Henry C. Mueller v. Commissioner of Internal Revenue
496 F.2d 899
5th Cir.
1974
Check Treatment

*1 рetition excep vacated, an must be that such the case We believe permit engrafted Louisiana remanded to a determination of tion must be presented by court whether a federal habeas the facts statute to allow Francis showing pro noncomрliance prejudice state constitute a with to excuse petition non-compliance requirements his when excuse cedural with prejudice. procedure. rule actual of criminal er can demonstrate state’s requiring the interest The state’s Vacated аnd remanded with directions motions, especially timely filing of mo respect to dismiss with to Newman. prose may a tions which abort criminal pro- Vacated and remanded for further strong. cution, the coun indeed But ceedings consistent with tervailing expressed concern was resрect with to Francis. Noia, supra, Fay at Supreme Court v. proce orderly criminal 431: “Of course desideratum, dure is course a flouting sanctions for there must be procedure. that state

of such But [a] against ‘competes . . . interest pro- . of fair ideal . ideal . [the] ”

cedurе.’ hy- way illustration, By a consider Henry MUELLER, C. Petitioner- pothetical twist the factual situation Appellant, present case, peti- in Davis. In v. along tioner, black, was indicted COMMISSIONER OF INTERNAL REV- accomplices. two white ENUE, Respondent-Appellee. against him, found, district strong No. 73-3156. largely one, although was a cir- ample Moreover, evidence cumstantial. Appeals, United States Court of grand justify jury’s adduced Fifth Circuit. determination that should Davis stand June If, however, trial. constitutionally Davis, unlike an un- Rehearing Aug. Denied grand jury selected had partici- chosen not to indict the white

pants instead to indict perpetrator,

black and if a collateral at- underlying

tack on the conviction was challenged seriously

made the suf-

ficiency indict, evidence even powerless

fеderal court would not be grant habeas relief. Fundamental fair- requires

ness that a federal court be remedy wrong spite able to such a procedural failing defect such as timely objection indictment, file a

assuming, course, non-compliance merely

with the state rule was not

liberate tactical maneuver. conclude, ‍‌‌‌‌‌​‌​​​​​‌​​​‌​‌​​‌​‌​‌‌‌‌‌‌​​​‌‌​​‌‌‌‌‌​​​​‌‍therefore, that the provision giv

Louisiana waiver must be

en effect the federal district courts showing prej

unless there is a of actual Consequently,

udice. order of granting

district court Francis’ habeas *2 1963, 1966 and 1967. affirm the

judgment respects of the tax court in all except denying as to determination right taxpayer to the to claim ordinary necessary duction for and busi- expenses ness under section 162 to the payments actually extent of made to his business creditors the trustee bankruptcy year subsequent in a adjudication.1 question way:

The The arises engaged growing tomatoes, taxpayer, $60,000 had received taxable income January September and between September vol- 1966. On 27 he filed a petition bankruptcy untary and title to a trus- his assets was transferred bankruptcy petition- tee. At the time expenses unpaid in ex- had er pro- bankruptcy $100,000. cess ceedings The and at that terminated paid time the or business by pe- had been incurred prior bankruptcy in the titioner $43,702.31. amount taxpayer trans- contends that the fer of title his assets the trustee “payment” bankruptcy constitutes either unpaid payment” or “constructive Rogers, Miesel, Robert O. David S. expenses, and he is there- Beach, Fla., petitioner-appel- Palm under sec- entitled to a deduction fore lant. taxpayer a cash tion 162. The Atty. Gen., Crampton, P. Scott Asst. receipts basis. and disbursements Meyer Rothwacks, Div., Dept, of Tax problem makes an A of the Washington, C., statement Justice, D. B. Lawrence appealing taxpayer. Here Acting Gibbs, Counsel, B. Michael up $60,000 in assets he had S., Anderson, сollected Frosch, R. I. E. Charles eight Schmeidler, Div., operations in the first Attys., Dept, Karl Tax pay 1966, but had failed to Justice, C., months of Washington, D. for re- regular which, paid spondent-appellee. if debts business, de- would have been course of J., BROWN, Before and TUTTLE C. tax ducted dollar to reduce his dollar for SIMPSON, Judges. Circuit Instead, liability for the tax ap- following bankruptcy turned over he TUTTLE, Judge: Circuit $75,000 trus- proximately in value to the although subsequently, until tee who appeal by is an This subsequent year, out some tax judgment by court the tax from $43,000 creditors whose claims determina- attacks five adverse which he normally lia- have constituted business dealing his al- with tions that court purposes. bilities for tax years 1962, leged tax deficiencies prop- on section 38 credit investment alleged error tax 1. The perty. (1) disallowance other issues: two recapture (2) deduction; debt bad opinion, court, its the tax However, major part debts. judges concurring opin corporation’s three in a brief now ad- were ion which stated “the results connec ministered unfortunate; tion with [this issue] were not utilized for the however, required the court was August reach dеbts until after adopted by majority, payments conclusions thus were not made require and it will the creative hand of the business creditors of the *3 legislature the corporation to during year enact new laws that the fiscal of bring will about bankruptcy ending reasonable results in July 31, 1959. situation,” judges acting this through and with taxpayer, five dis in the trustee senting issue, sought this its bankruptcy, based decision corpo- to reduce the solely upon authority the of B & L year income ration’s bank- States, Farms Co. v. United 368 F.2d ruptcy theory on the that trustee the (5th 1967), denied, 571 Cir. 389 corporation’s U. cеrt. took to all title the 835, 45, 88 during S. S.Ct. 19 L.Ed.2d year 96 the 1959 and that this (1967). opinon In its the amounted to an actual or constructive plain made it payment that it forced to by was the its to solely this decision because: creditors as of the time that possession. held, by took This Court af- by required “We are therefore Jack firming judgment per the trial court’s Golsen, (1970), E. 54 T.C. 742 aff’d. curiam, that since at the the time of (C.A. 10, 1971), 445 F.2d cert. de takeover the B L trustees of & nied, 284, 92 S.Ct. 30 L. amount Co.’s assets neither the Farms (1971), Ed.2d 254 the Fifth follow large liability ‍‌‌‌‌‌​‌​​​​​‌​​​‌​‌​​‌​‌​‌‌‌‌‌‌​​​‌‌​​‌‌‌‌‌​​​​‌‍nor the fact of as to decision. look Circuit’s We therefore mass of creditors could then be ascer- L to B Farms & to determine whether tained, there no was actual or construc- in the decision in that fact ease is payment persons tive to those were who controlling here.” paid. ultimately and the court What all decided was that nо could be deduction panel Of course a this Court payments taken fiscal 1959 for unas- authority not the does have nor would actually certained amount and not consider, circumventing we a decision of made to creditors until prior a later fiscal in a the Court case because year. insignificant was in B What issue in the some difference carryback L Farms & was a claim for However, state facts. read a careful refund under section ing 172 for taxes B & Farms v. United Co. year ending July the fiscal D.C., F.Supp. 407, which was corporation which the entitled Cоurt, be affirmed this curiam if it dissenting, could establish that the turnover reveals Brown the assets to trustees June of 1959 that there before us is issue adversely amounted the creditors case which was not decided year. that fiscal the in B L& Farms. case, corporation, B & L decide In the earlier What Farms did not year taxpayer’s using that when the fiscal basis and cash re- assets were ac- the tually ceipts of ac- out the trustee to those disbursements method counting, creditors, properly whose had substantial income ex- claims would cess come within the of allowable definition of deductions fоr business business prior expenses, adjudication to an would not then be year ductible item for some five weeks before the the the which year, ending July 31, actually paid were end of the fiscal amounts to creditors. During point fact, running ap- through In B that time the trustee parently aсtually paid implication L Farms out of the assets & Co. case the corporation the time of clear that & Farms have had at Co. would adjudication some of been entitled take the these deduction between payment, no distinction year there was later fiscal L Farms taxpayers in Co. B & no benefit because this would be of thаt merely sought because before us year 1956, the case income was whose taxpayer here individual whereas carryback is an balanced off to be corporate pay- it was a year in the earlier case far removed from too ment, proрosition taxpayer. support of this beyond permissi- and thus was statutory carryback peri- the brief stated: ble three there od. The district court said: ‍‌‌‌‌‌​‌​​​​​‌​​​‌​‌​​‌​‌​‌‌‌‌‌‌​​​‌‌​​‌‌‌‌‌​​​​‌‍“Because the individual parties “Both hereto have conceded may from not be to benefit able loss, operating nеt there awas expenses disallowed in 1966 172, for the fiscal under Section these deductions does mean July oper- ending This net merely They necessarily are lost. was, ating be, could loss for 1959 may transferred to the who carried to reduce the tax back his own them offset incоme use *4 ending paid year the fiscal was for any taxpayer’s gain or or income of July 31, important to note It is 1956. gain during admin- that is realized the already that decided that we have bankrupt In estate. istration the of ‘paid’ expenses not which were practical this little from terms differs year as in cannot serve the 1959 fiscal event, any corporate the situation. computing purposes deductions for of discrepancy a minor is rather operating year.” net the loss that justify does tax that not different basis individual treatment taxpayers.” (Emphasis added). for cash pointed by It is out Chief dissenting opinion to the Brown by “The this Court that: affirmance questioned This Court counsel whether bankruptcy applied for Trustees recovery have language say that intended to was $162,538.73 taxes in income expenses in 1966 the disallowed ending paid year July 31, 1956, “any taxpay- be used to offset could carry-back Sec- under an asserted under gain is dur- income or that realized er’s tion 172 the Internal Revenue Code ing the administration opposes This be- 1954. cause, though the Government response estate.” The Commissioner’s рroperty the Bank- the effect, any to that denied concession rupt pass did the Trustees the to within saying in utilized effect that it could be year 1959, not ac- the Trustees did fiscal by the the trustee to offset income tually pay un- to the dividends creditors might interest trustee have obtainеd as year beyond permissible

