Gabel v. Commissioner

GEORGE H. GABEL, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. Gabel v. Commissioner Docket No. 38022. United States Board of Tax Appeals 25 B.T.A. 60; 1931 BTA LEXIS 1514; December 31, 1931, Promulgated *1514 The petitioner, attorney for a certain village and two school districts, held to be neither an officer nor an employee thereof, but an independent contractor, and compensation received therefrom for services rendered during the taxable years 1923, 1924 and 1926 is not exempt from Federal taxation. George H. Gabel, Esq., pro se. J. M. Leinenkugel, Esq., for the respondent. MCMAHON *60 This is a proceeding for the redetermination of the petitioner's tax liability for the years 1923, 1924 and 1926, for which the respondent has asserted deficiencies in the amounts of $3,217.92, $518.06 and $432.32, respectively. The petitioner assigns errors as follows: (1) The inclusion in assessable income of amounts received during the years 1923, 1924 and 1926 from the Village of Whitefish Bay, from School District #1 of Village of Whitefish Bay, and from School District #4 of Village of Shorewood; and (2) The overstatement in the respondent's deficiency letter of income for the years 1923 and 1924 by duplication of additions to income. With respect to the second issue, the respondent conceded that the amounts involved as shown in the deficiency*1515 letter were duplications and the parties stipulated in reference thereto, correcting the same, thus leaving only one issue in controversy. *61 The case was submitted for decision on a written stipulation of facts entered between the parties and testimony of the petitioner, the petitioner stating that his purpose in testifying was not to controvert the statements contained in the stipulation, but to testify as to matters not covered by the stipulation. We therefore set forth only such facts stipulated and such facts contained in the testimony of the petitioner not covered by such stipulation as are essential to the determination of the issue in controversy. FINDINGS OF FACT. The following findings of fact are taken from the stipulation: The petitioner is an attorney engaged in the general practice of law in Milwaukee County, Wisconsin, since 1904, maintaining his own office in the city of Milwaukee. The village of Whitefish Bay, is, and ever since about July 5, 1892, has been, a municipal corporation organized under the laws of the State of Wisconsin. On April 17, 1922, the petitioner was appointed village attorney by the village board of Whitefish Bay and ever*1516 since that time the petitioner has been the qualified and acting village attorney and the only attorney representing the village, except that in the case of John Blake v. The Village of Whitefish Bay, pending in the Circuit Court of Milwaukee County, a former attorney of said village was the attorney of record at the time the petitioner was appointed village attorney. The petitioner acted with said attorney in representing the village until December 27, 1923. The village paid the petitioner on the basis of (a) a monthly retainer of $50 to $75, which included the drawing of all routine resolutions, ordinances, contracts, etc., required by the village board, the giving of all legal opinions required by the village board or any of its officers and attending all meetings of the village board and such committee meetings as might be required for the purpose of advising the board and its committees in their deliberations, and (b) a per diem rate for all other services required by the village board. The general items of service performed by the petitioner for the village on a per diem basis during the year 1923 consisted of drafting bills to be presented to the Legislature of*1517 Wisconsin, requisite for the proper development of the village, and procuring the defeat of certain bills pending before the Wisconsin Legislature which in the opinion of the village board were inimical to the best interests of the village; appearance of the petitioner in certain so-called water litigation pending before the Wisconsin Railroad Commission, having general supervision of all public utilities, which litigation *62 involved the question of the kind of service and amount which the village should pay for water service which it was receiving from the village of Shorewood, an adjoining municipality; appearance by the petitioner in certain general litigation in which the village was a party; certain condemnation proceedings, the chief purpose of which was to acquire a village hall site and to widen two avenues; codification of village ordinances; and daily consultation with members of the village board and its various committees prior to the trial of the case of Blake v. Village of Whitefish Bay with reference to evidence to be presented, how it was to be procured, and the manner in which plaintiff's testimony was to be rebutted. The trial of this case lasted*1518 about 12 weeks and the petitioner was in daily consultation with either the entire village board, a committee of the board or some officers of the board in order to determine questions of policy as to the conduct of the trial. After the termination of the trial the petitioner was in constant consultation with officers and committees of the board and upon frequent occasions with the village board, to determine necessary steps to be taken in the final settlement of the action, which was a suit by a sewer contractor to recover "extras" for the construction of a sewerage system. The chief items of services performed by the petitioner for the village on a per diem basis during the year 1924 consisted of legislation, water litigation, and general litigation of the same nature and of similar services as performed in the year 1923; eminent domain proceedings covering the opening, widening and extending of seventeen various streets in the village; and the negotiation and transaction whereby the village procured the removal of the tracks of the Chicago & Northwestern Railway Company, which traversed the village longitudinally, in consideration of $140,000, to be paid to the Railroad Company*1519 for the land occupied by the tracks; and the necessary proceedings to issue the bonds of the village in said