Pope v. Commissioner of Internal Revenue

• Decision Date: 06 December 1943
• Docket Number: No. 9476.,9476.
• Parties: POPE v. COMMISSIONER OF INTERNAL REVENUE.
• Court: U.S. Court of Appeals — Sixth Circuit

138 F.2d 1006 (1943)

POPE v. COMMISSIONER OF INTERNAL REVENUE.

No. 9476.

Circuit Court of Appeals, Sixth Circuit.

December 6, 1943.

Whitworth Stokes, of Nashville, Tenn., for petitioner.

James P. Garland, of Washington, D. C. (Samuel O. Clark, Jr., Sewall Key, J. Louis Monarch, and Helen Goodner, all of Washington, D. C., on the brief), for respondent.

Before ALLEN, HAMILTON, and MARTIN, Circuit Judges.

HAMILTON, Circuit Judge.

On March 4, 1937, the General Assembly of the State of Tennessee passed a Public Act, which was approved by the Governor on March 5, 1937, being Ch. 112 of the Public Acts of 1937, providing for and directing an investigation of the different State Departments, Divisions, Sub-Divisions, Institutions, Offices and Officers, Employees and Agents, Contracts, Purchases and Sales of the State of Tennessee, the collection of taxes, the receipts and the expenditures thereof, and the acts of anyone who occupied or formerly occupied any position with the State, or where the State was in any way affected; and, to make effective this investigation, the Act authorized and empowered the Governor to appoint a lawyer who was to have control, supervision and direction of said investigation, and who was to be of good character and licensed by the State of Tennessee, having a wide experience in the practice of law and in governmental affairs, and who was reasonably well-acquainted with the matters to be investigated. The Act set out the manner in which the investigation should be conducted, giving to the investigator authority to appoint assistants and aides. It was also provided that the lawyer take an oath, the form of which was prescribed, and he was authorized to issue subpoenas for witnesses and to administer oaths, and to compel the attendance of witnesses; and witnesses swearing falsely were guilty of perjury or subornation of perjury. The lawyer was also given authority to issue attachments for witnesses and to make appointments of Sergeant-at-Arms. The Act provided that compensation should be paid to witnesses for their attendance.

It was also made the duty of the investigator to report discovered violations of law to the Prosecuting Attorneys of the State and to aid and assist them in the trial of these cases. An appropriation was made in the Act of $50,000 to be used for the cost of the investigation, payments to be made by vouchers approved by the investigator and the Governor of the State.

It was the duty of the investigator to collect all delinquent taxes, and any other amounts found to be due the State resulting from the investigation. He was also authorized to bring suits in the name of the State to collect discovered delinquencies and to take charge of suits then pending in the courts for the collection of any and all taxes due the State, except property taxes, and was given the power to dismiss any suits pending upon the approval of the Governor.

The Governor was authorized to appoint the investigator and determine his compensation by a written contract, which compensation could be either certain or contingent. The tenure of the investigator expired at the end of two years by operation of law. There were a number of other provisions in the Act not important here.

The Governor of Tennessee on March 13, 1937, appointed petitioner to conduct the investigations and on March 20, 1937, petitioner executed the oath required under the Act. The Governor and the petitioner entered into two written contracts, each dated June 18, 1937. In one it was agreed that petitioner was to be paid $10,000 retainer for the purpose of initiating and conducting the investigations authorized by the Act, other compensation, if any, to be determined subsequently. In the other, petitioner was employed as special investigator and lawyer to represent the State in the collection of all delinquent taxes excluding property taxes. Petitioner's compensation for this service was contingent, providing for a percentage of the amounts collected ranging from ten to forty percent depending on factors of no importance to the present issue.

