Batman v. Commissioner

Last updated
Batman v. Commissioner
Seal of the United States Court of Appeals for the Fifth Circuit.svg
Court United States Court of Appeals for the Fifth Circuit
Full case nameRay L. Batman and Edith G. Batman v. Commissioner of Internal Revenue
DecidedMay 22, 1951
Citation(s) 189 F.2d 107 (5th Cir. 1951)
Case history
Prior historyJudgement for respondent, 9 TCM (CCH) 210 (1950)
Subsequent historyPetition for rehearing denied, August 7, 1951; cert denied, 342 U.S. 877 (1951)
Holding
Partnership was not formed between petitioner and minor son since all activities that formed it were initiated by petitioner, not son, and record did not suggest any involvement by son in creating partnership, therefore farm income from both years in dispute is taxed as individual income. United States Tax Court affirmed.
Court membership
Judge(s) sitting Joseph Chappell Hutcheson, Jr., Wayne G. Borah and Robert Lee Russell
Case opinions
MajorityHutcheson
Laws applied
Internal Revenue Code

Batman v. Commissioner, 189 F.2d 107 (5th Cir. 1951), [1] is a 1951 decision of the United States Court of Appeals for the Fifth Circuit in the area of partnership taxation. It concerned a bid by a Texas Panhandle farmer to convert his farm into a family partnership by transferring some of its assets to his teenaged son. A three-judge panel unanimously affirmed the decision of the United States Tax Court that disallowed this.

Contents

The Tax Court judge had not found that any of the actions taken to convert the farm into a partnership between father and son were the result of a genuine desire by the young man to be his father's partner. Although he had been doing a fair share of the farm's work, it seemed his father had taken all the steps to make him a partner, against the advice of his banker. The sole reason for the action was found to be a desire by the petitioner to reduce his individual tax liability.

Joseph Chappell Hutcheson, Jr., then the circuit's chief judge, wrote for the panel in affirming the Tax Court's holding, although he also left intact some of the refunds it had granted. In a later case, the Tax Court found that a family partnership was formed for some subsequent tax years. While it has not been cited in many later tax cases, [2] its unintentionally humorous title, [3] suggesting a lawsuit between Batman and Commissioner Gordon from the DC Comics franchise, has earned it some notoriety in legal circles. [4] [5]

Underlying dispute

After spending his teen years working in wheat fields around the country, Ray Batman settled down on his own farm near Perryton, Texas, in 1923. His wife Edith bore a daughter and a son. By 1942 he had done well enough to purchase some of the land he had been renting. Three years later he farmed and ranched 200 head of cattle on over 6,500 acres (2,600 ha) of land near Perryton and in nearby Harper County, Kansas. [6]

Batman was impressed by his son, Gerald, who worked hard on the farm on his school vacations and expressed interest in becoming a farmer himself. In either late 1943 or early 1944, he approached his accountant about making Gerald a partner in the farm, even though his son was only 14 at the time. The accountant tried to dissuade him from doing so, saying that the Treasury Department did not have a favorable view of such partnerships among family members, seeing them as a potential tax dodge. [6]

Over the next two years he distributed some of the farm's assets and profits to Gerald, per an oral agreement he claimed the two had made. He and his wife filed their tax returns reflecting this. The Internal Revenue Service (IRS), however, did not consider the partnership between Ray and Gerald to have been legitimately formed and assessed both the Batmans almost $10,000 each in extra income tax for the years 1944 and 1945. [6]

Litigation

The Batmans filed an appeal of the IRS's determination in United States Tax Court. It was not heard there until 1950. Judge Eugene Black issued a memorandum opinion in March upholding the IRS. [6]

While he agreed that some of the facts on the record supported Batman's assertions, he could not find that the partnership between father and son had been formed at the initiative of both parties. "The question of whether the partnership here in question is to be recognized for income tax purposes depends upon whether the parties, in good faith and acting with a business purpose, intended to join together as partners in the present conduct of the enterprise," he wrote, citing the Supreme Court's decision in Commissioner v. Culbertson , which had involved a similar division of a family-owned ranch among sons. [7] "It seems to us," he continued,

... that when petitioner's testimony (Gerald did not testify) concerning this alleged partnership is boiled down it amounts to about this: Petitioner decided to take Gerald, who was then about 14 years of age, in as a partner and undertook to do it without saying much to Gerald about it. In other words, it does not seem to us to have been an arm's length transaction between petitioner and Gerald but was more or less a unilateral transaction in which petitioner played the principal part and Gerald's part was passive. [8]

