Court Opinion

ID: 4496213
Source: CourtListenerOpinion
Date Created: 2020-01-23 18:14:44.412151+00
Date Added: 2024-06-11T15:04:03.437689
License: Public Domain

*115OPINION.
Mellott:
Petitioner contends that the compensation received by him is exempt from the Federal income tax under the rule, often enunciated by the courts, many times applied by this Board, and implicit in our dual system of government, that neither sovereign may tax the means or instrumentalities through which the other exercises usual, traditional, or essential governmental functions. For “the power to tax involves the power to destroy.” McCulloch v. Maryland, 4 Wheat. 316; Collector v. Day, 11 Wall. 113; Ambrosini v. United States, 187 U. S. 1; Metcalf & Eddy v. Mitchell, 269 U. S. 514; McCallen Co. v. Massachusetts, 279 U. S. 620, 628; Indian Motocycle Co. v. United States, 283 U. S. 570; Helvering v. Powers, 293 U. S. 214.
*116Just what instrumentalities or agencies of a state are exempt from the Federal tax “cannot be stated in terms of universal application” but each case must be determined upon its own facts. Register v. Commissioner, 69 Fed. (2d) 607; Burnet v. Livezey, 48 Fed. (2d) 159. While it is true, as stated by petitioner upon brief, that courts do not attempt to limit or define the precise line of demarcation between those activities having some relation to government, “which are nevertheless subject to taxation, from those which are immune”, Metcalf & Eddy v. Mitchell, supra, and while it is also true that the Treasury Department can not do so by regulation (Helvering v. Powers, supra), nevertheless the Supreme Court has held specifically that “one who is not an officer or employee of a state, does not establish exemption from Federal income tax merely by showing „that his income was received as compensation for service rendered under a' contract with the state.”
Finding has been made that petitioner was not an officer. Such finding is a mixed finding of fact and conclusion of law, premised upon the failure of the petitioner to show that an. office, as defined by the Supreme Court, embracing the idea of tenure, duration, emoluments, and duties fixed by law, had been created by legislative enactment of the State of Tennessee. The statutes merely authorize the county trustee to appoint an attorney to institute and prosecute suits for the collection of delinquent taxes or the foreclosure of the tax liens. While it is true that petitioner served for one year under each appointment, he was not appointed for any definite period. For aught that is contained in the law, the county trustee could have superseded him at any time, with or without cause. He took no oath of office and furnished no bond, neither being required. He was free to engage in other activities if he had seen fit to do so. These circumstances indicate, and seem to require the finding or conclusion, that he was not an officer.
Upon brief petitioner argues that he is — or was — an agency or instrumentality through which the state exercises one of its fundamental acts of sovereignty, the collection of taxes; that he was “a collector of state and county revenue”, and “simply the third step in the collection of revenue.” Manifestly he was not a true tax collector. He was charged with no taxes, handled no money, gave no bond, maintained no official records and filed no report. He was merely the “attorney chosen by the county trustee with the approval of the county judge” to institute and prosecute suits against delinquent taxpayers and to foreclose the tax liens. His activities were stated by him as follows: “I physically handle no money. I prepare the statement * * * which is in turn sent to the clerk of the chancery court, who receipts for the money shown by the statement. * * * *117I issue the formal dismissal.” These are activities of an attorney rather than of a collector of taxes. For such activities he was paid a fee, contingent upon the amount recovered — an arrangement quite commonly made between an attorney and his client.
In R. E. L. Johnson, 25 B. T. A. 359, the petitioner, an attorney employed as chief counsel under the back tax law of Arkansas to prosecute suits in the state courts for the collection of back taxes, claimed that his compensation was exempt from the Federal income tax. He, like petitioner, was permitted to occupy an office in a publicly owned building, in that case the Statehouse, and to use, without charge, clerical and stenographic assistants paid by the state. He was paid a commission out of the collections made, his appointment had no fixed term, he took no oath of office, gave no official bond, devoted his entire time to such work, engaged in no other law practice and had no other professional engagements or associations. It was held, following Lucas v. Howard, 280 U. S. 526; Lucas v. Reed, 281 U. S. 699; Metcalf & Eddy v. Mitchell, supra; Mesce v. United States, 64 Ct. Cls. 481; and J. F. Roberts, 13 B. T. A. 448; affd., 44 Fed. (2d) 168, that compensation so received was not exempt from the Federal income tax. A similar holding was made in Harry D. Kremer, 31 B. T. A. 566, where the taxpayer had been employed by the revenue agent of Kentucky, his compensation being paid out of the statutory fee allowed for making the collections.
It is apparent that petitioner was not an employee of the state or a political subdivision thereof. He had the “liberty of action” and freedom from detailed control or right of control possessed by an independent contractor but not by a mere employee. He was free to come and go as he .pleased, to exercise his best professional skill and judgment in the preparation and prosecution of the bills in chancery, to select, employ, and discharge his own assistants, and to employ means and instrumentalities of his own selection for the completion of the task undertaken. These are indicia of an independent contractor and the conclusion is inescapable that such was the relationship between petitioner and the political subdivisions of the state. It follows that the compensation received by petitioner was income, taxable to him under the revenue acts in force when it was received.
There remains for consideration the question whether or not the penalty should be assessed. Upon brief petitioner states that “the imposition of a penalty upon him would be the punishment of an innocent person who has acted throughout in the utmost good faith.” He testified that at one time he had discussed with the collector of internal revenue whether or not he was liable for the tax and quoted him as stating, in effect, that he had “never heard of anyone occupy*118ing your position” who ever paid the tax. He did not, however, ask for nor receive, an official ruling upon the subject.
The statute is specific — section 3176 of the Revised Statutes as amended by section 1003 of the Revenue Act of 1924 and by section 1103 of the Revenue Act of 1926, and section 291, Revenue Act of 1928; and inasmuch as the petitioner filed no return reporting the receipt of the income the penalty must be imposed. “It does not matter why he failed to file a return.” Harry D. Kremer, supra, and cases cited; Frederic C. Pitcher, 31 B. T. A. 957; Douglas L. Edmonds, Administrator, 31 B. T. A. 962 (on appeal to the 9th Circuit); Sarah A. W. Coursey, 33 B. T. A. 1068.
Reviewed by the Board.

Judgment %oill he entered for the respondent.