Burnet v. North American Oil Consolidated

• Decision Date: 14 September 1931
• Docket Number: No. 6315.,6315.
• Citation: 50 F.2d 752
• Parties: BURNET, Commissioner of Internal Revenue, v. NORTH AMERICAN OIL CONSOLIDATED.
• Court: U.S. Court of Appeals — Ninth Circuit

50 F.2d 752 (1931)

BURNET, Commissioner of Internal Revenue, v. NORTH AMERICAN OIL CONSOLIDATED.

No. 6315.

Circuit Court of Appeals, Ninth Circuit.

June 15, 1931.

As Modified on Denial of Rehearing. September 14, 1931.

G. A. Youngquist, Asst. Atty. Gen., and Sewall Key and Helen R. Carloss, Sp. Assts. to the Atty. Gen. (C. M. Charest, Gen. Counsel, and Prew Savoy and Allin Pierce, Sp. Attys., Bureau of Internal Revenue, all of Washington, D. C., of counsel), for petitioner.

Herbert W. Clark and Leon de Fremery, both of San Francisco, Cal., for respondent.

Before WILBUR and SAWTELLE, Circuit Judges, and NETERER, District Judge.

WILBUR, Circuit Judge.

Petitioner seeks to review a decision of the Board of Tax Appeals with relation to a deficiency tax of respondent for income and profit taxes for the year 1917. The sole question involved is whether or not the sum of $171,972.20 derived from the sale of oil produced on section 2 during the year 1916, impounded in the hands of a receiver appointed by the federal court for that purpose, and retained by him until 1917, when under order of court it was turned over to the respondent, was taxable as income for the year 1917. The land which produced this oil was government land which had been in the possession of the respondent under placer mining claims. The government contended that, as the land had been withdrawn from location by an order of President Taft, the respondent was not entitled to a patent. An action was brought to terminate the respondent's right, and in that action the receiver was appointed. The respondent was a large operating company holding many pieces of property, and this litigation affected only the property in section 2. The trial court determined the matter in favor of the respondent U. S. v. North American Oil Consolidated (D. C.) 242 F. 723. This decision was affirmed by the Circuit Court of Appeals of this circuit (264 F. 336). The case was finally disposed of by the Supreme Court on March 21, 1922, when it issued its mandate dismissing the appeal thereto in pursuance of a stipulation of counsel. 258 U. S. 633, 42 S. Ct. 315, 66 L. Ed. 802. The money thus impounded had been paid over to the respondent after the decision of the District Court in 1917.

The Board of Tax Appeals held, in accordance with the contention of the respondent, that the income impounded by the receiver should have been returned by him as his income for the year 1916. In that regard we quote from the opinion of the Board of Tax Appeals as follows: "The respondent affirmatively alleges that the amount impounded in the hands of the receiver in 1916 and released to petitioner in 1917 was income to the petitioner in the latter year. The respondent's principal argument in support of his claim herein is that petitioner was on the cash receipts and disbursements basis in the years 1916 to 1919, inclusive, and, as the amount here involved was not actually received by the petitioner until 1917 it must be taxable income in that year. We think it immaterial whether petitioner's accounts were kept on the receipts and disbursements basis or some other basis as permitted by section 13 (d) of the Revenue Act of 1916 (39 Stat. 771). The fact is that the income was actually produced in 1916. The sole reason that it did not reach the petitioner in that year was because of the suit by the United States. By reason of that suit a receiver was appointed, who actually received the income, and who should have reported it for taxation. Section 13 (c) of the Revenue Act of 1916; United States v. Chicago & E. I. Ry. Co. (D. C.) 298 F. 779; Forstmann v. Ferguson (D. C.) 17 F.(2d) 659, affirmed (C. C. A.) 25 F. (2d) 47. If the receiver did not report it, that is no sufficient reason for taxing the petitioner on it in a later year. Accordingly, the amount of $171,979.22 received by petitioner in 1917 is not an item of income in that year."

The petitioner contends that section 13, subdivision (c), of the Revenue Act of 1916, 39 Stat. 756, 771, does not apply, for the reason that it is inapplicable to a receiver holding only a part of the property of the taxpayer corporation. This section provides for returns by receivers where they are operating "the property or business of corporations," etc. It is provided that they "shall make returns of net income as and for such corporations, * * * in the same manner and form as such organizations are hereinbefore required to make returns." It provides that the tax should be assessed in the same manner as if assessed directly against the organizations of whose businesses or properties they have custody or control. It will be observed that, as applied to the receiver having possession of the entire property of the corporation, etc., as in the case of receiver in bankruptcy, the statutory provisions with reference to such taxation are readily applicable, but, where only a portion of the property of the corporation is in the hands of a receiver, it would follow that only a portion of the income of the corporation was in the possession of the receiver, and the tax could not be assessed and collected in the same manner as if assessed directly against the taxpayer, unless for purposes of assessment and collection it was in some fashion combined with the income, if any, received directly by the corporation or in case of loss by the corporation and corresponding deduction was made therefrom. While this consideration does not necessarily determine the proper interpretation of the statute (section 13 c supra), it clearly points to the conclusion that section 13 (c) applies only to receivers who are operating the entire property or business of a corporation, etc. The Secretary of the Treasury, soon after the enactment of the statute in 1916, adopted regulations based upon that view of the statute (article 26, par. 181, art. 209). We quote therefrom as follows: "* * * Such receiver, trustee, or assignee stands in the place of the corporate officers and is required for the purpose of this title to perform all the duties and assume all the liabilities which would devolve upon the officers of the corporation were they in control. The income which he receives on account of the business transacted is the income of the corporation and no matter how such income is applied, it is subject to the tax imposed by this title insofar as it exceeds the deductions or allowances authorized by law."

Later additional regulations were promulgated pursuant to 40 Stat. 1057, 1143, § 1309 (26 USCA § 1245 note): "A receiver who stands in the stead of an individual or corporation must render a return of income and pay the tax for his trust, but a receiver of only part of the property of an individual or corporation need not. * * * A receiver of the rents and profits appointed to hold and operate a mortgaged parcel of real estate, but not in control of all the property or business of the mortgagor, and a receiver in partition proceedings, are not required to render returns of income. In general, statutory receivers and common-law receivers of all the property or business of an individual or corporation must make returns."

Article 622, after providing for returns of income by receivers, concludes as follows: "A receiver in charge of only part of the property of a corporation, however, as a receiver in mortgage foreclosure proceedings involving merely...