Durkee v. Commissioner of Internal Revenue
| Decision Date | 04 June 1947 |
| Docket Number | No. 10367.,10367. |
| Citation | 162 F.2d 184 |
| Parties | DURKEE v. COMMISSIONER OF INTERNAL REVENUE. |
| Court | U.S. Court of Appeals — Sixth Circuit |
H. Melvin Roberts, of Cleveland, Ohio, for petitioner.
Louise O'Hara, of Washington, D. C. (Sewall Key, A. F. Prescott, and Louise Foster, all of Washington, D. C., on the brief), for respondent.
Before SIMONS, MARTIN, and MILLER, Circuit Judges.
The petitioner, R. J. Durkee, seeks a review of a ruling of the Tax Court which upheld a deficiency income tax assessment against him for the calendar year 1941 in the amount of $3,858.15.
The petitioner has been engaged in the electrical contracting business in Cleveland, Ohio, for approximately 20 years. In May 1941, he received $25,000 in settlement of a suit for damages, which was reduced to a net amount of $19,439.95 after payment of attorneys' fees and other costs. In his 1941 income tax return petitioner made reference to the receipt of this sum, but claimed that it was not taxable as income and did not include it as income in the return. The Commissioner held the net proceeds to constitute taxable income and made the deficiency assessment. The Tax Court sustained the Commissioner's ruling.
The correct ruling depends upon the nature of the lawsuit referred to and the settlement under which the proceeds were received. The action, No. 491756, was filed in October 1939 by the petitioner in the Court of Common Pleas, Cuyahoga County, Ohio, against thirty individual firms and corporations engaged in the electrical contracting business in Cleveland, Ohio, and vicinity. An amended petition was filed in January 1940. General denials were filed by the defendants. The amended petition alleged that the petitioner had for approximately 20 years past been an electrical contractor in Cuyahoga County, Ohio; that the defendants during the period of 1928 to 1939 were engaged in a similar business in the county and comprised the greater portion of all the electrical contractors so engaged within the county; that during that period the defendants maintained an agreement with each other for the purpose of forming a combination in restraint of trade by which they fixed the price at which electrical construction work was installed in buildings under construction or improvement and maintained a quota system under which various contracts were allotted among the defendants at fixed prices; that in furtherance of the conspiracy in restraint of trade, the defendants formed an association and controlled the bidding upon electrical construction work, prevented petitioner from bidding on 37 specified contracts, and caused rejection of other bids made by him upon 9 specified jobs; that they induced and coerced architects and builders to refrain from requesting bids upon jobs from the petitioner; that prior to such conspiracy the petitioner had created as an integral part of his business a vast amount of good will, was able to earn from his business an income of approximately $8,000 to $10,000 per year and possessed a reasonable anticipation of increasing the income as the value of the business and the good will attached thereto increased, to a figure of approximately $15,000 to $20,000 per year, and that the income and business would have so increased had the then existing free competition continued; that as a direct result of said conspiracy petitioner suffered great damage in being deprived of the right of free competition, and of the right to engage in business unmolested by threats and intimidations. The amended petition closed with the following allegations:
The suit was settled in May 1941 for $25,000 at which time the plaintiff executed a release which contained the following provisions:
There was no evidence in the form of either conversation or correspondence further explaining the payment, all of which was received by the petitioner.
It is settled that since profits from business are taxable, a sum received in settlement of litigation based upon a loss of profits is likewise taxable; but where the settlement represents damages for lost capital rather than for lost profits the money received is a return of capital and not taxable. Swastika Oil & Gas Company v. Commissioner, 6 Cir., 123 F.2d 382; Martin Bros. Box Company v. Commissioner, 6 Cir., 142 F.2d 457; Farmers' & Merchants' Bank v. Commissioner, 6 Cir., 59 F.2d 912. See also United States v. Safety Car Heating Company, 297 U.S. 88, 98, 56 S.Ct. 353, 80 L.Ed. 500; Hort v. Commissioner, 313 U.S. 28, 61 S.Ct. 757, 85 L.Ed. 1168; H. Liebes & Company v. Commissioner, 9 Cir., 90 F.2d 932; Arcadia Refining Company v. Commissioner, 5 Cir., 118 F.2d 1010; Raytheon Production Corporation v. Commissioner, 1 Cir., 144 F.2d 110. The difficulty is in determining whether the recovery is for lost profits or for lost capital. The test is as stated by this Court in Farmers' & Merchants' Bank v. Commissioner, supra, and approved in Swastika Oil & Gas Company v. Commissioner, supra, namely, "The fund involved must be considered in the light of the claim from which it was realized and which is reflected in the...
