McIntosh v. Commissioner , 16 B.T.A. 1400 ( 1929 )

RICHARD E. MCINTOSH, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

McIntosh v. Commissioner

Docket No. 15199.

United States Board of Tax Appeals

16 B.T.A. 1400; 1929 BTA LEXIS 2381;

July 24, 1929, Promulgated

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Petitioner held to be an employee of the State of Kansas during the year 1923 and his income from the State held to be exempt from Federal income tax.

Richard E. McIntosh, Esq., pro se.

F. R. Shearer, Esq., for the respondent.

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MARQUETTE

This is a proceeding for the redetermination of a deficiency in income tax asserted by the respondent for the year 1923 in the amount of $118.26. The deficiency arises from the action of the respondent in including in the petitioner's taxable income, money paid him by the State of Kansas, which the petitioner claims is exempt from the Federal income tax.

FINDINGS OF FACT.

The petitioner was, on and prior to March 31, 1921, a practicing attorney in Kansas. In that year he was employed under authority of the following section of a legislative enactment which became effective March 31, 1921:

HOUSE BILL NO. 694.

AN ACT relating to the revision, compilation and printing of the General Statutes of Kansas and providing for the sale thereof, and making an appropriation therefor.

Be it enacted by the Legislature of the State of Kansas:

SECTION 1. The supreme court of the state of Kansas shall appoint a commission of three members, who shall have the same qualifications as justices of said court, and said commission is hereby authorized to make a contract for the revision, compilation and editing of the General Statutes of Kansas, in one volume, with annotations of the supreme court and appellate court, to date of publication. Said commission may employ an expert, competent for that purpose, and who is also competent to prepare an accurate index for such volume. The said commission shall superintend and approve the same and cause such statutes to be printed under the direction of the State Printing Commission, at the State printing plant.

* * *

The petitioner's employment was not for any time certain, nor was it fixed for the time necessary to complete the work, and he was subject to discharge at any time. There was no written contract. At first the petitioner was to devote half his time to the work, for a salary of $2,000, payable in equal monthly installments. In 1922 the Commission asked him to devote all his time to the work, which he agreed to do for a yearly salary of $4,000. The petitioner gave up his office prior to 1923, and put in full time at the Commission's office in the State House. There were several other persons employed by the Commission engaged in the revision and compilation of the statutes. From time to time, approximately once a month, the Commission assigned work to these various persons. Their work was subject to the direction and control, review and approval, of the Commission. They were paid by State warrants, out of the public treasury.

When the work of annotation was under way the petitioner had the immediate supervision thereof, reporting to the Commission each month, or more often if called upon. The Commission had, and exercised, general supervision of the work in all of its branches. It did not examine all annotations in detail, but did examine some of them.

On or about December 1, 1923, the petitioner's regular monthly salary was ended as the work of compilation and annotation had been finished. Thereafter, he was employed for a time, upon a per diem basis, to answer inquiries which might be made concerning the revision of the statutes. His total compensation from State funds for the year 1923 was $3,700, of which $3,666.67 represented salary for the eleven months during which he devoted all his time to the work.

The petitioner in his income-tax return for 1923 deducted from gross income the $3,700 which he had received from the State, on the theory that he was a State employee, and that his salary therefrom was exempt. The respondent disallowed the petitioner's claim.

OPINION.

MARQUETTE: The only question involved herein is whether the petitioner was, during the year 1923, an employee of the State of Kansas. The respondent concedes that if he was an employee his salary was exempt from taxation. The respondent contends, however, that the petitioner was not an employee, but was an independent contractor.

In the case of ; affd. , the facts were that on January 2, 1923, the petitioner, a practicing attorney of Jacksonville, Fla., was appointed county attorney for Duval County by the board of commissioners of that county for a term of two years at a salary of $200 per month. His duties were to furnish legal advice to the board of county commissioners, draw deeds and contracts, orders and resolutions, and defend the county in any action brought against it. The petitioner while serving as county attorney maintained a separate law office, but did not allow his private practice to interfere with the duties he owed the county. The commissioners did not instruct him how he should perform his legal work, and they had no special control over the hours he was employed or engaged in practice. In holding that the petitioner was an employee of the State of Florida, this Board said:

The only real question before us is whether the petitioner was an employee of the State of Florida or of a political subdivision thereof within the meaning of section 1211 of the Revenue Act of 1926.

A situation similar to the instant case was before the United States Supreme Court in the case of . The question there was as to whether certain consulting engineers engaged to advise States and subdivisions with reference to water and sewerage projects not required to take any oath or forego other employment as officers or employees of the State or subdivision within the meaning of section 201(a) of the Revenue Act of 1917, which contains a provision for exemption from tax as follows:

"This title shall apply to all trades or businesses of whatever description, whether continuously carried on or not, except -

"(a) In the case of officers and employees under the United States, or any State, Territory, or the District of Columbia, or any local subdivision thereof, the compensation or fees received by them as such officers or employees."

