
    SECOND NATIONAL BANK OF SAGINAW, TRUSTEE OF THE ESTATE OF WELLINGTON R. BURT, DECEASED, v. THE UNITED STATES
    [No. K-38.
    Decided April 7, 1930]
    
      
      Mr. Theodore B. Benson for the plaintiff.
    
      Mr. Joseph H. Sheppard, with whom was Mr. Assistant Attorney General Charles B. Rugg, for the defendant. Mr. Charles F. Kincheloe was on the brief.
   Green, Judge,

delivered the opinion of the court:

This is a suit brought to recover a refund on a payment of income tax. The parties have stipulated that the sole issue in the case is whether the claim for refund was filed within four years from the time when the tax was paid.

There is no dispute about the facts. The particular payment in controversy was made by a check which was delivered to the collector of internal revenue on the 13th day of December, 1923. The check was drawn upon the Second National Bank of Saginaw and was paid by that bank on the 15th day of December, 1928, and on December 15, 1927, the plaintiff filed its claim for refund in the amount of $4,838.84, being the amount of the check. Under the statute in force at that time, the claim for refund was required to be filed within four years from the time of the payment of the tax.

The plaintiff relies on the well-known rule which ordinarily applies — that receipt of a check does not operate as a payment until the check is cashed — and therefore contends that the statute of limitations did not begin to run in this case on the date the check was delivered to the commissioner but on the date it was paid by the bank.

In this connection the defendant calls attention to the fact that the statute authorizing the collector to receive checks in payment of taxes provides that in case a check so received is not paid by the bank on which it is drawn, the person who has tendered such check shall remain liable for the tax. This provision, it is said, shows that payment was not made when the check was delivered, and, taken in connection with the other language of the statute, shows that the receipt of checks was merely permissive, and while it operated for the convenience of the taxpayer the receipt of the check did not extinguish his liability.

When these provisions are considered in the light of other provisions of the law and Treasury Regulations made thereunder, we think there is no doubt about the matter. Article 1733 of Treasury Regulations headed “Payment of tax by uncertified checks ” provides, among other things, as follows :

“ The day on which the collector receives the check will be considered the date of payment so far as the taxpayer is concerned, unless the check is returned dishonored.”

This regulation fixed the date of payment, and if the Treasury authorities had the right to make such a regulation it is controlling in the case, for the taxpayer was bound to take notice thereof.

We think that authority to make this regulation was given by the statute which authorized the collector to receive checks in payment of taxes to which reference has previously been made and which is as follows:

“ Sec. 1325. That collectors may receive, * * * un-certified checks in payment of income, war-profits and excess-profits taxes and any other taxes payable other than by stamp, during such time and under such regulations as the commissioner, with the approval of the Secretary, shall prescribe ; but if a check so received is not paid by the bank on which it is drawn the person by whom such check has been tendered shall remain liable for the payment of the tax and for all legal penalties and additions the same as if such check had not been tendered.”

It will be observed that this section authorizes these checks to be received “ under such regulations as the commissioner, with the approval of the Secretary, shall prescribe.” If the regulation in question was a reasonable one, the Treasury had the right to prescribe it. We think it was reasonable as it was manifestly for the best interests of both the Government and the taxpayer that it should be known whether the date when the check was received by the commissioner was to be taken as the date of payment. In many cases such knowledge would be important to one party or the other. If not definitely known or understood, it would be often difficult to determine when further action should be taken if such action became necessary.

As We find that the regulation was authorized and binding upon the plaintiff, it follows that a claim for refund was filed too late and plaintiff’s petition must be dismissed. It is so ordered.

Williams, Judge; Littleton, Judge; GRAHAM, Judge; and Booth, Chief Justice, concur.

SUPPLEMENTAL. OPINION JUNE 16, 19 30, ON MOTION FOR NEW TRIAL

Green, Judge,

delivered the opinion of the court:

In the opinion originally filed we held that the Treasury regulation which fixes the day on which the collector receives the check in payment of taxes as the date of payment unless the check is returned dishonored, is a reasonable and valid regulation. In the motion for new trial plaintiff’s attorney calls attention to another regulation which recites—

" * * * A taxpayer who tenders a certified check in payment for taxes is also not released from his obligation until the check has been paid,”

and also to a Treasury decision holding that a check tendered in payment of Federal taxes does not discharge the liability of the taxpayer until the check is actually paid in money.

No reference was made in the former opinion to the regulation and decision above quoted, and counsel for plaintiff contends that under this regulation and decision it must be held that the day when the check is cashed is the day of the payment of the tax. As this question was not discussed in our former opinion, we think it advisable to indicate our views thereon.

We do not think that the two regulations are inconsistent. They follow section 1825 of the revenue act of 1921, which, after providing that collectors may receive uncertified checks “ in payment of ” income, war-profits and excess-profits taxes, also provided that if the check so received is not paid by the bank on which it is drawn the person tendering the check “shall remain liable for the payment of the tax.” (Italics ours.)

The plain meaning of the statute is that the check is received as payment of the tax on condition that it is after-wards paid by the bank on which it is drawn. The rule with reference to the date of conditional payments ordinarily is that when the condition is thereafter performed or fulfilled the payment relates back to the time when the medium of payment is received. (48 C. J. sec. 14, p. 595.) The two regulations must be considered together as carrying out the intent and purpose of the statute. When we consider the manifest intent and purpose of the statute, the consistency of the regulations with the statute and general law will, we think, be clear. The Treasury decision upon which plaintiff relies, we think, has reference to the contingent “ liability ” which still exists after receipt of the check.

Obviously, it would be to the greatest inconvenience of the taxpayer if checks were not accepted in payment of the tax, and the statute was enacted to avoid this inconvenience. At the same time the statute made the matter of release from liability conditional in the manner stated above. It may well be doubted whether the regulation was necessary in order to fix the time of payment as when the check was received. But at all events the situation was such that Congress can reasonably be held to have authorized such a regulation. Often the check is drawn on a remote bank and will pass through several banks before reaching the bank on which it is drawn. If the date of payment is not when the check was received but when paid by the bank, in a very great number of cases the taxpayer would be liable for the penalty imposed by the law for not making the payment when the tax was due, although he had fully complied with the statute with reference to payments by sending the commissioner a check before the due date of the tax. In other words, the taxpayer would be liable for a penalty for doing exactly what the statute authorized. This certainly was not intended by Congress and we think it would be an unreasonable construction of the statute which nothing in its language or in the general law would justify. We might also note in this connection that such a construction would enable the Government to collect interest as well as penalties to which it was not entitled.

The motion for new trial must be overruled. It is so ordered.

Williams, Judge; Littleton, Judge; and Booth, Chief Justice, concur.

This case came on for hearing before Whaley, Judge, was appointed. He therefore took no part in this decision.  