Legal Document

333 U.S. 591 68 Supreme Court Reporter 715 92 L.Ed. 898 COMMISSIONER OF INTERNAL REVENUEv.SUNNEN. Number 227. Argued Dec. 17, 1947. Decided April 5, 1948. [Syllabus from pages 591-593 intentionally omitted] Mr. Arnold Raum, of Washington, D.C., for petitioner. C. Powell Fordyce, St. Louis, Mo., respondent. Justice MURPHY delivered the opinion Court. 1 The problem federal income tax consequences intra-family assignments is brought into focus again by this case. 2 stipulated facts concern taxable years 1937 to 1941, inclusive, and may be summarized as follows: 3 respondent taxpayer was an inventor-patentee president Sunnen Products Company, a corporation engaged in manufacture sale patented grinding machines other tools. He held 89% or 1,780 out total 2,000 shares outstanding stock corporation. His wife 200 shares, vice-president 18 two others connected with one share each. corporation's board directors consisted five members, including his wife. This elected annually stockholders. A vote three required take binding action. 4 had entered several non-exclusive agreements whereby licensed sell various devices on which he applied patents.1 In return, agreed pay royalty equal 10% gross sales price devices. These did not require any particular number devices; nor they specify minimum amount royalties. Each party right cancel licenses, without liability, giving written notice either six months year.2 absence cancellation, were continue force ten years. authorized execute each these contracts. No notices cancellation given. Two effect throughout 1937— while existence at all pertinent times after June 20, 1939. 5 assigned right, title interest license contracts.3 She given exclusive power over royalties accruing under All consideration made gifts wife, those occurring 1932 being reported gift purposes. notified assignment. 6 corporation, pursuant arrangement, paid $4,881.35 contract 1928; no that during question. received contracts totaling $15,518,68 1937, $17,318.80 1938, $25,243.77 1939, $50,492,50 1940, $149,002.78 1941. included payments her returns years, taxes she thereon have been refunded. 7 Relying upon its own prior decision Estate Dodson versus Commissioner, United States Tax Reports KF6280 A2 U55 416,4 that, exception, 1941 part taxpayer. 431. exception concerned 1928 agreement. earlier proceeding 1935, Board Appeals dealt taxpayer's liability 1929—1931; it concluded ther oyalties determination caused apply principle res judicata bar different result same agreement 1937. 8 Court's affirmed reversed Eighth Circuit Appeals. 161 Federal Reporter, 2nd Series 171. Approval application doctrine exclude But extent 1937-1941, theory such him. Because conclusion, found unnecessary decide additional claim well (those apart agreement) We then case here certiorari, Commissioner alleging below conflicts decisions 9 If properly applicable so 1937-1941 are governed Appeals, disposed reaching merits controversy. accordingly cast our attention initially possibility, has explored fully argued parties before us. 10 It first necessary understand something recognized meaning scope judicata, judicial origin. general rule applies repetitious suits involving cause rests considerations economy time public policy favoring establishment certainty legal relations. provides when court competent jurisdiction final judgment action, suit their privies thereafter bound 'not only every matter offered sustain defeat demand, but admissible might purpose.' Cromwell County Sac, 94 351, 352, 24 195. puts end cannot litigation between ground whatever, absent fraud some factor invalidating judgment. See von Moschzisker, 'Res Judicata,' 38 Yale L.J. 299; Restatement Law Judgments, §§ 47, 48. 11 where second action much more narrowly. situation, operates estoppel, matters litigated determined, 'only issue points controverted, finding verdict rendered.' supra, 353 And see Russell Place, 606, 214; Southern Pacific R. Co.v . States, 168 1, 48, 18, 27, 42 355; Mercoid Corporation Mid-Continent Co., 320 661, 671, 64 268, 273, 88 376. Since involved swallowed suit, free litigate proceeding, even though tendered decided time. actually determined later relitigated. Once fought party, renew duel. sense, usually accurately referred estoppel judgment, collateral estoppel. 