David G. Baird and Mildred B. Baird v. Commissioner of Internal Revenue

taxpayer, situation with who introduced Washington, D.C., appellee. (Schoef- Fred Albert O. Schoeffer GIBBONS, BIGGS, and Before SEITZ fer), representative possible as a of a Judges. Circuit petition- party. interested premises, Albert and business THE OF COURT OPINION possibility Schoeffer discussed Sentry merging L. into Albert & Son Judge. SEITZ, Circuit Safety Control, corporation in which a appeal Taxpayers a decision of and had Schoeffer the Foundation sub- sustaining deficiency in in- Tax Court interests, quickly they deter- stantial but against them asserted come tax year merger mined that the not feasible. $459,542.01. in the amount of meeting, During the course taxpayers found that The Tax Court telephoned Howard Hansell Schoeffer of show- their failed to sustain (Hansell), group who formed a had the Commission- the incorrectness of purchased which had a substantial inter- transfer er’s determination 27,000 Corporation est in Bellanca Aircraft Cor- Aircraft of Bellanca (Bellanca) acquisition and desired poration partnership of stock from the for Bellanca. This conversation L. & Son to the Winfield Albert inception of a transaction between Bel- income Foundation in 1955 constituted Son, whose details lanca and L. Albert & taxpayers. to the arranged through negotiations by were Hansell, Schoeffer, Albert, one Jo- (taxpayer) a well- Petitioner1 (Patrick). seph Patrick as sen- philanthropist served who known joint they petitioner solely Taxpayer’s return. filed was also wife arbitrary princi- nature of Com- lishes the Taxpayer all of the had known thus the determination and years pals had contact missioner’s for several placing the erred his various course of them in the ourselves During on him. We address Bellan- of business activities. negotiations, he to that issue. ca-L. & Hansell telephoned introduce opening Tax to the In statement arranging appoint- an and to facilitate that he stated the Commissioner Court inspect L. Al- the ment for Hansell to partici “initially Baird’s discovered Mr. Taxpayer dis- plant. also bert & Son pation from certain in the Bellanca deal question of cussed with Schoeffer given testimony the S. that was before proper finder’s fee Schoeffer’s transactions. E. about the Bellanca C. transaction. Bellanca-L. Albert & Son gave testimony parties that The 1955, 15, L. Albert & Son On March Sidney and Howard L. were one exchanged substantially assets for all its testimony to the ef was Hansell. That 1,071,250 of Bellanca then worth paid to David Baird fect that a fee was approximately $12,000,000. these Out of 27,000 donation form of share shares, 15,000 shares, Hansell received Foundation, to the Winfield Baird one 7,000, an indeter- Schoeffer and Patrick wholly of David Baird’s owned founda number, finder’s or com- minate as fees nothing record There is in this tions.” Hansell missions. Both experienced and Schoeffer testimony not to show that such given was obtaining difficulty from E. The Commis before S. C. adequate they Albert what considered deficiency sioner’s determination was finder’s fee. therefore have arbi not shown to been trary urges taxpayer ab But initio. August 1955, 15, L. Albert & Son On testify in the that since did not 27,000 Bellanca transferred shares of matter since Court as $671,- stock, which then had a value of testimony in the Tax of Hansell 625, & to the Foundation. L. Albert according effect, Court was to the reported this transfer as a charita- taxpayer, re had not ble on its 1955 contribution (cid:127) deficiency fee, ceived a de finder’s other income tax Albert’s return. thereby termination was bitrary ar shown be charitable contributions deprived because it was of the $2,400. The amounted to only that the Government foundation is- First, claimed for Albert did it. since sue and action followed. testify in not the Tax Court as to this deficien In a suit to contest a aspect of the it cannot be assumed determination, cy the Commissioner’s that the foundation for the Commission presumptively determination is correct destroyed. er’s determination Fur was disproving and the it rests thermore, he testified that Hansell upon petitioner. Tax Court Rule did find not think received a 784, 32; R., I. F.2d Hoffman v. C. got er’s fee when he finder’s fee.2 (3rd 1962). But if a Certainly justi such could not that demonstrates the Commissioner’s fy finding that de the Commissioner’s arbitrary he is not determination was arbitrary. termination was required of dis to assume the burden conclude that the We proving Helvering Taylor, it. 293 U. arbitrary. determination was not S. 55 S.Ct. 79 L.Ed. 623 Therefore the in favor of (1935); R., supra. Hoffman v. cf. C. I. Taxpayer contends that the record estab- and the the determination continued you effect, say testifying lately, 2. “Q. [in I don’t did from what I have learned you before the E. that heard that fee at all C.] S. think Mr. Baird received larger my got Baird and Patrick received a fee when I fee.” you? say than I A. can’t that ings proof remained tax- made it clear that understood payer. position the Commissioner’s was solely based on its finder’s fee claim.4 argues the Tax circumstances, Under these taxpayer think the we improperly opinion relied in its reasonably was warranted liability upon not tendered at assuming that the trial his at Thus, says finder’s the trial. that he no was received show trial, sole issue at fee yet Bellanca finder’s fee as a result tax- the Tax Court found Furthermore, transaction. our compensa- payer the shares as received reading transcript not of the dowe tion for various services fairly think it can said that the tax- expectation of future services as well payer theo- was on notice that a broader a finder’s fee. ry liability being pursued. Con- statutory notice of sequently, not war- the Tax Court was letter”) (“90-day notice to sent evaluating taxpayer’s in ranted against by pursuant the Commissioner to Trea- liability. theory of other sury Regulation 301.6212-1 was worded say patently We this it would be broadly. most It that: stated unfair to decide this case on a of which and thus was unaware you has determined real- “It been opportunity did not have an to meet at ized additional taxable income stage. evidentiary $671,625.00 representing amount of 27,000 the fair market of value shares taxpayer carry Did the Corporation Aircraft of Bellanca stock producing could evidence that transferred to the Winfield Baird justify presump the conclusion that the your This in- Foundation behalf. arising tion from the Commissioner’s your reported come was not on re- deficiency determination was overcome turn.” as it related to the finder’s fee? When wording think, evidentiary We of defi- that the makes an show enough ciency notice competent to in- broad of “no income” on based arising evidence, clude an past issue to income relevant credible Foster v. R., (4th and future services as well as the C. I. 391 F.2d Cir. 1968); finder’s fee. But R., that is not the end of v. I. 322 F.2d Banks C. (8th 1963), matter. Prior the introduction of Cir. Court, going testimonial evidence in the then has the burden of forward Cory R., the Commissioner on a number of occa- with the I. evidence. v. C. po- 1942). sions (3rd indicated that he bottomed his F.2d 689 But the court sition on the accept taxpayer’s that the income in is not mony testi bound to question resulted from a finder’s fee it un at face value even when is arising out of improbable, the Bellanca transaction. contradicted if it is unrea 30-day He so letter, indicated in questionable. sonable or R., I. Banks C. memorandum, his trial supra. being so, and in his coun- This the next issue opening sel’s rejected statement3 to the Tax is whether the Tax Court Indeed, Court. the Tax testimony Court’s own on the finder’s fee proceed- statement at and, so, the outset issue if it entitled whether was respondent’s posi- by “It i)artnership [Commissioner’s] of B. Albert [taxpayer] performed per- tion & Son to the- Winfield Founda- sonal services as a finder which entitled tion should treated as a charitable con- merger by Mm to a fee on the of the Bel- tribution or should Corporation payment lanca Aircraft with B. Al- be considered as a constructive Akron, Ohio, partner- bert & fee a finder’s to Mr. David G. Baird ship.” and constructive charitable contribution by him Founda- Winfield Baird problem 4. “As I understand involved tion.” payment in this case is whether a certain controlling if he the existence of an to do when tested establishes so agreement understanding Al between standards. bert and that the income was The Tax Court concluded to be deflected to the Foundation. Com analysis, petition “In the final we found Treasury Regulation 1.61-2(2).5 páre unconvincing the ulti on determi tendered to us for This issue is involved mate factual although appears it not to have nation reading opinion A of the court’s here.” suggests developed been before the Tax Court. de “ultimate factual free to The Tax Court will of course be ap it referred termination” pears which necessary it decide this issue if finds to have been whether to do so. rather were for and future services so, merely If than a finder’s fee. we The decision of the Tax Court is va- finding impermissible think the be cated is remanded for fur- case proceedings limitation of the trial to the cause ther not inconsistent We, course, opinion. do not finder’s fee issue.

