Brief for the Respondents in Opposition — Taylor v. Commissioner

INDEX

Page

Previous opinions and orders........................0005 1

ROAR ote ete aera are tre gale EP eee 2

i ee <.ccchbeanatetasesheeeeGd eSaenens ses 2

res od Ce ale Minds pil aice UVR EL EAC Oe aR aN 3

EE coc ul Cucen Fah GaeERUNNSAEA COOLED REM SEONEREOS) 3

EE Nh via FoR O RCD ea Ved Ge ee aane chee ieee “re 8

PE Hits ii wie neseme knee kaa eV eaw nao semen ten Ke 14

PE vie ca CuK RR Ade Re TRE Rak bite tee eek Ke are ee eae 15

CITATIONS

Cases:

Crews v. Commissioner, 120 F. 2d 749, certiorari denied,

By OE SE pn wan oes ws 0b G0GR Cab ap ueneaehnekee css 10

Denholm & McKay Co. v. Commissioner, 132 F. 2d

ME nab nee sta veka saat concer eee eEcUhaews ick ll

Hazel-Atlas Co. v. Hartford Co., 322 U.S. 238. . .7, 10, 11, 12,13

Helvering v. Northern Coal Co., 293 U.S.191.......... 9

McCarthy v. Commissioner, 139 F. 2d 20.............. 10

Merrill v. United States, 152 F. 2d 74.................. 10

Monjar v. Commissioner, 140 F. 2d 263................ 10

Old Colony Tr. Co. v. Commissioner, 279 U.S. 716...... 10

Rothensies v. Electric Battery Co., 329 U.S. 296........ 11,13

Simpson, R., & Co. v. Commissioner, 321 U.S. 225...... 9,10

Swall v. Commissioner, 122 F. 2d 324.................. 10

Sweet v. Commissioner, 120 F. 24 77................. 10

Taylor v. Commissioner, 76 F. 2d 904, certiorari denied,

296 U. S. 594, rehearing denied, 296 U.S. 662...... 4, 9, 10, 12

Taylor v. Commissioner, 324 U.S. 871.............. 5,12

Taylor v. Marcelle, 97 F. Supp. 35.................... 12

Toledo Co. v. Computing Co., 261 U.S. 399............. 13

United States v. Throckmorton, 98 U.S. 61............ 13

White’s Will v. Commissioner, 142 F. 2d 746.......... 10

Statutes :

Internal Revenue Code, Sec. 1140 (26 U.S.C., 1946 ed.,

Pe: iccccht caer ckiawins ania taeekrarinen ts 8, 10, 15

Revenue Act of 1926, c. 27, 44 Stat. 9, See. 1005........ 8

Miscellaneous :

Federal Rules of Civil Procedure, Rule 60(b).......... 12

S. Rep. No. 52, 69th Cong., lst Sess., pp. 37-38 (1939-1

Cum. Bull. (Part 2) 332, 300)... ....... 0... eee 9

(1)

Guthe Supreme Gourt of the United States

Ocroser TERM, 1952

No. 114

WintHrop TAYLOR, PETITIONER

v.

COMMISSIONER OF INTERNAL REVENUE

ON PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS FOR THE

SECOND CIRCUIT

BRIEF FOR THE RESPONDENT IN OPPOSITION

PREVIOUS OPINIONS AND ORDERS

The memorandum opinion of the Board of Tax

Appeals in the original proceeding, dated June 15,

1934, is unreported, but may be found in 1934

P-H B.T.A. Memorandum Decisions, par. 34,310.

The opinion of the court below, dated April 15,

1935, affirming the decision of the Board, is re-

ported in 76 F. 2d 904. The order of this Court,

dated October 14, 1935, denying taxpayer’s peti-

tion for a writ of certiorari to review this decision

of the court below, is reported in 296 U.S. 594, and

(2)

2

the order of this Court, dated November 11, 1935,

denying taxpayer’s petition for rehearing of the

petition for a writ of certiorari, is reported in

296 U.S. 662.

The per curiam denial by the court below, dated

December 26, 1944, of taxpayer’s petition to review

its judgment and decree of April 22, 1935, affirm-

ing the decision of the Board, was made without

opinion and is not reported. The order of this

Court, dated April 9, 1945, denying taxpayer’s

petition for a writ of certiorari to review this

decision of the court below, is reported in 324

U.S. 871.

