Opinion · Court of Appeals for the Second Circuit

Merrill v. United States

152 F.2d 74

Type
Opinion
Court
Court of Appeals for the Second Circuit
Jurisdiction
Federal
Date
1945-12-03
Topic
litigation

FRANK, Circuit Judge. Plaintiffs argue that § 121(e) removes the bar of § 322(c). We cannot agree. § 121(e) specifically provides that, as to tax years before 1939, the amendment is to be treated as if it were a part of the original enactment, i. e., as if it had been in force in 1936. Accordingly, the plaintiffs could have made no further claim, with respect to the tax year of 1936 after the disposition of their petition filed in 1939. The fact that plaintiffs had no means of foreseeing the enactment of the 1942 amendment cannot affect the finality of the Board’s decision.

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Cited by
8 opinions
MERRILL v. UNITED STATES,152 F.2d 74(2nd Cir. 1945)
MERRILL et al. v. UNITED STATES.
No. 101.
Circuit Court of Appeals, Second Circuit.
December 3, 1945.
Appeal from the District Court of the United States for the Western District of New York.

Action by George E. Merrill and others, as trustees under the last will of Henry D. Knox, deceased, against the United States to recover alleged overpayment of income tax. From a judgment for defendant,55 F. Supp. 674, the plaintiffs appeal.

Affirmed.

In 1936, the taxpayers, trustees under an express trust, withdrew certain sums as commissions for the administration of the trust. In computing the gross income of the trust for that year, they made deductions of the commissions allocable to services rendered in the receipt and disbursement of income, but not of those allocable to the receipt of the principal. Upon audit the Commissioner determined a deficiency for the income tax year 1936. In September 1939, taxpayers filed a claim for a refund based on the theory that they werePage 75entitled to deduction in the trust's income tax return for 1936 for the sums paid as "principal" commissions, and on December 12, 1939, they filed a petition with the Board of Tax Appeals for a redetermination of the trust income tax liability for 1936, asserting their right to these deduction. The Commissioner in turn claimed a deficiency because of an erroneous deduction of the "income" commissions. On June 29, 1941, the Board filed its opinion, in which it held that neither the "principal" nor the "income" commissions were proper deductions because the trust was not carrying on a "trade or business" within the meaning of 23(a) of the Revenue Act of 1939, 26 U.S.C.A. Int.Rev.Code, § 23(a). The order fixing the amount of the deficiency became final May 6, 1942; payment was made thereon, and no appeal was taken within the prescribed three-month period. Taxpayers concede that, as the law stood in 1936, the decision of the Board was correct. They base their right to maintain the present suit in the district court for recovery of those payments on § 121 of the Revenue Act of October 1942, 26 U.S.C.A. Int.Rev.Acts, amending §23of the Internal Revenue Code,26U.S.C.A. Int.Rev. Code, § 23. The 1942 amendment, which concededly makes commissions paid to a trustee a deductible expense, also provides: "(e) For the purposes of the Revenue Act of 1938 or any prior revenue Act the amendments made to the Internal Revenue Code by this section shall be effective as if they were part of such revenue Act on the date of its enactment." The District Court held that the deduction which the plaintiffs claim by virtue of this retroactive provision is barred by § 322(c) of the Internal Revenue Code,26U.S.C.A. Int.Rev.Code § 322(c).1From its judgment against them, plaintiffs appeal.
Raymond W. Conklin, of Buffalo, N.Y. (Babcock, Newbury Russ, of Buffalo, N.Y.), for appellants.

George L. Grobe, U.S. Atty., of Buffalo, N.Y., and Samuel O. Clark, Jr., Sewall Key, Helen R. Carloss, and Leland T. Atherton, all of Washington, D.C., for the United States.
Before L. HAND, SWAN, and FRANK, Circuit Judges.
FRANK, Circuit Judge.
Plaintiffs argue that § 121(e) removes the bar of § 322(c). We cannot agree. § 121(e) specifically provides that, as to tax years before 1939, the amendment is to be treated as if it were a part of the original enactment, i.e., as if it had been in force in 1936. Accordingly, the plaintiffs could have made no further claim with respect to the tax year of 1936 after the disposition of their petition filed in 1939. The fact that plaintiffs had no means of foreseeing the enactment of the 1942 amendment cannot affect the finality of the Board's decision.

Nor is there any basis for concluding that § 121 of the Revenue Act of 1942 repeals by implication the provisions of § 322(c). The reports of the Committees of the Senate and the House of Representatives do not suggest that there was any such intent to modify or to abrogate the finality of the decisions of the Board of Tax Appeals or of the Tax Court. White's Will v. Commissioner of Internal Revenue, 3 Cir.,142 F.2d 746. § 121(e) provides that it is applicable solely to subdivisions (a), (b) and (c) of § 121; it nowhere refers to § 322(c) which is not elsewhere amended in the Revenue Act of 1942. Accordingly, § 322(c) remains in force as a bar to any recovery by the taxpayer.

We see no merit in taxpayers' suggestion that res judicata doctrines must control the effect of the Board's decision, and that therefore § 322(c) is no bar as to any matter which could not have been raised before the Board. The issue here concerns a statute of limitations and not res judicata. Cf. Moir v. United States, 1 Cir.,149 F.2d 455. Our decision in Hartford-Empire Co. v. Commissioner, 2 Cir.,137 F.2d 540is not pertinent; it related to the effect of a decision as to one tax year on litigation as to a subsequent year.

Affirmed.Page 76
  1. § 322(c) provides that if a taxpayer has been notified of a deficiency and has filed a petition with the Board of Tax Appeals within the time prescribed, "no credit or refund in respect of the tax for the taxable year in respect of which the Commissioner has determined the deficiency shall be allowed or made and no suit by the taxpayer for the recovery of any part of such tax shall be instituted," with certain exceptions not here applicable. ↩