Reed v. Commissioner of Internal Revenue
| Decision Date | 25 September 1928 |
| Docket Number | Docket No. 12499. |
| Citation | 13 BTA 513 |
| Parties | DAVID A. REED, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. |
| Court | U.S. Board of Tax Appeals |
Maynard Teall, Esq., for the petitioner.
P. S. Crewe, Esq., for the respondent.
This proceeding is for the redetermination of deficiencies in income tax for the years 1921 and 1922 in the amounts of $1,215.56 and $3,106.05, respectively. The issues are: (1) Whether respondent erred in adding to taxable income the amount of $2,500 received by the petitioner from the Commonwealth of Pennsylvania in 1921 as compensation for legal services, claimed by him to be nontaxable, and (2) whether respondent erred in disallowing deductions claimed by the petitioner as business expenses for 1922 in the amounts of $5,000 and $250, representing payments made by him in that year to the Republican State Committee of Pennsylvania and the Republican Committee of Allegheny County, Pennsylvania, respectively.
FINDINGS OF FACT.
The petitioner is an individual, having an office at 747 Union Trust Building, Pittsburgh, Pa., and during the years involved was an attorney and counselor at law actively engaged in the practice of his profession, being a member of the law firm of Reed, Smith, Shaw and Beal.
On the 20th day of June, 1919, the Governor of Pennsylvania approved a statute providing for a transfer inheritance tax upon direct and collateral inheritances, which statute is printed in Pennsylvania Pamphlet Laws, 1919, p. 521.
Almost immediately, questions arose as to the constitutional validity of provisions of that statute and as to the construction of the same or other provisions, which questions were of great importance to the Commonwealth of Pennsylvania from the standpoint of revenue for the maintenance of the State government. Judicial decisions involved, from the standpoint of said Commonwealth, much larger sums of money than were involved in particular cases in which such decisions were rendered, for the reason that in all probability such decisions would control cases and situations so long as said statute should remain in effect.
Among the earliest and most important cases involving said statute were Oliver's Estate, 273 Pa. 400; Kirkpatrick's Estate, 275 Pa. 271, and Frick's Estate, 277 Pa. 242, 268 U. S. 473.
On the first day of December, 1920, the petitioner, who was then and is now an attorney at law, was appointed Special Attorney for the Commonwealth of Pennsylvania and assigned to represent said Commonwealth in Frick's Estate, which cause was then in the court of first instance, to wit, the Orphan's Court of Allegheny County, Pennsylvania, and had not yet been tried.
On the 9th day of December, 1920, the petitioner was assigned the further duty of representing the Commonwealth of Pennsylvania in Oliver's Estate, which cause was then in said Orphan's Court of Allegheny County, Pennsylvania, and had not yet been tried.
Said appointment or designation of petitioner as Special Attorney for the Commonwealth of Pennsylvania in Frick's Estate was made by William I. Schaffer, then Attorney General of said Commonwealth, by telegram dated December 1, 1920, reading as follows:
HARRISBURG, PA., December 1. Major DAVID A. REED Union Arc Pgh Pa.
I have designated you as special counsel to represent the Commonwealth in the matter of the inheritance taxes due by the estate of Henry C. Frick.
WM. I. SCHAFFER, Atty. General.
On the same date, December 1, 1920, the petitioner sent the following telegram to said Attorney General:
Very glad to represent Commonwealth in inheritance tax matter against Frick estate and I appreciate the compliment of being selected by you.
Under date of December 9, 1920, the Attorney General of Pennsylvania, sent a letter to the petitioner reading as follows:
MY DEAR MAJOR REED: It gives me much pleasure to designate you as the Attorney to represent the Commonwealth of Pennsylvania in the matter of the taxes due the Commonwealth from the Estate of Edith Ann Oliver.
Yours sincerely (Signed) W. I. SCHAFFER Attorney General.
In 1921 George E. Alter succeeded William I. Schaffer as Attorney General of Pennsylvania, and thereupon petitioner tendered his resignation as Special Attorney, which resignation the new Attorney General declined to accept, and continued the petitioner's appointment as Special Attorney and his assignment to represent the Commonwealth of Pennsylvania in Frick's Estate and Oliver's Estate.
