Woods v. Lewellyn

• Decision Date: 18 June 1918
• Docket Number: 2273,2274.
• Citation: 252 F. 106
• Parties: WOODS v. LEWELLYN, Internal Revenue Collector (two cases).
• Court: U.S. Court of Appeals — Third Circuit

252 F. 106

WOODS v. LEWELLYN, Internal Revenue Collector (two cases).

Nos. 2273, 2274.

United States Court of Appeals, Third Circuit.

June 18, 1918

Charles A. Woods, of Pittsburgh, Pa., for plaintiff in error.

E Lowry Humes, U.S. Atty., and B. B. McGinnis, Asst. U.S Atty., both of Pittsburgh, Pa., for defendant in error.

Before BUFFINGTON, McPHERSON, and WOOLLEY, Circuit Judges.

McPHERSON Circuit Judge.

In these suits the plaintiff, Edward A. Woods, seeks to recover income taxes paid under Act Oct. 3, 1913, c. 16, 38 Stat 114; one suit being for the 10 months preceding December 31 1913, and the other, for the year 1914. Both suits were heard on the government's demurrer, and the principal question is the same in each case, namely, whether the tax could lawfully be collected. For each period the collector's assessment was on a larger sum than Woods returned as taxable, but his return (while asserted to have been 'false,' because not correct) is not charged to have been 'fraudulent.' He made no concealment of the facts, but appended an explanatory note to the return, containing complete information concerning the money now in question, although the note also insisted that the money was not taxable. The government's position therefore is that the return was not correct, and was therefore 'false'; the reason being its failure to include money that should have been there.

The controversy concerns commissions received by Woods during the two periods in question on renewal premiums paid by policy holders in the Equitable Life Assurance Society, and his right to the commissions rests upon three contracts between himself and the society, dated in March, 1896, October, 1899, and November, 1906. For present purposes, they are essentially alike. Since, and probably before, the first of these dates, Woods was one of the society's general agents, having a defined territory, and empowered to appoint subordinates; he was obliged to pay part of the expenses, and his compensation was measured by fixed percentages of the premiums that were actually paid on policies obtained through him and accepted by the society. In each of the returns now in question, he claims to be allowed certain expenses incurred before March 1, 1913.

In each suit the important question is whether the act of 1913 taxes as income an agent's commissions that were actually received by him within the taxing period, if these commissions were derived from renewal premiums paid on policies that were obtained by him and accepted by the society in some earlier year. In our opinion, the answer is that the act does tax money thus received; the reason being that such money is 'income' within the period during which it came into the agent's hands. The act (section 2 par. A, subd. 1) lays a tax on 'the entire net income arising or accruing from all sources during the preceding calendar year,' and goes on to declare in paragraph B that such 'net income * * * shall include gains, profits, and income derived from salaries, wages, or compensation for personal service of whatever kind and in whatever form paid, or from professions, vocations, businesses, trade, commerce, or sales, or dealings in property, whether real or personal, growing out of the ownership or use of or interest in real or personal property, also from interest, rent, dividends, securities, or the transaction of any lawful business carried on for gain or profit, or' (evidently in order to include by a drag-net clause any money that might have escaped even the sweeping words just quoted) 'gains or profits and income derived from any source whatever. * * * ' The commissions in controversy appear to us to be embraced by this widely inclusive language. No doubt they were earned by work done and money...