The per curiam opinion of the Court of Appeals

below, as amended March 18, 1952, denying tax-

payer’s second motion to review and set aside its

prior order (R. 27), is reported in 194 F. 2d 528.

JURISDICTION

The judgment of the Court of Appeals was

entered on February 27, 1952 (R. 21), and tax-

payer’s petition for rehearing was denied on

March 18, 1952 (R. 27). The petition for a writ

of certiorari was filed on June 10, 1952. The juris-

diction of this Court is invoked under the pro-

visions of 28 U.S.C., Section 1254.

QUESTIONS PRESENTED

1. Whether the court below had jurisdiction to

entertain taxpayer’s second petition to review and

vacate its judgment filed April 22, 1935, affirming

the decision of the Board of Tax Appeals, in view

of the provisions of Section 1140 of the Internal

3

Revenue Code and in view of the expiration of the

term at which the judgment was entered.

2. Whether the court below, if it had jurisdic-

tion, properly denied the petition for review in

the exercise of its discretion.

STATUTE INVOLVED

The pertinent provisions of the Internal

Revenue Code are printed in the Appendix, infra,

pp. 15-17.

STATEMENT

This proceeding involves a second application

by taxpayer to have the court below set aside its

decision and decree of April 22, 1935, affirming a

deficiency in taxpayer’s income tax for the year

1929 as determined by the Board of Tax Appeals.

(R. 2, 18, 27.) The deficiency for the year 1929,

as affirmed by that decision, was in the amount of

$51,353.70. (R. 2.) Taxpayer seeks to have the

deficiency reduced to the sum of $5,319.89. (R.

18, 27.)

The deficiency relates to the treatment of a

gain of $490,006.67, resulting from the sale of

14,000 shares of stock of the Public Service

Corporation of New Jersey. The 14,000 shares

were part of a larger quantity of 35,000 shares

which taxpayer had sold. (R.5.) In his income

tax return for 1929, taxpayer reported the $490, -

006.67 as a capital net gain, on which he paid tax

at a rate of 12144%. The Commissioner determined

that that sum should be treated as ordinary income.

(R. 3.)

4

The questions raised by the deficiency assess-

ment and litigated before the Board of Tax

Appeals and the Court of Appeals were (1)

whether the 14,000 shares in question were

held primarily for sale in the course of trade

or business, and (2) if not, whether they were

held as capital assets for more than two years.

(R. 5.) The court below, in its opinion rendered

on April 15, 1935 (Taylor v. Commissioner, 76 F.

2d 904), ruled against taxpayer on the second

ground, and on April 22, 1935, entered judgment

affirming the order of the Board of Tax Appeals

dated June 15, 1934, redetermining in the sum of

$51,353.70 the deficiency found by the Commis-

sioner. On April 29, 1935, the court below denied

petition for rehearing. This Court, on October 14,

1935, denied taxpayer’s petition for certiorari

(Taylor v. Commissioner, 296 U.S. 594), and, on

November 11, 1935, denied taxpayer’s petition for

rehearing (296 U.S. 662). (R. 5.)

Thereafter, taxpayer applied to the Department

of Justice for further review of the case. On Au-

gust 8, 1939, the Department of Justice advised

taxpayer that in view of the decree of the court

below, affirming the order of the Board of Tax Ap-

peals, neither the Attorney General nor the Secre-

tary of the Treasury, nor both acting in conjunc-

tion, had any power to remit the deficiency. (R.

5-6.)

