Helvering v. Drier, 3859.

• Citation: 79 F.2d 501
• Decision Date: 08 October 1935
• Docket Number: No. 3859.,3859.
• Parties: HELVERING, Com'r of Internal Revenue, v. DRIER.
• Court: United States Courts of Appeals. United States Court of Appeals (4th Circuit)

79 F.2d 501 (1935)

HELVERING, Com'r of Internal Revenue, v. DRIER.

No. 3859.

Circuit Court of Appeals, Fourth Circuit.

October 8, 1935.

Joseph M. Jones and Howard P. Locke, Sp. Assts. to Atty. Gen. (Frank J. Wideman, Asst. Atty. Gen., and Sewall Key, Sp. Asst. to Atty. Gen., on the brief), for petitioner.

Herman J. Galloway, of Washington, D. C. (Harold G. Aron, of New York City, on the brief), for respondent.

Before PARKER and SOPER, Circuit Judges, and CHESNUT, District Judge.

SOPER, Circuit Judge.

The Commissioner of Internal Revenue seeks in this case to require Katherine M. Drier, the taxpayer, to include the sum of $54,234.90 in her gross income for the year 1929 in computing her income tax for that year. This sum formed part of certain payments made to her on account of an award by the Mixed Claims Commission, United States and Germany, for property of the taxpayer sequestered by the German government during the World War. The total payments received in 1929 were only a part of the total award; but the Commissioner's theory of the case is that to the extent of $54,234.90, they represented interest paid by Germany for the use of the property, and constituted taxable income in the taxpayer's hands.

In 1913, by virtue of the death of her husband, the taxpayer acquired an estate in Germany consisting of real and personal property. On or about May 10, 1918, the property was seized, and on January 5, 1920, it was sold with the approval of the German government. The taxpayer filed a claim with the Mixed Claims Commission on account of the loss sustained, and on January 14, 1926, the Commission entered an award to the United States on behalf of the taxpayer in the sum of $48,000, with interest thereon at 5 per cent. to the date of payment. On August 1, 1928, the taxpayer received on account of this award the sum of $68,782.70, which was paid by the United States out of the German Special Deposit, in accordance with the provisions of section 2 (b), 2 (d) and section 4 (c) (4) of the Settlement of War Claims Act of March 10, 1928, 45 Stat. 254. The Treasury Department of the United States, through which the payment was made, designated $48,000 thereof as principal, and $21,128.34 as the interest allowed by the award; and from the total of $69,128.34, deducted ½ of 1 per cent., or $345.64 as required by section 2 (e) of the act, leaving $68,782.70, the sum paid to the taxpayer. This allocation was obviously correct, for the total principal sum was $48,000 and the remainder of the payment was necessarily interest.

On April 5, 1929, the Mixed Claims Commission entered another award to the United States for the benefit of the taxpayer on account of her loss for the additional principal sum of $250,000 with interest at 5 per cent. from May 10, 1918, to date of payment. During the year 1929, the taxpayer received as part payment on account of this award four checks, in the aggregate sum of $170,736.37, less the deduction of ½ of 1 per cent., or $853.68, or a net payment of $169,882.69. These checks were also drawn on the Treasury of the United States against the German Special Deposit, in accordance with section 4 (c) (4) (5) of the act. The Treasury Department, in its computation, showed the principal of the awards as $298,000 and the interest at 5 per cent. on $48,000 from January 5, 1920, and on $250,000 from May 10, 1928, in accordance with the provisions of the two awards, arriving at the total of $139,755.49 for the accrued interest on both awards to January 1, 1928. This sum was added to the principal to reach a total of $437,755.89 under the heading "principal account," and against the total was credited the payment of $69,128.34 of August 1, 1928, and the four payments above mentioned aggregating $170,736.37. From this total, ½ of 1 per cent., or $853.68, was deducted, making a net payment received by the taxpayer of $169,882.69. Disregarding the deduction of ½ of 1 per cent., the taxpayer received in all, in the two payments in 1928 and 1929, the aggregate sum of $239,864.71.

The Commissioner concedes that so much of the total sum of $169,882.69 received by the taxpayer in 1929, as represented the return of principal, was not taxable; but he contends that a part of this total represented interest, and as such should have been included in the gross income for the year. It is stipulated that if any part of this sum should be treated as interest, that part amounts to $54,234.90, which sum bears the same ratio to the total amount received by the taxpayer as the total amount of interest bore to the total amount of principal and interest then due. It is also stipulated that the value of the property in 1913, when the taxpayer acquired it, was not less than $239,864.71, the total sum from both awards allocated to the taxpayer by the Treasury Department before the deduction of the percentage of ½ of 1 per cent. for the expenses of the United States. It is also conceded that the taxpayer's books were kept on a cash receipts and disbursements basis.

The Board of Tax Appeals decided that no part of the 1929 payments was income, holding that it was controlled by the decision of the United States Court of Appeals for the District of Columbia in Drier v. Helvering, 63 App. D. C. 283, 72 F.(2d) 76, a case in which a similar contention by the Commissioner, with reference to the payment received by the taxpayer in 1928 as above described, was rejected. The Board also referred to its decision in Speyer v. Commissioner, 30 B. T. A. 517, since affirmed by the Circuit Court of Appeals of the Second Circuit on June 10, 1935. 77 F.(2d...