Document: 345 U.S. 278 73 S.Ct. 671 97 L.Ed. 1007 HEALY et al.v.COMMISSIONER OF INTERNAL REVENUE. COMMISSIONER REVENUE v. SMITH. Nos. 76, 138. Argued Dec. 12, 1952. Decided April 6, 1953. Rehearing Denied May 18, See 961, 935. Mr. James H. Heffern, Buffalo, N.Y., for Edwin E. Healy and Gordon W. Hartfield. Sol Goodman, Cincinnati, Ohio, Hall C. Smith. Charles S. Lyon, Washington, D.C., Commissioner of Internal Revenue. Chief Justice VINSON delivered the opinion Court. 1 The income tax liability three individual taxpayers a given year is here before Only single question, common to all cases, involved. Tax Court held view favorable taxpayers.1 Revenue sought review appropriate Courts Appeals. As two taxpayers, Appeals Second Circuit reversed,2 while Sixth took contrary law.3 We granted certiorari resolve conflict.4 2 All controlling facts in situations are similar. Each taxpayer reports his on cash receipts disbursements method. Each, respective years involved, received salary from closely corporation which he was both an officer stockholder. full amount so reported as received. Subsequently, after audit corporate returns, disallowed deduction by corporations parts salaries exceeding reasonable compensation. result, deficiencies taxes were determined against corporations. also that officers liable transferees under § 311 Code, 26 U.S.C.A. 311, deficiencies. receipt excessive transfer upon transferee predicated. result either litigation5 or negotiation, various amounts became established liabilities each officers. In case, entire process determining these amounts—from start agents final establishment occurred end reported. 3 question whether part should be excluded taxable since led unpaid contend adjustment made original salary; Government payment liability. 4 One basic aspects federal there annual accounting income.6 item must it properly reportable no other. For basis taxpayer, are, correct received.7 5 Not infrequently, adverse claimant will contest right recipient retain money property, subsequently. North American Oil Consolidated Burnet, 1932, 286 417, 52 613, 76 1197, we considered such uncertainty would otherwise includible being deferred beyond period That decision claim doctrine 'now deeply rooted system.'8 usual statement rule Brandeis opinion: 'If receives earnings without restriction its disposition, has required return, even though may still claimed not entitled money, adjudged restore equivalent.' at page 424, 615. 6 phrase 'claim right' term known old lawyers. Its typical use been real property law dealing with title possession, where can acquired possession only if occupant claims owner.9 field taxation analogous. There when funds treated belonging him. fact subsequently found invalid court does change did exist. A mistaken nonetheless claim, United States Lewis, 1951, 340 590, 71 522, 95 560. 7 However, told but rather they 'constructive trustees' benefit creditors corporation. Admittedly, trustee expressly another capacity, 'has nothing * separate benefit', Eisner Macomber, 1920, 252 189, 211, 40 194, 64 521. 8 do believe trustees sense their benefit. Under equitable trust fund creditors, stockholder receiving adequate consideration insolvent held, some jurisdictions, hold constructive trustee.10 So declared equity. fiction imposed device achieving justice.11 It lacks attributes trust, based any intention parties. Even retroactive existence legal fiction, cannot 'readily realizable economic value'12 practical 'use benefit'13 enjoyed during prior period, antecedent declaration trust. 9 think clear right—not trustee. Indeed one parties concedes, manifestly so, reporting returns indicated right. argue subject use.14 Since ultimately gave rise year, those salary. Actually could have said involved materialize. might audited particular returns; gone through procedure produced enough admissible evidence meet burden proving liability;15 or, subsequent profitable operations, able paid obviating necessity resort transferees.16 10 need attempt list hypothetical us put restrictions prevent giving income. But potential dormant restriction, depends future application rules present facts, 'restriction use' within meaning supra. 11 inequities treating eventually turns out urged us. concedes loss repayment earlier included income.17 this treatment taxpayer; others not. Factors rates brackets falls controlling. instead later generally unfavorable statute limitations frequently bar year.18 Congress enacted system counted up year. disruptive orderly collection revenue done over again reflect events occurring made, violate spirit system. This principle changed simply because advantage case different followed. 12 judgment No. consistent opinion, affirmed, 138 reversed. ordered. 13 Judgment affirmed; 14 DOUGLAS dissents. Hartfield (Healy), 16 T.C. 200, (consolidated proceedings); Smith, 1948, 174. Hartfield, 1952, 194 F.2d 662. 536. 344 811, 15; 813, 25. Smith & Sons Co. Commissioner, Cir., 1950, 184 1011. Reo Motors 338 442, 70 283, 94 245; Heiner Mellon, 1938, 304 271, 58 926, 82 1337; Burnet Sanford Brooks Co., 1931, 282 359, 51 150, 75 383. I.R.C., 41, 41. I.R.C. 42(a), 42(a). Other permissive methods purposes accrual basis, §§ 41 42, installment 44, 44. 592, 523, Tiffany, Real Property, 1147. 15A Fletcher, Cyclopedia Corporations, 7369—7389. Scott Trusts, 462.1; Bogert, Trusts Trustees, 471. Rutkin States, 343 130, 137, 72 571, 575, 96 833. announced supra, requires well 15 1119, imposes contrasted normally proof contesting determination Commissioner. 1111, Rule 32, States. Transferee secondary primary transferor. To sustain prove unable collect deficiency Mertens, Law Federal Income Taxation, 53.29. 17 G.C.M. 16730, XV—1 Cum.Bull. 179 (1936). 18 322(b), 322(b). 275 311(b), 275, 311(b).

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