Subsequently, taxpayer alleges, he discovered,

as a result of search, the original purchase and sales

-_-

5

tickets covering the 21,000 additional shares of

Public Service stock and submitted the record of

the purchases and sales covering the entire 35,000

shares sold to the Bureau of Internal Revenue in

conjunction with an offer in compromise. He fur-

ther alleges that on October 17, 1944, the Treasury

Department, in a written report, recomputed the

1929 tax deficiency to be $5,319.89, but rejected the

offer in compromise and notified taxpayer that in

view of the judgment of the court below the Treas-

ury Department had no authority to compromise

a tax legally due for an amount less than could be

collected. (R. 6.)

In December, 1944, taxpayer filed in the Court

of Appeals below a first petition for review of its

decree of April 22, 1935, praying that the court

below vacate and set it aside on the basis of the

record of the purchases and sales of the entire 35,-

000 shares, and alleging that this evidence con-

firmed that the 14,000 shares had been held for

more than two years prior to sale. The Commis-

sioner’s answer requested dismissal of the peti-

tion on the ground that the court was without jur-

isdiction to review its prior decree. The court

below denied taxpayer’s petition without opinion

on December 26, 1944. Thereafter, on April 9,

1945 (Taylor v. Commissioner, 324 U.S. 871), this

Court denied taxpayer’s petition for certiorari to

review this decision. (R. 6.)

After the denials, taxpayer paid under protest to

the Collector of Internal Revenue the entire de-

een:

6

ficiency in income tax for the year 1929, including

interest, as follows (R. 7):

BURy TE, TOGD ncn ccecscccecss $14,034.33

December 5, 1945 ........... 51,353.70

December 26, 1945 .......... 9,454.09

December 27, 1946 .......... 15,000.00

December 15, 1947 .......... 19,000.00

aggregating $108,842.12.

mane te

- —_

( On or about July 12, 1949, taxpayer commenced

an action in the United States District Court for

the Eastern District of New York against Joseph

P. Marcelle, the Collector to whom he had made

the tax payments, for refund of the difference be-

tween the total amount of $108,842.12 and the sum

of $5,319.89. (R. 7-8.) In this action the district

court granted the defendant’s motion for summary

judgment, based on the ground of res judicata,

and dismissed taxpayer’s complaint on February

23, 1951. (R.9, 12-14.) Taxpayer has appealed to

the court below from this decision of the district

court and his appeal is now pending. (R. 9.)

On January 10, 1952, taxpayer filed in the court

below the present petition for review of its decree

of April 22, 1935. In this second petition, taxpayer

alleges (R. 6-7) that when he filed his first peti-

tion for review in December, 1944, he was not aware

of the fact that the Department of Justice, in a

memorandum addressed to the Treasury Depart-

ment on January 19, 1939, in connection with his

application pending at that time for review of his

case by the Department of Justice, had stated that

—

7

‘‘We find the petitioner in good conscience to be

entitled to relief’’, that the case was one ‘‘in which

relief ought to be afforded’’, and (R. 7)—

that it was due to the erroneous insistence of

the representatives of the Government that

the taxpayer had not established that he had

held the stock in question for more than two

years prior to sale which led the Board into

making, and the Court into sustaining, a fun-

damental erroneous deficiency determination.

Taxpayer further alleges that he was likewise not

aware at the time he filed his petition for review in

the court below in 1944, that on October 17, 1944,

the Treasury Department, in a written report upon

the basis of the purchases and sales records of the

entire 35,000 shares, made in connection with his

offer of compromise, had computed the tax de-

ficiency to be $5,319.89. (R. 7.)

In his present petition for review, taxpayer al-

leges that, if the decision of the district court in

the refund suit is correct, he cannot obtain relief

so long as that 1935 judgment of the court below

stands. He invokes the decision of this Court in

Hazel-Atlas Co. v. Hartford Co., 322 U.S. 238, as

authorizing relief here after the expiration of the

term at which the judgment of the court below

was entered. (R. 9-10.) He accordingly requests

that the court below set aside its decision and de-

eree of April 22, 1935, and make an order re-

determining the amount of deficiency in taxpayer’s

income tax for the year 1929 to the sum of $5,-

319.89. (R. 10.)

8

The Commissioner moved to dismiss the petition

on the ground that the court below was without

jurisdiction to review its 1935 decree. (R. 19-20.)

