Petition for a Writ of Certiorari — Doyle v. Helvering

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IN THE

Supreme Court of the Gnited States

Octoser TERM, 1939.

Harry F. Doyte anp Lucy J. Doyte (Husband and Wife),

Petitioners,

Vv.

Guy T. Hetvertnc, Commissioner of Internal Revenue,

Respondent.

PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES CIRCUIT COURT OF APPEALS

FOR THE SECOND CIRCUIT.

Tuomas M. WILKINs,

Attorney for Petitioners,

Union Trust Building,

Washington, D. C.

May, 1940.

Press oF Byron S. ADAMS, WASHINGTON. D. O.

— SORA Aves se ra exaa

INDEX

Page

SN Ueda oe ba rece ap eind epde eae 2

PN ig a a ca Seana s we eae ae Ca ARENT 2

oh 5 divich 65s wh Ae neies karen eu ee 2

a a wl one Giwkekwnaaen toe capes 2

IE oe tog seta bee Val gen ade week ned 2

| Specification of Errors to be Urged ................ 5

Reasons for Granting the Writ .................006 6

ONE Sirs bab de adads bee eeahw haves VEibee ee 16

Sg aE Dern wee tery Ihrer on ene aT Ae 17

CITATIONS.

Cases:

Alamitos Land Company, Commissioner of Internal

Revenue v., 40 B. T. A. 353 (No. 9494)........... 11

Baird v. United States, 65 Fed. (2d) 911 (1933). .8, 9, 12

Barker v. Magruder (App. D. C. 1938), 95 Fed. (2d)

TO: BER Ae. Fak kd ess bane bpedas Oke CoA eee se 8, 11

Blum v. Helvering, 74 Fed. (2d), 482 (1934 App.

Be Se csi sk ons as ats 1s dee ad ee ene ke

Board v. Commissioner, 51 Fed. (2d) 73, 75 (1931 C.

C. A. 6th) Cer. Den. 284 U.S. 658, 52S. Ct. 35.... 11

Brooklyn Gas Co. v. Commissioner, 62 Fed. (2d)

FA os Roc a RRS ee Sine cdaree se bb0r0 USD

Brown v. Commissioner, 63 Fed. (2d) 66, 68....... 15

Champlin v. Commissioner, 78 Fed. (2d) 905, (1935

Oe ek is NE ik 5s Conde tan Rhee dk ee ees 12

Doyle v. Commissioner, 39 B. T. A. 940, 110 Fed. (2d)

BU aa Os eninge Kio KGS Sh onc AE DART ae

Rg Ae nee eee ene eer Pr peer er 14

Fairmont Creamery Corp. v. Helvering, 89 Fed. (2d)

OEP Cae OS ER) cnc cches osaveaw ic ser sees 12

Ford v. Commissioner, 51 Fed. (2d) 206 (1931 C.

ie |, ee eee oy ey erage ure rear 12

_ PLU A INALIENABLE UNE TIEN YB RNR ATED Ne RAGAN SM LPEN GRE AME ESS LINEMEN BE YSN RR

Page

Griffin v. Smith, 101 Fed. (2d) 348, 350 (1939 C. C.

A. 7th) Cer. den. 308 U. S. 561, 60 S. Ct. 73... .12, 16

Lucas v. American Code, Inc., 280 U. S. 445, 50 S.

ii Index Continued.

a ha KEEN Usk Cet eeu eeu eecsies soe osu s eens 16

Lyon, Commissioner of Internal Revenue v., 97 Fed.

(3a) 70 (2908.0. C. A. DER)... cece ccenee’s 12

North American Oil Consolidated v. Burnet, 286

U. S. 417, 424, 52 S. Ct. 613, 615, 76 L. Ed. 1197,

EE MME GGles ba cwcccscceanebueee yes 6, 8, 9, 10, 16

North Jersey Title Ins. Co., Commissioner of In-

ternal Revenue, v., 79 Fed. (2d) 492 (1935)...... 6, 7

North Texas, Lucas v., 281 U.S. 11.............. 8

Prentis v. Atlantic Coast Line Co., 211 U. S. 210,

NE cs ones ec Khe ashes sete ens 13

Renwick v. United States, 87 Fed. (2d) 123 (1937

ee Lees sina eban es seas mneus 12

Saunders v. Commissioner, 101 Fed. (2d) 407 (1939

ke Reo ee eee eee eee 12

Sinking Fund cases, 99 U. S. 700, 761 ............ 13

Umsted v. Commissioner, 72 Fed. (2d) 328 (1934

ee ec ac Uh ed se hands cbendes av wes 12

Victoria Paper Mills Co. v. Commissioner, 32 B. T.

