Mulqueen v. Commissioner

MARY G. MULQUEEN, EXECUTRIX OF THE LAST WILL AND TESTAMENT OF MICHAEL J. MULQUEEN, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. Mulqueen v. Commissioner Docket No. 41444. United States Board of Tax Appeals 25 B.T.A. 441; 1932 BTA LEXIS 1524; January 30, 1932, Promulgated *1524 Amounts received by the estate of a deceased lawyer pursuant to a contract with another lawyer, who had been substituted as attorney in condemnation proceedings in place of decedent, for the division of contingent fees, are taxable income of the estate and not gifts from the substituted attorney. Thomas B. Gilchrist, Esq., for the petitioner. William E. Davis, Esq., for the respondent. STERNHAGEN *441 The respondent determined deficiencies in income tax of decedent's estate amounting to $105.71 for the period October 12, 1924, to December 31, 1924, $21,026.21 for 1925, and $918.88 for 1926. He included in petitioner's income certain amounts received in those years in respect of contingent fees in condemnation cases which the decedent had been conducting as an attorney before his death. The petitioner's only contention is that these amounts were gifts to the estate and hence excluded from income. FINDINGS OF FACT. Petitioner is the sole executrix under the will of Michael J. Mulqueen, who died October 12, 1924. The decedent had been a practicing *442 attorney who specialized in condemnation proceedings, and at the time of his*1525 death he had uncompleted contracts with clients, of which the following is typical: I, owner of for myself, my heirs, executors, administrators and assigns, hereby retain Michael J. Mulqueen, attorney-at-law, to appear for and represent the said property in any proceedings that might be taken by condemnation or otherwise by the City of New York, to acquire title to said property. I authorize him to take such steps as he may deem necessary to obtain a proper amount to be paid or awarded for the said property, and I hereby agree to pay, and do hereby assign, to said Michael J. Mulqueeen, for his services in the matter per cent of whatever award and interest which may be paid or awarded for the property by the city authorities. Charles Lamb was a lawyer who had been an employee of decedent and who continued after decedent's death to occupy the same offices. He was substituted for decedent as attorney in such proceedings. Some sort of oral arrangement was made by Lamb and petitioner about the fees in cases pending at the time of decedent's death. No written agreement between them in respect of such cases or the fees from them was made until July 6, 1925, the petitioner having*1526 been advised by her counsel in Lamb's presence that Lamb had no legal obligation and that such an agreement could not be made. On July 6, 1925, the following written agreement was made: MEMORANDUM OF AGREEMENT between MARY G. MULQUEEN (herein referred to as "Mrs. Mulqueen") individually and as executrix under the Last Will and Testament of Michael J. Mulqueen, deceased, (herein referred to as "Mr. Mulqueen"), party of the first part, and CHARLES LAMB, attorney at law (herein referred to as "Mr. Lamb"), party of the second part; WHEREAS, arrangement was made by Mrs. Mulqueen and Mr. Lamb on or about the 31st day of October 1924 for the completion by Mr. Lamb of certain proceedings in which Mr. Mulqueen at the time of his death was acting as attorney and in which Mr. Lamb is or may hereafter be retained as attorney, for the reduction of municipal assessments and for the acquisition by condemnation by the City of New York of real property, and which are enumerated on Schedules 1 to 12 inclusive attached hereto; and WHEREAS, Mr. Lamb has completed most of the proceedings enumerated on said Schedules 1 to 7 inclusive and an accounting has been had between Mr. Lamb and Mrs. Mulqueen*1527 in relation to the division of fees received and to be received under the terms of the aforesaid arrangement whereby the portion thereof estimated to be equal to the amount earned by Mr. Mulqueen prior to his death may be paid into his estate; and WHEREAS, Mrs. Mulqueen desires to be relieved from any further liability or expense in connection with the continuation of the incompleted proceedings on Schedules 1 to 12 inclusive; Now, THEREFORE, THIS AGREEMENT WITNESSETH: Mr. Lamb will, except as otherwise provided herein, in accordance with the terms hereinafter specified, perform all professional services necessary or proper to complete the pending and unfinished proceedings enumerated on Schedules 1 to 7 inclusive, and will assume and promptly discharge all obligations *443 incurred (whether before or after Mr. Mulqueen's death) in connection with the proceedings enumerated in Schedules 1 to 12 inclusive, and will indemnify Mrs. Mulqueen individually and as Executrix, from liability therefor. Mrs. Mulqueen, individually and as Executrix, will release, and hereby does assign and transfer to Mr. Lamb all her right, title and interest as an individual or as an Executrix*1528 in all claims against clients for professional services rendered during his life by Mr. Mulqueen which are listed on Schedules 8 to 12 inclusive. It is agreed as follows: 1. Schedule I. Mrs. Mulqueen is to be entitled to receive the entire amount of uncollected fees in the cases set forth on Schedule I, provided, however, that the collection thereof shall be made by her own attorneys and at her own expense. 