U.S. Supreme Court Archibald H. Bull died February 13, 1920.

He had been a member of

Bull v. United States, 295 U.S. 247 (1935) a partnership engaged in the business of ship-brokers. The agreement
Bull v. United States of association provided that, in the event a partner died, the survivors
No. 649 should continue the business for one year subsequent to his death,
Argued April 9, 1935 and his estate should "receive the same interests, or participate in the
Decided April 29, 1935 losses to the same extent," as the deceased partner would, if living,
295 U.S. 247 "based on the usual method of ascertaining what the said profits or
CERTIORARI TO THE COURT OF CLAIMS losses would be. . . . Or the estate of the deceased partner shall have
Syllabus the option of withdrawing his interest from the firm within thirty days
1. Moneys received by a deceased partner's estate as his share of after the probate of will . . . , and all adjustments of profits or losses
profits earned by the firm before he died, are taxable as his income shall be made as of the date of such withdrawal."
and also are to be included as part of his estate in computing the The estate's representative did not exercise the option to withdraw in
federal estate tax. P. 295 U. S. 254. thirty days, and the business was conducted until December 31, 1920,
2. Where the articles of a personal service partnership having no as contemplated by the agreement.
invested capital provide that, in the event of a partner's death, the The enterprise required no capital, and none was ever invested by the
survivors, if his representative does not object, shall be at liberty to partners. Bull's share of profits from January 1, 1920, to the date of
continue the business for a year, the estate in that case to share the his death, February 13, 1920, was $24,124.20; he had no other
profits or losses as the deceased partner would if living, the profits accumulated profits,
coming to the estate from such continuation of the business are not to Page 295 U. S. 252
be regarded as the fruits of a sale of any interest of the deceased to and no interest in any tangible property belonging to the firm. Profits
the survivors, but are income of the estate, taxable as such; they are accruing to the estate for the period from the decedent's death to the
no part of the corpus of the estate left by the decedent upon which the end of 1920 were $212,718.79, $200,117.90 being paid during the
federal estate tax is to be computed. P. 295 U. S. 255. year and $12,601.70 during the first two months of 1921.
3. Retention by the Government of money wrongfully exacted as The Court of Claims found:
taxes is immoral, and amounts in law to a fraud on the taxpayer's "When filing an estate tax return, the executor included the decedent's
rights. P. 295 U. S. 261. interest in the partnership at a value of $24,124.20, which represented
4. A claim for recovery of money so held may not only be the subject the decedent's share of the earnings accrued to the date of death,
of a suit in the Court of Claims, but may be used by way of whereas the Commissioner, in 1921, valued such interest at
recoupment and credit in an action by the United States arising out of $235,202.99, and subjected such increased value to the payment of an
the same transaction, and this even though an independent suit estate tax, which was paid in June and August, 1921 . The last-
against the Government to enforce the claim would be barred by the mentioned amount was made up of the amount of $24,124.20 plus the
statute of limitations. P. 295 U. S. 261. amount of $212,718.79 hereinbefore mentioned. The estate tax on
5. Recoupment is in the nature of a defense arising out of some this increased amount was $41,517.45. [Footnote 1]"
feature of the transaction upon which the plaintiff's action is "April 14, 1921, plaintiff filed an income tax return for the period
grounded. Such a defense is never barred by the statute of limitations February 13, 1920, to December 31, 1920, for the estate of the
so long as the main action itself is timely. P. 295 U. S. 262. decedent, which return did not include, as income, the amount of
Page 295 U. S. 248 $200,117.09 received as the share of the profits earned by the
6. The Government wrongfully collected and retained an estate tax on partnership during the period for which the return was filed. The
moneys earned for and paid to an estate in partnership transactions estate employed the cash receipts and disbursement method of
after the decedent's death, and which were not part of the corpus of accounting."
the estate and were properly taxable only as income of the estate. "Thereafter, in July, 1925, the Commissioner determined that the sum
Before the time allowed for claiming reimbursement had elapsed, the of $200,117.09 received in 1920 should have been returned by the
Government proceeded to assess and collect an income tax on the executor as income to the estate for the period February 13 to
identical moneys. December 31, 1920, and notified plaintiff of a deficiency in income
Held: tax due from the estate for that period of $261,212.65, which was due
(1) That the taxpayer was entitled to recoup from the amount of the in part to the inclusion of that amount as taxable income and in part
income tax the amount of the unlawful estate tax by suit for the to adjustments not here in controversy.
