Petition for Writ of Certiorari — Magness v. Commissioner (No. 672)

| LWA RY ee, eee .

SUPREME : | Pitt O

j JEG 16 1957

}OHN T, BEY, Clerk

COURT if c

rd

O asf

In the Supreme Court of the

United States

Ocroser TERM, 1957 ial

ven 4

no. 6% 2 |

Harorb Brannon Macness, Petitioner /

Versus.

CoMMISSIONER OF INTERNAL REVENUE, Respondent

Petitioner for writ of certiorari to the United States

« Court of Appeals for the Fifth District

Jas. W. Arno pb,

Attorney of record, for petition

P. O. Box 508, Athens, Georgia

Rost. L. Russei, Je.,

Russec_, VANDIVER & RussELt,

Winder, Georgia

ee

PaGE

A I asses denin anniek Rae Pa ca 1

ESD Na RRS MES OTE SRC Force 1

a scieat cireieinencipsinemneleaNaetnnanntictanae 2

Cs see Coes : a

Regulations & Statutes involved as 3

LEZ ee var nD RONDE Rivseorie Opa <1 MISES OPE Er 3-4

a. RR EES NUR a eo EE (icant cad eeumiall nioekeia.

Centroiliag facts 2... eeermemepeeney Ween niiacliciicalbads 6

Reasons for granting the writ 7, 8,9, 10, 11

eR Se CRE LI Rev MA er Oe Re REC piace aii iiaataneae a ll

a ee

Appendix B _ Dio RE TOT EERIE LLANE Si NE 19

pS» gS SCN res ck SO Bis tideetasiyeipaneagalaainies Baa 20

Se a ates ieiesnenepeaanaeesioal 20

Order staying mandate Sialceaeauiia 20-21

RRR Siri ies nein onan er eto laine 21-22

fe RESTA SSO SH rath 91 He RR PE CE Re BI Samson ittibe 23

Georgia Statutes & Regulations involved — 0. 24-25

CITATIONS

Cases:

Robert H. Saunders vs. Commissioner of Internal Reve-

Sa¢, Zee Fea. Se, tee .............. 2

Harold Brannon an yyy Sheet, “947, Fed. 24, ,

Pe ec acsin ae

Clifford Sonus Us. v nited States, 60 Ct. of Claims, 552. ecient 7

United States vs. Smith, 158 U. S. 346 8

United States vs. Muls, 197 U. S. 223-227 __...-_-._ 9

Smith vs. Jackson, 241 Fed. 747, 246 U.S. 388 9

Wane e. 0.2 Ge oe eee eee 9

Gould vs. Gould, 245 U. 8. 151 _. Die CS. SiN TS PEE 10

Gunnar Van Rosen Tax Court of the U. S317 T. Cc, 834

Ts Rt EEA AS iin ee

Statutes: ; A

USS. C .A., Title 2 — (a) 1939 Internal Revenue Code

nes Code 1939:

Sec. 119 1954 Revenue Code, ILR.C.

Regulations:

Treasury Regulation, 118—See. 39.22.(a)-3 3

(I)

IN THE SUPREME COURT OF THE UNITED STATES

- OCTOBER TERM, 1957

NO. 16,430

HAROLD BRANNON MAGNESS, PETITIONER

VERSUS | i

COMMISSIONER OF INTERNAL REVENUE,

RESPONDENT

Petition ee a writ of certiorari to the United States Court

of Appeals for the Fifth Circuit.

Petitioner, Harold Brannon Magness, by and through his

attorney of record, Jas. W. Arnold; prays that a writ of cer-

tiorari issue to review the judgment of the Court of Appeals

for the Fifth Circuit entered in the above cause on August

13th, 1957, and 1 motion for a rehearing denied Sept. 30, 1957.

OPINION BELOW

The opinion of the Court of Appeals (Appendix A, infra

page 12, is reported at A. S. 247 Fed. 2d 740.)

JURISDICTION

The judgment of the Court of Appeals was entered on

August 13, 1957, and rehearing denied September 30, 1957,

(Appendix B, infra page 19.)

The time for filing a petition for writ of certiorari was

extended by Mr. Richard T. Rives, United States Circuit Judge

for the Fifth Circuit October i2, 1957, to go days after Sep-

tember 36, 1957. (Appendix C, infra page 20.) The jurisdic-

tion of this court is invoked under U. S. C. A. 28 1254 (1),

Internal Revenue Code 1954, Sec. 7482. The jurisdiction of the

Court of Appeals, Fifth Circuit, was complete in the case

here appealed from, (Appendix D, infra page 23.)

(1)

ts

2

QUESTIONS PRESENTED

(a.) Is the amount received by petitioner, a State Trooper

of the State of Georgia, as a subsistence allowance in lieu of

rations (meals) for the year igs2 included in his gross in-

come as additional compensation within the meaning of Sec.

22 (a) of the Internal Revenue Code of 1939?

rs

(b.) Does the amount of subsistence received by petitioner,

a State Trooper of the State of Georgia, as subsistence allow»

ance in lieu of rations (meals) for the year 1952, come within

the meaning of the second paragraph of Sec. 39.22 (2)-3 of

Regulations 118 (applicable in 1952) which reads as follows:

‘ “If, however, living quarters or meals are furnished to em-

ployees for the convenience of the employer, the value thereof

need not be computed and added to the compensation other-

wise received by the employee.”

