Court Opinion

ID: 4497695
Source: CourtListenerOpinion
Date Created: 2020-01-23 18:15:33.806664+00
Date Added: 2024-06-11T14:54:15.210397
License: Public Domain

Disney,
dissenting: I can not see why the very language of North American Oil Consolidated v. Burnet, 286 U. S. 417, does not preclude the correctness of the majority opinion, for it is in that case said that if the taxpayer receives earnings under a claim of right without restriction as to its disposition, they are income “even though it may still be claimed that he is not entitled to retain the money, and even though he may still be adjudged liable to restore its equivalent.” Thus, the matter of a reversal of judgment seems particularly in the mind of the Supreme Court of the United States. Therein money was received from oil lease in 1917. The United States, the other party to the litigation, appealed, without supersedeas. In 1920 the Circuit Court, to which appeal was taken, affirmed the decree, and in 1922 further appeal to the Supreme Court was dismissed by stipulation. It was held that the money was income not for 1922, but for 1917, and the Court said in addition to what has been above quoted:
* * * If in 1922 the government had prevailed, and the company had been obliged to refund the profits received in 1917, it would have been entitled to a deduction from the profits of 1922, not from; those of any earlier year. * * »
The majority opinion seems based upon the fear that there is injustice in the taxpayer’s paying taxes “depending for equalization on the uncertainty of a deduction from income later.” I think, on the contrary, that the Government should be allowed to collect the tax when taxpayer receives the money, and that it is only fair for him to get his credit, so to speak, when he pays it out again, for the simple reason that otherwise he may receive the money, may go bankrupt, or otherwise never restore the money, and thus receive income upon which he is never taxed. It seems to me that the uncertainty of his repaying the money is greater than the uncertainty of the Government allowing him a just deduction when he in fact makes restitution. I do not think that the United States should be forced to depend upon the uncertainties of the fortunes of a taxpayer who has received money with no restriction as to disposition, when there is available a simple method of giving him credit in later years, if it turns out that he returns the money.
There was no restriction upon taxpayer’s use of the money. Shell had no lien upon it. In fact, taxpayer used it in part to purchase securities, and it might have bought yachts or used it in riotous living. It had to put up no bond for the receipt of the money, and was obligated only as a common debtor to return it. If other creditors had judgments against it at the time of restitution, I think they might well, in some circumstances, have prevented the restitution of this money to the Shell Oil Co. as a preference among creditors. It did receive it under a claim of right, as is shown by the notice to the Shell Co. that, *365if the money was paid, petitioner would move to dismiss the Shell appeal — which it did, although it was unsuccessful. It received it under a claim of right, for the money was merely what it sued for. The taxpayer here was not forced to segregate this money, but did so voluntarily.
Sara R. Preston, 35 B. T. A. 312, does not help, but rather bears out my conclusion, because there was a restriction, that is, the restriction of the other party to whom a joint check was made and who disagreed with the petitioner about the use thereof; whereas the petitioner was charged with income of that money which he received by agreement with the other party, out of the check. It is plain that there was a positive restriction in that case upon the use of the money in that he could not use it at all, whereas here petitioner had the unrestricted use of the money. The only restriction was a voluntary one on its part for its future financial protection. I think the restriction involved in these cases is in its nature not a voluntary one, but some matter of law or other force which restricts or prevents the use of the money by the possessor.
In National City Bank v. Helvering, 98 Fed. (2d) 93, holding that O’ÍSTeil had income on bonds received by him, even though he received them surreptitiously, with liability to account for them later, it was said:
* * * Although taxes are public duties attached to the ownership of property, the state should be able to exact their performance without being compelled to take sides in private controversies. Possession is in general prima facie evidence of ownership, and is perhaps indeed the source of the concept itself, though the time is long past when it was synonymous with it. It would be intolerable that the tax must be assessed against both the putative fortfeasor and the claimant; collection of the revenue cannot be delayed, nor should the Treasury be compelled to decide when a possessor’s claims are without legal warrant. If he holds with claim of right, he should be taxable as an owner, regardless of any infirmity of his title; no other doctrine is practically possible, and no injustice can result. We think therefore that O’Neil was taxable upon the bonds for the years 1922 and 1923.
In Champlin v. Commissioner, 78 Fed. (2d) 905, the Tenth Circuit, in a case as to income from a lease subject to litigation, said:
* * * It is stated in the briefs and not denied that petitioner in 1923 requested the Commissioner to treat the income from the lease as impounded pending the litigation over the title, and that the taxes be assessed when ownership was determined. Whether this be so or not, the law is that petitioner was liable for the tax on the income received despite the uncertainty of the litigation.
In Victoria Paper Mills, 32 B. T. A. 666; affd., 83 Fed. (2d) 1022, the petitioner obtained judgment against the city of Fulton, assigned the judgment to a bank, and received the money thereon in 1931, the samp year in which he received the judgment. The judgments have never *366been paid by the city of Fulton “and the question of the city’s liability for the amounts thereof is still in litigation in the courts of the State of New York.” The petitioner guaranteed the payment of the judgments by the city of Fulton, and we held that the amount received constituted income. The only difference between that case and the present case is that the Shell Go. paid the money instead of it being raised by assignment of the judgment against Shell. Certainly there was the same liability for repayment of the judgment.
In D. H. Byrd, 32 B. T. A. 568, petitioner received funds subject to an unliquidated claim then pending liquidation. Petitioner denied the claim, asserting his right to the whole amount throughout the taxable year 1981, and until October 1933, when the litigation was determined. We said that until that time it was not “known whether petitioner’s right to receive the money would ever be disturbed, or whether he would ever be required to pay over any part of it to the Owen-Sloan Oil Co.”, and held that he was taxable on the entire amount. The Owen-Sloan Oil Co. had instituted a suit in the United States District Court for Texas, claiming that it had a contractual right to one-half of the moneys. In 1933 judgment against petitioner was announced, but was settled pending a hearing on the amount. Petitioner apparently received the money before the Owen-Sloan Oil Co. had brought the suit.
I therefore dissent.
Tyson agrees with this dissent.