United States v. Sampsell, 14569.

• Decision Date: 11 August 1955
• Docket Number: No. 14569.,14569.
• Citation: 224 F.2d 721
• Parties: UNITED STATES of America, Appellant, v. Paul W. SAMPSELL, Trustee in Bankruptcy for the Estate of F. P. Newport Corporation, Ltd., Bankrupt, Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

224 F.2d 721 (1955)

UNITED STATES of America, Appellant, v. Paul W. SAMPSELL, Trustee in Bankruptcy for the Estate of F. P. Newport Corporation, Ltd., Bankrupt, Appellee.

No. 14569.

United States Court of Appeals Ninth Circuit.

August 11, 1955.

H. Brian Holland, Asst. Atty. Gen., Grant W. Wiprud, Ellis N. Slack, A. F. Prescott, Sp. Assts. to Atty. Gen., Laughlin E. Waters, U. S. Atty., Edward R. McHale, Asst. U. S. Atty., Los Angeles, Cal., for petitioner.

Norman A. Bailie, George Bouchard, Los Angeles, Cal., for respondent.

Before STEPHENS, ORR and CHAMBERS, Circuit Judges.

ORR, Circuit Judge.

The United States of America, hereafter Government, has demanded payment of income taxes from Trustee Sampsell on income alleged to have been received by the bankrupt estate from May 26, 1952, to January 1, 1953. The Government duly filed its claim asserting a deficiency. The trustee filed objections and the referee in bankruptcy entered an order disallowing the claim. The Government petitioned the United States District Court for review. The order of the referee was confirmed. The cause was submitted on a stipulation of facts.

This is not the first time the trustee has been in disagreement with the Government over liability of the bankrupt estate for income taxes. The trustee challenged the right of the Government to collect taxes for the years 1938 and 1939. Litigation ensued and culminated in a decision of this court upholding the Government's contention, United States v. Metcalf, 9 Cir., 131 F.2d 677, certiorari denied 318 U.S. 769, 63 S.Ct. 761, 87 L.Ed. 1140. In the Metcalf case this court said that it is the nature and character of the operation of the bankrupt's property by the trustee which determines whether such operation falls within the meaning of § 52 of the Internal Revenue Code of 1939, 26 U.S.C.A., so as to become taxable. This court, after reviewing the nature of the operations then conducted by the trustee, held the income in question to be taxable.

The Government seems to argue that the decision in the Metcalf case on facts present there, is determinative here. The Metcalf case could have that effect only in the event the facts were in substance the same as in the instant case. Subsequent to the decision in the Metcalf case and on May 26, 1952, an order of liquidation was entered directing the trustee to sell the assets of the estate either at private or public auction and close the estate. The stipulation of facts in this case shows that in 1952 much of the property of the bankrupt remained in the hands of the trustee. It is agreed that income was received by the trustee in the period in question, but there is no showing of the manner in which this income was received or its character. The trustee seems to content himself with the assertion that the order for liquidation of itself renders income thereafter received by the estate, irrespective of source or character of operations conducted, nontaxable, and relies on the case of California State Board of Equalization v. Goggin, 9 Cir., 191 F.2d 726, 27 A.L.R.2d 1211, in support of its position. We do not construe that case to so hold. True, this court gave effect to the order for dissolution, but in determining whether the income there involved was taxable this court considered what the trustee had done and whence came the income. The particular facts and circumstances under which the trustee operated were before the court. The Goggin case is in no way at variance with the holding in the Metcalf case, viz.: that it is the nature of the operation of the bankrupt's property which determines whether or not income is taxable. In the Owl Drug case¹ the...