US SUPREME COURT DECISIONS

The ninth section of the Internal Revenue Act of 1866 subjects to the tax of five percent laid on the undistributed sum or sums made and added during the year to their surplus or contingent funds by banks and savings institutions generally, such sum or sums, when made and added to such funds even by savings banks without stockholders or capital stock, and which do the business of receiving deposits to be lent or invested for the sole benefit of their depositors. chanrobles.com-red

Page 86 U. S. 228

2. A construction of a proviso to an act which makes the proviso plainly repugnant to the body of the act is inadmissible.

3. The construction given to the Internal Revenue Act by Commissioners of Internal Revenue, even though published in an Internal Revenue Record, is not a construction of so much dignity that a reenactment of the statute subsequent to the construction's having been made and published is to be regarded as a legislative adoption of that construction, especially not when the construction made a proviso to an act repugnant to the body of the act.

4. By the Internal Revenue law, the United States are not prohibited from adopting the action of debt or any other common law remedy for collecting what is due to them. This is true on general principles.

5. Under the Internal Revenue Act of July 13, 1866, "taxes may be sued for and recovered in the name of the United States in any proper form of action."

6. The requirement by statute on all banks to pay a tax of a certain sum, percent, on all undistributed earnings made or added during the year to their contingent funds is a charge of a certain sum upon the banks, and without assessment makes the banks a debtor for the sum prescribed.

The United States brought an action of debt against The Dollar Savings Bank in the court below to recover certain internal revenue taxes which the declaration alleged were due from it to the government. These taxes were asserted to have been authorized by an amendment contained in the ninth section of the Internal Revenue Act of July 13, 1866, [Footnote 1] by which part of a prior Internal Revenue Act, the act, namely, of June 30, 1864, was repealed, and in place thereof it was enacted:

"That there shall be levied and collected a tax of five percentum on all dividends in scrip or money thereafter declared due, wherever and whenever the same shall be payable, to stockholders, policyholders, or depositors, or parties whatsoever, . . . as part of the earnings, income, or gains of any bank, trust company, savings institution, and of any . . . insurance company . . . in the United States or territories, . . . and on all undistributed sums, or sums made or added during the year to their surplus or contingent funds, and said banks, trust companies, savings

Page 86 U. S. 229

institutions, and insurance companies shall pay the said tax, and are hereby authorized to deduct and withhold from all payments made on account of any dividends or sums of money that may be due and payable as aforesaid, the said tax of five percentum. And a list or return shall be made and rendered to the assessor, . . . on or before the tenth day of month following that in which any dividends or sums of money become due or payable as aforesaid, and said list or return shall contain a true and faithful account of the amount of taxes as aforesaid, and there shall be annexed thereto a declaration of the president, cashier, or treasurer of the bank, trust company, savings institution, or insurance company, under oath or affirmation, in form and manner as may be prescribed by the Commissioner of Internal Revenue, that the same contains a true and faithful account of the taxes as aforesaid. And for any default in the making or rendering of such list or return, with such declaration annexed, the bank, trust company, savings institution, or insurance company making such default shall forfeit as a penalty the sum of $1,000, and in case of any default in making or rendering said list or return, or of any default in the payment of the tax as required, or any part thereof, the assessment and collection of the tax and penalty shall be in accordance with the general provisions of law in other cases of neglect and refusal."

"Provided that the tax upon the dividends of life insurance companies shall not be deemed due until such dividends are payable; nor shall the portion of premiums returned by mutual life insurance companies to their policyholders, nor the annual or semiannual interest allowed or paid to the depositors in savings banks or savings institutions, be considered as dividends."

The view of the government was that this act required a tax of five percent to be levied and collected, amongst other things, on sums added during the year by the Dollar Savings Bank, the defendant in the case, to its surplus or contingent fund, without regard to the character of the bank, or the nature and purpose of that fund.

The section above quoted, as the reader has observed, contains a requirement that each bank shall make a certain return,

"in form and manner as may be prescribed by the Commissioner of Internal Revenue, that the same contains a

Page 86 U. S. 230

true and faithful account of the taxes aforesaid."

It appeared in this case that after the passage of the act in question, Mr. Rollins, the then Commissioner of Internal Revenue, made, in February, 1867, a construction of it, so far as it affected banks of the character of the one now sued, and held that they were not required to pay a tax upon amounts which were added to their retained funds instead of being divided among their depositors, and that of course no return relating to any such subjects was required from such a bank. [Footnote 2]

This action of Commissioner Rollins was repeated by his successor, Commissioner Delano, in 1870; [Footnote 3] and it was reaffirmed and repeated by Commissioner Pleasanton, in 1871. [Footnote 4]

The Dollar Savings Bank, it seemed, had accordingly made no return during either of the years mentioned in the declaration, not being required to do so by the Commissioner of Internal Revenue.

In the year 1872, the successor of Commissioner Pleasanton adopted a different construction of the act, and this action of debt was brought to recover the taxes which the declaration alleged should have been paid between June, 1866, and December, 1870, inclusive, and these taxes, thus alleged to be due, formed the subject matter of this suit. The jury found a special verdict:

"We find that the Dollar Savings Bank is a banking institution created by the laws of the State of Pennsylvania, without stockholders or capital stock, and doing the business of receiving deposits to be loaned or invested for the sole benefit of its depositors; that the charter authorizes the retention of a contingent fund, accumulated from the earnings, to the extent of ten percentum of its deposits for the security of its depositors; that it has earned and added to the said contingent fund, or undistributed sum, from 13th July, 1866, to 31st December, 1870, $107,000 (the tax of five percent on its earnings having been paid prior to 13th July, 1866); that the earnings were carried to and added to the said contingent or undistributed fund semiannually,

Page 86 U. S. 231

on the first days of July and January in each year. And we find, if the court should be of opinion, on this state of facts, that the plaintiff is entitled to recover, a verdict for the United States for the sum of $5,356, to which is to be added, if the court should be of opinion that plaintiff is entitled to interest on the semiannual taxes from the time they were due and payable, the further sum of $1,100; but if the court should be of opinion on the said facts so found that the plaintiff is not entitled to recover under the law, then we find for the defendant."

The court rendered a judgment in favor of the United States for the principal sum of $5,356, with costs of suit, and this writ of error was taken. [Footnote 5]

The errors assigned were:

1st. Holding that the Act of Congress authorized the levy and collection of the tax.

2d. Holding that an action of debt was maintainable for the recovery of the tax.

No question was made in the court below as to whether debt was the proper form of action, nor any question except as to the liability of the savings bank to pay the tax. chanrobles.com-red

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