Volunteer State Life Insurance Co. v. COMMISSIONER OF INTERNAL REVENUE
| Decision Date | 16 February 1937 |
| Docket Number | 70851.,Docket No. 69058 |
| Citation | 35 BTA 491 |
| Parties | VOLUNTEER STATE LIFE INSURANCE COMPANY, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. |
| Court | U.S. Board of Tax Appeals |
Robert A. Littleton, Esq., and F. Linton Martin, Esq., for the petitioner.
Clay C. Holmes, Esq., for the respondent.
These proceedings, duly consolidated for hearing, involve deficiences in petitioner's income tax for the years 1929 and 1930 in the amounts of $1,676.21 and $2,757.98, respectively.
In the original pleadings the following issues were raised: (1) Whether respondent erred in including in income the rental value of space occupied by petitioner in its home office building; (2) whether respondent erred in disallowing a portion of the deductions claimed by petitioner for investment expense by holding that items of general expense were in part assigned to or included in investment expense in petitioner's returns, and on that ground limiting the deductions for investment expense to one-fourth of one percent of the mean of petitioner's invested assets; (3) whether respondent erred in disallowing deductions for commissions upon sales of real estate; (4) whether respondent erred in disallowing as a deduction for 1929 farm sales expenses alleged to represent expenditures for advertising for sale real estate owned by petitioner; and (5) whether respondent erred in disallowing a deduction for 1930 on account of depreciation on furniture and fixtures.
Issues (1) and (5) have been conceded and abandoned by petitioner in view of the decisions of the Supreme Court in Helvering v. Independent Life Insurance Co., 292 U. S. 371, and Rockford Life Insurance Co. v. Commissioner, 292 U. S. 382. Issue (4) has been abandoned by petitioner because of the fact that the identical issue was raised in Docket No. 54176 () and was there conceded and abandoned by petitioner. Accordingly, respondent's determinations are approved in so far as they rest upon adjustments involved in issues (1), (4), and (5). Of the original issues this leaves for consideration only issues (2) and (3).
By order of the Board entered November 27, 1935, leave was granted petitioner to file a supplemental petition in each of these cases raising an issue of res judicata predicated upon facts arising since the original petitions were filed. This latter issue will be here considered, first, for the reason that if it should be decided in accordance with petitioner's contention, the estoppel of res judicata will be determinative of original issues (2) and (3), above referred to.
Petitioner is a Tennessee life insurance corporation, with its principal office at Chattanooga. Respondent determined a deficiency in petitioner's income tax for the year 1928, from which petitioner appealed to the Board under Docket No. 54176. After full hearing and consideration of the case upon the merits, the Board on April 10, 1933, promulgated its report, which is published at 27 B. T. A. 1149. In that proceeding three issues were submitted for decision as follows: (1) Whether or not there should be included in gross income the rental value of the space occupied by petitioner in its home office building; (2) whether petitioner was entitled to deduct as an investment expense salaries paid to officers for their services in connection with investments, or whether the salaries paid to the officers constituted a general expense in part assigned to or included in investment expenses; and (3) whether petitioner was entitled to deduct as investment expense commissions paid on sales of real estate. The Board decided issues (1) and (2) in favor of the petitioner, and decided issue (3) in favor of respondent. Thereafter, on August 10, 1933, pursuant to its said report, the Board entered its decision that there was an overpayment of petitioner's income tax for 1928 in the amount of $2,719.94.
At the time the original petitions in the present proceedings were filed, the proceeding under Docket No. 54176 was pending undecided. On February 18, 1933, in Docket No. 69058, and on May 18, 1933, in Docket No. 70851, the parties filed stipulations each to the effect that the issues in these proceedings are the same as those presented in Docket No. 54176, and requested that the present cases be placed upon the reserve calendar pending decision in Docket No. 54176.
Respondent filed a petition for review of the decision of the Board in Docket No. 54176, and, while the case was pending review by the United States Circuit Court of Appeals for the Sixth Circuit, the Supreme Court of the United States, on May 21, 1934, decided the case of Helvering v. Independent Life Insurance Co., supra, holding that the rental value of space occupied by a life insurance company in its home office building should be included in gross income, if deductions were claimed for taxes, expenses, and depreciation on the building.
