This was an action brought by the appellant Roberts against the respondent Railroad Company, under those provisions of R.S. 3490, 3491, 3492, 5438, 57 Stat. 608, 31 U.S.C.A. §§ 231-233, 235, which authorizes the bringing of qui tam actions. Appellant sought to recover, on behalf of the United States, income and excess profits taxes of which, it was alleged, the United States was defrauded through the filing of false and fraudulent tax returns.

Generally speaking the circumstances constituting the alleged fraud, are those set out in the opinion of the District Court in Western Pacific Railroad Corporation v. Western Pacific Railroad Company, 85 F. Supp. 868, which opinion is sought to be incorporated, by reference, in the complaint here. Thus, in the first of the three alleged causes of action, it is stated that in 1943, the defendant Railroad Company had a net taxable income in excess of 18 million dollars, on account of which it owed income and excess profits taxes of over 12 million dollars; that for the purpose of cheating and defrauding the Government, it caused false, fictitious and fraudulent consolidated income and excess profits tax returns to be made and filed in the name of, and purportedly by, the Western Pacific Railroad Corporation, upon the false claim that the latter corporation owned 95 per cent of the defendant Railroad Company's stock. It was alleged that through this expedient the consolidated return was made to disclose a 75 million dollar loss, which more than wiped out the Railroad Company's 18 million dollar profit. This loss arose out of certain pending proceedings for reorganization of the Railway Company under Sec. 77 of the Bankruptcy Act, 11 U.S.C.A. § 205, in which a plan of reorganization, approved by the Interstate Commerce Commission in 1939, determined that the Company's capital stock, substantially all of which was held by the above-mentioned Railroad Corporation, was without value, and that therefore the Corporation was not entitled to participate in the plan.1 Relying upon Sec. 123 of the Revenue Act of 1942, 26 U.S.C.A. § 23(g)(4),2 The return showed the loss of the corporation's stock in the company, for which it had paid 75 million dollars, as an operating loss. Thus the consolidated return showed a large net loss.

The device of thus filing a consolidated return, using the stock loss as an offset to earnings of the defendant Railroad Company, was first used in the 1943 return. In 1942, the Company had also made substantial earnings, and for that year made return for itself and its own subsidiaries, and paid in excess of 4 million dollar pursuant to this return. In the third alleged cause of action, it is set forth that on March 9, 1945, the Railroad Company filed a claim for refund of this 1942 tax, based on a carry-back of the 1943 net loss.

The second alleged cause of action relates to asserted false and fraudulent returns for the year 1944 in which, it is alleged, the defendant Company managed to show no taxable income by carrying forward an additional portion of the claimed 1943 loss.

It appears from the complaint that following the filing of the claim for refund of the 1952 taxes, negotiations ensued between the taxpayer and the Government which eventuated in a settlement whereby the claim for refund was withdrawn and the consolidated returns for 1943 and 1944 were allowed to stand.

The complaint, not a model of pleading, in that it intermingles allegations of fact with many mere conclusions, appears to disclose as the principal representations claimed to have been made in connection with the filing of the returns, the following:

(a) That it was falsely claimed that the stock loss occurred in 1943, whereas it was a 1939 loss.

(b) That it was falsely represented that the Corporation (the Holding Company) made the return, whereas it had no part in it, in that the whole device was that of the defendant Company, which intended to obtain the exclusive benefit thereof.

(c) That it was falsely represented that the relationship between the two corporations was such that a consolidated return was permissible, whereas in truth and in fact the Railroad Corporation was not the owner of 95 per cent of the capital stock of the Railroad Company, but the two corporations were, after 1939, complete strangers to each other, as ownership of defendant Railroad Company was then in the Bankruptcy Trustees.

The trial court sustained defendant's motion to dismiss. Its order stated that it was the opinion of the court 'that the complaint alleges sufficient facts from which it can be held that defendant * * * had made certain false or fraudulent claims against the Government * * * upon which liability might be found under the provisions of 31 U.S.C.A. § 231. However, it also appears from the complaint that this suit is based upon evidence and information in the possession of the United States and of agencies, officers and employees thereof at the time this suit was brought, and that all matters of fact alleged in the complaint as amended were matters of public record. For this reason this Court is without jurisdiction to proceed with the action and the motion to dismiss is hereby granted.'

This determination that the court was without jurisdiction was based upon the provision of Sec. 232 of Title 31, that 'The court shall have no jurisdiction to proceed with any such suit brought under clause (B) or pending suit brought under this section whenever it shall be made to appear that such suit was based upon evidence or information in the possession of the United States, or any agency, officer or employee thereof, at the time such suit was brought.'3

The court having thus found itself to be without jurisdiction to proceed, entered judgment dismissing the complaint. This appeal followed.

Appellant asserts that the court's determination that the suit is based upon evidence and information in the possession of the United States, its agencies, officers and employees, could not be derived from any allegation of the complaint other than the one disclosing the fact that the case of Western Pacific Railroad Corporation v. Western Pacific Railroad Company, supra, had been tried before Judge Goodman, whose opinion is cited above. Appellant argues that a Federal Judge, particularly when sitting, as in this instance, in a case arising solely out of diversity jurisdiction, is not one of the agencies, officers or employees referred to in the portion of the statute upon which the court acted. This, it is said, must be true since the Judge is not an officer charged with doing anything about such information coming to him in a suit involving other issues. Appellant also argues that in no event may possession of such information by the United States oust the court of jurisdiction of the qui tam action unless the United States has proceeded to take some effective action based on the information.