The court below denied taxpayer’s petition (R.

20-21), and held moot the Commissioner’s motion

to dismiss (R. 22). The court below also denied

taxpayer’s petition for a rehearing (R. 24-26) by

an order which at the same time amended its per

curiam opinion, (R. 27).

In its opinion, the court below pointed out that

in 1944 it denied a similar motion in which the same

facts were presented to the court in respect to the

purchases and sales. It said that the only new

proof offered was ‘‘an intermural memorandum by

someone in the Department of Justice to the Treas-

ury Department in 1939, and a recomputation of the

petitioner’s income tax by the Treasury Depart-

ment in 1944.’’ This proof, the court below con-

cluded, could afford no basis for disregarding its

earlier decision. (R. 27.)

ARGUMENT

1. By decisions of this Court and numerous de-

cisions of the courts of appeals it is well settled that

pursuant to Section 1140 of the Internal Revenue

Code (Appendix, infra, pp. 15-17), decisions of

the Board become ‘‘final’’ at the times specified,

without the qualifications which may exist in re-

gard to ordinary judgments. The section was

originally adopted as Section 1005 of the Revenue

Act of 1926, c. 27, 44 Stat. 9. Its purpose and effect

are expressed in the committee report which recom-

9

~

mended its adoption (S. Rep. No. 52, 69th Cong.,

Ist Sess., pp. 37-38 (1939-1 Cum. Bull. (Part 2)

332, 360) ) :

Date on which decision becomes final.—Sec-

tion 1005 prescribes the date on which a de-

cision of the board (whether or not review

thereof is had) is to become final. Inasmuch

as the statute of limitations upon assessments

and suits for collection, both of which are sus-

pended during review of the commissioner’s

determination, commences to run upon the day

upon which the board’s decision becomes final,

it is of utmost importance that this time be

specified as accurately as possible. In some

instances in order to achieve this result the

usual rules of law applicable in court pro-

cedure must be changed. For example, the

power of the court of review to recall its

mandate is made to expire 30 days from the

date of issuance of the mandate.

The explicit requirement of the statute deprives

the court of its jurisdiction to grant petitions for

rehearing or otherwise exercise the traditional

power to review and reconsider a judgment even

during the term at which it was entered. Helver-

ing v. Northern Coal Co., 293 U.S. 191; R. Simpson

& Co. v. Commissioner, 321 U.S. 225. Similarly,

we believe, the court below was without jurisdic-

tion to review for any reason its own order and

the decision of the Board, more than sixteen

years after denial by this Court of a petition for

certiorari (October 14, 1935, 296 U.S. 594) and of

“3

10

a petition for rehearing on the petition for cer-

tiorari (November 11, 1935, 296 U.S. 662), which

the statute specifies as an action that renders the

decision of the Board final. Internal Revenue

Code, Section 1140 (b) (2) (Appendix, infra, p.

15); R. Simpson & Co. Vv. Commissioner, supra.

In Sweet v. Commissioner, 120 F. 2d 77, 81 (C.A.

1st), the court said:

From a reading of § 1005 [of the Revenue

Act of 1926, identical with Section 1140 of the

Internal Revenue Code] as a whole it is appar-

ent that the old chancery practice with refer-

ence to bills of review has no place in the statu-

tory scheme regulating the procedure for ad-

judicating tax disputes instituted before the

Board of Tax Appeals.

To the same effect are Old Colony Tr. Co. v. Com-

missioner, 279 U.S. 716, 726, 727 ; Crews v. Commis-

sioner, 120 F. 2d 749 (C.A. 10th), certiorari denied,

314 U.S. 664; Swall v. Commissioner, 122 F. 2d 324

(C.A. 9th) ; McCarthy v. Commissioner, 139 F. 2d

20 (C.A. Tth) ; Mongar v. Commissioner, 140 F. 2d

263 (C.A. 2d) ; White’s Will v. Commissioner, 142

F. 2d 746 (C.A. 3d); see also Merrill v. United

States, 152 F. 2d 74 (C.A. 2d).

