1949 U.S. Tax Ct. LEXIS 212">*212 Decision will be entered for the respondent.
Attorneys' fees received by petitioners in the taxable year 1943 as counsel for receivers, being less than 80 per cent of their total compensation, including amounts received in prior and subsequent years for continuous legal services in the same receivership, held not subject to apportionment under section 107. Ralph E. Lum, 12 T.C. 375, followed.
12 T.C. 709">*709 By this proceeding petitioners challenge respondent's determination of deficiencies in income and victory tax for the year 1943 as follows:
| Petitioner | Deficiency |
| William J. Morrison, Jr., individually and as Administrator of | |
| Estate of Mabel D. Morrison, Deceased | $ 797.58 |
| Estate of Frank A. Morrison, Deceased, Althea K. Morrison, Executrix | 2,130.48 |
| Francis V. D. Lloyd | 1,459.69 |
| Sydney V. Stoldt and Evelyn M. Stoldt | 283.67 |
1949 U.S. Tax Ct. LEXIS 212">*213 The above deficiencies result in part from respondent's determination that compensation in the amount of $ 19,792.16 received in 1943 by petitioners through the law partnership of which they were members, as compensation for personal services, was not subject to the provisions of section 107, Internal Revenue Code. Also in issue is the question whether, if their compensation is subject to the provisions of section 12 T.C. 709">*710 107, it is subject to tax computation at the reduced amount provided by the Current Tax Payment Act of 1943.
FINDINGS OF FACT.
Some of the facts have been stipulated. They are hereby found accordingly.
Petitioners filed their individual Federal income and victory tax returns, and the law partnership, of which they were members, filed its partnership income tax return for the taxable year 1943 with the collector of internal revenue, district of New Jersey. All petitioners and the partnership were, for income tax purposes, on a cash basis.
During the taxable year William J. Morrison, Jr., Frank A. Morrison, Francis V. D. Lloyd, and Sydney V. Stoldt were members of the law partnership of Morrison, Lloyd & Morrison, hereinafter called the partnership, with offices1949 U.S. Tax Ct. LEXIS 212">*214 at Hackensack, New Jersey. The partnership's name was changed on March 1, 1946, to Morrison, Lloyd & Griggs.
On April 20, 1936, William F. Burke, John N. Platoff, and James D. Moore were appointed by the Court of Chancery of New Jersey, hereinafter called the chancery court, as receivers and trustees of Fairview Cemetery Co., hereinafter called Fairview, a New Jersey corporation. The petition of James D. Moore is presented in a related proceeding in Docket No. 17007. By its order of June 2, 1936, the chancery court authorized the receivers to employ the partnership as their solicitors and counsel, and pursuant to that order the partnership entered employment the same day.
Periodic reports and accounts were filed with chancery court by the receivers. The periods of time covered by the first eight of those reports and accounts, the amounts of compensation received by the partnership following the chancery court's approval of each report and account, and the years in which the amounts were received, are as follows:
| Report | Period |
| First intermediate | Apr. 20, 1936, to Sept. 30, 1936 |
| Second intermediate | Apr. 20, 1936, to Dec. 31 1936 |
| Third intermediate | Jan. 1, 1937, to Dec. 31, 1937 |
| Fourth intermediate | Jan. 1, 1938, to Dec. 31, 1938 |
| Fifth intermediate | Jan. 1, 1939, to Dec. 31, 1939 |
| Sixth intermediate | Jan. 1, 1940, to Dec. 31, 1940 |
| Seventh intermediate | Jan. 1, 1941, to July 9, 1942 |
| Eighth intermediate | July 9, 1942, to Dec. 31, 1943 |
| Report | Compensation | Year received |
| First intermediate | None | |
| Second intermediate | $ 3,500 | 1937 |
| Third intermediate | 3,000 | 1938 |
| Fourth intermediate | 3,000 | 1939 |
| Fifth intermediate | 3,000 | 1940 |
| Sixth intermediate | None | |
| Seventh intermediate | 32,500 | 1943 |
| Eight intermediate | None |
Subsequent to those set out above, the receivers filed three intermediate reports and accounts. The periods of time covered and the amounts 12 T.C. 709">*711 of compensation received by the partnership following the chancery court's approval of each are as follows:
| Period | Compensation | Year received |
| Calendar year 1944 | $ 750.00 | 1945 |
| Calendar year 1945 | 1,968.13 | 1946 |
| Calendar year 1946 | 3,000.00 | 1947 |
The management of Fairview Cemetery had intermingled its funds with those of other companies in which they were interested, had conveyed cemetery lands to another corporation, and had issued bonds in excess of the land value. When the receivers were appointed, numerous claimants, including bondholders and stockholders, filed claims against Fairview.
On or about December 20, 1939, upon instructions from the receivers, the partnership began plans to reorganize Fairview by preparing for chancery 1949 U.S. Tax Ct. LEXIS 212">*216 court a report of recommendations from information supplied by the receivers. The partnership represented the receivers in a suit captioned Burke v. Gunther, brought by them in chancery court against about 50 separate defendants, to determine the rights of claimants and to carry out the reorganization plan. In its decree, the chancery court declared the bonds invalid and ordered the lands reconveyed to Fairview. Upon denial of a rehearing, an appeal was taken. Pending the appeal, on July 9, 1942, the chancery court modified its earlier decree to permit the parties to reach a compromise, on condition that the modification would become effective only if the parties succeeded in securing the necessary consents to the compromise.
