or objects or goods, wares or merchandise charged with the tax are located. In case of failure to make such return if the person liable consents to disclose the particulars, it is the duty of the collector or deputy collector to make the list or return which, when consented to, is received as the return of such person. If any person, on being notified or required to make this return by the leaving at his place of residence or business with someone of suitable age or discretion or the depositing in the nearest post office a memcrandum addressed to him, refuses or neglects to make the return within ten days from the date of the notice, or delivers any return, which in the opinion of the collector is crroneous, false or fraudulent or contains any under-valuation or under-statement, or refuses to allow a regularly authorized government officer to examine his or its books, the collector may summon such person, partnership, firm, association or corporation or any person having possession, custody or care of the books of account containing entries relating to the business of such person, partnership, firm, association or corporation, or any other person, to appear before him and produce the books and give testimony or answer interrogatories respecting any objects liable to tax or the returns thereof. When the person intended to be summoned does not reside in the state or territory in which the collector's district lies, the collector may enter any collection district where the person may be found and there make the above examination.17

Instructions to Revenue Agents. The following instructions have been given by the Treasury Department to revenue agents and examiners: "In conducting their examination the agents will, except in clear cases of misrepresentation, proceed on the assumption that all errors in the returns rendered are unintentional; and they will, so far as possible, make their examination in such manner as not to interfere with the company's business, either as to the use of its books or in the general conduct of its

17 Revised Statutes, § 3173 as amended. See Reg. 33, Art. 186.

affairs. Contentions with officers, employees or representatives of corporations are to be carefully avoided, and no action that may cause friction, that is not necessary in the proper performance of their duties, must be indulged in by officers making these examinations. Ordinarily no very extended examination of the company's books will be neeessary, as the verification of the particular items to which attention has been called will be sufficient. Where, however, a thorough examination is found to be necessary, and the accounts are so kept as to involve much labor in their examination, the agent may assign two assistants for this purpose. Where discrepancies between the company's books and the return made are discovered, the officers of the company should be given full opportunity to explain the same, and to furnish, if so desired, a sworn statement in reference thereto. In such cases the agent will, if deemed necessary, require the attendance of any officer or employee of the company, and there examine such officer or employee respecting the matter under investigation. The witnesses in such cases should be duly sworn by the agent, and in case of refusal of any such officer or employee to testify, or in the case of refusal to produce the books or papers called for, the agent will at once report the fact to this office." 18

18 T. D. 1617.

CHAPTER 38

ABATEMENT, REFUND AND RECOVERY OF TAXES

The prompt collection of the revenue and its faithful application is one of the most vital duties of government. Depending, as the government does, upon its revenue to meet not only its current expenses, but to pay the interest on its debt, it is of the utmost importance that it should be collected with despatch, and that the officers of the Treasury should be able to make a reliable estimate of means in order to meet liabilities. It would be difficult to do this, if the receipts paid into the Treasury were liable to be taken out of it, on suits for alleged errors and mistakes, concerning which the officers charged with the collection and disbursement of the revenue had received no information. To guard against such consequences, Congress has from time to time passed laws on the subject of the revenue, which not only provide for the manner of its collection, but also point out a way in which errors can be corrected. These laws constitute a system which Congress has provided for the benefit of those persons who complain of illegal assessments of taxes and illegal exactions of duties. The party aggrieved can test the question of the illegality of an assessment or collection of taxes by suit; but he cannot do this until he has taken an appeal to the Commissioner. Thus it will be seen that the person who believes he has suffered wrong at the hands of the collector can appeal to the courts; but he cannot do this until he has taken an intermediate appeal to the Commissioner, and, in any event, he is barred from bringing a suit, unless he does it within the period limited by law. The object of these different provisions is

apparent. While the government is desirous to secure to the citizen a mode of redress against erroneous assessments or collections, it says to him: "We want all controverted questions concerning the revenue settled speedily, and if you have complaint to make, you must let the Commissioner of Internal Revenue know the grounds of it; but if he decides against you, or fails to decide at all, you can test the question in the courts if you bring your suit within a limited period of time." The Commissioner, subject to regulations prescribed by the Secretary, is authorized 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. The Revenue Act of 1918 changes the provision in regard to the refund of taxes paid in excess of the amount properly due. This provision is discussed in a later paragraph in this chapter.

Taxes Paid on Second Assessment. When a second assessment is made in case of a list, statement, or return, which, in the opinion of the collector, or deputy collector, was false or fraudulent, or contained any understatement or undervaluation, such assessment shall not be remitted, nor shall taxes collected under such assessment be refunded, or paid back, or recovered by any suit, unless it is proved that such list, statement, or return, was not willfully false or fraudulent, and did not contain any willful understatement or undervaluation.*

1 U. S. v. Real Estate Savings Bank, 104 U. S. 728. See also Nichols v. U. S., 7 Wall. 122, modified in regard to its holding that cases under the revenue laws were not within the jurisdiction of the Court of Claims in U. S. v. Kaufman, 96 U. S. 567 and U. S. v. Real Estate Saving Bank, 104 U. S. 728.

2 R. S., § 3220, as amended by the Revenue Act of 1918 by striking out the words "on appeal made to him (Commissioner of Internal Revenue)."

3 Revenue Act of 1918, § 252.

This

4 R. S., § 3225 as amended by the Revenue Act of 1918. amendment combines the former proviso clause of R. S. § 3220 with

Who May Claim Recovery of Tax. As a general rule, the taxpayer against whom the tax is assessed and by whom the tax is paid is the one who is entitled to claim abatement or refund or sue for its recovery. If the person against whom the tax is assessed is dead, the claim should be made in the name of the executor or administrator.5 In cases where the tax has been withheld at the source the claim for abatement or refund may be made either by the withholding agent against whom the assessment was made or by the person for whose account such taxes were withheld." Where one corporation had leased all of its property to another, a tax being thereafter assessed upon the lessor, and its claim for an abatement being rejected, the tax was paid by the lessee to avoid the penalty threatened by the collector and to avoid distraint and sale of the leased property. The court held that the payment by the lessee was not voluntary and that it was entitled to sue for its recovery without regard to privity of contract between it and the collector.7

Abatement. Under the 1916 Law the Secretary of the Treasury provided two forms for the purpose of refund and abatement. One was made applicable to the return of taxes and penalties illegally, or improperly assessed and paid, and the other to an abatement of their assessment. The former was applicable to cases where the taxes and penalties had been paid, and the latter to cases where they had not been paid. These regulations of the Secretary have the force of law, and the Federal Courts are obliged to take notice of them. Furthermore, they are obviously binding

R. S. § 3225 in its previous form; and also by the insertion of the words “wilful" and "wilfully" is a statutory enactment of the decision in Northwestern Mut. Life Ins. Co. v. Fink, 248 Fed. 568. The Government has withdrawn from the position taken by it in Camp Bird Ltd. v. Howbert, 249 Fed. 27, and the case has been dismissed in the Supreme Court.

5 Reg. 33 Rev., Art. 266. Certified copies of the letters of administration or letters testamentary or other similar evidence should be annexed to the claim in such case.

6 Reg. 33, Art. 33.

7 Cambria Steel Co. v. McCoach, 225 Fed. 278.

F. T.-39