For this reason, Hazel-Atlas Co. v. Hartford Co.,

322 U.S. 238, upon which taxpayer relies (R. 9;

Pet. 2; Br. 12-14), does not apply. In that case

there was no statute limiting jurisdiction to review.

Here, Congress has chosen to fix irrevocably the

termination of tax controversies at the times spe-

epee

ll

cifically prescribed. These statutory limits may

not be disregarded upon petition for review.

In Rothensies v. Electric Battery Co., 329 U. 8.

296, this Court observed (pp. 301, 302, 303)—

a statute of limitation is an almost indispen-

sable element of fairness as well as of practical

administration of an income tax policy.

* * * + *

As statutes of limitation are applied in the

field of taxation, the taxpayer sometimes gets

advantages and at other times the Government

gets them. Both hardships to the taxpayers

and losses to the revenues may be pointed out.

If there are to be exceptions to the statute of

limitations, it is for Congress rather than for

the courts to create and limit them.

See Denholm & McKay Co. v. Commissioner, 132

F. 2d 243 (C.A. 1).

2. Even apart from the statute, the court below,

upon well-settled principles, was without power to

entertain this second petition for review of its 1935

judgment. Unlike Hazel-Atlas Co. v. Hartford

Co., supra, p. 244, this is not a case of “‘after-

discovered fraud’’, or anything comparable thereto.

The asserted errors consist in the court’s decision

that the stock involved had not been held for two

years. The most that can be said is that taxpayer

has subsequently submitted evidence, which was

at all times available to him, which if submitted at

12

the original proceeding might have led to the oppo-

site conclusion. Whether or not that evidence was

of a character which would, in an ordinary civil

proceeding, have supported a motion for new trial

on the ground of newly discovered evidence filed

within one year after the judgment (Rule 60(b)

(2), F.R.C.P.), it certainly would not, under the

usual rules, support a bill of review 16 years later.

The questions on which petitioner asserts error

were fully litigated in the original proceedings as

shown by the opinion of the Court of Appeals

(Taylor v. Commissioner, supra, 76 F. 2d 904), and

as noted by Judge Kennedy in his opinion in Taylor

v. Marcelle, 97 F. Supp. 35 (E.D.N.Y.) (R. 12-14).

The same errors here alleged were urged before

the Board, in the argument to the Court of Appeals,

in the petition to that court for rehearing and in

the petitions for certiorari and for rehearing filed

in this Court in 1935. Moreover, the Hazel-Atlas

Co. case was invoked by taxpayer in his first peti-

tion for review in 1944, which presented the same

facts as are presented here in respect to purchases

and sales. Taxpayer’s petition for certiorari to

review that order of the court below, which relied

primarily upon the Hazel-Atlas Co. case, was

denied by this Court in 1945. (324 U.S. 871.) The

only new proof now offered is an intermural memo-

randum of January, 1939, by someone in the De-

partment of Justice to the Treasury Department,

and a recomputation of taxpayer’s income tax by

the Treasury Department in 1944. (R. 6-7.) But

taxpayer also states that he was informed by the

13

Department of Justice on August 8, 1939, that in

view of the decree of the court below no power

existed in the Attorney General or the Secretary

of the Treasury to grant remission of the deficiency.

(R. 5-6.) In any event, nothing in Hazel-Atlas Co.

v. Hartford Co., supra, holds that many years after

a judgment has become final the court has power to

review matters which were in issue and were fully

disposed of by the judgment, merely on the ground

that they were incorrectly decided, or that the los-

ing party had failed to present evidence which

might have produced a different decision. If such

a power existed, litigation would never end. No

such power exists. United States v. Throckmorton,

98 U.S. 61, 65-69; Toledo Co. v. Computing Co., 261

U.S. 399, 423-424.

3. Even if the court below were deemed to have

power to grant the review sought, it committed no

abuse of discretion in denying the petition. Incal-

culable confusion would result from the reopening

of old tax cases merely because it was asserted that

questions had been decided incorrectly many years

before, when no claim of corruption or fraud is in-

volved. Rothensies v. Electric Battery Co., supra.

