Opinion
Docket No. 24581.
1951-03-2
VIRGINIA STAGE LINES INC., PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
Philip S. Jessup, Esq., and Ernest M. Callomon, Esq., for the petitioner. E. M. Wolf, Esq., for the respondent.
Philip S. Jessup, Esq., and Ernest M. Callomon, Esq., for the petitioner. E. M. Wolf, Esq., for the respondent.
A jury rendered judgment against the petitioner in 1944, because of injury by one of petitioner's busses to a minor child. Appeal was taken to the Supreme Court of Appeals of Virginia in 1945, and supersedeas bond filed. The case was argued before that Court on November 20, 1945. At that time one of the Justices suggested a new theory, of implied invitee, and another Justice asked questions along the same line. The counsel for the defendant, the petitioner here, was so discouraged by this that he advised the petitioner that in his opinion the case was lost. During 1945 the Court met in conference and the Justices were unanimously of the view that the case should be affirmed. The Justice who raised the theory of invitee was designated to write the opinion. He drafted the opinion, as finally rendered, during December 1945. It was submitted for approval of the Court and approved at the next Court session, which commenced on January 7, 1946. The opinion was handed down on January 14, 1946, the regular opinion day, and judgment, rendered the same day affirming the lower court, was paid on February 12, 1946. Held, that the amount paid was not accruable in 1945.
This case involves declared value excess-profits taxes and excess profits taxes for the calendar year 1945. Deficiencies therein were determined in the respective amounts of $845.18 and $33,697.55. The only question presented is whether the Commissioner erred in denying deduction of $44,035.10 as expense of business which in turn depends upon whether the amount of a judgment is deductible in 1945, as contended by petitioner, or 1946 when it was affirmed and paid.
FINDINGS OF FACT.
A partial stipulation of facts was filed. We adopt same by reference and find the facts therein set forth. They will be set forth here with findings made from other evidence adduced.
Petitioner is a corporation duly organized and existing under the laws of the State of Virginia with its principal office at 403 East Water Street, Charlottesville, Virginia. The return for the calendar year 1945, the taxable period here involved, was prepared on the accrual basis and filed with the collector of internal revenue at Richmond, Virginia.
Petitioner is engaged in the business of operating busses over regular routes in interstate and intrastate commerce between Washington, D.C., and points and places in the States of Virginia and North Carolina, and between numerous points within the State of Virginia.
Petitioner carried public liability and property damage insurance with limits of $10,000 for bodily injury for each person, $50,000 bodily injury for each accident, and $5,000 property damage for each accident.
On October 3, 1943, one of the petitionerS busses in the course of usual operations inflicted bodily injury to one Franklin Monroe Spencer, the infant son of John Abrams Spencer. Suit was filed against petitioner on behalf of said infant September 1944, and under the date of November 4, 1944, the Circuit Court of Henry County, Virginia, after jury verdict in favor of the plaintiff in the amount of $50,000, entered judgment in favor of said infant and against petitioner in that amount plus interest and costs. Petitioner was liable for all of said judgment except $10,000 which represented the limit of the liability for bodily injury to one person carried in petitioner's public liability insurance policy. At the trial evidence was presented that the child's injuries were permanent and severe.
Petitioner deposited with the trustee U.S. Government bonds in the principal amount of $60,000 in order to secure a surety bond of $56,000 which it was required to give in order to secure the payment of the judgment in the Spencer case. Thereafter, on February 7, 1945, petitioner filed a petition for writ of error in the Supreme Court of Appeals of the State of Virginia for review of the Spencer judgment. That Court granted the writ on March 6, 1945.
Defendant's counsel from the beginning was of the opinion that his clients, the petitioner here and the insurance company, were liable. His clients followed his advice in all respects.
Between the date of judgment and the date of the writ of error was granted, there were no negotiations between petitioner and plaintiff with respect to a compromise. After the writ of error was granted, but before argument on appeal, petitioner offered plaintiff $30,000 in settlement. Plaintiff rejected the offer and made a counter proposal of $40,000.
The principal basis of the appeal was that the child was a trespasser on petitioner's property and that under the law applicable to trespassers, plaintiff only owed the child the duty of not wilfully and wantonly injuring him, and did not owe him the duty of ‘ordinary care‘ otherwise required, in which case petitioner would be obligated to be on the lookout for the child and to warn him. At the trial before the jury, there was no evidence that petitioner wantonly and wilfully injured the child, but there was evidence that petitioner did not, as decided by the jury, use ‘ordinary care.‘ Petitioner's counsel hoped to get the case remanded on the theory that the trial court had misdirected the jury.
