Bush v. Commissioner of Internal Revenue, 137

Citation175 F.2d 391
Decision Date21 June 1949
Docket NumberNo. 137,Docket 21135.,137
PartiesBUSH v. COMMISSIONER OF INTERNAL REVENUE.
CourtUnited States Courts of Appeals. United States Court of Appeals (2nd Circuit)

Frank J. Dillon, New York City (William H. West, Jr., and Dillon & O'Brien, New York City, of counsel), for petitioner.

Theron Lamar Caudle, Assistant Attorney General; Ellis N. Slack, Robert N. Anderson, and Morton K. Rothschild, Special Assistants to the Attorney General, for respondent.

Before L. HAND, Chief Judge, and SWAN and AUGUSTUS N. HAND, Circuit Judges.

SWAN, Circuit Judge.

This appeal relates to income tax deficiencies for the years 1938, 1939 and 1940. The deficiencies result from taxing to the petitioner income received by her during the taxable years from an alimony trust established for her benefit on June 6, 1930. The appeal presents two questions. The first is whether a decision of the Board of Tax Appeals that income of the trust for the year 1931 was not taxable to her is conclusive as to her non-taxability for the trust income of later years, and the second is whether, if the issue is still open, she is taxable for the trust income of the years in suit. The Tax Court decided both questions adversely to her contentions.

The facts were stipulated and are set forth in detail in the opinion of the Tax Court, 10 T.C. 1110. We need state them only in bare outline. In 1923 Irving T. Bush, who was then the husband of the petitioner, established a trust under which she was to receive 60% of the trust income during his life. In 1930 while divorce proceedings were pending in Nevada, but prior to the entry of a decree therein, the 1923 trust was revoked by mutual consent of the interested parties, and part of the securities withdrawn therefrom were used to establish another trust under an agreement of June 6, 1930 executed by Mr. and Mrs. Bush and Bank of Manhattan Trust Company as trustee. Under the 1930 trust agreement Mrs. Bush was to receive annually during her life $60,000, and if the trust income fell below that figure in any year Mr. Bush was to make up the deficiency to the trustee. The divorce decree entered on June 9, 1930 adopted and approved the 1930 trust agreement in lieu of alimony and of any right of Mrs. Bush to future support and maintenance. Thereafter the Commissioner attempted to tax her on $60,000 of trust income received by her in the year 1931. Applying the doctrine of Douglas v. Willcuts, 296 U.S. 1, 56 S.Ct. 59, 80 L.Ed. 3, 101 A.L.R. 391, the Board of Tax Appeals held that such income was not taxable to her but should be included in the taxable income of her former husband. Maud H. Bush v. Commissioner, 33 B.T.A. 628. This decision was not appealed by the Commissioner and became final in due course. Later the Commissioner proposed to tax Mr. Bush on the trust income received by Mrs. Bush for the years 1933, 1934 and 1935. The Board sustained such tax, Irving T. Bush v. Commissioner, 45 B.T.A. 609; but on appeal this court reversed the decision and remanded the case for further proceedings. Bush v. Commissioner, 2 Cir., 133 F.2d 1005. Upon such remand the Tax Court held that Mr. Bush was not taxable on the trust income for the years then in suit.1 Subsequently the Commissioner sought to tax Mrs. Bush on the trust income received by her for the years 1938, 1939 and 1940. The Tax Court affirmed the Commissioner's action, and its decision is now before us on her appeal.

We agree with the Tax Court's ruling that the decision with respect to the 1931 trust income is not conclusive as to the years now in suit. The scope of the doctrine of res judicata in income tax cases was thoroughly considered in Commissioner v. Sunnen, 333 U.S. 591, 68 S. Ct. 715, 92 L.Ed. 898. Federal income taxes are levied on an annual basis; each year is the origin of a new liability and a separate cause of action. A judgment on the merits as to a particular tax year is res judicata in any proceeding involving the same claim and the same tax year. But where two cases involve income taxes in different taxable years the doctrine of estoppel by judgment "must be confined to situations where the matter raised in the second suit is identical in all respects with that decided in the first proceeding and where the controlling facts and applicable legal rules remain unchanged."2 When the legal rule applicable to the same facts has been changed between the two proceedings, the doctrine of estoppel by judgment may not be successfully invoked. Commissioner v. Sunnen, supra; A.L.I. Restatement of Judgments, § 70. This is obviously true when the change in the applicable legal rule is made by statute.3 It is no less true when the change is by judicial decision. In the case at bar the facts relating to the trust and the divorce remain the same as when the Board decided that Mrs. Bush was not taxable on the 1931 trust income, but subsequent to that decision a change in the legal rule applicable to those facts was made by this court's decision as to the non-taxability of the trust income to Mr. Bush. Bush v. Commissioner, 2 Cir., 133 F.2d 1005. The correctness of that decision must of course be open to challenge by Mrs. Bush since she was not a party to the proceeding involving her former husband's tax; but the change of law which it declared precludes her defense of collateral estoppel. Were the rule otherwise, the Treasury would be barred from collecting any tax whatever on the trust income for the years now in suit, since the earlier decision as to Maud's non-taxability would be conclusive in her favor and the decision as to Irving's non-taxability conclusive in his. The Tax Court was right in holding that the case was open on the merits.

The first Maud Bush case held that the trust income was not taxable to her because under the doctrine of Douglas v. Willcuts, 296 U.S. 1, 56 S.Ct. 59, 80 L. Ed. 3, 101 A.L.R. 391, it was taxable to her former husband. The Irving Bush case held that the trust income was not taxable to him under the Willcuts doctrine or the later case of Helvering v. Leonard, 310 U.S. 80, 60 S.Ct. 780, 84 L.Ed. 1087, because the 1930 trust "was, so far as Maud is concerned, but a continuation of the 1923 trust; * * * it was set up with her property, and we think that the husband's guarantee of the trust income did not therefore make the income his." We regarded the situation the same as if the wife, having independent means, were given a guarantee in connection with the divorce that the husband would make up any deficiency should the income from her own property fall below a stated amount. The Tax Court in the case at bar followed the views we expressed in the Irving Bush case. Mrs. Bush contends, as did the Commissioner in that case, that the 1930 trust was not a continuation of the 1923 trust, but we adhere to the view that it was. She argues in support of her contention that the quantum of her interest in the two trusts differs materially because under the first her interest in the trust income was limited to Irving's life while in the second it was to continue throughout her life. But since the income for the taxable years now in suit arose during Irving's life, the income for those years is attributable to her interest in the earlier trust, whatever might be the case as to income for years after his death. She also argues that it...

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11 cases
  • Divine v. Comm'r of Internal Revenue
    • United States
    • United States Tax Court
    • October 25, 1972
    ...in the law (and assuming no other bars such as the statute of limitation). See Commissioner v. Sunnen, supra; Bush v. Commissioner, 175 F.2d 391, 393 (C.A. 2, 1949). The situation of Rapid's other shareholders would likewise be subject to uncertainty, due to the same intervening legal devel......
  • Strachan Shipping Company v. Shea
    • United States
    • United States District Courts. 5th Circuit. United States District Courts. 5th Circuit. Southern District of Texas
    • December 8, 1967
    ...v. Sunnen, 333 U.S. 591, 68 S.Ct. 715, 92 L.Ed. 898 (1948); Parker v. Westover, 221 F.2d 603 (9 CA 1955); Bush v. Commissioner of Internal Revenue, 175 F.2d 391 (2 CA 1949). The court finds that the Commissioner properly declined to apply the doctrines of collateral estoppel or res judicata......
  • Calcutt v. Comm'r of Internal Revenue
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    • United States Tax Court
    • July 13, 1988
    ...intervening change in law announced by a court of appeals has been held sufficient to preclude collateral estoppel. Bush v. Commissioner, 175 F.2d 391, 393 (2d Cir. 1949), affg. 10 T.C. 1110 (1948). Further, we have deemed that collateral estoppel is inapplicable where this Court subsequent......
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    • July 24, 2018
    ...and factual basis as Plaintiffs' earlier-filed Tax Court case challenging their 2008 and 2009 tax assessments. See, e.g., Bush v. Comm'r, 175 F.2d 391, 392-93 (2d Cir. 1949) ("each year is the origin of a new liability and a separate cause of action"). Plaintiffs are allowed their day in ea......
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