CONFLICT AMONG COURTS

The*writ of certiorari should issue. here, because of the

conflict in the case of Robert H. Saunders, petitioner, versus

Commissioner of Internal Revenue, Docket no. 11.291, United

States Court of Appeals for the Third Circuit, as reported in

215 Fed. 2d 768, with the case of Harold Brannon Magness,

Docket nv. 16.430, United States Court of Appeals, Fifth

Circuit, (The case here appealed from) as reported in the ad-

vance sheet of 247 Fed. 2d 740. Saunders being a State Trooper

of the State of New Jersey and Magness, likceygise, being a

State Trooper of the State of Georgia and che Suc in both

cases being (w/ivether subsistence furnished to each trooper

in cash in lieu of rations (meals) shouid be included in gross

~ income. Thef acts being the same in substance and certainly.

the law identically the same, this court should hear and deter-

mine which of these Circuit Courts rendered the correct

decision.

REGULATIONS AND STATUTES INVOLVED

The regulations invloved pertinent to the issue here, is the

znd Sec. of paragraph one of Sec. 39.22 (a)-3 of Treasury

Regulation 118 as follows; “If, however, living quarters or

meals are furnished to employees for the convenience of the

employer, the value thereof need not be computed and added

to the compensation otherwise received by the employer.”

The statute involved; Title 26 Sec. 22, Internal Revenue

Cede, (1939) “Gross Income.”

(a.) General definition—Gross income includes gains, pro-

fits andincome derived from salaries for personal services ***

of whatever kind or in whatever form paid.

GEORGIA STATUTES AND

REGULATIONS INVOLVED

The pertinent provisions of the applicable statutes and reg-

ulations are set forth in Appendix E. infra page 24.

STATEMENT

During the year 1952 afithail times here involved, petitioner

was a highway patrolman with the Department of Public

Safety for Georgia. His station was in the City of Athens,

Georgia, a distance of 25 miles from his home near Winder,

Georgia. (R 23).

For the year 1952, the Commissioner of Internal Revenue

issued a deficiency statement against petitioner for $341.00

assessed against the subsistence furnished petitioner by the

State of Georgia for that year. The case was appealed to the

Tax Court of the United States which upheld the assessment

against petitioner by the Commussioner, holding that the sub-

sistence allowance received by petitioner, a member of the

Georgia State Patrol, was additional compensaion within the

meaning of Sec. 22 (a) of the 1939 Code, as reported in 2

T. C. no. 125 (1956). ;

Petitioner filed a petition to the United States Circuit Court

of Appeals for the Fifth Circuit to review the decision of the

Tax Court upholding the determination of the Commissioner

of Internal Revenue that deficiency existed in the income

tax liability of petitioner for the year 1952, being case no.

16.430 of that court, in the amount of $341.00. The Court of

Appeals, for the Fifth Circuit, on August 13, 1957, affirmed

the decision of the Tax Court and adhered to that decision

of September 30, 1957, in overruling a motion for a re-hearing

therein.

In the decision sustaining the findings of the Tax Court as

reported in 26 T. C. 125 (1956), the Court of Appeals, de-

cision reported in full in Appendix A, infra page 12, seemed

to base its opinion and.conclusion upon the following state-

ment made by the Court as reported in the decision as follows:

“The basic question stated very simply is, were the subsist-

ence payments income? Petitioner addressed himself to this

problem as if there was no difference between a situation

avhere ax employer furnishes his employee with quarters in

kind, meals in kind, or money in lieu of either,’ and on page °

four of the decision said that Sec. 119 of the Internal Revenue

Code of 1954 applies only to meals or lodging furnished in

kind. Therefore, any cash allowance for meals or lodging

received by an employee will continue to be included in gross

income to the extent that such an allowance constitutes com-

pensation.”

SOME FACTS

As a member of the State Patrol, petitioner was required

to live in a barracks in Atiens, Georgia, and was subject to

call 24 hours a day; every day of the year, including Sundays

(R 25.41, 27, 69). Petitioner received a salary from the State

of Georgia for the year_19s2 of $2152.50 (R 18) which amount

petitioner duly returned for taxes to the collector of Internal

Revenue for Georgia and paid the taxes thereon. R 18). In

addition to salary. petitioner received as subsistence $1647.00

paid to him in bi-monthly checks upon a basis of $4.50 per

day, (R 26 and petitioner’s exhibit no. 1). The State of Geor-

gia did not deduct withholding tax from this subsistence (R 27-

28). All troopers were allowed a 24 hour pass each week but

could not get this pass on a day of the trooper’s choice. That

‘ was left to the discretion of the Sergeant in chargeo f the sta-

tion (R 34-42). In addition to a weekly pass, a trooper was

allowed 15 days as a yearly vacation. (R 34). At all times

whteher on a daily pass or vacation a trooper had to ‘register

with his station his whereabouts for every minute of his time,

as he was subject to call at all times (R 34.) His vacation

was assigned to him by the Director and at his discretion (R

41.) Petitioner stood inspection every morning in the station

by the Sergeant and twice a aveck by the Lieutenant of, the

division (R 33). Petitioner could nor get a daily pass or a day

of his vacation between December 15 and January’ 5. (R 36).

Petitioner had to keep his blankets, bed linen laundered, uni-

forms dry-cleaned and pressed, his belts, pistol scabbards, boots,

shoes and brass cleaned at all tirnes ready for inspection, all

of this at his own expense. R 36). Petitioner often worked 16

and 18 hours a day (R 44). The Sergeant in command of the

station made up a duty roster daily and placed it on the bul-

letin board which informed petitioner when he came in to the

scation off of his patro}. where he would patrol the following

day (R 42). Petitioner was required to eat his meals on the

route assigned to him and at the nearest restaurant to him at

meal time, but he must eat on his route and kad to radio his

station where he was eating when he started to eat and then

when he had finished and if he had ordered a meal and before

he finished eating it, an emergency arose, he would have to

leave his meal uneaten, but had to pay for it. This happened

to petitionet many tunes. (R 30-31-33). Petitioner never spent

any of his subsistence for meals while on daily pass or vaca-

tion but his subsistence was spent on meals while he was actu-

ally on patrol duty (R 41).