On November 20, 1945, the case on appeal was argued before the Supreme Court of Appeals of Virginia, the highest court of the State of Virginia. All seven Justices of that Court participated. Justice Eggleston at the hearing mentioned the fact that the plaintiff was forced by petitioner's bus off the highway onto the property of petitioner, and that therefore he was an implied invitee, and therefore was in the right. Justice Hudgins during the argument asked defendant's counsel several questions along the same line. Defendant's counsel spent the rest of his time trying to answer, trying to show that even though the plaintiff was an implied invitee, nevertheless the driver of the bus had a right to anticipate that he would stay in a place of safety if he had seen him, the driver, on the driveway. But defendant's counsel was very conscious that his argument did not ‘go over.‘ He advised his clients, the insurance company and the petitioner here, that the case was lost in his opinion.
It was the custom of the Court to confer immediately after argument and decide whether a case should be affirmed or reversed. After a November term it was also the custom for the Justices to adjourn before Christmas, and to hand down their opinions the next succeeding term of Court in January of the next year. Petitioner's attorney knew of such custom. He knew nothing further as to what was in the mind of the Court until the next year. He had no way of knowing.
Nothing was done by petitioner to contest the case after the argument before the appellate court on November 20, 1945.
In a conference shortly after the oral argument of the case in the appellate court, the Justices were of the unanimous opinion that there was no error in the record and that the judgment of the lower court should be affirmed. The case was assigned to Justice Eggleston for the writing of an opinion. The opinion as finally rendered was drafted by him during December 1945 and submitted to his colleagues for approval. The opinion was approved at the next session of the Court, which convened on January 7, 1946, and was handed down on January 14, 1946, the regular opinion day, and on the same day a judgment was entered affirming the trial court.
The judgment of the Supreme Court of Appeals, rendered January 14, 1946 (184 Va. 870; 36 S.E.(2d) 522), affirming the trial court, in pertinent part was essentially based, first upon the principle of implied invitee applied to the plaintiff, and second upon the principle, that, even if the plaintiff was a bare licensee, the petitioner through its bus driver knew that the public generally used as a sidewalk the paved area where the plaintiff was injured, therefore owed the plaintiff the duty of ordinary care. The Court also held that instructions to the jury were not erroneous.
On February 12, 1946, the total judgment and costs amounting to $54,035.10 was paid. Petitioner's insurance carrier paid $10,000 thereof and petitioner paid the balance of $44,035.10.
OPINION.
DISNEY, Judge:
Our only problem is as to which is the proper year for the accrual of the amount paid under the judgment, whether 1945, when the case was appealed and argued in the Supreme Court of Appeals of Virginia and the counsel for defendant, petitioner here, considered the case to be lost, or 1946 when the judgment was rendered by that Court and paid.
Though agreeing with North American Coal Corporation, 28 B.T.A. 807, that
* * * The prevailing rule appears to be that unless the circumstances are exceptional, the deduction may be taken only in the year in which the liability becomes fixed by a final judgment. * * * the petitioner contends that here the circumstances are very exceptional and that sound accounting principles require the expense to be accrued. United States v. Anderson, 269 U.S. 422, and Baltimore Transfer Co., 8 T.C. 1, are cited as calling for a test of sound accounting principles in the economic and bookkeeping sense. The reason advanced for the view that the circumstances are thus exceptional is in essence that the judgment had been in favor of a child against a transportation company, that upon argument before the Supreme Court of Appeals of Virginia a new theory, of implied invitee, was suggested which convinced the attorney for the defendant, the petitioner in this case, that the case was lost, that the Court, within the year 1945, in conference were unanimously of the opinion that the judgment should be affirmed, assigned it to Justice Eggleston, who had suggested the new theory upon argument, for writing the opinion, and that he wrote the opinion during December 1945, and submitted it for approval. It was in 1946 approved as written and the judgment affirmed.
Are these circumstances so exceptional as to place accruability in advance of the year when judgment was rendered by the Supreme Court of Appeals and paid? The petitioner argues that time of accrual is largely a question of fact, citing San Francisco Stevedoring Co., 8 T.C. 222, and Lucas v. American Code Co., 280 U.S. 445, holding that: ‘The general requirement that losses be deducted in the year in which they are sustained calls for a practical, not a legal, test.‘ By any ‘practical test,‘ petitioner urges, the amount of liability for the judgment was fixed on November 20, 1945.
