Court Opinion

ID: 9446594
Source: CourtListenerOpinion
Date Created: 2023-08-03 21:59:13.862608+00
Date Added: 2024-06-11T17:30:42.802392
License: Public Domain

WISDOM, Circuit Judge
(dissenting).
The fates and the tax collector, a formidable combination, have cut so deeply into the award for Mrs. Cotnam’s services that it is with some regret I feel constrained to dissent from the holding that the amount paid as attorneys’ fees is excluded from the taxpayer’s gross income.
Mrs. Cotnam sued the Hunter Estate and recovered on the theory that she had a contract for compensation for services rendered. Thus, at the time of the assignment to the attorneys all of her services had been rendered and all of the income earned. It seems to me that this case is governed by the principles set forth in Helvering v. Horst, 1940, 311 U.S. 112, 61 S.Ct. 144, 85 L.Ed. 75, and Helvering v. Eubank, 1940, 311 U.S. 122, 61 S.Ct. 149, 85 L.Ed. 81. In Horst, the donor transferred interest coupons detached from bonds delivered to the donee and later paid at maturity. The court held that whether the assignment preceded the rendition of services, as in Lucas v. Earl, 1930, 281 U.S. 111, 50 S.Ct. 241, 74 L.Ed. 731, or came after, “the exercise of the power of disposition of the interest or compensation * * * is the enjoyment by the donor of income derived from them”. [311 U.S. 112, 61 S.Ct. 148], Mr. Justice Stone, for the majority stated:
“ * * * the rule that income is not taxable until realized has never *127been taken to mean that the taxpayer, even on the cash receipts basis, who has fully enjoyed the benefit of the economic gain represented by his right to receive income, can escape taxation because he has not himself received payment of it from his ob-ligor. * * * [Taxation] may occur when he has made such use or disposition of his power to receive or control the income as to procure in its place other satisfactions which are of economic worth. The question here is, whether because one who in fact receives payment for services or interest payments is taxable only on his receipt of the payments, he can escape all tax by giving away his right to income in advance of payment. * * * Nor is it perceived that there is any adequate basis for distinguishing between the gift of interest coupons here and a gift of salary * * * [T]he import of the statute is that the fruit is not to be attributed to a different tree from that on which it grew.”
This case is stronger than Horst or Eubank, since Mrs. Cotnam assigned the right to income already earned. She controlled the disposition of the entire amount and diverted part of the payment from herself to the attorneys. By virtue of the assignment Mrs. Cotnam enjoyed the economic benefit of being able to fight her case through the courts and discharged her obligation to her attorneys (in itself equivalent to receipt of income, under Old Colony Trust Co. v. Commissioner, 1929, 279 U.S. 716, 49 S.Ct. 499, 73 L.Ed. 918.)
The taxpayer contends that the deduction for attorneys’ fees should have been prorated over the four and a half year period in which the income was prorated. Section 107 permits the carry back computation of grass income, not net income.1 It refers specifically to “compensation for personal services”. Section 107 has no mention of net compensation and no provision for proration of expenses incurred in collecting the compensation. Attorneys’ fees therefore may be deducted only in the year the fees were paid, 1954. Smith v. Commissioner, 1951, 17 T.C. 135, rev’d on other grounds, 2 Cir., 1952, 203 F.2d 310.

. Sec. 107(a): “Personal services. If at least 80 per centum of the total compensation for personal services covering a period of thirty-six calendar months or more (from the beginning to the completion of such services) is received or accrued in one taxable year by an individual or a partnership, the tax attributable to any part thereof which is included in the gross income of any individual shall not be greater than the aggregate of the taxes attributable to such part had it been included in the gross income of such individual ratably over that part of the period which precedes the date of such receipt or accrual.” 26 U.S.C.A., 1952, ed., Section 22.