Lunsford v. Commissioner of Internal Revenue, 14596.

• Decision Date: 14 May 1954
• Docket Number: No. 14596.,14596.
• Citation: 212 F.2d 878
• Parties: LUNSFORD et ux. v. COMMISSIONER OF INTERNAL REVENUE.
• Court: U.S. Court of Appeals — Fifth Circuit

212 F.2d 878 (1954)

LUNSFORD et ux. v. COMMISSIONER OF INTERNAL REVENUE.

No. 14596.

United States Court of Appeals Fifth Circuit.

May 14, 1954.

Wentworth T. Durant, Dallas, Tex., Robert A. Wilson, Dallas, Tex., of counsel, for petitioner.

H. Brian Holland, Asst. Atty. Gen., and Ellis N. Slack, Special Asst. Atty. Gen., Dept. of Justice, Charles W. Davis, Chief Counsel, and John M. Morawski, Special Atty., Bureau of Internal Revenue, William L. Norton, Jr., Special Asst. Atty. Gen., Melva M. Graney, Washington, D. C., for respondent.

Before BORAH and RUSSELL, Circuit Judges, and DAWKINS, District Judge.

RUSSELL, Circuit Judge.

The additional assessments of income tax proposed by the Commissioner of Internal Revenue against Marvin Lunsford for the fiscal years ended July 31, 1946 and 1947, and against his wife, Jetta Fern, for the calendar years 1946 and 1947 were based in part upon the disallowance of a so-called family partnership, in part upon the alleged receipt of taxable "benefits" from Marvin's, Inc., and in part upon transactions which are not pertinent to these petitions for review. The taxpayers filed separate petitions for redetermination of their respective tax liability with the Tax Court, each alleging the validity of the partnership, denying the receipt of the taxable benefits and claiming credit for an operating loss carry-back incurred in a subsequent year. Among other things, the Tax Court affirmed the determination of the Commissioner that no valid partnership existed for tax purposes among Lunsford, his brother, sister and father during the fiscal year ended July 31, 1946; sustained the Commissioner's finding that Lunsford received certain taxable income from the corporation in 1947, and disallowed for failure of proof the claimed operating loss carry-back. By these petitions for review the taxpayers seek a reversal of the decision of the Tax Court with reference to those three items.

This court has recently had occasion to rule on the validity of the identical partnership here at issue in Scott v. Gearner, 197 F.2d 93. By reference to that case it is disclosed that the Commissioner disallowed the partnership for tax purposes for the years 1944 and 1945, the taxable years immediately preceding those now under review, and by reason thereof assessed additional income tax against Lunsford. To secure the payment of the tax thus assessed, Lunsford and his wife executed a deed of trust covering certain real property located in Dallas County, Texas, to Neal T. Scott, as trustee. Thereafter, under threat of the property being sold in satisfaction of the indebtedness, the remaining partners and representatives of a deceased partner instituted an action against Lunsford, his wife and Scott to enjoin the proposed sale of the property, claiming that it was purchased by Lunsford with partnership funds and asserting their interest therein. The suit was removed to the United States District Court for the Northern District of Texas where the United States, appearing by intervention, asserted the validity of the assessment and sought to recover the taxes claimed and to foreclose the lien of the deed of trust. After trial of the issues thus raised, the district court found on conflicting evidence that a partnership did exist for tax purposes during the taxable years involved, denied the relief sought by the United States and permanently enjoined the defendants from selling or attempting to sell the property by virtue of the deed of trust. Upon appeal to this court, Scott v. Gearner, supra, the judgment of the trial court, insofar as it recognized the validity of the partnership and enjoined the sale of the plaintiffs' interest in the property, was affirmed. However, it was reformed to limit the absolute restraint to the interests of the plaintiffs and to permit foreclosure of the lien against Lunsford's interest for such taxes as were actually due by him.

The complaint in the Scott case was filed July 12, 1950, exactly one month after the petition in the present proceeding was served. The hearing before the Tax Court was had on May 29th, and 30th, 1951, but it was not until May 29, 1952, that its memorandum findings of fact and opinion was handed down. In the meantime, the Scott case was tried in June, 1951, and the formal decree was entered July 3, 1951. The opinion of this court affirming the judgment of the district court as modified was handed down on May 16, 1952. Thereafter, the taxpayers filed with the Tax Court a motion for reconsideration of its decision based in part upon the opinion in the Scott case. The Tax Court, of the opinion that it had "given the best decision within its power * * * on the evidence before it", denied this motion.

The taxpayers urge that the decision of the Tax Court sustaining the Commissioner's determination that a valid partnership did not exist during the taxable year 1946 is not supported by substantial evidence and should be reversed. They insist further that, as to the issue of partnership vel non, the decision in the Scott case is controlling and is res judicata, or, if not, it constitutes an estoppel by judgment insofar as the validity of the partnership is concerned. In reply to these arguments, the Commissioner relies upon the record made before the Tax Court to sustain its findings and urges that since the Scott case was concerned with taxable years prior to those here under review it is not determinative and conclusive under the doctrine of res judicata or collateral estoppel, especially in the absence of a showing that the parties, issues and facts in the two cases are identical and that no intervening change has occurred since the rendition of the prior decision.

Since the decision in the Scott case dealt with the income tax liability of Lunsford and his former wife for their taxable years ending in 1944 and 1945, under settled principles that case is not res judicata of the taxpayers' income tax liability for the years presently under review. Nevertheless, we think that the ruling in that case is controlling here. It was determined there that the partnership did exist and was valid for tax purposes as of July 31, 1945. A little more than seven months later the partnership was liquidated by the sale of the business which it operated. Thereafter certain of the property, equitable title to which was adjudged in the Scott case to vest in the individual partners, was purchased by Lunsford with partnership funds. In finding that there was no partnership the Tax Court considered the testimony of Lunsford concerning the negotiations and events beginning in 1943 and continuing up until the time the business was sold. By referring to the record in Scott v. Gearner,¹ supra, we find that substantially the same evidence was before the court in that case. While the Tax Court found on this evidence that the parties never intended to, and did not, form a partnership, the district court, affirmed by this court, found that they did. Inasmuch as the hearing before the Tax Court was held prior to the trial in the district court, although the judgment of the district court was rendered almost eleven months before the Tax Court published its opinion, the taxpayers did not have an opportunity to establish by evidence in the Tax Court the "controlling factual identities"² necessary to invoke an estoppel by judgment. Nevertheless, the attention of the Tax Court was directed to the decision in the Scott case, in which the United States had fully submitted the partnership question for determination of the Court. The range of the evidence there extended through the entire time covered by the proceeding in the Tax Court. We thus have the unique situation where the appellate court which has affirmed a finding that a partnership did exist is asked, based on the same facts and circumstances, to affirm a subsequent decision of the Tax Court that a...