sa CA ae Se aye be Shee bX Saag, BES

MISCELLANEOUS CITATIONS

Conference ee Report to the House on Sec. 278 (d) Rev.

a a i ee |

OPINIONS DELIVERED IN CovURTsS BELOW

Use, CO, et RH UN es ES aa cet eb ce wk So eb ke 7

U.N. tr. Updike, 32 Fed. (2) 1 7

ee ee i a aed

In the

Supreme Court of the United States

October Term, 1929

., Swe

ant. eee

UNITED STATES OF AMERICA, Petitioner,

vs.

NELSON B. UPDIKE, et al.

,,

Wik

BRIEF IN OPPOSITION TO PETITION FOR

- WRIT OF CERTIORARI

Come now the respondents (except George A. Rob-

erts and Ed P. Smith) and object to the petition for a

writ of certiorari presented in this proceeding, upon the

following grounds:

1. Because the petition was not presented to

this court within three months from the entry of the

decree of the Circuit Court of Appeals, as required

by Sees. 347 and 350 of Title 28 of the U. S. Code.

2. Because the reason relied upon for allow-

ance of the writ is not sufficient under Rule 38 of

this court.

3. Because the contention that a suit against

the transferees may be maintained against stock-

holders on the sole ground that they were transfer-

ees of the assets of a corporation, after the cause of

action against the corporation itself has been ex-

2

tinguished by the statute of limitations, is frivolous,

without merit and was fully covered by the decision

of this court in Russell vs. United States, 278 U. S.

181; and because this court has not approved the

so-called trust fund doctrine for the maintenance of

suits against stockholders, but has distinctly repu-

diated it.

4. The construction placed by the District

Court and the United States Cireuit Court of Ap-

peals upon Section 278 (d) of the Revenue Act of

1926 is in accordance with the obvious intention of

Congress to place a limitation upon proceedings in

court for the collection of taxes at the expiration of

six years from the time the assessment was made.

4).

| emma td

3

BRIEF IN SUPPORT OF OBJECTIONS

3. The application is not made within the time fixed by

statute.

We are aware of the numerous decisions in which

this court has held that for the purpose of review by

appeal or writ of error, a judgment or decree of the

lower court does not become final until a motion for

new trial or petition for rehearing, properly made under

the rules of the court and considered by it, has been

disposed of.

We suggest that these rulings are not applicable

to the present statute providing for writs of certiorari.

In the numerous cases upon which the Government ap-

parently has relied, it has been held that an appeal or

writ of error can be taken only from a final judgment,

and the judgment is not final while the court is con-

sidering a motion for new ‘trial or a petition for rehear-

ing. The amendment of February 13, 1925, (43 Statutes

at Large 938) for the first time provides that it shall be

competent for this court to grant a writ of certiorari

“either before or after a judgment or decree by such

lower court.’’ It is apparent that the finality of a judg-

ment or decree is no longer a prerequisite to a petition

for a writ in this court, and, therefore, the reasoning of

the line of cases which extended the time for an appeal or

writ of error, is no longer applicable. The present stat-

ute should be construed according to its plain language,

and its intent and purport. Sec. 350 Title 28 U. S. C. is

free from ambiguity to the effect that no writ of certio-

rari shall be allowed unless application therefor be made

within three months after the entry of such judgment or

4

decree. This decree was entered on the 25th day of

March, 1929 (Tr. p. 399). The petition was filed in this

court on August 23, 1929, five months after the entry of

the decree.

See Toledo Co. v. Computing Co., 261 U. S. 399-

417.

It is to be noted that in the application for stay of

mandate made by the petitioner in the Circuit Court of

Appeals (Tr. pp. 400-3), filed on June 3, 1929, after the

overruling of the motion for rehearing, the court is re-

quested to stay the issuance of a mandate until June 28,

1929, in order that the petition for the writ may be filed

in this court prior to that date, and in the order staying

the issuance of the mandate (Tr. p. 402), the stay is

granted on condition that the petition should be filed

in this court on or before June 28, 1929.

4).

Vv

2. Reason relied upon for allowance of the writ is not

sufficient under Rule 38 of this court.

