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REFUND OF STAMP TAXES.

JANUARY 30, 1907.-Committed to the Committee of the Whole House on the state of the Union and ordered to be printed.

Mr. DALZELL, from the Committee on Ways and Means, submitted the following

REPORT.

[To accompany H. R. 25187.]

The Committee on Ways and Means, to whom was referred the bills H. R. 20246 and H. R. 21198, have duly considered the same and report back the accompanying substitute bill with the recommendation that it do pass.

The purpose of this bill is to provide for the refunding of certain taxes collected pursuant to the provisions of the war-revenue act of 1898 on legacies and distributive shares of personal property and also of taxes imposed pursuant to the same act on manifests for the clearance of cargoes exported from the United States to foreign countries.

For the purpose of meeting expenses incident to the carrying on of the Spanish war, Congress passed an act, which was approved June 13, 1898, entitled "An act to provide ways and means to meet war expenditures, and for other purposes" (30 Stat. L., 448).

Sections 29 and 30 of this act provided for the imposition and collection of a tax on legacies and distributive shares of personal proerty.

Section 30 related to the method of collecting the tax.

Section 29 is (so far as material) as follows:

SEC. 29. That any person or persons having in charge or trust, as administrators, executors, or trustees, any legacies or distributive shares arising from personal property, where the whole amount of such personal property as aforesaid shall exceed the sum of $10,000 in actual value, passing, after the passage of this act, from any person possessed of such property, either by will or by the intestate laws of any State or Territory, or any personal property or interest therein, transferred by deed, grant, bargain, sale, or gift, made or intended to take effect in possession or enjoyment after the death of the grantor or bargainer, to any person or persons, or to any body or bodies, politic or corporate, in trust or otherwise, shall be, and hereby are, made subject to a duty or tax, to be paid to the United States as follows-that is to say, etc.

The remainder of the section regulates the amount of the tax in accordance with the relationship of the beneficiary to the decedent. Under the provisions of this act taxes were imposed and collected by the Treasury Department in the first instance only upon the interest in property to which a person succeeded in possession and enjoyment upon another's death.

On March 2, 1901, the original war-revenue act was amended in several particulars. (31 Stat. L., 938.) Inter alia the provision in the original act that the tax or duty "shall be due and payable in one year after the death of the testator" was stricken out, and the provision limiting the duty of executors, administrators, or trustees to those "having in charge or trust any legacy or distributive share " was also stricken out, as was also the provision which related to the residence of the deceased person. It was also provided in this latter act that "any tax paid under the provisions of sections 29 and 30 shall be deducted from the particular legacy or distributive share on account of which the same is charged."

After the passage of this act the Treasury Department imposed and collected taxes to a large amount upon reversionary interests, upon the assumption that the original war-revenue act was so modified by this latter act as to make such taxes collectible.

On April 12, 1902, Congress passed "An act to repeal war-revenue taxation, and for other purposes" (32 Stat. L., 96). By the provisions of this act the tax on legacies was repealed, the repeal to take effect July 1, 1902.

February 20, 1905, the Supreme Court of the United States in the case of Vanderbilt v. Eidman (196 U. S., 480) held that neither the original war-revenue act nor the amendatory act of March 2, 1901, authorized the imposition of taxes on legacies which did not pass into possession and enjoyment prior to July 1, 1902.

On June 27, 1902, an act was approved entitled "An act to provide for refunding taxes paid upon legacies and bequests for associations of a religious, charitable, or educational character, for the encouragement of art, etc., under the act of June 13, 1898, and for other purposes" (32 Stat. L., 406).

The third section of that act reads as follows:

SEC. 3. That in all cases where an executor, administrator, or trustee shall have paid, or shall hereafter pay, any tax upon any legacy or distributive share of personal property under the provisions of the act approved June 13, 1898, entitled "An act to provide ways and means to meet war expenditures, and for other purposes," and amendments thereof, the Secretary of the Treasury be, and he is hereby, authorized and directed to refund, out of any money in the Treasury not otherwise appropriated, upon proper application being made to the Commissioner of Internal Revenue, under such rules and regulations as may be prescribed, so much of said tax as may have been collected on contingent beneficial interests which shall not have become vested prior to July 1, 1902. And no tax shall hereafter be assessed or imposed under said act approved June 13, 1898, upon or in respect of any contingent beneficial interest which shall not become absolutely vested in possession or enjoyment prior to said July 1, 1902.