2. Schedule II. Mr. Lamb is to collect the following claims on Schedule 2 and is to receive for his services two and one-half per cent (2 1/2%) and Mrs. Mulqueen ninety-seven and one-half per cent (97 1/2%) of the fees collected, viz: * * * 3. Schedule IV. (a) The following claim is to be retried: * * * Mr. Lamb is to retry the aforesaid claim and is to receive for his services 10% of the fee based on the present award and 50% of any increase in the amount of the fee collected that may be attributed to the retrial. Mrs. Mulqueen is to receive 90% of the fee based on the present award and 50% of any increase in the amount of the fee collected that may be attributed to the retrial. If the aforesaid claim should not be retried Mr. Lamb is to receive*1529 10% and Mrs. Mulqueen 90% of the fee based on the present award. (b) The following claim is to be appealed: * * * Mr. Lamb is to take an appeal from the award upon the aforesaid claim and is to receive for his services 15% of the fee based on the present award, and 75% of any increase in the amount of the fee that may be collected as a result of the appeal. Mrs. Mulqueen is to receive 85% of the fee based on the present award and 25% of any increase in the amount of the fee that may be collected as a result of the appeal. If an appeal should not be taken Mr. Lamb is to receive 10% and Mrs. Mulqueen 90% of the fee based on the present award. 4. Schedule V. (a) The following claims are to be appealed: * * * Mr. Lamb is to take an appeal from the awards upon the aforesaid claims and is to receive for his services 15% of the fees based on the present awards and 75% of any increase in the amount of the fees that may be collected as a result of the appeal. Mrs. Mulqueen is to receive 85% of the fees based on the present awards and 25% of any increase in the amount of the fees that may be collected as a result of the appeal. If an appeal should not be taken Mr. Lamb*1530 is to receive 7 1/2% and Mrs. Mulqueen 92 1/2% of the fees based on the present awards. * * * Mr. Lamb is to take an appeal in the above named matter. As no award has been allowed, he is to receive for his services 75% and Mrs. Mulqueen 25% of the fee based on the award that may be collected as a result of the appeal. * * * *444 Mr. Lamb is to take an appeal from the award upon the aforesaid claim and is to receive for his services 20% of the fee based on the present award and 75% of any increase in the amount of the fee that may be collected as a result of the appeal. Mrs. Mulqueen is to receive 80% of the fee based on the present award and 25% of any increase in the amount of fee that may be collected as a result of the appeal. If an appeal should not be taken Mr. Lamb is to receive 7 1/2% and Mrs. Mulqueen 92 1/2% of the fee based on the present award. (b) The following claims are to be collected: * * * Mr. Lamb is to collect the aforesaid claims, and is to receive for his services 7 1/2% and Mrs. Mulqueen 92 1/2% of the fees collected. 5. Schedule VI. (a) The following claims are to be appealed: * * * Mr. Lamb is to take an appeal from the*1531 awards upon the aforesaid claims and is to receive for his services 25% of the fees based on the present awards and 75% of any increase in the amount of the fees that may be collected as a result of the appeal. Mrs. Mulqueen is to receive 75% of the fees based on the present awards and 25% of any increase in the amount of the fees that may be collected as a result of the appeal. If an appeal should not be taken Mr. Lamb is to receive 15% and Mrs. Mulqueen 85% of the fees based on the present awards. (b) The following claims are to be collected: * * * Mr. Lamb is to collect the aforesaid claims and is to receive for his services 15% and Mrs. Mulqueen 85% of the fees collected. 6. Schedule VII. (a) The following claims are to be collected: * * * Mr. Lamb is to collect the aforesaid claims and for his services is to receive 75% and Mrs. Mulqueen 25% of the fees collected. 7. There shall be deducted from all fees before division, as herein provided, all fees due forwarding attorneys and all expert fees not fully recovered from clients. 