The opinion of the court was delivered by: KNIGHT
The defendant moves under Rule 12(b) of the Federal Rules of Civil Procedure, 28 U.S.C.A. following section 723c, to dismiss this action for lack of jurisdiction.
The plaintiffs are Trustees of an express trust. In 1936 they withdrew from the trust "principal" commissions in the amount of $23,239.92. In the return for that year no deduction was taken for this amount so paid. In 1936 they withdrew as commissions $3,548.79 for the receipt and disbursement of income and took a deduction of that amount as paid as "income" commissions. Upon audit the Commissioner of Internal Revenue determined a deficiency of $167.14 for income tax for the year 1936. In September, 1939, plaintiffs filed a claim for the refund of $4,382.24, based on the claim that they were entitled to deduction in the trust's income tax return for 1936 for $23,239.92 paid as "principal" commissions. On December 12, 1939, the plaintiffs filed a petition with the U.S. Board of Tax Appeals (now Tax Court) for a re-determination of the trust income tax liability for the year 1936, asserting its right to a deduction of a tax upon the amount paid as "principal" commissions. In June, 1941, the Commissioner filed an answer claiming an increased deficiency because of an erroneous deduction of "income" commissions in the said amount of $3,548.79. The resulting proceedings were tried before the Board of Tax Appeals on June 29, 1941, and on December 26, 1941, the Board filed its opinion in which it held that neither the "principal" nor "income" commissions were proper deductions because the administration of the trust fund was not carrying on a "trade or business" within the meaning of Section 23(a) of the Revenue Act of 1936, 26 U.S.C.A. Int.Rev.Acts, page 827. The Board's decision resulted in a deficiency assessment of $1,392.60, and this deficiency was paid by the plaintiffs. The Board's order fixing the amount of the deficiency became final May 6, 1942. No appeal was taken. This suit is brought to recover the alleged overpayment of income tax as of 1936 in the amount of $5,370.82, plus interest. The foregoing is a statement of undisputed facts.
The plaintiffs base their right to maintain this suit by reason of the amendment of Section 23(a) of the Internal Revenue Code by Section 121 of the Revenue Act of 1942, approved October 21, 1942, 26 U.S.C.A. Int.Rev.Code, § 23(a). They concede that as the law stood in 1936, the decision of the Board of Tax Appeals was correct. Higgins v. Com'r, 312 U.S. 212, 61 S. Ct. 475, 85 L. Ed. 783; City Bank Farmers Trust Co. v. Helvering, 313 U.S. 121, 61 S. Ct. 896, 85 L. Ed. 1227. The plaintiffs claim that the amendment of 1942 gave rise to a new cause of action, or a cause of action on a new transaction, and that the doctrine of res judicata is to be applied.
It is clear that a judgment in a prior action between the same parties prevents recovery in a second action where the claim, demand or cause of action is the same in each as to matters litigated as well as to all which might have been litigated. The final decision of the Board of Tax Appeals is in legal effect a judgment. Herein we have the same parties and the same tax involved as in a prior determination.
It is the contention of the defendant that irrespective of the question of whether the adoption of the amendment gives rise to a new cause of action, the plaintiffs are barred from any recovery by reason of Section 322(c) of the Revenue Act of 1936, 26 U.S.C.A. Int.Rev.Acts, page 926. Plaintiffs make no claim that Section 322(c) has been repealed, but assert its inapplicability to the instant suit.
By virtue of the Revenue Act of 1942, Section 121(a), amending Section 23(a) (2), supra, expenses incurred "for the production of collection of income, or for the management, conservation, or maintenance of property held for the production of income," are included as "non-trade or non-business expenses," and under this amendment expenses such as those herein would be thereafter exempt from taxation.
Section 121(e) of the last-mentioned act 26 U.S.C.A. Int.Rev.Acts, also provides: "For the purposes of the Revenue Act of 1938 or any prior revenue Act the amendments made to the Internal Revenue Code by this section shall be effective as if they were a part of such revenue Act on the date of its enactment."
By virtue of the last-mentioned provision the plaintiffs seek recovery here.
Sections 322(c), 1140 and 1141 of the Internal Revenue Code, 26 U.S.C.A. Int.Rev.Code, § 322(c), 1140, 1141, with certain exceptions not applicable here, provide that where a petition for the review of a decision of the Commissioner to the Board of Tax Appeals is made a decision made by the Board of Tax Appeals becomes final, unless and appeal is taken within three months after the decision was rendered. As heretofore stated, no appeal from the decision of the Board was taken, and the time in which to appeal, as fixed by the statute, expired prior to the adoption of the amendment of 1942.
Section 322(c) also provides that after the filing of such petition no suit shall be brought in any court by the taxpayer to recover any part of the tax upon which the petition to the Board is based.
There are many decisions of the courts as to the effect and finality of Section 322(c) on the question of the right to sue after a petition has been filed. Among these may be cited: Old Colony Trust Co. v. Com'r, 279 U.S. 716, 719, 49 S. Ct. 499, 73 L. Ed. 918; Bankers' Reserve Life Co. v. United States, 44 F.2d 1000, 71 Ct.Cl. 279, certiorari denied 283 U.S. 836, 51 S. Ct. 485, 75 L. Ed. 1448; Green v. MacLaughlin, D.C., 55 F.2d 423; Warren Mfg. Co. v. Tait, D.C., 60 F.2d 982; Cook v. United States, 5 Cir., 108 F.2d 804; Monjar v. Com'r, 2 Cir., 140 F.2d 263; Heberlein Patent Corp. v. United States, S.D.N.Y., decided March 9, 1939. The consensus of these decisions, as stated in Heberlein Patent Corp. v. United States, supra, is that "under the express language of the statute, having filed a petition with the Board of Tax Appeals, petitioner is barred from instituting suit in any court for the recovery of any part of the tax * * *."
It will be seen that certain of these cases construe Section 284(d) of the Revenue Act of 1926, 26 U.S.C.A. Int.Rev.Acts, page 220, but this section is the genesis of Section 322(c), supra. Of course, if this suit is not barred by Section 322(c), these cases have application only with reference to the proceeding taken subsequent to the 1942 amendment.
While certain of the cases cited by the plaintiffs refer to the determination of the Board as being res judicata as to claims presented for determination, the term so used was either not necessary to the decision or was not inconsistent with the finding that the claim was barred. Insofar as they considered Section 322(c) or Section 284(d), supra, they are in harmony in holding that a final decision by the Board unappealed bars recovery by suit. This situation is well illustrated in American Woolen Co. v. United States, 21 F.Supp. 125 and 1021 (motions for re-argument of 18 F.Supp. 783, 85 Ct.Cl. 101). This suit was based on the claim that the Commissioner had improperly "reversed" a credit when computing a tax. The court did say that the decision of the Board was res judicata, but the language was used with reference ...