Ray Batman claimed that his son was a silent partner, but Black could not find anything in the record which supported that. Since everything else suggested that the older man had continued to run the farm by himself as before, he agreed with the IRS that no partnership existed. He did, however, allow some of the deductions that the agency had denied Batman for those years. [9]

The Batmans appealed the decision to the Fifth Circuit Court of Appeals. They claimed the Tax Court had given too much weight to their son's infancy, Ray Batman's status as head of the farm and Gerald's being the silent partner. A three-judge panel composed of Joseph Chappell Hutcheson, Jr., Wayne G. Borah and Robert Lee Russell took the case and rendered a decision over a year later, in 1951. Unanimously, they agreed with Black. [10]

After briefly reviewing the parties' arguments, Hutcheson stated unequivocally that the court agreed with the IRS. "But for the partnership label affixed to it by the father, the inventor, creator, and deus ex machina of the plan for increasing his family's net earnings by decreasing the taxes accruing on them, no one would have any difficulty in seeing the arrangement for what it is, another attempt of the earner of the income to have his cake and eat it too, vicariously, indeed, for the present through his son." [11] He likened it to the scheme before the Supreme Court two decades earlier in Lucas v. Earl , where the justices had disallowed a man's attempt to avoid taxes on half his income through a contract with his wife. [12]

Hutcheson went on to lament the difficulty courts had in seeing through the obfuscatory use of the term "partnership" in these cases:

The confidence with which the taxpayer argues his case, the apparent difficulties attending the pointing out of its weaknesses, all proceed from the simple fact that sometimes, because of its very obviousness, it is difficult to see clearly a fact which, once seen, looms so large and is so unmistakable that the wonder is it was not seen, and its significance understood, long before.

This is just another of those cases, however, common in the law, as in other matters, where, having given a name to a set of facts, consequences are attributed to the name or label, as used, which are entirely foreign to the subject matter labeled ... If courts and judges were a little wiser, or not quite so wise; if we could see, as we should see, face to face, or, though not as through a glass darkly, not quite so clearly as we sometimes erroneously think we see; if we fully understood semasiology and the uses and abuses of words; we should be as little troubled, should have as little difficulty, in piercing through the name "partnership" to the facts in family partnership cases ... If knowing, or using, a little less of technical legal reasoning, we knew and used a little more of common sense; if, as the child, in the story of the Emperor's Garment, saw through the pretense to the fact, that the Emperor in reality had no garment on; if, in short, we could see this case, as it really is, we could easily see that what is presented as a partnership here is really not one at all. It is merely an arrangement for shoring up and expanding the family fortunes at the expense of the tax collector. [13]

That August, the Batmans' petition to the Fifth circuit for a rehearing was denied. [10] Later that year the Supreme Court denied their petition for certiorari , ending the case. [14]

Subsequent proceedings

The Batmans challenged a later IRS finding, relying on the first case, that no partnership had existed in the years 1946 and 1947 either. Again the Batmans challenged it in court. The case went again to the Fifth Circuit, which in 1956 ruled in their favor. [15]

Hutcheson, who again wrote for the panel, distinguished the two cases by one factor: Gerald's testimony. "Twenty-five years old on this trial and still an active partner with his father, eleven years after the beginning of their association, he was the chief witness," the judge wrote. "His testimony, including cross-examination, occupied thirty-six pages of the record. Clear, direct, positive, and convincing, it fully supported the partnership claim for 1946 and 1947 ... Taking it over all, it presents a clear picture of a true farming partnership of father and son, entered into as a part of a plan, earlier evidenced in the gifts of land and cattle to the son for making his son a successful farmer." [16]

Related Research Articles

State Street Bank and Trust Company v. Signature Financial Group, Inc., 149 F.3d 1368, also referred to as State Street or State Street Bank, was a 1998 decision of the United States Court of Appeals for the Federal Circuit concerning the patentability of business methods. State Street for a time established the principle that a claimed invention was eligible for protection by a patent in the United States if it involved some practical application and, in the words of the State Street opinion, "it produces a useful, concrete and tangible result."

United States Tax Court United States federal court dealing with tax matters

The United States Tax Court is a federal trial court of record established by Congress under Article I of the U.S. Constitution, section 8 of which provides that the Congress has the power to "constitute Tribunals inferior to the supreme Court". The Tax Court specializes in adjudicating disputes over federal income tax, generally prior to the time at which formal tax assessments are made by the Internal Revenue Service.