6

CONTROLLING FACTS

The basic fac’s relating to the original plan of the State of

Georgia to furnish meals in kind to the troopers and why it

changed to one of furnishing cash in lieu of meals, is shown

by the following record.

The Department of Public Safety of Georgia was created

by an Act of the Georgia Legislature at .\« January-February

session, 1937, was approved and became a taw March 19, 1937

(Act 220, of that session, Acts 1937, pages 322-325).

Roberr'G. Mayo was its first treasurer and served as such

from its formation until February, 1941, (R 58). At first the

men weré paid a monthly’ salary and their meals were fur-

nished (R 60). When we organized the patrol, we had to place

the men wherever we could find a place for them to sleep

(R 64). The state furnished the meals to the troopers in some

centrally located place, usually a boarding house (R 64). That

was befcre barracks were built. This system proved to be im-

possible because of two things. First, the office work proved

too voluminous to handle; second, it took the men off the

road and left the area unpatrolled while the men came to a cen-

trally located place to eat. The state then changed it to a

subsitsence type of pay and paid it bi-monthly, a salary and

subsistence (R 64-65-66).

The Court: “Let me see if I understand that last answer?

Was it that it was more expensive to the Stare to do it the

way you started than the subsistence?”

The Witness: “Yes, your honor, it was absolutely more ex-

pensive.” (R 66).

_Tt was then stipulated as follows: “That the minutes of the

Board (Board of the Department of Public Safety) during

the period covered by the: minutes which start in 1937 and |

cover up to and through the present period, that there are

several entries in the minute book showing increase in sub-

sistence gradually over the years from $i.00 to $5.00 per

day (R 73).

‘7

REASONS FOR GRAN TING THE WRIT

The basic quest:ons presented in this case are: 1st, the con-

flict between the decisions in the United States Court of Ap-

peals, Third Circuit, in the case of Robert H. Saunders, a New

Jersey State Patrolman, with that of the Harold Brannon Mag-

ness case, a Georgia State Patrolman, in the United States

Court of Appeals, Fifth Circuit, both cases are in substance

based upor the same facts and are controlled by the same Iw.

The Court of Appeals in the Saunders cage holding, that supe

sistence in kind and cash in lieu thereof, was no different in

substance and that the subsistence paid to Saunders was not

compensation. The Court of Appeals in the Magness case

(the case at bar) holding that there was a difference between

subsistence in kind and cash in lieu thereof and that any cash

allowance for meals or lodging received by an employee will

continue to be includable in gross income to the extent that

such allowance constitutes compensation. The Court of Ap-

peals in the Magness case invoking Sec. 119 of the Internal

Revenue Code of 1954, which was not passed by Congress

until two years after the assessment against Magness was made

for the year 1952 and did not take effect until December 31,

1953, and was never intended to be given retro spective oper-

ation because: unless the contrary intention plainly appears a

statute operates prospectively only, as is shown by decisions

of the Supreme Court in tie following cases: Joseph W. Cox,

appeliant, v. Ethel Hart, 67 Law Ed. 332 (2) U. S. v. Dixon,

10 Law Ed. 689, Barnitz v. Beverly, 41 Law Ed. 94. The

criteriun being something done sanctioned by the subsequent

_ act (1954) but was not sanctioned by the former act (1939)

when done. Cummings v. Missouri, 4 Wall 277, 18 Law Ed. 356.

Second; In 1925, the Court of Claims held in Clifford Jones

v. United\States, 60 Cr. of Claims 552, 5 A. F. T. R., 5297,

that an a. officer was not required co include in his gross

income for the yegr 1923 * * * cash allowance in lieu of quar-

ters paid to him during that part of the year when _Govern-

ment quarters ‘vere not available upon the premise that the

dS

| |

‘occupancy of Government quarters by Army officers is a

requisite to the proper performance of their duties. The United

Srates Government, in that case, contended that the value of

the quarters was worth $940.00 and that the $500.00 cash

received -by Jones in lieu thereof, totaling $1440.00 should be

included in his gross income and fixed that_amount in his

assessment which was paid by Jones, and then brought suit

in the Court of Claims for its recovery. The court made an

_exhaustive analysis of the ajplicable ‘statute and Anny regu-

lations and arrived at four fundamental conclusions pertinent

to the cause at bar. Pertinent to this case is Section 4 ‘ef thase

conclusions as follows:

“The Court pointed out that petitioner (Jones) had no

choice betweey- accepting quarters in kind or cash in lieu

thereof *** in the Court’s view, the money allowance was

no different in substance from the original purpose~of—the_

allowance in kind. The Court asked this question, “ Could

such-an allowance be considered income?” and concluded that

it could not. ‘In the Jones case the Government relied upon the

statutory definition of mcome contained in Section 213 of the

Revenue Act of.1921, which is the same as the present Sec-

tion 22 of the Code of 1939. Later, the Treasury Departinent

_ accepted the Jones: decision and limited its application to the

" enlisted personnel and officers of the Army, Navy, Coast

Guard, Coast and Geodetic Survey and the Public Health Serv-

ice, and incorporated .it in its rules and regulations (Regs. 77;.

Art 53; Regs. 86-94, 101, Art 22 (a)-2; Regs. 103, Sec. 19.22

(a)-3; and Regs. rir, Sec. 29-22 (a)-3 now Regs. 118 39.22

(a)-3.) :"

This question of compensation has been before the Supreme

Court many times. In the United States y. Smith, 158,°U. 5.