The sole reason relied upon for seeking an allow-

ance of a writ of certiorari herein is one of those

specified in subdivision (b) of paragraph 5 of Rule 38 of

this court, to-wit:

The Cireuit Court of Appeals ‘‘has decided an

important question of Federal Law which has not

been, but should be, settled by this court.’’

This, reason is only assigned in respect to one of the

points raised in the Government’s brief, namely that in

a suit in equity under the trust fund theory against

5

transferees of the assets of a dissolved corporation, to

collect taxes due from such corporation, the limitation

provisions in Section 278 (d) of the Revenue Act of

1926 are not applicable. This is no longer an important

question, nor is it one that has not been settled by this

court.

It is no longer important because, as will be here-

inafter disclosed, all departments of the Government have

heretofore recognized and acquiesced in the doctrine that

when a claim for taxes already assessed against the

taxpayer, has been barred by limitation provisions in

the Revenue Laws, it is barred against the transferees of

the assets of such taxpayer.

Congress.

Section 280, Revenue Act 1996.

Section 311, Revenue Act 1928.

Statement of the Managers on the part of the

House, in conference report to the House,

dated February 22nd, 1926, pages 43-44,

Treasury Department.

G.C. M. 1029, Int. Rev. Bul. VI-2-3042

G.C. M. 4554, Int. Rev. Bul. VII-33-3848

Board of Tax Appeals.

Spencer vs. Commissioner, 11 B. T. A. 437, ac-

quiesced in by Commissioner, Int. Rev. Bul.

VIT-31-3828.

6

Hammersly vs. Commissioner, 16 B. T. A. 68.

Wheeler vs. Commissioner, 16 B. T. A. 96.

Hynes vs. Commissioner, 16 B, T. A. 1272, ap-

proving and following opinion of Circuit

Court of Appeals in this case.

Federal Courts.

United States vs. Snook, 24 Fed. (2d) 844.

United States vs. Lazenby, 5 Fed. (2d) 827.

The Treasury Department having heretofore at all

times recognized this rule it must be assumed that they

have been alert to proceed against all transferees, either

in equity or under Section 280 of the Revenue Act of

1926, or Section 311 of the Revenue Act of 1928, within

the period of limitation prescribed in the Revenue Laws

upon the collection of income taxes.

Cases where they have not must now be rare, if

any, other than the instant case.

It is also urged that this question will arise often

should Section 280 be held unconstitutional. In_ this

respect the Government has fully protected itself in

Section 311 (d) Revenue Act 1928, wherein the running

of the statute of limitations against transferees is ex-

pressly suspended ‘‘(***if a proceeding in respect of the

liability [of a transferee] is placed on the docket of the

Board, until the decision of the Board becomes final),

and for sixty days thereafter.’’

7

The question is furthermore no longer important be-

cause, as will hereafter be shown herein, it has been

settled by this court in Russell vs. United States, 278

U. S. 181.

For a clear, convincing and complete disposition of

the points herein raised, see opinions below of Honor-

able T. C. Munger, D, J., 25 Fed. (2d) 746, and of Hon-

orable G. T. McDermott, C. C. A., 32 Fed. (2d) 1.

3. Proceedings in court against transferees for the col-

lection of taxes of the transferor are barred whenever such

proceedings would be barred against the transferor.

It is suggested in the brief of the Government as

& reason for granting the writ, that the case raises a

question which has not heretofore been decided by this

court, as to whether a provision in the Revenue Act limit-

ing the time within which the United States may begin

& proceeding for the collection of taxes, applies to a

suit in equity brought by the United States under the

trust fund theory against the stockholders of a dissolved

corporate taxpayer. An examination of the case will

disclose that the obvious reason why it has not been de-

cided is because it is so frivolous that it has never be-

fore been raised. The Government's contention under

this heading is based upon an erroneous understanding

of the relations between stockholders of a corporation

to whom the assets have been transferred, and the lia-

bilities of the corporation. The revenue laws do not

create any liability upon the part of such stockholders.