Petitioner opened an office and employed the necessary assistants, as provided under the Act. He fully discharged all duties imposed on him. The total cost of the investigations was approximately $22,500, $10,000 of which was the retainer paid petitioner and was his total compensation for that branch of the work. Approximately five thousand items of tax delinquencies were prosecuted to final settlement by petitioner out of which the State realized $156,000 and pursuant to the terms of petitioner's contract, he was paid for these services $34,057.70. Out of this sum he paid the expenses incident to his office and the salaries and fees of assistants. During the calendar year 1937, petitioner received net from the State of Tennessee for his services $13,431.81 and for the year 1938, $10,930.94. Petitioner reported neither of these sums in his income tax return for the years in question on the ground that they were received by him as compensation for personal services as an officer or employee of the State of Tennessee and exempt from tax under the Public Salary Tax Act of 1939, C. 59, 53 Stat. 574-577, 26 U.S.C.A. Internal Revenue Acts, p. 1163, 26 U.S.C.A. Int.Rev.Code, § 22 and § 22 note. The Commissioner included these sums in petitioner's gross income and on appeal was sustained by the United States Tax Court.

During the period here in question, petitioner maintained a separate and private law office, and completed unfinished cases, but took no new ones until after his contract with the State expired. During the taxable year 1937, petitioner received from private practice $5,600.00 and for the calendar year 1938 he received $5,622,00.

The question we have here for decision is whether petitioner was an officer or employee of the State of Tennessee as the term "officer or employee of a State" is used in the Public Salary Tax Act of 1939, the exact language of which is found in the margin.¹

With the passing of intergovernmental tax immunity, from which was derived the tax exemption of state officers and employees, the Congress passed the Public Salary Tax Act of 1939. By the enactment of Sections 201, 202 and 203, of this Act, it was intended to relieve from retroactive assessment that class of public officials and employees who had been included within the taxing statutes by the decisions of the Supreme Court in Helvering v. Therrell, 303 U.S. 218, 58 S.Ct. 539, 82 L.Ed. 758; Helvering v. Gerhardt, 304 U.S. 405, 58 S.Ct. 969, 82 L.Ed. 1427, and Graves v. People of State of New York ex rel. O'Keefe, 306 U.S. 466, 59 S.Ct. 595, 83 L.Ed. 927, 120 A.L.R. 1466. (Senate Finance Committee Report 112, 76th Cong. 1st Sess.) (Conference Report No. 390, 76th Cong. 1st Sess.) The pronouncements of the Supreme Court in Metcalf & Eddy v. Mitchell, Adm'x, 269 U.S. 514, 46 S.Ct. 172, 70 L.Ed. 384, were in no way impaired by the act. In the Mitchell case, the Supreme Court decided that a consulting engineer engaged as such by a state or its local subdivision for work not permanent or continuous in character on public water supply and sewage disposal projects whose duties were described by contract and who took no oath of office and was free to accept other employment, was neither an officer nor employee of a state or local government but was an independent contractor.

The words "officer or employee" used in the present statute are to be applied in their technical sense. They were intended to describe the conventional relationship of state or local government and officials or employees. Common use regulates the meaning of words in their broad application, but their precise signification is sometimes difficult when applied to complex relationships. The rule established in Metcalf & Eddy v. Mitchell, supra, has been applied in many situations in which the courts have held that compensation received in the service of a state or its political subdivision, was subject to federal income tax on the ground that the person receiving it was an independent contractor. See footnote.² In many other situations, the courts have applied the definition of an officer or employee enunciated in the Metcalf case as exempting compensation received in the service of a state or its political subdivision from federal income tax on the ground that the person receiving it was an officer or employee. See footnote.³ These variant cases are set in their inexplicable web of facts and it would serve no useful purpose to dissect them for their probable bearing on the issue here.

In the broadest sense, an office is the right to exercise public employment and to take fees or emoluments thereunto belonging. It may be said that every one who is appointed to discharge a public duty and who receives compensation in whatever shape — whether from the state or otherwise — is a public officer. The substance of the powers exercised and the nature of the duties imposed make the office and not the extent of the authority. A person may be a public officer although his duties are confined to narrow limits and his period of tenure brief if his duties are those to which a portion of the time being. Giving the word "office" the sovereignty of the state attaches for its technical qualities, five elements would seem indispensible in order to make a public office of a civil nature. (1) It must be created by the Constitution or the Legislature, or by a municipality or other body with authority conferred by the Legislature. (2)...