Reed v. Commissioner of Internal Revenue, 4019.
| Decision Date | 25 July 1929 |
| Docket Number | No. 4019.,4019. |
| Citation | 34 F.2d 263 |
| Parties | REED v. COMMISSIONER OF INTERNAL REVENUE. |
| Court | U.S. Court of Appeals — Third Circuit |
Maynard Teall and Smith, Shaw, McClay & Seifert, all of Pittsburgh, Pa., for petitioner.
Mabel Walker Willebrandt, Asst. Atty. Gen., and Sewall Key and Randolph C. Shaw, Sp. Assts. to the Atty. Gen. (C. M. Charest, Gen. Counsel, and Shelby S. Faulkner, Sp. Atty., Bureau of Internal Revenue, both of Washington, D. C., of counsel), for respondent.
Before BUFFINGTON, WOOLLEY, and DAVIS, Circuit Judges.
In its general appropriation act of 1919 for the two fiscal years beginning June 1, 1919, the commonwealth of Pennsylvania set apart certain funds for "the services and expenses of attorneys to be employed to assist in cases and the prosecution of claims in which the commonwealth is interested." Appropriation Acts Pa. 1919, No. 42A, p. 39.
In pursuance thereof the Attorney General of Pennsylvania, by telegram of December 1, 1920, employed David A. Reed, an attorney at law and the taxpayer in this case, in these words: "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." By answering telegram of same day, Reed accepted the employment. By letter of same date the Attorney General appointed him to also represent the commonwealth in the estate of Edith Ann Oliver. Both of these cases were in courts far distant from the capital of the state, but in the county where Maj. Reed resided. In pursuance of this employment the latter thereafter represented the commonwealth in state and federal courts in the suits growing out of the said estates. On May 1, 1921, the Attorney General, in pursuance of the recited statutory authority, issued to Maj. Reed a warrant in payment of his services, which stated: "$2,500.00 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, No. 42A."
In his tax return for 1921 Maj. Reed treated as nontaxable income the above-mentioned amount of $2,500 received by him from the commonwealth of Pennsylvania as compensation for legal services. Upon audit of the return the Commissioner included said amount as taxable income and computed the deficiency thereby resulting, and held such sum was subject to income tax. Thereupon the taxpayer took this appeal.
After argument and due consideration had, we are of opinion that money so paid by the commonwealth to Maj. Reed was not taxable as income by reason of the exemption stated in section 1211 of the Revenue Act of 1926 (26 USCA § 1065b), the pertinent part of which provides: "Any taxes imposed by the Revenue Act of 1924 or prior revenue acts upon any individual in respect of amounts received by him as compensation for personal...
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