We agree with the petitioner that the test to be applied is a ‘practical test‘; but, applying all of the facts presented as contended for and as of course required, we are of the view that a conclusion that liability was fixed at the time of argument before the Supreme Court of Appeals would not be a practical one. Several reasons contribute to this conclusion. The petitioner on brief states the crux of the appeal was that the child was a trespasser, that petitioner was not obligated to look out for trespassers or owe them ordinary care, but only the duty not wilfully or wantonly to injure them, and that by raising this point petitioner hoped to have the case remanded on the theory that the trial court had misdirected the jury, to be granted a new trial, and to have the amount of damages redetermined. The judgment determining these questions against petitioner was not rendered until 1946. It appears to us that it would be altogether an impractical test to say that they were determined in 1945 because one Justice or two Justices, at the argument before the appellate court, mentioned or asked questions about a theory tending against the defendant. (Petitioner, on brief, says that four Justices, in the opinion of defendant's counsel, a witness here for the petitioner, indicated concurrence with the point raised by Justice Eggleston. The evidence does not justify a finding that there was such concurrence. It is only that Justice Hudgins during the argument asked counsel several questions along the same line as the point raised by Justice Eggleston, but asked whether others indicated concurrence in that view by Justice Eggleston, the witness answered: ‘I couldn't say, your Honor. Now, I am of the opinion that they did, because of my reactions, as shown by my file. ‘) Merely because a judge, hearing argument, suggests a point he considers pertinent to the argument, and because an attorney is so discouraged thereby that he thinks his case lost, is in our view an impractical yardstick by which to measure accruability of the amount involved before the court. The final conclusion of the court. upon further study of the point raised, might be completely different. To hold otherwise would be to accuse the court of ‘snap judgment‘ contrary to the sound inference that the court considered carefully and fully the problem, before finally rendering its opinion. The mechanics of argument, conference, assignment to a judge to write opinion for approval or disapproval by the whole court, presentation thereof for approval, final approval and rendition of judgment, all militate against the soundness of the petitioner's view. Such procedure is directed toward sound well-considered opinions. Obviously the final result could be contrary to suggestions at argument. The court until final rendition has control of the matter.
Moreover, the opinion of the Court as finally rendered, which is in full in evidence, reveals that, though the theory of implied invitee, broached by Justice Eggleston, is first set forth, it is followed by the equally potent conclusion that, because of the knowledge of its bus driver that the public generally used the paved area (where the child was injured) as a sidewalk, petitioner owed the child-plaintiff the duty of ordinary care, even if a bare licensee. Thus it appears that the case was not lost merely because of the theory of implied invitee, raised by Justice Eggleston at argument, but also upon a point as to which the defendant hoped to secure reversal, and could, of course, so hope until rendition of the judgment— in 1946. Again, the Court held against the defendant in its contentions that the jury had been improperly instructed. From all of this, it is apparent that the question of implied invitee did not alone dispose of the case so that its suggestion on argument in 1945 can soundly be said to be basis for accrual in 1945 of the liability for the judgment rendered in 1946. We add that the supersedeas bond in the appellate court was effective until rendition of judgment in 1946, so that liability was until then suspended and might never have transpired.
The petitioner, it is expressly urged, did nothing except wait for the opinion of the court— except that as a practical matter it could have dismissed the appeal and paid, had it been so desirous, as now, of accruing the liability in 1945, and had not preferred to take chances of having the case reversed for misdirection of jury, or otherwise.
The petitioner, also, however, urges that in fact the Supreme Court of Appeals in December 1945 in conference unanimously decided that there was no error and that the lower court should be affirmed and assigned writing of opinion to Justice Eggleston, who drafted the opinion during December 1945. Again we say no practical test permits the matter to rest on such inner-sanctum procedure. The opinion so drafted was subject to approval by the whole court. It was not submitted for approval and did not receive such approval, so far as this record shows, in 1945, therefore was in no event the opinion of the whole Court, even informally, in that year. But more important, in our view, is the fact that the judgment was not rendered until January 14, 1946. We see nothing of practicality in a rule that would permit accrual of the amount of the judgment until that time. Such accrual would not, within Regulations 111, section 29.43-2, ‘clearly reflect the correct deduction‘ and the amount involved should, thereunder, be deducted in the year ‘when the claim is so adjudicated or paid‘— in 1946. All the events had not in 1945 occurred to fix the amount and determine responsibility. Had the case been reversed for misdirection of jury, as petitioner had endeavored to accomplish by the appeal, the final amount, upon new trial, might have been different— as petitioner hoped it would be— or the case might have been settled. These contingencies are too real to be disregarded. It would in our opinion be unrealistic, the opposite of a practical test, to hold under the circumstances here, that the amount of $44,035.10 was accruable as a judgment of the appellate court in 1945.
We conclude and hold that the amount of the judgment, rendered and paid in 1946, was not accruable in 1945.
Decision will be entered for the respondent.