say liability that additional theories BIGGS, (dissenting). Judge Circuit could not have tried think been but we impermissible the Tax it was case, In a such as the instant decide the issue oth case where the assessed a Commissioner has explicitly er than that tendered without unreported on the basis of in taxpayer. reasonable notice to the This come, proof the the is on true, here, particularly is taxpayer may where as the Commissioner to show that the produce evi be able to received income. This is initial dence relevant to the broader ly by satisfied the may upon which the Tax Court have de deficiency Commissioner’s Compare cided the case. R., swpra. Little v. C. I. is correct. The burden is thus on the prove to the incorrectness of the determination. This bur We conclude that case must be the procedural den is and if is met the tax to remanded the Tax Court to determine payer produces competent and relevant theory, the case on the finder’s fee if from which could found be pursue the Commissioner desires to that he did leged theory. not receive the al income If the Commissioner desires to pursue any notice. Foster v. liability, additional Revenue, right of Internal to do so must be decided (4 1968); F.2d 727 Cir. Herbert v. by first instance the the Tax Court. Revenue, Commissioner of Internal parties We note that the are in seri- (9 1966); F.2d 65 Cir. v.Weir Commis disagreement ous as to whether the Revenue, sioner of Internal 283 F.2d 675 Commissioner, presumably if he finds 1960).1 (6 by If this burden is met going himself with the burden of for- the the burden of shifts evidence, only with the ward can succeed Weir, petitioner 1. In was President and “(<(cid:127)) Payment charitable, etc., 5. to or- principal ganization person stockholder of a rendering number of cor on behalf of porations years during services. The value of Dur services is not in- 1945-49. gross cludible in income years, when such serv- these numerous checks on directly gratuitously ices are rendered and corporation per were issued to various organization an to described section 170 sons. The I.R.S. found that these checks (o). Where, however, pursuant to an personal were issued for the benefit agreement understanding, or services are petitioner. petitioner contended that person rendered to a for the benefit of an these checks were issued for the benefit of organization 170(c) described section corporations, and testified that he liad paid amount for such services is personal received no benefit the issu organization by person to such to ance the chocks. After the Tax Court rendered, whom the services are paid amount so found that the checks constituted taxable constitutes income to the person performing petitioner, services.” income to the the Court of understanding, prove the ment or I hold would back to the Commissioner deficiency. the Commissioner did not meet its existence and amount of satisfy burden. In order for the Commissioner burden, prove he must

