Anderson v. Commissioner of Internal Revenue

Citation81 F.2d 457
Decision Date18 January 1936
Docket NumberNo. 1241.,1241.
PartiesANDERSON v. COMMISSIONER OF INTERNAL REVENUE.
CourtU.S. Court of Appeals — Tenth Circuit

A. E. Pearson, of Oklahoma City, Okl. (Walter G. Moyle, of Washington, D. C., on the brief), for petitioner.

Arnold Raum, Sp. Asst. to Atty. Gen. (Frank J. Wideman, Asst. Atty. Gen., and Sewall Key and Warren F. Wattles, Sp. Assts. to Atty. Gen., on the brief), for respondent.

Before LEWIS, PHILLIPS, and McDERMOTT, Circuit Judges.

McDERMOTT, Circuit Judge.

Two items in Anderson's income tax return for 1929 have been before the Board of Tax Appeals and are here on a petition to review. One concerns an item of $142,000 received by the taxpayer from the sale of certain mineral interests which he had owned for more than two years, and which he returned for taxation as capital gain. The Board held, four members dissenting, that the gain was taxable as ordinary income. After the decisions of Burnet v. Harmel, 287 U.S. 103, 53 S.Ct. 74, 77 L. Ed. 199, and Alexander v. King (C.C.A.10) 46 F.(2d) 235, 74 A.L.R. 174, the Commissioner ruled that an outright sale of mineral interests, as contradistinguished from a lease with royalties reserved, should be treated as a sale of a capital asset. G.C. M. 12118, XII-2 C.B. 119. Respondent therefore now confesses error in the ruling on this item and consents to a revision of the tax liability accordingly. In this position we concur, for the conveyances are deeds and not leases.

The item remaining in dispute is a deduction of $19,112 (reduced by concession to $14,000), which the taxpayer asserts represents a loss incurred in his business, not compensated by insurance. Revenue Act 1928, § 23 (e) (1), 45 Stat. 799.

Anderson is a farmer who also owned and managed some buildings in Earlsboro which he rented, and from which rentals he returned $5,194.40 as income during the year in question. In order to rent a building for a grocery store, he wanted to put in a cement floor. He was driving from his home to Ardmore 110 miles away to hire a man to do the work when his car collided with another, a man was killed and his car damaged. Anderson was sued in the state court, a judgment recovered, compromised later for $19,000 and paid during the taxable year. He also paid $4,112 for court costs, witnesses' fees, and other expense. Of this $23,112 paid out, he was reimbursed $5,000 from his insurance, leaving an out-of-pocket loss of $18,112. The Board made no special findings, as it is no longer required to do; but in its opinion shortly disposed of the controversy as follows:

"The amount claimed represents the uninsured part of his liability for damage for death resulting from his negligent driving of his own automobile. If allowable at all, such a loss must be the proximate result of the business (cf. Kornhauser v. United States, 276 U.S. 145, 48 S.Ct. 219, 72 L. Ed. 505); and such a finding of fact is not justified by the evidence. The petitioner, the sole witness, testified that in order to procure the prompt services of a laborer to do some cement work in the floor of a building of which he was the owner and lessor, he was driving his own Cadillac car a distance of 220 miles in the nighttime with a friend when the collision occurred for which he was liable. We think the payment of the judgment is too remote to be characterized as a loss incurred in business."

This leaves us in doubt as to the reason for disallowing the deduction. Respondent suggests two theories upon which the Board may have acted. If the order is right on any theory, it should be affirmed.

1. It is argued that the Board did not believe the accident occurred while on a business trip, and it is said that it is incredible that one would drive so far at night to procure a workman. A hundred and ten miles is not a long drive as distances are measured out here, — two hours, or a little more, in the Cadillac he was driving. Nor is night driving unusual, particularly for a farmer who manages many farms; on the contrary, it is the time when farm work cannot be done. Why drive so far to procure the services of a cement worker? Anderson had two, and perhaps three, good reasons for wanting this particular man. First, Anderson knew he was a good workman; second, he owed Anderson money which he could thus collect; and, possibly, a colored man cannot always employ a white mechanic in eastern Oklahoma.

There is nothing inherently incredible about Anderson's story. Alleged discrepancies in his testimony are pointed out, chief among which is the statement that he paid out something like $19,000, while his counsel only claim a deduction of $14,000. But Anderson was nearer right than his counsel, for his counsel overlooked the item of $4,112 in court costs and expenses. His uncompensated loss was $18,112 as we read the record. Anderson did speak of 1927 instead of 1928 at one time; but such a slip after a lapse of five years happens with all of us and does not brand him as a perjurer. Furthermore, respondent was advised of this claim on April 15, 1930. The trial was on November 9, 1933. The judgment and the supporting proof were matters of public record. The respondent, with a corps of trained inspectors at his command, had three and a half years to ascertain the facts. If Anderson's story was not true, undoubtedly respondent would have adduced the facts before the Board. Since no syllable of proof was offered to contradict Anderson, there is no reason to disregard his evidence. Nor is there anything in the record even to suggest that the Board disregarded the only evidence before it.

2. It is argued that the Board may have intended to find that the accident resulted from Anderson's willful or anti-social conduct, such for example as driving while drunk; such conduct is likened to the deliberate shooting of another.

Deductions are allowable for losses arising from ordinary mishaps on the highway even though caused, as they generally are, by negligence of the driver. The Commissioner has ruled that damages to a pleasure car may be deducted if caused by negligence of the taxpayer, but not if caused by his willful act. Art. 171, Regs. 74. Cf. Shearer v. Anderson (C.C.A.2) 16 F.(2d) 995, 51 A.L.R. 534. A merchant may deduct losses from litigation for personal injuries to others arising from operating his delivery trucks. C.B.V.-1, p. 226, overruling C.B.IV-1, p. 140.1 The Supreme Court has approved; in Kornhauser v. United States, 276 U.S. 145, 153, 48 S. Ct. 219, 220, 72 L.Ed. 505, the subject of deducting losses ensuing upon litigation was explored and the following rules laid down:

"The Solicitor of Internal Revenue in a recent opinion has held that legal expenses...

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    ...pursued will result in such invasion. Mueller v. Dewey, 159 Minn. 173, 198 N.W. 428;Anderson v. Commissioner of Int. Rev., 10 Cir., 81 F.2d 457, 104 A.L.R. 676;Restatement, Torts § 282, comments c, d, § 500 comments f, g. Admittedly, defendants intended to invade plaintiff's right to the re......
  • Hanson v. Hall
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    ...that the conduct pursued will result in such invasion. Mueller v. Dewey, 159 Minn. 173, 198 N.W. 428; Anderson v. Commissioner of Int. Rev., 10 Cir., 81 F.2d 457, 104 A.L.R. 676; Restatement, Torts § 282, comments c, d, § 500 comments f, Admittedly, defendants intended to invade plaintiff's......
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    ...Helvering v. Mitchell, 58 S.Ct. 630, 82 L.Ed. ___. It refers to Helvering v. Hampton, 9 Cir., 79 F.2d 358, and Anderson v. Commissioner, 10 Cir., 81 F.2d 457, 460, 104 A.L.R. 676, which recognize the right to deduct, as an ordinary and necessary business expense, damages for injuries to thi......
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