Ansorge v. Commissioner of Internal Revenue

• Decision Date: 09 February 1945
• Docket Number: No. 11.,11.
• Citation: 147 F.2d 459
• Parties: ANSORGE v. COMMISSIONER OF INTERNAL REVENUE.
• Court: U.S. Court of Appeals — Second Circuit

147 F.2d 459 (1945)

ANSORGE v. COMMISSIONER OF INTERNAL REVENUE.

No. 11.

Circuit Court of Appeals, Second Circuit.

February 9, 1945.

Alex M. Hamburg, of New York City (Charles H. Tuttle, Alex M. Hamburg, and Martin C. Ansorge, all of New York City, of counsel), for petitioner.

Samuel O. Clark, Jr., Asst. Atty. Gen., and Sewall Key, J. Louis Monarch, and Newton K. Fox, Sp. Assts. to Atty. Gen., for respondent.

Before CHASE, HUTCHESON, and FRANK, Circuit Judges.

HUTCHESON, Circuit Judge.

The commissioner determined that sums the taxpayer had received in the tax year for services as an attorney were taxable as ordinary income and not as capital gains. The Tax Court, in a reported opinion,¹ fully setting out the facts² as they were stipulated, affirmed that determination. Petitioner, here, insisting that the decision was wrong, urges upon us that the substance of what occurred is this: that DeLuca, owning a capital asset, a claim for just compensation, so contracted with petitioner as to make him co-proprietor, to the extent of forty percent of the amount to be received upon the claim, and as a result of such contracting, petitioner became entitled to return as capital gains the amount he received for his services. We do not think that this is what in fact occurred. We cannot agree that what petitioner received for his services can be treated as capital gains.

The most cursory examination of the briefs and record makes it entirely clear that this is another of those cases in which "as long as the matter to be considered is debated in artificial terms there is danger of being led by a technical definition to apply a certain name, and then to deduce consequences which have no relation to the grounds on which the name was applied."³ A more complete study shows that the effort to so debate it here has but darkened counsel. Obligated, if he would prevail, to succeed in investing with the attributes of capital gains what on its face appears to be merely ordinary income, compensation for services rendered as an attorney, and with the attributes of an assignment, a contract for fees contingent upon the successful prosecution of a claim against the United States, petitioner finds himself hard put to it in the exigencies of his situation to hold his course. To bring his compensation for services as a lawyer within the definition of capital gains, he must somehow, though he received it as a fee, and the fee was not earned and he was not entitled to receive anything until his efforts had been crowned with success, make it appear that what he got was not payment to him for personal services, but the proceeds of a sale or exchange of an interest in the claim which he had become the owner of many years before. While to bring his contract within the definition of an assignment he must somehow, in face of the fact that it deals with a claim against the government and of the affidavit he caused to be filed in the Court of Claims, that his client was sole owner, make it appear that its effect was from and after its execution to vest petitioner with ownership of a part of the claim. In his first brief, petitioner boldly asserted that the claim was not against the United States but against the Emergency Fleet Corporation, and that the assignment of the claim was therefore not within the prohibition of Revised Statutes, Sec. 3477, 31 U.S.C.A. § 203. Citing Hawaiian Gas Products v. Commissioner, 9 Cir., 126 F. 2d 4, in support of his position that the claim to just compensation was a capital asset in DeLuca's hands, and Commissioner v. Hopkinson, 2 Cir., 126 F.2d 406, to the effect that the assignment to him made the proceeds when collected capital gains in his hands, he bore down heavily on the contract as an assignment of part of the claim. In his reply brief, however, confronted with the inconsistency between the affidavit in the Court of Claims⁴ and his insistence that the contract was an assignment which made him co-proprietor with DeLuca, petitioner gave the matter quite a different slant. On page 10 of this brief, he says: "The instrument did not purport to assign any interest in the claim as such, but in a part of the proceeds. * * * Petitioner has never claimed to be the owner of the cause of action." Notwithstanding, however, this disclaimer of ownership in the claim, petitioner in the reply brief seems to insist that he had some kind of ownership in the proceeds as distinguished from the claim itself which made the proceeds capital gains when received. This will not at all do. The instrument was either an assignment of the claim itself or it was merely a contingent fee contract. This is the teaching of Fairbanks v. Sargent, 104 N.Y. 108, 9 N.E. 870, 6 L.R.A. 475, 58 Am.Rep. 490, cited by appellant and of similar cases dealing with claims by attorneys, that their contracts for fees gave them an interest in the subject matter of the litigation.⁵ Assuming without deciding, though, when the nature of the sums petitioner received and the limited scope of the capital gains section are considered,⁶ the assumption is not an easy one to make, that if petitioner's contract effected a valid assignment of a part of the claim, his compensation could be returned not as ordinary income but as capital gains, it is quite clear that in order to prevail, petitioner must at least show that it did. For it is only by treating the amounts petitioner received as a part of a claim he owned rather than as payment to him for services rendered, and by assuming that this treatment would make them capital gains, that petitioner can escape returning the sums as ordinary income.⁷ But the record leaves in no doubt that the claim was against the United States, and it is the law that such claims may not be assigned in whole or in part.⁸ This being so, petitioner stands here with nothing but a payment to him for services rendered under a contingent fee contract, which was received, and must be returned, as ordinary income. The Tax Court was right. Its judgment is affirmed.

1 1 T.C. 1160.

2 As important here, they are:

The petitioner is an attorney, residing and practicing his profession in the State of New York. On Nov. 18, 1932, one DeLuca by an instrument in writing, retained the petitioner as his attorney in fact and attorney at law to represent him in the matter of...