# Petition for A Writ of Certiorari — Jacobs v. Hoey

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Petition for A Writ of Certiorari
- **Published:** January 1, 1943
- **Citation:** 320 U.S. 790

## Text

IN THE

Supreme Court of the United States

October Term, 1943

No. 425

WILLIAM K. JACOBS, Jr.,
Petitioner,
vs.

JANE M. HOEY, as executrix of the Estate of
James J. Hoey, Deceased,
Respondent.

PETITION FOR A WRIT OF CERTIORARI TO THE
UNITED STATES CIRCUIT COURT OF APPEALS
FOR THE SECOND CIRCUIT AND BRIEF IN
SUPPORT THEREOF

Dav L. Sprune,
Attorney for Petitioner.
Arnoup M. Grant,
Herman L, Weisman,
Wourr R. Cuarney,
of Counsel.

————————————————

PAGE

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Summary Statement of Matter Involved......... 2
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The Question Involved.............ccccccceccee 3
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SE ME cs wi ie Vidns bite Seda yecmweccs 3
Specification of Errors to be as cg TET 7
Reasons for Granting the Writ of Certiorari...... 8
PO is Apa Vis NGL ae NeueY Th oma anad cs 12
BREF IN SUPPORT OF PETITION...............0.c0000. 13
WE eR Nbia cies cicenioss sc cede 13
PY hy baevincsee tind s Kok saw oe ea ad ce cee 13
WE Ribs 6 iainas) dis diboc Si ate e eeeae aie oe 13
hog ER EE Bre PR RPE EE el pee 17
hk, FREE EE ET IREY DROP bate CAM a Er ee 19
RNIN 564s ihcroacc ee poet eduh oa ele 22

Cases CrrEep

In re Barker, 230 N. Y. 364, 372; 180 N. E.579.... 15
Barker v. Magruder, 95 F. (2d) 122, 68 App. D. C.

We ch eas ven ce 4d tes dbbuuen kes easkes weet cues 21
In re Bates’ Estate, 167 Misc. 641.............. 10, 14
Beard v. Beard, 140 N. Y. 260, 35 N. E. 488...... 10, 14
Blair v. Commissioner, 300 U. 8. 5, 57 S. Ct. 330,

We i ME MG Akb docked sl Sho De edhe dekh sicd 17

a

i
PAGE
Brown v. Helvering, 291 U. S. 193, 199, 54 S. Ct.
Se vn eete de benineedenidacenes 21
Matter of Bushe, 227 N. Y. 85, 129 N. E. 154...... 15
an re Collins’ Estate, 158 Misc. 798.............. 14
Commissioner v. Cadwalader, 88 F. (2d) 274, 275;
certiorari denied, 301-U. S. 706............ 8, 13, 17
In re Douglas, 60 App. Div. 64.................. 15
Matter of Dunkel, Jr., 10 N. Y. St. R. 213........ 14
In re Furness, 75 F. (2d) 965............... 15
Griffin v. Smith, 101 F. (2d) 348, certiorari denied,
a Esper che dn Awa twee neeneudade dain 20
Estate of Henry Harris, 1 N. Y. St. R. 331........ Bh
Helvering v. Stuart, 317 U. S. 154, 63 S. Ct. 140,
eso pha Gkenchndudknue cubbankons 17
In re Jula’s Estate, 3 N. J. Misc. 976; 130 A. 733..11, 14
Lewis v. Bowers, 19 F. Supp. 745................ 15
Lockhart v. Mittleman, 123 F. (2d) 703........... 15
Mitchell v. Commissioner, 89 F. (2d) 873......... 20

National City Bank v. Helvering, 98 F. (2d) 93... 20
North American Oil Consolidated v. Burnet, 286
U. S. 417, 423, 424, 52 S. Ct. 613, 76 L. Ed.

MUSA tla Whe ho aeaNaewenenicns 7, 8,9, 10, 11,20
Oakeshott v. Smith, 104 App. Div. 384; affd. 185 |
ee & Ff Se reer errr 10, 14
Matter of Rutledge, 162 N. Y. 31,56 N. E.511..... 15
Saunders v. Commissioner, 101 F. (2d) 407....... 20
In re Sharp’s Estate, 140 Misc. 427.............. 15

In re Smith’s Estate, 107 N. J. Eq. 607, 153 A. 647.. 18
Stevens v. Melcher, 152 N. Y. 551, 46 N. E. 965.... 16