amount. The chief items of services performed by the petitioner on the per diem basis during 1926 consisted of eminent domain proceedings for the opening, widening and extending of sixteen various streets in the village, water litigation, and general litigation of the same nature and of similar services as in the year 1923; proceedings before the Wisconsin Railroad Commission to determine rates of fare, the limit of zones, and the service to be given by the local street railway lines serving the village. In the various proceedings had by the village board giving specific directions to the petitioner, he was referred to as "Village Attorney" and "Attorney for the Village." *63 The School District No. 4 of the village of Shorewood is a school district organized more than 20 years last past, under the general laws of Wisconsin. About 1912 the petitioner was appointed attorney for the school district by the director and district board of the school district and continued as such until about the close of 1925. While such attorney, the petitioner was paid by the*1520 school district for all of his services on a per diem basis and had practically the same arrangement regarding his services as that which he had with the village of Whitefish Bay. The method of compensation was a subject of frequent discussion between the petitioner and the school district board and it was determined in each instance that a per diem compensation would be more just and equitable to both parties than an annual compensation, owing to the fact that the amount of legal services required by the school district was uncertain and varied greatly from year to year. While the petitioner was acting as attorney for this school district he was the sole and only attorney employed by the school district and performed all the legal services required by the school district during said period. The chief items of services performed by the petitioner in the year 1923 for School District No. 4 of the village of Shorewood, in addition to attendance at board meetings and acting as general legal advisor to the board and its officers, consisted of the procuring of the vacation of several streets and alleys in two new school sites; the condemnation and purchase of land necessary to*1521 secure a new school site, at the north end of the village, the organization of said school district with authority to establish a school of industrial education; the construction of various school buildings and additions thereto; legislation involving the securing and passage of various bills pending in the legislature; and the issuance and selling of various bonds of said school district. The chief items of services performed by the petitioner during the year 1924, in addition to attendance at board meetings and acting as general legal adviser to the board and its officers, consisted of the completion of the condemnation and purchase of the school site at the north end of the school district; the issuance and sale of several bond issues of the school district; legislation; construction of two school buildings and the defense of a suit relating to the issuance of the bonds of the school district. School District No. 1 of the village of Whitefish Bay is a school district organized under the general laws of the State of Wisconsin and has been such school district for more than 20 years last past. *64 During the year 1922 the petitioner was appointed attorney of the school*1522 district by the district director and board and has been such attorney ever since his appointment. The petitioner was paid by the school district for all his services at the same per diem rate he was receiving as attorney for the village of Whitefish Bay. The chief items of services performed by the petitioner during the year 1926, in addition to attendance at board meetings and acting as general legal adviser to the board and its officers, consisted of cpndemnation and purchase of a school site; negotiations for the purchase of another school site; acquisition of a high school site by purchase, eminent domain proceedings and various other proceedings to determine the ownership of the tract of land involved; and procuring the issuance and sale of various bond issues of the school district to cover the acquisition of the three sites above mentioned; and the construction of various other buildings. During the years the petitioner acted as attorney for the village of Whitefish Bay and the school districts of Whitefish Bay and Shorewood, he continuously maintained his own office in the city of Milwaukee, and at no time was he exclusively engaged as attorney for the village and*1523 the school districts. As to all other facts contained in the stipulation, we find them to be as set forth in the stipulation which is on file in this proceeding and is incorporated herein by reference as if set forth fully. The following findings of fact are taken from the testimony of the petitioner: In performing his duties as village attorney the petitioner's work was directed either by the board itself or by some committee of the board. The case of Blake v. The Village of Whitefish Bay was tried in the State court by a jury for about 12 or 13 weeks and appealed to the supreme court of the State. In this case the board or some of its committees controlled the decision as to whether the case should be tried before a jury or before the court, as to what witnesses should be called, the general line of questions which should be put to the witnesses, and whether or not certain statutory objections to the contract should be raised at the trial. The board decided, very much against the petitioner's objections, to try the case before a jury. A great many meetings of the members of the board and the petitioner were had with reference to the case. The board or its members*1524 exercised the same form of control in the legislation work. The members of the board assisted in doing the work in the legislature, they determined questions of policy, and the method that should be used to procure the passage or defeat of bills. They very often accompanied the petitioner to Madison and did some of the work or participated in the work with the petitioner. *65 The same control and direction was exercised by the