Petition for a Writ of Certiorari — Raphael v. Commissioner

3 i

(2 |

October

No. : Dd 74

MarGARET CAHN RAPHAEL,

Petitioner,

US.

CoMMISSIONER OF INTERNAL REVENUE,

Respondent.

BRIEF IN SUPPORT THEREOF.

Byron C. Hanna,

Haroitp C. Morton,

1126 Pacific Mutual Building, Los Angeles,

Leon Brown,

1212 Pacific Finance Building, Los Angeles,

Attorneys for Petitioner.

Supreme Court of the United States

PETITION FOR WRIT OF CERTIORARI AND

Parker & Baird Company, Law Printers, Los Angeles

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SUBJECT INDEX.

PAGE

Petiticis tor writ of certiorari Laeilsitbbaedaltstie 1

Zs -

Summary statement of the matter involved 1

a4.

Basis of jurisdiction.. 3

III.

SIE NNN i cinseceennchesomn-ciruanwtpsesisininirenetideibnigbedincatrepaniaeniinan 3

IV.

Reasons relied on for allowance of the writ...............:c.0ccecceesee-- 3

Brief in support of petition for writ of certiorari......................-..- 5

I.

Opinions in the courts below, - a an O

II.

Jurisdiction ...... 5

III.

Statement of the case...... ——

IV.

Specifications of error.................0+- ie.

V.

EE TE we 10

VI.

I sisccasicnsiscctsscnicdsiinhiciceratittntedatintntebidatticiiiiiaadl ale 11

A. Introduction (princidaealicnes 11

B. The $398,079.71 was not an amount received as interest

on an interest-bearing obligation...................-2:.:ccecceseeeeee 13

C. The $398,079.71 was not a periodical gain...................... 26

i i —

i.

TABLE OF AUTHORITIES CITED.

CASES. PAGE

Anglo California National Bank v. Lazard, 106 Fed. (2d) 693... 8

Brown v. Webster, 156 U. S. 328, 39 L. Ed. 440.....2200000.o... 3, 16

Chesbrough v. Woodworth (C. C. A. 6), 251 Fed. 881-0000... 16

Commissioner of Internal Revenue v. Raphael, 133 Fed. (2d)

442 ..... 1

Francois Lang et al v. Commissioner, at 45 B. T. A. 256............ 5,9

Ginsberg & Sons v. Popkin, 285 U. S. 204, 298, 76 L. ed. 704... 24

He!lvering v. Stockholms Enskilda Bank, 293 — S. 84, 86, 79 L.

BN ee Aiciihtecen veep teaesnaiahenincnadeoceioneie 4, 21, 22, 23, 24, 25

Jacobs v. United States, 290 U. S. 13, 17, 78 L. Ed. 142.0000... 4,17

Kieselbach v. Cominissioner of Internal Revenue, 63 S. Ct. 303,

OF Hc Tare I I nner crerennctinetoteeies 4, 18, 21

King v. Southern Pacific Co., 109 Cal. 96, 41 Pac. 786................ 24

Meilink v. Unemployment Reserves Commission, 314 U. S. 564,

86 L. ed. 458........... a 19

Merchants Loan & Trust Co. v. Smietanka, 255 U. S. 509, 65

ei 35

Miller & Vidor Lumber Co. v. Commissioner (C. C. A. 5), 39

Fed. (2d) 890 30

N. V. Koninklijke Hollandische Lloyd, 34 B. T. A. 830................ 20

North American Oil Consolidated v. Burnet, 286 U. S. 417, 423,

Pe Fak, TR Fe ec cininsnccnishariaiehictneompiinesecinninintiansitoneiinel 4, 30, 31, 35

Old Colony R. Co. v. Commissioner of Internal Revenue, 284

ee SF rere 4, 19

Phelps v. United States, 274 U. S. 341, 344, 71 L. Ed. 1083....3, 17

Shoshnoe Tribe v. United States, 299 U. S. 476, 496, 81 L. Ed.

Shoshone Tribe v. United States, 299 U. S. 476, 496, 81 L. Ed.

United States v. Childs, 266 U. S. 304, 69 L. ed. 299.................. 19

arg ah gt lS See Per MCR ‘ TIME EER LS

tii.

PAGE

United States v. Klamath & Moadoc Tribes, 304 U. S. 119, 123,

82 L. Ed. 1219... ee 4, 18

United States v. Safety Car Heating & tein Co., 297 U. S.

ey Pe Py TF Ea, Tk, ni sacseteesiicsiscctinnscions 4, 30, 31, 35

MISCELLANEOUS.