A. 666, affirmed 83 Fed. (2d) 1022 (1936 C. C. A.

Ee Paitin euaeikes cheer sen edcutnnceses 12

Virginia Iron Coal and Coke Co. v. Commissioner,

99 Fed. (2d) 919 (1988 C. C. A. 4th).......... 14, 15

Revenue Act of 1934:

NUN os cok sa ncnncekve aces aes 2, 14, 16, 17

EE i Cee inc ciGh kann ce stan st ewwe'ecwin'e 17

ee a aaa tle ibd bane haw wee hae 17

Miscellaneous :

ee Perr reer eer er eee ee 14

OR OS ee ee ners 12

Oe, Oe ee ok Oy Be RED once cee wc ee secees 12

ie & Bo 5 Oe ree 12,15

Willoughby on the Constitution of the United States,

NE I oS vp siv'n sieves wed wecene ness 14

— perp ne PRP CRER RRR CR ISERIES EEA

IN THE

Supreme Court of the Gnited States

Ocroser TERM, 1939.

No.

Harry F. Doyte anv Lucy J. Doyte (Husband and Wife),

Petitioners,

Vv.

Guy T. Hetverinc, Commissioner of Internal Revenue,

Respondent.

PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES CIRCUIT COURT OF APPEALS

FOR THE SECOND CIRCUIT.

Harry F. Doyle and Lucy J. Doyle, husband and wife,

by their attorney, Thomas M. Wilkins, Union Trust Build-

ing, Washington, D. C., pray 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-

entitled cause on March 4, 1940, affirming the decision of

the United States Board of Tax Appeals,

OPINIONS BELOW.

The opinion of the Board of Tax Appeals (R. 27—R. 30)

is reported in 39 B. T. A. 940. The opinion of the Cireuit

Court of Appeals is reported in 110 Fed. (2d) 157. CA? % & 7

JURISDICTION.

The judgment of the Cireuit Court_of Appeals was en- tR

tered on March2, 1940.” Motion for rehearing was denied ie.

on March 21, 1940.“ The jurisdiction of this Court is in- ““’

voked under Section 240 (a) of the Judicial Code, as

amended by the Act of February 13, 1925.

QUESTION PRESENTED.

Where a taxpayer on the cash basis, has received part

of the sale price for real property, under an executory con-

tract, and where the vendee refused either to accept the

deed or pay the balance: is the income of the executory

vendor, arising from his retention of the said forfeited pay-

ments, ‘‘derived’’ and therefore taxable to him, (1) in the

year in which the litigation following the default is termi-

nated or, (2) in the year in which the taxpayer vendors’

claim of right to the payments was perfected upon tender

of the deed?

STATUTE INVOLVED.

The Statute involved, namely Section 22(a) of the Rev-

enue Act of 1934, is quoted in the Appendix, page 17 of

this Petition.

STATEMENT.

On June 10, 1929 petitioners contracted to sell for $185,-

000, certain improved real estate bought by them in 1903

for $17,000. (R. 42—R. 52) The vendee, the Tishman

Realty and Construction Corporation, hereinafter referred

to as the Tishman Company, paid petitioners $35,000 in

1929 and in 1930 paid them $25,000 to be applied as part of

the purchase price. (R. 22—R. 53) The parties fixed

June 16, 1934 as the closing date for delivery of the deed

and payment of the $115,000 balance of the purchase

price. (R. 22)

On this latter date, namely June 16, 193¢ petitioners

made tender of a valid deed to the property in accordance

with the terms of the contract, (R. 22) but the vendee re-

fused either to accept the deed or to pay the balance of the

purchase price (R. 22—R. 43), served notice upon the pe-

titioners that the deed was defective in seventeen specific

respects, all of which, were false, (R. 24—R. 25—R. 43)

and endeavored to settle the matter on mutual releases by

offering various amounts up to $12,000 in addition to the

$60,000 already paid. These offers were rejected. (R. 44)

The petitioners thereupon immediately instructed their

attorney to secure specific performance of the contract.

