Jones v. Trapp, 4097.

• Decision Date: 30 December 1950
• Docket Number: No. 4097.,4097.
• Citation: 186 F.2d 951
• Parties: JONES v. TRAPP.
• Court: U.S. Court of Appeals — Tenth Circuit

186 F.2d 951 (1950)

JONES v. TRAPP.

No. 4097.

United States Court of Appeals Tenth Circuit.

December 30, 1950.

COPYRIGHT MATERIAL OMITTED

Helen Goodner, Washington, D. C. (Theron Lamar Caudle, Asst. Atty. Gen. and Ellis N. Slack, A. F. Prescott and George D. Webster, Special Assts., on the brief), for appellant.

Charles H. Garnett and Ram Morrison, Oklahoma City, Okl. (John B. Dudley, Oklahoma City, Okl., on the brief), for appellee.

Before PHILLIPS, Chief Judge, and BRATTON and MURRAH, Circuit Judges.

MURRAH, Circuit Judge.

The first question on this appeal is whether appellee, M. E. Trapp, and his wife, Lou Strang Trapp, were business partners for income tax purposes in the taxable year 1941. The Commissioner determined that they were not and assessed a deficiency against Trapp, based upon adjusted income reported by them as partners. Trapp paid the tax and brought this timely suit against the Collector to recover the same, re-asserting the partnership. The Collector pleaded the former judgment in Trapp v. United States, 10 Cir., 177 F.2d 1, as an estoppel of the issue of partnership, and alternatively denied its existence for income tax purposes for 1941.

In Trapp v. United States, supra, we affirmed the judgment of the trial court denying the asserted partnership for the preceding taxable year 1940. The trial court in this case, however, took the position that the former judgment did not operate to estop the taxpayer from asserting the partnership for the taxable year 1941, on the grounds that the legal climate in which the former judgment was rendered had changed since Commissioner v. Culbertson, 337 U.S. 733, 69 S.Ct. 1210, 93 L. Ed. 1659, and that additional facts on this record, when considered in the light of the philosophy of the Culbertson case, presented new and different issues not foreclosed by the former judgment. An appraisal of the facts under the Culbertson case left no doubt in the mind of the trial court that a "partnership relationship between M. E. Trapp and Lou Strang Trapp existed from its inception in 1911, up to and including 1941, the year of the return in question here."

The doctrine of collateral estoppel by judgment is sparingly applied in income tax cases involving tax liability for different years. And, the former judgment operates as an estoppel "only as to those matters in the second proceeding which were actually presented and determined in the first suit. * * * a subsequent modification of the significant facts or a change or development in the controlling legal principles may make that determination obsolete or erroneous" and its perpetuation result in an unjust disparity in the incidence of tax laws. Commissioner v. Sunnen, 333 U.S. 591, 68 S.Ct. 715, 720, 92 L.Ed. 898. See also Gillespie v. Commissioner, 10 Cir., 151 F.2d 903; Continental Oil Co. v. Jones, 10 Cir., 176 F.2d 519; Commissioner v. Texas Empire Pipe Line Co., 10 Cir., 176 F.2d 523.

The decisive issue in both cases is the same, that is, whether the Trapps were business partners for tax purposes in the respective years, 1940 and 1941. While the trial court in the former case did not have the clarifying benefit of the Culbertson case, it had been decided when the case was here on appeal. And, applying the realistic test of good faith emphasized as controlling there, we affirmed the findings of the trial court to the effect that there was no bona fide family partnership for income tax purposes in the year 1940. And see Graber v. Commissioner, 10 Cir., 171 F.2d 32; Eckhard v. Commissioner, 10 Cir., 182 F.2d 547.

The additional facts relied upon in the instant case as justifying a different result in tax liability for the two years, consist of letters written by the taxpayer to a bank in 1911 in connection with his application for credit, and Mrs. Trapp's testimony concerning their business relationship through the years. One of the letters to the bank recited that the Trapps were trying to get into the municipal bond business; that Mrs. Trapp was interested in the business, and was furnishing her own separate collateral as security for the proposed loan with which to engage in business. But these facts are historical and were available in the former trial. "No new facts were tendered in this case which did not exist and were not available for production in the former case. The applicable and controlling facts remain the same — they are static, immutable, and therefore precisely identical for the purposes of estoppel." Gillespie v. Commissioner, supra, 151 F.2d at page 907. Cf. Tait v. Western Md. Ry. Co., 289 U.S. 620, 53 S.Ct. 706, 77 L.Ed. 1405.

But even so, the taxpayer points to the fact that the former suit was between the taxpayer and the United States, whereas this suit is against the Collector of Internal Revenue in his personal capacity, and contends that since the suits are not between the same parties, the doctrine of estoppel is inapplicable, citing United States v. Nunnally Inv. Co., 316 U.S. 258, 62 S.Ct. 1064, 86 L.Ed. 1455. The Nunnally case affirmed Sage v. United States, 250 U.S. 33, 39 S.Ct. 415, 63 L.Ed. 828, to the effect that a judgment for a refund of income taxes in a suit against the Collector is not a bar to a later suit against the United States for additional refund of taxes for the same year paid to the same collector. The cases are based upon the concept that the United States was a stranger to the suit against the collector in his personal capacity, and not being in privity with him, was not bound thereby. Applying the reasoning there conversely to our case, it is suggested that the United States is a stranger to this suit, and the taxpayer is therefore not barred from maintaining it against the collector in his personal capacity on a different cause of action.

The effect of the Nunnally case was nullified by Subsection (d), Section 503, Revenue Act of 1942, Public Laws Chap. 619, 26 U.S.C.A. § 3772, 56 Stat. 956. See H. Rep. 2333, 77th Congress, Second Session, pp. 60-61, 172; and Senate Rep. 1631, 77th Congress, Second Session, pp. 247-248. But in any event, the rule of the Nunnally case is inapplicable in a suit against the collector, for "where a question has been adjudged as between a taxpayer and the government or its official agent, the Commissioner, the collector, being an official inferior in authority, and acting under them, is in such privity with them that he is estopped by the judgment." Tait v. Western Md. Ry. Co., supra, 289 U.S. at page 627, 53 S.Ct. at page 708, 77 L.Ed. 405. It follows, we think, by the reasoning invoked, that if the Collector would have been bound by the judgment against the United States, the taxpayer is likewise bound. We are of the opinion that the judgment in Trapp v. United States, supra, is conclusive of the issue of the asserted partnership between Trapp and his wife for the year 1941. In the eyes of the tax laws, they were not partners in 1940, and they were not partners in 1941.

Apart from the factual issue bearing upon the question of family partnership, the taxpayer contends that income derived from the production of oil from properties in the State of Texas, is, under the controlling law of that State, community income, and therefore taxable to the community in equal shares. That question was squarely put and squarely decided in Trapp v. United States, supra. We said, following Texas law as interpreted in Hammonds v. Commissioner, 10 Cir., 106 F.2d 420, 424; and Noble v. Commissioner, 10 Cir., 138 F.2d 444, that since the oil properties were...