Emerson v. Commissioner

SIGURD A. EMERSON, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. Emerson v. Commissioner Docket Nos. 77307, 77309. United States Board of Tax Appeals 35 B.T.A. 901; 1937 BTA LEXIS 821; April 20, 1937, Promulgated *821 1. A township attorney appointed to a statutory office pursuant to statute, held an officer of the township. 2. Compensation by both retainer and fees were received as an officer of the township and although fees were approved by township committee retroactively there was no statutory requirement that compensation be fixed in advance. Held, all compensation exempt from taxation since it was received for performance of ordinary duties of a township attorney. Clark McK. Whittemore, Esq., for the petitioner. S. L. Young, Esq., for the respondent. HARRON *901 These proceedings, which have been consolidated, involve deficiencies of $117 and $86.09 in income taxes for the years 1930 and 1932, respectively. For 1930 the respondent added $5,993.53 and for 1932, $3,262.79 to the petitioner's distributive share of the income of a law partnership and the petitioner claims $4,011 of the amount added for 1930 and all of the amount added for 1932 to be exempt from Federal taxation because received by him as an officer of a subdivision of the state, the township of Hillside, Union County, New Jersey. The balance of the respondent's additions*822 to the petitioner's taxable income is not in issue. FINDINGS OF FACT. The petitioner is an attorney at law of the State of New Jersey. During the tax years in question he was one of four members of the law partnership of Whittemore & McLean of Elizabeth, New Jersey. The General Act Concerning Townships of 1899, a New Jersey statute, makes provision for elective and appointive officers of townships. *902 Section 5 of that act, amended, is set forth in the margin. 1 This act also provides that the term of appointive officers shall be one year and requires the making and filing of an oath to faithfully execute the duties of the office to which appointed. In the "General Powers of Township Committees" this act further authorizes the township committee to enact ordinances for various purposes including the fixing of annual salary or compensation to be paid each person elected or appointed to any township office and the time and manner of payment. This statute is found in volume 4 of the Compiled Statutes of New Jersey, sections 5, 6, 7, 32, at pages 5571, 5572, 5585. The minutes of organization meetings of the township committee of Hillside, January 1, 1930, and January 1, 1932, show*823 that the petitioner was appointed township attorney for the year 1930 on "a $500 retainer" and township attorney for the year 1932 on "a retainer $500of per annum and fees." Petitioner subscribed and filed an oath to perform all duties of the office of township attorney for both years. The petitioner during the two years involved handled all the legal matters of the township of Hillside. He attended all meetings of the township committee, the board of health, the adjustment board, and all subordinate boards of the township; *824 prepared all contracts regarding construction of improvements in the township; prepared all ordinances pertaining to improvements, regulations, licenses; prepared all resolutions of the township committee; advised the township committee or any officer of the township on legal questions referred to him; rendered opinions to the tax collector, the tax assessor, and the zoning adjustment board; advised the assessment commissioner and handled tax appeals; and in 1932 represented the township in court proceedings in a certiorari tax suit instituted to review a proceeding before the township committee. No other attorney was employed by the township. The township of Hillside did not own or operate any public utilities. Frequently the officials of the township would call upon the petitioner for legal opinions without any formal request by the township committee. Citations in litigation against the township were sometimes forwarded directly to the petitioner by the township clerk before they came to the attention of the township committee and he would prepare the case immediately before the meeting of the township *903 committee. In matters of litigation the township committee*825 would take whatever action the petitioner suggested. The petitioner was paid by the township a retainer of $500 a year both in 1930 and 1932 as compensation for attending meetings of the township committee, board of health, and subordinate boards. For the balance of his services to the township he submitted vouchers in whatever amount he thought reasonable, and they were always paid as a matter of course. This additional compensation amounted to $7,182 in 1930 and $2,762.79 in 1932. The petitioner's total receipts of $7,682 and $3,262.79 from the township of Hillside in 1930 and 1932, respectively, were deposited in the partnership bank account. The petitioner was engaged in private law practice and did not devote all his time to the work of the township. He did much of the work of the township at his own offices with the assistance of employees of the partnership. The partnership allocated its office expenses between its public and private work. The petitioner was entitled to one-fourth of the net income of the partnership. OPINION. HARRON: On the pleadings petitioner raises an issue with respect to the bar of the statute of limitations against the assessment of*826 a deficiency for both of the taxable years involved. This contention appears to have been abandoned but in any case it must fail in the absence of evidence showing the date on which the petitioner's returns were filed. Fremont Canning Co.,17 B.T.A. 484; Mary G. Iba,20 B.T.A. 222. The remaining issue in these proceedings is whether petitioner's compensation as township attorney for the township of Hillside, New Jersey, in 1930 and 1932 is exempt from Federal income tax under the constitutional immunity of officers of state instrumentalities from Federal taxation. Petitioner contends that he was an officer of a political subdivision of the State of New Jersey. We agree that the petitioner was an officer of the township of Hillside. Under the Township Act of New Jersey, a township attorney is specifically designated as one of the "appointive township officers" to be appointed by the township committee. Pursuant to the statute the township committee duly appointed the petitioner to that office by official resolution. He took the oath of office which the statute requires of all officers whether elective of appointive. *827 His term was fixed by statute at one year and he handled all the legal business of the township during his two terms of office. It is conceded by the respondent that in all of his work for the township the petitioner was engaged in the performance of essential governmental functions. The case of Halsey v. Helvering, 75 Fed.