Buder v. United States

• Decision Date: 25 January 1966
• Docket Number: No. 17940.,17940.
• Citation: 354 F.2d 941
• Parties: Eugene H. BUDER, Executor of the Estate of Oscar E. Buder, Deceased, and Eugenia H. Buder, Appellants, v. UNITED STATES of America, Appellee.
• Court: U.S. Court of Appeals — Eighth Circuit

354 F.2d 941 (1966)

Eugene H. BUDER, Executor of the Estate of Oscar E. Buder, Deceased, and Eugenia H. Buder, Appellants, v. UNITED STATES of America, Appellee.

No. 17940.

United States Court of Appeals Eighth Circuit.

January 4, 1966.

Rehearing Denied January 25, 1966.

Eugene H. Buder, St. Louis, Mo., pro se.

Robert H. Solomon, Atty., Tax Division, Dept. of Justice, Washington, D. C., Louis F. Oberdorfer, Asst. Atty. Gen., Lee A. Jackson, Robert N. Anderson, Attys., Tax Division, Dept. of Justice, Washington, D. C., and Richard D. Fitz-Gibbon, Jr., U. S. Atty., and John A. Newton, Asst. U. S. Atty., St. Louis, Mo., for appellee.

Before VAN OOSTERHOUT, BLACKMUN and MEHAFFY, Circuit Judges.

BLACKMUN, Circuit Judge.

Our question here is whether a $25,000 legal fee qualified as income in the calenlar year 1953 rather than in a subsequent tax year. The district court decided the issue in favor of the government, that is, it held the fee to be 1953 income. Buder v. United States, 235 F.Supp. 479 (E.D. Mo.1964).

Oscar E. Buder and his wife are the taxpayer-appellants. They filed a cash basis joint income tax return for 1953. Mr. Buder died in February 1965; his representative has been substituted in his place.

Oscar and his brother, G. A. Buder, were lawyers and partners in the practice of law in Saint Louis from 1908 through 1945. A dispute arose and culminated in litigation between them and in the termination of their partnership.¹ The partnership's affairs, we are told, are still in liquidation.

The taxpayers filed two separate and different claims for refund of 1953 tax. The present action covers the subject matter of both. The first claim related to the disallowance, as deductions, of expenses incurred and paid in 1953 in Oscar's litigation with his brother. At the trial it was stipulated that two-thirds of these 1953 expenses were deductible. Presumably this followed the result reached in another lawsuit concerning Oscar's 1955 and 1956 expenses in the same litigation. Buder v. United States, 221 F.Supp. 425 (E.D.Mo.1963). In any event, because of the stipulation, judgment was entered by the district court in favor of the taxpayers. No appeal, of course, is taken with respect to this expense issue.

The second claim related to a fee which the Buder law partnership charged the Estate of Sophie Franz, deceased. A Saint Louis circuit court judgment for this fee in the amount of $52,686.87 was entered in July 1953 in favor of the Buders and against the Franz estate. Later the amount of this judgment was adjusted downward to $50,000. Oscar's $25,000 share of this fee is the subject of the present appeal.²

Mrs. Franz, a Saint Louis resident, died testate in 1930. She left a substantial estate which has been the subject of extended litigation in the Missouri state courts and in the federal courts.³

The parties further stipulated that, in determining the fee issue, the court "may accept and be guided by the findings of fact and conclusions of state law made by the Supreme Court of Missouri in In re Franz' Estate, reported at 372 S.W.2d 885" (1963). That reported and lengthy opinion, therefore, is of pivotal importance here and provides additional facts:

G. A. Buder was appointed executor of Mrs. Franz' will by the probate court of the City of Saint Louis. As executor he filed 26 annual settlements of the estate covering the period from its inception to and including July 23, 1953. On October 6, 1953, he filed his final settlement, together with a memorandum for an order of distribution, and, later, a supplemental memorandum, dated December 16, 1953. In the final settlement the executor set off the Buder judgment against a larger debt owed the estate. After published notice, the probate court on December 26, 1953, issued its "Order of Distribution". This recited that the executor was tendering his final settlement and memoranda "for distribution of the purported balance remaining in his hands" and that, upon his application, "the court orders that said executor pay, assign and deliver the above described property in the manner following * * *."⁴ The executor made the distribution so ordered except for a one-ninth interest which became the subject of other litigation. No exceptions were filed and no appeal was taken from this order; the time to appeal expired.

G. A. Buder died in April 1954. Oscar succeeded him as representative of the Franz estate by appointment as executor d. b. n. Oscar promptly filed a motion in the probate court to require the G. A. Buder estate to account for assets. This eventually culminated in a probate court order, dated October 23, 1958, approving G. A. Buder's final settlement of October 6, 1953, subject, however, to a surcharge imposed on the court's own motion. Oscar, as executor d. b. n., appealed to the circuit court. The one-ninth share was distributed in 1958.

