Opinion
Rehearing denied Oct. 4, 1938.
Each party in each case has moved for judgment upon the pleadings and stipulated facts.
The deceased, of whose estate the plaintiff in each case is executor, was an employee of an insurance company or companies, working under contracts providing, in the first above numbered case, that he should receive on renewal premiums upon policies of insurance a portion thereof 'only if, as and when said premiums shall have been paid to the company' and the provision in the second of the two cases (which it has not been contended was changed by certain later contract amendments) was that the compensation to be allowed deceased should be a commission on premiums 'when collected and paid to the company in cash.'
In each case the income tax returns filed following the decedent's death did not include anything on account of premiums on later renewals.
An additional assessment in each case was levied on account of commissions upon premiums which would be paid from year to year by the policyholders after the decedent's death, adopting for the purpose of such levy the appraised valuations made for state inheritance tax and federal estate tax purposes.
The additional assessments were paid and these suits are for the recovery, with interest, of the amounts paid.
The question for determination, as tersely stated by the defendant, is, did the value of the decedent's right or expectancy on account of commissions upon premiums which policyholders after his death might, but were not obligated, to pay, constitute accrued income to him for the portion of the calendar year during which he lived?
Plaintiffs cite: Sec. 42, Revenue Act of 1934, 26 U.S.C.A. § 42 (Regulations 86, U.S. Treasury Department, Bureau of Internal Revenue, p. 110); Paul & Martens, Law of Federal Income Taxation, Sections 11.66, 11.69, 11.72, 11.73, 11.74; Lichtenberger-Ferguson Co. v. Welch, 9 Cir., 54 F.2d 570; Schoellkopf Aniline & Chemical Works v. U.S., Ct. Cl., 3 F.Supp. 417; Commissioner v. R. J. Darnell, Inc., 6 Cir., 60 F.2d 82; Edwards v. Keith, D.C., 224 F. 585; affirmed, 2 Cir., 231 F. 110, L.R.A. 1918A, 498, certiorari denied, 243 U.S. 638, 37 S.Ct. 402, 61 L.Ed. 942; Woods v. Lewellyn, 3 Cir., 252 F. 106; Workman v. Commissioner, 7 Cir., 41 F.2d 139; United States v. Safety Car Heating & Lighting Co., 297 U.S. 88, 56 S.Ct. 353, 80 L.Ed. 500; Lucas v. American Code Co., 280 U.S. 445, 50 S.Ct. 202, 74 L.Ed. 538, 67 A.L.R. 1010; Lucas v. North Texas Lumber Co., 281 U.S. 11, 50 S.Ct. 184, 74 L.Ed. 668; Lucas v. Ox Fibre Brush Co., 281 U.S. 115, 50 S.Ct. 273, 74 L.Ed. 733; Commissioner v. Southeastern Express Co., 5 Cir., 56 F.2d 600; Commissioner v. Brown, 1 Cir., 54 F.2d 563; Burnet, Commissioner v. Brown, 286 U.S. 556, 52 S.Ct. 639, 76 L.Ed. 1291; Worm v. Commissioner, 7 Cir., 61 F.2d 868; McPherson v. Helvering, 62 App.D.C. 325, 67 F.2d 749; H. Liebes & Co. v. Commissioner of Internal Revenue, 9 Cir., 90 F.2d 932; Spring City Foundry Co. v. Commissioner, 292 U.S. 182, 54 S.Ct. 644, 78 L.Ed. 1200; Helvering v. Russian Finance & Construction Corp., 2 Cir., 77 F.2d 324; Consoer, Older & Quinland, Inc., v. Commissioner, 7 Cir., 85 F.2d 461; 59 C.J. 1012; United States v. Merriam, 263 U.S. 179, 44 S.Ct. 69, 68 L.Ed. 240, 29 A.L.R. 1547; Kepner v. U.S., 195 U.S. 100, 24 S.Ct. 797, 49 L.Ed. 114, 1 Ann.Cas. 655; The Abbotsford, 98 U.S. 440, 25 L.Ed. 168; Hoffman v. U.S., Ct. Cl., 53 F.2d 282; Hall v. Burnet, 60 App.D.C. 332, 54 F.2d 443, 83 A.L.R. 86; Nelson v. Ferguson, 3 Cir., 56 F.2d 121; Harwood v. Eaton, 2 Cir., 68 F.2d 12; Bishop v. Commissioner, 7 Cir., 54 F.2d 298; Nuckolls v. U.S., 10 Cir., 76 F.2d 357; Crane v. Helvering, 2 Cir., 76 F.2d 99.