Titsworth v. Titsworth, 107 N. J. Eq. 436, 152 A.
GK a 5s canned asevneaens sasaudaeewaneeenen 18

ww

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PAGE
U.S. v. S. 8S. White Dental Mfg. Co., 274 U.S. 398,

Oy We RGB, TE Tn BR 29D. on. oon ck cccccncse. 21
Wheelwright v. Rhoades, 28 Hun. 57............ 14
Wyckoff v. O’Neil, 72 N. J. Eq. 880, 67 A. 32...... 18

MISCELLANEOUS
We Mee RAD, BR BO noe ovv cv vaveevevetccc, 18
SratuTEs CITED
Title 26, U.S. C. A.:
IS NG Giron ss re SL 3, 12, 17
ee Ol hier ie ae os acs 3, 17
Surrogate’s Court Act, Section 285...... 3, 10, 13, 14

ce cccae bP PIER AOE Cee nel Lite 16

5 SE a neem 16
Orphans’ Court Act of New Jersey, Section 129,

3 .N. J. Comp. St. 1910, p. 3860, Section 129...... 18
Revised Statutes of Maine, Section 43, Chapter 67,

eee EE ENE DA ne et ad 18

PAD 04h ore kbd cout abot wig ce. ieee. 23

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PRM PEACE AR TIE

IN THE

Supreme Court of the United States

Ocroser Term, 1943

No.

a.
1

Wim K. Jacoss, Jr.,
Petitioner,
vs.

Janz M. Hoey, as executrix of the Estate of James J. Hoey,
Deceased,
Respondent.

a.
¥

PETITION FOR A WRIT OF CERTIORARI TO THE
UNITED STATES CIRCUIT COURT OF APPEALS
FOR THE SECOND CIRCUIT AND BRIEF IN
SUPPORT THEREOF

Petition

To the Honorable, the Chief J ustice, and the Associate
Justices of the Supreme Court of the United States:

The petitioner, William K. Jacobs, J r., by his attorney,
prays that a writ of certiorari issue to review the judgment
of the United States Circuit Court of Appeals for the
Second Circuit entered in the above cause on J uly 16, 1943,
afirming the decision of the United States District Court
for the Southern District of New York.

Summary Statement of Matter Involved

This action was brought in the United States District
Court for the Southern District of New York for the re-
fund of $17,023.93 representing overpayment of income
taxes for the years 1936 and 1937. Plaintiff, one of the five
executors of the estate of Aaron EK. Norman, deceased, re-
quested and received from said estate on account of execu-
tor’s commissions, advances of $20,000 in 1936 and $19,500
in 1937. Plaintiff included said sums in his income tax re-
turns for said years and now contends that as a result
thereof he overpaid taxes to the extent of $9,835.74 in 1936
and $7,188.19 in 1937. The Surrogate of New York County,
having jurisdiction of the estate, did not approve the execu-
tors’ accounts or authorize payment of their commissions
until 1938.

Trial was had without a jury on November 12 and 13,
1942 before Judge Vincent L. Leibell. Judgment for de-
fendant was entered on February 4, 1943 (R. 240). An
appeal to the Circuit Court of Appeals for the Second Cir-
cuit was taken on February 4, 1943 (R. 242). The cause
was argued on May 21, 1943 and on June 30, 1943, a deci-
sion was handed down whereby the judgment of the Dis-
trict Court was affirmed (R. 246). Judgment was entered
on July 16, 1943 (R. 251).

Opinions Below

The opinion of the United States District Court for the
Southern District of New York (R. 219) is unreported.
The opinion of the Circuit Court of Appeals for the Second
Circuit (R. 246) written by Judge Augustus N. Hand is re-
ported at 136 F. (2d) 954.

Jurisdiction

The judgment of the Circuit Court of Appeals was
entered on July 16, 1943 (R. 251). The jurisdiction of this
Court is invoked under Section 240(a) of the Judicial Code
as amended (28 U.S. C. A. §347[a]).

The Question Involved

Whether for Federal Income Tax purposes, payments
advanced to an executor on account of commissions are tax-
able in the year of receipt, or in the year in which the com-
missions are finally approved by the Surrogate having jur-
isdiction over the estate where under pertinent local law
no commissions can legally be taken until such approval.

Statutes Involved

The applicable statutes, Sections 22 and 42 of Title 26,
U.S. C. A. and Section 285 of the Surrogate’s Court Act
of New York insofar as relevant are set forth in the ap-

pendix.

Statement of Facts

The plaiatiff alone testified, and offered numerous cor-
roborating documents as exhibits. Defendant called no
witnesses.

