Midwest Motor Express v. Commissioner of Int. Rev.

• Decision Date: 16 April 1958
• Docket Number: No. 15793.,15793.
• Citation: 251 F.2d 405
• Parties: MIDWEST MOTOR EXPRESS, Inc., Petitioner, v. COMMISSIONER OF INTERNAL REVENUE, Respondent.
• Court: U.S. Court of Appeals — Eighth Circuit

251 F.2d 405 (1958)

MIDWEST MOTOR EXPRESS, Inc., Petitioner, v. COMMISSIONER OF INTERNAL REVENUE, Respondent.

No. 15793.

United States Court of Appeals Eighth Circuit.

January 15, 1958.

Rehearing Denied April 16, 1958.

Joseph A. Maun, St. Paul, Minn. (William R. Busch, and Bundlie, Kelley & Maun, St. Paul, Minn., on the brief), for petitioner.

Morton K. Rothschild, Atty., Dept. of Justice, Washington, D. C. (John N. Stull, Acting Asst. Atty. Gen., and Lee A. Jackson and Melva M. Graney, Attys., Dept. of Justice, Washington, D. C., on the brief), for respondent.

Robert G. May, Brent O. Stordahl, Nils A. Boe, Sioux Falls, S. D., and Hoyt Crooks, St. Paul, Minn., amici curiae.

Before GARDNER, Chief Judge, and WOODROUGH and VOGEL, Circuit Judges.

VOGEL, Circuit Judge.

Petitioner, a North Dakota corporation, is and, at all times pertinent hereto, was engaged in business as a Class I common carrier of property by motor vehicle in interstate commerce. Prior to August 11, 1944, and during the prosecution of World War II, petitioner and approximately 100 other associated midwestern motor carriers were operating under substantially similar contracts with an over-the-road drivers union. An impasse in wage negotiations ultimately resulted in a determination by the National War Labor Board that wage rates should be increased. Petitioner and numerous other associated carriers concluded that they could not afford the increase and in August, 1944, their drivers went out on strike. In order to avoid hampering of the war effort and to keep the transportation systems in operation, the President by Executive Order on August 11, 1944, No. 9462, U.S.Code Cong.Service 1944, p. 1496, seized possession and control of the transportation systems and other properties used therewith and owned by the associated midwestern motor carriers, including those of petitioner herein. The seizure was through the Director of the Office of Defense Transportation. The Executive Order provided:

"2. Subject to the applicable provisions of existing law, including the orders of the Office of Defense Transportation, issued pursuant to Executive Orders 8989, as amended, 9156 and 9294, the said transportation systems shall be managed and operated under the terms and conditions of employment in effect between the carriers and the collective bargaining agents at the time possession is taken under this order. During his operation of said transportation systems the Director shall observe the terms and conditions of the directive order of the National War Labor Board, dated February 7, 1944; provided, however, that in the case of each said transportation system the Director is authorized to pay the wage increases provided for by the said directive order of the National War Labor Board, which accrued prior to the taking of possession of said system under this order, only out of the net operating revenue of the said system."

The Executive Order further provided:

"4. Possession, control, and operation * * * shall be terminated by the Director when he determines that such possession, control, and operation are no longer necessary for the successful prosecution of the war."

Operations Order No. 1 provided, among other things:

"Title to the properties and other assets of which possession has been taken remains in the owners thereof. Possession by the United States is not exclusive, and the United States asserts, and will assert, only such control over the properties in its limited possession as may be necessary to accomplish the purposes of operation and of said Executive Order." (Emphasis supplied.)

Such possession and control of petitioner's transportation system and property were terminated on September 28, 1945. Efforts by the owners at obtaining just compensation for the assumption of possession and control by the government ultimately resulted in the Congress creating a Motor Carrier Claims Commission to hear and determine all claims. Act of Congress of July 2, 1948 (62 Stat. 1222). The Act establishing the commission provided in part:

"Sec. 2. The Commission shall hear and determine, according to law, existing claims against the United States arising out of the taking by the United States of possession or control of any of the motor-carrier transportation systems * * *."

* * * * *

"Sec. 6. The Commission shall receive claims for a period of six months after the date of enactment of this Act, and not thereafter. The jurisdiction of the Commission over claims presented to it as provided in section 2 of this Act shall be exclusive; but nothing in this Act shall prevent any person who does not elect to present his claim to the Commission from pursuing any other remedy available to him." (Emphasis supplied.)

