Brief for the Respondent in Opposition — Neeman v. Commissioner

ry ae T Ottiae Supreme Court, US. JT

. FILED ff

SEP 23 1958

: No. 306 JAMES R. BROWNING, Clerk

- Iuthe Supreme Court of te Rated States

OCTOBER TERM, 1958.

- MURIEL DODGE NEEMAN (Formerly MURIEL Dooce),

_ 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

| J. Lee RANKIN,

Solicitor General,

/ | wares K. Rick, . op

. Assistant Attorney General,

| Lze A. JACKSON,

L. W. Post, —

Attorneys,

Department of Justice,

” Washington 25, D. C.

— A ee <<

- Appendix

inepEX 6 ~*~

Opinions below. ae eae diintigel nada

Jurisdiction . ,

Question presented

. Statute involved ,

Statement

Argument

Conclusion Re Greta Fant

’ CITATIONS

Cases :

Burnet Vv. Wells, 289 U.S. 670. .

Commissioner V. Glenshaw Glass: Co., 348 U. S.

126

“Commissioner V. Meyer, 104 Pp. 2d ‘155.

‘Commissioner V. Sunnen, 383 U.S. 591

Fairbanks V.,Commissioner, 191 F..2d 680, cer-

~ tiorari denied, 343 U. me 915

Gadd Vv. Gould, 245 U.S. 151. , oe

Helvering V. Taylor, 293 Rhy WM ccde cis sine

Luckenbach Vv. Pedrick, 214 F, 2d 914

~ Mahana v. United poy 88 F. Supp. 285, | cer-

tiorari denied, 339 TU. S, 978

Neeman V. Commissioner, ‘ » ev? 397, affirmed,

200 F, 2d 560; certiorari denied, 345 U. S. 956.

Norfolk Nat. Bank of C. and T. v. C ee

_ . 66 F. 2d 48 PRES rete ROIS 5 hPE LAM, Se

Twinam Vv. Commissioner, 22 T. C. 83

United States V. International Building Co., 345

U. S. 502.

Welsh, Albert Ro Gallatin, Trust v. Commissioner,

16 T. C. 1398, affirmed.sub nom. Girard Trust

~ Corn Exchange Bank, Trustee V. Commissioner,

19% F. 24 708 |

Sito Mot)

Il

Cenmstitution and Statutes: | | ‘ Page

Constitution of the United States:

Fifth Amendment... .. in sshacaatarcaseSercppcansncas a7

Tenth Amendment ..... _......--.-- RT ee SOR PE

Sixteenth Amendment Soh UST RAR oor 6,7

Income Tax Act of 1913, c. 16, 38 Stat. 114, See.

mel Nees © ¥

Inter nal Revenue Code of 1939:

“See, 22(b) (26 U.S.C. 1952 ed., Sec. wat). 1,0.8 10

Sec, 22(k) (26 U.S.C. 1952 ed., See, 2 22%) Y 2,5, 6,

7,8, 11

See. 23) (26 US.C.1952 4ot Sec. 23(u)) . 2

Miscellaneous: i

‘S.. Rep. No. 1631,: 77th. Cong., 24 Sess:, p. 84

(1942-2 Cum. Bull, 504,°568) ae

\

a

In the Supreme Court of the United States:

OCTOBER TERM, 1958

“ No. 306

MURIEL Dover NEEMAN (Formerly MURIEL, DODGE),

PETITIONER

v.. 7. ;

COMMISSIONER OF INTERNAL REVENUE

On Petition for a Writ of Certiorari tosthe United States

Court.of Appeals for the Second Circuit

.

—_— rr

BRIEF FOR THE RESPONDENT. IN OPPOSITION

”

OPINIONS BELOW

‘The opinion of the Tax Court (R. 29a-38a)' i

reported at 26 T.C. 864. The per curiam opinion of

the Court of Appeals ia 33-34). is reported at 259

F. 2d 841. |

JURISDICTION

The judgment of the Court of Appeals was.entered

on May 27, 1958. (Pet. 35). The petition for a writ

' Record: references are to the Appendix to the taxpay er’s

. brief in the Court of Appeals. 8 .~

(1)-

a)

_ of certiorari was filed on August 25, 1958. The juris-

‘diction ci this Court is invoked under 25 Use.

1254(1). | \ , .

