Hawkins v. Commissioner of Internal Revenue, Docket No. 418.

• Citation: 6 BTA 1023
• Decision Date: 25 April 1927
• Docket Number: Docket No. 418.
• Parties: C. A. HAWKINS, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
• Court: U.S. Board of Tax Appeals

6 B.T.A. 1023 (1927)

C. A. HAWKINS, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Docket No. 418.

Board of Tax Appeals.

Promulgated April 25, 1927.

A. E. Graupner, Esq., for the petitioner.

A. R. Marrs, Esq., for the respondent.

Deficiency of $19,718.39 income tax for 1919, part of which is contested on the ground that the Commissioner erroneously included in petitioner's income an amount received in settlement of a claim for libel and slander. There is no brief or argument for respondent.

FINDINGS OF FACT.

Petitioner, an individual residing in San Francisco, Calif., was an industrial engineer engaged in corporate management. Prior to March 23, 1918, he had for some time been president of the C. L. Best Gas Traction Co. On that date he was removed from office by the directors, and thereafter certain of the officers of the corporation made and published defamatory statements about him. He instructed his attorney to file against the corporation and the individual officers a suit in libel and slander demanding $1,000,000 damages for injury to his reputation, business and health. Two of the officers of the corporation had already filed suits against the petitioner, one for libel and one for money owed by reason of an alleged misuse of corporate funds during petitioner's term of office. Before petitioner's attorney began the suit in his behalf a settlement of petitioner's claims was orally negotiated and made. By this settlement the petitioner received, on or about January 15, 1919, $100,000 in cash and the corporation's note for $12,500. He also received $306.41 as interest. In further consideration under the settlement agreement the two suits which had been begun against him were dismissed.

OPINION.

STERNHAGEN:

The consideration of the question whether the damages received for libel and slander are taxable as income must proceed not so much according to the refinements of economists, Lynch v. Turrish, 247 U. S. 221; Merchants' Loan & Trust Co. v. Smietanka, 255 U. S. 509, as according to such decisions of the Supreme Court as mark the course. That stock dividends, Eisner v. Macomber, 252 U. S. 189; stock rights, Miles v. Safe Deposit & Trust Co., 259 U. S. 247; subsidies, Edwards v. Cuba R. R. Co., 268 U. S. 628; or savings, under certain circumstances, on the liquidation of indebtedness through a drop in foreign exchange, Bowers v. Kerbaugh-Empire Co., 271 U. S. 170, have been held not to be income; while the gain from capital sales, Merchants' Loan & Trust Co. v. Smietanka, 255 U. S. 509; Goodrich v. Edwards, 255 U. S. 527; dividends in specie, Peabody v. Eisner, 247 U. S. 347; United States v. Phellis, 257 U. S. 156; and periodic payments under a will from a trust fund in which the payee has no direct interest, Irwin v. Gavit, 268 U. S. 161, have been held to be income, narrows the course but little, because the nature of the situations which gave rise to those decisions is inherently different from the question here.

The petitioner cites some of these decisions for the statement therein contained that income is the gain derived from capital or labor or both, including profit from the conversion of capital assets, and that nothing else answers the description. Whether this description of income is to be regarded as exclusive of everything not clearly within its terms, so that both the Sixteenth Amendment and the statute (which is said to be the fullest exercise of the constitutional power, Eisner v. Macomber, 252 U. S. 189; Irwin v. Gavit, 268 U. S. 161) are forever to be limited by a judicial definition, may still be doubtful, for the Supreme Court is not in the habit of defining words abstractly, but only for the purpose of determining whether the matter then under consideration comes within their fair intendment. The court has itself said that the word is not a crystal, Towne v. Eisner, 245 U. S. 418, and it is conceivable that since the income tax is primarily an application...