Poletti v. CIR

• Decision Date: 19 October 1965
• Docket Number: No. 17968.,17968.
• Citation: 351 F.2d 345
• Parties: Madyo A. POLETTI and Marian Poletti, Petitioners, v. COMMISSIONER OF INTERNAL REVENUE, Respondent.
• Court: U.S. Court of Appeals — Eighth Circuit

351 F.2d 345 (1965)

Madyo A. POLETTI and Marian Poletti, Petitioners, v. COMMISSIONER OF INTERNAL REVENUE, Respondent.

No. 17968.

United States Court of Appeals Eighth Circuit.

October 19, 1965.

Edward H. Tenney, Jr., of Tenney, Dahman & Mathewson, St. Louis, Mo., for petitioners.

Fred R. Becker, Asst. Atty. Gen., Dept. of Justice, Washington, D. C., John B. Jones, Jr., Acting Asst. Atty. Gen., Dept. of Justice, Washington, D. C., Lee A. Jackson, Harry Baum and J. Edward Shillingburg, Attorneys, Dept. of Justice, Washington, D. C., on the brief, for respondent.

Before MATTHES, RIDGE and GIBSON, Circuit Judges.

MATTHES, Circuit Judge.

For the second time this case is before us on a petition to review the Tax Court's determination of the income tax liability of petitioners for the years 1955, 1956 and 1957. The key issue in the first appeal was whether the Tax Court erred in failing to apply the Cohan rule¹ to a portion of the expenditures made by petitioners. We decided that issue in favor of petitioners and remanded, "for further proceedings consistent with this decision." Poletti v. C. I. R., 330 F.2d 818, 824 (1964). The purport and effect of that opinion is one of the issues in this proceeding.

Since the pertinent facts relating to the nature of petitioners' business, mode of operation, and general type of expenditures, claimed to be deductible as ordinary and necessary business expenses § 162(a), Internal Revenue Code, 1954, are adequately detailed in our first opinion, we forego further reference to those facts, except as necessary in connection with the issues now before us. However, the proceedings in the Tax Court on remand are relevant to the present controversy, and will be outlined.

The Tax Court ordered the case placed on the Washington, D. C. Calender of September 9, 1964, and directed the parties to submit recomputations consistent with this court's opinion, or to move with respect thereto. Both the Commissioner and petitioners complied by submitting proposed recomputations and supporting memoranda. Contemporaneous with the submission of their proposed recomputation, petitioners also filed an "alternative motion for appointment of Commissioner or for trial setting." In the motion, petitioners alleged that, unless respondent (Commissioner) "stipulates at least to those items so specifically proved heretofore, the trial of this cause will require many days in Court, and possibly weeks". On October 14, 1964, there was a hearing before the Tax Court (Honorable G. G. Withey), consisting primarily of an explanation by counsel for petitioners of their proposed recomputation. At the conclusion of the hearing, the Court announced that the motion for appointment of a Commissioner to hear evidence and for another trial was denied.²

In light of our first opinion, which held that the Cohan rule must be applied, the Commissioner proposed, in his recomputation, that the following method be employed to determine the deficiencies for the years in question: subtract from deductions claimed (a) the amounts for which no expenditures had been shown; (b) items expressly disallowed by the Tax Court which petitioners did not question on the first appeal; (c) an amount, for 1957, conceded by petitioners not to have been deductible; and (d) amounts stipulated by both parties to have been properly deducted. The Commissioner proposed that the Cohan rule then be applied to the balance, which would result in allowing fifty per cent of the remainder as deductions. The Tax Court adopted the Commissioner's proposal and applied the Cohan rule to claimed deductions amounting to $7,798.77, $11,603.55, and $29,493.47, for the years 1955, 1956 and 1957, respectively. Applying this method of computation, the Tax Court found deficiencies of $4,701.25, $7,229.55, and $19,345.35, plus additions, for those years; as compared to the Tax Court's previous findings of deficiencies amounting to $5,977.08, $10,456.40, and $24,537.14, plus additions.

Petitioners' motion for reconsideration was denied. This review proceeding followed.

Two basic points are presented for our determination: (1) whether petitioners were entitled, as a matter of right, on remand to offer evidence — that is, whether, under our prior opinion and mandate, the Tax Court was required to grant another hearing; and (2) whether, as petitioners contend, the Tax Court erred in failing to fully allow ordinary and necessary business expenditures "that were proved, by the evidence, and in applying, instead, the Cohan Rule * * *".

The question regarding the effect of our first opinion brings into play legal principles which are undisputed. The controversy emanates from disagreement as to meaning of our opinion; particularly, whether the opinion constituted a mandate to the Tax Court to hold another evidentiary hearing.

We start from the premise that an inferior court has no authority to deviate from the mandate issued by an appellate court. Briggs v. Pennsylvania R. Co., 334 U.S. 304, 306, 68 S.Ct. 1039, 92 L.Ed. 1403 (1948); Thornton v. Carter, 109 F.2d 316, 320 (8 Cir. 1940); Gunn v. United States, 283 F.2d 358, 361 (8 Cir. 1960); Paull v. Archer-Daniels-Midland Co., 313 F.2d 612, 617 (8 Cir. 1963).

In the Thornton case, supra, the controlling effect of the opinion and mandate of an appellate court was discussed, at some length, by the late Judge Sanborn, who stated in part:

"A mandate is completely controlling as to all matters within its compass, but on remand the trial court is free to pass upon any issue which was not expressly or impliedly disposed of on appeal. Since, however, a final judgment upon the merits concludes the parties as to all issues which were or could have been decided (Guettel v. United States, 8 Cir., 95 F.2d 229, 230, 118 A.L.R. 1060 and cases cited), it is obvious that such a judgment of this court on appeal puts all such issues out of the reach of the trial court on the remand of the case. That court is without power to do anything which is contrary to either the letter or spirit of the mandate construed in the light of the opinion of this court deciding the case." Id., 109 F.2d at 320.

See also, Herzberg's, Inc. v. Ocean Acc. & Guarantee Corp., 132 F.2d 438, 441 (8 Cir. 1943).

In our Gunn case, supra, in which the central issue was the effect of the opinion in our earlier case of Gunn v. C. I. R., 247 F.2d 359 (8 Cir. 1957), we recognized that legal propositions which an appellate court settles on appeal ordinarily cannot be questioned again, and that "this principle has been applied in tax litigation." (Citing cases) 283 F.2d, at 361. A corollary to the principle that a mandate is completely controlling as to all matters within its compass is the rule that, upon a reversal and remand for further consistent proceedings, the case goes back to the trial court for a new determination of the issues presented as though they had not been determined before, pursuant to the legal principles enunciated in the appellate court's opinion, which must be taken as the law of the case. United States v. Iriarte, 166 F.2d 800, 803 (1 Cir. 1948); Roth v. Hyer, 142 F.2d 227, 229 (5 Cir. 1944).

With these principles in mind we now determine just what was decided by this court in our disposition of the prior appeal.

Petitioners, in their first appeal, presented two basic contentions: (1) That the Tax Court erred in failing to allow deductions specifically proved, by their evidence, for the years 1955, 1956 and 1957; and (2) That, for the balance of the deductions held not to be fully proved, the Tax Court erred in failing to make allowances in the nature of approximations, under the rule of the Cohan case, for each of those years.

The Commissioner contended that petitioners failed to show that they were entitled to any deductions in excess of the amounts allowed by the Tax Court and, that there were no expenses with deductibility sufficiently shown to justify application of the Cohan rule.

With this...