ment and in favor of the citizen. (Mutual Benefit Life Ins. Co. v. Herold, 198 Fed. Rep. 199.)

The question of the authority of Treasury regulations is most aptly discussed in Black's Income Taxes (4th edition), page 9.

But of course it is not within the lawful power of these officers to go a step beyond the limits of the act of Congress under which their authority is exercised. They could neither bring within the purview of the law or of their regulations anything not definitely within the words of the act, nor except from its operation anything not clearly meant to be excluded, nor add to the burden of the taxpayer anything which Congress did not intend to impose upon him. But within the limits of their rightful authority, regulations prescribed by the Commissioner of Internal Revenue, pursuant to statutory authority, with the approval of the Secretary of the Treasury where necessary, in respect to the assessment and collection of internal revenue taxes, or for the government of the officers of the revenue department, have all the force and effect of law, and are as binding as if incorporated in the statute law of the United States; and the acts of the Commissioner are presumed to be the acts of the Secretary. But the construction given to an act of Congress imposing internal revenue taxes by the Commissioner of Internal Revenue, though officially published, is not a construction of so much dignity that a re-enactment of the statute subsequent to the construction is to be regarded as a legislative adoption of that construction, and especially when the construction would make a proviso to the act repugnant to the body of the act.

In Thacher v. United States," the United States Supreme Court said:

The Commissioner of Internal Revenue cannot alone, or in connection with the Secretary of the Treasury, alter or amend the internal revenue law. All he can do is to carry into effect that which Congress has enacted. His regulations in aid of the execution of the law must be reasonable, and made with a view to the due assessment and collection of the revenue.

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CHANGED INTERPRETATION RETROACTIVE EFFECT. It should be borne in mind that Treasury interpretations are, after all, merely interpretations. Therefore, if the courts decide that the law means something different from what the

15 Blatch 15.

Treasury has held it to mean, the rulings must be reversed and redress granted or additional levies made back to the date of the passage of the law. It is not easy to make a general statement as to how far a Treasury ruling which reverses some previous Treasury ruling is retroactive. Much depends upon the circumstances. Certainly administrative difficulties are sufficient to justify the prohibition of wholesale readjustments of returns unless the changes are of considerable importance. In the language of the regulations, "cases previously adjusted in contravention of law, as pronounced in such decisions, are subject to readjustment in accordance with the decisions."

Abatement

When notice of assessment of additional tax is received it is difficult to decide whether to file claim for abatement and at least defer payment of the tax or pay the tax and file claim for refund. When claim for abatement is filed there is of course some chance that the claim of the taxpayer will be denied. Therefore it is important that the claim for abatement be filed within ten days from date of assessment in order to prevent the 5 per cent penalty from being imposed.

LAW. Section 250. . . (e) If any tax remains unpaid

after the date when it is due, and for ten days after notice and demand by the collector, then, except in the case of estates of insane, deceased, or insolvent persons, there shall be added as part of the tax the sum of 5 per centum on the amount due but unpaid, plus interest at the rate of 1 per centum per month upon such amount from the time it became due: Provided, that as to any such amount which is the subject of a bona fide claim for abatement such sum of 5 per centum shall not be added and the interest from the time the amount was due until the claim is decided shall be at the rate of 1⁄2 of I per centum per month.

If the claim or any part of it is denied, interest at the rate of 6 per cent per annum3 will be added to the amount disallowed. Where, however, a claim for an abatement is

'Reg. 33, 1918, Art. 38.

'If it is held that the claim is not made in good faith the rate of interest is 12 per cent. (See page 184.)

based on the grounds of a loss in inventory,' interest at the rate of 12 per cent per annum will be added to the tax not abated, beginning with the original due date.1o

Section 250 (e) applies to claims for abatement under the 1918 law. Under previous laws interest at the rate of 1 per cent a month is imposed upon the amount disallowed.

Taxpayers who have prepared their returns in good faith object to paying additional assessments because the government, even though it may in the course of time refund amounts illegally collected, does not pay interest thereon. In many cases, of course, taxpayers decide that the question as to whether or not the additional assessment will stand is a close one. In such cases it may be wise to pay the tax and make claim for refund.

In all cases where taxpayers are confident that their original returns are in accord with the law, claims for abatement should be filed with the collector, who will transmit them to the Commissioner at Washington, and immediate steps should be taken to present evidence to support the claim.