Especially is this true on a record such as here,

where more than seven years ago a previous peti-

tion for review based on substantially the same

grounds was considered and denied by the court

below and certiorari denied by this Court.

7

14

CONCLUSION

The decision below is clearly correct, and there

is no conflict. The petition for a writ of certiorari

should, therefore, be denied.

Respectfully submitted,

Pur B. PERLMAN,

Solicitor General.

Exuis N. SLACK,

Acting Assistant Attorney General.

I. Henry Kurtz,

Special Assistant to the Attorney General.

JuLy 1952.

Internal Revenue Code:

15

ecision becomes

Sec. 1140. Date when Board de:

final. 1 shall become

The decision of the Board

final— Filed on Time.

(a) Petition for Review Not ime allowed for

—Upon the expiration of the tino such petition

filing a petition for review, if no time; or

has been duly filed within such tetition for Re-

(b) Decision Affirmed or Pet

view Dismissed.— ot filed on time.

(1) Petition for certiorari notme allowed for

—Upon the expiration of the tin the decision of

filing a petition for certiorari, if tthe petition for

the Board has been affirmed or tht Court of Ap-

review dismissed by the Circuit orari has been

peals and no petition for certio:

duly filed; or denied.—U pon

(2) Petition for certiorari dirtiorari, if the

the denial of a petition for certaffirmed or the

decision of the Board has been a‘by the Circuit

petition for review dismissed

Court of Appeals; or vreme Court.—

(3) After mandate of Supre from the date

Upon the expiration of 30 days ff the Supreme

of issuance of the mandate of ,at the decision

Court, if such Court directs thathe petition for

of the Board be affirmed or the

review dismissed. versed.—

(c) Decision Modified or Revéome Court.—It

(1) Upon mandate of Suprem, the decision of

the Supreme Court directs that t)

16

the Board be modified or reversed, the decision

of the Board rendered in accordance with the

mandate of the Supreme Court shall become

final upon the expiration of 30 days from the

time it was rendered, unless within such 30

days either the Commissioner or the taxpayer

has instituted proceedings to have such deci-

sion corrected to accord with the mandate, in

which event the decision of the Board shall

become final when so corrected.

(2) Upon mandate of the Circuit Court of

Appeals.—If the decision of the Board is modi-

fied or reversed by the Circuit Court of Ap-

peals, and if (1) the time allowed for filing a

petition for certiorari has expired and no such

petition has been duly filed, or (2) the petition

for certiorari has been denied, or (3) the deci-

sion of the Court has been affirmed by the Su-

preme Court, then the decision of the Board

rendered in accordance with the mandate of

the Circuit Court of Appeals shall become final

on the expiration of 30 days from the time such

decision of the Board was rendered, unless

within such 30 days either the Commissioner or

the taxpayer has instituted proceedings to have

such decision corrected so that it will accord

with the mandate, in which event the decision

of the Board shall become final when so cor-

rected.

(d) Rehearing. — If the Supreme Court

orders a rehearing; or if the case is remanded

by the Circuit Court of Appeals to the Board

for a rehearing ; and if (1) the time allowed for

filing a petition for certiorari has expired, and

17

no such petition has been duly filed, or (2) the

petition for certiorari has been denied, or (3)

the decision of the Court has been affirmed by

the Supreme Court, then the decision of the

Board rendered upon such rehearing shall be-

come final in the same manner as though no

prior decision of the Board had been rendered.

(e) Definitions.—As used in this section—

(1) Circuit Court of Appeals—The term

“Circuit Court of Appeals’’ includes the

United States Court of Appeals for the Dis-

trict of Columbia;

(2) Mandate.— The term ‘“‘mandate’’, in

case a mandate has been recalled prior to the

expiration of 30 days from the date of issuance

thereof, means the final mandate.

(26 U.8.C., 1946 ed., Sec. 1140.)

Wu. s. Government PRINTING OFFICE: 1952 2iecees 32