(2d) 234, *904 held that a township engineer in New Jersey, another of the "appointive township officers" provided for in the same section of the New Jersey Township Act involved here, was a township officer within the constitutional immunity of officers of state subdivisions from Federal taxes. On the authority of that case we hold the petitioner to be an officer of the township of Hillside. The question then arises whether the petitioner's entire compensation received from the township of Hillside was received by him as an officer and is therefore exempt from tax, or whether the fees he received over and above his retainer were for services outside of his official duties and were therefore not received by him as an officer. Where the local statutes require that the compensation of an officer be fixed in advance and shall*828 not be subject to increase or diminution during his term of office, it has been held that any compensation in addition to that fixed in advance was necessarily paid under special engagements for the performance of services outside of the duties of office because of the well established principle that where the emoluments of an office are fixed no additional compensation can be paid for the performance of the required duties of office. George M. Stevens,31 B.T.A. 1035. That principle, by its terms, applies where the compensation is "fixed" in amount in advance. The compensation of this petitioner was not fixed in amount, in advance, except the retainer covering his attendance at meetings, nor does it appear from the terms of the New Jersey Township Act, or from any local decisions which we have been able to find, that the statute requires the amount of the compensation of the township attorney to be fixed in advance. Comp. Stats. of New Jersey, vol. 4, p. 5585, § 32. Cf. Smathers v. Board of Chosen Freeholders,113 N.J.L. 281; *829 174 Atl. 336, where the amount of compensation was fixed after the performance of services. The Township Act apparently provides that if the amount of compensation is fixed in advance it shall not be altered so as to affect any one then in office. Potter v. Union Township,103 Atl. 78, affirming 106 Atl. 215. In the case of Halsey v. Helvering, supra, the compensation of the township engineer was fixed as to a retainer of $200 per annum, plus 5 percent of the amount of all contracts for public improvements awarded by the township during his administration. It is apparent that the amounts Halsey received above the retainer were subsequently approved by the township committee each time contracts were approved and these amounts were at a rate of 5 percent. His compensation was not fixed in advance except as to the rate and method of payment. The Court of Appeals for the District of Columbia found that all of Halsey's services were performed in execution of his duties as township engineer. In this proceeding, *905 all the service performed by petitioner were those ordinarily performed by a township attorney*830 and we conclude were in the execution of his official duties. Cf. State Consolidated Publishing Co. v. Hill,3 Pac.(2d) 525 (Ariz., 1931). While no rate of compensation was fixed, as in the Halsey case, the method was clearly to pay him on a quantum meruit basis by approving payment of fees to him after services were completed. The township committee approved all the payments made to him during his two terms of office in the amounts involved here, thereby fixing his compensation retroactively. We believe this is permissive under the Township Act governing the township of Hillside, Comp. States. of New Jersey, vol. 4, p. 5585, § 32, which gives the township committee authority to fix the method of compensation as well as the compensation. See also, Smathers v. Board of Chosen Freeholders, supra, where the fixing of compensation retroactively is approved under a similar statute. It is accordingly held, following the authority of Halsey v. Helvering, supra, that in view of the pertinent statute of New Jersey governing townships, the entire compensation paid by the township to its officer, the petitioner, for*831 services in execution of his duties, is properly exempt from Federal taxation. Reviewed by the Board. Decision will be entered for the petitioner. DISNEY DISNEY, dissenting: I dissent except as to the amount of the retainer received by petitioner. The appointment of petitioner was on "a $500 retainer" for the year 1930, and on "a retainer of $500 per annum and fees" for the year 1932. It seems obvious that the "fees" above the retainer were necessarily the subject, in each instance, of agreement. Agreement is contract. It seems to me therefore, that it is inescapable that as to the compensation received above the retainer the petitioner was an independent contractor. Certainly, as to said fees, his original employment did not comprise a completed contract, the amount of compensation being left undecided. If petitioner and the township had been unable to agree upon the fees, the township, so far as I can see, could have employed someone else to do the work in any particular instance; or, if petitioner had performed the services in any particular instance without previous agreement as to fees, he would have had to rely upon quantum meruit. His original*832 appointment, therefore, offered no means of determining his compensation. Further contract being necessary as to all amounts except the retainer, in my opinion petitioner was an independent contractor. *906 Furthermore, his duties were not prescribed either by statute or township ordinance, and, except for the attendance of meetings of the township committee for which he was paid $500, he had no tenure of office, but each case in which he rendered service was a separate matter, subject to agreement as to payment of fees. This situation seems to me squarely to negative the essential elements of the definition of the term "officer." The very fact that the $500 was received for definite services - attendance of township committee meetings - seems to exclude the remainder of petitioner's earnings from consideration in the same category with those earned under the continuous tenure of an officer, on a fixed basis, and necessarily to leave them subject to contract in each instance. In Saxe v. Anderson,19 Fed.Supp. 21, the earnings of a special guardian and referee appointed by the court were refused exemption with the statement: "Here the taxpayer's tenure*833 and jurisdiction were limited to the case referred to him." Except as to the attendance at township committee meetings, duly compensated for by a fixed sum and contracted for a fixed period, I must apply the above language to the present petitioner. LEECH agrees with this dissent. Footnotes 1. Section 5. Appointive township officers.↩ - In addition to the officers to be elected, the township committee may employ or appoint a township attorney, a township engineer, and a township building inspector, none of whom need be a resident of the township, and a township physician; no member of the township committee shall be eligible for appointment to any office that is now or hereafter may be required to be filled by said committee, except as may be otherwise expressly provided by law. Cumulative Supplement to Compiled Statutes of New Jersey, 1911-1924, Vol. 2, p. 3672. (Amending P. L 1899, Sec. 5, p. 374, Compiled Statutes, Vol. 4, p. 5571.)