The court held that in the circumstances of the case the petitioners were not officers of any State. The court then stated:

"Nor do the facts stated in the bill of exceptions establish that the plaintiffs were 'employees' within the meaning of the statute. So far as appears, they were in the position of independent contractors. The record does not reveal to what extent, if at all, their services were subject to the direction or control of the public boards or officers engaging them. In each instance the performance of their contract involved the use of judgment and discretion on their part and they were required to use their best professional skill to bring about the desired result. This permitted to them liberty of action which excludes the idea that control or right of control by the employer which characterizes the relation of employer and employee and differentiates the employee or servant from the independent contractor. ; . And see ; ."

The facts in this case are substantially different from those which obtained in the case of Here the petitioner was employed for a definite period at a definite monthly salary. He was required to attend all meetings of the Board of County Commissioners; to give legal advice concerning all routine matters coming before the Board; to attend to all legal matters in connection with bond issues; and in general to do the legal work of the Board. He was under the direction of the Board during the entire taxable period and practically all of his energies during the year 1923 were devoted to the Board. We do not understand it to be the ruling of the Supreme Court that the relationship of employer and employee obtains only where the relationship of master and servant obtains and then only whenever the employer retains the right to direct the manner in which the business shall be done as well as the results to be accomplished, in other words, not only what shall be done, but how it shall be done. See . If this were so, a physician who might be employed by a railroad company to devote his entire activities to the company could not be an employee of the company because clearly in such a case the employer would not expect to tell the physician how his work should be done. A skilled laborer is no less an employee because he uses his skill in the performance of his work. The term "employee" should not in our opinion be restricted only to menials. The petitioner was in our opinion an employee of the Board of County Commissioners of Duval County, Florida, during the year 1923, within the meaning of section 1211 of the Revenue Act of 1926. Cf. ; ; .

In , the petitioner devoted the greater part of his time to special legal work for the State of Mississippi, and was paid a per diem rate for the time he actually devoted to that work. The work was performed pursuant to an oral agreement between the petitioner and the attorney general, who had supervision and direction of the work. The employment was terminable by either party at any time. We held that the petitioner was an employee of the State of Mississippi and that the compensation received by him from the State was exempt from taxation. In that case it was said:

, was an action brought by consulting engineers against a collector to recover money paid under protest as income tax. Plaintiffs were professionally employed to advise States or subdivisions of States with reference to proposed water supply and sewage disposal systems. They contended that the fees obtained for these services were exempt from Federal taxation. In each case the service was rendered in connection with a particular project for water supply or sewage disposal, and the compensation was paid in some instances on an annual basis, in others on a monthly or daily basis, and in still others on the basis of a gross sum for the whole service.

In holding that the plaintiffs were independent contractors, the court said:

"The record does not reveal to what extent, if at all, their services were subject to the direction or control of the public boards or officers engaging them In each instance the performance of their contract involved the use of judgment and discretion on their part and they were required to use their best professional skill to bring about the desired result. This permitted to them liberty of action which excludes the idea of that control or right of control by the employer which characterizes the relation of employer and employee and differentiates the employee or servant from the independent contractor. * * *."

Much the same thought is incorporated in Solicitor's Opinion 122, quoted in the notice of deficiency sent to the petitioner as follows:

"An employee is one whose duties consist in the rendition of prescribed services and not the accomplishment of specific objects, and whose services are continuous, not occasional or temporary."

In the instant case the uncontradicted testimony is that the petitioner was to perform his services under the supervision and control of the Attorney General. No specified task was undertaken; no certain result was to be accomplished. The attorney general had the power not only to direct what should be done but how it should be done. The employment was continuous and the duties no different from those of any other attorney employed in the office of the attorney general except that they did not require all of the petitioner's time. The work which petitioner performed was, in fact, in charge of the attorney general, who could direct it as he pleased. It is our opinion that this petitioner was not serving the State as an independent contractor, but rather in the capacity of a servant or employee and that his income from the State was not subject to the Federal income tax.

And to the same effect are ; ; and .

The respondent cites a number of cases in support of his contention that the petitioner was not an employee of the State of Kansas. These cases, however, are essentially different in their facts from the instant proceeding, and we do not consider them in point.

We are of the opinion that the facts in this case, which need not be restated here, bring it squarely within the scope of the decisions in John E. Mathews; B. F. Martin; H. W. Byers; and , and that the petitioner was, during the year 1923, an employee of the State of Kansas, and that the compensation received by him from that State is exempt from the Federal income tax.

Judgment will be entered under Rule 50.