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CHAPTER 36

ASSESSMENT AND PAYMENT OF THE TAX

All assessments are made by the Commissioner of Internal Revenue.1 After the return of annual net income has been filed with the collector, it is sent to the Treasury Department at Washington for assessment of the tax. When the assessment has been made, the amount thereof is reported to the local collector who notifies the taxpayer, on or before June 1st, of the amount thereof. The tax becomes due on the 15th day of June, but an additional period of grace, being at least ten days after June 15, is allowed before penalty or interest applies. In the case of corporations reporting for their fiscal years the return of net income, when filed, is immediately forwarded to the Treasury Department at Washington and the tax assessed thereon. The amount thereof is reported to the local collector who notifies the corporation and payment is due 105 days from the date on which the return of income is required to be made in such cases, and after ten days notice and demand by the collector. If the tax is not paid within ten days after notice and demand by the collector, which notice cannot be given before the 15th day of June or before the expiration of 165 days after the close of the fiscal year of a corporation reporting on the basis of its fiscal year,

1 Act of September 8, 1916, § 9 (a) and § 14 (a).

2 Act of September 8, 1916, § 14 (a).

penalty and interest accrue. The Government may proceed by levying on and distraining the property of the taxpayer if payment of penalty and interest is not made within ten days from the date of the second notice and demand for the tax. This drastic means of enforcing payment is within the power of Congress since the power to tax includes the power to undertake effectual means to collect the tax.3

Suit to Restrain Assessment or Collection. No suit for the purpose of restraining the assessment or collection of any tax shall be maintained in any court. The constitutionality of a law cannot be inquired into in an injunction suit against the government,5 but may be in a stockholder's suit to enjoin the corporation from voluntarily paying a tax charged to be unconstitutional. An injunction will not be granted at the instance of a stockholder to restrain the officers of a corporation from paying the tax, other than voluntarily, as that would, in effect, be the same as an action to restrain the Government. Allegations that an assessment is irregular and void do not constitute any ground for an injunction.8 A bill in equity will not lie to enjoin collection although the

3 McCulloch v. Maryland, 4 Wheat. 316; Flint v. Stone-Tracy Co., 220 U. S. 107.

4 R. S., § 3224.

5 Delaware R. R. Co. v. Prettyman, 17 Int. Rev. Rec. 99; Allen v. Pullman's Palace Car Co., 139 U. S. 658; Dodge v. Brady, 240 U. S. 122.

6 Pollock v. Farmers Loan & Trust Co., 157 U. S. 429; Flint v. Stone-Tracy Co., 220 U. S. 107; Brushaber v. Union Pacific R. R. Co., 240 U. S. 1.

7 Strauss v. Abrast Realty Co., 200 Fed. 327.

8 Alkan v. Bean, 23 Int. Rev. Rec. 351.

tax is alleged in the bill to have been illegally assessed.9 A collector cannot be restrained from collecting an assessment by injunction.10 It is contrary to every principle of equity jurisprudence that the collection of taxes on personal property should be stayed by injunction.11 The courts will not interfere by a mandamus with the executive officers of the Government in the exercise of their ordinary official duties.12 In matters which require an executive officer to exercise judgment or discretion no rule will issue for mandamus.13 The inhibition of Section 3224 applies to all assessments of taxes, made under color of their offices, by internal revenue officers charged with general jurisdiction of the subject of assessing the income tax. The remedy of a suit to recover back the tax after it is paid is provided by statute, and a suit to restrain its collection is forbidden. The remedy so given is exclusive, and no other remedy can be substituted for it. The system of administrative measures, not judicial, to collect internal revenue taxes, with appeals to specified tribunals, and suits to recover back moneys illegally exacted is a system of corrective justice intended to be complete, and enacted under the right belonging to the Government to prescribe the conditions on which it would

9 Snyder v. Marks, 109 U. S. 189; Dodge v. Osborn, 240 U. S. 118.

10 State R. R. Tax cases, 92 U. S. 575; Keely v. Sanders, 99 U. S. 441.

11 Nye v. Washburn, 125 Fed. 818.

12 U. S. v. Black, 128 U. S. 40. The court in this case followed an earlier decision of Decatur v. Paulding (14 Pet. 497) and made clear the distinction between the mere ministerial act of the executive officer, which may be controlled by the courts by mandamus, and an act in the performance of which an officer is vested with quasi-judicial discretion.

13 Carrick v. Lamar, 116 U. S. 423.

subject itself to the judgment of the courts in the collection of its revenues.14

Notice of Assessment. When the assessment has been made by the Commissioner of Internal Revenue the collector is notified and he sends the taxpayer a notice of assessment, usually on or before June 1.15 This notice, however, is not a demand for payment of the tax, but is merely a notification of the amount which has been assessed and the date on which the tax is due and payable. Failure to pay the tax on receipt of this notice does not make the taxpayer liable for penalty or interest. In the case of a corporation making returns for a fiscal year, the notice of assessment is given on or before the expiration of ninety days from the day when the return was required to be filed.16

Notice and Demand for Tax. If the tax is not paid on or before the date on which it is due, a notice and demand is issued to the taxpayer. The notice and demand is usually dated and sent out on the day the tax is due. It calls attention to the fact that the tax has been assessed, showing the amount thereof, and demands payment on or before a date given in the notice. Unless

14 Dodge v. Osborn, 240 U. S. 118.

15 The notice is given to corporations on a form known as Form 1-647A and to individuals on Form 1-647B. The two forms are essentially the same. Each is divided into three parts, one part for the taxpayer (which will operate as his receipt when he pays the tax), one part for the record of the Commissioner, and one part for the record of the local collector. When the tax is paid all three parts of the notice should be presented to the local collector who will properly receipt the part intended for the taxpayer and retain the other two parts.

16 Reg. 33, Art. 177.

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the tax is paid within the time specified the penalty imposed for delay in payment of the tax will be added to the assessment.17 This notice and demand is necessary in order to make the taxpayer liable for the penalty and interest in case of delay in payment of the tax, and is necessary to complete the government's lien on property belonging to the taxpayer. The fact that a claim for abatement is pending, or the tax is in litigation, does not relieve the collector from issuing the notice.18 The notice may lawfully be given by mail and when so given is presumed to have been received. The burden rests on the taxpayer to prove the contrary in order to avoid the penalty.19 The practice of the Department in such cases is to permit the taxpayer to show, to the satisfaction of the Commissioner, that he did not receive the notice, and upon such showing to give the taxpayer an opportunity to pay his taxes without penalty. The record of the collector showing that notice had been duly mailed is considered merely as prima facie evidence that the notice was received.20 The date appearing on the notice and demand, as the last date on which the tax may be paid without penalty, should be a date ten days subsequent to the actual mailing of the notice and not necessarily ten days from the date of the notice. The date of mailing controls.21

17 Reg. 33. Art. 197. Form 1-17A is used in notifying corporations and Form 1-17B in notifying individuals. The forms are essentially the same, each is divided in three parts in the manner and for the purpose described in the preceding note regarding the notice of assessment.

18 T. D. 1995.

19 U. S. v. General Inspection and Loading Company, 204 Fed.

657.

20 I. T. S. 1917, ¶ 2268.

21 T. D. 1659.

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