(R. 44—R. 48) However, petitioners delayed for nearly

twenty months after defendant’s default to do or say any-

thing more; there was no offer, no demand, no communica-

tion from the date of the default until February 14, 1933

on which day petitioners brought suit for specific perform-

ance of the said breached contract in the Supreme Court of

the state of New York. (R. 25—R. 49—R. 57)

In answer to petitioners’ suit for specific performance,

the Tishman Company set up a counterclaim for the recov-

ery of the $60,000 paid to petitioners under the contract.

(R. 58 to R. 68)

On April 3, 1934 the Court entered its decree dismissing

petitioners’ complaint for laches and dismissing the de-

fendant’s counterclaim on the merits. (R. 23 to R.25) The

Court held petitioners had without adequate excuse un-

reasonably delayed the action for specific performance

while the market value of the property as shown at the

| trial had very substantially decreased. (R. 25)

For all the years 1929 and 1934, inclusive, the petitioners’

income tax returns were made upon the cash receipts and

disbursements basis. (R. 27)

Petitioner herein does not believe the facts concerning

the reporting of this profit in 1930 and 1931 to be material,

but has set out such facts in full in the margin. '

The petitioners did not include any of the amounts re-

ceived from the Tishman Company in 1929 and 1930 in

their joint return for 1934. In his determination of the de-

1For the years 1929 and 1930 petitioners, in admitted good

faith, made and tendered to the collector for filing timely income

tax returns reflecting the receipt of the amounts of $35,000 and

$25,000 in the years 1929 and 1930, respectively, and tendered with

the said returns the income tax indicated therein. The petitioner,

Harry F. Doyle, fully explained to the deputy collector all of the

circumstances affecting the said contract with the Tishman Com-

pany, which had transpired as at the time of tendering each such

return. The deputy collector of the Internal Revenue, however,

refused to accept the returns so prepared, and required petitioners

to prepare returns of income excluding the said items of $35,000

and $25,000 from said returns. In accordance with said instrue-

tions of the said deputy collector, petitioners filed timely income

tax returns for the years 1929 and 1930, excluding the said items

of income.

In March, 1932, in the preparation of the 1931 return, the peti-

tioners again made a full disclosure to the same deputy in the col-

lector’s office of all of the facts relating to the transaction, includ-

ing the default of the Tishman Company. The petitioner, Harry

F. Doyle, then submitted for filing a return for 1931, including the

said items of $35,000 and $25,000, and the deputy again instructed

him not to report the income in that year, but to wait for the final

outeome of the sale before doing so. He then assisted Mr. Doyle

in the preparation of a 1931 return which Mr. Doyle then exe-

euted and filed excluding the said payments. (R. 25, R. 26, R. 45

to R. 48)

After the suit for specific performance was terminated in 1934,

the petitioners filed, in 1935, amended joint returns for 1929 and

1930, in which they reported in their gross incomes the respective

amounts of $35,000 and $25,000 received from the Tishman Com-

pany in those years and paid the additional taxes shown to be

due by the amended returns, namely $2,140.33 on the amended

return for 1929, and $1,668.84 on the amended return for 1930.

Later, on November 6, 1935 to protect their interests, petitioners

filed claims for the refund of the taxes paid on the amended re-

turns, plus interest. (R. 26) At no time did an agent of the Gov-

ernment ever request of petitioners a waiver of the state of limi-

tations. (R. 46) The record does not show it, but these claims

have not yet been acted on.

Baa wa EOE ELE ERS RRR Reo comes ee

i REDE

ee ae Le eS ee ee a ee

ficiency for 1934, however, the respondent has included the

total of such amounts, namely, $60,000, in petitioners’ gross

income for that year as ‘“‘damages’’ awarded by the court

in the action brought by the petitioners for specific per-

formance. (R. 26)

The Commissioner of Internal Revenue determined a

deficiency in income against said petitioners in the amount

of $12,711.31 for the calendar year of 1934 on the ground

that petitioners did not include, but should have included

the said $60,000 of forfeited down payments in income for

the calendar year 1934. Petitioners duly appealed to the

Board of Tax Appeals from the said determination of a de-

ficiency. The Board held as a matter of law that the

amounts of $35,000 and $25,000 were taxable income to the

petitioners in the year 1934, the year in which the Court

dismissed the suit for specifie performance and also dis-

missed the counterclaim of the Tishman Company for re-

payment to it by petitioners of the $60,000, which it had

paid them in 1929 and 1930 (R. 27 to R. 30). United States

Cireuit Court of Appeals for the Second Circuit affirmed

the decision of the Board. CR 74& 79)

SPECIFICATION OF ERRORS TO BE URGED.