difference in the Court of Claims, although suit to recover the Page 295 U. S. 253
unlawful tax independently had become barred. Pp. 295 U. S. 261- No deduction was allowed by the Commissioner from the amount of
262. $200,117.09 on account of the value of the decedent's interest in the
(2) A complaint by which the taxpayer prayed judgment in the partnership at his death."
alternative, either for the amount of the income tax or for what should 6 F. Supp. 141, 142.
have been credited against it on account of the estate tax, was September 5, 1925, the executor appealed to the Board of Tax
sufficient to put in suit the right to recoupment. P. 295 U. S. 263. Appeals from the deficiency of income tax so determined. The Board
7. The Court of Claims is not bound by any special rules of pleading; sustained the Commissioner's action in including the item of
all that is required is that the petition shall contain a plain and concise $200,117.99 without any reduction on account of the value of the
statement of the fact relied on and give the United States reasonable decedent's interest in the partnership at the date of death, [Footnote 2]
notice of the matters it is called upon to meet. P. 295 U. S. 263. and determined a deficiency of $55,166.49, which, with interest of
79 Ct.Cls. 133, 6 F. Supp. 141, reversed. $7,510.95, was paid April 14, 1928.
Certiorari, 294 U.S. 704, to review a judgment rejecting a claim for July 11, 1928, the executor filed a claim for refund of this amount,
money unlawfully exacted as taxes. setting forth that the $200,117.99, by reason of which the additional
Page 295 U. S. 251 tax was assessed and paid, was corpus; that it was so originally
MR. JUSTICE ROBERTS delivered the opinion of the Court. determined by the Commissioner and the estate tax assessed thereon
was paid by the executor, and that the subsequent assessment of an
income tax against the estate for the receipt of the same sum was was paid to the executor by the surviving partners, and thus became
erroneous. The claim was rejected May 8, 1929. September 16, 1930, an asset of the estate; accordingly, the petitioner returned that amount
the executor brought suit in the Court of Claims, and in his petition, as part of the gross estate for computation of estate tax and the
after setting forth the facts as he alleged them to be, prayed judgment Commissioner properly treated it as such.
in the alternative: (1) for the principal sum of $62,677.44, the amount We are told that, since the right to profits is distinct from the profits
paid April 14, 1928, as a deficiency of income tax unlawfully actually collected, we cannot now say more than that perhaps the
assessed and collected; or (2) for the sum of $47,643.44 on the theory Commissioner put too high a value on the contract right when he
that, if the sum of $200,117.99 was income for the year 1920 and valued it as equal to the amount
taxable as such, the United States should have credited against the Page 295 U. S. 256
income tax attributable to the receipt of this sum the overpayment of of profits received -- $212,718.99. This error, if error it was, the
estate tax resulting from including the amount in the taxable estate -- government says is now beyond correction.
$34,035, [Footnote 3] with interest thereon. While, as we have said, the same sum may in different aspects be
Page 295 U. S. 254 used for the computation of both an income and an estate tax, this
The Court of Claims held that the item was income, and properly so fact will not here serve to justify the Commissioner's rulings. They
taxed. With respect to the alternative relief sought, it said: were inconsistent. The identical money -- not a right to receive the
"We cannot consider whether the Commissioner correctly included amount, on the one hand, and actual receipt resulting from that right
the total amount received from the business in the net estate of the on the other -- was the basis of two assessments. The double taxation
decedent subject to estate tax, for the reason that the suit was not involved in this inconsistent treatment of that sum of money is made
timely instituted." clear by the lower court's finding we have quoted. The Commissioner
Judgment went for the United States. [Footnote 4] Because of the assessed estate tax on the total obtained by adding $24,124.20, the
novelty and importance of the question presented, we granted decedent's share of profits earned prior to his death, and $212,718.79,
certiorari. [Footnote 5] the estate's share of profits earned thereafter. He treated the two items
1. We concur in the view of the Court of Claims that the amount as of like quality, considered them both as capital or corpus, and
received from the partnership as profits earned prior to Bull's death viewed neither as the measure of value of a right passing from the
was income earned by him in his lifetime and taxable to him as such, decedent at death. No other conclusion may be drawn from the
and that it was also corpus of his estate and as such to be included in finding of the Court of Claims.
