Source: https://law.justia.com/cases/federal/appellate-courts/F2/410/1247/154411/
Timestamp: 2019-12-09 15:53:30
Document Index: 5501998

Matched Legal Cases: ['§ 19', '§ 19', '§ 29', '§ 29', '§ 1', '§ 1']

Herbert Birchenough and Edith Birchenough v. the United States.john J. Hurtz and Julia R. Hurtz v. the United States, 410 F.2d 1247 (Ct. Cl. 1969) :: Justia
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Herbert Birchenough and Edith Birchenough v. the United States.john J. Hurtz and Julia R. Hurtz v. the United States, 410 F.2d 1247 (Ct. Cl. 1969)
U.S. Court of Claims (1855-1982) - 410 F.2d 1247 (Ct. Cl. 1969) May 16, 1969
The basis of that suit was that the $13,850 in salaries received by each family in 1954 were not includable in gross income for 1954 because those sums were constructively received in 1950, 1951, and 1952, and were taxable only in those years. The court agreed with this contention and entered judgment for both sets of plaintiffs, granting refunds for 1954. Hurtz v. United States, No. 324-60, and Birchenough v. United States, No. 325-60, 162 Ct. Cl. 855 (1963).2
There is no dispute as to the first and third of these factors. Our prior judgment constitutes a "determination" as defined in Section 1313(a) (1), Appendix, infra; that decision excluded the salaries in question from taxpayers' gross income for 1954 solely because they should have been included in 1950-1952. 162 Ct. Cl. at 857-859. There is agreement, in addition, that the items constituted taxable income, and that plaintiffs omitted them from their returns in the earlier years. See finding 7, 162 Ct. Cl. at 860-861.5
The controversy is over the second and fourth conditions. Taxpayers admit, and must admit, that the contention adopted by the court in our prior case was one they put forward. They affirmatively argued that the $13,850 paid them in 1954 was not includable in that year because constructively received in 1950, 1951, and 1952 (162 Ct. Cl. at 857) — as against the Government's argument that 1954 was the only proper year (162 Ct. Cl. at 858, 859). Nor can it be denied that to urge that an item is includable only in 1950-1952 is necessarily inconsistent with the contention that it is includable only in 1954. See Dobson v. United States, 330 F.2d 646, 165 Ct. Cl. 460 (1964); Karpe v. United States, 335 F.2d 454, 461, 167 Ct. Cl. 280, 292-293 (1964), cert. denied, 379 U.S. 964, 85 S. Ct. 665, 13 L. Ed. 2d 558 (1965); Heineman v. United States, 391 F.2d 648, 183 Ct. Cl. 17 (1968).
No case supports taxpayers' extremely narrow interpretation. In Dobson v. United States, supra, 330 F.2d 646, 165 Ct. Cl. 460, this court held that by claiming before the Tax Court, on appeal from a deficiency, that income was recognizable in 1949 rather than 1948, those plaintiffs had maintained a position inconsistent with their exclusion of the item from their 1949 returns. See, also, Karpe v. United States, supra, 335 F.2d at 456-457, 461, 167 Ct. Cl. at 283-285, 292 (prior "determination" was a district court refund suit); Yagoda v. Commissioner of Internal Revenue, 331 F.2d 485 (C.A. 2) cert. denied, 379 U.S. 842, 85 S. Ct. 81, 13 L. Ed. 2d 48 (1964) (the same); cf. Heineman v. United States, supra, 391 F.2d at 651-652, 183 Ct. Cl. at 22-24.
The other disputed requirement of Section 1312(3) (A) is whether the accrued salaries constituted items "with respect to which tax was paid" for 1954 — the fourth condition listed previously. This part of the statute, dealing with " [d]ouble exclusion of an item of gross income", declares that the item must have been included in a return filed by the taxpayer or the tax must have been paid. In this case the items were never included in any returns, and therefore applicability turns on payment of the tax. Of course, taxpayers satisfied the deficiencies assessed for 1954 on account of the salaries in question,9 but the argument is that payments-induced-by-deficiency-assessments are not what the statute means by payment of the tax. On this point taxpayers are squarely faced by the Regulations, which, for almost thirty years, have indicated, by a specific example illustrating the reach of the statutory provision, that such payments are affirmatively included. See Example (1) to § 19.3801(b)-3 of Treasury Regulations 103 (1939 Code); 26 C.F.R. § 19.3801(b)-3 (Supp.1940) (issued Jan. 29, 1940, and effective until the 1956 revision of the Regulations; see Regs. 111, § 29.3801(b)-3; 26 C.F. R. § 29.3801(b)-3 (1949)) ; and Example (1) (ii) to § 1.1312-3 of Treasury Regulations on Income Tax (1954 Code) (issued Feb. 9, 1956); 26 C.F.R. § 1.1312-3 (Rev.1956), Appendix infra.
We have no sufficient reason to reject this regulation, which goes back almost to the original adoption of the mitigation provisions.10 There is no strain on the statutory language to include satisfaction of a deficiency in the general category of tax payments, nor does it conflict with the general Congressional purpose to allow adjustments where otherwise an income item would be entirely freed from tax and the taxpayer has acted inconsistently. The only argument plaintiffs can make is that the regulation disfavors taxpayers who choose to pay the deficiency and then litigate by refund suit, rather than to defer payment and sue in the Tax Court; the former are subject to adjustment under Section 1312(3) (A) (because they have paid the tax) while the others are not. In an early and authoritative article, then Professors Maguire, Surrey and Traynor gave the "sound reason * * * for such rigid dichotomy" (Section 820 of the Revenue Act of 1938, 48 Yale L.J. 719, 755-57 (1939)).11 There is no way to distinguish, these commentators pointed out, between a taxpayer who "may have paid the deficiency because he thought it correct but later decided to change his position because of the favorable opportunity presented by the expiration of the period of limitations for the earlier year" and another taxpayer who pays the deficiency solely because he prefers to litigate by refund action rather than before the Tax Court. "As there is no feasible method of differentiating between the two cases, and as the taxpayer against whom the deficiency is asserted can protect himself from an adjustment * * * simply by not paying the deficiency, no unjustifiable hardship is worked by the rule * * *." Certainly, this ground is adequate to support the contemporaneous regulation, which must be accepted unless we can say that it is unreasonable or flouts the Congressional will. Commissioner of Internal Revenue v. South Texas Lumber Co., 333 U.S. 496, 501, 503, 68 S. Ct. 695, 92 L. Ed. 831 (1948); United States v. Manufacturers Nat. Bank, 363 U.S. 194, 200 n. 8, 80 S. Ct. 1103, 4 L. Ed. 2d 1158 (1960); Estate of Bahen v. United States, 305 F.2d 827, 829, 158 Ct. Cl. 141, 145 (1962).12
We do not have to decide whether we would agree with the Weinreich result on the facts of that case. That holding has been criticized in Yagoda v. Commissioner of Internal Revenue, supra, 331 F.2d at 490-492.