APPEAL OF BACKER

• Decision Date: 18 December 1924
• Docket Number: Docket No. 239.
• Citation: 1 BTA 214
• Parties: Appeal of SARAH BACKER, WILLIAM BACKER, WALDRON P. BELKNAP, AND SAMUEL LEVY, as executors of the estate of George Backer, deceased.
• Court: U.S. Board of Tax Appeals

1 B.T.A. 214 (1924)

Appeal of SARAH BACKER, WILLIAM BACKER, WALDRON P. BELKNAP, AND SAMUEL LEVY, as executors of the estate of George Backer, deceased.

Docket No. 239.

Board of Tax Appeals.

Submitted December 1, 1924.

Decided December 18, 1924.

Samuel Levy, Esq., and Reuben Rodecker, Esq., for the taxpayer.

Robert A. Littleton, Esq. (Nelson T. Hartson, Solicitor of Internal Revenue) for the Commissioner.

Before JAMES, STERNHAGEN, and TRUSSELL.

This appeal involves a proposed assessment of personal income taxes amounting to $12,315.06 against the estate of the decedent because of an alleged improper deduction by him in the year 1920 of business expenses consisting of attorney's fees and other costs of conducting his defense to a charge of perjury. Oral hearing was had and testimony introduced.

FINDINGS OF FACT.

In the year 1920, George Backer, the decedent taxpayer, was a prominent builder in the city of New York. He had been in the business for a number of years, individually and in association with others, and had established a substantial and creditable reputation. During the years 1919 and 1920, he was engaged in the construction of three large commercial buildings in the heart of the city of New York; the Heckscher Building, a 32-story tower building on the southwest corner of Fifty-seventh Street and Fifth Avenue; the Textile Building, a 16-story building on Fifth Avenue covering the block from Thirtieth to Thirty-first Streets; and the Penn Terminal Building, a 16-story building on Seventh Avenue covering the block from Thirtieth to Thirty-first Streets. The cost of construction of these buildings was over $7,000,000.

In the years in question the building situation in New York was very serious, and finally resulted in the so-called Lockwood investigation by a committee of the State legislature. It transpired that certain labor leaders were abusing their offices by a system of blackmail. One Brindell was later convicted and sentenced to a term in prison. The practice was to call a strike of the building trades working on a building in the midst of its construction when materials were on the ground and many obligations had been incurred and the greatest harm would result from delay in construction, and then to demand a price from the builder for calling off the strike so that the construction could proceed. A failure to pay the price meant the probability of enormous loss and perhaps ruin. Not only would the work in process rapidly and seriously deteriorate and the delay in completion involve the certain loss of expected profits and return of investment, but contractual liability in large sums would also immediately be incurred to those who produced the material, the owners of the building, and numerous subcontractors. The business reputation and good will of the builder and his financial credit would be imperiled. The delay thus caused at the time directly after the war when there was a crying need for additional building was regarded as a matter of important public concern and this and the criminal aspects of the practice referred to gave rise to the investigation.

Because of his previous success, his established reputation and the financial magnitude of the building operations in which he was then engaged, Backer was especially vulnerable to the practice referred to and was compelled to make a large payment, not, he said, to Brindell, but to others associated with him in the same nefarious practice. He was subpoenaed to testify before the Lockwood committee in 1920 while the three buildings were still in construction, and was asked whether he had paid the money to Brindell. Although under the New York penal law it was a crime to bribe a labor leader (Penal Law New York, sec. 380), such crime was not punishable if the person committing it testified under subpoena to the giving and accepting of the bribe (sec. 381). Backer testified before the Lockwood committee that he did not pay the money to Brindell and stuck to this statement. He also said, in the first instance, that he had lost the money, but later, before leaving the witness stand, recanted and said that he had paid the money to some persons not identified but not to Brindell. If he changed his testimony before he left the witness stand and told the truth he was, under New York law, not guilty of the crime of perjury (People v. Gillette, 111 N. Y. Supp. 133; 126 App. Div. 665). He was, however, indicted for perjury and tried. The jury disagreed, and subsequently the case was...