REGULATION. The lodging of an appeal (claim for refund) made out in due form with the proper collector of internal revenue, for the purpose of transmission to the Commissioner of Internal Revenue in the usual course of business under the requirements of the regulations of the Secretary of the Treasury, is in legal effect a presentation of the appeal to the Commissioner.22 (Reg. 33, 1918, Art. 270.)

When taxes are erroneously assessed two-year limitation does not apply. The requirement of the law heretofore quoted that suits against the collector must be brought within two years after the payment of the tax evidently does not apply when the tax has been erroneously assessed by the United States:

RULING. Receipt is acknowledged of your letter of October 28, 1918, in which . . . . you ask to be advised whether persons who wish to take advantage of a possible decision that the taxing of stock dividends as income is unconstitutional, would be required to begin suit within two years after the payment of the tax in order to prevent their right to recovery being outlawed, in accordance with the provisions of section 3227, Revised Statutes.

In reply, you are advised that Section 14 (a) of the act of September 8, 1916, provides in part as follows: "Upon the examination of any return of income made pursuant to this title, the act of August 5, 1909,-and the act of October 3, 1913-if it shall appear that amounts of tax have been paid in excess of those properly due, the taxpayer shall be permitted to present a claim for refund thereof, notwithstanding the provisions of section 3228, Revised Statutes."

In accordance with that portion of the section above quoted, it is held that it is not necessary for an individual to institute suit or file a claim within two years after the payment of income tax, in order to obtain a refund of taxes which, by a later court decision or ruling of the Department, are held to have been erroneously assessed. (Letter to Herbert J. Lyall, New. York, N. Y., signed by Deputy Commissioner L. F. Speer, and dated November 2, 1918.)

Section 14 of the 1916 law quoted in the foregoing is repeated in the 1918 law23 and the time is extended to five years, but the sections of the 1916 and 1918 laws refer to the time within which claim may be made to the Commissioner and not to the time within which suit may be brought against the col

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lector. Section 3227, Rev. Stat., governs suits against the United States and restricts the time to two years. The deputy commissioner, however, does not reply to the inquiry as to section 3227, which leaves the question open. It would not be wise, however, to wait longer than two years.

Claim for refund of sums recovered by suit.-The following regulation sets forth the detailed procedure when a taxpayer makes claim for the refund of taxes or penalties erroneously collected by the government after suit has been brought and judgment secured.

REGULATION. (a) Claims by taxpayers for the amount of a judgment representing taxes or penalties erroneously collected should be made on form 46. The claimant should state the grounds of his claim under oath, giving the names of all the parties to the suit, the cause of action, the date of its commencement, the date of the judgment, the court in which it was recovered, and its amount. To this affidavit there should be annexed a certified copy of the final judgment, a certificate of probable cause, and an itemized bill of the costs paid receipted by the clerk or other proper officer of the court, together with a certified copy of the docket entries of the court in the case or so much thereof as may be required by the Commissioner. When a recovery is had in any suit or proceeding against a collector or other officer of the revenue for any act done by him, or for the recovery of any money exacted by or paid to him and by him paid into the Treasury, in the performance of his official duty, and the court certifies that there was probable cause for the act done by the collector or other officer, or that he acted under the directions of the Secretary of the Treasury, or other proper officer of the Government, no execution shall issue against such collector or other officer, but the amount so recovered shall, upon final judgment, be provided for and paid out of the proper appropriation from the Treasury. .... (b) If the judgment debtor shall have already paid the amount recovered against him, the claim should be made in his name. There should also be a certificate of the clerk of the court in which the judgment was recovered (or other satisfactory evidence), showing that the judgment has been satisfied and specifying the exact sum paid in its satisfaction, with a detail of all items of costs which were paid by the judgment debtor or for which he is liable. . . . . (Art. 1038.)

24See page 207.

....

Action to recover when government claims fraud or understatement.

LAW. Section 1316. (b) Section 3225 of the Revised Statutes of the United States is hereby amended to read as follows: "Section 3225. When a second assessment is made in case of any 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."

The foregoing section of the 1918 law contains a very material improvement in that understatements or undervaluations must be willfully false or fraudulent. In the 1916 law the words "willfully false or fraudulent" in the next to last line and the word "willful" in the last line did not appear.

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2[Former Procedure] In a suit brought to recover taxes collected under a second assessment the collector defended on the ground that in the original return an overstatement of deductions had been made. The court found that the return was not made for the purpose of defrauding the United States, but was made in good faith. The court held, however, that in fact an overstatement had been made and that it had no discretionary power in view of the plain language used in section 3225. In answer to the complaint that the section was unconstitutional the court said:

DECISION. "The refusal of a right of action to recover such taxes, unless proof is made that there was no understatement or undervaluation, is likewise within the scope of the legislative power." (U. S. Circuit Court of Appeals, 8th Circuit, Camp Bird [ltd.] v. Howbert, Collector, 249 Fed. 27 [December, 1917].) The decision of the lower court has been reversed (248 U. S. 223).

In another case, however, decided about the same time, in which the same defense was made, the court considered the whole question on its merits and held that section 3225 of the Revised Statutes should not be construed so strictly as was done in the foregoing case.

DECISION. "The United States have . .., enacted a system of corrective justice, as well as a system of taxation in both its customs and internal revenue branches. .

