Court Opinion

ID: 6840576
Source: CourtListenerOpinion
Date Created: 2022-07-23 20:16:35.610206+00
Date Added: 2024-06-11T16:04:50.296073
License: Public Domain

NORTHCOTT, Circuit Judge
(dissenting). The petitioner, as agent for the Atlantic Dredging Company, was engaged in dredging a part of the Delaware river during the years 1913,1914,1915, and 1916, under a contract with the United States. It expended, in those years, in doing the work, a total of $176,271.88 in excess of the payments received for the same; the amount of said excess, allocated to those years (1913 to 1916) on the basis of excess of expenditures made over payments received in each year, being as follows
1913 .......................................... 5 28,241 03
1914 .......................................... 68,117 81
1915 .......................................... 69.705 15
1916 .......................................... 10.207 89
Total .................................. 8176,271 S8
In the year 1916, petitioner learned that certain representations which had been made on behalf of the United States, and on the strength of which the contract was accepted, had been misleading, and it discontinued the work and instituted suit in the Court of Claims against the United States to recover the amount of loss sustained by it, in the *316performance of the contract as well as damages.
The Court of Claims found that the expenditures made by petitioner in the performance of the contract had amounted to $211,050 more than it had received in payment for the work, which amount the court allowed to the claimants. On appeal to the Supreme Court of the United States, the judgment of the Court of Claims was affirmed, and there was accordingly paid to the taxpayer in 1920 the amount of the judgment rendered in its favor, with interest thereon amounting to $16,305.71, a total recovery of $227,355.80. The Atlantic Dredging Company was entitled to and there was paid to it $34,778.21, making the net amount received by the petitioner $192,577.59.
This appeal is taken from the final order of the United States Board of Tax Appeals, holding that the amount received by the petitioner in the year 1920 was properly included in the petitioner’s gross income for that year, for-the purpose of taxation.
The statute involved is Revenue Act of 1918, c. 18, 40 Stat. 1057, 1058.
The petitioner contends that instead of being taxed on the amount in controversy in 1920 as a part of its gross income, its returns for the years 1913, 1914, 1915, and 1916 should be reformed in accordance with the recovery had for the losses during those years in the contract in question. Petitioner further contends in view of the fact that there was no profit recovered by it on the contract, the amount recovered in the year 1920, besides from the interest, was not gross income for the purpose of taxation, and petitioner further contends that as it was finally settled in the litigation that the United States was at fault with regard to the contract, it would be an injustice to permit the government to recover taxes on the amount paid by it, when no profit was earned in the transaction.
It must be borne in mind that the government in procuring the dredging in the Delaware river acted in a different capacity from that in which it acted as tax gatherer in the year 1920, and this ease must necessarily be considered just as though the dredging contract had been made by the petitioner with a private corporation or an individual.
The sum received in 1920, in satisfaction of a judgment on account of work previously done, although no profit is included, undoubtedly constitutes gross income for the year 1920. The business was carried on in effort to make a profit, and the fact that no profit resulted does not change the character of the money received.
The year is necessarily the unit for the determination of income for tax purposes, each taxable period standing alone; the result determined according to the events of that year. United States v. Anderson, 269 U. S. 422, 46 S. Ct. 131, 70 L. Ed. 347.
This must of necessity be the case. Let it' be supposed that the petitioner instead of losing during the four years involved, and recovering in the one year, had lost in one year, and had recovered on doubtful claims in four different years subsequently, certainly upon recovery in each of the four years the government could not be required to go back and reform the tax assessment for the one year in which the loss was incurred, or four different times. To hold- this would be to hold that the assessment of taxes by the government would never be completed for any given year, and would bring about a situation that would be chaotic.
“* * * In interpreting the law we are not to assume that a system based upon yearly gains and losses was so contrived as to admit deviations in principle which must always operate to the taxpayer’s advantage.” De Loss v. Commissioner, 28 F.(2d) 803, 805.
Under the Revenue Act of 1913, under which the original returns by petitioner for years 1913,1914, 1915, and 1916 were made, the income to be reported was that “received” during the year for which the return was made. Maryland Casualty Co. v. United States, 251 U. S. 342, 40 S. Ct. 155, 64 L. Ed. 297.
Compensation for services rendered or work done must be reported as gross income for the year when received, regardless of the year in which the work was performed. Jackson v. Smietanka (D. C.) 267 F. 932; Edwards v. Keith (C. C. A.) 231 F. 110; Woods v. Lewellyn (C. C. A.) 252 F. 106.
The fact that the losses were made and reported over a period of four years and the recovery had in one year worked to the financial disadvantage of the petitioner is merely an incident. It might have worked to his advantage. In any event, the whole tax collection system of the government cannot be upset or changed to meet the exigencies of a particular ease. One rule must be laid down for all, and Congress has seen fit to lay down the rule that the year is the unit, and we can see no reason for disregarding the rule.
It is contended on behalf of the petitioner that the eases of Eisner v. Macomber, 252 U. S. 189, 40 S. Ct. 189, 64 L. Ed. 521, 9 A. L. R. 1570, and Bowers, Collector, v. Ker*317baugh-Empire Co., 271 U. S. 170, 46 S. Ct. 449, 70 L. Ed. 886, support their contention. I do not think so. These decisions are not properly applicable to the facts in this case.