Three other appeals were also taken to the circuit court. One was by Oscar, as executor d. b. n., from the probate court order dismissing, for want of jurisdiction, new exceptions he had filed to the executor's final settlement. Another, also by Oscar, but in his personal capacity and as a judgment creditor of the Franz estate, was from the probate court order holding that the Buders' judgment against the estate had been paid and satisfied. The last was by the representative of the G. A. Buder estate with respect to the surcharge.

All four appeals were consolidated for trial in the circuit court. Trial de novo, as provided by V.A.M.S., § 472.250, ensued in 1960. The circuit court decided each of Oscar's three appeals adversely to him. It decided the G. A. Buder appeal in that estate's favor by denying the surcharge. The circuit court, as had the probate court, specifically found that the Buders' judgment against the Franz estate "had been paid and satisfied" and that this had been effected "by a set-off against amounts due to the Executor of the Estate of Sophie Franz from Buder & Buder". The circuit court judgment was entered January 12, 1962.

Only Oscar, in his representative capacity, appealed from that judgment to the Supreme Court of Missouri. This is the appeal with which the report at 372 S.W.2d 885, supra, is concerned.

The Supreme Court, among other things, held, p. 898, that, because Oscar in his personal capacity had taken no appeal to it, the circuit court judgment against him "to the effect that the Buders' claim had been paid and discharged became final and is res adjudicata". It also held that Oscar could not challenge the conclusion as to payment in his representative capacity because, as representative, he was not prejudiced by the circuit court's judgment. Thus the payment and satisfaction of the Buder & Buder fee against the Franz estate and the effectuation of that payment by setoff are both matters definitively and finally settled by the Missouri state court proceedings and are not now to be challenged here. The taxpayers do not claim otherwise.

Oscar's share of the fee was income to him sometime. The issue is as to when, that is, as to when, for federal income tax purposes, the setoff and the payment of the Buders' judgment were effected. Was it, as the government asserts, in 1953 when the executor formulated the setoff in his accounting to the probate court and when that court issued its order of distribution from which no appeal was taken? Or was it, as the taxpayers claim, in some later year, particularly 1958, when the probate court formally approved the settlement, or 1962, when the circuit court entered its judgment, or 1963, when the Supreme Court's opinion was issued and finally modified?

Chief Judge Harper ruled, p. 481 of 235 F.Supp.:

"The set-off occurred as an accounting entry in the final settlement and was effective at the time of the probate court\'s order of distribution on December 26, 1953, thus leaving plaintiff Oscar Buder\'s share of the $50,000.00 partnership fee earned as of that time. Subsequent appeals did not change this date from being the time payment was effective. * * *

"It has been clearly established by the Missouri Supreme Court that the Buder partnership got complete satisfaction of its claim by means of the set-off, and this satisfaction was income to the partners, though not received in hand as such, and the satisfaction was received in the year 1953 when the probate court ordered final distribution, notwithstanding the subsequent appeals."

The controlling statute is § 42 of the Internal Revenue Code of 1939, as amended. This merely provides generally that, with stated exceptions not applicable here, "The amount of all items of gross income shall be included in the gross income for the taxable year in which received by the taxpayer * * *." Section 182 provides that a partner shall include, whether or not distribution is made to him, his distributive share of the ordinary net income of the partnership.

Missouri law, of course, controls any underlying question of estate and probate practice; the federal statutes then determine the federal income tax effect thereof. Blair v. Commissioner, 300 U.S. 5, 9-10, 57 S.Ct. 330, 81 L.Ed. 465 (1937); Estate of Peyton v. Commissioner, 323 F.2d 438, 442 (8 Cir. 1963); Helvering v. Rhodes' Estate, 117 F.2d 509 (8 Cir. 1941); Eisenmenger v. Commissioner, 145 F.2d 103 (8 Cir. 1944).

In a distinct sense, tax law is an area unto itself. It is, of course, basically statutory. It "is not so much concerned with the refinements of title as it is with actual command over the property taxed — the actual benefit for which the tax is paid". Corliss v. Bowers, 281 U.S. 376, 378, 50 S.Ct. 336, 74 L.Ed. 916 (1930); Burnet v. Wells, 289 U.S. 670, 678-679, 53 S.Ct. 761, 77 L.Ed. 1439 (1933). It is pragmatically applied. Industrial Aggregate Co. v. United States, 284 F.2d 639, 645, 3 L.Ed.2d 1360 (8 Cir. 1960). Its incidence "depends upon the substance, not the form, of the transaction". Commissioner v. Hansen, 360 U.S. 446,...