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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.7

7 T. D. 1617.

CHAPTER 39

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 of Internal Revenue. 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."i The Commissioner of Internal Revenue, subject to regulations prescribed by the Secretary of the Treasury, is authorized, on appeal made to him, 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.?

Taxes Paid on Second Assessment. Where a second assessment has been made by the collector 3 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, unless it is proved that said list and statement, or return, was not false or fraudulent, and did not contain any understatement or undervaluation.

1 Nichols v. United States, 7 Wall. 122; U. 8. v. Real Estate Savings Bank, 104 U. S. 728.

2 R. S., & 3220.
3 See Chapter 36.

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. 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 6

Abatement. The Secretary of the Treasury has provided two forms for the purpose of refund and abatement. One is made applicable to the return of taxes and penalties illegally or improperly assessed and paid, and the other for an abatement of their assessment. The former is applicable to cases where the taxes and penalties have been paid, and the latter to cases where they have 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 upon the Commissioner and he obtains jurisdiction to pass upon a claim only when and as they have been complied with. The merits of a case come before him when a proper claim has been made. Under a claim for abatement he can only determine whether or not the assessment should be abated. Any further action would be in violation of the regulations and beyond his jurisdiction. The Commissioner possesses no equity powers in case of abatement; if the tax is a legal one he cannot abate it. It seems that the Commissioner has no authority to revoke the abatement of a tax once made by him, but he may re-assess the tax.9

4 R. S., 83220. 5 Reg. 33, Art. 33. 6 Cambria Steel Co. v. McCoach, 225 Fed. 278.

EFFECT OF REJECTION OF CLAIM FOR ABATEMENT. By weight of authority it seems that, if an appeal is taken from an assessment and decided against the appellant, and the tax is afterwards collected, it is not necessary to take a second appeal for refund of the payment before commencing suit to recover the tax.10 When the abatement claim has been considered and rejected upon its merits, no claim for refund is necessary to lay foundation for a suit.11 In a recent case it was said: “What the Commissioner of Internal Revenue thought about the assessment had been obtained upon

7 Hastings v. Herold, 184 Fed. 759.
8 Decision No. 180, 36 Int. Rev. Rec. 13.
9 U. S. v. Alexander et al., 110 U. S. 325.
10 San Francisco Savings Society v. Cary, 2 Sawyer 393.

11 DeBary v. Dunne, 162 Fed. 961; Schwarzschild and Sulsberger Co. v. Rucker, 143 Fed. 656; T. D. 974; Grier v. Tucker, 150 Fed. 657; T. D. 1293; Contra, Hastings v. Herold, 184 Fed.

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