346, clearly distinguished between allowances which forms 4

part of the compensation and those allowances which serve to

to reimburse expenditures made. In its conclusions the Court

said:

-“Pay is a fixed and direct amount given by law to, persons

siesta ais pains

PP asi

in the military service in consideration of any and as compen-

sation for their personal service. Ailowances as they ate called

or emolutants as they were formerly termed, are indirect or

contingent remuneration which may or may not be earned

and which is sometimes in the nature of compensation and

sometimes in the nature of reimbursement.”

In United Srates v. Mills, 197, U. S. 223-227, the Supreme

Court had before it the question of computation of longevity,

pay due an officer of the army. In the discussion, the fallow-

ing language was used:

“The words pay proper we see no reason to think or to be

-construed differently from the word pay. The term means

compensation, which may properly be described or designated

as pay. as distinguished from allowances, computation for ra-

tions or other methods fer compensation not specifically de-

: see as pay.”

In the Jones-ease,supra, the. Court of Claims i in: the body of

the decision said: “In our view of the case what was said in the

Mills case is a clear exposition of the fundamental distinction

between pay and alle -ance. Therein, it is pointed out in the

line of demarcation between pay, allowances and other methods

of compensation, the court improvised by specification and

generajization what Congress interded by use pay proper.

Federal District and Circuit Judges receive an allowance,

not to exceed $10.00 a day when absent holding court away

from their homes Allowances of this character are cicarly

intended as reimbursement and' form no part of the Judge’s

compensation.

Smith v. Jackson, 241, Fed. 747. 246'U. S. 388. Congress actu-

ally appropriates certain sums for the Executive Department

and likewise a travel allowance. Such appropriations have not

been and are not charged against the President as compensation.

Members of Congress receive certain allowances. This court

determined with reference to indsétion that the allowances

‘were <—e of their cémpensati a Wilson v. U. S., Court

of Claims 428. A vast number ) cians employees re-

10

ceived travel expenses and fixed sums in lieu of subsistence

when away on government affairs. Clearly, such allowances

are for purposes of reimbursement.

In the case of Gould v. Gould 245 U. S. 151, the Supreme

Court said: ‘In the interpretation of statute, levying taxes it

is the established rule not to extend their provisions by unpl:-

cations beyond the clear import of the language used or to

enlarge the operation.”

The Jones case, supra, is reported in full on page 5297 in

Amended Federal Tax Report, volume 5.

It is apparent by the Legislature of Georgia trom the points

made in creating and setting up the Department of Public

Safery, of which the State Patrol is an integral part, that spe-

cific provisions there are made regarding the distinction be- ~

tween pay and compensation to be paid to the State Troopers

and the allowances such as quarters, rations, and cash dis-

fursements in lieu thereof, are not part of their compensation.

Ir is made clear by the record herein that the State of Georgia,

first. intended to erect barracks, set up kitchens in which to

feed the troopers and house them. It was found early in the

procedure of these effects that to feed the men in a centrally,

located place would take the .troopers off ine patrol during

the time of eating their meals and leaving the area unpatrolled.

The Srate of Georgia, employer herein, saw that by this meth-

od it could not render to the public the services that the public

lic required and thereby made a change to one requiring

the troopers tol ive in the barracks but to eat their meals on

the patrol route, thereby keeping the troopers at all times on

the patrol and furnishing them cash for their meais. We con-

rend that the cash so furnished was no different from a re-

subursement for the medls and was done fer the convenience

of the State of Georgia in order that the trooper could better

perform his duuies. Tha change was a matter of necessity so f

that the state could renderts greatest service to the public.

The Tax Court of the United tSates, in the Gunnar Van

Rosen case as reported in 17 T. C. 834 (1951) held, that the

pie i

principle in the Jones case should be limited te the military

personnel, and has held steadfastly to that principle in every

case since, including the Saunders case, supra, and the Magness

case at bar. Van Rosen was a civilian employee of the Army

Transportation Corps and worked under a negotiated con-

tract that included salary and allowance.

This Court should hear and determine whether or not,t (a)

the Treasury Department can limt the effect of a case that

"has been judicially determined, by including its own interpret-

ation in a regulation. (b) This Court should hear and deter-

mine whether or not the ‘ax Court can place its own in-

terpretation upon a case judicially determined, and thereby

-limit its effect. and by so doing, convert it into a law of a class,

i

such as’the Jones case, supra. by detgrmining, that the prin-

ciple of the Jones case should not be extcuded further than

to the military personnel, (Van Rosen Case, supra.)

~ CONCLUSION

"Te is respectfully submitted that this petition for a writ of

certiorar: should be granted. 3

James W. ArNoLp |

Attorney of record for petitioner

Rogerr L. Russevr, Jr.

Russeil, Vandiver and Russell

Winder, Georgia

.

APPENDIX “A”

In the United States Court of Appeals, for the Fifth Circuit

ee

—%

No. 16430

Harold Brannon Magness, Petitioner

versus

Commissioner of Internal Revenue, Respondent.

Petition for Review of Decision of The Tax Court of

the United States (District of Georgia)

(August 13, 1957-)

Before RIVES and CAMERON, Circuit Judges, and

DAWKINS, Sr., District Judge.

RIVES, Circuit Judge: This petition for revicw of a Tax

Court decision’ concerns the taxability of subsistence monev

seceived in licu of meals during the year 1952 by. a Georgia

Highway Patrolman. His salary that year amounted to

$2,152.50, whileh is subsistence payments came to $1,647.00.