The Circuit Court of Appeals erred:

(1) In holding that the amounts of $35,000 and $25,000

received by petitioners in the years 1929 and 1930, respec-

tively, were ‘‘derived’’ in and constitute taxable income

for the year 1934, the year in which the Supreme Court of

the state of New York, rendered its decision dismissing pe-

titioners’ suit for specific performance and dismissing the

Tishman Company’s suit for recovery of the said $60,000.

(2) In failing to hold that the said $60,000 is taxable in-

come in the year in which the said sum first became peti-

tioners’ property under a claim of right.

(3) In affirming the decision of the Board of Tax Ap-

peals.

eee i ta ee ae ae ee aes EAE NET AS ENE PUSS RNIN Ost aenesaaes

REASONS FOR GRANTING THE WRIT.

(1) The decision of the Court below is in direct conflict

with the decision of the United States Circuit Court of

Appeals for the Third Circuit in the case of Commissioner

of Internal Revenue v. North Jersey Title Ins. Co., 79

Fed (2d) 492 (1935). In that case the taxpayer in 1927

entered into a written contract for the sale of certain im-

proved real property receiving a part of the sale price in

1927, upon the execution of the contract. Later, on October

1, 1927 the taxpayer, in accordance with the agreement,

tendered a valid deed to deliver possession of the property,

but the purchaser refused either to accept delivery or to

pay the balance of the purchase price. The taxpayer there-

upon instituted suit for specific performance in the New

Jersey Court of Chancery, which Court during the year,

1928, entered a decree for specific performance, interest to

run from October 1, 1927. Thereafter in 1928 the purchaser

paid the amount of the decree in full. The Commissioner,

as in the instant case, ruled that the sale was consum-

mated in 1928, the year in which the Court rendered its

judgment terminating the litigation and held that the profit

was taxable in that year, (1928). The Board of Tax Ap-

peals, on the contrary, held that the sale was consummated

in 1927 and that the profit should be taxed in that year

(1927), and that no part of the profit was income in the

year in which the litigation was finally terminated. Upon

appeal the Circuit Court of Appeals for the Third Circuit

affirmed the Board.

(2) The decision of the Cireuit Court of Appeals below

holds that income received under a claim of right and with-

out restriction as to its disposition, need not be reported

for income tax purposes until the year in which litigation

affecting the said claim of right is finally terminated. This

decision is in conflict, therefore, with the principle estab-

lished by the decision of this Honorable Court in North

American Oil Consolidated v. Burnet, 286 U. S. 417, 424,

ee AE OTE A AI i eR 9 — om - —— “ NBR ete...

52 S. Ct. 613, 615, 76 L. Ed. 1197, 1200 (1932). In that

case the taxpayer in 1916 operated a section of oil land,

the legal title to which stood in the name of the Govern-

ment. Prior to that year the Government had instituted

suit also claiming a beneficial ownership and seeking to

oust the Company from possession. Early in 1916 the Gov-

ernment secured the appointment of a receiver to operate

the property and to hold the net income thereof. The

profits in question were paid to the receiver in 1916 as they

were earned. In 1917 the District Court dismissed the

Government’s action and in that year (1917) the receiver

paid the earnings to the taxpayer. The Government ap-

pealed (without supersedeas) to the Cireuit Court of Ap-

peals, which Court affirmed the lower court’s decree in 1920.

In 1922 further appeal to this Court was dismissed by

stipulation.

