U.S. Supreme Court
COMMISSIONER OF INTERNAL REVENUE v. ACKER, 361
U.S. 87 (1959)
361 U.S. 87
COMMISSIONER OF INTERNAL
REVENUE v. ACKER.
CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE SIXTH CIRCUIT.
No. 13.
Argued October 19, 1959.
Decided November 16, 1959.
Under
the Internal Revenue Code of 1939, the failure of a taxpayer, without
reasonable cause, to file a declaration of estimated income tax, as required by
58, subjects him to the addition to the tax prescribed by 294 (d) (1) (A) for
failure to file the declaration; but it does not subject him also to the
addition to the tax prescribed by 294 (d) (2) for the filing of a
"substantial underestimate" of his tax. Pp. 87-94. 258 F.2d 568,
affirmed.
Ralph
S. Spritzer argued the cause for petitioner. With him
on the brief were Solicitor General Rankin, Assistant Attorney General Rice and
Robert N. Anderson.
Fred
N. Acker, respondent, argued the cause and filed a brief pro se.
MR.
JUSTICE WHITTAKER delivered the opinion of the Court.
This
case presents the question whether, under the Internal Revenue Code of 1939,
the failure of a taxpayer to file a declaration of estimated income tax, as
required by 58, 1 not only subjects him to the addition to the tax
[361 U.S. 87, 88] prescribed by 294
(d) (1) (A) for failure to file the declaration, but also subjects him to the
further addition to the tax prescribed by 294 (d) (2) for the filing of a
"substantial underestimate" of his tax.
Section
294 (d) (1) (A) provides, in substance, that if a taxpayer fails to make and
file "a declaration of estimated tax," within the time prescribed,
there shall be added to the tax an amount equal to 5% of each installment due
and unpaid, plus 1% of such unpaid installments for each month except the
first, not exceeding an aggregate of 10% of such unpaid installments. 2
Section
294 (d) (2), in pertinent part, provides:
"(2)
Substantial underestimate of estimated tax.
"If
80 per centum of the tax (determined without regard to the credits under
sections 32 and 35) . . . exceeds the estimated tax (increased by such
credits), there shall be added to the tax an amount equal to [361 U.S. 87, 89]
such excess, or equal to 6 per centum of the amount by which such tax so
determined exceeds the estimated tax so increased, whichever is the lesser. . .
." 26 U.S.C. (1952 ed.) 294 (d) (2).
Section
29.294-1 (b) (3) (A) of Treasury Regulation 111, promulgated under the Internal
Revenue Code of 1939, contains the statement that:
"In
the event of a failure to file the required declaration, the amount of the
estimated tax for the purposes of [ 294 (d) (2)] is
zero."
Respondent,
without reasonable cause, failed to file a declaration of his estimated income
tax for any of the years 1947 through 1950. The Commissioner imposed an
addition to the tax for each of those years under 294 (d) (1) (A) for failure
to file the declaration, and also imposed a further addition to the tax for
each of those years under 294 (d) (2) for a "substantial
underestimate" of the tax. The Tax Court sustained the Commissioner's
imposition of both additions. The Court of Appeals affirmed with respect to the
addition imposed for failure to file the declaration, but reversed with respect
to the addition imposed for substantial underestimation of the tax, holding
that 294 (d) (2) does not authorize the treatment of a taxpayer's failure to
file a declaration of estimated tax as the equivalent of a declaration
estimating no tax, and that the regulation, which purports to do so, is not
supported by the statute and is invalid. 258 F.2d 568.
Because of a conflict among the circuits 3
we [361 U.S. 87, 90] granted the
Commissioner's petition for certiorari. 358 U.S. 940 .
The
first and primary question that we must decide is whether there is any
expressed or necessarily implied provision or language in 294 (d) (2) which
authorizes the [361 U.S. 87, 91] treatment of a taxpayer's failure to file a
declaration of estimated tax as, or the equivalent of, a declaration estimating
his tax to be zero.
We
are here concerned with a taxing Act which imposes a penalty. 4
The law
is settled that "penal statutes are to be construed strictly,"
Federal Communications Comm'n v. American
Broadcasting Co., 347 U.S. 284, 296 , and that one "is
not to be subjected to a penalty unless the words of the statute plainly impose
it," Keppel v. Tiffin Savings Bank, 197 U.S. 356, 362 . See, e. g., Tiffany v.
National Bank of Missouri, 18 Wall. 409, 410; Elliott
v. Railroad Co., 99 U.S. 573, 576 .
