Court Opinion

ID: 8763517
Source: CourtListenerOpinion
Date Created: 2022-11-26 12:15:54.701432+00
Date Added: 2024-06-11T17:01:43.086024
License: Public Domain

On Rehearing.
A rehearing was granted in this matter, because upon reconsideration it was brought to the Court’s attention that the-*719plaintiff had reported and paid income taxes on her return for the year 1934, the money which was repaid to her by Beene and Waller, after the latter had received it back from the Government under an Act of Congress after a decision in favor of their associates upon the same issue by the Supreme Court in the case of Palmer v. Bender, 287 U.S. 551, 53 S.Ct. 225, 77 L.Ed. 489. It is true that the amount so received by the plaintiff from Beene and Waller was slightly less than that which she had paid to them as her part of the taxes and expenses agreed to be shared in the litigation before the Board of Tax Appeals. Nevertheless, she paid income taxes on the sum after it came back to her in 1934. Therefore, if taxes upon these funds which she had paid to Beene and Waller in 1933, because of the failure of the Government to allow the deduction as a business expense, are to stand, she will have paid taxes upon substantially the same income twice; once in having the amount which she thus paid out to Beene and Waller disallowed as a deduction, and assessed to her in 1933, and again in paying income taxes upon the slightly less amount arising from the same source which was refunded to her by these individuals in 1934. When plaintiff paid her part of the expenses to Beene and Waller in 1933, she had no reason to believe that she would ever receive back from the Government any part of the sum so paid. In fact its return was not to her, but to said Beene and Waller. Hence, it was a mistake to say, as was done in the first opinion, that the taxes which she had paid on the funds paid to Beene and Waller were offset by the return which was made to her, because she returned and paid taxes on it in 1934.
It becomes necessary therefore, to determine the merits of plaintiff’s present contention that she had the legal right to deduct the amount paid to Beene and Waller from her income for the year 1933.
I think it clear that “J. E. Smitherman, Special Account”, was a partnership whose business was the collection and distribution of the revenues from a sale and sub-lease of oil lands under an arrangement made between the several partners to carry on their common enterprise. At the time of the sale by the partnership, to the major companies, an overriding royalty was retained and a considerable portion of the sale price was to be paid out of oil production. She and all of the partners had contributed proportionately to the expenses of discovering oil, and the subsequent activities were for the purpose of realizing the full fruits of this partnership.
As pointed out in the former opinion, when the question as to the right to depletion arose, it became necessary to decide how the testing thereof should be made. Two courses were agreed upon, the first, which was thought to be more expeditious, was through the Commissioner, Board of Tax Appeals and Appellate Courts, upon bond for the amount of the taxes, and it was agreed that Beene and Waller should adopt this means as to their individual claims for the benefit of all, and that in event of failure all should share proportionately the expenses and costs thereof. This was done, the cases were lost, and plaintiff paid her part as agreed. Thereafter, when the issue was won through the second method of payment and suit for refund in the case of Palmer v. Bender, supra, and the Government refunded the taxes paid by Beene and Waller, they in turn repaid to the other contributors their proportionate share of said refund. Regardless of whether the plaintiff had a business independent of the partnership, my conclusion is that she was at all times a member of the firm, “J. E. Smitherman, Special Account”, which was engaged in a business for profit and that the payment to Beene and Waller was for benefit of the partnership or common enterprise in furtherance of its business within the meaning of the revenue law, and entitled plaintiff to deduct the same as a business expense from her income in the year 1933. Kornhauser v. United States, 276 U.S. 145, 48 S.Ct. 219, 72 L.Ed. 505.
There should be judgment for plaintiff.
Rulings upon the requested findings of fact and conclusions of law have been indicated upon the margins thereof by the use of the words “granted” or “denied”.
Proper decree should be presented.