United States v. Nunnally Investment Co.

Background

In 1920 a business owner sold its company and the buyer agreed to take on some of the seller’s obligations, including federal taxes from earlier years. The buyer paid some of those taxes in 1920 and the rest in later years. The tax collector and the Commissioner computed a deficiency by counting the full amount of the assumed taxes and using a lower asset basis. The taxpayer first sued the tax collector and obtained a judgment after a settlement; neither side appealed. Later the taxpayer filed a new refund claim against the United States, arguing that the taxes the buyer paid later were not taxable to the seller in 1920.

Reasoning

The Court addressed whether the earlier judgment against the collector prevents the taxpayer from suing the United States. The opinion reaffirmed a long-standing rule that a suit against a collector is personal and that the United States is not automatically bound by that collector’s judgment. The Court reviewed earlier cases and rejected the Government’s argument that more recent decisions had erased the rule. Because Congress has not changed the rule, the Court maintained the separate remedies: a judgment against the collector does not bar a later suit against the United States.

Real world impact

The decision preserves two distinct ways for people and businesses to try to recover unlawful tax payments: a personal action against the collector and a separate refund suit against the United States. The Court suggested that if this procedure should change, Congress—rather than the courts—should make that policy choice. Justice Jackson did not participate in the decision.

Dissents or concurrances

Three Justices dissented, arguing the taxpayer had a single cause of action and should have raised all claims earlier, and that modern practice makes the collector’s presence merely a way to bring the Government into court.