Viewing
294 (d) (2) in the light of this rule, we fail to find any expressed or
necessarily implied provision or language that purports to authorize the
treatment of a taxpayer's failure to file a declaration of estimated tax as, or
the equivalent of, a declaration estimating his tax to be zero. This section
contains no words or language [361 U.S.
87, 92] to that effect,
and its implications look the other way. By twice mentioning, and predicating
its application upon, "the estimated tax" the section seems
necessarily to contemplate, and to apply only to, cases in which a declaration
of "the estimated tax" has been made and filed. The fact that the
section contains no basis or means for the computation of any addition to the
tax in a case where no declaration has been filed would seem to settle the
point beyond all controversy. If the section had in any appropriate words
conveyed the thought expressed by the regulation it would thereby have clearly
authorized the Commissioner to treat the taxpayer's failure to file a
declaration as the equivalent of a declaration estimating his tax at zero and,
hence, as constituting a "substantial underestimate" of his tax. But
the section contains nothing to that effect, and, therefore, to uphold this
addition to the tax would be to hold that it may be imposed by regulation,
which, of course, the law does not permit. United States v. Calamaro,
354 U.S. 351, 359 ; Koshland v. Helvering,
298 U.S. 441, 446 -447; Manhattan Co. v.
Commissioner, 297 U.S. 129, 134 .
The
Commissioner points to the fact that both the Senate Report 5
which
accompanied the bill that became the Current Tax Payment Act of 1943, 6
and the
Conference Report 7
relating
to that bill, contained the statement which was later embodied in the
regulation. He then argues that by reading 294 (d) (2) in connection with that
statement in those reports it becomes evident [361 U.S. 87, 93]
that Congress intended by 294 (d) (2) to treat the failure to file a
declaration as the equivalent of a declaration estimating no tax. He urges us
to give effect to the congressional intention which he thinks is thus
disclosed. However, these reports pertained to the forerunner of the section
with which we are now confronted, and not to that section itself. Bearing in
mind that we are here concerned with an attempt to justify the imposition of a
second penalty for the same omission for which Congress has specifically
provided a separate and very substantial penalty, we cannot say that the
legislative history of the initial enactment is so persuasive as to overcome
the language of 294 (d) (2) which seems clearly to contemplate the filing of an
estimate before there can be an underestimate.
The
Commissioner next argues that the fact that Congress, with knowledge of the
regulation, several times amended the 1939 Code but left 294 (d) (2) unchanged,
shows that Congress approved the regulation, and that we should accordingly
hold it to be valid. This argument is not persuasive, for it must be presumed
that Congress also knew that the courts, except the Tax Court, had almost
uniformly held that 294 (d) (2) does not authorize an addition to the tax in a
case where no declaration has been filed, and that the regulation is invalid. 8
But the
point is immaterial, for Congress could not add to or expand this statute by
impliedly approving the regulation.
These
considerations compel us to conclude that 294 (d) (2) does not authorize the treatment
of a taxpayer's failure to file a declaration of estimated tax as the
equivalent of a declaration estimating his tax to be zero. The questioned
regulation must therefore be regarded "as [361 U.S. 87, 94]
no more than an attempted addition to the statute of something which is
not there." United States v. Calamaro, supra, 354 U.S., at 359 .
Affirmed.
Footnotes
[ Footnote
1 ] Section 58, as
amended, provides, in pertinent part, that: "Every individual . . . shall,
at the time prescribed in subsection (d), make a declaration of his estimated
tax for the taxable year if [his gross income from wages or other sources can
reasonably be expected to exceed stated sums, showing] the amount which he
estimates as the amount of tax under this chapter for the taxable year, without
regard to any credits under Sections 32 and 35 for taxes withheld at source . .
.; the amount which he estimates as [361 U.S. 87,
88] [such]
credits . . .; and [that] the excess of the [estimated tax] over the [estimated
credits] shall be considered the estimated tax for the taxable year." 26
U.S.C. (1952 ed.) 58.
[ Footnote
2 ]
Section 294 (d) (1) (A), as amended, provides, in pertinent part, that:
"(A) Failure to file declaration. "In the
case of a failure to make and file a declaration of estimated tax within the
time prescribed . . . there shall be added to the tax 5 per centum of each
installment due but unpaid, and in addition, with respect to each such installment
due but unpaid, 1 per centum of the unpaid amount thereof for each month
(except the first) or fraction thereof during which such amount remains unpaid.
