Farrell v. Commissioner of Internal Revenue
| Decision Date | 10 April 1943 |
| Docket Number | No. 10303.,10303. |
| Citation | 134 F.2d 193 |
| Parties | FARRELL v. COMMISSIONER OF INTERNAL REVENUE. COMMISSIONER OF INTERNAL REVENUE v. FARRELL. |
| Court | U.S. Court of Appeals — Fifth Circuit |
John Enrietto, of Washington, D. C., for petitioner.
Samuel O. Clark, Jr., Asst. Atty. Gen., Maryhelen Wigle, Sewall Key, and Samuel H. Levy, Sp. Assts. to the Atty. Gen., and J. P. Wenchel, Chief Counsel, and John M. Morawski, Sp. Atty., Bureau of Internal Revenue, both of Washington, D. C., for respondent.
Before HUTCHESON, HOLMES, and McCORD, Circuit Judges.
The question for decision is whether the sum of $402,672.83, received by J. E. Farrell in 1936, was taxable to him as income of that year.
The money was paid to Farrell under these circumstances: In 1931 the taxpayer and his wife owned as community property an undivided one-half of a seven-eighths working interest in oil and gas leases covering lands in Gregg County, Texas. The lease interests were sold in that year, and a portion of the purchase price was payable to the assignors from the first one-fourth of the working interest. The value of the leases in 1931 was speculative and uncertain. On August 8, 1931, Mrs. Farrell secured a divorce, and, in lieu of a partition of their community property, she agreed to accept and the decree awarded her the sum of $750 each month for life. Subsequent to her marriage to Albert Burguieres four days later, she and her husband ratified and affirmed the property settlement agreement, conveying to Farrell all her interests in amounts payable under the sale of the lease interests.
On July 5, 1933, Mrs. Burguieres sued the taxpayer and Yount-Lee Oil Company, assignee of the lease contracts, alleging that the property settlement agreement had been procured by fraud. She asked that one-half of the oil-payment interests under the assignment contract be restored to her; that she have personal recovery against Farrell to the extent that her interest in the community estate had been wasted and depreciated; that the court fix a lien upon Farrell's one-half of the oil payments to secure reimbursement to her of damages sustained by reason of the dissipation of the community estate; and that Farrell be enjoined from receiving any further payments from Yount-Lee, and from disposing of any of the community estate remaining in his hands, pending the outcome of the litigation.
In view of this suit, Yount-Lee and its successor were apprehensive lest it incur liability by paying out contested funds, and it declined to pay Farrell any money under the oil-payment contract during the pendency of the litigation, but held the funds and credited same to an account set up in Farrell's name. A final decree in favor of Farrell was entered in 1936, and thereupon Farrell was paid the sum of $402,672.83, the aggregate of the sums due him for oil run in 1933, 1934, and 1935. The question is whether this money was income...
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