168 F.2d 663 | 2d Cir. | 1948
Lead Opinion
This is an appeal by Louis O. Bergh, individually and as executor of the estate of his wife, who died during the pendency of the action, from a judgment dismissing the amended complaint in an action to recover alleged overpayments of income taxes. The action was tried to the court without a jury upon an agreed statement of facts. The sole issue presented is the applicability of section 107 of the Internal Revenue Code, section 220 of the Revenue Act of 1939, 26 U.S.C.A.Int.Rev.Code, § 107, to income items, reported in the joint returns-of the husband and wife for the calendar years 1939 and 1940.
Mr. Bergh, a lawyer, rendered professional services to clients on a contingent fee basis over a period of more than five years with respect to claims against the Mexican Government which he prepared for presentation to the Special Mexican Claims Commission. The services were completed in 1938. For his services Mr. Bergh received in 1939 the sum of $15,237.-81, being 45.09% of the total contingent fees payable, and in 1940 the sum of $3,-970.48, or 10.15%. The balance of his contingent fees was received in the years 1941 to 1945. The alleged overpayments resulted from the refusal of the tax officials to permit the taxpayer to apply section 107 to the computation of income taxes on the fees'received in 1939 and 1940. The district court held the section inapplicable.
Section 107 as it read during the taxable-years in suit, is printed in the margin.
The statute deals with compensation having three characteristics described, in separate clauses. Clause (a) specifies.
Clause (b) specifies that not less than 95% of the compensation must be paid “on completion of such services.” If “on completion” means the moment of completion the inference would be justified that the 95% must be paid in a lump sum in a single year. But in Civiletti v. Commissioner, 2 Cir., 152 F.2d 332, 333, cert.den. 327 U.S. 804, 66 S.Ct. 963, 90 L.Ed. 1029, we interpreted clause (b) to mean that the compensation “was to be paid only after the whole job, or task was finished.” This construction is consistent with the purpose of the legislation which was to give relief to a taxpayer whose previous five years services were paid for after their completion. We should not impute to Congress an intention to withhold the relief from a taxpayer whose contract of employment provided for payment six months or a year after completion rather than on completion of his services. If “on completion” means “after completion,” then the requirement of clause (b) is satisfied literally by payment by instalments in different years after the work is finished.
There remains for consideration clause (c) which specifies that the compensation must be such as is required to be included in any taxable year beginning after December 31, 1938. The natural meaning and purpose of this clause would seem to be to fix the date when the relief goes into effect provided the requirements of (a) and (b) are met. The appellee, however, insists that “in any taxable year” must be read as though the words were “in any one taxable year.” We do not agree with this contention. In numerous sections of the Internal Revenue Code the words “any taxable year” are used to mean one or more taxable years during a series of years.
In reaching the opposite conclusion Judge Hincks relied upon a brief statement of the Senate Finance Committee in its report
Accordingly the judgment is reversed and the cause remanded for entry of a judgment for the plaintiff.
“Section 107. Compensation for services rendered for a period of five years or more. In the case of compensation (a) received, for personal sezwices rendered by an individual in his individual capacity, or as a member of a partnership, and covering a period of five calendar years from the beginning to the completion of such services, (b) paid (or not less than 95 percentum of which is paid) only on completion of such services, and (é) required to be included in gross income of such individual for any taxable year begizming after December 31, 1938, the tax attributable to such compensation shall not be greater than the aggregate of taxes attributable to such compensation had it been received in equal portions in each of the years included in such period.”
For taxable years beginning. after December 31, 1940, the section has been, amended. See 26 U.S.C.A. Int.Rev.Code,. § 107.
Reported in 3 T.O. 565, with three, judges dissenting.
See, for example, § 23 (p) (2) and § 27(e). The appellant’s brief cites more than 70 such instances, and only four -where the phrase is restricted by the context to a single specific taxable year.
S.Rep.No.G48, 7Gih Cong., 1st Sess., p. 7.
Our reference to the Slough, case in Smart v. Commissioner, 2 Cir., 152 F.2d 333, 335, cert. den. 327 U.S. 804, 66 S.Ct. 962, 90 L.Ed. 1023, suggests r.o disapproval of the decnaiuii.
Dissenting Opinion
(dissenting).
The statute here, it seems to me, is far from having one unambiguous meaning; and the interpretation of compensation paid “only on completion” of the services, when coupled with the reference to “any taxable year” as applicable to receipts over several years, seems strained, particularly in the light of the background and purpose of the legislation. Consequently I agree with the views so well stated by Judge Hincks below, D.C., 71 F.Supp. 551, which accord with those of the Tax Court and the Treasury Regulations.