In no event shall the aggregate addition to the tax under this subparagraph
with respect to any installment due but unpaid, exceed 10 per centum of the
unpaid portion of such installment. For the purposes of this subparagraph the
amount and due date of each installment shall be the same as if a declaration
had been filed within the time prescribed showing an estimated tax equal to the
correct tax reduced by the credits under sections 32 and 35." 26 U.S.C. (1952 ed.) 294 (d) (1) (A).
[ Footnote
3 ] After the Sixth
Circuit had delivered its opinion in this case but before it had decided the
Commissioner's petition for rehearing, the Third Circuit, in Abbott v.
Commissioner, 258 F.2d 537, and the Fifth Circuit, in Patchen
v. Commissioner, 258 F.2d 544, held that the failure of a taxpayer to file a
declaration of estimated tax subjected him not only to the "addition to
the tax" imposed by [361 U.S. 87, 90] 294 (d) (1) (A) for
failure to file a declaration, but also to the "addition to the tax"
imposed by 294 (d) (2) for a "substantial underestimate" of his tax.
Less than two months earlier, the Ninth Circuit, too, had so held in Hansen v.
Commissioner, 258 F.2d 585. From the beginning of litigation involving the
question here presented, a large majority of the published opinions of the
District Courts have held that 294 (d) (2) does not authorize the treatment of
a taxpayer's failure to file any declaration at all as the equivalent of a
declaration estimating his tax to be zero, and that the regulation attempts to
amend and extend the statute and is therefore invalid. See, e. g., United
States v. Ridley, 120 F. Supp. 530, 538; United States v. Ridley, 127 F. Supp.
3, 11; Owen v. United States, 134 F. Supp. 31, 39, modified on another point
sub nom. Knop v. United States, 234 F.2d 760; Powell
v. Granquist, 146 F. Supp. 308, 312, aff'd, 252 F.2d 56; Hodgkinson v.
United States, 57-1 U.S. T. C. 9294; Jones v. Wood, 151 F. Supp. 678;
Glass v. Dunn, 56-2 U.S. T. C. 9840; Stenzel v.
United States, 150 F. Supp. 364; Todd v. United States, 57-2 U.S. T. C.
9768; Erwin v. Granquist, 57-2 U.S. T. C. 9732,
aff'd, 253 F.2d 26; Barnwell v. United States, 164 F.
Supp. 430. Three District Court opinions have held the other way, Palmisano v. United States, 159 F. Supp. 98; Farrow v.
United States, 150 F. Supp. 581; and Peterson v. United States, 141 F. Supp.
382; and the Tax Court has consistently so held. See, e. g.,
Buckley v. Commissioner, 29 T. C. 455; Garsaud v.
Commissioner, 28 T. C. 1086, 1090. The 1954 Internal Revenue Code has
eliminated the question here presented as respects taxable years beginning
after January 1, 1955, by providing for a single addition to the tax of 6% of
the amount of underpayment, whether for failure to file a declaration of
estimated tax or timely to pay the quarterly installments or for a substantial
underestimation of the tax. 26 U.S.C. (1952 ed., Supp. V)
6654. But the question is still a live one because of the pendency of a substantial number of cases which arose under
and are governed by the 1939 Code.
[ Footnote
4 ]
Although the Commissioner concedes that the addition to the tax imposed by 294
(d) (1) (A) for failure to file a declaration of estimated tax is a penalty, he
contends that the addition to the tax imposed by 294 (d) (2) for substantial
underestimation of the tax may not be so regarded. He attempts to support a
distinction upon the ground that the amount of the addition imposed by 294 (d)
(1) (A) of 5%, plus 1% per month of unpaid installments, not exceeding an
aggregate of 10% of such unpaid installments, does not represent a normal
interest rate, whereas, he argues, the addition of the maximum of 6% that may
be imposed under 294 (d) (2) is a normal interest rate and should not be
regarded as a penalty but as interest to compensate the Government for delayed
payment. We think this argument is unsound, for both of the additions are
imposed for the breach of statutory duty, and both are characterized by the
same language. Each is stated in the respective sections to be an
"addition to the tax" itself; and, being such, it cannot be interest.
Moreover, being "addition[s] to the tax," both additions are themselves
as subject to statutory interest as the remainder of the tax. 26 U.S.C. (1952 ed.) 292 (a).
[ Footnote
5 ]
S. Rep. No. 221, 78th Cong., 1st Sess., p. 42; 1943
Cum. Bull. 1314, 1345.
[ Footnote
6 ]
Section 5 (b) of the Current Tax Payment Act of 1943, c. 120, 57 Stat. 126,
introduced into the 1939 Code what, as amended, is now 294 (d) (2) of that
Code.