68, 69, 70; Scott, 'Collateral Estoppel Judgment,' 56 Harv.L.Rev. 1. 12 concepts field. Income levied annual basis. year origin new separate Thus if non-liability relating litigated, subsequent year. similar unlike year, acts presented suit. Collateral operates, words, relieve government 'redundant identical question statute's status.' Tait Western Md. 289 620, 624, 53 706, 707, 77 1405. 13 capable avoid undue disparity impact liability. secure matter, recur substantial variation thereafter. modification significant change development controlling principles make obsolete erroneous, least future perpetuated succeeding original litigation, accorded treatment taxpayers class. As result, there inequalities administration revenue laws, discriminatory distinctions fertile basis litigious confusion. Compare Stone & Downer 274 225, 235, 236, 47 616, 71 1013. Such consequences, however, neither necessitated justified That designed prevent lawsuits once remained substantially static, factually legally. meant create vested rights become erroneous time, thereby causing inequities among taxpayers. 14 cases involve must used limitations carefully mind injustice. confined situations raised respects rules remain unchanged. supra. differ case, bearing situation. Travelers insurance company Cir., 93. situation vitally altered second, conclusv e. State Farm Duel, 324 154, 162, 65 573, 577, 89 812; Freeman 5th Ed. 1925, § 713. demonstrated Blair 300 9, 57 330, 331, 81 465, declaration intervening proceedings atmosphere render inapplicable.5 need necessarily state court, While considered having changed purposes, growth enunciated also inequality can readily neglecting modulations disregarding factual changes wrought courts. event, supervening justly ignored blind reliance Henricksen Seward, 135 986, 988, 989, 150 American 1; Pelham Hall Hassett, 147 63, 69; Arundel-Brooks Concrete Corp., 152 227, 162 1200; Corrigan 155 164, 165; West Coast Life Merced Irr. Dist., 114 654, 662; contra: 'Commissioner Union Tel. 141 774, 778. naturally follows interposed alternation statutory provisions Treasury regulations use unwarranted. 625 U.S., 706.6 15 Of course, fact essential different. Evergreens Nunan, 927. very will conclusive issues appear, assuming doctrinal change. relevant separable, identical, does govern case.7 instrument transaction with, form separable from, proceeding. independent examination issue. reach or, consistency just desirable, placed ordinary stare decisis. Before invoke circumstances, set events documents bundle contributed rendering Maryland Griswold, Judicata Cases,' 46 1320; Paul Zimet, Taxation,' appearing Paul, Selected Studies Taxation, 2d series, Page 104. 16 apparent growing effects doctrine. true important contract, Board, contract. For what issue, however be. respect, instant thus differs instruments surrounding facts. 17 difficult posed Here complete identity facts, one. claims, developed plain error Board's conclusion creating like picture said about Helvering Clifford, 309 60 554, 84 788; Horst, 311 112, 61 144, 85 75, 131 655; Eubank, 122, 149, 81; Harrison Schaffner, 312 579, 759, 1055; Tower, 327 280, 66 532, 90 670; Lusthaus 293, 539, 679. imposed transferors who transferred forms within family groups, although none specifically related assignment patent members family. therefore whether Clifford-Horst line represents makes manifest reached 1935 Board. becomes inapplicable. difference permissible determine series requires inquiry controversy To we now turn.8 thereunder, would clearly long established mere receive enough insulate assignor Lucas Earl, 281 111, 50 241, 74 731; Burnet Leininger, 285 136, 52 345, 76 665. earns otherwise source enjoy income, remains taxable. because underlying addition payments. contention rather than patents applications ultimate constituted income-producing property, freed further deem unnecessary, meet trace property source, metaphysical legal. Nor answered identified, assigned. crucial retains sufficient control receipt reasonable treat him recipient Corliss Bowers, 376, 378, 336, 916; 'taxation refinements actual command taxed—the benefit paid.' 19 realm transfers peculiar applicability. short-term trusts, Clifford clear transfer group special scrutiny 'lest reality economic unit multiplied which, valid law, far 22(a) concerned.' page 335, 556, 788. kinds documented