On the foregoing facts, this Court heid that the profits

earned in 1916 were not income of the year 1922, the year

in which the litigation with the Government was finally

terminated. It held that the profits became income of the

Company in 1917 when it actually received them under its

claim of right, and without restriction as to their disposi-

tion, holding that even though the taxpayer may still be

held not entitled to retain the money and even though he

may still be liable to restore its equivalent, the income is

taxable in the earlier year, and not in the year in which

the litigation was finally terminated. In the instant case,

under fundamentally comparable facts, the Circuit Court

of Appeals below, disregarding the well established ‘‘claim

of right’’ rule, held that the final termination of litigation

had the effect of creating taxable income.

The notion that the conflict between the North Jersey

Title Company case and the decision of the Court below,

may be reconciled on the ground that one taxpayer was

on the cash receipts and disbursements basis and the other

on the accrual basis is untenable. Where income, which is

the subject of litigation, has been both received and accrued

a na neuer een cor arencancran iene esc ttp merveecoe tec

an 7

before the termination of the litigation the differences be-

tween the cash receipts and disbursements basis and the

accrual basis are without material bearing on the question

of whether or not the existing litigation has the effect of

postponing the duty of reporting the income. This was

expressly recognized by this Honorable Court in North

American Oil Consolidated v. Burnet, supra, where it held

the rule to be the same either on the cash or the accrual

basis saying:

‘‘Nor is it material for the purposes of this case,

whether the Company’s return was filed on the cash

receipts and disbursements basis, or on the accrual

basis.”’

286 U. S. 417, 423, 52 S. Ct. 614, 615.

See also Barker v. Magruder, (App. D. C.) 95 Fed. (2d)

122, 124; Lucas v. No. Tex. Lumber Co., 281 U.S. 11.

(3) The decision of the Court below is in direct conflict

with the decision of the United States Circuit Court of

Appeals for the Fifth Cireuit in Baird v. United States, 65

Fed. (2d) 911. (1933) In that case the taxpayer was a

member of a partnership which in 1919 contracted to sell an

oil lease to one Flannery for $2,500,000. During that year

(1919) under the contract Flannery paid the partnership

$500,000 in cash and was to make a further cash payment

February 8, 1920 of $300,000 and give his notes for the

balance of the purchase price at which time the partnership

was to deliver to Flannery a warranty deed for the prop-

erty and to account to him for the oil runs from the date

of the contract. The agreement provided for the forfeiture

of the $500,000 in case of Flannery’s default upon the part-

nership’s giving him fifteen days’ written notice declaring

the contract forfeited. The partnership kept its books and

filed its returns on the cash basis.

Flannery defaulted on February 8, 1920, but the partner-

ship failed to give the fifteen days’ notice of forfeiture, did

not tender the deed, but continued its possession and opera-

RIES ACL BERN H MiNe a Rave ariare EC IRe Rade ,

Se A SIEM RAR I SY SOLARIS TS BORNE ACHR NEN: SU RRR rN HIRE

tion treating Flannery as having an equitable interest in

the lease. The partnership took no steps to cancel the

contract until it brought suit in January 1921 to set it aside.

This suit resulted in a judgment annulling the contract, but

ordering restitution of $350,000 to Flannery.

The Circuit Court of Appeals, on the authority of North

American Oil Consolidated vy. Burnet, supra, affirmed the

District Court’s holding that the profit arising from the

forfeiture was taxable during the year 1920, namely at the

moment when the rights of the partnership arose, from

Flannery’s default,to keep the forfeited payment. This

case is almost on all fours with the instant case. In both

cases the taxpayers were on the cash basis, there was an

executory contract of sale with partial payments (or ear-

nest money) to be applied on the purchase price in a year or

years prior to the date set for closing, the default occurred

at the closing date, and suit was brought in a still later

year affirming the taxpayers’ right to keep forfeited down

paynients.

It was thus established by Baird v. United States (supra),

that money received to which a claim of right later arose

(disputed or undisputed) was taxable in the year the right

to retain it arose by the acts of the parties and that the ter-

mination of later litigation concerning the right to retain

such receipts or profits did not establish the moment when

such amounts became taxable to the recipient. This de-

cision is wholly irreconcilable with the decision of the Cir-

cuit Court of Appeals below.