The relevant testimony and exhibits disclose that the
will and codicils of Aaron E. Norman, deceased (Ex. N,*

* When an exhibit is referred to, the first reference indi-
cates the page at which it was offered in evidence, the
second reference indicates the page at which the exhibit
appears.

4

R. 14, 114-130) were duly admitted to probate in the Sur-
rogate’s Court of New York County on August 3, 1936
(Ex. O, R. 14, 131). The will divided a gross estate in
excess of $3,000,000 (Ex. R, R. 32, 140; Finding of Fact 3,
R. 229) among a number of beneficiaries. There were sev-
eral small bequests, a large bequest of $1,000,000 (Ex. R,
R. 32, 147-151) and the creation of equal life interests in
the residuary for the benefit of decedent’s son and
daughter. The remaindermen of these life interests were
the daughter’s three infant children and the son’s two
infant children (Ex. R, R. 32, 149-151; Finding of Fact 5,
R. 230).

The plaintiff and four others named as executors, quali-
fied on August 3, 1936 and entered upon their duties (R. 14;
Finding of Fact 4, R. 229). The estate did not advertise
for the presentation of creditors’ claims (R. 14). On
December 17, 1936, the executors executed an agreement
in writing whereby three of them waived their rights to
commissions, and the plaintiff and one other were to re-
ceive as commission a fixed percentage. This agreement
by its terms was executed subject to approval of the Surro-
gate (Ex. P, R. 15, 132; Finding of Fact 6, R. 230). How-
ever, same was not submitted to the Surrogate for approval
until the executors’ account was filed in the Fall of 1938
(Finding of Fact 43, R. 237).

Shortly after the execution of this agreement, plaintiff
requested the other executors for an advance on account
of commissions (R. 16). The attorneys for the estate
advised the executors that such advances, while illegal,
were common (R. 18). Plaintiff thereupon orally agreed
to indemnify and hold the other executors harmless from
any liability that might arise by virtue of such an advance

5

(R. 18-19; Finding of Fact 7, R. 231). On December 23,
1936, plaintiff received from the estate an advance on ac-
count of executors’ commissions in the sum of $20,000
(R. 19; Ex. B, R. 19, 109).

In December of 1937, plaintiff again requested an ad-
vance and again made an oral agreement of indemnifica-
tion, whereupon he received a further net advance of
$19,500 (R. 24, 26).

None of the parties interested in the estate except the
other executors had been apprised of these advances. At |
the time of receiving these payments, the administration
of the estate was in its early stages: The specific bequest
of $1,000,000 had not been paid (R. 21), the trusts had not
yet been set up (R. 21), the estate tax had not been dis-
charged (R. 21, 26-27), the guardians of the infant re-
maindermen had not been appointed (R. 21), and all cred-
itors’ claims had not yet been adjusted (R. 27). The Sur-
rogate had not made the direction of the manner in which
the value of real or personal property was to be deter-
mined; had not been apprised of the executors’ agreement
as to their compensation and had not determined the ques-
tion of apportioning commissions among the executors
(Findings of Fact 14, 31, 32, R. 232, 234, 235).

By advice of counsel embodied in a letter dated March
4, 1937 (Ex. W, R. 22, 177-9), plaintiff included the 1936
advance as part of his gross income and paid a tax thereon
(R. 23; Ex. E, R. 23, 103; Finding of Fact 21, R. 233). On
the same advice he did likewise with respect to the advance
received in 1937 (R. 28; Ex. F, R. 29, 103; Finding of Fact
21, R. 233). Also, on advice of counsel (Ex. W, R. 22, 177-9)
Plaintiff made timely requests for refunds (R. 29; Ex. J,
R. 30, 105; Finding of Fact 29, R. 234; Ex. K, R. 30, 106;

Finding of Fact 30, R. 234). These refund claims were
rejected by the Internal Revenue Department (Kx. J-1,
R. 30, 113; Ex. T, R. 31, 172).

On November 4, 1938, the executors filed an interme-
diate account (Finding of Fact 34, R. 235) and therein for
the first time directed the Surrogate’s attention to the
earlier agreement on commissions (Finding of Fact 43,
R. 237). This account was occasioned by the need for
disposing of a number of minor problems and of obtaining
a determination in respect to a disputed claim of $700,000
against the estate (R. 31, Finding of Fact 35, R. 235)
which the executors had every reason to believe would be
litigated (Finding of Fact 40, R. 236). Immediately prior
to the entry of the decree approving the account, the estate
was relieved of this liability through a settlement, the
financial burden of which was shouldered by others (R. 33;
Finding of Fact 40, R. 236). On December 27, 1938, the
Surrogate’s decree approving the account and awarding
the commissions was entered (Ex. Q, R. 34, 133).