It is not claimed that there is any liability on the part

of the stockholders of a Nebraska corporation under any

Nebraska laws to pay its debts. The sole liability

therefore asserted against them is that which arises

under the general rules of equity, respecting the liability

incurred by stockholders to whom the assets are distrib-

uted upon dissolution, without paying the debts of the

corporation. This liability is not original, but is ancillary

to the liability against the corporation itself. The suit

is not a separate, but a dependent proceeding. In Ne-

braska, as in many of the other states, a proceeding

against the stockholders of a corporation to collect the

obligations of the latter, to the extent of assets distribut-

ed to the stockholders, is dependent upon the recovery

of a judgment against the corporation and the issuance

of an execution, followed by a return of no assets of

the corporation.

Merchants National Bank v. McDonald, 63 Neb.

363.

This court has approved the doctrine in the Nebras-

ka case as being a part of the rules of equity jurisdiction

and procedure, in the case of Pierce vs. United States,

255 U. S. 398. In that case it is said (p. 402): ‘A judg-

ment creditor’s bill is in essence an equitable execution.”’

Again the court says in that case:

‘*‘But when a corporation devests itself of all

its assets by distributing them among the stock-

holders, those having unsatisfied claims against it

may follow the assets, although the claims were

contested and unliquidated at the time when the as-

sets were distributed. It is true that the bill to

reach and apply the assets distributed among the

stockholders cannot, as a matter of equity jurisdic-

tion and procedure, be filed until the claim has been

reduced to judgment and the execution thereon has

been returned unsatisfied.”’

Moreover, this court has distinctly repudiated the

trust fund doctrine relied upon by the Government in

this case, which, although it still receives support in

decisions of the lower courts, has never yet been rein-

stated by this court.

In Hollins v. Brierfield Coal & I. Co., 150 U. 8. 371,

cited with approval by this court in Pierce vs, United

States, 255 U. S. 398, it is said (p. 383):

‘Whatever of trust there is arises from the pe-

culiar and diverse equitable rights of the stockhold-

ers as against the corporation in its property and

their conditional liability to its ereditors. It is

rather a trust in the administration of assets after

possession by a court of equity, than a trust attach-

ing to the property, as such, for the direct benefit

of either creditor or stockholder.’’

Graham vs. LaCrosse, 102 U. 8. 148.

The theory of the Government in this case runs

counter to the elementary rules of law on the subject of

the relation between a debtor and a transferee of the

debtor’s assets. The Government cites no case in which

it has ever been held that any cause of action exists

against the transferee of assets, after it has ceased to

exist against the principal debtor, the transferor, On

the other hand, there are numerous eases holding that

even when the liability against the transferor has been

reduced to judgment, proceedings against a transferee

must be abandoned, whenever the liability of the trans-

feror ceases, either by the statute of limitations or by

the judgment becoming dormant, or otherwise.

10

Dole v. Wilson, 39 Minn. 330.

Wood v. Carpenter, 101 U. 8. 135.

Newell v. Dart, 28 Minn. 243.

Flagg v. Flagg, 39 Nebr. 229.

Scott v. Neely, 140 U. 8. 106.

In the case last cited, the court said:

‘“‘In all cases where a court of equity inter-

feres to aid the enforcement of a remedy at law,

there must be an acknowledged debt or one estab-

lished by a judgment rendered, accompanied by a

right to the appropriation of the property of the

debtor for its payment.’’

At the time this suit was brought, Sec. 1106 (a) of

the Revenue Act of 1926 was in effect and read as fol-

lows:

“The bar of the statute of limitations against

the United States in respect of any internal-revenue

tax shall not only operate to bar the remedy but

shall extinguish the liability.”

As to whether the subsequent repeal of that section

while this case was pending should operate to deprive

these defendants of its effect, might be a question. If

there was no cause of action against them at the time the

suit was brought, because the liability against their

transferor had been extinguished by this statute, it is

diffieult to conceive how a liability could be created by

its mere repeal.

Peerless Woolen Mills, 13 B. T. A. 1119.

11

U. 8. vs. John Barth Co., 27 Fed. (2nd) 782

(7th C © A).

