Court Opinion

ID: 4630207
Source: CourtListenerOpinion
Date Created: 2020-11-21 03:06:59.967367+00
Date Added: 2024-06-11T07:57:30.324231
License: Public Domain

R. LAWRENCE COUGHLIN AND EVELYN W. COUGHLIN, PETITIONERS, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.Coughlin v. CommissionerDocket No. 76106.United States Board of Tax Appeals32 B.T.A. 1048; 1935 BTA LEXIS 852; July 30, 1935, Promulgated 1935 BTA LEXIS 852">*852  The petitioner was attorney for the Central Poor District and the School District for the Borough of Duryea, Luzerne County, Pennsylvania, during the taxable years, receiving for his services an annual salary for normal duties and additional amounts for unusual services.  Held, that the petitioner was an employee of the districts and, as such, his compensation is not subject to income tax.  R. Lawrence Coughlin, Esq., and Joseph Molitoris, Esq., for the petitioners.  I. Graff, Esq., for the respondent.  SEAWELL32 B.T.A. 1048">*1048  These proceedings involve the redetermination of deficiencies of $118.23 and $138.48 in income tax for the years 1930 and 1931, respectively.  The issue is whether compensation received by petitioner R. Lawrence Coughlin from the Central Poor District and the School District of the Borough of Duryea, Luzerne County, Pennsylvania, is exempt from tax.  The petitioners, husband and wife, filed joint returns for the taxable years.  FINDINGS OF FACT.  The Central Poor District of Luzerne County, Pennsylvania, hereinafter referred to as the poor district, is a corporation created by the Legislature of Pennsylvania in 1860 to1935 BTA LEXIS 852">*853  provide for the lodging, maintenance and employment of the poor of Wilkes-Barre Township, Luzerne County.  It operates a large alms house, mental hospital, and a farm, at an expense of around $1,000,000 per year, raised by taxation of property in the county.  Petitioner R. Lawrence Coughlin, hereinafter referred to as the petitioner, served as attorney for the poor district in 1930 and 1931, at a salary of $1,500 per annum, under appointments made by the board of directors of the poor district pursuant to a state statute authorizing them to appoint assistants, including an attorney, for a period of one year, or until their successors are appointed, with the right of removal at any time, and to fix their compensation.  He was entitled to additional compensation for unusual court work.  The rules and regulations adopted by the board of directors under authority given by state law prescribe the duties of the attorney for the poor district as follows: He shall be the law advisor of the board, attend the meetings when required, and attend to all legal matters pertaining to the corporation and institution.  32 B.T.A. 1048">*1049  He shall prepare all bonds of indemnity, indentures, agreements1935 BTA LEXIS 852">*854  and other legal writings required in the transaction of business, prosecute all claims placed in his hands by the board, and attend to the collection of the same.  The board of directors of the poor district is authorized by state statute, among other things, to collect fines due it; file suit for the recovery of money due paupers; collect wages due a deserter of his wife and family at the time of his desertion; collect from certain relatives of inmates fees for maintaining the inmates in the poor district; institute proceedings for the appointment and discharge of guardians of inmates and the removal of paupers residing in the poor district contrary to law; intervene in proceedings for the commitment and discharge of insane persons to and from the mental hospital; and sell real estate of paupers.  The petitioner represented the poor district in proceedings involving these matters.  His duties also required him to advise and confer with the board of directors concerning the items of the annual budget for the poor district; examine proposed resolutions of the board of directors to determine whether the action contemplated was authorized by law; approve the legality of any procedure1935 BTA LEXIS 852">*855  adopted for borrowing funds for the poor district; attend sessions of the "non-support court" to prevent persons on the rolls of the poor district from obtaining relief from more than one source; and draft any bills the board of directors proposed to the state legislature for the government of the poor district, collect data for the proposed law and attend any hearings held by committees of the legislature on the bill.  The poor district furnished the petitioner a stenographer and another assistant to aid him in performing his duties.  He received instructions daily from the board of directors concerning action to be taken in specific cases.  Upon receiving such instructions, the petitioner would determine the course of action necessary to take and report his conclusions to the board of directors.  If they directed him to proceed, he would complete the assignment in the manner prescribed by law.  In addition to his salary of $1,500 received each taxable year for normal duties, in 1930 the petitioner received the sum of $554.20 from the poor district for unusual court work rendered in removal and guardianship proceedings.  The amount included court costs advanced by the petitioner. 1935 BTA LEXIS 852">*856  Each city, incorporated town, borough, or township in the Commonwealth of Pennsylvania constitutes by state statute a school district.  The board of directors of each district has power to appoint a solicitor and such other employees as it may deem proper, and define their duties and fix their salaries.  