Irwin Schiff American activist (1928–2015)

Irwin Allen Schiff was an American libertarian and tax resistance advocate known for writing and promoting literature in which he argued that the income tax in the United States is illegal and unconstitutional. Judges in several civil and criminal cases ruled in favor of the federal government and against Schiff. As a result of these judicial rulings Schiff was in a hospital prison serving a sentence of 162 months at the time of his death at the age of 87. The Federal Bureau of Prisons reported that Schiff died on October 16, 2015.

Tax protesters in the United States have advanced a number of arguments asserting that the assessment and collection of the federal income tax violates statutes enacted by the United States Congress and signed into law by the President. Such arguments generally claim that certain statutes fail to create a duty to pay taxes, that such statutes do not impose the income tax on wages or other types of income claimed by the tax protesters, or that provisions within a given statute exempt the tax protesters from a duty to pay.

Tax protesters in the United States advance a number of conspiracy arguments asserting that Congress, the courts and various agencies within the federal government—primarily the Internal Revenue Service (IRS)—are involved in a deception deliberately designed to procure from individuals or entities their wealth or profits in contravention of law. Conspiracy arguments are distinct from, though related to, constitutional, statutory, and administrative arguments. Proponents of such arguments contend that all three branches of the United States government are working covertly to defraud the taxpayers of the United States through the illegal imposition, assessment and collection of a federal income tax.

<i>Murphy v. IRS</i>

Marrita Murphy and Daniel J. Leveille, Appellants v. Internal Revenue Service and United States of America, Appellees, is a controversial tax case in which the United States Court of Appeals for the District of Columbia Circuit originally held that the taxation of emotional distress awards by the federal government is unconstitutional. That decision was vacated, or rendered void, by the Court on December 22, 2006. The Court eventually overturned its original decision, finding against Murphy in an opinion issued on July 3, 2007.

We the People Foundation for Constitutional Education, Inc. also known as We the People Foundation is a non-profit education and research organization in Queensbury, New York with the declared mission "to protect and defend individual Rights as guaranteed by the Constitutions of the United States." It was founded by Robert L. Schulz. At the U.S. Department of Justice, he is known as a "high-profile tax protester". The Southern Poverty Law Center asserts that Schulz is the head of the leading organization in the tax protester movement. The organization formally served a petition for redress of grievances regarding income tax upon the United States government in November 2002. In July 2004, it filed a lawsuit in an unsuccessful attempt to force the government to address the petition. The organization has also served petitions relating to other issues since then.

<i>Alderson v. Commissioner</i>

Alderson v. Commissioner, 317 F.2d 790 was a tax law case in which the United States Court of Appeals for the Ninth Circuit reversed the ruling of the United States Tax Court that an exchange of properties does not constitute a taxable sale under § 1031(a) of the Internal Revenue Code.

<i>Mt. Morris Drive-in Theatre Co. v. Commissioner</i>

Mt. Morris Drive-in Theatre Co. v. Commissioner, 25 T.C. 272 (1955), was a case in which the court considered whether the $8,224 spent to construct a drive-in theatre's drainage system was deductible as an ordinary and necessary business expense, as a loss or if it was a non-depreciable capital expenditure. The court held that it was a capital expenditure.

Artnell Company v. Commissioner, 400 F.2d 981 is a decision by the 7th Circuit Court of Appeals, in which the court, distinguishing from the holding in Schlude v. Commissioner, held that accrual method taxpayers are not required to include prepayments in gross income when there is certainty as to when performance would occur.

The 861 argument is a statutory argument used by tax protesters in the United States, which interprets a portion of the Internal Revenue Code as invalidating certain applications of income tax. The argument has uniformly been held by courts to be incorrect, and persons who have cited the argument as a basis for refusing to pay income taxes have been penalized, and in some cases jailed.

Raymond Kethledge American judge

Raymond Michael Kethledge is a United States Circuit Judge of the United States Court of Appeals for the Sixth Circuit. He was appointed by President George W. Bush in 2008. Kethledge appeared on Donald Trump's list of potential Supreme Court of the United States nominees in 2016, and was described by press reports as a finalist in President Trump's nomination to replace Anthony Kennedy on the court.

Tax protester Sixteenth Amendment arguments are assertions that the imposition of the U.S. federal income tax is illegal because the Sixteenth Amendment to the United States Constitution, which reads "The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration", was never properly ratified, or that the amendment provides no power to tax income. Proper ratification of the Sixteenth Amendment is disputed by tax protesters who argue that the quoted text of the Amendment differed from the text proposed by Congress, or that Ohio was not a State during ratification, despite its admission to the Union on March 1st, 1803. Sixteenth Amendment ratification arguments have been rejected in every court case where they have been raised and have been identified as legally frivolous.

