Kenner v. CIR, 17557
| Decision Date | 17 June 1971 |
| Docket Number | 17558 and 17559.,No. 17557,17557 |
| Parties | William H. KENNER, Eleanor V. Kenner and Kenner's Charitable Hospital, Inc., a not-for-profit Illinois Corporation, Petitioners-Appellants, v. COMMISSIONER OF INTERNAL REVENUE, Respondent. |
| Court | U.S. Court of Appeals — Seventh Circuit |
Charles A. Boyle, Chicago, Ill., for petitioners-appellants.
Johnnie M. Walters, Asst. Atty. Gen., Carolyn R. Just, Atty., Tax Division, U. S. Dept. of Justice, Washington, D. C., William J. Bauer, U. S. Atty., Chicago, Ill., Lee A. Jackson, Gilbert E. Andrews, Attys., Dept. of Justice, Washington, D. C., for respondent.
Before KILEY, PELL and STEVENS, Circuit Judges.
This appeal presents the case of a taxpayer, Dr. William H. Kenner,1 who firmly and apparently sincerely, believes that he had been the victim of fraud and harassment by the Internal Revenue Service. His feud with the Service has consumed twenty years and threatens to consume more. Recently his problems have been compounded by his own efforts to represent himself due to his dissatisfaction, again apparently fully justified in his own mind, with the legal profession.
Dr. Kenner graduated from medical school in 1926. In 1933 he organized and incorporated Kenner's Charitable Hospital, Inc., (Hospital) in Chicago, Illinois. The articles of incorporation generally provided that the purpose of the Hospital was to provide free, charitable hospital rooms and treatment and was not to operate for pecuniary profit.
In 1949 Hospital applied for and received an exemption from federal income tax as a charitable organization. In 1951 the ruling exempting Hospital was revoked retroactively.
Dr. Kenner and his Hospital have been before this court twice before. In Kenner v. Commissioner of Internal Revenue, 318 F.2d 632 (7th Cir. 1963), a judgment of the tax court determining deficiencies in income tax of nearly $600,000 as to Hospital and nearly $400,000 as to Kenner for the years 1944 to 1954 was affirmed. The basis of that affirmance was that the tax court was not clearly erroneous in finding that net earnings of Hospital inured to the benefit of Kenner or an Arizona corporation wholly owned by him so that Hospital was not entitled to exempt status and Kenner was taxable on Hospital funds diverted to his personal use. This court rejected Kenner's contentions that sums diverted from Hospital's bank accounts were at all times less than non-Hospital funds deposited in those accounts by him and that the Arizona corporation existed for the purpose of establishing a new Hospital-connected sanitarium in Arizona.
In Kenner v. Commissioner of Internal Revenue, 387 F.2d 689 (7th Cir. 1968), another panel of this court reviewed the tax court's denial of Kenner's petition to set aside, on grounds of fraud on the court, the earlier tax court judgment which had been affirmed in the first Kenner appeal. Although this court held that the tax court had power to consider such a petition notwithstanding the finality of the judgment, the denial was affirmed on the ground that Kenner's petition failed to establish fraud on the court.
The present consolidated appeals are from judgments of the tax court2 assessing tax deficiencies against Kenner and Hospital for the years 1955 through 1959. As in the earlier case covering years prior to 1955, the grounds are that Hospital is not exempt from tax under Section 501(c) (3) of the Internal Revenue Code of 1954, 26 U.S.C. § 501(c) (3), since a part of its earnings inured to the benefit of Kenner and that Kenner did not report certain income diverted from Hospital to his personal use and the use of the wholly-owned Arizona corporation.
Kenner represented himself in the tax court and has filed extensive pro se briefs on this appeal. A number of the contentions in the briefs have been dealt with in earlier opinions of this court relevant to his tax problems. Nearly all seem infected with references to the doctor's generalized complaints against the I.R.S. and his former attorneys.
Fortunately for his cause, however, before the oral argument of this appeal, Dr. Kenner, apparently willing to try lawyers once more, secured the aid of new counsel. This attorney filed a supplemental brief and presented oral argument on Kenner's behalf. By counsel's efforts, and without any noticeable aid from Kenner's pro se efforts, we have been convinced that the judgment of the tax court is infected by reversible error. Accordingly, Dr. Kenner will have another opportunity to present his case to the tax court. We can but hope that he will realize the wisdom of his decision to secure counsel and will not again attempt to present this complicated case to the tax court without the assistance of a competent and dedicated attorney, which it seems he has now found.
By these remarks we do not intend in any way to pass any judgment on the ability, competence or effectiveness of any counsel that Kenner may have heretofore retained. Attorneys perforce must cope as best they can with factual situations in which their clients have placed themselves or permitted themselves to be placed. An attorney's competence is not necessarily equated with victory in litigation, yet clients are sometimes prone to blame the counsel for defeat rather than the morass of their own affairs. The client should be prepared to accept the realistic evaluation of his affairs as made by the attorney of his selection.
We reverse on the single issue raised by Dr. Kenner's attorney and do not attempt to cull the new from the old in Dr. Kenner's pro se brief. We note only that we have given it careful attention and that Dr. Kenner's counsel may find among its various allegations issues still alive to be presented to the tax court. However, in its present state, it contains little which a court could rely upon in attempting to rectify any wrongs which may have been done Dr. Kenner.
In his supplemental brief, Kenner's attorney contends that the tax court erred in excluding certain material evidence and testimony which went directly to the heart of the appellants' position on tax liability for the years in question.
Kenner's theory before the tax court was that Kenner's Charitable Hospital, Inc., was entitled to the charitable corporation exemption available under Section 501(c) (3), supra. He sought to refute the Government's contention that part of Hospital's income and assets had inured to his personal benefit by showing that any funds he received from Hospital were either reasonable compensation for his services to the corporation or repayments of loans which he had personally made to the corporation.
We have carefully studied the entire record of the hearing before the tax court. Dr. Kenner's attempts to support his theory were curtailed on several occasions when testimonial evidence concerning cash flows between himself, the Arizona corporation and Hospital was excluded as not the best evidence of the transactions in questions. The tax court sua sponte suggested the appropriateness of such an objection to Government counsel and then repeatedly prompted further objections on the same ground or sua sponte struck testimony as not the best evidence.
For example, we note these colloquies in the transcript:
Citation of a single, recurring type of exclusion will suffice to demonstrate the appropriateness of a new hearing. On various occasions, Dr. Kenner sought to testify that he had paid for Hospital's nurses' home with his own funds, that he had paid for improvements on the Arizona properties with his own funds, and that proceeds of the brief operation of the Arizona sanitarium had been paid to Hospital. Testimony as to such transactions was in each case immediately cut off, apparently on the ground that the checks by which the funds had been disbursed or the books and records of Hospital would have been the best evidence of the transactions.
Particularly in light of Dr. Kenner's personal knowledge of the transactions, the applicability of the best evidence rule in these circumstances is doubtful. See Allen v. W. H. O. Alfalfa Milling Co., 272 F.2d 98, 99-100 (10th Cir. 1959), and Herzig v. Swift & Co., 146 F.2d 444, 445-446 (2d Cir. 1945). See generally IV Wigmore on Evidence § 1245 (3d ed. 1940), and 32A...
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