
24 F.2d 788 (1928)
UNION PAC. R. CO.
v.
BOWERS, Collector of Internal Revenue.
No. 208.
Circuit Court of Appeals, Second Circuit.
March 12, 1928.
*789 Before L. HAND, SWAN, and AUGUSTUS N. HAND, Circuit Judges.
*790 AUGUSTUS N. HAND, Circuit Judge (after stating the facts as above).
There is little, if anything, to be added to the opinion of the court below. The plaintiff contends that the statute only contemplated interest upon a deficiency of income tax payments which existed at the time of the examination and audit of the returns by the Commissioner, and says that at the time of such examination the tax had been paid in full, so that there was no deficiency, and could, therefore, be no interest due.
The language of the section applicable is:
"As soon as practicable after the return is filed, the Commissioner shall examine it. If it then appears that the * * * tax is greater or less than that shown in the return, the installments shall be recomputed. * * * If the amount already paid is less than that which should have been paid, the difference * * * (hereinafter called `deficiency'), together with interest thereon at the rate of one-half of 1 per centum per month from the time the tax was due * * * shall be paid upon notice and demand by the collector." (Comp. St. § 6336 1/8tt).
"If it then appears" means appears at the time when the Commissioner makes his examination, but it does not follow that the Commissioner has a right to make his recomputation upon the basis of an amended return filed to correct mistakes. The original return alone has any statutory recognition, and that still showed a "deficiency" of $413,724, in view of the information available at the time the Commissioner made the assessment of $44,475.32, interest due in September, 1925.
It is true that there had meanwhile been a voluntary payment of the sum of $413,724 on June 10, 1925, and the filing of an amended return under the approved practice of the department, and that this payment wiped out the principal of the tax. But it had nothing to do with the basis of the assessment, and was only a credit pro tanto by payment on account of the deficiency which stopped interest running. There is no reason to suppose that the collector could not have refused to receive it, in order to continue interest running upon the deficiency until the Commissioner made his assessment.
That the right to claim large sums of interest covering long periods of time, when the government was not paid its lawful taxes, should depend on a rejection of payments of deficiencies in taxes by willing taxpayers, with all the attendant risks of change of heart, insolvency, or death of the debtor, seems incredible. Nor is an interpretation of the section reasonable which would enable a taxpayer, the incorrectness of whose return is first disclosed to him by a government inspection, to pay his deficiency at the eleventh hour and thus deprive the government of interest, by coming out ahead in a race with the Commissioner. There would be a great temptation to hold back in all doubtful cases, and make voluntary payments at the last minute, in order to avoid paying interest.
It is no answer to the foregoing to say that, under the Revenue Acts prior to 1921, the interest ran upon a deficiency only from the date of assessment notice and demand by the collector, and that such was the settled practice of the department. Kentucky Jockey Club v. Lucas (D. C.) 14 F.(2d) 339. The act of 1918 (40 Stat. 1057), like the act of 1921, and unlike the former acts, made the taxpayer's computation of the tax sufficient notice of the amount, and the instructions printed on the return sufficient demand for payment. But none of the prior acts contained any provision for interest upon a deficiency, even when discovered by a bureau audit, unless, as was not the case here, the deficiency was due to negligence. The act of 1921 was the first to provide that interest should run on deficiencies prior to the date of assessment and demand. It requires interest here, unless the recomputation is to be based on the amended return, which we think is not the case.
The section says that the "deficiency" on which interest is to run is to be the difference between "the amount already paid" and "that which should have been paid." This phrase, "already paid," the plaintiff seizes upon in its favor. However, the "amount already paid" must be referred to the amount paid on the return, the only return recognized anywhere in the statute. If the plaintiff be right, a payment made without any return whatever must be accepted, and would stop all interest meanwhile. The amended return can of itself not change the situation. Thus a taxpayer would be given an easy way of circumventing the statute and escaping the equal burden of taxation.
Judgment affirmed.
SWAN, Circuit Judge (dissenting).
I recognize that the result of the majority opinion is probably a desirable one, and very likely one which the legislators would have provided for, had the specific matter been within their contemplation. But I find great difficulty in bringing the interest assessment within the language of their enactment. *791 Tax laws are to be strictly construed, and what is not expressed is not included. Gould v. Gould, 245 U. S. 151, 153, 38 S. Ct. 53, 62 L. Ed. 211.
The majority opinion seems to me to disregard the sentence: "If the amount already paid is less than that which should have been paid, the difference * * * (hereinafter called `deficiency') together with interest thereon * * * shall be paid upon notice and demand by the collector." The amount "already paid" clearly seems to refer in point of time to the time when the Commissioner makes his examination, and the "deficiency" which bears interest is the difference between the principal sum which should have been paid and the amount already paid. It is implicit that deficiency and interest shall be demanded and paid together. The sum paid at the time of filing the amended return should, it seems to me, be included in figuring "the amount already paid" at the time of the Commissioner's examination. Even though the statute is silent on the subject of amended returns, the practice of the department to require amended returns in certain cases and to accept them to correct errors in any case has existed from the beginning. This is a reasonable practice and, in my opinion, is within the rule-making power of the Commissioner. I am unable to agree that payments made upon amended returns should be disregarded in figuring "the deficiency" which is to bear interest.
In exceptional circumstances, as in the case of railroads receiving federal control compensation from the government, a taxpayer whose books are kept upon an accrual basis may be absolutely unable to state his income accurately in his original return. An amended return and payment of the additional tax which it discloses is the best he can do. To require him to pay interest on a sum which it was impossible for him to include in his original return is a harsh interpretation of the statute, and scarcely consonant with the theory of section 250 (e), being Comp. St. § 6336 1/8tt, that the taxpayer's own computation is to fix the amount then payable and the instructions on the return are to be deemed a demand for its payment. Moreover, Congress has imposed no interest in cases where no return whatever is filed, and no penalty if the failure was excusable. R. S. 3176 (26 USCA §§ 97, 98; Comp. St. § 5899). It cannot be said, therefore, that, in every case where the proper tax was not paid on its due date, Congress intended interest to be charged.
It is said that the construction for which I have argued leaves the question of interest dependent upon a race between the Commissioner and taxpayer as to who shall first discover the mistake in the original return. This is true, and is perhaps indefensible as a policy of legislation, although it may be said to give the taxpayer an incentive to correct mistakes voluntarily by an amended return. But the question is not one of legislative policy, but of statutory construction. With much diffidence and certain lingering doubts, I am compelled to differ with my colleagues' interpretation of the statute.