- QURSTION PRESENTER |

- Whether the courts below\ correctly held that

alimony payments received by \the taxpayer: during

- the taxable years 1945 to 1948, \nclusive, constituted

taxdble income to taxpayer under Sectiin 22(k) of

the Internal Revenue Code of 1939, without violating

-any provision of the Constitution of the United

States. . 20 .

STATUTE INVOLVED |

The_pertinent provisions of Sections 22 and 25 of

the In ernal Revenue Code. of 1939 are set out in the

. Appendix, infra, pp- 10-18. ; , :

STATEMENT

The facts, as stipulated (R. 22a-28a ) and found by

the Tax Court (R. 8()q-34da), may be sumimarized as.

_ follows: : eat |

_ In a_ previous decision,” rendered September 29,

1949, the Tax Court. held’ the taxpayer accountable .

under Section 22 (k) of the Internal Revenue Code of

1939 for sums received from her former husband.

Horace E. Dodge, as alimony for 1942 and 1945.

That decision was affirmed. on appeal, and certiorari

was denied. See Neeman X. Commissioner, 15. T. (

397, affirmed por enriant, 200 F. 2d 560 (C...A. 2d),.

certiorari denied, 345 U. $..956. (R. 22a, Sta.) |

°

- are ae aes 2

‘ In that case, the Tax Court found (inter alia) (R.

- 8ia-32a) :

(1) Pasicavics and Dodge were married May

17, 1928.

(2) They ‘entered ‘into an agreement on Au-

cust’ 4, 1933, which provided for periodic pay-

“ments by Dodge to taxpayer; that he was to pay

all United States and state income taxes which

she ‘might be required to pay because of such

alimony payments; that such provision for pay-

ment of taxes by him was not binding on the

- Commissioner of Internal Revenue and could not

prevent him from’ determining taxes due from

taxpayer based on such alimony payments.

+, (3) That taxpayer and Dodge entered into”

‘another agreement on October 238, 1939, inaking

_ certain changes in: the original “agreement of

August 4, $933, inereasin the. payments ° there-

under, and providing for approval of the agree-

‘ments in the pend} g divoree proceedings be-

tween the parties. ©

(14) That taxpayer and Dodge were divorced .

by a final decree of the Cireuit Court. Wayne

County, Michigan, dated October 26, 1939, which — i

apnroved, ratified; and confirmed the. above-

mentioned agreement of. August 4, 1933, as

amended bv the agreement of Octoher 23, 1939.

_ Taxpayer receiv ed from Dodge $15,000 for each of

the years 1945,°T946 and 1947, and $8,750 in the

vear 1948 .in aniduani Ww ith the agreements and

divorce deer ee. (R. 32a.)

Dodge filed UnitedeStates income tax returns for

the vears 1945 through 1948. He’ had gross taxable

income for those years varying from a minimum of

©

y" - a 1 ot + .

$3,953.43 in’ 1945 to a maximum of $7,556.95 in

1948; and he had deductions in excess —of < those

amounts. Dodge, however, received, tax-exempt in-

terest amounting to moi than 5145, 000.00 in each

of the years 1945 to 1948} inclusive, and the specific

source of funds used by him-to make. alimony: pay-

ments te taxpayer is unknown. (R. 32a-33a. )

The parties in the present proceeding dre identical

with the parties in the earlier proceeding. The mat-

ters and issues raised in the present proceeding al:

identical with those raise “1 in theMformer proceeding

except thdt taxpayer has (1) not. alleged she wWas-

entitled to an exemption 2s the head of a family, and’

* (2) in the preseng procecding she has raised certain

constitutional questions that were not specifically

_ pleaded in the earlier case, and also a ‘question as to

the source of the pay ments that Dodge made to her.

(R. 33a-34a. ) The Tax Covrt held that the doctrine,

of collateral estoppel did not operate to preclude con-

peng. of such questions, and after considering

them, i gtained the Com: nissioner ’s determination ©

: holding taxpayer accountable for income taxes on the

alimony . payments recéived by her. (R. .34a-38a.)

“The Court of Appeals affirmed on the opinion of tl

Tax Court. _(Pet. 33- 34.)

