Jones v. United States

• Decision Date: 22 September 1972
• Docket Number: No. 71-1386.,71-1386.
• Citation: 466 F.2d 131
• Parties: John Paul JONES and Ruth J. Rubel Jones, Appellants, v. UNITED STATES of America, Appellee.
• Court: U.S. Court of Appeals — Tenth Circuit

466 F.2d 131 (1972)

John Paul JONES and Ruth J. Rubel Jones, Appellants, v. UNITED STATES of America, Appellee.

No. 71-1386.

United States Court of Appeals, Tenth Circuit.

August 21, 1972.

Rehearing Denied September 22, 1972.

Walter A. Raymond, Kansas City, Mo. (James L. Baska, Kansas City, Kan., and Kenneth C. West, Kansas City, Mo., with him on the brief), for appellants.

Issie L. Jenkins, Atty., Tax Div., Dept. of Justice, Washington, D.C. (Robert J. Roth, U.S. Atty., Scott P. Crampton, Asst. Atty. Gen., and Meyer Rothwacks and Bennet N. Hollander, Attys., Tax Div., Dept. of Justice, Washington, D.C., of counsel, with her on the brief), for appellee.

Before MURRAH, SETH and BARRETT, Circuit Judges.

MURRAH, Circuit Judge.

This is the second effort of Ruth J. Rubel Jones and her husband John Paul Jones to have certain annual payments, received by Mrs. Jones under the terms of a written agreement, treated as capital gains for tax purposes. In the earlier case a jury determined that the payments received by Mrs. Jones in the 1956 and 1957 taxable years were ordinary income. We affirmed the judgment entered on that verdict. See Jones v. United States, 387 F.2d 1004 (10th Cir.1967), cert. denied, 392 U.S. 927, 88 S.Ct. 2284, 20 L.Ed.2d 1385 (1968). The present action is concerned with payments received by Mrs. Jones under the same contractual arrangement for the taxable years 1958, 1959, 1960 and 1961.

The government pleads the prior judgment as an estoppel to adjudication of the taxpayers' present claim, and made a pretrial motion for summary judgment on those grounds. Apparently out of an abundance of caution, the trial court denied the summary judgment motion, as well as the government's on-trial motion for a directed verdict, and submitted the case to the jury on the same issue presented and decided in the prior case. The jury again returned a verdict in favor of the United States, finding that the payments in question were taxable as ordinary income rather than capital gains. This appeal is from the judgment on the jury's verdict. We affirm the judgment without reaching the alleged trial errors raised on appeal,¹ for we are convinced that the prior judgment on the 1956 and 1957 tax years is conclusive of the claims asserted here for subsequent tax years.

We arrive at this conclusion fully cognizant of the rule under which collateral estoppel is strictly and sparingly applied in tax cases involving liability for different years. See Jones v. Trapp, 186 F.2d 951, 953 (10th Cir.1950); Gillespie v. Commissioner of Internal Revenue, 151 F.2d 903, 906 (10th Cir.1945), cert. denied, 328 U.S. 839, 66 S.Ct. 1014, 90 L.Ed. 1614. The doctrine is applicable only when an issue identical to that presented in the second case has been raised and fully adjudicated under identical and inseparable relevant facts in a prior action between the same parties involving a different tax year. See Commissioner of Internal Revenue v. Sunnen, 333 U.S. 591, 68 S.Ct. 715, 92 L.Ed. 898 (1948); Tait v. Western Md. Ry. Co., 289 U.S. 620, 53 S.Ct. 706, 77 L.Ed. 1405 (1933). We recite the basic facts, fully set forth in our former opinion, for convenience and continuity and to show the inherent similarity of the two cases. See Jones v. United States, supra, 387 F.2d at 1005-1006.

Prior to 1953, Ruth Jones was the owner of an insurance agency which specialized in accident and health insurance coverage for teachers' groups in Kansas and Missouri. Continental Casualty Company was the underwriter of the group insurance and paid Ruth 22½% of the premiums as commission on group policies which she sold. In 1953, Ruth commenced negotiations with Forrest T. Jones (no relation to the taxpayers) for the sale of her insurance business. Continental apparently played an important role in these negotiations and loaned Forrest the necessary funds for the purchase. The agency was incorporated in furtherance of the sale plans and subsequently Ruth entered into an agreement to sell all of her stock in the agency to Forrest for the sum of $25,000. Approximately three years later the agreement of sale was amended to show that the actual purchase price agreed upon by the parties was $50,000.

Contemporaneously with the agreement of sale, Ruth entered into the so-called "five per cent agreement" with Continental. Under the terms of this instrument Ruth agreed for a period of ten years "to represent, act and serve as a consultant for Continental on matters relating to the soliciting, negotiating, underwriting and placing of Teachers' Group Insurance as shall be requested by Continental." Continental, in turn, agreed to pay Ruth "for said services a sum equal to 5% of the premiums on any insurance written through Continental by Forrest T. Jones or the Ruth J. Rubel Agency, Inc." Forrest and Ruth also entered into a "guaranty" agreement, whereby Forrest guaranteed to Ruth that the payments received by her under the "five per cent agreement" would not be less than $15,000 per year, and that in the event the payments did not equal that amount in any three consecutive years Ruth would have an option to purchase all of the capital stock of the agency for the sum of $1.00.

Ruth and Paul Jones filed joint income tax returns for the years 1956 and 1957, reporting the payments received by Ruth from Continental pursuant to the five per cent agreement as ordinary income. In 1960 the taxpayers filed a claim for refund, asserting that the amounts reported as ordinary income in the 1956 and 1957 returns were actually deferred payments on the total purchase price of the insurance agency and, thus, taxable as long-term capital gains. On that theory the Internal Revenue Service initially allowed the refund claim in part, but subsequently changed its position, determining that the payments were properly taxable as ordinary income, and instituted the first suit to recover the amount of the refund from the taxpayers.

Ruth and Paul also filed a refund claim for taxes on the payments received during 1958, which had also been reported as ordinary income in their joint return for that year. Again, the I.R.S. originally allowed the refund in part, but later reversed itself and assessed a deficiency. The taxpayers paid this assessment and subsequently filed a second refund claim for the 1958 taxes, which was disallowed.

On their joint returns for 1959, 1960 and 1961, Ruth and Paul reported the payments received during those years as long-term capital gains; thereafter, deficiencies were assessed against them. After paying the assessments, the taxpayers filed another claim for refund, which was also disallowed. Ruth and Paul then instituted two suits, which were consolidated in the present action, claiming to be due refunds totaling approximately $114,000 plus interest, for the years 1958 through 1961.

On trial of the first case the taxpayers argued that the substance of the 1953 transactions was the sale of Ruth's insurance agency to Forrest; that the $50,000 to be paid under the amended agreement of sale was merely a down payment; and, that the five per cent payments were actually installment payments on the total purchase price. The government, on the other hand, contended that Ruth had merely sold her stock in the incorporated agency pursuant to the agreement of sale for a total purchase price of $50,000, and that the five per cent agreement constituted a separate agreement between Ruth and Continental for consulting services. The issue submitted to the jury was whether the amounts received by Ruth from Continental in 1956 and 1957, pursuant to the terms of the five per cent agreement, were part of the sale price of the insurance agency, hence capital gains, or compensation for services rendered, hence ordinary income.

After judgment in the first case, the government made its summary judgment motion on grounds of collateral estoppel in the present case. As we have seen, the trial court denied the motion and submitted the case for trial to a jury....