The Supreme Court having decided this question contrary to petitioner's contention and the decision of the Board in Docket No. 54176, counsel for the parties filed a stipulation in the Circuit Court of Appeals as follows:
That the United States Circuit Court of Appeals for the Sixth Circuit may reverse and remand this cause to the United States Board of Tax Appeals for such orders as may be stipulated or jointly moved by the parties thereto.
On March 5, 1935, the Circuit Court of Appeals issued the following order:
Pursuant to stipulation of counsel, it is ordered that the decision of the Board of Tax Appeals in this cause be and the same is hereby reversed and the cause is remanded to the Board for such orders as may be stipulated or jointly moved by the parties.
On March 20, 1935, the following stipulation was filed with the Board:
It is hereby stipulated by and between the parties hereto, through their respective attorneys of record, that whereas the parties have heretofore stipulated and agreed that this cause should be reversed by the United States Circuit Court of Appeals for the Sixth Circuit and remanded to this Board for such orders as may be stipulated or jointly moved by the parties, a copy of said stipulation being filed herewith:
Now, therefore, the Board upon receipt of said mandate from said Circuit Court of Appeals may find an overpayment in tax by the Volunteer State Life Insurance Company for the year 1928 in the amount of $1,535.08, and may enter its order accordingly.
On March 22, 1935, the Board entered its order as follows:
The decision so entered has now become final.
The petitioner contends that the facts show, and the parties have so stipulated, that the issues in these proceedings are the same as those decided in Docket No. 54176 and that hence the former adjudication is determinative of the issues presented for decision here. Respondent argues that the doctrine of res judicata is not applicable for the reason, first, that the issues are not the same, and, second, because the final decision of the Board in the prior case was not a judgment upon the merits, but a "consent" judgment.
The petitioner insists that the Board's final order was the same in result as if the Circuit Court had reversed the Board's original decision on the question concerning rental value of space in the home office building and affirmed the Board's decision on all other issues involved in Docket No. 54176. However, the court affirmed no part of that decision, but reversed it in toto and directed the Board to enter such orders as might be stipulated or jointly moved by the parties. No discretion or power was either exercised or retained by the court or left to the Board to make a judicial decision of the case on the merits. The reversal and mandate by the Circuit Court was based solely upon the stipulation of the parties pursuant to an agreed plan of a settlement of the case by the parties themselves without a judicial determination.
Under the mandate of the Circuit Court the stipulation of the parties superseded the discretion and power of the Board to determine the kind of order it should enter. The force of such an order as res judicata is confined to the cause of action in which it is entered.
A "consent" judgment has been defined as a contract of the parties spread upon the record with approval and sanction of a court of competent jurisdiction. Weaver v. Hampton, 201 N. C. 798; 161 S. E. 480. A "consent decree" is not a judgment of the court, but is a contract between the parties entered into of record with the court's consent, and is not necessarily based upon pleadings or records in the case. Standard Supply Co. v. Delmar Coal Co., 110 W. Va. 560; 158 S. E. 907. The order in question was a disposition of the suit by the parties and not by the Board, Berry v. Somerset R. Co., 89 Me. 552; 36 Atl. 904. It was not a judicial rendition on the merits and can not be the basis of a claim of res judicata in the present proceeding. Almours Securities, Inc., 35 B. T. A. 61. Cf. Wayne Body Corporation, 22 B. T. A. 401; Stanley Co. of America, 26 B. T. A. 705.
But even if the order in question were a judicial determination, it would not constitute res judicata as to the issues in the present proceeding. The test as to what constitutes res judicata is succinctly stated in Tait v. Western Maryland Railway Co., 289 U. S. 620, as follows:
The scope of the estoppel of a judgment depends upon whether the question arises in a subsequent action between the same parties upon the same claim or demand or upon a different claim or demand. In the former case a judgment upon the merits is an...
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