But we need not rely on that section of the statute

for support of the contention that the bar of the statute

against the transferor extinguished the liability for all

purposes,

It is a general rule of law that when in any statute

which creates a liability, or in any statute amendatory

or supplemental thereto, a limitation is placed upon the

time for enforcing the liability, the running of the stat-

ute in that case not only bars the remedy, but extinguish-

es the liability.

Harrisburg v. Rickards, 119 U. §. 199.

Davis v. Mills, 194 U. §. 451.

Phillips v. Grand Trunk Ry., 236 U. S. 662.

The case of Russell vs. United States, 278 U. S. 181,

is exactly in point. The suit was brought by the Govern-

ment against stockholders of a corporation to recover

taxes assessed against the corporation for the year 1918.

The sole defense of the stockholders was the various

statutes of limitation enacted since the taxable year, prior

to the 1926 Act. The court discusses such sections as

were relied upon, and reaches the conclusion that the

transferees were free from liability under the five year

limitation contained in the Act of 1918, and continued

by the Act of 1929, and if Sec. 278 of the Act of 1924

relates only to assessments made after June 2, 1924, they

were not liable. It concludes that the purpose of the

I

12

Act of 1924 was not to extend as against the transfer-

ees a limitation which had expired under the earlier

acts. Obviously, therefore, the sole question presented

to the court and considered and decided was whether a

limitation which applied to the transferor was available

to the transferee. The court held that it was. The

transferor was not in court.

Referring to the Russell case, in the Government’s

brief, it is said that the decision in that ease on the

question raised herein should not be followed in this

case, ‘‘because while it existed in the record in that

case, it was not raised nor considered, either in the

lower courts or in this court.’’ If the theory of the

Government on this question is so sound, it would be in-

teresting to know why it was not raised in the Russell

case, when that case was argued before this court on

November 22d, 1928, or before the Board of Tax Appeals

in the cases of Hammersly vs. Commissioner and Wheeler

vs. Commissioner, supra, decided in April, 1929, and in

Hynes vs. Commissioner, supra, decided in June, 1929,

which was a case of identical facts with this case,

whereas we find that it was being vigorously urged in

this case at the trial in the District Court, before Hon-

orable T. C. Munger, Judge, as early as March 26th,

1928, and in the Government’s brief, filed in the Circuit

Court of Appeals on November 9th, 1928, and was re-

pudiated by both courts.

If it shouid be said, as it must, that it could not be

urged in cases pending before the Board of Tax Appeals,

under Section 280, Revenue Act 1926, because that sec-

tion expressly made available to transferees the limita-

PROPEL OE PF A IRONS REE INN jee, Hatem

RT:

Note:

AEE AIS RIEL DPS

Hammersly v. Commissioner, 16 B. T. A. 68, ac-

quiesced in by Commissioner of Internal Revenue,

Ruling No. VITT-29-4274, Int. Rev. Bull. issue July

22, 1929.

Wheeler v. Commissioner, 16 B. T. A. 96, ac-

- quiesced in by Commissioner of Internal Revenue,

Ruling No. VIII-31-4290, Int. Rev. Bull. issue Aug.

5, 1929.

SIERO TRELLIS AAEM, GEG RR BTS ISELIN

13

tion provisions in the Revenue Laws, then we would

have the anomalous and inequitable situation of Con-

gress giving to a transferee the benefits of such limitation

provisions, when proceeded against under Section 280,

but denying to him the same benefits whenever the

Government should elect to proceed against such trans-

feree in a suit in equity.

The decision of this court in United States v.

Mitchell, 271 U. §. 9, relied on by the Government in

this case, does not require this court to reopen a settled

question, whenever a new argument is discovered or

conceived on one side or other of the controversy. That

case merely holds that a question cannot be considered

as disposed of in a former opinion, merely because it

was in the record. But this relates to the ultimate ques-

tion itself, not to mere arguments in support of a con-

tention concerning it.

The case of United States v. Barth Co., 279 U. §.