til later the during deposits on bank or the like the carry-back three-year period.” (Empha- period of administration. added). sis dissenting conclude, did the We as dissenting judge The de- have judge in the L B Farms Co. case & question differently, cided the that basic judges court, nine the as did tax say, is to to that the turnover of assets equally which view seems to have been itself, would, in and of by the who felt shared bound ordinary necessary amount to by decision, our & Farms Co. that expenses. clear, however, It the that the reached such situation as result dissenting opinions and district court clearly to unless re- this is be avoided deduction, though contemplated a even binding by quired precedent. The carryback no benefit as a 1956 be- to presents picture totally distorted statutory period, cause outside to be the tаxpayer’s income when he’s re- recognized year payment, in the later pay quired to a tax total amount impact if it had taxes receipts from a business is not year. ex- entitled claim a deduction for the income, creating brief, penses In the the Com- incurred Cоmmissioner’s seeking point are over missioner out that when his turned either assets bankruptcy (a trustee matter that 88 S.Ct. 19 L.Ed. affirming (Judge, to rest now in this Circuit 2d curiam now has laid been Co.) a subse- L S.D. B L Farms B & Farms Co. v. United & dissenting part) Judge, quent when the trustee Brown Recogniz- pays Fla.1964, F.Supp. creditors. these business enjoined ing nоt ful well that we are majority opinion seeks to distin- interpreta- “equity” in tax consider the guish B L Farms & because that case tions, we we find issue with which turning merely holds that over dealing here to be one which has not during does not constitute expressly been determined heretofore. quеstion, taxable whereas ‍‌‌‌‌‌​‌​​​​​‌​​​‌​‌​​‌​‌​‌‌‌‌‌‌​​​‌‌​​‌‌‌‌‌​​​​‌‍majority decision here credit allow therefore conclude that We actually expended by for amounts allowing tax court erred in not a deduc years. later back tion for business carried opinion adopted Our in B L& Farms an amount oрinion the district court its reason- actually paid equal to that as divi out ing: “The conclusions reached dends the trustees judg- district court are correct and its persons would have those whose claims judg- ment is free from error. That expenses if been allowed as business go ment is affirmed.” When we back district in B (cid:127)& Farms we find that that court did here a claim do not deal *5 limit itself the fact wholesale de- refund of of a expressly duction. bankruptcy. Instead it held that overpaid Such taxes before payments by years a trustee in later claim, existing time of bank at teaching “paid” cannot would, be deducted as the tax- ruptcy, under able under of the Inter- Segal Section 162 Rochelle, v. 86 S.Ct. Code, regardless nal Revenue whether (1965) pass 15 L.Ed.2d 428 then, the amounts are lat- bankrupt’s ascertainable estate for the benefit er, anytime. F.Supp. pp. perceive way at 409- creditors. no majority’s attempt 410. The to distin- the creditors of are de guish the prived two cases will not withstand asset or reason benefit analysis. carry-over aspect critical disposition of a of this a manner case in of B taxpayer’s pre & Farms absent in the instant reduces the distinguishing case, relied liability, factor as income tax not dis- chargeable quite simply bankruptcy. play only irrelevant. It came into after The decision of the tax court af- decision the issue identical to the two part рart firmed in and reversed in cases, the disallowance of a deduction the case is remanded to that court for expenses paid by the trustee after proceedings further inconsistent adjudication bankruptcy. opinion. with this Agreed produces that B L& Farms SIMPSON, (dissent- governs Circuit result, harsh it our decision ing) : my I view. would ‍‌‌‌‌‌​‌​​​​​‌​​​‌​‌​​‌​‌​‌‌‌‌‌‌​​​‌‌​​‌‌‌‌‌​​​​‌‍affirm authority the tax court curiam on the controlling I as view here our decision of & Farms. in B L& Co. v. Farms United Cir. F.2d respectfully cert. denied I dissent.