his gross estate for computation of estate tax. We also agree that the In the light of the facts, it would not have been permissible to place a
sums paid his estate as profits earned after his death were not corpus, value of $212,718.99 or any other value on the mere right of
but income received by his executor, and to be reckoned in continuance of the partnership relation inuring to Bull's estate. Had he
computing income tax for the years 1920 and 1921. Where the effect lived, his share of profits would have been income. By the terms of
of the contract is that the deceased partner's estate shall leave his the agreement, his estate was to sustain precisely the same
interest in the business and the surviving partners shall acquire it by status quoad the firm as he had, in respect of profits and losses. Since
payments to the estate, the transaction is a sale, and payments made the partners contributed no capital and owned no tangible property
to the estate are for the account of the survivors. It results that the connected with the business, there is no justification for
surviving partners are taxable upon firm profits, and the estate is not. characterizing the right of a living partner to his share of earnings as
[Footnote 6] Here, however, the survivors have purchased nothing part of his capital, and if the right was not capital to him, it could not
belonging to the decedent, who had made no investment in the be such to his estate. Let us suppose Bull had, while living, assigned
business and owned no tangible property connected with it. The his interest in the firm, with his partners' consent, to a third person for
portion of the profits paid his estate was therefore income, and not a valuable consideration, and, in making return of income, had valued
corpus, and this is so whether we consider the executor a member of or capitalized the right to profits which
the old firm for the remainder Page 295 U. S. 257
Page 295 U. S. 255 he had thus sold, had deducted such valuation from the consideration
of the year, or hold that the estate became a partner in a new received, and returned the difference only as gain. We think the
association formed upon the decedent's demise. Commissioner would rightly have insisted that the entire amount
2. A serious and difficult issue is raised by the claim that the same received was income.
receipt has been made the basis of both income and estate tax, Since the firm was a personal service concern and no tangible
although the item cannot in the circumstances be both income and property was involved in its transactions, if it had not been for the
corpus, and that the alternative prayer of the petition required the terms of the agreement, no accounting would have ever been made
court to render a judgment which would redress the illegality and upon Bull's death for anything other than his share of profits accrued
injustice resulting from the erroneous inclusion of the sum in the to the date of his death -- $24,124.20 -- and this would have been the
gross estate for estate tax. The respondent presents two arguments in only amount to be included in his estate in connection with his
opposition, one addressed to the merits and the other to the bar of the membership in the firm. As respects the status after death, the form of
statute of limitations. the stipulation is significant. The declaration is that the surviving
On the merits, it is insisted that the government was entitled to both partners "are to be at liberty" to continue the business for a year, in
estate tax and income tax in virtue of the right conferred on the estate the same relation with the deceased partner's estate as if it were in
by the partnership agreement and the fruits of it. The position is that, fact the decedent himself still alive and a member of the firm. His
as the contract gave Bull a valuable right which passed to his estate at personal representative is given a veto which will prevent the
his death, the Commissioner correctly included it for estate tax. And continuance of the firm's business. The purpose may well have been
the propriety of treating the share of profits paid to the estate as to protect the goodwill of the enterprise in the interest of the
income is said to be equally clear. The same sum of money in survivors, and to afford them a reasonable time in which to arrange
different aspects may be the basis of both forms of tax. An example is for their future activities. But no sale of the decedent's interest or
found in this estate. The decedent's share of profits accrued to the share in the goodwill can be spelled out. Indeed, the government
date of his death was $24,124.20. This was income to him in his strenuously asserted, in supporting the treatment of the payments to
lifetime and his executor was bound to return it as such. But the sum the estate as income, that the estate sold nothing to the surviving
partners, and we agree. An analogous situation would be presented if the obligation calls for some procedure whereby payment can be
Bull had not died, but the partnership had terminated by limitation on enforced. The statute might remit the government to an action at law
February 13, 1920, and the agreement had provided that, if Bull's wherein the taxpayer could offer such defense as he had. A judgment
partners so desired, the relation should continue for another year. It against him might be collected by the levy of an execution. But taxes
could not successfully be contended that, in such case, Bull's share of are the lifeblood of government, and their prompt and certain
profit for the additional year was capital. availability an imperious need. Time out of mind, therefore, the
We think there was no estate tax due in respect of the $212,718.79 sovereign has resorted to more drastic
paid to the executor as profits for the period subsequent to the Page 295 U. S. 260
decedent's death. means of collection. The assessment is given the force of a judgment,
Page 295 U. S. 258 and if the amount assessed is not paid when due, administrative
The government's second point is that, if the use of profits accruing to officials may seize the debtor's property to satisfy the debt.
