White v. Commissioner ( 1928 )

EDWARD J. WHITE, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

White v. Commissioner

Docket No. 12525.

United States Board of Tax Appeals

13 B.T.A. 854; 1928 BTA LEXIS 3170;

October 9, 1928, Promulgated

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">*3170 Attorney's fees, contracted for prior to 1920, but not received until 1920, held to be income in the year actually received.

Thomas T. Bailey, Esq., for the petitioner.

James A. O'Callaghan, Esq., for the respondent.

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SIEFKIN

">*854 This is a proceeding for the redetermination of deficiencies in income taxes for the years 1920 and 1921 in the respective amounts of $3,512.29 and $1,415.80.

The error alleged with regard to the year 1920 is the inclusion by the respondent in petitioner's gross income of $10,000 received by petitioner during that year from the National Bank of Commerce of St. Louis and the sum of $4,000 received by petitioner in that year from the Hughes-O'Rourke Construction Co.

The error alleged with regard to the year 1921 is the inclusion by the respondent in petitioner's gross income of $5,000 received by petitioner in 1921 from the National Bank of Commerce of St. Louis.

">*855 The petitioner, an attorney, during the years 1918 to 1921, inclusive, represented the Missouri Pacific Railroad, but also engaged in outside legal practice.

In 1917 the petitioner entered into an oral agreement with the officers">*3171 of the Bank of Commerce of St. Louis, whereby he was to receive a retainer fee of $5,000 for representing the bank in connection with the presentation and argument of an appeal from a judgment entered by the Circuit Court at St. Louis in a suit brought by the bank against H. Clay Pierce. The agreement further provided that if it became necessary to carry the case to the Supreme Court of Missouri, petitioner should receive an additional sum of $5,000 if the bank were successful. This agreement was corroborated by letter in 1918, which provided, in part:

Our understanding is that you are to assist the bank in all these litigations, as associate counsel, for which you are to be paid:

1. For your services in the Pierce case, a fixed retainer of $5,000, and if the bank is successful in this case, an additional $5,000.

The case was abstracted and argued in the summer and fall of 1918. It was presented to the Supreme Court of Missouri at the October, 1919, term of court, and the decision of the court rendered in April, 1920, was in favor of the bank. No bill was presented to the bank by the petitioner. Payment of the whole $10,000 was made in April, 1920. This amount was not">*3172 included by petitioner in his income-tax returns for the years 1917 or 1918. At the time the agreement was made, the bank was solvent.

During the year 1919 petitioner was employed by the Hughes-O'Rourke Construction Co., to represent this company in the prosecution of its claims against J. W. Thompson in the United States District Court. The company agreed to pay petitioner $4,000, and this amount was paid in 1920. Petitioner did not press payment of this fee. This $4,000 was not included in the petitioner's returns for 1919, 1920, or 1921.

In 1917 the petitioner entered into an agreement with the National Bank of Commerce of St. Louis, whereby the bank agreed to pay petitioner $5,000 for services rendered in a case brought by the bank against Festus J. Wade, et al. Petitioner did not press the bank for payment of this fee and it was paid to petitioner in 1921.

The petitioner's returns for the years 1920 and 1921 were made on a cash receipts and disbursements basis. The return for 1920 was filed on February 26, 1921. No consents to a later determination, assessment and collection of taxes were filed by petitioner. The deficiency letter for the year 1920 was sent to">*3173 petitioner on ">*856 September 29, 1925, and that for the year 1921 was sent on September 30, 1925.

OPINION.

SIEFKIN: The respondent included in the petitioner's income for the year 1920 the amount of $14,000 received by the petitioner in that year, consisting of $10,000 from the National Bank of Commerce, and $4,000 from the Hughes-O'Rourke Construction Co. Petitioner was retained in 1917 to represent the National Bank of Commerce in a Law suit, and by agreement was to receive $5,000 as a retainer fee and $5,000 if the case were taken to the Supreme Court of Missouri and if the bank were successful on the appeal. A decision in favor of the bank was rendered in April, 1920. Payment of the entire $10,000 was made to petitioner in 1920. Payment of the $4,000 to petitioner by the Hughes-O'Rourke Construction Co. was also made in 1920.

The petitioner, in 1917, was engaged by the National Bank of Commerce to represent the bank in the case of Bank of Commercev. Wade, et al. He received $5,000 in 1921 for the services rendered.

The petitioner contends that these fees, or at least a considerable portion thereof, should be cnsidered income earned prior to 1920">*3174 and can not be considered as income for the taxable years 1920 and 1921. He advances the contention that the retainer fees were constructively received by the petitioner prior to 1920 and relies upon paragraph 51 of Regulations 33, which provides:

Actual receipt is a reduction to possession. Constructive receipt is where income is credited to or made available to recipients and is to be reported as income.

We can not agree with this contention. In the case of , the court said:

Actual receipt within the current tax year is a condition to the levy of the tax, by the terms of the act as construed by the courts. The authority of the Treasury Department to make reasonable regulations for the execution of the law would not confer on that department the power to add to the income, subject to the tax, as defined by the law. In the case of , 145 C.C.A. 298-301, the Court of Appeals for the Second Circuit said:

"But no instructions of the Treasury Department can enlarge the scope of this statute, so as to impose the income tax upon unpaid">*3175 charges for services rendered and which, for aught any one can tell, may never be paid."

In , we held that additional compensation authorized and credited to the taxpayer upon the books of the corporation in 1920 and received by him in 1921 was not income for the year 1920, since the taxpayer kept his books and rendered his return upon the cash receipts and disbursements basis.

">*857 See also ; ; ; and , which are to the same effect.

In , we stated:

Taxpayer, who is an attorney and keeps his accounts and renders his returns upon a cash receipts and disbursements basis, contends that certain payments, received in 1918 for services rendered and billed in 1917, are income for 1917. In one case a check in payment of the bill rendered was mailed late in 1917 but received by the taxpayer in 1918. In the two other transactions involved, the amount was agreed upon between taxpayer and an officer of the corporate debtors (who">*3176 was also a large stockholder in each) in 1917, but no payment was made until 1918.

Taxpayer urges that the amounts were constructively received in 1917; that drafts could have been drawn and would have been honored. We find nothing to distinguish this appeal from the decision in the .

It is our opinion that the income received by the petitioner was income of the year in which it was actually received, and the holding of the respondent will not be disturbed.

Judgment will be entered for the respondent.