Chicago Ry. Equipment Co. v. Blair

• Decision Date: 02 July 1927
• Docket Number: No. 3853.,3853.
• Citation: 20 F.2d 10
• Parties: CHICAGO RY. EQUIPMENT CO. v. BLAIR, Commissioner of Internal Revenue.
• Court: U.S. Court of Appeals — Seventh Circuit

20 F.2d 10 (1927)

CHICAGO RY. EQUIPMENT CO. v. BLAIR, Commissioner of Internal Revenue.

No. 3853.

Circuit Court of Appeals, Seventh Circuit.

July 2, 1927.

W. S. Oppenheim, of Chicago, Ill., for plaintiff in error.

L. C. Mitchell, for defendant in error.

Before ALSCHULER, EVAN A. EVANS, and PAGE, Circuit Judges.

PAGE, Circuit Judge.

From the Commissioner's assessment of additional tax, plaintiff in error, called plaintiff, appealed to the Board of Tax Appeals, and this writ of error brings the matter here.

This court's jurisdiction is challenged on the ground that, when the provisions of section 283 (j) of the Revenue Act approved February 26, 1926 (44 Stat. 65), are applied to the facts, there is no right of appeal. Section 283 (j) is, in part, as follows:

"In cases within the scope of subdivision (b) or (f) of this section where any hearing before the board has been held before the enactment of this act and the decision is rendered after the enactment of this act, such decision shall, for the purposes of this title, be considered to have become final upon the date when it is rendered and neither party shall have any right to petition for a review of the decision."

The facts are: Evidence was taken on February 2 and 3, 1926, and 45 days were given in which to file briefs and submit proposed findings of fact. The government's brief was filed March 2d, and that of plaintiff, together with its proposed findings of fact, was filed March 15th. July 28, 1926, findings of fact and an interlocutory opinion were filed, to which was added: "Order of redetermination will be entered on 15 days' notice, under rule 50." On November 4, 1926, an order was made, fixing the deficiencies.

Jurisdiction must depend on the meaning of the words "where any hearing before the board has been held." The government concedes that, as ordinarily used, a "hearing" means the whole proceeding, including the decision, but contends that the word can have no such meaning here, because the language of the act clearly indicates that the decision is no part of the "hearing." Admittedly the government's contention leads it to the necessity of making the claim that, if any hearing had been in any way entered upon before the passage of the act, then, no matter how long it was carried on, or what was done thereafter, there could be no appeal. We think that is a too narrow construction, and are constrained to hold that there would be an appeal in all cases where the whole proceeding was not concluded before the passage of the act, so that it only remained to make the decision.

Plaintiff was a manufacturer of railway equipment, with plants in Michigan, Indiana, and Illinois, acquired and built between 1904 and 1915. In 1925, the Commissioner gave plaintiff notice of a finding of a deficiency in its income and profits taxes of $22,337.85 for 1917, of $85,815.59 for 1918, and $15,609.91 for 1919. After appeal to and hearing by the Board of Tax Appeals, a finding was entered, approving the finding for the years 1917 and 1918, but fixing the 1919 deficiency at $6,309.16.

Three matters are here in issue on the merits: (a) Was the item allowed for bad debts properly transferred from 1918 to 1919? (b) Was there error in fixing the value of depreciable property? (c) Were the rates of depreciation used erroneous? Before discussing these questions, we deem it proper to make some comment upon parts of the government's brief.

The board was created by title 9, section 900, of the Revenue Act of 1924 (43 Stat. pp. 253, 336 Comp. St. § 6371 5/6b). Paragraph (h) of section 900 provides, in part: "The proceedings of the board and its divisions shall be conducted in accordance with such rules of evidence and procedure as the board may prescribe." Rule 20 is the only one quoted in argument. It reads: "Upon hearings of appeals, the taxpayer shall open and close, and the burden shall be on him."

With this rule no fault can be found, but decisions of the board are cited in which it is said: "The taxpayer must adduce legal, admissible, and convincing evidence of error to sustain his appeal." Upon this, counsel observe: "It will be noted from these decisions that the required degree of proof was proof by `satisfactory' and `convincing' evidence. The evidence necessary to sustain an appeal must be legal and admissible, and in addition must be `convincing.' It is clear that this requirement is different from, and may go further than, a burden of merely presenting some evidence or a preponderance of evidence. In presenting an appeal it is incumbent on a taxpayer to produce legal, admissible evidence sufficient to convince the board that his appeal should be sustained."

Again, commenting upon authorities cited that state the well-known general rule that, where the evidence in the trial court is conflicting, it will not be disturbed upon appeal, counsel say: "It is submitted that the foregoing decisions, involving appeals from federal District Courts, apply with even greater force to the present appeal from the decision of the Board of Tax Appeals in a case tried under the act of 1924. This by reason of the fact that the board was authorized to adopt its own rules of evidence, and did adopt a rule affording the widest range of discretion. The federal District Courts are bound by rules of evidence of narrower limitations than the limitations applicable to the board under the Revenue Act of 1924 and the rules of evidence adopted under the authority of that act."

Of course, every trier of fact should decide cases upon a conviction reached from a consideration of the evidence, and clearly evidence that produces such conviction must be satisfactory and convincing; but it is a well-known rule of law that triers of fact must be satisfied and convinced, if the evidence adduced, fairly considered, preponderates for or against a given proposition. When the evidence before a trier of fact ought to be convincing, he may not say that it is not. Whether he is a judge or a commissioner, the facts must be fairly and judicially weighed, and a determination reached thereon.

We see nothing in the act which would authorize the board to adopt rules "affording the widest range of discretion." The board would have no right to adopt a rule that did not require the board to consider all the evidence and then to exercise a sound discretion in reaching its conclusions. Nor would it have a right to prescribe rules that would exclude evidence competent and material under the usual and ordinary rules of evidence applicable in the courts.

The board is an instrument of government, established to make inquiries and determinations between a citizen and his government in tax matters. In many cases, as in this case, the board is dealing with facts and conditions from 7 to 15 years in the past, and arising under laws that were passed and very imperfectly administered under war conditions. The difficulties of administering the law, on the part of the government, and of complying with it, on the part of the citizen, were and are very great. Some indication of this may be found in the fact that it was in March, 1925, before the Commissioner arrived at a deficiency tax for 1917.

We are of opinion that there is nothing in the situation which either permits or requires hard or unusual rules to be made or applied by the Board of Tax Appeals, but that it was the intent and purpose of the law that the board should make a thorough and careful examination of all the facts, so as to reach a just conclusion between the taxpayer and his government. In article 165 of Treasury Regulations 69, it is said: "While the burden of proof must rest upon the taxpayer to sustain the deduction taken by him, such deductions must not be disallowed, unless shown by clear and convincing evidence to be unreasonable."

(a) In the Revenue Act of 1918 (40 Stat. pp. 1057, 1077, 1078 Comp. St. § 6336 1/8pp) it is provided:

"Sec. 234 (a). That in computing the net income of a corporation subject to the tax imposed by section 230 there shall be allowed as deductions: * * *

"(5) Debts ascertained to be worthless and charged off within the taxable year."

The government contends for a construction of this section that would require, not only that the debt should be ascertained to be worthless, and that the determination to charge it off should be reached within the taxable year, but that, in the matter of auditing and...