ASSIGNED INCOME TAXABLE TO ASSIGNOR
Eubank, Gerald A., Helvering (Comm.) v.
- Case NameHELVERING, COMMISSIONER OF INTERNAL REVENUE v. EUBANK
- CourtUnited States Supreme Court
- DocketNo. 205
- JudgeHughes, McReynolds, Stone, Roberts, Black, Reed, Frankfurter, Douglas,Murphy
- Cross-ReferenceHelvering v. Eubank, 311 U.S. 122 (1940)
- Parallel Citation311 U.S. 12261 S. Ct. 14985 L. Ed. 8140-2 U.S. Tax Cas. (CCH) P978824 A.F.T.R. (P-H) 10631940 U.S. LEXIS 11041940-2 C.B. 2091940 P.H. P62,041
- Code Sections
- Index Termsgross income, assignment of income
- Jurisdictions
- LanguageEnglish
- Tax Analysts Electronic Citation1994 TNT 241-421940 LEX 23-745
Eubank, Gerald A., Helvering (Comm.) v.
SUPREME COURT OF THE UNITED STATES
Argued: October 25, 1940
Decided: November 25, 1940
CERTIORARI TO THE CIRCUIT COURT OF APPEALS FOR THE SECOND
CIRCUIT.
CERTIORARI, post, p. 630, to review the reversal of an order of
the Board of Tax Appeals, 39 B. T. A. 583, sustaining a determination
of a deficiency in income tax.
110 F.2d 737, reversed.
Renewal commissions paid in 1933 by insurance companies to the
assignee of an agent, pursuant to assignments made by the agent, in
1924 and 1928, of such commissions as should become payable to him for
services which had been rendered in writing policies of insurance
under agency contracts, held, under Section 22 of the Revenue
Act of 1932, income taxable in 1933 to the assignor. Following
Helvering v. Horst, ante, p. 112. P. 124.
Mr. Arnold Raum, with whom Solicitor General Biddle, Assistant
Attorney General Clark, and Messrs. J. Louis Monarch and Morton K.
Rothschild were on the brief, for petitioner.
Mr. Harry J. Rudick, with whom Mr. John W. Drye, Jr. was on the
brief, for respondent.
The taxable status of assigned income depends upon ownership or
control of the property which produces the income. The respondent did
not retain any such ownership or control, and is not taxable on the
income.
The contract right to receive the renewal commissions, even
though it may have resulted from services of the assignor, constituted
a property right capable of assignment; and the disposition of that
right did not correspond to an assignment of earnings. Lucas v. Earl,
281 U.S. 111, distinguished.
The commissions were not wholly the product of services
personally rendered by the taxpayer. Assuming, however, that the
commissions were entirely the result of respondent's individual
efforts, Lucas v. Earl does not require that they be taxed to him.
That case related to earnings qua earnings and not to a separately
disposable contract right received as compensation for services.
The doctrine that earnings are always taxable to the earner
produces absurd results. Suppose an agent owning a right to renewal
commissions becomes bankrupt and the right to such commissions is sold
by the trustee in bankruptcy to an outsider. Would the agent be
taxable on the commissions paid to the purchaser because they were
earned by the agent? Suppose the agent had sold his right to the
future commissions, would he be subject to tax not only on the
proceeds of sale, but on the larger amount of commissions as well
because he had "earned" these commissions? Or suppose the agent had
died owning the right to receive the renewal commissions. Application
of the sweeping doctrine advocated by the Government would require him
to be taxed after his death. This view was specifically rejected in
Seattle First National Bank v. Henricksen, 24 F.Supp. 256, appeal
dismissed, 100 F.2d 1015.
A future commissions contract in the nature of a royalty
contract, such as is here involved -- the income from which is in no
way dependent upon future services of the assignor, and the income
from which has not yet arisen, and will arise, if at all, by the
happening of events over which the assignor has no control -- may be
assigned so as to relieve the assignor of the tax on the income
therefrom in just the same way that the same sort of property arising
from sources other than personal services may be assigned so as to
relieve the assignor of tax.
The right to assign a contract of this character arising from
personal services offers no more opportunity for tax avoidance than
the right to assign a similar contract arising from any other source.
By leave of Court, Mr. W. A. Sutherland filed a brief, as amicus
curiae, urging affirmance.
STONE
MR. JUSTICE STONE delivered the opinion of the Court.
This is a companion case to Helvering v. Horst, ante, p. 112, and presents issues not distinguishable from those in that case.
Respondent, a general life insurance agent, after the termination of his agency contracts and services as agent, made assignments in 1924 and 1928 respectively of renewal commissions to become payable to him for services which had been rendered in writing policies of insurance under two of his agency contracts. The Commissioner assessed the renewal commissions paid by the companies to the assignees in 1933 as income taxable to the assignor in that year under the provisions of the 1932 Revenue Act, 47 Stat. 169, Section 22 of which does not differ in any respect now material from Section 22 of the 1934 Revenue Act involved in the Horst case. The Court of Appeals for the Second Circuit reversed the order of the Board of Tax Appeals sustaining the assessment. 110 F.2d 737; 39 B. T. A. 583. We granted certiorari October 14, 1940.