To continue reading
Request your trial
-
Herbert v. Riddell
...Ct.Cl. 187; Boudreau v. Commissioner, 5 Cir., 1943, 134 F.2d 360; Fleming v. Commissioner, 5 Cir., 1946, 153 F.2d 361; Durkee v. Commissioner, 6 Cir., 1947, 162 F.2d 184; compare, Palmer v. Commissioner, 1937, 302 U.S. 63, 68-72, 58 S.Ct. 67, 82 L.Ed. 50. 41 See cases cited in Note 29. 42 C......
-
Concord Instruments Corporation v. Commissioner
...States v. Safety Car Heating Co. [36-1 USTC ¶ 9042], 297 U.S. 88, 98 (1936); Durkee v. Commissioner [47-1 USTC ¶ 9279], 162 F.2d 184, 185-186 (6th Cir. 1947), remanding [Dec. 15,085] 6 T.C. 773 (1946); Swastika Oil & Gas Co. v. Commissioner [41-2 USTC ¶ 9727], 123 F.2d 382, 384 (6th Cir. 19......
-
Chamberlain ex rel. Chamberlain v. U.S.
...extent a partner's compensation was considered a return of his own capital, that partner received no taxable income."); Durkee v. Comm'r, 162 F.2d 184, 186 (6th Cir.1947) ("It is settled that since profits from business are taxable, a sum received in settlement of litigation based upon a lo......
-
Sanders v. Commissioner of Internal Revenue
...78; Mathey v. Commissioner, 1 Cir., 177 F.2d 259, certiorari denied 339 U.S. 943, 70 S.Ct. 797, 94 L.Ed. 1359; Durkee v. Commissioner, 6 Cir., 162 F.2d 184, 173 A.L.R. 553; Swastika Oil & Gas Co. v. Commissioner, 6 Cir., 123 F.2d 382, certiorari denied 317 U.S. 639, 63 S.Ct. 30, 87 L. Ed. 5......
-
The Civil Litigator
...income taxes suffered by former employees due to their employer's premature termination of their contracts for overseas employment). 9. 162 F.2d 184 (6th Cir. 1947). 10. Jonathan Logan, Inc. v. Commissioner, CCH Tax Reporter Dec. 32,765(M)(U.S. Tax Court 1974), affirmed sub nom. Irwin C. Gu......
-
The Impact of Taxes on Damage Awards and Settlements
...382 (6th Cir. 1941). 10. Raytheon Prod., supra, note 8; Thomson v. Commissioner, 406 F.2d 1006 (9th Cir. 1969);Durkee v. Commissioner, 162 F.2d 184 (6th Cir. 1947); and State Fish Corp. v. Commissioner, 48 T.C. 465 (1967). 11. See, note 2, supra. For prior law, see, Commissioner v. Glenshaw......
-
CHAPTER 2 SURFACE USE AGREEMENTS
...Bank v. Commissioner, 59 F.2d. 913 (6th Cir. 1932); Swastika Oil & Gas Co. v. Commissioner, 123 F.2d 382 (6th Cir. 1932); R. J. Durkee, 162 F.2d 184 (1947); Inaja Land Co. v. Commissioner, 9 T.C. 727 (1947) (Acq.). [55] Rev. Rul. 73-161, 1973"1 C.B. 366 [61] Mrs. J. C. Pugh, Sr., 17 B.T.A. ......
-
Tax Consequences of Damages
...v. Commissioner, 48 T.C. 465 (1968). 26. Commissioner v. Glenshaw, 348 U.S. 426 (1955). 27. Supra, note 25. 28. Durkee v. Commissioner, 162 F.2d 184 (6th Cir. 1947); Rev. Rul. 73-161, 1973-1 C.B. 366; Collins v. Commissioner, 18 T.C.M. 756 (1959); Specialty Engineering Co. v. Commissioner, ......