The uniformed division of tne Georgia Highway Patrol

was organized-on a military pattern by its first Director, Cap-

tain Carter, a former Captain ef Cavalry in the United States

Army. It has followed the same general pattern until the

present time. When the Patrol was first organized, its mem-

hers were paid $100.00 a month and their meals and lodging ©

were furnished.

The Department of Public Safety soon found that it was

financially costly, administratively impossible, and inefficient

to continue feeding the men at some central place or at board-

ing houses. The present arrangement requires. the meinbers -

of the Highway Patrol to live in the barracks at their particu-

lar ‘post.

In this case, Trooper Magness was a member of Troop “D”

1 Reported at 24 T.C. NO. 125 (1956).

; (12)

13

of Pest 32 at Athens, Georgia. He was subject to call twenty-

four hours per day, every day of the year; it was necessary

that his headquarters be advised of his whereabouts at all times,

whether on duty or off duty; and the subsistence payments at

the rate of $4.50 per day were paid to him for 366 days during

1952. Magness testifie:? that on his off days and vacation days?

he ate with his mothero n_the family farm, otherwise, he ate

at any public restaurant of his choice, except when actually

on patrol. When on patrol, it was necessary that he eat at

some restaurant on his route and that he report previous to

doing so to his headquarters, telling them how he could be

reached. He also testified that he was required to keep his head-

quarters constantly informed of how he could be contacted

in case he was necded, but that he was never called during 1052

while on vacation or while on days off. He further testified

that $4.50 per day was not enough to pay for his meals; that

his bed linens, blankets and uniforms were furnished by the

State, but that he had to furnish his own underwear and keep

his other gear cleaned and shined

The basic question stated very simply, is “Were the sub-

sistence payments income?” Petitioner addresses himself to

this problem as there were nod ifference between situations

where an employer furnishes his employee with quarters in

kind, makes in kind or money in lieu of either. :

The Regulations and administrative rulings from 1919 to

the present tune have excludedfrom income the ‘value of meals

furnished in kind for the convenience of the employer, prob-

abiy upon the theory thart hey should not be considered as

compensation to the employee. Section 39.22(a)-3 of Treasury

Regulations 118, promulgated under the internal Revenue

-Code of 1939, provides in part:

‘““* * * If a person receives as compensation tor scrv-

ices rendered a salary and in addition thereto living

quarters or meals, the value to such person of the

quarters and meals so furnished constitutes income

a 15 days vacation plus 46 days off.

14

subject to tax. If, however, living quarters or meals

are furnished to employees for the convenierwe of

the employer, the value thereof need not be comput-

ed and added to the compensation otherwise received

by the employees.”*

The Senate Committee, in studying Section 119 of the 1954

Code,* stated:

“Section 119 applies only to meals or lodging furnish-

in kind. Therefore any cash allowances for meals

or lo¢ ing received by an employee will continue

to be includable in gross income to the extent that

such allowances constitute compensation.”

The consistent difference in treatment administratively and

by the Congress between meals furnished in kind for the con-

venience of the employer and money in lieu thereof in no

way binds the courts, but it is enutled to their serious con-

sideration.

The Constitution" gives the Congress the power to lay and

collect taxes on incomes “from whatever source derived,” words

3 See also, T.D. 4965, 1940-1 Cum. Bull. 13; Sections 1.119-1 Fed.

Tax Regulations, 1957: compare Section 1.120-1, Id.

4 “$119. Meals or lodging furnished for the convenience of the

employer

“There shall be excluded from gross income of an employee

the value of any meals or lodging furnished to him by his imployer

for the convenience.of the employer, but only if—

“(1) in the mase of meals, the meals are furnished on the

business premises of the employer, or

“(2) in the case of lodging, the employee is required to

accept such lodging on the business premises of his employer

as a condition of his employment.

“In determining whether meals or lodging are furnished for the

convenience of the employer, the previsions of an employment

contract or of a State statute fixing terms of employment shal!

not be determinative of whether the meals or lodging are intended

as compensation.” 26 U.S.C.A. $119.

5 Senate Report No. 1622, 83rd Cong., 2d Sess., pp. 19-20, 190-191;

2 U.S.C. Congresisonal and Administeative News {2954) se2}9 4649,

4825- 4825 horns . * ie

6 Sixteenth amendment a F fier

; ae Md - {n° .\

4 ‘ 7 £32 fe

‘ cy ts ‘> ff J

. + 3 YA

f

—™

aS

15

of enlargement indicating an intention that the meaning of

“income” should be restricted.” Section 2a(a) of the Internal

Revenue Code of 1939 defines ‘gross income” to include, in-

ter “gains, profits, and income derived from salaries,

warges, or compensation for personal service * * * of what"

ever kind and in whatever form paid * * * .” This definition

“is broad enough to include in taxable income any economic

or financia! benefit conferred on the employee as compensa-

tion, whatever the form or mode by which it is effected.”

Commissioner v. Snuth, 324 U.S. 177, 181 (1945). Subsection

(bY of Section 22 lists those items which shall not be included

as a part of income. Sixteen items are listed and they do not

include money provided to state employees with. which to

buy mieals. In Section 22 (b) (13), an exclusion is listed which

applies expressly to, enlisted personnel and commissioned offi-

cers of the Armed Forces of the United States, but not until

the Internal Revenue Code of 1954, by Section 120° thereof,

was subsistence money of state highway patrolmen excluded

from income. The House Committee Report and the Senate

j

7 ‘See Eisner v. Macomber, 252 U.S. 189, 207 (1920); 1 Mertens,

Federal Income Taxation, §§$5.01, 503: Magill, “Taxable Income”,

p. 67.