the estate in computing estate tax was wrong, the statute of In recognition of the fact that erroneous determinations and
limitations bars correction of the error in the present action. So the assessments will inevitably occur, the statutes, in a spirit of fairness,
Court of Claims thought. We hold otherwise. invariably afford the taxpayer an opportunity at some stage to have
The petitioner included in his estate tax return, as the value of Bull's mistakes rectified. Often an administrative hearing is afforded before
interest in the partnership, only $24,124.20, the profit accrued prior to the assessment becomes final; or administrative machinery is
his death. The Commissioner added $212,718.79, the sum received as provided whereby an erroneous collection may be refunded; in some
profits after Bull's death, and determined the total represented the instances, both administrative relief and redress by an action against
value of the interest. The petitioner acquiesced and paid the tax the sovereign in one of its courts are permitted methods of restitution
assessed in full in August, 1921. He had no reason to assume the of excessive or illegal exaction. Thus, the usual procedure for the
Commissioner would adjudge the $212,718.79 income and taxable as recovery of debts is reversed in the field of taxation. Payment
such. Nor was this done until July, 1925. The petitioner thereupon precedes defense, and the burden of proof, normally on the claimant,
asserted, as we think correctly, that the item could not be both corpus is shifted to the taxpayer. The assessment supersedes the pleading,
and income of the estate. The Commissioner apparently held a proof, and judgment necessary in an action at law, and has the force
contrary view. The petitioner appealed to the Board of Tax Appeals of such a judgment. The ordinary defendant stands in judgment only
from the proposed deficiency of income tax. His appeal was after a hearing. The taxpayer often is afforded his hearing after
dismissed April 9, 1928. It was then too late to file a claim for refund judgment and after payment, and his only redress for unjust
of overpayment of estate tax due to the error of inclusion in the estate administrative action is the right to claim restitution. But these
of its share of firm profits. [Footnote 7] Inability to obtain a refund or reversals of the normal process of collecting a claim cannot obscure
credit, or to sue the United States, did not, however, alter the fact the fact that, after all, what is being accomplished is the recovery of a
that, if the government should insist on payment of the full deficiency just debt owed the sovereign. If that which the sovereign retains was
of income tax, it would be in possession of some $41,000 in excess of unjustly taken in violation of its own statute, the withholding is
the sum to which it was justly entitled. Payment was demanded. The wrongful. Restitution is owed the taxpayer. Nevertheless, he may be
petitioner paid April 14, 1928, and, on June 11, 1928, presented a without a remedy. But we think this is not true here.
claim for refund, in which he still insisted the amount in question was In a proceeding for the collection of estate tax, the United States
corpus, had been so determined and estate tax paid on that basis, and through a palpable mistake, took more than it was entitled to.
should not be classified for taxation as income. The claim was Retention of the money was against morality and conscience. But
rejected May 8, 1929, and the present action instituted September 16, claim for refund or credit
1930. Page 295 U. S. 261
Page 295 U. S. 259 was not presented, or action instituted for restitution, within the
The fact that the petitioner relied on the Commissioner's assessment period fixed by the statute of limitations. If nothing further had
for estate tax, and believed the inconsistent claim of deficiency of occurred, congressional action would have been the sole avenue of
income tax was of no force, cannot avail to toll the statute of redress.
limitations, which forbade the bringing of any action in 1930 for In July, 1925, the government brought a new proceeding arising out
refund of the estate tax payments made in 1921. As the income tax of the same transaction involved in the earlier proceeding. This time,
was properly collected, suit for the recovery of any part of the amount however, its claim was for income tax. The taxpayer opposed
paid on that account was futile. Upon what theory, then, may the payment in full by demanding recoupment of the amount mistakenly
petitioner obtain redress in the present action for the unlawful collected as estate tax and wrongfully retained. Had the government
retention of the money of the estate? Before an answer can be given, instituted an action at law, the defense would have been good. The
the system of enforcing the government's claims for taxes must be United States, we have held, cannot, as against the claim of an
considered in its relation to the problem. innocent party, hold his money which has gone into its treasury by
A tax is an exaction by the sovereign, and necessarily the sovereign means of the fraud of their agent. United States v. State Bank, 96 U.
