O'LAUGHLIN v. Helvering, 6494.

• Decision Date: 16 December 1935
• Docket Number: No. 6494.,6494.
• Citation: 65 App. DC 135,81 F.2d 269
• Parties: O'LAUGHLIN v. HELVERING, Com'r of Internal Revenue.
• Court: U.S. Court of Appeals — District of Columbia Circuit

65 App. DC 135, 81 F.2d 269 (1935)

O'LAUGHLIN v. HELVERING, Com'r of Internal Revenue.

No. 6494.

United States Court of Appeals for the District of Columbia.

Argued November 8, 1935.

Decided December 16, 1935.

Laurence Graves, of Washington, D. C., for petitioner.

Frank J. Wideman, Asst. Atty. Gen., and Robert H. Jackson, Nathan Gammon, Sewall Key, John MacC. Hudson, and Harry Marselli, all of Washington, D. C., for respondent.

Before MARTIN, Chief Justice, and ROBB, VAN ORSDEL, GRONER, and STEPHENS, Associate Justices.

GRONER, Associate Justice.

In 1927 and 1928 Central Lime & Cement Company, an Illinois corporation, was in the business of selling building and paving materials in the city of Chicago and in fifty or sixty towns and villages in Cook county, Ill. Petitioner was its secretary.

In February, 1927, the board of directors of the corporation adopted the following resolution:

"Resolved, That an amount equivalent to one-fourth of one percent of the total sales for the year 1927 be appropriated to be used in payment of commissions on various sales made by individuals other than the company's regular salemen.

"Resolved further, That the treasurer be authorized to have checks drawn from time to time during the year to * * * Charles J. O'Laughlin (petitioner) who will in turn make payments to the proper parties in connection with each sale."

In February, 1928, a similar resolution was adopted.

Under these resolutions the corporation paid to petitioner $19,438.76 in 1927 and $48,165.41 in 1928. The corporation carried those amounts in a commission account, and they were treated as payments of commissions to petitioner.

In his income tax returns for 1927 and 1928 petitioner included, as commissions received by him, the sums of money mentioned above (in addition to his salary from the corporation) and he claimed these same amounts as deductions for "commissions paid out." He explained the deductions in his returns as money disbursed to cover commissions to various individuals for business secured for the corporation. The Commissioner disallowed the deductions, saying that no data had been produced in support of the payments as claimed. The Board of Tax Appeals approved.

The ground of appeal is that the Board erred in not holding that the money received by petitioner was the property of the corporation and was received and disbursed by him on behalf of or as agent of the corporation.

In the argument and in the brief we are told that at the hearing petitioner showed by his uncontradicted evidence that, after receiving from the corporation money due to others, he duly paid the same to persons entitled to receive it and retained none of it himself; and consequently that he realized no gain or profit or income as a result of handling the money, and was merely the conduit through which payments passed from the corporation to the persons entitled thereto.

The Commissioner relies upon the presumption of correctness which attaches to his determinations and insists that petitioner has introduced no evidence sufficient to overcome it. The question for decision, therefore, is: Did the Board err in disregarding petitioner's testimony?

The income tax statute defines gross income to include "gains, profits, and income derived from salaries, wages, or compensation for personal service, of whatever kind and in whatever form paid." Revenue Act 1928, § 22 (a), c. 852, 45 Stat. 791, 797, 26 U.S.C.A. § 22 and note.

We start out, then, with the admission by petitioner that he did receive the money, and our next step is to determine whether the evidence convincingly shows that he received it as agent and disbursed it in accordance with the resolutions of the corporation. These, as we have seen, appropriated the money "in payment of commissions"; and petitioner in his tax return says he disbursed it as commissions, but in his testimony to the Board he says he donated some of it to Christmas basket funds, some to labor unions, some for admission tickets to prize fights, football games, and banquets, and the most of it to political organizations for campaign purposes. He told the Board that the year 1928 "was a heavy election year. Everybody felt they were entitled to ask us for fifty, two hundred or five hundred dollars, depending on what position they were running for, what position they were out to be elected for"; and it was necessary in the operation of the business to "go along with them." For prize fights, and for football games, he would buy a block of tickets "and send two to one person, four to another, and so on." When a ward of a city had a dance, petitioner would subscribe $100 or $200 for an advertisement in the program. But that he kept no record of any expenditure; that he did not know to whom he made any of...