The Act also provided that the Commission's determination should be subject to review in the same manner as is provided for cases in the Court of Claims upon application to the Supreme Court within three months from the date of filing of such determination.

On March 27, 1950, the petitioner herein filed a claim with the Motor Carrier Claims Commission for $196,019.49. Petitioner computed such amount due on the basis of what it believed to be the rental value of its properties during the period of government control. On May 19, 1952, the Commission made its determination that the United States was indebted to the taxpayer for $44,054.34, which amount was based on net rental value. During the period the petitioner's properties were under control of the government an operating profit of $21,012.57 was made and left with the business. The Commission found that the government was entitled to a credit of such amount, leaving a net of $23,041.77 plus "* * * a sum equivalent to interest at 4% per annum on the sum of $23,041.77 from September 28, 1945, to date of payment, said sum also being a part of just compensation". Such item was computed to be $6,282.97, so that petitioner received a total of $29,324.74 from the United States during the year 1952 based upon the Commission's award. In its income tax return for the calendar year 1952 the petitioner disclosed the facts surrounding the receipt of the award but did not include any part thereof as taxable income.

The Commissioner, in determining a deficiency, concluded that the entire amount of the award was taxable income in the year 1952. The Tax Court (27 T.C. 167) held with the Commissioner, deciding that the petitioner's right to receive the award and the amount of the award were not fixed with reasonable certainty at any time prior to 1952 and accordingly the award was income during such year and, further, that the taxpayer was not entitled to treat the award as capital gain under Section 117(j) of the Internal Revenue Code of 1939, as amended, 26 U.S.C.A., because the award was not an involuntary conversion payment but ordinary income within the meaning of Section 22(a) of the 1939 Code, 26 U.S.C.A.

Petitioner asserts in this court:

"I. The Tax Court\'s decision that the sum of $29,324.74 received from the United States Government in 1952 by petitioner, an accrual basis taxpayer, as the result of an award made by the Motor Carrier Claims Commission, on account of the seizure of petitioner\'s motor carrier system in 1944, is reportable as income in the year 1952 is clearly erroneous and without support in the evidence.

"II. The Tax Court\'s decision that petitioner was not entitled to treat said award, made by the United States Government on account of its seizure of taxpayer\'s business, as an amount received upon the involuntary conversion of property as a result of the exercise of the power of requisition or condemnation as provided in Section 117(j) of the Internal Revenue Code of 1939 is clearly erroneous and without support in the evidence.

"A. The holding of the Motor Carrier Claims Commission that petitioner\'s property was taken for public use by the United States is res judicata for the purpose of determining the existence of an involuntary conversion of property under exercise of the power of condemnation within the meaning of Section 117(j).

"B. In the event that this Court decides the res judicata rule does not apply, the statute requires a finding of an involuntary conversion of property under the exercise of the power of condemnation within the meaning of Section 117(j).

"C. The facts here are such that all of the requirements of Section 117(j) are fulfilled."

We consider first the question of whether or not the Tax Court's determination that the award accrued in 1952 was correct. Petitioner here filed its income tax returns for calendar years and on an accrual basis. Section 41 of the Internal Revenue Code of 1939, 26 U.S.C.A., provides that the net income shall be computed upon the basis of the taxpayer's annual accounting period in accordance with the method of accounting regularly employed in keeping the books of such taxpayer. Section 42 provides that the amount of all items of gross income shall be included in the gross income for the taxable year in which received by the taxpayer unless under methods of accounting permitted under Section 41 any such amounts are to be properly accounted for as of a different period. The petitioner here having filed its returns and kept its books on an accrual basis, the question is whether the award from the Motor Carrier Claims Commission accrued in 1952 as the Tax Court determined or in some earlier year, as contended by petitioner.

Petitioner's transportation system was operated under government control from August 11, 1944, to September 28, 1945. During that period a profit of $21,012.57 was realized. This was retained in the business and not taken by the government. Upon release of the petitioner from federal control, it made efforts to obtain additional compensation from the Office of Defense Transportation, which denied liability therefor. Subsequently, private relief bills were introduced in both houses of Congress. In 1948, on July...