Bishoff v. Commissioner of Internal Revenue

• Decision Date: 25 May 1928
• Docket Number: No. 3756.,3756.
• Citation: 27 F.2d 91
• Parties: BISHOFF v. COMMISSIONER OF INTERNAL REVENUE.
• Court: U.S. Court of Appeals — Third Circuit

27 F.2d 91 (1928)

BISHOFF v.COMMISSIONER OF INTERNAL REVENUE.

No. 3756.

Circuit Court of Appeals, Third Circuit.

May 25, 1928.

Ward Loveless, of Washington, D. C., Powell, Ludlow & Schaeffer, of Philadelphia, Pa., and Miller & Chevalier, of New York City(B. H. Ludlow, of Philadelphia, Pa., and J. Robert Sherrod and Frederick D. Graves, both of Washington, D. C., of counsel), for petitioner.

Mabel Walker Willebrandt, Asst. Atty. Gen., and L. W. Scott, J. Louis Monarch, and C. M. Charest, all of Washington, D. C., for respondent.

Before BUFFINGTON, WOOLLEY, and DAVIS, Circuit Judges.

WOOLLEY, Circuit Judge.

On this petition to review an order of re-determination made by the United States Board of Tax Appeals sustaining a determination by the Commissioner of Internal Revenue that the petitioner earned profits in the years 1918 and 1919 and was liable for income taxes in corresponding amounts, 6 B. T. A. 570, the petitioning taxpayer raises two questions:

(1) The right of the Commissioner when determining income taxes to disregard the books and records of the taxpayer and substitute therefor as a basis of computation the average profits of corporations in the same line of business.

(2) Whether the petitioning taxpayer earned the income determined by the Commissioner or suffered actual losses during the tax years in question as shown by his returns.

The first question is a mixed question of law and fact; the second is one purely of fact involving, however, the lawfulness of the order.Both raise a question of the scope of the jurisdiction of Circuit Courts of Appeals to review the decisions of United States Board of Tax Appeals.That jurisdiction is conferred by the Revenue Act of 1926(44 Stat. 110,section 1003b 26 USCA § 1226 (b)) and is contained in the one sentence:

"Upon such review, such courts shall have power to affirm or, if the decision of the Board is not in accordance with law, to modify or to reverse the decision of the Board, * * * as justice may require."

This provision is within the trend of recent legislation respecting fact finding tribunals with special judicial powers such as the Federal Trade Commission whose "findings of fact, if supported by testimony," are made conclusive (Comp. Stat. § 8836a-k 15USCA §§ 41-51;Curtis Pub. Co. v. Federal Trade Commission C. C. A.270 F. 881, 911), and is generally regarded, because of the power to modify or reverse such of the Board's decisions as are "not in accordance with law," as conferring upon the designated appellate courts jurisdiction to review not questions of fact such as complicated accounts and disputed values but only matters of law such as are raised by writ of error on review of a judgment entered on the verdict of a jury.Avery v. Commissioner (C. C. A.)22 F.(2d) 6;Brown v. Commissioner (C. C. A.)22 F.(2d) 797.Even accepting as conclusive the Board's findings of primary facts, it sometimes happens that the reviewing court must inquire, as on writ of error, into the ultimate fact finding in order correctly to determine whether the decision is validly supported by evidence and therefore is "in accordance with law."And so in this casewe accept as conclusive the Board's findings that the petitioner during the tax years in question was engaged in the business of a grocer, conducted on a "credit and delivery" as distinguished from a "cash and carry" basis, thereby involving greater costs and perhaps less profits; that his books were carelessly kept; that the invoices, bills and receipts for a part of the time are missing, as are the original register slips of sales; that check stubs for a short period are also missing; that checks and stubs were the only record of amounts paid for repairs of automobiles and trucks, some of which were traded in as part payment for new ones; that he paid all employees in cash and kept no record of the amounts paid, telling his bookkeeper at the end of each month what he had paid for wages and bonuses; that the bookkeeper did not know and therefore did not enter the wages when paid; that sundry book entries made in 1918 and 1919 were insufficiently identified by the bookkeeper when testifying in 1925; that the only inventories of stock were estimates made in lump sums, and increases in the estimated inventories during 1918 were based on estimated increase in cost rather than in amount of goods; that the books carried no cost of buildings, equipment or automobiles from which deductions could be computed properly or even approximately; and that the accounts were in such shape that representatives of the Commissioner after an examination covering eleven days could not accurately compute and determine his correct income.On these findings of primary facts the Board made an ultimate finding of fact that the petitioner's books did not clearly reflect his income and did not make it possible for the Commissioner or for the Board itself to determine whether he had made gains or had sustained losses in the tax years and,...