Opinion
Docket Nos. 44169 44170.
1954-05-17
HARLEY ALEXANDER, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.MAUDE ALEXANDER, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
Arthur Glover, Esq. , for the petitioners. Jackson L. Bailey, Esq. , and R. S. Leigh, Esq. , for the respondent.
1. In an earlier proceeding between the parties herein, involving the same partnership arrangement for the years 1942, 1943, and 1944, this Court held in an unreported Memorandum Opinion, affirmed in Alexander v. Commissioner, (C. A. 5, 1952) 194 F. 2d 921, that petitioner, rather than his daughter, was a member of the partnership and was taxable on the income therefrom. No change in material facts took place in 1945. Held, the decision in the prior proceeding operates as collateral estoppel against the present proceeding.
2. Petitioners have not sustained their burden of proof to show that profits from the sale of cows is entitled to capital gain treatment under section 117(j), Internal Revenue Code. Arthur Glover, Esq., for the petitioners. Jackson L. Bailey, Esq., and R. S. Leigh, Esq., for the respondent. TIETJENS, Judge:
The Commissioner determined the following deficiencies in income tax for the year 1945:
+---------------------------+ ¦Harley Alexander ¦$2,641.60¦ +-----------------+---------¦ ¦Maude Alexander ¦2,575.57 ¦ +---------------------------+
The principal issue is whether petitioners are taxable on 45 per cent of the profits of a partnership as community income or whether their daughter Mary should be so taxable.
There is also a second issue as to whether the Commissioner erroneously included as ordinary income of petitioners profits from the sale of certain cattle which petitioners claim should have been treated as long-term capital gain under section 117(j) of the Internal Revenue Code.
A third issue has been removed from consideration by concession.
Partnership Issue.
FINDINGS OF FACT AND OPINION.
The identical issue with reference to the partnership income involving the years 1942, 1943, and 1944 was before this Court in Harley Alexander, Docket Nos. 16573, 18923, and Maude Alexander, Docket Nos. 16574, 18924 (Memorandum Opinion dated April 21, 1950). Petitioners in the instant proceeding are the same as in the prior proceeding. In the prior proceeding this Court held and determined on the merits that petitioners were taxable on 45 per cent of the profits of the partnership as community income. This decision was appealed to the Court of Appeals for the Fifth Circuit which affirmed the decision of the Tax Court on this issue. Alexander v. Commissioner, (C. A. 5, 1952) 194 F. 2d 921.
At the hearing on the instant proceeding additional evidence relating to the years 1942, 1943, and 1944 was received. The record of the prior proceeding also was introduced in evidence, as well as testimony bearing on the year 1945. So far as the previous years are concerned the additional evidence, at best, is cumulative and would not justify a finding that there had been a change in any material fact. With respect to 1945 there is no evidence which would indicate the formation of a new partnership or any change in the operating arrangements of the partnership which was before this Court in the prior proceeding.
In 1945 the partnership interest and the modus operandi remained the same as in previous years and we do not understand petitioners' theory of the case to be that any significant change took place in that year. We point out in this respect that petitioners ask us to make the following finding of fact:
In the year 1945 Harley Alexander had no interest in the Kerrick partnership known as Alexander & Alexander. Whatever interest he ever had in this partnership had been given to his daughter, Mary, on or before January 1, 1945.
In other words, for us to reach a conclusion in the instant proceeding different from that reached in the prior case would require us to reexamine the evidence bearing on the formation of the partnership, which seems to have been originally formed in 1942. The validity of the partnership and who composed its membership have already been litigated for the prior years. The ultimate facts with respect to the partnership were there determined contrary to the petitioners' present contentions. We think the issue which petitioners now ask us to determine already has been before this Court and that petitioners have had their day in court. This would seem to be just such a situation as was envisaged by the Supreme Court in Commissioner v. Sunnen, 333 U.S. 591, where it said:
Of course, where a question of fact essential to the judgment is actually litigated and determined in the first tax proceeding, the parties are bound by that determination in a subsequent proceeding even though the cause of action is different.
By phrasing the question somewhat differently from the statement of it used above, petitioners apparently seek to avoid the application of the Sunnen case. Petitioners phrase the question thus on brief:
In the year 1945, had Petitioners divested themselves of all interest in the partnership firm known as Alexander & Alexander? or
Did Petitioners own an interest in the partnership firm of Alexander & Alexander in the year 1945?
In our opinion this phrasing does not help petitioners. It throws emphasis on the year 1945, to be sure, but on analysis, the fundamental issue is still the same. The basic facts concerning the formation of the partnership relate to the prior years. There is no evidence tending to establish that Harley disposed of his interest in the partnership in 1945 to Mary, and as pointed out above, petitioners make no such claim. If Harley transferred his interest to Mary, he did so in the earlier years, and this Court already has held that he did do so in those years. In our opinion the petitioners can not reopen what was decided in the prior decision, and we hold against them on this issue. Cory v. Commissioner, (C. A. 3, 1947) 159 F. 2d 391, affirming a Memorandum Opinion of this Court.
Such a holding does no violence to the decision of this Court in Joe Lynch, 20 T. C. 1052. There we held that the doctrine of res judicata or collateral estoppel did not apply to the case by reason of an earlier decision wherein the same partnership agreement before the Court had been held valid. The earlier Joe Lynch case had been decided before Commissioner v. Tower, 327 U. S. 280 (1946); Lusthaus v. Commissioner, 327 U. S. 293 (1946); and Commissioner v. Culbertson, 337 U.S. 733 (1949). The Court was of the opinion that those cases had
altered the legal concept of the facts essential for the determination of what constitutes a valid family partnership and have necessitated a broadening of the scope of inquiry in ascertaining whether or not such facts exist in a given case.
We have but to point out that the earlier Alexander proceeding was decided subsequent to the Tower, Lusthaus, and Culbertson cases and for that reason the Lynch case is not applicable here.
Cattle Issue.
FINDINGS OF FACT.
Petitioners had about 300 cows for a number of years prior to 1945. About that time they decided to go more in the steer business and commenced selling off their cows. Some of the cows had been raised by petitioners and others had been purchased.
In 1945 petitioners sold cattle aggregating $45,677.78 against which they had an allowable cost of $22,167.75. These sales included cows which brought $15,340. Petitioners did not claim capital gain treatment on their income tax returns for the cows.
OPINION.
We hold against petitioners on this issue. They have failed to prove that the cows were held for breeding or dairy purposes and the length of time held. We find no basis for finding that petitioners were entitled to capital gains treatment under section 117(j) for the cows sold in 1945.
Reviewed by the Court.
Decision will be entered for the respondent. VAN FOSSAN, TURNER, HARRON, and RAUM, JJ., concur in the result. ARUNDELL, J., dissenting:
I would not apply the doctrine of equitable estoppel in this case. In an earlier opinion we held that a valid partnership did not exist during the years 1942, 1943, and 1944 and the Court of Appeals affirmed on this point. The present proceeding raises the question whether or not a valid partnership existed in 1945. It is a different cause of action and the facts in the instant cases, while similar, are not identical with the facts before the Court in the prior trial. I think, in the circumstances, we should examine the facts and the record and from them determine whether a valid partnership existed in 1945.