Reviewing now the case up to this time, it appears:

1. That it was universally agreed that reversionary legacies were not taxable under the original war-revenue act and were not taxed. 2. That reversionary legacies were taxed under the act of March 2, 1901, on the assumption that that act so modified the original act as to make such tax collectible.

3. That under the law as construed by the Supreme Court reversionary legacies were not taxable either under the original act or under the supplemental act.

4. That Congress repealed the war-revenue act, and subsequently provided for the refunding of taxes paid upon legacies or distributive shares of personal property under that act.

Had the matter rested here there would be no necessity for the passage of this bill, because the Treasury Department would have made refundment.

On June 20, 1905, however, the Comptroller of the Treasury held section 3228, Revised Statutes, applicable to those claims falling within the third section of the act of June 27, 1902, the refunding act, though previous to that time, on June 9, 1905, the Commissioner of Internal Revenue had decided that the provisions of section 3228, Revised Statutes, did not apply to such claims.

Section 3228, Revised Statutes (an act approved June 6, 1872), reads as follows:

All claims for the refunding of any internal tax alleged to have been erroneously or illegally assessed or collected, or of any penalty alleged to have been collected without authority, or of any sum alleged to have been excessive or in any manner wrongfuly collected, must be presented to the Commissioner of Internal Revenue within two years next after the cause of action accrued: Provided, That claims which accrued prior to June sixth, eighteen hundred and seventy-two, may be presented to the Commissioner at any time within one year from said date. But nothing in this section shall be construed to revive any right of action which was already barred by any statute on that date.

It seems clear for various reasons that this ruling of the Comptroller of the Treasury was in error. It is not likely that Congress when it passed the refunding act had in mind the provisions of an act passed more than thirty years before and which had no relation to succession, inheritance, or legacy taxes. On the other hand, if Congress did have such statute in mind, it is fair to presume from the language of the refunding act that it did not intend that the limitation in section 3228 should apply. The refunding act says, in terms, "in all cases where an executor, administrator, or trustees shall have paid, etc." It does not say "in all cases where a claim shall be presented within two years," or "in all cases subject to existing límitations," but it does say "in all cases," and no authority exists for reading into the law words that the lawmakers omitted therefrom.

Moreover, the language of the refunding act specifically refers to "all cases" of payment "under the provisions of the act approved June 13, 1898; "and yet it is manifest that there may have been many cases of payment under the act of June 13, 1898, that were made more than two years prior to the passage of the refunding act. Congress can not be presumed to have done a vain thing.

Again, section 3228, Revised Statutes, applies to claims over which the Commissioner of Internal Revenue has jurisdiction, while the refunding act applies to cases where the Secretary of the Treasury is the administrative officer.

The question as to whether the bar of the statute, section 3228, applies to section 3 of the act of June 27, 1902, was raised in the circuit court of the United States for the district of Massachusetts, in the case of Thomas C. Thacher et al. v. United States. On December

28, 1906, Judge Lowell rendered an opinion holding against the contention that section 3228 prevented the allowance of claims for the refunding of taxes paid upon contingent beneficial interests filed more than two years after the date of the payment of the tax. (Copy of this opinion appended.)

The refunding provided for by the act of June 27, 1902, was a free gift upon the part of Congress. No reason can be suggested why any rule other than an uniform rule should apply to its several sections, and yet it has never been suggested that the statute of limitations applied to claims under section 1, and it was decided by the Comptroller of the Treasury on February 8, 1905, that it did not apply to claims under section 2. The purpose of this legislation is to make sure that it shall not apply to claims under section 3.

With respect to section 2 of this bill, attention is called to the provisions of section 2 of the refunding act. It reads as follows:

SEC. 2. That the Secretary of the Treasury, under rules and regulations to be prescribed by him, be, and is hereby, authorized and directed to refund, out of any money in the Treasury not otherwise appropriated, sums paid for documentary stamps used on export bills of lading, such stamps representing taxes which were illegally assessed and collected.

It will be observed that the same law that imposed taxes upon export bills of lading, also imposed taxes on manifests for the clearance of cargoes exported from the United States to foreign ports. And yet, section 2 of the refunding act, while it provided for the refund of taxes on export bills of lading did not provide for a refund of taxes on export manifests. The Supreme Court of the United States in the case of Fairbanks v. United States (181 U. S., 283), held that taxes on export bills of lading were unconstitutional as imposing a tax on exports; and the same court held, in the case of New York and Cuba Mail Steamship Company v. United States (200 U. S., 488), that for the same reason taxes on export manifests were unconstitutional, but held also, that they could not be recovered except where they had been paid under protest. The Commissioner of Internal Revenue acting upon the opinion of the Attorney-General thereupon denied all applications to refund similar duties collected on export manifests except where they had been paid under protest. The same reasons that actuated Congress in providing for a refund of taxes upon export bills of lading are applicable to the refund of taxes on export manifests. The equities in both cases are the same. Hence, your committee have inserted the second section of this bill.

j

TREASURY DEPARTMENT, Washington, January 12, 1907.