The following regulation sets forth the details of procedure in claims for abatements.

REGULATION. Claims by the taxpayer for the abatement of taxes or penalties erroneously or illegally assessed or abatable under remedial acts shall be made on form 47. They must be sustained by the affidavits of the parties against whom the taxes were assessed, or of other parties cognizant of the facts. When a tax has been assessed and turned over to the collector, the presumption is that the assessment is correct. The burden of proof in rebutting the presumption and showing that it was improperly or illegally assessed, or that relief should be given under a remedial statute, rests upon the applicant for abatement. The affidavits must therefore contain full and explicit statements of all the material facts relating to the claim in support of which they are offered and to the proper consideration of which they are essential. The legality of the claim is to be determined by the Commissioner upon the facts presented by the affidavits. The filing of a claim for abatement does not necessarily operate as a suspension of the collection of the tax or make it any less the duty

'See page 184.

10Section 214 (a-12).

of the collector to exercise due diligence to prevent the collection of the tax being jeopardized. He should, if he considers it necessary, collect the tax and leave the taxpayer to his remedy by a claim for refund. ... (Art. 1032.) (For copy of form 47, see Appendix.)

The author's experience has been that many claims for abatement are denied because the foregoing reasonable and legal procedure is not followed by taxpayers. It is not enough to make a short affidavit to the effect that the tax is illegally or wrongfully assessed. It should be remembered that the additional assessment is the result of a long and careful audit of the returns. The taxpayer is entitled to and should have full particulars of the basis of the assessment.

The claim for abatement should contain complete references to the law and regulations bearing on the matters in dispute and should cite such authorities, precedents and business practices as are applicable. The author has never known of a case where the presentation of a carefully prepared claim has not received equally careful attention.

Meaning of term "bona fide claim."-Section 250 (e) of the law provides that, when the claim for abatement is made in good faith and subsequently denied, interest at the rate of 1⁄2 of 1 per centum per month shall be charged on the tax from the time it was due until the claim is decided. It is therefore of great importance not to invoke the law unless the abatement can be proven to be "the subject of a bona fide claim." It has been shown that taxpayers have an undoubted right to question assessments, but the questioning of an assessment when in considerable doubt might not support a contention that a claim for abatement is filed in good faith.

When the taxpayer is confident that his original return was properly prepared there can be little doubt as to the imposition of the 6 per cent interest rate if the claim for abatement is denied. The Commissioner in order to impose the 12 per cent interest rate would have to hold that the claim was made in bad faith. Taxpayers should be able to make a good

showing in the hearing of their cases and leave no doubt in the minds of the reviewing authorities as to the good faith involved in the claim.

Actions to Restrain Payment of Taxes

If no claim for abatement is made, or if claim is made and denied, the tax imposed must ordinarily be paid.

Suits to restrain collection of taxes-not maintainable.— LAW. Section 3224. [Rev. Stat.] No suit for the purpose of restraining the assessment or collection of any tax shall be maintained in any court.

The federal courts in construing this provision have uniformly held that no injunction will issue for this purpose. The requirements of a tax law must be complied with unless "by some extraordinary and entirely exceptional circumstance, its provisions are not applicable.'

9911

Stockholders' suits.-In cases where a speedy determination of the constitutionality of the tax is desirable, a procedure has been followed which appears to be a justifiable evasion of the statutory inhibition against litigating the validity of taxes before their payment. This is done under the color of a stockholder's suit, brought to restrain the corporation. from an alleged illegal use of the corporate assets. The right of a stockholder to maintain such a suit is now well established.12 The application of this procedure to tax cases was first resorted to in the Income Tax Cases,13 and has been sub

"Dodge v. Osborn, 240 U. S. 118. In the recent case of Gouge v. Hart (250 Fed. 802), an additional tax was assessed and a levy was made upon a taxpayer's real estate, which was sold to satisfy the tax. Suit was brought against the collector to cancel the sale. The court held that the word "restrain" in the above statute included all forms of action whereby the collection of a tax was impeded. The suit was, therefore, not maintainable and the taxpayer's exclusive remedy was a suit to recover after payment.

"Dodge v. Woolsey, 18 How. 331; Hawes v. Oakland, 104 U. S. 450. (See equity rule 94.)

"Pollock v. Farmers' Loan and Trust Co., 157 U. S. 427.