370, is clearly not in point. The suit was upon a bond

in which the taxpayer and a surety had expressly con-

tracted with the Government to pay any tax which the

Commissioner should assess. The purpose of the bond

was to protect the Government against the running of

the statute of limitations and other contingencies which

might arise, if the taxpayer were not required to pay

the tax immediately. Here the transferees are not liable

because of any engagement entered into by them, and

personally they would not be liable at all if they had not

received and had not retained assets of the corporation

which ought to be applied in payment of its debts. Neither

14

is the ease of Talcott vs. United States, 23 Fed. (2d) 897,

in point, because that was not a suit to collect taxes, but

to recover money paid by mistake.

The analogy which the Government seeks to find

between this case and those cases in which it was held

that the statute limiting the time when the Government

might sue to set aside a patent on the public lands on

the ground of fraud, did not bar a suit to recover dam-

ages for the fraud, does not exist, obviously. The two

cases were independent of each other and this court has

held that an election to pursue one remedy would bar the

other.

U. S. v. Oregon Lbr. Co., 260 U. S. 290.

But there is no election required when a creditor

pursues the assets of a debtor. See Pierce v. U. 8., 255

U. S. 398, where the Government in a proceeding to

collect money from a corporation, had brought an equit-

able suit to pursue the assets in one jurisdiction, and

later had brought a bill in equity against the stockhold-

ers, who were transferees of the assets, in another juris-

diction. The obvious basis for the ruling that there is

no election is that the principal claim is the debt against

the corporation, and suits against transferees are an-

cillary proceedings to enforce that debt, and relate to

and are governed by the status of the debt against the

transferor.

Another reason why this court has not heretofore

been called upon to pass on this pseudo trust fund

doctrine, is because the Government itself in numerous

rulings has held that there is the same limitation for

the transferees, as the transferor.

In General Counsel’s memorandum, No. 1029, Inter-

nal Revenue Bulletin, VI1-2-3042, it is said:

‘The logical conclusion is that it was not the

purpose of Congress to make effective against a

transferee, a tax liability which at the time of the

enactment of the Revenue Act of 1926, could not be

asserted against the transferor taxpayer, because

of the bar of the statute of limitations. ’’

Also, in General Counsel’s memorandum, No. 4554,

I. R. B. VII-33-3848, p. 3, there was under discussion the

question whether a transferee who had been assessed

under Sec. 280 of the Revenue Act of 1926, after the

tax had been barred against the taxpayer, would be en-

titled to a refund under See. 607 of that Act, which pro-

vides that any tax paid after the expiration of the period

of limitation properly applicable thereto, shall be con-

sidered an overpayment and refunded. The Counsel

says:

“‘Under the provisions of section 280 of the Rev-

enue Act of 1926 and section 311 of the Revenue Act

of 1928, the assessment, collection, and payment of

the liability, at law or in equity, of a transferee of

the property of a taxpayer are subject to the same

provisions and limitations as if a deficiency in tax

were involved, except with respect to the period dur-

ing which an assessment may be made,”’

“Since the liability involved in the instant case

was assessed after the expiration of the statutory

period properly applicable thereto, the amount paid

in respect to the assessment must be regarded as an

over-payment.”’

16

In the case of Marion Parsons Spencer, 11 U.S. B.

T. A. 437, a proceeding before the Board of Tax Appeals

under Sec. 280 of the Revenue Act of 1926 against the

transferee of the assets of the estate of a decedent, it

was held that because the tax against the decedent had

become barred hy the provisions of Sec. 250 of the Rev-

enue Act of 1921, there was no liability against the

transferee. The opinion states: (p. 440).

‘*In the proceeding before us the period of lim-

itation for the assessment of tax against the tax-

payer expired prior to the exactment of the Revenue

Act of 1926; assessment against the taxpayer was

made within such period; and notice of the pro-

posed assessment of the liability against the trans-

feree was sent to such transferee within six years

after the assessment against the taxpayer and with-

in one year after the enactment of the 1926 Act.

Nevertheless, the period of limitation appearing in

section 280, relative to the assessment of the liabil-

ity of a transferee, is necessarily predicated upon the

existence of such liability. Here, by operation of

section 1106 (a) of the Revenue Act of 1926, the

primary liability of the transferor was extinguished

and it follows that the secondary liability of the pe-

titioner as transferee was also extinguished. Con-

sequently, there is no liability assessable against her

’ under the provisions of section 280 of the Revenue

Act of 1926.”’

