Blair v. United States Ex Rel. Birkenstock

Citations: 271 U.S. 348; 46 S. Ct. 506; 70 L. Ed. 983; 1926 U.S. LEXIS 630; 1 C.B. 143; 5 A.F.T.R. (P-H) 6022; 1 U.S. Tax Cas. (CCH) 178Docket: 713

Court: Supreme Court of the United States; May 24, 1926; Federal Supreme Court; Federal Appellate Court

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In the case of Blair v. United States, Margaret Murphy, the testatrix of the respondents, paid $88,956.92 in income tax for the year 1919. A claim for a refund of $35,054.85 was filed in 1923, which the Commissioner of Internal Revenue acknowledged by signing a schedule for overassessment and authorizing payment on August 12, 1924, with interest calculated from November 18, 1923. The respondents contested the interest calculation, seeking it to be based on each quarterly payment made in 1920 up to the authorization date. After the Commissioner denied this request, the respondents sought a writ of mandamus from the Supreme Court of the District of Columbia, which was granted. The case was appealed, and the Court of Appeals upheld the ruling with minor modifications. The Supreme Court granted certiorari and ultimately ruled that interest should be computed up to the date the Commissioner authorized the refund payment, August 12, 1924, in accordance with the provisions of the Revenue Act of 1924, which superseded earlier legislation.

The excerpt addresses the computation of interest on tax refunds under section 1019 of the Act of 1924, following a previous ruling by the Commissioner based on the 1921 Act. The key issue is the correct starting date for interest calculation on a refund, which, according to section 1019, should begin from the date the tax was paid until the refund is allowed. The respondents argue that interest should be calculated on the excess of each quarterly installment paid, while the government contends that such excess payments do not qualify as "tax erroneously or illegally assessed or collected" until they exceed the total tax due for the year. This interpretation is supported by sections 250 and 252 of the Revenue Act of 1918, which outline that excess payments may only be credited or refunded once the total tax due has been determined. Furthermore, the option for taxpayers to pay the entire tax in a single payment negates entitlement to interest or discounts on anticipated installments. Thus, any excess payment of a quarterly installment, while the total tax is not fully paid, similarly does not qualify for interest under section 1019.

Overpayment of tax installments is classified as a payment toward the assessed tax for that year, not as a tax that has been erroneously or illegally assessed or collected, thus falling outside the refund provisions of section 1019 of the Act of 1924. Any payments exceeding the total tax amount are eligible for refund or credit under section 1019, and these amounts accrue interest at 6% from the payment date. The interest provision in section 1019 concerning credits applies only to taxes that were erroneously or illegally assessed, not to excess quarterly installment payments which can be treated as advance payments. The judgment in question was incorrect for allowing interest on payments made before September 27, 1920, since interest should only apply from the date when the total of installments first exceeded the tax due amount, specifically $12,815.62 from September 27, 1920, and on the full amount of the fourth installment from December 13, 1920. The judgment is reversed with costs awarded to the respondent.