ARGU MENT

The decision of the court below, affirming the cde-

cision of \the Tax, Cotrt, is clearly correct. There is

— no’ conftiet of decisions or "other reason for further

Review. /

~

,

pe .

e 0

Section 22(K) of the ‘teeta Revenue Code of

1939,. as added by the Revenue Act of 1942 ( Appen-

dix, infra), provides that, in .the case of ‘a wife whv

‘is divorced or legally separated from her/ husband

under a decree of divorce or of separate maintenance,

periodie payments received subsequent to such decree

in discharge of a legal obligation which, because of

the marital or family relationship, is imposed upon or

. incagred by the husband under such decree or under

a written. instrument incident to such divorce, or

separation shall be includible in the gross income of

the wife. : |

In the ‘prior proceeding involying the years 1942

and 1943, the Tax Court held the taxpayer account-

able under Section 22 (k) for alimony received from

Dodge for those years. See Nee ‘man v. Commissioner

13: T. 'C. 397, affirmed per curiam, 200 F. 2d 560

_(C. A. 2d), certiorari denied, 345 U. S. 956. And,

under tne doctrine of collateral estoppel (Commis-

“sioner v. Sunnen, 333 U.S. 591; United States ‘vy.

Inte rnational Building Co., 345.U. S. 502), that de-

_ cision operates to * preclude any further consideration

‘of the matters and issues that were actually raised

and decided in the earlier proceeding even though we

are here dealing with other and later tax years (1945

through 1948). Thé fundamental question which the

‘taxpayer now attempts to presént to this court (Pet.

4) is whether alimony paid to her by her former

husband (Dodge) out of tax-exempt income or capital

can constitutionally be taxed.. That is the only ques-

‘ tion which’ this Court need now consider here. Helver- .

ing v. Taylor, 298 U.S. 507, 511. “s

In the instant proceeding, the Tax Court held tha:

the doctrine of collateral esto pel would not pré-clude

review ‘of this question (R.‘34a), but concluded (RK.

38a) that there was a failure of proof by taxpayer

as to. the source of the payments made to her. by

Dodge. Indeed, the parties stipulated (R. 27a) that °

the specific source of funds used by Dodge to make

the alimony payments was unknown, and, in th

circumstances, there is lacking the requisite factua:

basis for support of taxpayer'> contention. However,

* the Tax Court did not rest its decision entirely upon

’ failure of proof. It went on to hold (R. 35a-55a)

that the constitutionality of Section 22(k) does not

depend uper whether the~person paying the alimony

had or did not have taxable income with whic. to

pay it, but rather depends upon whether alimony is

‘ income to ‘the recipient within the Sixteenth Amend:

ment. and whether the statute is so arbitrary «yl

unjust as. to violate the Fifth Amendment.

The Tax Court relied (R 33a, 37a) upon three

cases (Mahana v.. United States, 88 FP. Supp. wer eC.

Cls.), certiorari denied, 35% U. S. 978; Fairbanks v.

Commissioner, 11 F. 2d Bau (C. A. 8th), certionar

denied, 343 U. S. 915; and Tecimam v. Commissioner.

22 T. C.-83) in each of which the constitutionality of

Section 22(«) was explicitly upheld: Cf. Comuis*

sioner V. Glenshaw Glass Co., 348 U.S. 4263 Buevet

y. Wells, 289 U. S. 670. We know of no decision to

the contrary. Moreover, the validity of the statute

has been postulated by al! the courts which have

dealt with it { Fairbanks vy. Commissioner, supre. }

681), and there have, of course, been many «: ss

Ph

— -

under the statute which have been decided by the

courts since it first became effective in 1942.

The taxpayer, however, attempts to distinguish the

Mahana, Fairbanks and Twinam cases onthe ground

that the payments there were made out of taxable

income. (Pet. 12.) Taxpayer says that the instant

payments ‘must have been made to ‘her by Dodge out

of tax-exempt income or capital since he did not have

‘ynough taxable income from which to make them, | and

that it would violate the Sixteenth and Fifth Amend-

ments to the- Constitution if Section 22(k) were ap-

plied so as to subject her to taxation in such circum-

‘stanees. (Pet. 10-11, 20, 23, 25, 30.) Taxpayer r also

-comends that, to the extent paid out of tax-exempt:

income, her alimony is immune from taxation under

Section 22{b) (4) of the. 1939 Code (Appendix,

Mira) and the Tenth Amendment to the Constitution.

