Bishop v. Commissioner of Internal Revenue, 4517.

• Citation: 54 F.2d 298
• Decision Date: 09 December 1931
• Docket Number: No. 4517.,4517.
• Parties: BISHOP v. COMMISSIONER OF INTERNAL REVENUE.
• Court: United States Courts of Appeals. United States Court of Appeals (7th Circuit)

54 F.2d 298 (1931)

BISHOP v. COMMISSIONER OF INTERNAL REVENUE.

No. 4517.

Circuit Court of Appeals, Seventh Circuit.

December 9, 1931.

Charles S. Cutting, Morris Glasser, and Charles Melvoin, all of Chicago, Ill., for petitioner.

G. A. Youngquist, Asst. Atty. Gen., and J. Louis Monarch and F. Edward Mitchell, Sp. Assts. to Atty. Gen. (C. M. Charest, Gen. Counsel, Bureau of Internal Revenue, and Nathan Gamimon, Sp. Atty., Bureau of Internal Revenue, both of Washington, D. C., of counsel), for respondent.

Before ALSCHULER, EVANS, and SPARKS, Circuit Judges.

SPARKS, Circuit Judge (after stating the facts as above).

The facts in this case are uncontroverted, and the sole question presented is whether the deficiencies added to petitioner's income were authorized by law.

The statutes involved are Revenue Act of 1921, c. 136, 42 Stat. 227, 233, 237:

"Sec. 210. That * * * there shall be levied, collected, and paid for each taxable year upon the net income of every individual a normal tax * * *.

"Sec. 211. (a) That * * * there shall be levied, collected, and paid for each taxable year upon the net income of every individual —

"(1) * * * a surtax * * *.

"Sec. 212. (a) That in the case of an individual the term `net income' means the gross income as defined in section 213, less the deductions allowed by section 214. * * *

"Sec. 213. That for the purposes of this title * * * the term `gross income' —

"(a) Includes gains, profits, and income derived from salaries, wages, or compensation for personal service * * * of whatever kind and in whatever form paid, or from professions * * *."

Sections 210, 211 (a), 212 (a), and 213 (a), of the Revenue Act of 1924, c. 234, 43 Stat. 253 (26 USCA §§ 951 note, 952 note, 953, 954), do not differ materially from the provisions of the act of 1921 above referred to.

It is petitioner's contention: (1) That his contractual right to receive renewal commissions constituted an existing property right; (2) that the instrument which he executed was an assignment, in præsenti, of that existing property right to his wife; and (3) that the renewal commissions received by the assignee after the assignment constituted income to her from property then owned by her, and hence they were taxable to her.

With petitioner's first contention we are in accord, but to the others we cannot assent. In support of the last two contentions he has cited many cases, typical of which are Leydig v. Commissioner, 15 B. T. A. 124; O'Malley-Keyes v. Eaton (D. C.) 24 F.(2d) 436; Commissioner v. Field (C. C. A.) 42 F.(2d) 820; In re Wright (C. C. A.) 157 F. 544, 18 L. R. A. (N. S.) 193. With these decisions we are not at variance, but we think they do not support petitioner's contentions.

In the first case cited Leydig had leased a part of his farm for mining and operating for oil and gas, for which he was to receive, as royalties, free gas and one-eighth of the oil produced. He was contemplating executing a similar lease on another part of his farm, but had not done so. He assigned to his wife an undivided one-half interest in and to any and all oil and gas royalty interests which may have been heretobefore, or should be in the future, received or retained by him. The Board held that the lease was ineffective as to the royalty interests subsequently to be acquired by Leydig. As to the existing lease, the Board held that, Leydig having assigned to his wife one-half of the property in the right to receive royalties, the royalties which she later received were her income on the property which had been assigned to her, and, of course, should not be charged as income to Leydig. The Board in its decision uses the following language, which we regard as quite apt: "The cases collected above are singularly free from conflict as to the principle governing the issue raised. From them we conceive the rule to be that income per se can not be assigned to relieve the assignor of the tax levy, but, where the thing assigned was a property right, real or personal, productive of income, income thereafter arising from such property is income to the assignee by virtue of his ownership."

It will be observed that Leydig did not in words assign to his wife one-half of the royalties, but he assigned to her a one-half interest in all oil and gas interests which he then held. It was an interest in the thing that produced the royalties which was assigned. This was the property right which afterwards produced the royalties or income which the Board held was her income and not that of her husband.

In O'Malley-Keyes v. Eaton, supra, appellant irrevocably sold, assigned, and transferred all right, title, and interest in and to all moneys, funds, income, property, and choses in action which she then had, or to which thereafter she might be entitled, in a certain trust fund. She thereby disposed of all of her interest in the trust estate, which included, not only the future income, but the interest in the trust fund which subsequently produced the income.

In re Wright, supra, held that the right to renewal commissions of bankrupt inured to the trustee in bankruptcy because it was a right which bankrupt could have transferred, and that this fact brought it squarely within the statute which designates what property of the bankrupt shall pass to his trustee. In this case, however, no question of income tax was involved. In cases of bankruptcy, each and every asset, either contingent or vested, which is subject to transfer by bankrupt, passes to the trustee, and this is true whether the value be definite or problematical. 11 USCA § 110 (a) (5). The trustee's title to the right to renewal commissions, if and when paid, was a present property right, and this is the property right which the statute transfers to the trustee at the time of the adjudication. The statute conveyed no title to the commissions at the time of the bankruptcy adjudication. They were not then in existence, and might never be. Trustee's title to them was not perfected until the premiums were paid, and, when they were paid, he acquired the commissions by virtue of the property right which the statute gave him at the date of the adjudication.

The decision in Commissioner v. Field, supra, turned upon whether, under a decision of the Supreme Court...