Pursuant to such authority the board of directors of the School District for the Borough of 32 B.T.A. 1048">*1050  Duryea, Luzerne County, Pennsylvania, hereinafter referred to as the school district, in December 1929 appointed the petitioner solicitor for the year 1930 at a salary of $1,000 per year for the normal duties of the position.  In December 1930 he received a like appointment for the year 1931.  The board of directors had no right to remove the petitioner during the terms for which he was appointed except for reasons set forth in state laws.  He was entitled to receive extra compensation for unusual work, such as legal services required in connection with bond issues.  As solicitor for the school district the petitioner satisfied claims for taxes; prosecuted court proceedings for the collection of delinquent taxes; took appeals from property assessments made by the county board1935 BTA LEXIS 852">*857  for taxes to provide funds for the operation of the school district; supervised the preparation of the school district's budget; approved the form of loans for money and resolutions of the board of directors; and performed services in connection with proposed new laws for the school district similar to the duties he performed for the poor district in like matters.  He also prepared advertisements for purchases, drafted contracts, and assisted in establishing the rate of taxation for the school district.  In carrying out his duties incident to these matters, the petitioner was under the direction and control of the board of directors, except as to legal procedure necessary to accomplish desired results.  The petitioner was on the pay roll of both districts.  He had no written contracts of employment and took no oath of office, none being required.  The petitioner gave his work for the districts preference over his private law practice, and at all times was at the beck and call of the board of directors of the respective districts.  Seventy-five percent of his time was taken up by work for the districts.  In addition to the annual salary of $1,000 paid to him each taxable year1935 BTA LEXIS 852">*858  for normal duties, in 1930 the petitioner received extra compensation of $500 from the school district for services rendered in connection with a bond issue.  Such services were beyond the normal duties of a solicitor for the school district.  Throughout the taxable years the petitioner was engaged in the general practice of law during his spare time.  In 1930 and 1931 he reported net income of approximately $10,000 and $14,700, respectively, derived from his profession.  These amounts are exclusive of the compensation the petitioner received from the poor district and the school district.  OPINION.  SEAWELL: There is no provision in the Revenue Act of 1928 specifically exempting from income tax the compensation received by the petitioner.  To obtain the exemption claimed the petitioner must show 32 B.T.A. 1048">*1051  that he is an officer or employee of a political subdivision of the Commonwealth of Pennsylvania.  ; . The concession of counsel for the respondent that the districts were engaged in the exercise of an essential governmental function makes it unnecessary to discuss1935 BTA LEXIS 852">*859  their governmental character.  See , in which the Court made the test "usual governmental functions" instead of "essential governmental functions." The petitioner claims that he was an officer or employee of the respective districts during the taxable years, and not an independent contractor, as contended by the respondent.  There was express statutory authority for the appointments received by the petitioner as attorney for the districts.  62 Purdon's Pennsylvania Statutes, sec. 211; 24 Purdon's Pennsylvania Statutes, sec. 216.  In each case the appointment was for a term of one year.  The Board of directors of the poor district could have terminated the services of the petitioner at any time, but the right of removal in the school directors was available only upon a showing, after hearing, if demanded, of "incompetency, intemperance, neglect of duty, violation of any of the school laws of this Commonwealth, or other improper conduct." 24 Purdon's Pennsylvania Statutes, sec. 341.  The duties of the petitioner were continuous and embraced all the ordinary legal services required by the districts. 1935 BTA LEXIS 852">*860  The respective boards of directors had the right to demand all of the petitioner's time for the rendition of services within the scope of his employment.  The fact that they did not utilize all of his time and that the petitioner conducted a private law practice during his spare time is not controlling.  Neither is it fatal to the petitioner's claim that he relied on his own ability as a lawyer to carry out duties assigned him.  ; ; . There was present at all times the right to control the petitioner's activities, which distinguishes an employee from an independent contractor.  . The cases of , and , involved facts strikingly similar to those here.  There the courts concluded that the taxpayers were employees and that the compensation they received for services rendered as attorneys for county commissioners in the case of Butler, and the Public Service Commission of West Virginia1935 BTA LEXIS 852">*861  in the case of Livezey, was immune from tax.  See also , in which a like ruling was made respecting an attorney to the Town Board of Hempstead, New York.  We reach the same conclusion here with respect to the compensation the petitioner received each taxable year from the poor 32 B.T.A. 1048">*1052  district and the school district.  The fact that in addition to his salary the petitioner received fees for abnormal work is not material.  ;. Reviewed by the Board.  Decision will be entered under Rule 50.STERNHAGEN, MORRIS, MCMAHON, and MATTHEWS dissent.