[ Footnote
7 ]
H. R. Conf. Rep. No. 510, 78th Cong., 1st Sess.,
p. 56; 1943 Cum. Bull. 1351, 1372.
[ Footnote
8 ]
See Note 3.
MR. JUSTICE FRANKFURTER, whom MR. JUSTICE CLARK and MR.
JUSTICE HARLAN join, dissenting.
English
courts would decide the case as it is being decided here. They would do so
because English courts do not recognize the relevance of legislative
explanations of the meaning of a statute made in the course of its enactment.
If Parliament desires to put a gloss on the meaning of ordinary language, it
must incorporate it in the text of legislation. See Plucknett,
A Concise History of the Common Law (5th ed.), 330-336; Amos, The Interpretation of Statutes, 5 Camb.
L. J. 163; Davies, The Interpretation of Statutes, 35 Col. L. Rev. 519; Lord
Haldane in Viscountess Rhondda's Claim, 1922. 2 A. C.
339, 383-384. Quite otherwise has been the process of statutory construction
practiced by this Court over the decades in scores and scores of cases.
Congress can be the glossator of the words it legislatively uses either by
writing its desired meaning, however odd, into the text of its enactment, or by
a contemporaneously authoritative explanation accompanying a statute. The most
authoritative form of such explanation is a congressional report defining the
scope and meaning of proposed legislation. The most authoritative report is a
Conference Report acted upon by both Houses and therefore unequivocally
representing the will of both Houses as the joint legislative body.
No
doubt to find failure to file a declaration of estimated income to be a
"substantial underestimate" would be to attribute to Congress a most
unlikely meaning for that phrase in 294 (d) (2) simpliciter.
But if Congress chooses by appropriate means for expressing its [361 U.S. 87, 95]
purpose to use language with an unlikely and even odd meaning, it is not
for this Court to frustrate its purpose. The Court's task is to construe not
English but congressional English. Our problem is not what do
ordinary English words mean, but what did Congress mean them to mean.
"It is said that when the meaning of language is plain we are not to
resort to evidence in order to raise doubts. That is rather an axiom of
experience than a rule of law, and does not preclude consideration of
persuasive evidence if it exists." Boston Sand & Gravel Co. v. United
States, 278
U.S. 41, 48 .
Here
we have the most persuasive kind of evidence that Congress did not mean the language
in controversy, however plain it may be to the ordinary user of English, to
have the ordinary meaning. These provisions were first enacted in the Current
Tax Payment Act of 1943, c. 120, 57 Stat. 126, as additions to 294 (a) of the
Internal Revenue Code of 1939. The Conference Report, H. R. Conf. Rep. No. 510,
p. 56, and the Senate Report, S. Rep. No. 221, p. 42, both gave the provision
dealing with substantial underestimation of taxes the following gloss:
"In
the event of a failure to file any declaration where one is due, the amount of
the estimated tax for the purposes of this provision will be zero."
The
revision of the section eight months later by the Revenue Act of 1943, c. 63,
58 Stat. 21, did not affect its substance, and this provision, therefore,
continued to carry the original gloss. While the Court adverts to this
congressional definition, it disregards its controlling significance. *
[361 U.S. 87, 96]
I
agree with the construction placed upon the provision by the Third, Fifth, and
Ninth Circuits. Abbott v. Commissioner, 258 F.2d 537 (C. A.
3d Cir. 1958); Patchen v. Commissioner, 258 F.2d 544
(C. A. 5th Cir. 1958); Hansen v. Commissioner, 258 F.2d 585 (C. A. 9th Cir.
1958).
[ Footnote * ] The essential reliance
of the Court is on its characterization of 294 (d) (2) as a penalty. No
adequate justification for this exists. Section 294 (d) (2) on its face
indicates that it is in the nature of [361 U.S. 87,
96] an
interest charge, designed to compensate the Treasury for delay in receipt of
funds which a reasonably accurate estimate would have disclosed to be due and
owing. Significantly, this charge is imposed regardless of fault, while 294 (d)
(1) (A), a true penalty provision, authorizes no addition to tax when the
failure to file is shown "to be due to reasonable cause and not to willful
neglect." Had taxpayer here had reasonable cause for failure to file, the
10% addition under 294 (d) (1) (A) could not have been imposed. Yet taxes would
have been withheld by him pending the filing of a final return for the year.
Section 294 (d) (2) provides the Government a definite means for ascertaining
the compensation for this loss of funds. [361
U.S. 87, 97]