"A careful reading of adjudicated cases-indeed, all legislation upon the varied phases of public revenues-suggests that at no time has there been a purpose to cut off or to impair, either as against the government or the citizen, this 'system of corrective justice' attending the administration of revenue laws.

"At the outset, the proposition advanced by the defense is repugnant,

Credit of taxes wrongfully collected.

REGULATIONS. Any amount of income, war profits or excess profits tax paid in excess of that properly due shall be credited against any such taxes due from the taxpayer under any other return. To obtain such credit the taxpayer should proceed as follows:

(1) Where the credit demanded is equal to or less than any outstanding assessment of tax, a taxpayer desiring to obtain such credit shall file with the collector for the district in which his original return was filed a claim on form 47A, which shall be sworn to and shall contain the following statements: (a) business engaged in by claimant; (b) character of assessment; (c) amount of tax paid and for what taxable year; (d) portion of tax under (c) claimed as a credit;

utterly, to this view, and the broad purpose disclosed. If it is not obviously, it is easily demonstrably so. A few considerations of a practical nature-which a court may entertain-will be helpful. When property is assessed for taxation upon an ad valorem basis, the taxing officers frequently must, initially, determine values. Even in such cases, the taxpayer is not left wholly remediless to review or revise the finding of the assessing or taxing officer. In very rare situations is it possible, justly, to ascribe to any individual, whether he be the interested taxpayer or the public assessor, the power or the duty to make an initial valuation to be accepted by the one adversely interested, as indubitably fair.... The very purpose is to enable revision, to correct the mistake, of omission or commission, or to prevent frauds; and it would be anomalous to assume infallibility on the part of the government in its efforts at revision, wherefore mistakes of the citizens only are to be corrected. This is said because, in my judgment, the drastic construction of section 3225, now insisted upon, will, if adopted, lead to that result as a matter of practical administration and application. It means that the taxpayer cannot prevail unless he succeeds in reinstating his own return, item for item, against the revision or reassessment. Naturally, suits to recover can rarely be brought when the reassessment is more favorable than the original return, though even such result can conceivably come through an entire rearrangement of the return through the exclusion of items admitted and the inclusion of items contested by the taxpayer. But this is true as a practical matter: Every reassessment, which results in an increased tax, must involve, expressly or by necessary implication, the opinion or conviction of the reviewing officer that the original return contained, somewhere or somehow, an understatement or undervaluation, a false (erroneous, or fraudulent) item or items. Therefore, unless the taxpayer can establish that his original return was right, and hence that the reassessment, in its attempted revision or additions, is wrong, in every particular, he must fail in his action. If this is possible, and it must follow so strict an interpretation of the statute (section 3225), then there is little left that can commend itself-to the citizen or taxpayer-of any so-called system of 'corrective justice.'

"I am unwilling to give to the section in question any such interpretation." (Northwestern Mutual Life Insurance Co. v. Fink, Collector, U. S. District Court E. D. Wisconsin; 248 Fed. 568 [November, 1917].)

This decision was sound but the court took liberties with the law. As all judges do not do this, it is fortunate that the law was amended. A continuance of the old situation would have been intolerable.

(e) unpaid assessment against which credit is asked and for what taxable year; and (f) all facts regarding the overpayment.

(2) Where the amount claimed as a credit is greater than the outstanding assessment of tax, a taxpayer desiring to obtain such credit and the refund to which he is entitled shall file, in addition to the claim for credit required to be made on form 47A for the amount of the outstanding assessment, a claim for refund of the overpayment in excess of the credit. . . . . This claim for refund may be attached to the claim for credit or it may be separately filed with the Commissioner. All the facts regarding the total overpayment should be stated in the claim for refund and a reference made to such claim in the claim for credit. (Art. 1034.)

Upon receipt of a claim for credit on form 47A the collector shall certify thereon the required information concerning all outstanding assessments and payments covered thereby and shall note on his records that a claim for credit has been filed. He shall thereupon transmit the claim to the Commissioner. Due notice will be given the collector and the taxpayer of the action taken on the claim. A schedule of credit claims on form 7220A will be transmitted to the collector once a month and formal credit shall be taken by the collector at that time. If a claim is allowed against additional taxes due for other years, but such other taxes have not yet been assessed, only the amount of the excess of such taxes over the overpayment shall be assessed, or the excess of the overpayment over such other taxes due shall be refunded, as the case may be. A taxpayer desiring to convert a claim for refund previously filed into a claim for credit may file with the collector a claim on form 47A, referring in it to such claim for refund. Upon its receipt by the Commissioner the claim for credit will be attached to the claim for refund and will be adjusted in the same manner as if the taxpayer had originally filed the claim for credit. The effective date of filing of the claim for credit shall be the actual date of filing such claim with the collector. The filing of a claim for credit against a tax due under another return shall be subject to the same rules with respect to the addition of interest and penalties as if the taxpayer had filed a claim for abatement of the tax against which credit is desired. 1035.) (Copy of form 47A will be found in Appendix.)

Payment Under Protest

(Art.

Payment under protest unnecessary to support claim for refund.—In no event is it necessary to pay under protest to secure a legal right to demand a refund when it is believed that the tax has been erroneously assessed. Section 3220 of the Revised Statutes specifically covers this point. The in