8 “i120. Statutory subsistence allowance received by pclice

“(aj Generel! rule—Gross income does not include any amount

received as a statutory subsistence allowance by an individuai who

is employed as a police official by a State, a Territory, or a pos-

session, of the United States, by any political subdivision of any

of the foregoing, or by the District of Columbia.

(b)} Limitations.—

“(1) Amounts to which ieheatien (a) applies shall not ex-

ceed $5 per day.

“(2) If any individual receives a subsistence allowance to

which subsection (a) ‘applies, no deduction shall be allowed under

any other provision of this chapter for expenses in i¢csnect of which

he has received such allowance, except to the extent that such ex-

penses exceed the amount excludable under subsection (a) and

the excess is otherwise allowable as a deduction under this chap-

ter.” 26 U.S.C.A. $120.

ra

/’

4

/

16

Committee Report on this section were practically identical

and stated that it was new legislation.®

Thus, «ve have the Congress, for the first time, making sub-

sistence payments to state police officers exchedable from in-

come,.but not effective until after December 31, 1953. Fur-

thermore, as has been stated, there are no administrative rulings

by the executive branch which would exclude such payments

from income, and in the judicial branch only the Third

Circuit in Saunders v. Commissioner of Internal Revenue,

215 F. 2d 768 (1954), and the Court of Claims in Jones v.

Unted States, 60 Ct.Cl. 552 (1925), which will be discussed

later, have ruled that such money might be excluded from in-

come. On the other hand, the Commissioner and the Tax ‘Court

have held that such payments are income and taxable.’’

This case is probably distinguishable from Saunders v. Com-

missioner of Internal Revenue, supra, inasmuch as (a) There

it was conclusive that the $70.00 a month received by Saun-

ders in lieu of rations was not intended as compensation, and,

in fact, the Tax Court found that the rations allowance “was

not regarded or accounted for as compensation, either in the

State Police Budget or by the State Civil Service Commission.”

Here the Tax Court failed to find that the “subsistence pay-

ment” was intended as a reimbursement. In fact, the provi-

sion of the Georgia law providing for a subsistence allowance

® . See Senate Committee Keport on Internal Revenue Code of

1954 Part I See VIT. K: USC. Congressional and Administrative

News 4621, 4649: :

“K. Subsistence Payments to State Police Officers (sec. 120)

“(*) House changes accepted by committee.

“The House and your committee’s Lili provide an exclusion

from groas income not to exceed $5 a day, for subsistence allowances

paid to officers of a pcoiice department of a State, Territory, the

District of Columbia, or a possession. There is no comparable ez-

isting law. It is believed that this exclusion is desirable because

State police officers are required to make frequent trips away from

their posts of duty. Under present law these expenses cannot be

deducted if the police officer is to use the standard deduction.”

(Emphasis added.)

10 See Hysiope v. Commissioner, 21 T.C. 131; Saunders v. Com-

missioner, 21 T.C. 630; and this case, Magness v. Commissioner,

26 T°C. 82.

17

is found in Section 92-A-z09 of 27 Code of Georgia Annotated,

entitled “Same, Personnel, Officers’ Salaries’ (Emphasis. is

supplied), and not in Section 92-A-237 entitled “Allowance

fcr Board and Quarters.” (b) Saunders received $70.00 per

month to pay for meals while actually on patrol, and he was

required to eat at a place on his route at a particular time.

Magness, on the other hand, received $4.50 per day every day

of the year, even while on vacation or on days off, and, except

for the time when he was actually on patrol, could eat at any

place he chosefl When he was on patrolthe only requirement

was that he notify his headquarters where he could be reached

while he was eating. He testified that, while he was off duty,

he could do anything he wanted to provided he notified his

headquarters that they could get in touch with him in case

of an emergency.

The Jones case, supra, heavily relied on by the Third Circuit

in Saunders, supra, and by petitioner here was distinguished

in Robert H. Saunders, 21 T.C. 630 (1954);Charles H. Hys-

lope 21 T.C. 131; and Gunnar Van Rosen, 17, T.C. 834, 839-

840 (1951), as follows:

“Whuie the Jones case is authority for the xeclusion

from gross income by military personnel of cash

allowances made to them for subsistence and quarters,

it does not, in our opinion, require or justify an ex-

tension of the rule therein to similar allowances made

to civilian personnel.”

Further, the Jones case presented the peculiar situation where-

in the United States, with one hand, as an employer, gives

money to its employees, fnd with the other hand, as a tax .

collector, takes it back; whereas, a state is in the same posi- —

tion as any other employer so far as federal income tax obgli-

gations of its employees are concerned.

Moreover, while we accord great weight to the holding of

the Third Circuit, we differ from it as to the meaning and

application of Section 39.22 (a)-3 of Treasury Regulation

18 P

118. Saunders admitted that the payment of cash to an em-

ployee is mainly compensatory and probably more obviously

so that a payment in kind. Nevertheless, it was stated,

“In the instant case, cash was furnished Saunders 1n

advance for a particular purpose, viz., payment for

meals, and it is an established fact that the entire

amount furnished was so expended but it does not

automatically follow that the cash received was com-

pensation.”

Sanders v .Commissioner of Internal Revenue, supra, at pp.