board or its members in the eminent domain proceedings and in the proceedings involving purchases of real estate. The board decided whether compromises should be made and determined whether certain lines of evidence should be used. The same control was exercised in a number of proceedings conducted before the Railroad Commission of Wisconsin. The petitioner rendered services in procuring the removal of the tracks of the Chicago & Northwestern Railway Company that traversed the village longitudinally, which required extensive negotiations and various court proceedings, securing of some legislation, issuing bonds, and negotiations with the railway company to determine what share of that price each municipality should pay. This work was done in conjunction*1525 with another adjoining municipality. In that entire transaction, excepting in so far as actual services in court were concerned or with the actual drawing of bills in the legislature, the members of the board or its committee participated very extensively in the actual doing of the work, as the members of the board had a very extensive knowledge of some of the legislators in Madison, which petitioner did not have, and they had their own ideas as to how certain legislation could be passed and how it could be defeated. The same control and direction was exercised by the respective boards or committees of the school districts. In condemnation proceedings commenced by the Shorewood school districts for the acquisition of a school site it became evident that it would be cheaper to buy the land than to condemn it. A great many negotiations took place with about forty different owneres. The board participated in the actual negotiations for the purchase of the land. So far as other services were concerned they were rendered practically under the same conditions as pertained to the services rendered to the village. The school district of Whitefish Bay is conterminous to the village*1526 of Whitefish Bay in its boundaries. The petitioner's office has been and now is located in the city of Milwaukee and served practically as a downtown office for the village of Whitefish Bay. Real estate men and contractors and other people who had any business with the village made it a habit of coming into petitioner's office for information and for negotiations. A great many inquiries were directed to the petitioner's office as to what kind of buildings could be built in different parts of the village and as to special assessment and things of that kind. The center of the village of Whitefish Bay is about 5 1/2 miles from the downtown section of Milwaukee. It is a suburb of Milwaukee. There is no intervening undeveloped territory between the city of Milwaukee*66 and the village of Whitefish Bay, but it is so far away from the downtown district of the city of Milwaukee that the petitioner's office was very convenient to the members of the board and others. The use of petitioner's office was discussed by the village board and the petitioner in arriving at the compensation to be paid to the petitioner. The petitioner was attorney of record in all proceedings, conducted*1527 the proceedings and trials and prepared the briefs - all under the supervision of the board, except the preparation of briefs. At the present time there are two practicing attorneys on the village board and during most of the years there was at least one practicing attorney as a member of the board. Amounts received as compensation from the village and school districts are as follows: Received from - [1926] Village of Whitefish Bay $4,515.00 $2,707.50 $2,490.00 School District No. 4 of the village of Shorewood 3,559.50 1,690.00 School district of the village of Whitefish Bay 1,315.00 Total 8,074.50 4,397.50 3,805.00 Grand total 16,277.00 OPINION. MCMAHON: Respondent contends that the petitioner is not an officer or employee of a political subdivision, but is an independent contractor. Whether or not the village of Whitefish Bay, School District No. 4 of the village of Shorewood, and School District No. 1 of the village of Whitefish Bay are political subdivisions of the Stae of Wisconsin is not questioned and need not be determined in this proceeding. In studying the facts before us, we are impressed with the similarity*1528 of the relationship existing between the petitioner and the village of Whitefish Bay, the school district of Whitefish Bay, and the school district of Shorewood, respectively, and that existing between an attorney and his client. In respect to compensation, pursuant to agreement the petitioner was paid by the village a certain amount as retainer to cover certain general services, and in addition a per diem rate to cover other services as requested by the board from time to time. He was paid a per diem rate only by the school districts, the per diem rate being considered more just and equitable to the petitioner and the school district because the amount of legal services was uncertain and varied greatly from year to year. The general services covered by the retainer in the case of the village consisted of attendance at meetings, *67 advice and counsel, and drawing of routine resolutions, ordinances, contracts, etc.; and the per diem rate covered legal services not covered by the retainer and such as would be requested from time to time. We see no difference in this arrangement from that usually and customarily entered into between an attorney and client of this character. *1529 His appointment was of no definite term and could be terminated at the pleasure of the respective boards. Section 17.13(1), Wisconsin Statutes, 1929. Petitioner's time was his own and neither the village board nor either of the school boards imposed any restrictions upon petitioner as to the number of his clients, municipal, political or otherwise. In this regard, the language of the court in Blair v. Byers, 35 Fed.