(Pet, 23-24.) She argues that she can)in no event be

taxed on this alimony because Dodge had nv tax

burden in the first place, and hence there was no net

taxable income to be. shifted over to her. (Pet. 20,

30. )

The short answer to these contentions is that the

statute operates to tax the wife on alimony received .

' by her. without regard to the source from w hich the

_ husband makes the pay ments (Luckenhach v. Pedrick,

214 F. 2d 914 (C. A. 2d): Albert R. Gallatin Welsh

Trust x. Aaah rte 16 T. C. 1398, affirmed sith

vom. Girard Trust Corn Exchange Bonk, . ustee.v.

Commissioner, 194 EF. 2d 708 (C. Ao3d); S. Re ‘po No,

1651, 77th as 2d Sess., p. 84 (1942-2 Cun. Roll.

g

504, 568);° and there is nothing unreasonable or

arbitrary about such treatment. Gould v. Gould, 245

U.S. 151, cited by the taxpayer. (Pet. 8, 17, 18), did

not deal with the scope of the.term “income” as used

in the Sixteenth Amendment, and — purported to

construe the definifion of ‘net, income’ enews in

Section IT A and B of the Income Tax Act of 1915, ¢. |

16, 38 Stat. 114, 166. The law was amended in 1942 so .

as to specifically change the result in the Gould case,

and ‘rence that case has no application here. Under the

law.as so changed, (Section 22(k) of the 1939 Code),

the payments to the wife are treated as income to her in

the same sense that salaries .or rents would be treated

as income, and it makes no difference whether suc.’

items are paid out of earnings, capital, or tax-exempt

income of the payor. In any case, they are income to

the: recipient. 3

Here, Dodge was the owner of. the tax-exemp* . )

income, and that: exemption (Section 22 (b) (4))

would nct extend to the taxpayer even if he made the

payments ia question to ) her from that source. Cf. |

2S. Rep. No. 1631 reads in part as follows (p. 84° (1912-

_ Cum, Bull. 501, 568) ): .

¢ The full: amount of periodic payments received tinder

the circumstances described in section 22(k) is required

to be included in the gross income of the recipien

whether such amounts are derived, in whole or in: part.

from income received or acerued by the source to which :

such payments are attributable. Thus, it matters no’

that such payments are attributable to. property in trust.

. to life insurance, endowment, or annuity contracts, or to —

any other interest in property, or are paid directly or

indirectly by the, , obligor husband from his income or

capital. * +.

9

Vorfolle N at. Bank. of Ci and Ty v. Commission r, 66

Fr 2d 48 (C. A. ith); Con missioner Vv . Meyer, 101

F, 2d 155 (C. A. 2d). Certainly, Dodge onl not im-

munize per: sons to whom he paid salaries or rents, and

the instant situation is not basically different. By tax-

deprived Dodge of any exemption to which he may be

entitled under Section 22(b) (4), relating to tax-ex-

empt interest; and neither his constitutional nor stat-.

utory rights Have been impaired. Indeed, taxpayer has

no just ground to complain. since’she has received and

enjoyed the alimony which is being taxed to her.

- appears to be so (R. $la). However, such a private

agreement constitutes no eréund for relieving her

CONCLUSION

It is respectfully submitted that the petition for.

certiorari should be denied. — of

J. LEE RANKIN,

- Solicitor. General

A

LEE A. JACKSON,

| L. W. Post,

| Attorneys. .”

SEPTEMBER, 1958.

ing this alimony to taxpayer, the Commissioner has not .

Finally, taxpayer "says: (Pet. 28-29) that Dodge is:

contractually obligated to pay her taxes, and this .

_ from tax. Moreover, this point was decided against -

taxpayer in the prior proceeding. (13 T. C. at p. 399.)

~ CHARLEs K. nee) |

. Assistant Attorhey General.

-@

10

- APPENDIX

Internal Revenue Code of 1939::

- SEc..22. nancies INCOME.