Cong. Globe, 37th Cong., 2d Sess., p. 153] ............sccscccecscosesseccecees 33

Cumulative Bulletin 1919-2, p. 184, S. M. 975.0. ccccceceeccecceeeeeee 29

Cumulative Bulletin 1921-1, p. 232, O. D. 907 .0..occcocecccccccccceceeseeee 29

Cumulative Bulletin 1939-1, part 2, p. 2, H. R. No. 5, 63rd

IN id cnc cecacein sins aeialacinnelstnciin nkevssccoedinirdcc dome 34

Cumulative Bulletin 1939-1, part 2, p. 677, H. R. No. 2475, 74th

a Ne NN aiiaieeetpnsptmseeinesits sorte cinmnr thine eiiaiinidbasaicscntelbtniechnshecca 28

Cumulative Bulletin 1939-2, p. 172, G. C. M. 2157500000. 29

The Law of Federal Income Taxation, 1939 supplement to Paul

Hie PUD, RG Ti ssenibicsnnsnctvsannaniccncnninrns 27

The Tax Magazine, Vol. 14, pp. 589-590...............escccecesesssssesceceeeees 27

Webster’s New International Dictionary, Second Edition.............. 23

STATUTES.

Act of March 3, 1863, Sec. 90 (12 Stats. 713).....0..........ccccccos0- 33

Act of October 3, 1913, Sec. 1I(E), Sixteenth Amendment (38

Oe RC, Se 33

Act of February 13, 1925, c. 229 (43 Stats. 938; 28 U.S. C.

Ne os ‘ =

Ne oss eesheduanaciceniiediaiad 12

PRONE A, AEE, TR, ac aciccscs teen snessevemncncemcnecer tsnvecaes 11

i ES a a ee a 12

Internal Revenue Code, Sec. 143(D)......-2....-:::000-0-+ euetail 2, 21, 2

Mmermat Revenwe Code, Sec. 119( 0) n....-.:sccciccsecccecssseonssessosscscoses

2, 3, 9, 10, 13, 14, 15, 19, 22, 23, 25

Internal Revenue Code, Sec. 119(c).

Internal Revenue Code, Sec. 119.143-2, Reg. 103.......0..20-00.....

Internal Revenue Code, Sec. 119.211-7(a), Reg. 103

Internal Revenue Code, Sec. 211

Internal Revenue Code, Sec. 211(a) (1) (A)

2. 3, 9, 10, 11, 13, 15, 19, 26, 27, 28, 33, 34, 35

Internal Revenue Code, Sec. 212(a) . 14

Judicial Code, Sec. 24 (28.U)..S. C.A., See. 41(1) )................... 15

Judicial Code, Sec. 177 (28 U.S. C. A., Sec. 284)... ene. 17

Judicial Code, Sec. 240, Subd. (a)........ 3, 5

Regulation 45, Art. 362. 34

Regulation 94, Art. 212-1(a)...... 34

Regulation 103, Sec. 19.212-1(a) 35

Revenue Act of 1918, Sec. 221(a) 34

TEXTBOOKS.

15 American Jurisprudence, Damages, p. 577...........2-::-:-:e0eceses0e 25

= We AMS MARTA Ris RET SPATE EASE SGI TCT 5 SAME TRS DS LORI SR EIT RE :

IN THE

Supreme Court of the United States

October Term, 1942.

TK chases

MarGARET CAHN RAPHAEL,

Petitioner,

US.

COMMISSIONER OF INTERNAL REVENUE,

Respondent.

oo

PETITION FOR WRIT OF CERTIORARI AND

BRIEF IN SUPPORT THEREOF.

To the Honorable Chief Justice and Associate Justices

of the Supreme Court of the United States:

The petitioner above named respectfully presents to this

Honorable Court her petition for writ of certiorari to the

Circuit Court of Appeals for the Ninth Circuit, to review

its decision in the case of Commissioner of Interna!

Revenue v. Raphael, 133 Fed. (2d) 442.

I.

Summary Statement of the Matter Involved.

