145 Opinion of the Court. motivation for Congress' action.23 To reconcile the legislative history with this conclusion seems to require the presumption that all the Congressmen who spoke of payment of the assessment before suit as a hardship understood without saying-that suit could be brought for whatever part of the assessment had been paid, but believed that, as a practical matter, hardship would nonetheless arise because the Government would require payment of the balance of the tax by exercising its power of distraint. But if this was in fact the view of these legislators, it is indeed extraordinary that they did not say so."* 24 23 In Old Colony Trust Co. v. Commissioner, 279 U. S. 716, 721, this Court expressed the view that the Board "was created by Congress to provide taxpayers an opportunity to secure an independent review . . . in advance of their paying the tax found by the Commissioner to be due. Before the Act of 1924 the taxpayer could only contest the Commissioner's determination of the amount of the tax after its payment." 24 There are a few interchanges among Senators which might be construed to indicate that they were thinking in terms of preventing distraint, but the same passages demonstrate even more clearly that these Senators also intended to eliminate the necessity of full payment as a prerequisite to suit. For example, the following debate occurred when Senator Reed, who was a member of the Committee on Finance, proposed an amendment which would have permitted a taxpayer to refuse to pay the deficiency even after the Board had ruled against him and which would have required the Government to sue in a District Court. "Mr. REED of Missouri. . . . "The practice, as I understand it, has been to require the taxpayer to pay in the amount of the increased assessment, and then to allow him to get it back if he can. In addition to this, distraints frequently have been issued seizing the property of the citizen . . "Mr. SWANSON. What are the processes by which a citizen who has overpaid can get back his money under the existing law? "Mr. REED of Missouri. As I understand it, he pays his tax. Then he makes an application for a return of it. That is heard Opinion of the Court. 362 U.S. Moreover, if Congress' only concern was to prevent distraint, it is somewhat difficult to understand why Congress did not simply authorize injunction suits. It is interesting to note in this connection that bills to permit the same type of prepayment litigation in the District Courts as is through the long, troublesome processes which exist . . . . When the Treasury is satisfied . . . the taxpayer can go into court at that time. In the meantime, however, he has had to pay his money. "Mr. SWANSON. Does the Senator mean that if there is a dispute, the tax is not assessed permanently against him until the board reaches its final decision? "Mr. SMOOT. Until the board of appeals finally passes upon it, and after that if he wants to go to court he can do so, but in order to go to court he must pay his assessment. "Mr. REED of Missouri. He must pay it before he can have a trial in court. "Mr. WALSH of Montana. Mr. President, the hardships . . . in connection with the collection of these taxes is a very real one. At least two or three instances have come under my notice, and my assistance has been asked in cases where the assessing officers have . . . assessed against the [taxpayer] delinquent taxes of such an amount that he found it impossible to pay in advance and secure redress through the ordinary proceeding in a court of law, simply because it would bankrupt him to endeavor to raise the money. He was therefore obliged to suffer a distraint. . . . '. . . After the board of review determines the matter, it seems to me, that is as far as the Government ought to be interrupted in the matter of the collection of its revenues. Then the taxpayer would be obliged to pay the tax and take his ordinary action at law to recover whatever he claims was exacted of him illegally." 65 Cong. Rec. 8109-8114. A somewhat similar exchange occurred during the 1926 debate over a proposal to prohibit refund suits where an appeal had been taken to the Board. "Mr. REED of Missouri. . . . Now just one further question: "Why is it that a taxpayer can not be given his day in court by direct action, without first requiring him to pay the tax that is assessed? I know I shall be met with the statement that it would 145 Opinion of the Court. possible in the Tax Court have been introduced several times, but none has ever been adopted." In sum, even assuming that one purpose of Congress in establishing the Board was to permit taxpayers to avoid distraint, it seems evident that another purpose was to furnish a forum where full payment of the assessment would not be a condition precedent to suit. The result is a system in which there is one tribunal for prepayment litigation and another for post-payment litigation, with no room contemplated for a hybrid of the type proposed by petitioner. mean interminable delay to the Government; but it frequently happens that the tax that is assessed is ruinous, and that the taxpayer can not raise the money. "In my own personal experience I have had two clients who were absolutely ruined by assessments that were unjust and that could not have stood up in a court of justice. . . . [A]nd it was no protection to them to say, 'Pay your taxes and then go into court,' because they did not have the money to pay the taxes and could not raise the money to pay the taxes and be out of the money two or three years. 