On March 15, 1939, plaintiff filed his income tax return
for the year 1938’(R. 46; Ex. G, R. 46, 104; Finding of
Fact 46, R. 238) and explained therein that the Court had
allowed him commissions of $40,278.57 in the year 1938, but
that inasmuch as he had paid taxes on a substantial part in
the years 1936 and 1937, and his application for refund of
said taxes had been rejected, that he had not included said
commissions in the 1938 return although he believes same
properly includible therein (Ex. G, R. 46, 104). There-
after, plaintiff received a notice for a deficiency for the
year 1938 upon the theory that taxes were payable on all
of the commissions in the year when the final account
thereof was fixed by the Surrogate (Ex. U, R. 48, 173;
Finding of Fact 47, R. 238). Litigation in regard to this

7

deficiency assessment is presently pending before the
United States Board of Tax Appeals (R. 49; Ex. AA,
R. 49, 186; Ex. BB, R. 49, 192; Finding of Fact 48, R. 238).

These are the essential facts showing the circumstances
under which the advances were made in 1936 and 1937, the
need for an accounting in 1938, the judicial approval of the
executors’ commissions in 1938, and the precipitation of
the question here presented as to whether such advances
were part of gross income in the years when they were
received.

Specification of Errors to be Urged

The Circuit Court erred:

1. In holding that the commissions advanced to the peti-
tioner in 1936 and 1937 were income to him in those
years, rather than in 1938 when the Surrogate ap-
proved these commissions.

- In erroneously applying the ‘‘claim of right’’ doc-
trine in the North American Oil case* to payments
made when there was neither the right to demand
nor the duty to make such payments.

- In not looking to the laws of the State of New York
to determine the character of the commissions re-
ceived in advance of Surrogate’s approval.

Reasons for Granting the Writ of Certiorari

1. The decision of the Circuit Court below is in direct
conflict with the decision of the Circuit Court of Appeals

* North American Oil Consolidated v. Burnet, 286 U. S.
417, 423, 424, 52 S. Ct. 613, 76 L. Ed. 1197.

8

for the Third Circuit in Commissioner v. Cadwalader, 88 F.
(2d) 274; certiorari denied 301 U. S. 706. In the Cad-
walader case the Third Circuit expressly held that in the
State of New Jersey, where as in New York, executors are
not entitled to commissions until the executors file their
account and the commissions are allowed by the Orphans’
Court, the executrices were taxable on commissions in the
year when they were allowed by the Orphans’ Court, al-
though such commissions had been advanced to them in a
prior year. The Court below in the instant case takes the
opposite view—holding the advance commissions taxable
in the year of receipt.

2. This case presents an important question on Federal
Tax law of general interest to many taxpayers and to the

Commissioner of Internal Revenue. The question has not
been, but should be, definitely settled by this Court. By
the multitude of cases in numerous states raising the issue
of the propriety of an executor’s taking commissions in
advance of court approval, it is apparent that this practice
is quite popular. It should, therefore, be finally determined
when such commissions are taxable.

3. As a correlative to point ‘‘2’’ this Court should de-
termine whether the Federal Courts are bound by decisions
of the State Court holding such advances illegal under state
legislation.

4. The Circuit Court below erroneously applied the
‘‘elaim of right’’ doctrine set forth in North American OW
Consolidated v. Burnet, 286 U. S. 417, 423, 424, 52 S. Ct.
613, 76 L. Ed. 1197.

9

The doctrine is embodied in the opinion by Mr. Justice
Brandeis which states in part:

“‘If a taxpayer receives earnings under a claim of
right and without restriction as to its disposition
he has received income which he is required to re-
turn, even though it may still be claimed that he is
not entitled to retain the money, and even though
he may still be adjudged liable to restore its equiva-
lent.’’

A review of the facts in the Burnet case indicates ex-
actly what this doctrine means. The Oil Company had
operated certain land and the United States Government
under a claim of title had instituted suit to oust the Com-
pany from possession, A receiver was appointed. He
operated the land and derived substantial profits therefrom
during the year 1916. In 1917, the suit was decided in
favor of the Oil Company, the receiver was discharged
and the profits turned over to the Oil Company. The
Government took an appeal to the Circuit Court of Appeals.
In 1920, that Court affirmed the decree and in 1922 a further
appeal to the Supreme Court was dismissed by stipula-
tion.