There are other rulings of the General Counsel and

numerous of the Board of Tax Appeals to the same effect.

It may be interesting in this connection to note that

this suit was originally commenced as a suit to recover

taxes, and that during its pendency an attempt was made

to convert it into a suit to recover money of the United

17

States arising from a trust. In the petition filed April 2,

1927, (Tr. Vol. 1, p. 5), is found this language :

“This is a suit in equity brought by the United

States of a civil nature arising under a law of Con-

gress providing for Internal Revenue and the col-

lection thereof.’’

On pp. 7 to 10 the pleading sets out acts upon which

it bases its contention that the corporation was subject

to a tax in the sum of $373,911.54, and on p. 11 it is a

part of the prayer that the money received by the de-

fendants ‘‘be applied to the payment of said taxes due

and owing to the complainant.’’

While the case was pending, the Government, desir-

ing to change front in this matter, obtained leave to

strike out the words “arising under a law of Congress

providing for Internal Revenue and the collection there-

of,’’ and insert in lieu thereof, ‘‘this is a suit in equity

brought by the United States, of a civil nature.’’ (Tr.

Vol. 1, p. 12; also Vol. 1, p. 5), and also (Tr. Vol. 1, p.

160) to insert a statement that the Attorney Gen-

eral, as well as the Commissioner of Internal Rev-

enue authorized and sanctioned the proceedings. This

change was made upon the theory that while the Com-

missioner had power to authorize suits for the collection

of taxes, only the Attorney General could authorize a

general equity suit for trust funds belonging to the

United States. To sustain this latter change, it was

necessary to present to the court on the trial, a letter

from the office of the Attorney General purporting to be

dated and signed on March 15, 1927, before the commence-

ment of the suit ('fr. Vol. 1, p. 157), whereas it ap-

18

peared upon the cross examination of the witness Kin-

sler, United States District Attorney (Tr. Vol. 1, p. 155-

6) that the letter was prepared in February, 1928, just

before the trial and while the case had been pending

nearly a year, and that it was predated so it would ap-

pear to have been issued before the institution of the

suit.

While this court may grant a writ of certiorari

to reconcile conflicting decisions of different cir-

cuit courts of appeal, it has never felt called upon to

exercise that power merely to adjust differences of opin-

ion among counsel or solicitors representing different

branches of the executive department. We need not now

inquire what it was‘that induced the Government to lend

its name to a suit against these transferees, when it had

held that all other transferees under like circumstances

were free from liability. But we think this court is not

called upon to lend its aid to prolong these procedings.

ray

ie

4. Section 278 (d) of the Revenue Act of 1926 bars all

proceedings for the collection of taxes, on the expiration of

six years from the time the assessment was made.

The Section reads as follows:

‘*(d) Where the assessment of any income, ex-

cess-profits, or war-profits tax imposed by this title

or by prior Act of Congress has been made (wheth-

er before or after the enactment of this Act) within

the statutory period of limitation properly applic-

able thereto, such tax may be collected by distraint

or by a proceeding in court (begun before or after

the enactment of this Act), but only if begun (1)

within six years after the assessment of the tax, or

19

(2) prior to the expiration of any period for collec-

tion agreed upon in writing by the Commissioner

and the taxpayer.’’

Because the term ‘taxpayer’ is used in the clause

relating to an agreement, there is an attempt in the

Government’s brief to argue that any limitation intended

by this section can be invoked only by the taxpayer, and

not by the transferees against whom an indirect liability

for the taxpayer’s obligations may be asserted. But it

is to be noted that Secs, 277 and 278 should be read to-

gether, and throughout the various sections the language

is ‘‘a proceeding in court for the collection of such tax,’’

This is found in sub-divisions (1), (2) and (3) of See.

277, and in sub-divisions (a), (b), (d) and (e) of See.

278. Nowhere is there any language confining the ben-

efits of these limitation provisions to the taxpayer, only.

It is submitted that a proceeding against a transferee to

compel the application of the transferor’s property to the

payment of the taxes of the transferor is just as much

a proceeding in court to collect a tax, as if it were against

the original taxpayer himself. In Bowers vs. N. Y. Light-

erage Co., 273 U. S. 346, in construing the Revenue Act

of 1921 which provided that: ‘‘No suit or proceeding

for the collection of any such taxes * * * shall be begun

after the expiration of five years after the date when

such return was filed,’’ this court held that the word

“‘proceeding’’ was broad enough to include levy of a

distraint. And the court held that this provision is a

20

part of a taxing statute, and such laws are to be inter-

preted liberally in favor of the taxpayer.

Turning te the meaning of Sec. 278 itself, it is not

correct that the sole purpose of the re-enactment of that

section was to enlarge the remedy for the Government.

It did make a definite enlargement, and also just as

definite a restriction. Prior to that time there was no

limitation on the collection of taxes, levied under acts

prior to 1924, where the taxpayer had failed to make a

return or where the return was fraudulent. If it had

been the intention of Congress not to disturb that condi-

tion, there would have been no reason for changing Sec.

278(d).

The main contention of the Government throughout

this ease is that Sec. 278 (d) does not prevent the collec-

tion by proceeding in court of taxes more than six

years after the assessment, unless the assessment was

made within the statutory period of limitation properly

applicable thereto, and that if there was no statute of

limitation applicable thereto, the section does not apply, —

and on the one hand, does not authorize the suit to be

brought within six years after the assessment, nor does

it prevent the bringing of a suit after that time.

There are several answers to make to this construc-

tion: In the first place, the return was due in March,

1918, the assessment was made in January, 1920, and at

that time there was a statute of limitations properly ap-

plicable thereto, and it was made within that time. See.

14 of the Act of 1916, in force at the time of the assess-

ment in question, was as follows:

21

“se © * every corporation, joint-stock company or

association, and insurance company, computing taxes

upon the income of the fiscal year which it may des-

ignate in the manner hereinbefore provided, shall

pay the taxes due under its assessment within 105

days after the date upon which it is required to file

its list or return of income for assessment; except in

eases of refusal or neglect to make such return, and

in cases of erroneous, false, or fraudulent returns,

in which cases the Commissioner of Internal Revenue

shall, upon the discovery thereof, at any time within

three years after said return is due, make a return

upon information obtained as provided for in this

title or by existing law; and the assessment made by

the Commissioner of Internal Revenue thereon shail

be paid by such corporation, joint-stock company or

association or insurance company immediately upon

the notification of the amount of said assessment;

* © @r

Congress, throughout the history of these revenue

laws, has adopted different forms of limitation, In

some cases the limitation is upon the right to assess, in

others, upon the right to collect, and in the Act of 1916,

limitation is upon the time within which the discovery

must be made, and a new or corrected return made by the

commissioner,

Eliot Nat. Bank v. Gill, 218 Fed. 600.

National Bank v. Allen, 223 Fed. 472.

Eliot Nat. Bank v. Gill, 210 Fed, 933.

It follows that this assessment was made within the

period of limitation applicable thereto, and that it comes

within the literal terms of the section we are consider-

ing.

22

It is true that by the Act of 1921, as cited in the

Government’s brief, another provision was made applic-

able to that assessment, and it was held in the first Up-

dike case that by reason thereof no limitation run upon

proceedings in law for collection. But this does not

change the fact that at the time the assessment was

made it was made within a period of limitation applicable

thereto, and, therefore, comes within the language of Sec.

278 (d) of the 1926 Act.

As the Cireuit Court in its opinion (Tr. p. 396)

clearly points out, when Congress amended See. 278 (d)

of the 1924 Act, it also amended paragraphs (2), (3) and

(4) of the preceding Sec. 277. Prior to the 1926 amend-

ments these paragraphs provided, ‘‘and no proceeding

in court for the collection of such taxes shall be begun’’

after the period fixed in each paragraph for assessment,

so that prior to 1926 the period for assessment or court

action was the same; the Government had to assess or

sue, or assess and sue, within the fixed period.

But in 1926, in all three paragraphs the limitation

on proceedings in court were qualified’ by inserting the

words ‘‘without assessment’? so that the paragraphs

now read ‘‘and no proceeding in court without assess-

ment for the collection of such taxes shall be begun.’’

The conclusion which the lower court draws is there-

fore inescapable, that Congress fixed a period for the

initial move against the taxpayer, which might be by

assessment, or suit without assessment, and a different

period for the second move, distraint, or court proceed-

ings after assessment.

23

A broader construction of this section is that the

clause in question, ‘‘within the period of limitation prop-

erly applicable thereto”’ was inserted for the benefit

of the taxpayer, so that the section would not revive a

liability, which had already been barred by statutes pre-

scribing a limitation within which an assessment could

be made, and so that it would not give the Government

a right under the terms of this section, to sue for the

recovery of a tax within six years after the assessment

was made, if at the time of the assessment, the right

to make the assessment had been barred by the limita-

tions properly applicable thereto.

Moreover, a technical construction cannot properly

be given to the words “period of limitation,’ so that

they are applicable only to a definite period found some-

where in the statute. Congress has used this language to

apply to cases where no limitation was intended, as well

as where a definite limitation was fixed.

Thus, in sub-division (d) of See. 278 of the Revenue

Act of 1924, it is provided that where the assessment

of a tax is made within the period prescribed in See. 277

or in this section, such tax may be collected, ete. But

when we look for the period prescribed in this section,

we find that the only period prescribed is ‘‘at any

time.’’ Likewise, in Sec. 1009 (b) of the Act of 1924, it

is provided that in case of a false or fraudulent return

or a failure to file a required return, the tax may be as-

sessed, or a proceeding in court for the collection of such

tax may be begun without assessment ‘‘at any time.’’

And in sub-division (c) of the same section it is provid-

ed that where the assessment of the tax is made within

—

24

the period prescribed in sub-divisions (a) and (b), such

tax may be collected by distraint, etc., yet the only period

prescribed in sub-division (b) is a period described there

as ‘‘at any time.’’

It is an elementary principle in the construction of

any statute that its meaning should be construed rea-

sonably and with a due regard to the context and the

purpose and intent. The Government is asking that a

foreed and unnatural construction be placed upon this

section for the purpose of defeating the obvious limita-

tion which Congress intended.

If the court is in doubt about the construction of

this See. 278 (d) of the Revenue Act of 1926, it is

proper to consider proceedings in Congress while the

bill was in pending.

U. S. v. St. Paul, M. & M. R. Co., 247 U. S. 310.

Ex Parte Williams, 277 U.S. 267.

In the 1926 Act, as originally drafted, and as re-

ported by the Committee on Ways and Means of the

House to the House of Representatives, under date of

December 7, 1925, no change had been made in the first

sentence of Sec. 278 (d) as the same appeared in the

1924 Act. In describing the scope of that sub-division in

said report, it is said under the heading, ‘‘Suits to Col-

lect Tax’’:

**Sub-division (d) provides that where an as-

sessment of tax is made such tax may be collected

by distraiut or proceeding in court begun within six

years of the assessment of the tax or at any time

prior to the expiration of any period for collection

25

agreed upon in writing by the commissioner and the

taxpayer.’’

(See page 12 of Report No. 1 of the Committee on

Ways and Means of the House of Representatives on

House Roll No. 1, dated December 7th, 1925).

When the ‘*Managers on the Part of the House’’

made the report of the Conference Committee to the

House, after the bill had passed the Senate, with Sub-

division (d) re-written as aforesaid, they said:

‘‘Amendment No. 85: This amendment rewrites

in more definite language, and correcting clerical

mistakes, sub-divisions (d) and (e) of section 278 of

the House bill, dealing with the time within which

distraint or proceeding in court may be begun after

the assessment has been made, ”’

(See page 42 of Conference Report to House of

Representatives No, 356 accompanying House Roll No. 1

dated February 22, 1926).

For the foregoing reasons we respectfully submit

that the application for a writ of certiorari herein

should be denied,

Francis A, Brogan,

ALFRED G. ELLick,

Anan Raymonp,

Solicitors for Respondents.