Appellee asserts that the record sufficiently shows the possession of such information by the Bureau of Internal Revenue itself. It says this conclusion must be reached when the complaint is read in the light of the presumption that officers properly carry out the duties imposed upon them by law. Hence, appellee says, it is to be presumed, unless expressly negatived by the complaint, that the Bureau had ascertained all the facts pertaining to appellee's liability for taxes.

The portion of the court's order which we have quoted above does not indicate just what 'agencies, officers and employees', the court had in mind.4 It may be assumed the reference is solely to what transpired in the case tried before Judge Goodman.

We find it unnecessary to pass upon these conflicting views, for we have concluded that the statutes do not permit the maintenance of a qui tam action for the recovery of taxes due the United States under the circumstances here presented.

The controlling provisions are to be found in R.S. Secs. 3490, 3491 and 5438. Sec. 3490 provided that 'Any person * * * who shall do or commit any of the acts prohibited by * * * section fifty-four hundred and thirty-eight, Title 'Crimes,' shall forfeit and pay to the United States the sum of two thousand dollars, and, in addition, double the amount of damages which the United States may have sustained * * * .' This section has never been amended. Section 3491, in its original form, and as later amended,5 specified the venue for actions to recover such damages and permitted such actions to 'be brought and carried on by any person, as well for himself as for the United States * * * .' Thus, it will be seen, the acts for which recovery may be had under Secs. 3490 and 3491, are defined in Sec. 5438.6 This section, in itself, solely a criminal provision, is set forth in the margin.7

It is noted that the key language is: 'Every person who makes * * * any claim upon or against the Government * * * knowing such claim to be false, fictitious, or fraudulent,' etc. Speaking of this phraseology as incorporated in Sec. 35 of the Penal Code of 1910, the Supreme Court said, in United States v. Cohn, 270 U.S. 339 at page 345, 46 S. Ct. 251, 253, 70 L. Ed. 616: 'the provision relating to the payment or approval of a 'claim upon or against' the Government relates solely to the payment or approval of a claim for money or property to which a right is asserted against the Government, based upon the Government's own liability to the claimant.' We find in Sec. 5438 no language appropriate to describe a false tax return or a fraudulent evasion of a tax liability. It is true that the complaint discloses that the Railroad Company, after first paying its 1942 taxes, filed a claim for refund, based upon the same facts which were set forth in the returns for 1943 and 1944. This claim was withdrawn, but the withdrawal was the consideration for the Government's agreement to let the 1943 and 1944 returns stand.8 While such claim for refund might, of course, constitute a 'claim upon or against the Government', to treat it as such within the meaning of the statutes here involved would produce the rather anomalous result that while no qui tam action could be brought under these sections to recover the amount of taxes fraudulently withheld, yet such a claimant could prevail where the defendant had first paid the taxes and then procured a fraudulent refund, even although the fraud against the revenue was the same in each case.

That no such incongruous consequences were intended by Congress, and that in respect to tax frauds the legislative purpose was not to permit an action of the kind here involved, under the circumstances here present, to be maintained by an individual, at least without express consent of the Commissioner of Internal Revenue, is apparent from the provisions of the Internal Revenue Code, Sec. 3740, 26 U.S.C.A. § 3740, which reads as follows: 'No suit for the recovery of taxes, or of any fine, penalty, or forfeiture, shall be commenced unless the Commissioner authorizes or sanctions the proceedings and the Attorney General directs that the suit be commenced.' 53 Stat. 460.9

When to the fact that the language of Sec. 3490 is generally inapt for application to tax frauds, as we have suggested above, there is added the explicit language just quoted, it seems apparent that this action may not be maintained. There is no showing of the required authorizations.

Our conclusion to this effect is supported by the authority of Olson v. Mellon, D.C.W.D. Pa., 4 F. Supp. 947, the opinion in which was adopted and affirmed in U.S. ex rel. Knight v. Mellon, 3 Cir., 71 F.2d 1021, certiorari denied 293 U.S. 615, 55 S. Ct. 147, 79 L. Ed. 704. In that case the argument had been made that the type of transactions to which R.S. Sec. 3490 applied, had been enlarged by a later amendment of Sec. 5438 as incorporated in Sec. 35 of the 1910 Penal Code. The court pointed out why such was not the case. It noted that Sec. 231 of Title 31 of the 1927 edition of U.S.C.A., and which was intended to be the United States Code statement of Sec. 3490, was in error in its reference to 'section 80 of Title 18', since the latter was not, as the 'editorial comment' disclosed, identical with the original text of Sec. 5438.10

As for R.S. Sec. 3214, as now included in Sec. 3740 of the Internal Revenue Code, supra, that court held, as do we, that its language expressly prohibits the commencement of an action such as this where it has not been authorized or sanctioned by the Commissioner and the Attorney General.11 We perceive no reason why it should be held to mean anything other than what it says.

The judgment is affirmed.