8. Among the debts of the Mulqueen law business that are outstanding and past due and for which Mr. Lamb will personally*1532 assume responsibility, are the following: * * * IN WITNESS WHEREOF the parties hereto have hereunto set their hands and seals this 6th day of July, 1925. [Signed] MARY G. MULQUEEN. (L.S.) CHARLES LAMB. (L.S.) The following amounts were received by petitioner from Lamb in respect of proceedings which were unfinished at the time of decedent's death: $2,906.59 in 1924, $135,280.24 in 1925 before and after July 6, and $27,234.82 in 1926. OPINION. STERNHAGEN: The petitioning executrix, having admittedly received the amounts in question from Lamb, omitted them from the *445 estate's income-tax return, and now urges that such omission was proper because the amounts were gifts from Lamb and hence were not within statutory gross income as described in section 213(a), Revenue Acts of 1924 and 1926, but were expressly excluded therefrom by section 213(b)(3). The argument is that the estate had no legal right to any part of the fees; and that therefore what Lamb gave up he gave gratuitously, with knowledge that he was not legally obligated, and that this is not income to the estate, but a gift. The evidence does not support the argument. While it may be true under*1533 New York law that the deceased attorney's representative could not, in respect of some of the condemnation proceedings, have recovered from the decedent's clients any compensation under the contingent retainers, ; ; ; , it is also true that where some substantial services were performed by the deceased, reasonable compensation could be had, ; see note . The evidence does not show, except through the provisions of the contract of July 6, 1925, whether in this respect there was any foundation for compensation to decedent or his representatives or any fair legal basis for a claim. The contract rather indicates that services had been performed by the decedent sufficient to support a claim, although the extent of such services and the amount of any such claim could not be determined from the evidence. The amounts here in question, however, were received not from the decedent's clients by virtue of his retainers, but from Lamb under an arrangement of some*1534 sort which later was embodied in a written contract. As between Lamb and petitioner there was a recognition of such a balance of claims as to require an "arrangement" which culminated in a formal contract. On its face it indicates a valid consideration and dispels any suggestion of gift. Even if, as petitioner's counsel suggests, Lamb made new contingent contracts with the clients (which we can not necessarily infer from the bare testimony that Lamb was "substituted"), and then contracted to share with petitioner, who was not a lawyer, such a sharing contract might be enforceable against him if not by him, since he would not be heard to raise the defense that his contract was in violation of law or the canons of professional conduct. ; . Since, however, he has performed under it and the petitioner has received under it, its validity is not justiciable here. See ; . Even if it were plainly invalid, this would not demonstrate that the amounts already received under it were gifts. *1535 . Rather to the contrary, the *446 existence of the contract would tend to show a lack of any intention to make a gift. Cf, . Income acquired through illegal transactions is nevertheless taxable, ; ; and so is an amount in excess of that legally due, ; affd., . The evidence to establish a gift was all given by the petitioner, who seems to have no definite idea of what was done or why. Lamb, who is alleged to have made the gift, did not give evidence, and there is in the record nothing outside the contract to indicate his actual intent or his own construction of the arrangement. If this had been a gift from him of money which had rightfully been his own, it would have been within his taxable income, with no deduction, since gifts are not deductions to the donor, section 215. Whether he took such a deduction or omitted the amount from his gross income, thus in either case*1536 indicating that he did not regard the transaction as a gift, does not appear in evidence, and we can not assume favorably to petitioner that he did not, or that her view that he made a gift reflects his intention. The petitioner constructs her argument as if the gift exemption were an omnibus provision embodying any receipt which can not be fitted into the several categories set forth in the statutory description of gross income. This is contrary to good reasoning. Claiming such exemption, the petitioner must prove affirmatively that what she received was a gift; and failing to prove it to be a gift, it may properly be held within the broad definition of gross income, and that the respondent's determination to that effect has not been overcome. Judgment will be entered for the respondent.