Jemison v. Commissioner of Internal Revenue

• Decision Date: 02 December 1930
• Docket Number: No. 5575.,5575.
• Citation: 45 F.2d 4
• Parties: JEMISON v. COMMISSIONER OF INTERNAL REVENUE.
• Court: U.S. Court of Appeals — Fifth Circuit

45 F.2d 4 (1930)

JEMISON v. COMMISSIONER OF INTERNAL REVENUE.

No. 5575.

Circuit Court of Appeals, Fifth Circuit.

December 2, 1930.

Charles J. Bloch, J. E. Hall, and Pope F. Brock, all of Macon, Ga. (Brock, Sparks & Russell and Hall, Grice & Bloch, all of Macon, Ga., on the brief), for petitioner.

C. M. Charest, Gen. Counsel, Bureau of Internal Revenue, and Shelby S. Faulkner, Sp. Atty., Bureau of Internal Revenue, both of Washington, D. C., G. A. Youngquist, Asst. Atty. Gen., and Sewall Key, Morton P. Fisher, and A. G. Divet, Sp. Assts. to Atty. Gen. (Robert L. Williams, Sp. Atty., Bureau of Internal Revenue, of Washington, D. C., on the brief), for respondent.

Before BRYAN and FOSTER, Circuit Judges, and SIBLEY, District Judge.

FOSTER, Circuit Judge.

On November 12, 1920, the Commissioner of Internal Revenue determined a deficiency of income taxes against the petitioner for the year 1919, based on the failure of the taxpayer to include as a profit for that year $29,456.41, his share of the surplus of a corporation which had been distributed, and assessed a penalty of 50 per cent. for fraudulent concealment of the same, under the provisions of section 250, Revenue Act of 1918 (40 Stat. 1082). The taxes and penalty assessed amount to $10,830.99. On appeal to the Board of Tax Appeals the ruling of the Commissioner was affirmed. 13 B. T. A. 69.

The material facts found by the Board are these:

The petitioners, James B. Jemison and Thomas L. Ross, were the sole stockholders of J. B. Jemison & Co., a corporation engaged in the wholesale lumber business at Thomasville, Ga., in the proportions of 60 and 40 per cent., respectively. On May 24, 1919, the corporation was liquidated, its charter was surrendered, and assets in bulk valued at $49094.01 were transferred to a partnership of the same name and composed of the said stockholders, with their interest in the same proportions. The business was thereafter conducted by the partnership. Returns for the corporation, covering the period from January 1, 1919, to May 24, 1919, for the partnership and for the individual partners for the balance of the year, were filed on the same day, March 12, 1920, with the Collector of Internal Revenue for the District of Georgia. Both the corporation return and the partnership return, with attached balance sheets, showed the surplus transferred to the partnership. The individual returns did not show it. Later the corporation return was audited by the Commissioner. By a letter dated February 2, 1921, he requested information as to whether the corporation was dissolved on May 24, 1919, and as to what disposition was made of its assets. The Commissioner was advised by a letter, dated March 4, 1921, that the corporation had been dissolved and its assets distributed as shown on the balance sheet. The partnership return was audited and information (not material to this case) was requested by a letter dated September 24, 1921. The information was furnished in a letter dated September 24, 1921. Based on an investigation of the partnership returns for the years 1920, 1921, and part of 1922, on April 17, 1926, the Commissioner advised petitioner that his share of the corporation surplus of $49,094.01 represented a liquidation dividend and should have been returned on his 1919 return, and asked for his reasons for not doing so. The returns had been prepared by J. C. Murphy, an attorney who had previously been employed for about five years as a deputy collector in the office of the Collector of Internal Revenue in Atlanta, where his duties had consisted, among other things, in assisting taxpayers in preparing their income tax returns. On receipt of the letter from the Commissioner, on April 17, 1926, petitioner communicated with Murphy and received a letter from him dated April 21, 1926, which in part was as follows:

"It has been some time now since those returns were filed, but as I remember it, we did discuss the question of taxability of the corporation surplus account, but we all decided that in as much as there was doubt as to its taxability that it should not be reported. As I remember it, I told you at that time that the Commissioner of Internal Revenue might rule that this was taxable income and assess you accordingly. You know at that time the regulations were not clear, and there has been doubt as to many points all along, which is evidenced by the many changed rulings made by the Commissioner himself.

"There has been nothing at all hid from the Commissioner. He has been in possession of the corporation returns now for more than six years, which showed on the face of it that the corporation was dissolved and that you were one of the stockholders, and whatever tax was properly assessable against you on...