Baltzell v. Mitchell, 1792

• Decision Date: 14 January 1925
• Docket Number: 1793.,No. 1792,1792
• Citation: 3 F.2d 428
• Parties: BALTZELL v. MITCHELL. WELD v. SAME.
• Court: U.S. Court of Appeals — First Circuit

3 F.2d 428 (1925)

BALTZELL v. MITCHELL.^*

WELD v. SAME.

Nos. 1792, 1793.

Circuit Court of Appeals, First Circuit.

January 14, 1925.

Robert H. Holt, of Boston, Mass. (George W. Mathews, John K. Howard, and Gaston, Snow, Saltonstall & Hunt, all of Boston, Mass., on the brief), for plaintiffs in error.

Chester A. Gwinn, of Washington, D. C. (Nelson T. Hartson, of Washington, D. C., and Robert O. Harris and Albert F. Welsh, both of Boston, Mass., on the brief), for defendant in error.

Robert N. Miller, of Washington, D. C., and Fred T. Field, of Boston, Mass. (Henry Herrick Bond, of Boston, Mass., Stuart Chevalier and Haines H. Hargrett, both of Washington, D. C., and Harris H. Gilman, of Boston, Mass., of counsel), amici curiæ.

Before BINGHAM, JOHNSON, and ANDERSON, Circuit Judges.

JOHNSON, Circuit Judge.

These two cases were tried together in the District Court, and as they raise the same question they have been argued together, and one opinion will dispose of both. No facts are in dispute in either case. They are both brought to recover an alleged overpayment of income taxes under section 219 of the Internal Revenue Act of 1918 (Comp. St. Ann. Supp. 1919, § 6336 1/8ii), which is in substance, as far as pertinent, as follows: It makes the tax imposed by sections 210 and 211 of the act (Comp. St. Ann. Supp. 1919, §§ 6336 1/8e, 6336 1/8ee) upon the net income of individuals apply to the income of estates or of any kind of property held in trust, and then describes, in four paragraphs, under subdivision (a), the income which may be taxed.

These cases are concerned with the income described under the fourth paragraph, which is as follows:

"(4) Income which is to be distributed to the beneficiaries periodically, whether or not at regular intervals, and the income collected by a guardian of an infant to be held or distributed as the court may direct."

Under subdivision (b) the fiduciary is required to make a return of income for the estate or trust for which he acts and it is provided that "the net income of the estate or trust shall be computed in the same manner and on the same basis as provided in section 212," with certain different deductions from those allowed an individual under paragraph 12, subdivision (a), of section 214 (Comp. St. Ann. Supp. 1919, § 6336 1/8g). It also provides that, "in cases under paragraph 4 of subdivision (a) of this section the fiduciary shall include in the return a statement of each beneficiary's distributive share of such net income, whether or not distributed before the close of the taxable year for which the return is made."

Under subdivision (c) it is provided that the income described in paragraphs 1, 2, and 3 of subdivision (a) shall be imposed upon the net income of the estate or trust and be paid by the fiduciary, and that, in determining the net income of the estate of any deceased person during the period of administration or settlement, there may be deducted the amount of any income properly paid or credited to any legatee, heir, or other beneficiary.

Subdivision (d) provides that:

"There shall be included in computing the net income of each beneficiary his distributive share, whether distributed or not, of the net income of the estate or trust for the taxable year."

A regulation of the Treasury Department has construed and interpreted subdivision (d) to mean that the beneficiary must include, in computing his net income, the amount actually distributable to him under and in accordance with the terms of the trust, and that this must be done, although in the case of several beneficiaries the aggregate of the distributive shares should be larger than the net income of the estate or trust computed as a unit; that "any gain, profit or income which is not periodically distributable must be included in computing the net income of the estate or trust, so that the fiduciary will pay the tax upon any excess of the net income of the estate or trust computed as a unit over the aggregate distributive shares"; and that the beneficiary is not entitled to any deduction on account of depreciation or capital losses.

Payments were made under protest by the plaintiffs in accordance with this regulation. They contend that the tax should have been assessed and collected upon their proportional part or distributive share of the net income of the estate, and seek to recover the difference between what the tax would have been if assessed in accordance with their claim and that which was collected. They say that the language of the statute is positive, clear, and precise, and admits of no doubt, and that, as this is a statute levying taxes, it is not to be extended by implication beyond the clear import of the language used, and that, if there is any doubt, that doubt must be resolved against the government and in favor of the taxpayer, citing Gould v. Gould, 245 U. S. 151, 153, 38 S. Ct. 53, 62 L. Ed. 211; United States v. Merriam, 263 U. S. 179, 44 S. Ct. 69, 68 L. Ed. 240, 29 A. L. R. 1547.

The language of the statute is contradictory and confusing, if it is to be given a strictly literal interpretation, and this is especially true if the statute is to be considered by itself and apart from the other sections of the act. Section 219 must be interpreted and construed as a part of the whole act, and having in mind the purpose sought to be accomplished by it. The court cannot read into the statute anything that is not there; but it must look at the whole act, having its purpose in mind, and determine whether the interpretation placed by the Treasury Department upon section 219 of the act is reasonably within its terms.

It is a well-established rule of the federal courts that a contemporaneous construction given to an act of Congress by the executive officers charged with its enforcement, though not controlling, is entitled to great weight; but this does not preclude an inquiry by the courts as to the soundness of such construction. The rule is so well understood that it is not necessary to support it by the citation of any authorities. The courts have held, however, that where there is doubt as to the correct construction of an act, and there has been a long acquiescence in the regulation of the department charged with its execution, and rights of parties have been determined and adjusted by such regulation, it is not to be disregarded without the most cogent and persuasive reasons. United States v. Hill, 120 U. S. 169, 182, 7 S. Ct. 510, 30 L. Ed. 627; United States v. Philbrick, 120 U. S. 52, 59, 7 S. Ct. 413, 30 L. Ed. 559; Brown v. United States, 113 U. S. 568, 571, 5 S. Ct. 648, 28 L. Ed. 1079; Robertson v. Downing, 127 U. S. 607, 613, 8 S. Ct. 1328, 32 L. Ed. 269. See also First National Bank of...