SIR: In response to your communication of the 9th instant, inclosing copy of H. R. 20246, a bill to amend "An act to provide for refunding taxes paid upon certain legacies," etc., approved June 27, 1902, with the request that I give such information as I may possess to the Committee on Ways and Means as to the effect of the said bill, and my recommendation as to its passage or otherwise, I have the honor to state that an examination of the records discloses the fact that 152 claims, aggregating $652,666.43, rejected and unrejected, in the files of this Department would be affected by and paid under the provisions of the amending clause of the bill should it become a law.

It can not be definitely stated that this amount includes all of the taxes that would be refundable under the act, but it is believed that only a small

per cent of the taxes paid on unvested, contingent beneficial interests remains unclaimed.

The proposed amendment has no further effect than to remove the bar of the statute of limitation on the claims aforesaid, and as many claims filed within the time prescribed by the statute of limitation have been paid, I am of the opinion that the amendment will promote the ends of justice by enabling taxpayers, most of whom were delayed in filing claims without fault on their part, to recover taxes collected under a departmental construction of the law held erroneous by the Supreme Court.

I recommend the passage of the bill.

Respectfully,

Hon. SERENO E. PAYNE,

Chairman Committee on Ways and Means,

L. M. SHAW,

Secretary.

House of Representatives.

TREASURY DEPARTMENT,

OFFICE OF COMMISSIONER OF INTERNAL REVENUE,

Washington, January 17, 1907.

MY DEAR MR. DALZELL: I have the honor to make response to your verbal inquiry of this morning, asking upon what grounds I held section 3228, Revised Statutes, applicable to section 3 of the refunding act of June 27, 1902, and not applicable to the other sections of that act.

While the ruling referred to was made by the Comptroller of the Treasury and not by myself, your question can be more fully and satisfactorily answered by calling your attention to several sections of the Revised Statutes and comparing them with the act of June 27, 1902.

Section 3220, Revised Statutes, places in the hands of the Commissioner of Internal Revenue the authority and makes it his duty to remit, refund, and pay back all taxes erroneously or illegally assessed or collected, all penalties collected without authority, and all taxes that appear to be unjustly assessed or excessive in amount, or in any manner wrongfully collected," etc.

That this authority rests exclusively in the hands of the Commissioner is recognized also by sections 3226 and 3228, Revised Statutes, the latter providing that no claim shall be allowed unless it be presented within two years next after the cause of action accrues.

Section 3426, Revised Statutes, gave like exclusive authority to the Commissioner of Internal Revenue to make allowance for and redeem stamps that had been spoiled, destroyed, or rendered useless or unfit for the purpose intended, or for which the owner might have no use, or which through mistake might have been improperly or unnecessarily used. In this section no time was mentioned within which the stamps should be presented.

The Attorney-General on January 16, 1878, held that the bar of section 3228 did not apply to stamps filed for allowance or redemption under section 3426. On May 12, 1900, the Congress amended section 3426 by providing a limit of two years after the purchase of the stamps within which they might be presented for redemption or allowance. This latter act was further amended by the act of June 30, 1902, allowing claims for documentary and proprietary stamps issued under the act of June 13, 1898, to be presented to this office at any time prior to the 1st day of July, 1904.

Now, the act of June 27, 1902, as you will observe, constitutes the Secretary of the Treasury the administrative officer charged with the duty of making the allowances provided for therein.

But as claims for refunding under the three sections of that act were filed in the Internal Revenue Bureau-where claims for the refunding of internalrevenue taxes are invariably filed-and following the desire of the Secretary of the Treasury all such claims were prepared in this Bureau in the usual manner, except that I forwarded them to the Secretary for his action with my recommendation thereon.

Thus, in passing upon claims coming under the provisions of section 3 of the act of June 27, 1902, I held that the time limitation contained in section 3228 was not applicable. But when those claims which had been recommended by me to the Secretary of the Treasury for allowance were transmitted to the

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