In 1915 and 1917 the petitioner and other members of

her ‘amily were induced by the fraudulent misrepresenta-

tions of their agents to sell certain lands in California

for sums far below their true value. In 1940 the United

States District Court for the Southern District of Cali-

os TT RCE ROSARITO PROS ET yet ae

—_ oom

fornia, in an action instituted by the defrauded owners

and their successors in interest, rendered judgment against

the agents for $651,579.71, of which $253,500.00 was

damages measured by the difference between the true value

of the lands sold and the consideration received by the

owners, and $398,079.71 was damages measured by in-

terest on $253,500.00 to the date of judgment. The total

amount of the judgment, together with interest thereon

from the date of entry thereof in the sum of $92,644.93,

was paid in full on January 19, 1940.

The petitioner received a 17/300th part of this recov-

ery. She was then a non-resident alien not engaged in

trade or business within the United States and had no

office or place of business therein. Under Section

211(a)(1)(A) of the Internal Revenue Code such non-

resident aliens are subject to a gross income tax, but

only on income from sources within the United States as

defined by Section 119(a), and only on certain specified

kinds of income, those as to which the tax is required by

Section 143(b) to be withheld and paid at the source.

No part of the recovery in the said fraud action was

withheld at the source, but the respondent attempted to

assess a tax on petitioner’s share of certain portions of

the total sum recovered. The Board of Tax Appeals held

that petitioner was taxable on her share of the $92,644.93

interest paid on the judgment, and petitioner does not seek

a further review of that decision. The petitioner, how-

ever, does seek a review of the decision of the Circuit

Court of Appeals that petitioner is taxable on her share

of the $398,079.71 included in the judgment. This de-

cision was based on the opinion of the Circuit Court of

Appeals that the $398,079.71 was interest on an interest-

bearing obligation and constituted a periodical gain.

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II.

Basis of Jurisdiction.

The jurisdiction of this Court is invoked under Section

240, subdivision (a) of the Judicial Code, as amended by

the Act of February 13, 1925, c. 229 (43 Stats. 938; 28

U.S. C. A., See. 547).

The judgment of the Circuit Court of Appeals for the

Ninth Circuit which is sought to be reviewed was filed

and entered on February 1, 1943 [R. 103]. A _ petition

for rehearing was denied on March 15, 1943 [R. 104].

IIT.

Questions Presented.

(1) In an action for deceit, where the trial court in its

discretion includes in the award of damages an amount

measured by interest on the value of that of which the

plaintiffs were defrauded, does the additional amount so

awarded constitute interest on an interest-bearing obliga-

tion within the meaning of Section 119(2)(1) of the

Internal Revenue Code?

(2) Does the amount so included in the award of

damages constitute ‘‘annual or periodical gains, profits

and income” within the meaning of Section 211(a)(1)

(A) of the Internal Revenue Code?

IV.

Reasons Relied on for Allowance of the Writ.

(1) The decision of the Circuit Court of Appeals that

the $398,079.71 was received as interest on an interest-

bearing obligation is in conflict with the following applica-

ble decisions of this Court:

Brown v. Webster, 156 U. S. 328, 39 L. Ed. 440:

Phelps v. United States, 274 U. S. 341, 344, 71 L.

Ed. 1083, 1085;

——

Jacobs v. United States, 290 U. S. 13, 17, 78 L.

Ed. 142, 144;

Shoshone Tribe v. United States, 299 U. S. 476,

496, 81 L. Ed. 360, 369;

United States v. Klamath & Moadoc Tribes, 304

U. S. B99, 125, 82 L. Ed. 1219, 1223;

Kieselbach v. Commissioner of Internal Revenue,

63 S. Ct. 303, 87 L. Ed. (Adv. Op.) 281, 284;

Old Colony R. Co. v. Commissioner of Internal

Revenue, 284 U. S. 552, 560, 561, 76 L. Ed. 484,

489-490 ;

Helvering v. Stockholms Enskilda Bank, 293 U.S.

84, 86, 79 L. Ed. 211, 214.

(2) The decision of the Circuit Court of Appeals that

the $398,079.71, although not periodical income, never-

theless constituted a periodical gain within the meaning

of the phrase “annual or periodical gains, profits and

income,” introduces into the law of taxation a recognition

as ‘gains’ of unrealized and wholly uncertain increments

in value, in conflict with the following applicable decisions

of this Court:

North American Oil Consolidated v. Burnet, 286

U. S. 417, 423, 76 L. Ed. 1197, 1200;

United States v. Safety Car Heating & Lighting

Co., 297 U. S. 88, 93-4, 99, 80 L. Ed. 500, 504,

507.

Wherefore, it is respectfully submitted that this petition

for writ of certiorari should be granted.

Byron C. HANNA,

Harotp C. Morton,

Leon Brown,

Attorneys for Petitioner.