Sager Glove Corporation v. CIR
| Decision Date | 17 December 1962 |
| Docket Number | No. 13776.,13776. |
| Citation | 311 F.2d 210 |
| Parties | SAGER GLOVE CORPORATION, Petitioner, v. COMMISSIONER OF INTERNAL REVENUE, Respondent. |
| Court | U.S. Court of Appeals — Seventh Circuit |
Llewellyn A. Luce, Washington, D. C., Warren Roberts, Wilmington, Del., for petitioner.
Louis F. Oberdorfer, Asst. Atty. Gen., Arthur I. Gould, Atty. Tax Division, Lee A. Jackson, David O. Walter, Morton K. Rothschild, Attys. Dept. of Justice, Washington, D. C., for respondent.
Before SCHNACKENBERG, KILEY and SWYGERT, Circuit Judges.
This is an appeal from a decision of the Tax Court, 36 T.C. 1173 (1961), sustaining a deficiency assessment against petitioner in the amount of $167,735.33 for the taxable year 1951.
The facts are set out at length in the Tax Court opinion and will not be repeated here. In summary, petitioner instituted suit under the federal antitrust laws against certain optical companies. The amended complaint in that suit listed nine different elements of damages including three recitals of loss of profits stemming from the wrongful acts alleged. The jury returned a verdict for petitioner in the amount of $325,000, and the court awarded triple this amount together with costs and charges, and attorneys' fees of $132,000. A motion for a new trial was granted, but the parties compromised their differences out of court — the petitioner receiving $478,142 in settlement, of which $132,000 was designated as attorneys' fees. No mention was made as to the proper allocation of the remainder. In its tax return for 1951 the petitioner reported one-third of $478,142, or $159,380, as ordinary income; it reported the balance, $318,762, as nontaxable income with the explanation that it represented punitive damages awarded in the antitrust suit.
In 1955, the United States Supreme Court ruled that the punitive two-thirds portion of a treble-damage antitrust recovery constituted taxable income under Section 22(a) of the Internal Revenue Code of 1939. Commissioner v. Glenshaw Glass Co., 348 U.S. 426, 75 S.Ct. 473, 99 L.Ed. 483. This ruling destroyed the basis for petitioner's claims in its 1951 return. In the instant Tax Court proceeding the petitioner took the position that, except for the $132,000 attorneys' fees included in the settlement, the remainder, or $346,142, consists of nontaxable return of capital.
The Commissioner concluded and the Tax Court agreed that the $346,142 remaining after deducting attorneys' fees constitutes reimbursement for lost profits. If this determination as to the nature of the recovery is sound, the Commissioner's conclusion that it is taxable income is correct. Carter's Estate v. Commissioner, 298 F.2d 192 (8th Cir.1962), cert. denied, 370 U.S. 910, 82 S.Ct. 1257, 8 L.Ed.2d 404 (1962). The Commissioner's determination has the support of a presumption of correctness and the taxpayer has the burden of proving it to be wrong. Welch v. Helvering, 290 U.S. 111, 54 S.Ct. 8, 78 L.Ed. 212 (1933). A mere allegation of damages to "good will" does not meet that burden. Carter's Estate v. Commissioner, supra.
The Tax Court considered all the evidence presented to it. It noted particularly the fact that the settlement amount, after deducting attorneys' fees, was within $10.00 of the amount that Sager, petitioner's president, had claimed in the antitrust proceeding to be lost profits for the period January 1, 1936, through December 31, 1943.1 It also considered Sager's testimony in the instant case that the petitioner had invested some $50,000 in the destroyed business and that it valued the patronage and goodwill lost at $500,000. The Commissioner was not required to accept these estimates, made in a self-serving context, as conclusive of the issue. Furthermore, he was not required to give undue weight to the many allegations in the antitrust complaint regarding injury to business and goodwill when the evidence supports rather pointedly a reimbursement-for-lost-profits determination.
In order to carry its burden of proof, petitioner must do more than merely claim alternative designations for what it recovered — it must prove a designation so that some orderly tax treatment may be accorded it. The evidence adduced by petitioner is wanting in this respect. A conclusion made by taxpayer that the settlement payment was for destroyed capital or that goodwill was worth $500,000, or that $50,000 was invested in the business, is not that degree of proof necessary to overcome the presumptive correctness of the Commissioner's determination as a matter of law. Particularly is this so in view of the substantial evidence that supports the Commissioner's finding that only lost profits were accounted for in the settlement.
Petitioner relies heavily on the decision in ...
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