Oliver's Estate was finally decided by the Supreme Court of Pennsylvania in 1922 and Frick's Estate by the Supreme Court of the United States in June, 1925. The petitioner acted as Attorney for the Commonwealth of Pennsylvania until final disposition of both cases, in each instance representing said Commonwealth from the court of first instance to and through the court of final decision.
Kirkpatrick's Estate came on for argument in the Supreme Court of Pennsylvania prior to Frick's Estate, and involved one or more questions raised in the latter cause. The petitioner was not assigned duties in Kirkpatrick's Estate from its inception, but when said cause came on for argument in the Supreme Court of Pennsylvania, and because of the identity of one or more questions as aforesaid, the petitioner filed a brief and made an oral argument to the court, all with the prior approval of the Attorney General of the Commonwealth. Kirkpatrick's Estate was argued before and finally decided by the Supreme Court of Pennsylvania in 1922.
The petitioner acted as Special Attorney for the Commonwealth of Pennsylvania, representing said Commonwealth continuously in said beforementioned causes from December, 1920, to final decision of Frick's Estate in 1925.
On or about the first day of May, 1921, the Attorney General of Pennsylvania approved payment of the sum of $2,500 as compensation of the petitioner as Special Attorney for the Commonwealth of Pennsylvania up to that time, and shortly thereafter and during the year 1921 said sum was paid to the petitioner out of moneys of said Commonwealth.
Payment of said compensation was made pursuant to a statement of account rendered by the petitioner as follows:
Original
MAY 1st, 1921
COMMONWEALTH OF PENNSYLVANIA
to
DAVID A. REED, DR
------------------------------------------------------------------------
On Account:
FOR PROFESSIONAL SERVICES,
In the cases of Inheritance Tax claims against Estate of Edith
Anne Oliver and Estate of Henry C. Frick ___________________ $2,500
Under date of July 14, 1921, a "Direct Requisition" was made for the settlement and payment of said account as follows:
DIRECT REQUISITION
HARRISBURG, PA. July 14, 1921. To the AUDITOR GENERAL, Commonwealth of Pennsylvania.
On account of the Commonwealth of Pennsylvania, Department of Attorney General, please settle and authorize payment of the individual items as listed below, on account of necessary expenditures, as per duly approved accounts payable herewith. Charge —
$2500.00 to appropriation for payment of services and expenses of attorneys to be employed to * * * assist in the prosecution of claims in which the Commonwealth is interested, etc., per Act July 16, 1919, # 42-A.
I certify that the within account is true and correct, that the materials, services and expenses were actually and necessarily purchased, rendered and incurred for the use of the Commonwealth of Pennsylvania, and the prices charged therefor are fair and reasonable.
Name (Sgd) GEORGE ROSS HULL, Title Deputy Attorney General.
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No. of | To whom payable | Address | Amount | Tota
voucher | | | |
---------|--------------------------|------------------------------------------|----------|-----------
| David A. Reed. Esq _____ | 747 Union Arcade, Pittsburgh, Pa _______ | ________ | $2,500.00
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The amount of $2,500, received from the Commonwealth of Pennsylvania in 1921, was a very small fraction of the petitioner's earnings in that year from the practice of his profession as a member of the partnership of Reed, Smith, Shaw & Beal. During the period involved in this proceeding, the petitioner did not devote his time exclusively to the Commonwealth of Pennsylvania. During the time he was performing legal services for said Commonwealth he was also performing legal services for various other clients.
In Oliver's Estate, above mentioned, the brief filed by the Commonwealth of Pennsylvania was approved by and had the name of the Attorney General upon it. The Attorney General was present but did not participate in the oral argument before the Supreme Court in Kirkpatrick's Estate, which involved at least one question likewise involved in Frick's Estate. After previous consultation with and authority from the Attorney General, the petitioner herein filed a brief as amicus curiae in Kirkpatrick's Estate, apprehending a decision that might be controlling in Frick's Estate. The Attorney General was present when the argument in that case was made. In Frick's Estate, the Attorney General participated with the petitioner herein in preparation of the argument, both before the Orphan's Court and the Supreme Court, and also participated with him in the oral argument before both courts.
During the pendency of the litigation in which the petitioner herein was acting in the interest of the Commonwealth of Pennsylvania, he was in frequent communication with the Attorney General by letter, orally, and by telephone in regard to the several cases, and no important...
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