771-772. By finding some special cases in which cash thus re-

ceived was held by the Treasury Department not to be com-

pensation,'! and relying heavily on Jones v. United States,

60 CrCl. 552 (1925), it was able to apply the administrative

ruling to situations in which money was furnished. Magness

now asks us to extend that application to situations in which

money is furnished to buy meals indiscriminately while on

duty ‘and while off duty and on vacatjon. e

Under familiar and often recognized) rules of construction,”

we conclude that we should not do/ so but should, on this

occasion, agree with the reasoning / ‘of the Tax Court. Its

decision 1s therefore

AFFIRMED

aoe

11 O.D. 11, 1 Cum.Bull. 66 (1919). American Red Cross employee

receiving cash for maintenance but no pay. Only amount actually

unused for expenses need be returned. O.S. 514, 2 Cum.Bull. 90

(1920). Supper money furnished an employee after regular work-

ing hours.

iz Commissioner v. LoBue, 351 U.S. 243, 246 (1956); Commis-

sioner v. Gienshaw Glass Co. 348 U.S. 426 (1955); Commissioner v.

—o 336 U.S. 28, 48-49 (1949); Commissioner v. Smith, 324

1S. 177, 181 (1945); Helvering v. Clifford, 309 U.S. 331, 334

(19:0); ‘White vy. United States, 305 U.S. 281, 292 (1938); Helvering

vy. Midland Mutual “Life Ins. Co., 300 U.S. 216, 223 (1937); Douglas

v. Willcuts, 296 U.S. 1, 9/(1935); New Colonial Ice Co. v. Helvering,.

292 U.S. 435, 440 (1934); Irwin v. Gavit, 268 U.S. 161, 166 (1925);

Yazoo & Mississippi Vailey R. Co. v. Campbell. 181 F. 2d 451, 457

(7th Cir. 1950).

“APPENDIX “B”

Harold Brannon Magness, versus Commissioner of Interal

Revenue, No. 16.430, U. S. Court of Appeals, Fifth Circuit.

This cause came on to be heard on the petition of Harold

Brannon Magness, for. review of the decision of the Tax Cowt

of the United States, and was argued by counsel; On con-

sideration whereof, it is now here ordered, adjudged and de-

creed by this Court that the decision of the gaid Tax Court

in this case be, and the same is hereby affirmed.

Extract from the minutes of the Judgment; of August 13th,

1957:

Order denying rehearing. Extract from the minutes of

September 30th, 1957. 3

Harold Brannon Magness vs. Commissioner of Internal Rev-

enue, No. 16.420, United States Court of Appeals, Fifth Circuit.

“It is ordered by, the Court that the petition for rehearing

filed in this cause Be, and the same is hereby, de@ied.”

a

(19)

APPENDIX “C”

MOTION FOR:STAY OF MANDATE

Filed October 11, 1957 in the United States Court of Appeals,

Fifth Circuit. Harold Brannon Magness, Appellant, versus

Commissioner of Internal Revenue, Appellee. Case No. 16-430.

Now comes Harold Brannon,.Magness, appellant herein, ty

and through his attorney of record, Jas. W. Arnold, and with-

— in the time prestribed by law, -and being dissatisfied with the

decision rendered against him in the foregoing case by this

Hon. Court desires to make application for certiorari, in order

that said case may be heard in the Supreme Court of the United

States: and due to the constant attendance of said Jas. W.

- Arnold upon the State Courts of Georgia, beginning Monday,

October 14th, 1957, and continuously thereafter through No-

vember, 1957, and then upon the United District Court which

convenes in Athens, Georgia, December 2nd, 1957, and until

said court is adjourned; prays from this Hon. Court, an order,

extending the time by which said attorney may perfect and

prepare the said application for certiorari to ninety days or

to January rst, 1958, and that the mandate herein may be

stayed until such time asthe Courts may hear and dtermine

said certiorari. |

Respectfully submitted,

/s/ }AS. W. ARNOLD

* James W. Arnold, Attorney of

Record Herein.

ORDER STAYING MANDATED

Filed October 14, 1957, in the Unxed States Court of Ap-

peals for the Fifth Circuit.

Harold Brannon Magness, Appellant, versus Commissioner

of Internal Revenue, Appellee. No. 16,430. &

IN CONSIDERATION OF THE APPLICATION of the

(20)

21

petitioner in the above numbered and entitled cause for a >

of the mandate of this court therein, to enable him to apply

for and to obtain a writ of certiorari from the Supreme Court

of the United States, IT IS ORDE.’ED that the issue of the

mandate of this court in said cause be and the same is stayed

for a period of ninety days from September 30, 1957; the

stay to continue in force until the final disposition of the case

by the Supreme Court, provided that within ninety days from

September 30, 1957 there shall be. filed with the clerk of this

court the certificate of the clerk of the Supreme Court that

certiorari petition and record have been filed. It is further

ordered that the clerk shall issue the mandate upon the filing

of a copy of an order of the Supreme Court denying the writ,

or upon the expiration of ninety Gays from September 30,

1957, unless the above-mentioned certificate shall be filed w ith

the clerk of this court within that time.

DONE AT NEW ORLEANS, LA., this 12th day of Oc-

tober, 1917.

/s/ RICHARD T. RIVES

United States Circuit Judge

CLERK’S CERTIFICATE

UNITED STATES OF AMERICA

UNITED STATES COURT OF APPEALS

FIFTH CIRCUIT

I. EDWARD W. WADSWORTH, Clerk of the United

States Court of Appeals for the Fifth Circuit, do hereby certify

that the pages numbered from 98 to 124, next preceding this

certificate contain full, true and complete copies of all the

pleadings, record entries and proceedings, including the opinion

of the United States Court of Appeals for the Fifth Circuit, in

a certain cause in said Court, numbered 16430, wherein Harold

Brannon Magness, is petitioner, and Commissioner of Internal

Revenue, is respondent, as full, true, complete as the original

of the same now remain in my office.