direct benefits retained transferor therefrom. recognizes intimately related, group, give rise informal indirect Even directly pertinent, Horst together accompanying Eubank Mertens, Taxation (1942), 18.02, 18.14. causes taxable, limited assignee's realization depends rendition services assignor. supra; controls through preceding transfer. Or evidenced possibility act assignor, failure act, revert Moreover, realize disposition could himself diverts payment assignee means procuring satisfaction wants, mee ly fruition assignor's gain. 20 582, 761, 1055, emphasized 'one escape kind anticipatory skillfully devised, procures another, since, exercise enjoys laid.' noted 'Even accomplished temporary donor's produces donor retaining it, allowed obscure reality.' 583, 762, 1055. companion reiterated laid down them arising partnerships. 21 cases, following them, They guideposts seek instance fair impose 22 clarification constitute, opinion, climate inapplicable relative True, originate concept assignee. gave added emphasis substance concept, making suited 'attenuated subtleties' created So amplification justify reconsideration expanded notions, sought regardless present correctness. unable bring bear full breadth ideas cases. And, shall see, proper produced regard Under circumstances should perpetuate viewpoint 23 initial rendered immune agency designated law find examine draw conclusions left accrues respected appeal firmly grounded evidence consistent law. Scottish 323 119, 169, 113; Dobson 489, 239, 248. standard, therefore, measuring propriety undisputed. foundation h e assignments, say inferences unreasonable light administrative inconsistent Indeed, due leads inescapably result. purported memory. interests themselves, satisfying criteria taxability forth considerations: 25 (1) president, director owner position extensive assigning provided notice. taxpayer, dominant procure entirety. nonetheless directors' votes sanction Should majority prove unamenable desires, frustration woudl last longer date next election stockholders, reason holdings. expressly terminable 26 assume enjoined prevented. Cancellation conceivably occur ready terms favorable present. abused. evident exists, unavoidable 27 (2) permitted regulate payable specified bind Hence, production policies able increase lower royalties; stop completely eliminating covered cancelling 28 (3) applications. licenses nature, nothing licensing firms exploit patents, diverting 29 (4) There indication effected status. Despite thereunder intimate group. enjoy, indirectly, royalties, fairly assignments. Hev ering 557, 30 factors merely terminate ineffective purposes attempt dispose transactions simply reallocation shift incidence 31 remanded opinion. 32 Reversed. 33 FRANKFURTER JACKSON believe based affirm reasons stated 248, 113. cylinder grinder. Nov. 1927, issued 4, 1934. device dated Jan. 10, 1928. expired 1938; renewal executed balance life patent, ends 1951. pinhole 1931, 13, 1933. 1931. crankshaft May 22, 6, Another 29, 1942, 26, 1943. fourth Six months' 1928, covering year's cancellation. On 8, 1929, 'all my rights, Royalty Which accrue hereafter me' respect grinder device. Internal Revenue sufficiency completeness assignment, 21, confirmed January * N Immigration Nationality Decisions hereby heretofore sole Cornelia (his wife), declare order, collect, receive, for, retain sue royalties.' 'Assignments owned 51% 49%. formula trade mark. Pursuant mark renewable period. return measured certain percentage net sales. one-half modify flowing wife's 986; Monteith Bros. 142 139; 63; 225; 164. Grandview Dairy Jones, 157 5. Security-First Nat. Bank, 148 937. Stoddard 76, 80; Campana Harrison, 334; Engineer's Club Philadelphia F.Supp. 182, 95 Ct.Cl. 92. little help Section Act 1936, 49 Statutes-at-Large 1648, 447, cover Those sections, current Code, U.S.C.A.Int.Rev.Code, 22(a), define 'gross income' include 'gains, profits, derived salaries, wages, compensation personal service *, whatever paid, professions, vocations, trades, businesses, commerce, sales, dealings real personal, ownership property; interest, rent, dividends, securities, business carried gain profit, gains profits whatever.' Article 22(a)-1 Regulations 94, promulgated 1936 Act; 101, 1938 19.22(a)-1 103, Code. Had

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