66 I think the bill needs just one more amendment in this particular, and that is a provision that any citizen can go into court without paying any tax and resist the payment. In the meantime I agree that the Government for its own protection ought to be allowed, perhaps, in such a case as that to issue a distraint. But the idea that a man must first pay his money and then sue to get it back is anomaly in the law." 67 Cong. Rec. 3530-3533. Senator Reed later proposed that the appeal from the Board be to the District Court instead of to the Circuit Court of Appeals, and Senator Wadsworth, a member of the Finance Committee, asked: "Does the Senator not think that other provision in the bill which permits the taxpayer to take his case to the district court-conditioned, of course, upon his paying the assessment-meets the situation?" 67 Cong. Rec. 3755. 25 S. 1569, 81st Cong., 1st Sess.; S. 384, 82d Cong., 1st Sess.; H. R. 150 and H. R. 246, 83d Cong., 1st Sess. 362 U.S. Opinion of the Court. THE DECLARATORY JUDGMENT ACT. The Federal Declaratory Judgment Act of 1934 26 was amended by § 405 of the Revenue Act of 1935 expressly to except disputes "with respect to Federal taxes." 27 The Senate Report explained the purpose of the amendment as follows: "Your committee has added an amendment making it clear that the Federal Declaratory Judgments Act of June 14, 1934, has no application to Federal taxes. The application of the Declaratory Judgments Act to taxes would constitute a radical departure from the long-continued policy of Congress (as expressed in Rev. Stat. 3224 and other provisions) with respect to the determination, assessment, and collection of Federal taxes. Your committee believes that the orderly and prompt determination and collection of Federal taxes should not be interfered with by a procedure designed to facilitate the settlement of private controversies, and that existing procedure both in the Board of Tax Appeals and the courts affords ample remedies for the correction of tax errors. (Emphasis added.) " 28 It is clear enough that one "radical departure" which was averted by the amendment was the potential circumvention of the "pay first and litigate later" rule by way of suits for declaratory judgments in tax cases. Peti 26 48 Stat. 955, as amended, 28 U. S. C. §§ 2201, 2202. 27 49 Stat. 1027. 28 S. Rep. No. 1240, 74th Cong., 1st Sess. 11. 29 29 "Should the Declaratory Judgment Act be held to apply to tax cases it will mean a complete reversal of our present scheme of taxation. The principle of 'pay first and litigate later' will be changed to litigate first and pay later.' This principle has never before been departed from." Wideman, Application of the Declaratory Judgment Act to Tax Suits, 13 Taxes 539, 540. 145 Opinion of the Court. tioner would have us give this Court's imprimatur to precisely the same type of "radical departure," since a suit for recovery of but a part of an assessment would determine the legality of the balance by operation of the principle of collateral estoppel. With respect to this unpaid portion, the taxpayer would be securing what is in effect even though not technically-a declaratory judgment. The frustration of congressional intent which petitioner asks us to endorse could hardly be more glaring, for he has conceded that his argument leads logically to the conclusion that payment of even $1 on a large assessment entitles the taxpayer to sue-a concession amply warranted by the obvious impracticality of any judicially created jurisdictional standard midway between full payment and any payment. SECTION 7422 (e) OF THE 1954 CODE. One distinct possibility which would emerge from a decision in favor of petitioner would be that a taxpayer might be able to split his cause of action, bringing suit for refund of part of the tax in a Federal District Court and litigating in the Tax Court with respect to the remainder. In such a situation the first decision would, of course, control. Thus if for any reason a litigant would prefer a District Court adjudication,30 he might sue for a small portion of the tax in that tribunal while at the same time protecting the balance from distraint by invoking the protection of the Tax Court procedure. On the other hand, different questions would arise if this device were not employed. For example, would the Government be required to file a compulsory counterclaim for the unpaid 30 For some practitioners' views on the desirability of litigating tax cases in Federal District Courts, see Dockery, Refund Suits in District Courts, 31 Taxes 523; Yeatman, Tax Controversies, 10 Tex. B. J. 9. |