has an enforceable claim against everyone within the taxable class for S. 30. While here the money was taken through mistake without any
the amount lawfully due from him. The statute prescribes the rule of element of fraud, the unjust retention is immoral, and amounts in law
taxation. Some machinery must be provided for applying the rule to to a fraud on the taxpayer's rights. What was said in the State
the facts in each taxpayer's case in order to ascertain the amount due. Bank case applies with equal force to this situation.
The chosen instrumentality for the purpose is an administrative "An action will lie whenever the defendant has received money
agency whose action is called an assessment. The assessment may be which is the property of the plaintiff, and which the defendant is
a valuation of property subject to taxation, which valuation is to be obliged by natural justice and equity to refund. The form of the
multiplied by the statutory rate to ascertain the amount of tax. Or it indebtedness or the mode in which it was incurred is immaterial. . . .
may include the calculation and fix the amount of tax payable, and In these cases [cited in the opinion] and many others that might be
assessments of federal estate and income taxes are of this type. Once cited, the rules of law applicable to individuals were applied to the
the tax is assessed, the taxpayer will owe the sovereign the amount United States."
when the date fixed by law for payment arrives. Default in meeting
Pp. 96 U. S. 35-36. [Footnote 8] A claim for recovery of money so
held may not only be the subject of a suit in the Court of Claims, as
shown by the authority referred to, but may be used by way of
recoupment and credit in an action by the United States arising out of
the same transaction. United States v. Macdaniel, 7 Pet. 1, 32 U. S.
16-17; United States v. Ringgold, 8 Pet. 150, 33 U. S. 163-164. In the
Page 295 U. S. 262
latter case, this language was used:
"No direct suit can be maintained against the United States; but when
an action is brought by the United States, to recover money in the
hands of a party, who has a legal claim against them, it would be a
very rigid principle, to deny to him the right of setting up such claim
in a court of justice, and turn him round to an application to congress.
If the right of the party is fixed by the existing law, there can be no
necessity for an application to congress, except for the purpose of
remedy. And no such necessity can exist when this right can properly
be set up by way of defence, to a suit by the United States. [Footnote
9]"
If the claim for income tax deficiency had been the subject of a suit,
any counter-demand for recoupment of the overpayment of estate tax
could have been asserted by way of defense and credit obtained,
notwithstanding the statute of limitations had barred an independent
suit against the government therefor. This is because recoupment is in
the nature of a defense arising out of some feature of the transaction
upon which the plaintiff's action is grounded. Such a defense is never
barred by the statute of limitations so long as the main action itself is
timely. [Footnote 10]
The circumstance that both claims, the one for estate tax and the other
for income tax, were prosecuted to judgment and execution in
summary form does not obscure the fact that, in substance, the
proceedings were actions to collect debts alleged to be due the United
States. It is
Page 295 U. S. 263
immaterial that in the second case, owing to the summary nature of
the remedy, the taxpayer was required to pay the tax and afterwards
seek refundment. This procedural requirement does not obliterate his
substantial right to rely on his cross-demand for credit of the amount
which, if the United States had sued him for income tax, he could
have recouped against his liability on that score.
To the objection that the sovereign is not liable to respond to the
petitioner the answer is that it has given him a right of credit or
refund, which, though he could not assert it in an action brought by
him in 1930, had accrued and was available to him, since it was
actionable and not barred in 1925 when the government proceeded
against him for the collection of income tax.
The pleading was sufficient to put in issue the right to recoupment.
The Court of Claims is not bound by any special rules of pleading;
[Footnote 11] all that is required is that the petition shall contain a
plain and concise statement of the facts relied on and give the United
States reasonable notice of the matters it is called upon to meet.
[Footnote 12] And a prayer for alternative relief, based upon the facts
set out in the petition, may be the basis of the judgment rendered.
[Footnote 13]
We are of opinion that the petitioner was entitled to have credited
against the deficiency of income tax the amount of his overpayment
of estate tax with interest, and that he should have been given
judgment accordingly. The judgment must be reversed, and the cause
remanded for further proceedings in conformity with this opinion.
Reversed.