this judgment I conclude that should paid to the foundation was amount be reversed and the case remanded to agreement pursuant or under- to an the Tax Court with instructions to enter standing between judgment appellant. Regulation (c).2 Treasury 1.61-2 donor. stated, respectfully For the reasons I dissent. the uncontradicted testi- this mony appellant’s witnesses

transfer to the Baird Founda- in consideration for serv-

tion was not performed by in connection

ices with Bellanca-L. & Sons UNITED America, STATES of transaction or for or serv- future Appellee, pre- adequate to overcome the ices was sumption of which attached correctness William JEWETT, Appellant. deficiency deter- to the Commissioner’s No. 20473. Thus, mination. uncontradieted competent evidence3 such and rele- United States Appeals, Court of vant evidence from which it could Eighth Circuit. found that Baird received no income Feb. 1971. respect transfer from Albert Certiorari May 3, Denied to the Baird Foundation. The burden See 91 S.Ct. 1640. proof then shifted to the Commissioner “agreement requisite establish the understanding.” is de- Since the record “agree- any showing

void of any personal Appeals using following from the received benefit reversed lan- corporations, guage page issued it was checks unnecessary at 679: testify imposes for him to as law “The much less of a purpose upon upon the checks had been which a who is called prove negative issued: he did not re- —that “By complete he re- denial ceive the income which the Commis- checks, imposes upon ceived benefit from the sioner claims—than it attempting arises overcame whatever who is to sustain determination; from the Commissioner’s deduction on his income tax return. * * * necessary go for him and it is not One reason for this is that de- affirmatively pur- legislative grace, further and pose show the ductions are matters of proving for which the checks were actual- and the of them and ly issued, prove upon the correct amount their correct amount rests the tax- due, nullify entirely payers, of the tax order to aside consid- any presumption statement deficien- Commissioner’s eration of correct- cy.” (Citations omitted). F.2d at 283 ness that attaches to the Commission- determination, applica- 681-682. and that the tion the same rule to the note 5 cited to the text in the ma- See income, that a not did receive jority opinion regula- text as to a claim for deduction tion. return, income tax would invert only witness, 3. The Ilan- Commissioner’s ordinary procedure, rules knowledge, sell, that, testified to his Judge pointed Tay- Learned Hand out anything did not receive in connec- lor v. Commissioner Internal Reve- [of tion with the Bellanca-L. Albert & Sons nue], Cir., 619, 621, 70 F.2d affirmed deal. L.Ed. U.S. S.Ct. 623.” Court further asserts after the petitioner clearly testified that he never

Case Details

Case Name: David G. Baird and Mildred B. Baird v. Commissioner of Internal Revenue

Court Name: Court of Appeals for the Third Circuit

Date Published: Feb 12, 1971

Citation: 438 F.2d 490

Docket Number: 18087_1

Court Abbreviation: 3rd Cir.