Defendant cites: Bull v. United States, 295 U.S. 247, 55 S.Ct. 695, 79 L.Ed. 1421; Crane v. Helvering, 2 Cir., 76 F.2d 99; Edwards v. Keith, 2 Cir., 231 F. 110, L.R.A. 1918A, 498, certiorari denied, 243 U.S. 638, 37 S.Ct. 402, 61 L.Ed. 942; Hall v. Burnet, 60 App.D.C. 332, 54 F.2d 443, 83 A.L.R. 86, certiorari denied, 285 U.S. 552, 52 S.Ct. 408, 76 L.Ed. 942; Harwood v. Eaton, 2 Cir., 68 F.2d 12, certiorari denied, 292 U.S. 636, 54 S.Ct. 715, 78 L.Ed. 1489; Helvering v. Russian Finance & Construction Corporation, 2 Cir., 77 F.2d 324; Hoffman v. United States, Ct. Cl., 53 F.2d 282; Irwin v. Gavit, 268 U.S. 161, 45 S.Ct. 475, 69 L.Ed. 897; Lucas v. American Code Co., 280 U.S. 445, 50 S.Ct. 202, 74 L.Ed. 538, 67 A.L.R. 1010; Nelson v. Ferguson, 3 Cir., 56 F.2d 121, certiorari denied, 286 U.S. 565, 52 S.Ct. 646, 76 L.Ed. 1297; Niles Bement Pond Co. v. United States, 281 U.S. 357, 50 S.Ct. 251, 74 L.Ed. 901; Nuckolls v. United States, 10 Cir., 76 F.2d 357; Welch v. Helvering, 290 U.S. 111, 54 S.Ct. 8, 78 L.Ed. 212; Western Wheeled Scraper Co. v. Commissioner, 14 B.T.A. 496; Woods v. Lewellyn, 3 Cir., 252 F. 106; Workman v. Commissioner, 7 Cir., 41 F.2d 139; United States v. Anderson, 269 U.S. 422, 46 S.Ct. 131, 70 L.Ed. 347; Revenue Act of 1932, c. 209, 47 Stat. 169, Sec. 42, 26 U.S.C.A. § 42 and note; Revenue Act of 1934, c. 277, 48 Stat. 680, Secs. 41, 42 and 44, 26 U.S.C.A. §§ 41, 42, 44; H. Rep. No. 704, 73rd Cong., 2d Sess., p. 24; Prevention of Tax Avoidance, Preliminary Report of a Subcommittee of the Committee on Ways and Means, 73rd Cong., 2d Sess., p. 15; S. Rep. No. 558, 73rd Cong., 2d Sess., p. 28; Statement of Acting Secretary of the Treasury Regarding the Preliminary Report of A Subcommittee of the Committee on Ways and Means, pp. 1, 16; Treasury Regulations 86, Art. 42-1. Kumm & Hatch, of Seattle, Wash., for plaintiff Seattle First Nat. bank.
Green & Burnett, of Seattle, Wash., for plaintiff Boyns. J. Charles Dennis, U.S. Atty., and Oliver Malm, Asst. U.S. Atty., both of Tacoma, Wash., and Thomas R. Winter, Sp. Atty., Bureau of Internal Revenue, of Seattle, Wash. (James W. Morris, Asst. Atty. Gen., and Andrew D. Sharpe and Jerome P. Carr, Sp. Assts. to Atty. Gen., on the brief), for defendant.
CUSHMAN, District Judge.
The statute in question (Section 42 of the Revenue Act of 1934, c. 277, 73rd Cong., 2d Sess., 48 Stat. 694, 26 U.S.C.A. § 42) provides:
'Sec. 42. Period in which items of gross income included. 'The amount of all items of gross income shall be included in the gross income for the taxable year in which received by the taxpayer, unless, under methods of accounting permitted under section 41, any such amounts are to be properly accounted for as of a different period. In the case of the death of a taxpayer there shall be included in computing net income for the taxable period in which falls the date of his death, amounts accrued up to the date of his death if not otherwise property includible in respect of such period or a prior period.'
The word 'accruing' has been found to have a meaning as descriptive of income, which, if adopted, requires judgments in favor of plaintiffs. Edwards v. Keith, D.C., 224 F. 585, affirmed, 2 Cir., 231 F. 110, L.R.A. 1918A, 498, certiorari denied, 243 U.S. 638, 37 S.Ct. 402, 61 L.Ed. 942. Cited with approval in United States v. Safety Car Heating & Lighting Co., 297 U.S. 88-98, 56 S.Ct. 353-358, 80 L.Ed. 500; Woods v. Lewellyn, 3 Cir., 252 F. 106, affirmed, D.C., 289 F. 498. See also Workman v. Commissioner of Internal Revenue, 7 Cir., 41 F.2d 139. Cited with approval in United States v. Safety Car Heating & Lighting Co., 297 U.S. 88-98, 56 S.Ct. 353-358, 80 L.Ed. 500; Helvering v. Russian Finance & Construction Corporation, 2 Cir., 77 F.2d 324.
Any reasons suggested do not warrant a departure from but rather an adherence to such construction. Reiche v. Smythe, 13 Wall. 162-164, 165, 20 L.Ed. 566; The Abbotsford, 98 U.S. 440-444, 25 L.Ed. 168; Kepner v. United States, 195 U.S. 100-124, 24 S.Ct. 797, 49 L.Ed. 114; United States v. Merriam, 263 U.S. 179-187, 44 S.Ct 69-71, 68 L.Ed. 240, 29 A.L.R. 1547.
While the precise expression contained in Sec. II A, Subdivision 1 of the Act of 1913 (38 Stat. 166) considered by the courts in Edwards v. Keith, supra and Woods v. Lewellyn, supra, is not contained in Section 42, the difference shows no changed intention in the particular in question.
Judgments will be for plaintiffs as prayed.
Any orders, findings of fact, conclusions of law and judgments will be settled upon notice.
The clerk is directed to notify the attorneys for the parties of the filing of the foregoing decision.