The question before the Supreme Court was in what
year were the profits taxable to the Oil Company. The
Supreme Court held that such money was not income in
1916 because ‘‘at no time during that year was there a
right in the company to demand that the receiver pay over
the money’’, that it was not income in 1922, the year in
which the ownership litigation was finally terminated, but
that it ‘‘became income of the company in 1917, when it
first became entitled to them and when it actually re-
ceived them.’’

10

This latter quotation precisely indicates what is meant
when one receives money under a ‘‘claim of right’’. Note
the word ‘‘and’’. A taxpayer cannot be said to have re-
ceived money under a ‘‘claim of right’’ merely because
he has received the money, he must also be legally entitled
to receive the money. It should also be noted that in the
Burnet case the duty to pay the money to the company,
which made the Company entitled to receive it, was es-
tablished by legal adjudication in its favor.

The Supreme Court has given to the words ‘‘claim of
right’’ a definite legal connotation. They cannot be loosely
applied to any circumstances where money is simply re-
quested and received, nor interpreted to mean any claim
short of larcenous. Payment under ‘‘claim of right’’ refers
to a receipt when the recipient had a right to demand pay-
ment and when the paying party was under a duty to pay.

The Circuit Court below misapplied the doctrine to
include receipt of payment when there was no right to de-
mand nor duty to pay.

The New York law is well settled that under Section
285 of the Surrogate Court Act the right of an executor
to commissions depends not only upon the rendition of the
services, but also upon the settlement of the account. Until
both events have occurred, the executor is not legally en-
titled to commissions (Oakeshott v. Smith, 104 App. Div.
284; aff’d 185 N. Y. 583, 78 N. E. 1108; Beard v. Beard, 140
N. Y. 260, 35 N. E. 488; In re Bates’ Estate, 167 Misc. 641).

Hence, by deciding that the petitioner in the instant
case when he took his commissions before the settlement
of the estate accounting took under claim of right, the
Circuit Court extended the doctrine of the Burnet case
to an uncontemplated degree.

11

First, it changed the determination of whether the tax-
payer was entitled to the money when he received it from
a question of law upon receipt to a question of fact to be
resolved in the light of subsequent events. In the instant
case, petitioner was not entitled to the advances in 1936
and 1937 because the legal adjudication namely, the Surro-
gate’s award of commissions was lacking. In point of fact
there existed numerous possibilities that the Surrogate
might not award the commissions already advanced, be it
for misfeasance, malfeasance, neglect the death of the
executor, the non-approval by the Surrogate of the agree-
ment as to the appropriation of fees, or for a host of other
reasons (R. 21, 26, 27). It was only in 1938 upon the hand-
ing down of the decree by the Surrogate was it first deter-
mined that petitioner was entitled to the commissions.
Until then the advances were mere loans. (In re Jula’s
Estate, 3 N. J. Misc. 976; 130 A. 733, 735.)

Second, the Court below added degrees of legality or
rather of illegality to the doctrine, additions never intended
by the Supreme Court. The Burnet case succinctly stated
that the money became income when the Company ‘‘first
became entitled to them and when it actually received
them.’’ Therefore, a taxpayer in order to take under a
claim of right must have been entitled to receive the money.
The word ‘‘entitled’’ means what it says—the legal right
to receive. The Circuit Court below mistakenly held the
receipts in question as payments under a ‘claim of right”’
because no fraud was involved—though it was definitely
illegal—and because by hind sight it would appear that no
serious doubt existed that the Surrogate would ultimately
decree payment of commission exceeding the amounts im-
properly advanced.

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12

The controlling factor herein is that plaintiff did not
have the right to demand and the estate did not have the
duty to pay advances of commissions in 1936 and 1937,
It is, therefore, contended that the moneys received by
the plaintiff were not so received under a claim of right;
they were not compensation for personal serv.zes within
the meaning of Section 22 of the Revenue Act and were,
therefore, not taxable income.

It is respectfully submitted that the points at issue
should be decided by this Honorable Court.

Wuererore, it is prayed that this petition for a writ
of certiorari be granted.

Respectfully submitted,

Davw L. Sprune,
Attorney for Petitioner,
295 Madison Avenue,
New York, N. Y.
Arnotp M. Grant
Herman L. WEISMAN
Wo re R. Coarney
of Counsel

RIAN

ae

Swe ba as al OD

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA34086415_1827%3A1. Public record. Not legal advice.