Cadwalader v. Lederer

• Decision Date: 24 January 1921
• Docket Number: 7026.
• Citation: 273 F. 879
• Parties: CADWALADER v. LEDERER, Collector of Internal Revenue.
• Court: U.S. District Court — Eastern District of Pennsylvania

273 F. 879

CADWALADER v. LEDERER, Collector of Internal Revenue.

No. 7026.

United States District Court, E.D. Pennsylvania.

January 24, 1921

Thomas Raeburn White, of Philadelphia, Pa., for plaintiff.

Charles D. McAvoy, of Philadelphia, Pa., U.S. Atty., for defendant.

DICKINSON District Judge.

This action was brought to determine the lawfulness of a tax payment exacted of plaintiff. No other question is raised. Although no longer of as much practical importance as formerly, the distinction between an excise and direct tax remains. It is preserved in our current tax laws. It is the distinction (if not difference) between an income or direct tax and an excise tax, based upon the privilege of following some trade, profession, occupation, calling, or business. We now have both taxes, but the rate of assessment differs. To this difference in rate is due the present controversy. The plaintiff asserts that he should pay at the income rate; the defendant insists that the excise rate governs.

There is another line of distinction, not easy to draw, but commonly recognized. It marks the line which separates those who are engaged in the profession or business of doing certain things and those who occasionally do the same things but who do not make a profession or business of doing them. It was upon this distinction that the instant case was tried. The plaintiff makes a profession of the practice of the law. Speaking in commercial terms, that is his business. Congress has levied an excise tax, to be paid by all who are thus engaged in any kind of business. It happens that the tax is measured by the income return. This is a mere coincidence and this mere circumstance does not make an income tax of what is really an excise tax, which might be levied in the form of a flat sum. An excise tax is in a very real sense a charge made for the privilege enjoyed. Of course, in the sense of benefits received, this is also true of every tax.

The plaintiff made return of the income derived from the practice of his profession, and based on this paid what we have called the excise tax. It happens that he is also executor and trustee of the estate of a deceased friend, and as such received a commission. Of this he also made a return including it with other income received as income from other sources than his profession. Upon this he admits he should pay what we have called an income tax. The defendant, however, exacted payment, upon this part of his income, on the excise tax basis. The theory upon which the defendant justifies the tax levy made by him is evolved out of the following propositions:

(1) There is now a known business, in which trust companies, at least, engage, known as the business of acting in any fiduciary relation. This is undisputed.

(2) The plaintiff received an income for doing one of the things which trust companies make a business of doing. This also is undenied.

(3) The plaintiff was engaged in a recognized business, and we need not concern ourselves with the inquiry of how limited or extensive the business was, except in so far as this measures the amount of the tax.

It is over the third proposition the parties lock horns. The argument of the plaintiff is that, although it is true that trust companies, and perhaps individuals, make a business of acting as executors and trustee, it does not follow that the plaintiff does so. Whether he does so is a fact to be found, and liability to an excise tax depends upon that finding.

The jury found for the plaintiff. We have in consequence this fact in the case that the plaintiff does not make acting as executor and trustee any part of his profession or business. There might be some doubt of the propriety of submitting this question to the jury. The plaintiff asked the trial judge so to do, and it was done on the theory that it did the defendant no possible harm, as he was asking for a directed verdict in his favor.

As the case was tried, it now turns upon the question of law of whether liability to an excise tax depends upon the fact that the taxpayer was doing what it is the recognized business of some people to do, or whether it depends upon the fact that the taxpayer made a business of doing what he did do. If the latter is the turning point of the case, we see no reason to disturb the verdict.

The decisive proposition as now urged, however, is somewhat different. It is, as nearly as we can phrase it, that Congress has imposed the...