A collector of internal revenue, who had accepted a surety bond filed with him by a taxpayer to accompany his claim for abatement of income tax, consented to termination of all liability upon the bond and surrendered it before its obligation was fully satisfied. The questions for decision are whether the collector had power to release the obligation of the bond and, if not, whether the United States is entitled to interest on the amount of its claim against the surety.
Upon the Commissioner's assessment in 1920 of additional income taxes in the sum of $29,128, asserted to be due from the taxpayer for 1917, the taxpayer filed a claim for abatement of the assessment, and to secure suspension of collection of the tax, executed a bond to the collector in the sum of $38,000 with petitioner as surety, conditioned upon payment on May 2, 1923, of the tax with interest. The Commissioner allowed the claim in abatement in part but rejected it to the extent of $8,223.38, on which interest had then accrued in the sum of $4,169.07. On demand of the Commissioner on August 5, 1926, for the principal amount of the tax with interest to the date of demand, petitioner paid only the principal amount of the tax to the collector by draft of December 17, 1926, bearing the notation on its face that it was in full payment of the tax and of all liability on the bond. The collector collected the draft and surrendered the bond to petitioner with the statement that all liability on it had terminated.
In the present suit on the bond the District Court held that the collector was without authority to release the bond and gave judgment for the sum of $4,169.07 found by the Commissioner to be the interest on the unpaid tax to the date of the rejection of the claim for its abatement, but refused to allow interest accruing subsequent to that date. On appeal the Circuit Court of Appeals ruled that under § 370 of the New York General Business Law, interest at six per cent. should be added to the unpaid balance found to be due on the bond and modified the judgment accordingly. 2 Cir., 116 F.2d 247. We granted certiorari April 7, 1941, 313 U.S. 552, 61 S.Ct. 838, 85 L.Ed. --, because of the importance of the questions presented, and of a conflict of the decision below with that of the Circuit Court of Appeals for the Third Circuit in Heinemann Chemical Co. v. United States, 92 F.2d 302.
It is not denied that the collector had authority to accept the bond, that it created a new cause of action distinct from that on the taxpayer's obligation, and that if it has not been released, the United States has authority to sue upon it, see United States v. John Barth Co., 279 U.S. 370, 49 S.Ct. 366, 73 L.Ed. 743; Gulf States Steel Co. v. United States, 287 U.S. 32, 53 S.Ct. 69, 77 L.Ed. 150; United States v. Wolper, 2 Cir., 86 F.2d 715; United States v. Oswego Falls Corp., 2 Cir., 113 F.2d 322. And it is conceded that, as the bond was conditioned on the payment of the taxes with interest, petitioner is indebted to the Government upon it for the amount of the interest which had accrued at the time of the rejection of the claim in abatement. See Botany Worsted Mills v. United States, 278 U.S. 282, 49 S.Ct. 129, 73 L.Ed. 379; ughson v. United States, 9 Cir., 59 F.2d 17, 19; United States v. Steinberg, 2 Cir., 100 F.2d 124, 126. Respondent's contentions are that the balance of interest then due was released by the collector and that in any case it was not bound to pay interest on that balance.