(4) The question herein involved is one of substantial

and general importance in the administration of the income

tax laws. Circumstances wherein forfeited initial pay-

ments, forming part of the purchase price of executory

contracts of sale, where the right or inclination to sue for

specific performance exists, are, comparatively speaking,

of frequent occurrence.

ear a8 DIE ID BRE ALE ENOL ITD IAPC AL LOD LGA WC LAREN TGS VLRO R IR SITE VAY SLT NRRL IS LTE SE

The revenue law involved in the instant case is compar-

able as regards the issue herein to the later and current

revenue laws, therefore, the question herein raised is ob-

viously most likely to recur from time to time under such

later laws.

It is important, therefore, that this Honorable Court take

jurisdiction of this case by the granting of a writ of cer-

tiorari to review the decision of the lower court with the

view to correcting the present conflict between the decision

of the Cireuit Court of Appeals for the Second Circuit be-

low and the above-mentioned decisions of the Circuit Courts

of Appeals for the Third and Fifth Circuits as to the

effect on the taxable period of the termination of litigation

involving forfeited down payments.

In the light of the present conflicting decisions, it is con-

fusing and creates uncertainty, both, to the taxpayer and

the Government not to have a clear pronunciation from this

Honorable Court as to the year in which such forfeited

down payments are ‘‘derived’’ and therefore taxable.

It is important, also, that this Honorable Court make a

judicial clarification which will remove the uncertainty

that has arisen as a result of the decision of the Circuit

Court of Appeals below, as compared with the decision of

this Honorable Court in North American Oil, Consolidated

v. Burnet (supra), the decisions of the Cireuit Courts of

Appeals for the Sixth, Seventh, and Tenth Circuits, and

the Court of Appeals for the District of Columbia cited

on pages 11 and 12, as regards the extent, if any, to which

the termination of litigation concerning the right to retain

income previously received, affects the taxable period of

such income.

Indicative of the uncertainty and confusion existing as

to the extent to which the termination of litigation, con-

cerning the right to retain income previously received

under a claim of right, affects the taxable period of such

income, the attention of this Honorable Court is respect-

fully invited to the contention now being made by the Com-

missioner of Internal Revenue before the United States

Circuit Court of Appeals for the Ninth Circuit in the case

of Commissioner of Internal Revenue y. Alamitos Land

Company (No. 9404). In his brief filed with that Court in

March, 1940 the Commissioner of Internal Revenue, incon-

sistently with his position in the instant case, is making the

identical argument contended for by the Petitioners herein,

that income received by the taxpayer in that case during the

years 1932 and 1933 is taxable in such years, notwithstand-

ing the pendency of litigation, under which the taxpayer

was required by the Court, in a later year, to repay a fund

of more than one-half million dollars of which, upon settle-

ment in 1938, it received back one hundred thousand dollars.

The Board of Tax Appeals held (40 B. T. A. 353) that the

pendency of the litigation, which was largely successful,

gave the taxpayer the right to postpone the reporting of the

income until after the litigation was terminated. The case

has been argued but the decision of the Cireuit Court of

Appeals has not yet been rendered.

(5) Also in conflict with the decision of the Court below,

the following authorities, including long continued admin-

istrative practice, consistently support the rule that the ter-

mination of litigation concerning the right to retain in-

come rightfully received in a previous year, does not affect

or control the period in which the income is to be taxed:

Commissioner of Internal Revenue v. Brooklyn Gas Co., 62

Fed. (2d) 505 (1933 C. C. A. 2)? Board v. Commissioner,

51 Fed. (2d) 73, 75 (1931 C. C. A. 6), Cer. Den. 284 U. S.,

658, 52 S. Ct. 35;° Barker v. Magruder, 95 Fed. (2d) 122,

? Funds impounded pending outcome of rate litigation held tax-

able in year of withdrawal under bond notwithstanding litigation

continued and terminated in a later year.

* Corporate stockholder held taxable in 1920 on receipt by him

from liquidating trustees of his share of profits from sale notwith-

standing that unsuccessful litigation challenging his right to profits

was terminated in 1927.

- mune : VERSE HIRANO EME Re RoR eit ey MLLER ey es pe

Ashe

124 (1938 App. D. C.);* Griffin v. Smith, 101 Fed. (2d) 348,

350 (1939 C. C. A. 7), Cer. Den. 308 U. S. 561, 60 8. Ct.

73;° See also G. C. M. 16730 XV-1 C. B. 179;° G. C. M.

20296, 1938-2 C. B. 198.’ Ct. D. 499, XI-1 C. B. 293.