(2d) 326, is significant and enlightening in determining the instant proceeding: We think this is sufficient to establish that he was free to engage, and was engaged, in other business for other clients; that he was a free professional agent as to the nature of his services and the advice that he would give. Nowhere in the record is it revealed to what extent, if at all, his services were subject to the control of the board of trustees. Furthermore, we are of opinion that an attorney who is engaged in this manner, who has not contracted to give to such a client his entire and exclusive services, does not thereby become an officer or employee in the sense of this statute. * * * [Italics supplied.] *1530 In the case of United States v. Butler, 49 Fed.(2d) 52, in distinguishing Metcalf & Eddy v. Mitchell,269 U.S. 514, the opinion states: Except that appellee was required to use his judgment and skill as a lawyer in serving the Board there is no similarity between his employment and that of Metcalf and Eddy. Unlike Metcalf and Eddy he was continuously employed by one political subdivision to render any and all legal services that might be required. The Board of Commissioners had first call upon his services and the right to demand and use all his time. He was not at liberty to take other employment if his services were required by the Board. * * * [Italics supplied.] In the instant proceeding, petitioner performed services not for one political subdivision, but for three, and during all the time was free to engage in the general practice of his profession and did so. George W. Fuller,9 B.T.A. 708. The use of petitioner's office by members of the various boards as a place for conferences, negotiations, consultations and discussions was in accordance with the customary use an attorney's*1531 office is put to by his clients. The members of the various boards, no doubt, demanded fuller and more detailed explanations and discussions of the matters handled by petitioner than the ordinary client, but, in our opinion, this unusual interest and active participation on the part of the members *68 was not such control as limited and restricted the use by petitioner of his legal judgment and discretion. It was the usual and customary interest in and direction and control of affairs by persons in public office who are responsible for the results, the results often determining their continuance in office. The petitioner in testifying stated the difference, as ascertained from his own experience, in the control exercised by the boards and the usual client was that a body of men occupying public office seem to have an idea that their responsibility is much greater than when they are conducting their own affairs. The control exercised by them over the petitioner was not a directing, restraining, or regulating control. We quote from *1532 David Burnet v. J. Jones, 50 Fed.(2d) 14, reversing S. J. Jones,17 B.T.A. 1131, cited by petitioner as follows: * * * The lawyer who is retained in the affairs of his client is not properly designated an employee. He is an officer of the court. As counsellor and advisor to his clients and as an advocate before the court, whatever action he takes is upon independent judgment illuminated by his learning, his skill, his experience and his ethics. The relationship of attorney and client is entered into and maintained with regard to these considerations and is not that of employer and employee. [Italics supplied.] See Burnet v. McDonough, 45 Fed.(2d) 944 (reversing James B. McDonough,16 B.T.A. 556), cited in the opinion with approval and followed. In our opinion the above quoted language is applicable to this proceeding and supports the view that the relationship between petitioner and the village board and school districts was not that of employer and employee. See *1533 Joseph Milton Howe,19 B.T.A. 849; Robert J. Cummins,19 B.T.A. 498; Burnet v. McDonough, supra. Not only were the members of the boards elected public officers to whom the public entrusted the management of their affairs (including the selection and appointment of a competent attorney), and whose return to office depended largely upon the successful conduct and result of such affairs, but during the time the petitioner acted as attorney at least one of the members was a practicing attorney and some of the members had an extensive knowledge in reference to some of the members of the Wisconsin Legislature which the petitioner did not have, and had their own ideas, as men versed in public affairs, as to how certain legislation could be passed and how it could be defeated. That the petitioner under such circumstances was influenced in his decisions and conduct of litigation and other matters is quite natural, yet such influence was not the control exercised by an employer over an employee, which is a determining factor of the existence of that relationship. *69 Clearly, from the foregoing discussion of the facts in the*1534 instant proceeding, petitioner does not qualify as an officer. Metcalf & Eddyv. Mitchell, Supra;W. A. Franken et al.,24 B.T.A. 39; George I. Haight,14 B.T.A. 844; affd., 52 Fed.(2d) 779; W. J. Howard,10 B.T.A. 62; affirmed by the Supreme Court per curiam, 280 U.S. 26, in authority of Metcalf & Eddy v. Mitchell, supra. In Metcalf & Eddy v. Mitchell, supra, the court stated: * * * An office is a public station conferred by the appointment of government. The term embraces the idea of tenure, duration, emolument and duties fixed by law. Where an office is created, the law usually fixes its incidents, including its term, its duties and its compensation. Furthermore, section 28 of Article VI of the Wisconsin Statutes of 1929 provides that all officers, executive and judicial, except such inferior officers as may be by law exempted, shall, before they enter upon the duties of their respective offices, take and subscribe to an oath of office. There is no evidence that the petitioner was required to or did take such an oath. In our opinion*1535 petitioner was not an officer or employee of a political subdivision of a State, but an independent contractor, and, as such, compensation received from the village and two school districts is not exempt from Federal tax. As respondent conceded that the amount of $8,704.50 for the year 1923 and the amount of $4,397.50 for the year 1924 were erroneously duplicated as additions to income in the recomputation of the petitioner's tax liability, as appears in the statement attached to the deficiency letter, and as the parties stipulated to correct such error, Judgment will be entered under Rule 50.