Charles Sterling Hutcheson was a United States District Judge of the United States District Court for the Eastern District of Virginia.

Tax protesters in the United States advance a number of constitutional arguments asserting that the imposition, assessment and collection of the federal income tax violates the United States Constitution. These kinds of arguments, though related to, are distinguished from statutory and administrative arguments, which presuppose the constitutionality of the income tax, as well as from general conspiracy arguments, which are based upon the proposition that the three branches of the federal government are involved together in a deliberate, on-going campaign of deception for the purpose of defrauding individuals or entities of their wealth or profits. Although constitutional challenges to U.S. tax laws are frequently directed towards the validity and effect of the Sixteenth Amendment, assertions that the income tax violates various other provisions of the Constitution have been made as well.

A tax protester is someone who refuses to pay a tax claiming that the tax laws are unconstitutional or otherwise invalid. Tax protesters are different from tax resisters, who refuse to pay taxes as a protest against a government or its policies, or a moral opposition to taxation in general, not out of a belief that the tax law itself is invalid. The United States has a large and organized culture of people who espouse such theories. Tax protesters also exist in other countries.

Dobson v. Commissioner, 320 U.S. 489 (1943), was a United States Supreme Court case related to income tax.

Tax protesters in the United States advance a number of administrative arguments asserting that the assessment and collection of the federal income tax violates regulations enacted by responsible agencies –primarily the Internal Revenue Service (IRS)– tasked with carrying out the statutes enacted by the United States Congress and signed into law by the President. Such arguments generally include claims that the administrative agency fails to create a duty to pay taxes, or that its operation conflicts with some other law, or that the agency is not authorized by statute to assess or collect income taxes, to seize assets to satisfy tax claims, or to penalize persons who fail to file a return or pay the tax.

Son of BOSS is a type of tax shelter used in the United States, one that was designed and promoted by tax advisors in the 1990s to reduce federal income tax obligations on capital gains from the sale of a business or other appreciated asset. Its informal name comes from the name of an earlier tax shelter, BOSS, which it somewhat resembles. There were at least 7 legal cases still under way at the end of 2016.

United States v. Throckmorton is an 1878 decision of the U.S. Supreme Court on civil procedure, specifically res judicata, in cases heard at equity. A unanimous Court affirmed an appeal of a decision by the District Court for California upholding a Mexican-era land claim, holding that collateral estoppel bars untimely motions to set aside the verdict where the purportedly fraudulent evidence has already been considered and a decision reached. In the opinion it distinguished between that kind of fraud, which it called intrinsic, and extrinsic fraud, in which deceptive actions exterior to the proceeding prevented a party, or potential party, to the action from becoming aware of the possibility they could vindicate their rights in court.

References

  1. ↑ Batman v. Commissioner, 189F.2d107 (5th Cir.1951).
  2. ↑ "Cases Citing Batman v. Commissioner". Courtlistener.com. Archived from the original on March 21, 2014. Retrieved March 20, 2014.
  3. ↑ Doctorow, Cory (December 15, 2009). "Comical legal case names" . Retrieved March 19, 2014.
  4. ↑ Browning, John G. (February 2011). "Saying it with Style". Texas Bar Journal: 152–53. Retrieved March 19, 2014.
  5. ↑ Higgins, Chris (November 11, 2014). "11 Legal Cases with Crazy Names". Mental Floss. Retrieved September 14, 2017.
  6. 1 2 3 4 Batman v. Commissioner , hereafter Batman I, 9 TCM (CCH) 210, 211-12 (Tax Court, 1950)
  7. ↑ Commissioner v. Culbertson , 337 U.S. 733 (1949)
  8. ↑ Batman I, 213.
  9. ↑ Batman I, 214–219
  10. 1 2 Batman v. Commissioner , hereafter Batman II, 189 F.2d 107 (5th Cir., 1951)
  11. ↑ Batman II, at 109.
  12. ↑ Lucas v. Earl , 281 U.S. 11 (1930)
  13. ↑ Batman II, 110–11,
  14. ↑ 342 U.S. 877 (1951)
  15. ↑ Campbell v. Batman , 239 F.2d 283 (5th Cir., 1956)
  16. ↑ Campbell, at 285
This page is based on this Wikipedia article
Text is available under the CC BY-SA 4.0 license; additional terms may apply.
Images, videos and audio are available under their respective licenses.