Graham v. Du Pont

Background

A taxpayer sued to stop the assessment and collection of a federal income tax. The taxpayer had filed a return due March 15, 1916; the tax was assessed December 31, 1919. He asked a court to enjoin collection, arguing that time limits in the refund statute would bar his later suit to recover the tax if he paid it. The District Court thought that this timing created an exception to the rule barring injunctions and issued a temporary injunction, but the Government appealed and the case reached the Court for review.

Reasoning

The Court addressed whether a federal law (Section 3224 of the Revised Statutes) that forbids suits to restrain tax assessment or collection prevented the taxpayer’s injunction. Relying on earlier decisions, the Court explained that the federal system requires taxpayers normally to pay disputed taxes and then sue to recover any illegal payment. The Court rejected the District Court’s view that the statute of limitations on refund claims created a special exception here. It held that only extraordinary situations — for example, a prohibitive or punitive tax that would be impossible to litigate after payment — justify an injunction. Because this case did not present such exceptional hardship, the Court reversed and directed dismissal of the bill and dissolution of the temporary injunction.

Real world impact

The ruling makes clear that taxpayers generally cannot stop officers from collecting a tax in court; they must usually pay and later sue for refunds. The opinion also notes that a 1923 law amendment now permits paying and suing to raise valuation and time-bar issues, but that change was not needed to decide this case.