* 6 “ *.

b) Exclusions from Gross Income.—The fol-

‘ing items shall not be included in gross in-

‘ come anid shall be exempt, from taxation under

this chapter:

. * * * ‘

(4) fas amended by Sec. 112(a) of the

Revenue Act of 1942, c. 619, 56 Stat. 798;

and by Sec. 11(d) of the Individual Eneome

Tax Act of 1944, ¢. 210, 58 Stat. 231] Taz-

free interest.—Interest upon fA)- the. obli- :

gationg of a State, Terr itory, ‘or any politi-

cal subdivision thereof, or the .District of

Columbia; or. {B) obligations of a corpora-

tion organized under Act of Congress, if;

. such corporation is an instrumentality of

_ the. United States; or (C). the obligations of —

_the United States or its possessions. Every

person owning any of the obligations

enumerated in ise (A), (B), or (C)

shall, when so required by regulations pre-

scribed by the Commissioner with the ap-

proval of the Secretary, submit in the re-

turn required by this chapter a statement

showine the number and amount of such

obligations owned by him and the income

received therefrom, in such form and with

such information as such reeulations mv

-preseribe. In the case of obligations of the

‘United States issued after September 1.

1917 (other than postal savinys certificatys ,

i.

of deposit to the extent they represent de-

_ posits made before March 1, 1949) and in’

the case of obligations of a corporation or-

ganized under Act of Congress, the interest

shall be exempt. only if and to the extent

provided in the respective Acts authorizing

the issue thereof as amended and supple-

mented, and shall be excluded from gross

income only if and to the extent it is wholly

exempt from the taxes imposed by this

chapter; ive

; * * * ° * : : R

(k) fas added by See. 120(a) of the Revenue

Act of 1942, supra] Alimony, Etc., Income.—In

the case of a wiie’ who -is divorced or legally

‘se arated from hér husband under a decree of

divorce or of separate maintenance,. -periodic

payments (whether or not made at regular in-

tervals) received subsequent to such decree in

discharge of, or-attributable to property trans- |

ferred (in trust or otherwise) in. discharge of, a

‘legal obligation which, because of the marital or,

family relationship, is imposed upon or incurred |

by such husband under such decree or under a

written instrument incident to such a divorce. or

separation shall be includible in the gross income.

of such wife, and such amounts received as are

attributable to property so transferred shall not

he ineludible in the gross income of such hus-

hand. This subsection shall not apply to that

nart of any such periodic ‘payment. which the

terms of the decree or written instrument fix, in

terms of an amount of money or a portion of the,

payment, as a sim which is pay Able for the sup-

port of}minor children of such husband: In case

any such periodic nayment is Jess than the

é ® ”

ms ee

- amount specified in the decree or written instru-

ment, for the purpose of applying the’ preceding

sentence, such payment, to the extent of such

sum payable for such support, shall be consid-

ered a payment for such support. Installment

payments, discharging a part of an obligation the

principal sum of which is, in terms of. money or.

property, specified. in the decree or instrument

shall not be vonsidered periodic payments for the

purposes of this subsection; except that an in-

stallment payment.shall be considered a periodic

payment forthe purposes of this subsection if

such principal sum, by the terms of the decree

or instrument, may be or is to be paid within a

period ending more than 1Q years from the date’

of such decree or instrument, but only to: the.

extent that such installment payment | for the

taxable year of the wife (or if more than one

such installment payment for such taxable vear

is received during such taxable year, the agegre-

éate of such installment payments) does net

exceed 19 per centum of such pringipal sum.

For the purposes of fhe preceding sentence, th

ste 0s of a payment of the principal sum w hich .

allocable to a period after the taxable vear of

3 the wife in which it is received shall he con-

sidered an installment payment for the taxabl-

vear in which it is received.“ (In cases wher

such"periodie payments are attributable to pron-

erty of an estate or property. held in trust. s«

section 171(b).)

- * i e .

(26 U.S.C. 1952 ed:. See. 22.)

*

Sec. 23. DEDUCTIONS FROM GROSS INCOME.*

In computing net income ‘there shall be allow ed

as deductions: .— Fees :

aoe * * *

(u) [as added by Sec. 120(b) of the Revenue

Act of 1942, supra] Alimony, Etc., Payments.—

re the case of a husband described in section -

22(k), amounts includible under section 22 (k)

in the gross income of his wife, payment of

which is made within the husband’s taxable

year. Ifthe amountgpf any such payment is, .

_under section 22(k) or section 171, stated to be.

not in¢ludible in such husband’s gross income, no

deduction shall be. allowed‘ with respect to such

payment under this subsection.

(26 U.S.C. 1952 ed., See. 23.).

.

*

¢ - * > eC VER es” PRINT ne conde tase 47949: