United States Tax Court

“ Waiving, however, objection to this mode of proof, we do not perceive that the fact charged, if it was a fact, had any tendency to impair the validity of the tax sale. Such a sale did not disturb any possession which the State court had of the property; and no State court could, by injunction or otherwise, prevent Federal officers from collecting Federal taxes. The government of the United States, within its sphere, is independent of State action ”

“ The collection of taxes assessed under the authority of a state is not to be restrained by writ of injunction from a court of the United States, unless it clearly appears, not only that the tax is illegal, but that the owner of the property taxed has no adequate remedy by the ordinary processes of the law, and that there are special circumstances bringing the case under some recognized head of equity jurisdiction. ”

“ Again, it seems to me that such an instruction would not give proper scope to the congressional intention that the taxpayer have a chance to prove 'by the preponderance of the evidence' that it had a 'contrary' purpose. I would therefore adopt an instruction less loaded against the taxpayer.
The Court of Appeals for the Sixth Circuit decided, and respondent argues, that the tax should apply only if the jury finds that tax avoidance was the 'dominant, controlling, or impelling motive' for the accumulation. I agree with the Court that such an instruction would be improper. ”

“ For many years that principle has been reinforced by the rule that no suit can be maintained for the purpose of restraining the assessment or collection of any tax. [25] More recently, Congress took care to except from the operation of the Federal Declaratory Judgments Act any controversies 'with respect to Federal taxes.' [26] To ameliorate the hardship produced by these requirements Cognress created a special court where tax questions could be adjudicated in advance of any payment. ”

“ The state, construing its own law, has rendered an unconditional judgment holding plaintiffs liable for the tax. For purposes of our review we must assume that the judgment conforms to state law. Hence we are called on to determine only federal questions properly raised on the record. Considering the only question of the tax immunity of the United States which is so raised, we decide for reasons already stated that the tax now laid and sustained imposes no unconstitutional burden on the federal Government. ”

“ It still remains true, as it has from the beginning, that a tax may be invalid even though it does not fall directly on the United States if it operates so as to discriminate against the Government or those with whom it deals. ”

“ It will be time enough to consider its interests when some effort is made to enforce the lien or collect the tax from the United States. We obviously do not by our judgment against the plaintiffs impose the tax on the Government. Their property alone is subject to the lien of the present judgment and to execution issued under it. They cannot recover the amount of the judgment from the Government unless the Constitution permits. And if it forbids they obviously will not collect the tax. In neither case does our judgment impose any burden on the United States. ”

“ First of all, what makes the Court so sure that Congress "meant" tax credits to be available everywhere? Our only evidence of what Congress meant comes from the terms of the law, and those terms show beyond all question that tax credits are available only on state Exchanges. More importantly, the Court forgets that ours is a government of laws and not of men. That means we are governed by the terms of our laws, not by the unenacted will of our lawmakers. "If Congress enacted into law something different from what it intended, then it should amend the statute to conform to its intent." ”

“ It would permit the taxpayer to escape the tax if it could convince the jury that for other, perhaps irrational, reasons it would have accumulated even had no tax saving been possible, thus affording the opportunity for proof of a 'contrary' purpose which Congress intended to provide. ”

“ An examination of the new statute shows that the controversy just outlined is not without some real basis and that its solution is not free from difficulty. The question is purely one of state law, and, so far as we are advised, the Supreme Court of the state has not passed on or considered it. A ruling by us on the question would neither settle it for that court nor be binding in an action to recover the tax if paid. In these circumstances it cannot be said that the company certainly or plainly has an adequate and complete remedy at law. ”

“ As the right to tax 'incomes from whatever source derived' for which the Amendment provides must be considered as exacting intrinsic uniformity, therefore no tax comes under the authority of the Amendment not conforming to such standard, and hence all the provisions of the assailed statute must once more be tested solely under the general and pre-existing provisions of the Constitution, causing the statute again to be void in the absence of apportionment. ”

“ While a free course of remonstrance and appeal is allowed within the departments before the money is finally exacted, the general government has wisely made the payment of the tax claimed, whether of customs or of internal revenue, a condition precedent to a resort to the courts by the party against whom the tax is assessed. In the internal-revenue branch it has further prescribed that no such suit shall be brought until the remedy by appeal has been tried; and, if brought after this, it must be within six months after the decision on the appeal. ”

“ The proliferation of statutes and regulations has sometimes made it difficult for the average citizen to know and comprehend the extent of the duties and obligations imposed by the tax laws. Congress has accordingly softened the impact of the common-law presumption by making specific intent to violate the law an element of certain federal criminal tax offenses. ”

“ A problem of a different order is presented where the tax itself has the effect of suppressing an activity or where it is coupled with regulations which clearly have no possible relation to the collection of the tax. Where a tax is imposed unconditionally, so that no other purpose appears on the face of the statute, the Court has refused to inquire into the motives of the lawmakers and has sustained the tax despite its prohibitive proportions. ”

“ It is urged that want of due process results from the provision allowing individuals to deduct from their gross income dividends paid them by corporations whose incomes are taxed, and not giving such right of deduction to corporations.
5. Want of due process is also asserted to result from the fact that the act allows a deduction of $3,000 or $4,000 to those who pay the normal tax, that is, whose incomes are $20,000 or less, and does not allow the deduction to those whose incomes are greater than $20,000 ”

“ The Court’s revision of the law authorizes the Internal Revenue Service to spend tens of billions of dollars every year in tax credits on federal Exchanges. It affects the price of insurance for millions of Americans. It diminishes the participation of the States in the implementation of the Act. It vastly expands the reach of the Act’s individual mandate, whose scope depends in part on the availability of credits. ”

“ It is true that it is elaborately insisted that although there be no express constitutional provision prohibiting it, the progressive feature of the tax causes it to transcend the conception of all taxation and to be a mere arbitrary abuse of power which must be treated as wanting in due process. But the proposition disregards the fact that in the very early history of the government a progressive tax was imposed by Congress, and that such authority was exerted in some, if not all, of the various income taxes enacted prior to 1894 to which we have previously adverted. ”

“ It is insisted, in the first place, that a proper construction of the act of 1898 does not require the payment of taxes to a state wherein the bankrupt has no property, and the state no means of collecting the tax from property within its jurisdiction. And it is urged that the taxes to be paid are those legally due and owing to the United States, state, county, district, or municipality, which does not contemplate payment to any and all states, but only to THE state, which, it is insisted, should be interpreted with the limitation stated. ”

“ The statute levies one tax called a normal tax on all incomes of individuals up to $20,000, and from that amount up, by gradations, a progressively increasing tax, called an additional tax, is imposed. No tax, however, is levied upon incomes of unmarried individuals amounting to $3,000 or less, nor upon incomes of married persons amounting to $4,000 or less. The progressive tax and the exempted amounts, it is said, are based on wealth alone, and the tax is therefore repugnant to the due process clause of the 5th Amendment. ”

“ Also, when a power of appointment has been granted by deed, transfer tax upon the exercise of the power by will is not a taking of property without due process of law, even though the instrument creating the power was executed prior to enactment of the taxing statute. [467] Likewise when a transfer tax law did not become effective until after a deed creating certain remainders had been executed, but the State court applied the tax on the theory that the vesting actually occurred after the tax law became operative, no denial of due process resulted. ”

“ Finally, permitting the Tax Court judge to review the findings of fact of the special trial judge under a clear error standard will lead to an unconstitutional result. If the judge of the Tax Court is to review the special trial judge's findings of fact under a clear error standard, review by the judge of the Tax Court is the same as review by a court of appeals. [FN3] A court of appeals must accept findings of fact of the Tax Court unless there is clear error. ”

“ The legislative history of the 1936 Act reveals that Congress was conversant with the problem of computing earnings before the end of the taxable year, in connection with dividend payments, but declined to act. [8] Corporations with oral contracts, or written contracts executed after May 1, 1936, dealing with the disposition of profits in satisfaction of debts also probably think § 26 (c) (2) is a most unreasonable statute. But arguments urging the broadening of a tax deduction statute beyond its plain meaning to avoid harsh results are more properly addressed to Congress than to the courts. ”

“ See §§6501 (c) (1) – (3) (authorizing the IRS to bring “a proceeding in court for collection of [a] tax ... without assessment” in situations involving false returns, willful attempts to evade taxes, and failures to file a return) .
Second, petitioners’ argument overlooks that clause (i) and clause (ii) are addressed to different entities. Clause (i) concerns assessments or judgments against a taxpayer—“the person with respect to whose liability the summons is issued.” §7609 (c) (2) (D) (i) . Clause (ii) , in contrast, concerns the liability of a “transferee or fiduciary.” ”

“ No taking of property by taxation is constitutional unless the exaction is laid according to value, in ome, or other measure prescribed by law. But Congress has, with the sanction of this Court, broadly given finality to the determination by the Board of Tax Appeals of the facts concerning income. By its legislation the jurisdiction of courts is limited to deciding 'whether the correct rule of law was applied to the facts found; and whether there was substantial evidence before the Board to support the findings made.' Helvering v. ”

“ In such circumstances, §7609 (c) (2) (D) (i) prevents notice from tipping the balance entirely in favor of the delinquent taxpayer, at the expense of the IRS. But, depending on whose information the summons seeks (for example, an innocent third party’s) , or the nature of the requested records, it might not be reasonable to conclude that providing notice would frustrate the IRS’s tax-collection goal. ”

“ Consequently, we hold that petitioner is not liable for the additions to tax in 1981, 1982, and 1983 under the provisions of section 6653 (a) (1) and (2) .
With respect to returns filed after December 31, 1982, section 6661 (a) imposes an addition to tax on any substantial understatement of income tax. A substantial understatement is one that exceeds the greater of either 10 percent of the tax required to be shown on the return or $5,000. ”

“ To be sure, Congress has also recognized that there might be situations, particularly in the collection context, where providing notice could frustrate the IRS’s ability to effectively administer the tax laws. For instance, upon receiving notice that the IRS has served a summons, interested persons might move or hide collectable assets, making the agency’s collection efforts substantially harder. ”

“ Counsel for the state maintain that the effect of section 76.34 is to impose upon domestic insurance companies a privilege or franchise tax, and not one on property or income; that no charge is laid upon bonds of the United States, but the fee exacted is for granted privileges, including exemption from personal property taxation and right to do business; that the state may require domestic corporations to pay privilege, franchise or license taxes measured by gross income, although partly derived from United States bonds ”