I further certify that the pages of the printed record num-

bered from 1 to 97 are identical with the printed record upon

which’ said cause was heard and decided in the said Court of

Appeals.

_ In testimony whereof, I hereunto, subSerib y name and

affix the seal of the said United States Court of A)peals at my

office in the City of New Orleans Louisiana, in the kifth

Circuit, this. 16th day of October, AD, 1957.

bad EDWARD W. WADSWORTH

Clerk of the United States Court of Appeals

. for the Fifth Circuit

By Gilbert F. Gamcheau, Deputy Clerk

; ad &

es

SS a)

APPENDIX “D”

The jurisdiction of the Supreme Céhirt of the United States

is invoked here under 28 U.S.C. 1254 (1), Internal Revenue

Code 1954, Sec; 7482, and under U.S.C.A., Title 26 Sec. 1141

(a), “The Circuit Court of Appeals; and the United States

Court of Appeals for the District of Columbia shall have ex-

clusive jtirisdiction to review. the decisions of the Board, except

as provided imi section 239 of the judicial Code, as amended,

43 Statfo38, (U.S.C. Title 28 Sec 346); And the judgment

of any such Court shall be finai, except that it shall be subject -

to review by the Supreme Court of the United States upon

certiorari, in the manrfer provided in section 240 of the Judicial

Code, as amended, 43 Stat 938 (U.S.C. Title 28, Sec. 347}.

The United States Court of Appeals, Fifth Circuit had juris-

diction to hear’and determine on review the decision of the Tax

Court of the United States in Case Docker #55503, pursuant

to U.S.C.A. Title 26 Section 1141 (b) of the Internal Revenue ~

Code 1939, because, petitioner havi ing made and filed. his income

tax returns-for the taxable year (1952) involved, invthe office

of the Collector of Internal Revenue for Georgia, Athens,

Georgia. 7

e

,99\ e

ot

APPENDIX “E”

GEORGIA STATUTES AND REGULATIONS

INVOLVED:

The Department of Public Safety of Georgia was created

by an Act of the Georgia Legislature at the January-February

Session, 1937, was approved and became a law March 19, 1937,

being Act No. 220 of that session. Acts 1937 pages 322-355.

_ In be preamble of the Act it is stated as follows: Acts 1937,

page 322. “To create a Uniform Division known as the Georgia

- State Patrol; To provide rules and regulations for the operation

and con ol of the Uniform Division known as the Georgia

_ State Patrol; fo fix the ages of enlistment, re-enlistment, and

retirement of members of the Uniform Division; To provide

fomrecruiting, training, promotion, and discharge of the mem- |

bers of the Uniform Division; To previde punishment for with-

drawal by a member without consent; To providg for furnish-

ing quarters, offices, supplies and equipment; To provide for

Headquarters Staff, and for ea¢h District or Division thereof;

To provide for furnishing QUARTERS, MEALS AND

LODGING FOR THE MEMBERS OF THE UNIFORM @

DIVISION; To provide for the creation of Districts or Divi-

sions, Headquarters, etc.’

Section 3 of Article 1 of that Act provided; The Depart-

ment of Public Safety as herein created shall appoint a person

to be known as the Commissioner of Public Safety in Georgia,-

who shall be the highest ranking officer in the Uniform Di-

vision of the Georgia State Patrol, and who shall under the

direction, of the Department of Public Safety, exercise super-

- vision and control over all the Divisions and employees of the

‘Department of Public Safety. Prescribing his salary, term of

office, qualifications, duties, method of removal, etc., and pro-

viding for a deputy commissioner. Acts 1037, pages 325-326.

In 1934, Acts 1943, pages: 196-201, the foregoing Act was

amended by changing the name of Commissioner of Public

(24)

le et In Ge ae ee Pe et Ee et ee ee

Ta PP LIE abe ee LEE kee Oe

ee ASR LLL as OR SE Me hs APOE IO Ct eT Ue OO RS ”

|

|

_— SS

Safety and Deputy Commissioner of Public Safety to Director

of Public Safety and Deputy Directcr of Public Safety.

Section 5 of Article 2 of that Act provided That it would

- be a misdemeanor for any officer or trooper to witndraw from

service in the Uniform Division, without written application

approved by the Directer of the Department of Public Safery.

Acts 1937 page 333.

Sec. 11, Article 2 of that Act provided; That the Director

is authorized, with the approval of the Department of Public

Safety; To provide for comfortabie barracks for the -efficers

and troopers of the Uniferm Division of the Department of

@Public Safety at such Districts or Divisions, etc.; To provide

for SERVING MEALS at such barracks, and for the upkeep

and maintenance of same. Acts 1937 pages 322-335. And until

adequate barracks with proper facilities for furnishing MEALS

‘are secured, all officers and troopers shall be given a proper

allowance‘ for MEALS as lodging. Acts 1937, pages 322-336.

Under the Act of 1943 (Amendment) it was provided, That

all members of the Uniform Division of the Department of

Public Safety shall be paid a subsistence allowance of not less

than $2.50 per diem. Acts 1943 pages 196-201.

In 1951 the Georgia Legislature amended the Act of 1937, and

all afnmendatory Acxs thereto as foliows: 1. By increasing the

salaries of all enlisted men of the Uniform Division, 2. By in

creasing the allowance of subsistence to officers and iiaeace

aike to nct jess than $4.00 per day and not mare than $5.0c

per day, providing; “That said subsistence is hereby made man-

datory in the sum of not less than $4.00 per day and not more

than $5.00 per day; and shall be in addition to all salaries and/or

compensation.” Acts 1951, page 636, approved and became the

taw se 21, 1951.

meagre ——— ae =a

eee A