Parkford v. Commissioner of Internal Revenue

• Decision Date: 03 May 1943
• Docket Number: No. 10132.,10132.
• Citation: 133 F.2d 249
• Parties: PARKFORD v. COMMISSIONER OF INTERNAL REVENUE.
• Court: U.S. Court of Appeals — Ninth Circuit

133 F.2d 249 (1943)

PARKFORD v. COMMISSIONER OF INTERNAL REVENUE.

No. 10132.

Circuit Court of Appeals, Ninth Circuit.

January 19, 1943.

Rehearing Denied February 16, 1943.

Writ of Certiorari Denied May 3, 1943.

Willard L. Ellis and Louis H. Brownstone, both of San Francisco, Cal., for petitioner.

Samuel O. Clark, Jr., Asst. Atty. Gen., and Sewall Key, J. Louis Monarch, and Carlton Fox, Sp. Assts. to Atty. Gen., for respondent.

Before MATHEWS, STEPHENS, and HEALY, Circuit Judges.

Writ of Certiorari Denied May 3, 1943. See 63 S.Ct. 1029, 87 L.Ed. ___.

HEALY, Circuit Judge.

The petition is for review of a decision of the Board of Tax Appeals. It involves an asserted deficiency in income taxes for the year 1936.¹

Two main questions are presented, (1) whether a contingent fee of the taxpayer for personal services, paid to and received by his trustee in bankruptcy in 1936, was accruable by the taxpayer as income in that year or in the previous year, 1935; and (2) whether a like fee, accruing after bankruptcy and paid to the trustee in 1936, was or was not income to the taxpayer.

1. In 1935 the taxpayer was employed by the president of Universal Consolidated Oil Company to negotiate settlement of a controversy between minority stockholders of Universal and the receiver of the Richfield Oil Company, which was in federal equity receivership. The purpose of the employment was to obtain 186,788 shares of Universal stock held by a bank as trustee for the bondholders of Richfield, and 1,000 shares held by the receiver of Richfield Taxpayer's compensation was contingent. He was to receive 9,000 shares of the stock in the event the proposed settlement was effected. In November 1935 the receiver agreed with Universal's president to surrender the shares in return for certain property and money. The agreement was made subject to the approval of the United States Court in which the Richfield receivership was pending. On December 23, 1935, the stockholders of Universal met and ratified the settlement, together with the arrangement for taxpayer's compensation in effecting it. On January 15, 1936, the receivership court confirmed and approved the settlement with certain modifications.

On January 24, 1936, an involuntary petition was filed against the taxpayer and he was adjudged a bankrupt on February 14 following. In March of that year a trustee was appointed with authority to conduct the taxpayer's business.² On petition of the trustee the court ordered Universal to deliver directly to the trustee the shares of Universal to which the taxpayer had become entitled as compensation for his services aforesaid. Later in the year the trustee sold the stock. None of the shares nor the proceeds derived from their sale was at any time received by the taxpayer personally. Their fair market value on January 15, 1936, was $48,000.

Taxpayer kept his accounts and made his returns on the accrual basis. Neither in his return for 1935 nor 1936 did he include or account for these shares as income. The Commissioner determined, and the Board held, that the shares accrued to him as income on January 15, 1936, the date upon which the order of the court in the Richfield equity proceeding was entered approving the compromise. The taxpayer denies that the shares accrued to him as income at all, and contends further, that if they did accrue to him as income the accrual was in December 1935, when the stockholders of Universal approved the agreement in respect of his compensation.

We think the taxpayer is wrong on both counts. His first contention will be considered under the subsequent heading relative to the fee admittedly accruing in 1936. As to the second, his right to receive the stock became fixed only upon the approval by the court of the settlement agreement between the receiver and Universal. Cf. H. Liebes & Co. v. Commissioner, 9 Cir., 90 F.2d 932. The proceeds of the settlement were not available to Universal, in law or otherwise, prior to the confirmation by the receivership court. Cf. North American Oil Consolidated v. Burnet, 286 U.S. 417, 423, 52 S.Ct. 613, 76 L.Ed. 1197. The shares which the taxpayer was to have were part of the block of Universal stock in the hands of the receiver and the trustee bank; and taxpayer's right to demand them was contingent on the approval of the receiver's agreement under which they were to be turned over to Universal. The Board so found 2. In 1935 the taxpayer was employed to negotiate settlement of a controversy between Associated Oil Company and one Guiberson, it being agreed that he should receive 10% of the amount paid if settlement were effected. Taxpayer's services began in September 1935 and continued until February 7, 1936, part of the services being rendered before and part after the filing of the petition in bankruptcy. The negotiations culminated in a settlement for $150,000, so the taxpayer became entitled to receive $15,000.

The trustee in bankruptcy claimed the whole fee, and the amount was thereupon deposited in escrow. After a hearing in the bankruptcy court, a compromise between the taxpayer and the trustee was...