In all of the foregoing cases, the right to retain the in-

come existed at the time of its receipt. When, as in the in-

stant case, the circumstance giving rise to the right to

retain it as income occurs after the receipt of the fund, such

circumstance does not serve to make the later termination

of litigation, concerning the right to retain it, controlling

as to the period in which to tax it. Baird v. United States,

supra.

For other anaiogous Circuit Court of Appeals or Ap-

peals D. C. decisions reaching a similar conclusion see:

Saunders v. Commissioner, 101 Fed. (2d) 407 (1939 C. C. A.

10th) ; Commissioner v. Lyon, 97 Fed. (2d) 70 (1988 C. C.

A. 9th); Fairmont Creamery Corp. v. Helvering, 89 Fed.

(2d) 810 (1937 App. D. C.); Renwick v. United States, 87

Fed. (2d) 123 (1937 C. C. A. 7th) ; Umsted v. Commissioner,

72 Fed. (2d) 328 (1934 C. C. A. 8th); Blum v. Helvering, 74

Fed. (2d) 482 (1934 App. D. C.); Champlin v. Cominis-

sioner, 78 Fed. (2d) 905 (1935 C. C. A. 10th) ; Ford v. Com-

missioner, 51 Fed. (2d) 206 (1931 C. C. A. 6th); Vietoria

Paper Mills Co. v. Commissioner, 32 B. T. A. 666, affirmed

without opinion, 83 Fed. (2d) 1022 (1936 C. C. A. 2d).

* Uncollected usurious interest accrued on books of taxpayer be-

fore receivership held taxable when accrued notwithstanding fact

that its collection was not legally enforceable.

> Corporate officer held taxable on bonus year of receipt notwith-

standing subsequent court decision holding payment ‘*void’’ and

requiring repayment to corporation.

® Corporate director on cash basis held taxable in year of receipt

of profits from stock transactions, although he was required by a

judgment in a later year to surrender the profits to stockholders of

his corporation.

7 Fees of Executors on eash basis held taxable in year of receipt

rather than later when approved by court.

TOR he a Sete a a

f NESE ee a OR a ei Ss

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taku wate aie waht PRELIM AETV TEI

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(6) The decision of the Court below was predicated, in

effect, upon the premise that the judicial determination

in 1934 of the action brought in the Supreme Court of

the state of New York by the taxpayer herein, put an

end to or destroyed rights which the petitioners had

before the suit for specific performance was brought.

Such a premise seems to proceed on the notion that the

jurisdiction of a Court in such a proceeding is not merely

to hear and determine the rights of the parties, but to hear

and create rights which were previously nonexistent, and

to put an end to rights which previously existed.

We do not believe that parties emerge from litigation

with rights different from those which they possessed when

the litigation commenced. While the judgment of a Court

puts an end to the controversy between the parties, it does

not put an end to any one’s rights. It does not fix the rights

of either party any differently than as they existed when

the suit was brought.

In exercising its jurisdiction in the proceeding between

petitioners and the Tishman Company, the Court was ex-

ercising normal judicial functions. Courts do not make the

law, change the law, make the facts, change the facts, or

change the rights of the litigants in exercise of their judi-

cial power. As stated by this Honorable Court in Prentis

v. Atlantic Coast Line Co., 211 U. S. 210, 29 S. Ct. 67, 69:

‘‘A judicial inquiry investigates, declares, and en-

forces liabilities as they stand on present or past facts

and under laws supposed already to exist. That is its

purpose and end. Legislation, on the other hand,

looks to the future and changes existing conditions by

making a new rule, to be applied thereafter to all or

some part of those subject to its power.’’

As stated by Justice Field in his dissenting opinion in

the Sinking Fund cases, 99 U. S. 700, 761:

‘*The distinction between a judicial and legislative

Act is well defined. The one determines what the law

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is, and what the right» of parties are, with reference to

transactions already had; the other prescribes what the

law shall be in future cases arising under it. Where-

ever an Act undertakes to determine a question of right

or obligation, or of property, as the foundation upon

which it proceeds, such Act is, to that extent a judicial

one, and not the proper exercise of legislative fune-

tions.”’

See Willoughby on the Constitution of the United States,

Volume 3, page 1620.