No purpose of the assignments appears other than to confer on the assignees the power to collect the commissions, which they did in the taxable year. The Government and respondent have briefed and argued the case here on the assumption that the assignments were voluntary transfers to the assignees of the right to collect the commissions as and when they became payable, and the record affords no basis for any other.
For the reasons stated at length in the opinion in the Horst case, we hold that the commissions were taxable as income of the assignor in the year when paid. The judgment below is
Reversed.
DISSENTING OPINION OF JUDGE McREYNOLDS
The separate opinion of MR. JUSTICE McREYNOLDS.
The cause was decided upon stipulated facts. The following statement taken from the court's opinion discloses the issues.
"The question presented is whether renewal commissions payable to a general agent of a life insurance company after the termination of his agency and by him assigned prior to the taxable year, must be included in his income despite the assignment.
"During part of the year 1924 the petitioner was employed by the Canada Life Assurance Company as its branch manager for the state of Michigan. His compensation consisted of a salary plus certain commissions. His employment terminated on September 1, 1924. Under the terms of his contract he was entitled to renewal commissions on premiums thereafter collected by the company on policies written prior to the termination of his agency, without the obligation to perform any further services. In November 1924 he assigned his right, title, and interest in the contract as well as the renewal commissions to a corporate trustee. From September 1, 1924 to June 30, 1927, the petitioner and another, constituting the firm of Hart & Eubank, were general agents in New York City for the Aetna Life Assurance Company, and from July 1, 1927 to August 31, 1927, the petitioner individually was general agent for said Aetna Company. The Aetna contracts likewise contained terms entitling the agent to commissions on renewal premiums paid after termination of the agency, without the performance of any further services. On March 28, 1928, the petitioner assigned to the corporate trustee all commissions to become due him under the Aetna contracts. During the year 1933 the trustee collected by virtue of the assignments renewal commissions payable under the three agency contracts above mentioned, amounting to some $ 15,600. These commissions were taxed to the petitioner by the Commissioner, and the Board has sustained the deficiency resulting therefrom." 110 F.2d 738.
The court below declared --
"In the case at bar the petitioner owned a right to receive money
for past services; no further services were required. Such a right is
assignable. At the time of assignment there was nothing contingent in
the petitioner's right, although the amount collectible in future
years was still uncertain and contingent. But this may be equally true
where the assignment transfers a right to income from investments, as
in Blair v. Commissioner, 300 U.S. 5, and Horst v.
Commissioner, 107 F.2d 906 (C. C. A. 2), or a right to patent
royalties, as in Nelson v. Ferguson, 56 F.2d 121 (C. C. A. 3)
, certiorari denied, 286 U.S. 565. By an assignment of future earnings
a taxpayer may not escape taxation upon his compensation in the year
when he earns it. But when a taxpayer who makes his income tax return
on a cash basis assigns a right to money payable in the future for
work already performed, we believe that he transfers a property right,
and the money, when received by the assignee, is not income taxable to
the assignor."
Accordingly, the Board of Tax Appeals was reversed; and this, I think, is in accord with the statute and our opinions.
The assignment in question denuded the assignor of all right to commissions thereafter to accrue under the contract with the insurance company. He could do nothing further in respect of them; they were entirely beyond his control. In no proper sense were they something either earned or received by him during the taxable year. The right to collect became the absolute property of the assignee without relation to future action by the assignor.
A mere right to collect future payments, for services already performed, is not presently taxable as "income derived" from such services. It is property which may be assigned. Whatever the assignor receives as consideration may be his income; but the statute does not undertake to impose liability upon him because of payments to another under a contract which he had transferred in good faith, under circumstances like those here disclosed.
As in Helvering v. Horst, just decided, the petitioner relies upon opinions here; but obviously they arose upon facts essentially different from those now presented. They do not support his contention. The general principles approved in Blair v. Commissioner, 300 U.S. 5, and applied in Helvering v. Horst, are controlling and call for affirmation of the judgment under review.
The CHIEF JUSTICE and MR. JUSTICE ROBERTS concur in this opinion.
- Case NameHELVERING, COMMISSIONER OF INTERNAL REVENUE v. EUBANK
- CourtUnited States Supreme Court
- DocketNo. 205
- JudgeHughes, McReynolds, Stone, Roberts, Black, Reed, Frankfurter, Douglas,Murphy
- Cross-ReferenceHelvering v. Eubank, 311 U.S. 122 (1940)
- Parallel Citation311 U.S. 12261 S. Ct. 14985 L. Ed. 8140-2 U.S. Tax Cas. (CCH) P978824 A.F.T.R. (P-H) 10631940 U.S. LEXIS 11041940-2 C.B. 2091940 P.H. P62,041
- Code Sections
- Index Termsgross income, assignment of income
- Jurisdictions
- LanguageEnglish
- Tax Analysts Electronic Citation1994 TNT 241-421940 LEX 23-745