After July 9, 1942, the partnership proceeded to complete the reorganization, which was substantially accomplished by January 1, 1943. Thereafter Fairview continued to operate as a cemetery, and the duties of the receivers became largely ministerial.
The seventh intermediate report and account was filed in chancery court on December 11, 1942. Although that report contained a record of receipts and expenses covering only the period of January 1, 1941, 1949 U.S. Tax Ct. LEXIS 212">*217 to July 9, 1942, it contained a report of activities of the receivers to December 11, 1942. In requesting compensation for services, the report prayed "That an allowance may be made to petitioners on account of their services as receivers and trustees, and to petitioners' solicitors for their services in the administration of this trust." On December 11, 1942, chancery court issued an order requiring Fairview and its creditors to show cause on December 21, 1942, why the seventh intermediate report and account should not be approved and an allowance made to the receivers and their counsel.
In its order of January 4, 1943, chancery court stated:
And the matter having been heard on the return day of said order to show cause;
12 T.C. 709">*712 It is, on this 4th day of January, Nineteen Hundred and Forty-three Ordered that the Seventh Intermediate Report and Account of the aforesaid Receivers and Trustees is hereby approved and allowed; and a further allowance of $ 12,500.00 each be and is hereby made to William F. Burke and James D. Moore as Receivers and Trustees as aforesaid; and a further allowance of $ 32,500.00 be and is hereby made to Morrison, Lloyd and Morrison, Esqs. solicitors for1949 U.S. Tax Ct. LEXIS 212">*218 the said Receivers and Trustees for their services in the administration of this Trust.
On June 14, 1944, the receivers filed their eighth intermediate report and account, in which they stated:
On December 11th, 1942, petitioners filed with this Court their Seventh Intermediate Report and Account covering the period from January 1, 1941, to July 9, 1942, and by an Order of this Court made on January 4, 1943, upon the return of an Order to Show Cause, said Report and Account was in all things approved and confirmed * * *
The eighth intermediate report and account made no request for compensation, and none was allowed in the chancery court's order of September 18, 1944, approving that report and account.
The receivership of Fairview is still in force and effect, with Burke and Moore acting as receivers and trustees. The partnership has at all times handled whatever legal work was required in the receivership as it went along. The successor partnership is still acting as solicitors and counsel for the receivers.
Of the $ 32,500 allowed by chancery court in its order approving the seventh intermediate report and account, $ 19,792.16, being $ 32,500 less "disbursements" of $ 12,707.84, 1949 U.S. Tax Ct. LEXIS 212">*219 was reported on the partnership return for the calendar year 1943, and is the amount in issue in these proceedings. Of the above $ 19,792.16, the partners received their respective shares in 1943 as follows:
| William J. Morrison, Jr. | $ 4,948.05 |
| Frank A. Morrison | 6,729.33 |
| Francis V. D. Lloyd | 6,729.33 |
| Sydney V. Stoldt | 1,385.46 |
In its return for the taxable year, the partnership reported the above $ 19,792.16 as distributed ratably to the partners over the years 1940, 1941, and 1942, $ 6,597.39 in each year.
Joint returns for the taxable year were filed by petitioners Sydney V. Stoldt and Evelyn M. Stoldt, husband and wife; and by petitioner William J. Morrison and his deceased wife, Mabel D. Morrison, whose estate is a petitioner. The estate of Frank A. Morrison, deceased, is also a petitioner. In schedules attached to their returns for the taxable year entitled "Adjustment of Prior Year Tax Returns for Section 107 (a) Income," the partners apportioned their shares of the $ 19,792.16, received in the taxable year, over the years 1940, 1941, and 1942, as follows: 12 T.C. 709">*713
| Partner | 1940 | 1941 | 1942 | Total |
| William J. Morrison | $ 1,649.35 | $ 1,649.35 | $ 1,649.35 | $ 4,948.05 |
| Frank A. Morrison | 2,243.11 | 2,243.11 | 2,243.11 | 6,729.33 |
| Francis V. D. Lloyd | 2,243.11 | 2,243.11 | 2,243.11 | 6,729.33 |
| Sydney V. Stoldt | 461.82 | 461.82 | 461.82 | 1,385.46 |
1949 U.S. Tax Ct. LEXIS 212">*220 Respondent has determined "that such income is not subject to allocation under section 107 of the Internal Revenue Code."
OPINION.
The related proceeding of James D. Moore, Docket No. 17007, decided March 18, 1949, by memorandum opinion, deals with services rendered by and compensation paid to a receiver. The present petitioners functioned as receivers' counsel in the same receivership. The related case concluded on the authority of Ralph E. Lum, 12 T.C. 375, that of the total payment for services, not apparently divisible, the amount received in the current year was less than 80 per cent, and that section 107 was consequently inapplicable.
We are compelled to the same conclusion here. We do not mean to suggest that identical criteria are necessarily applicable in dealing with the services of attorneys as apply to clients or their officers. There is nothing in the present record, however, to permit the segregation of any part of the services of these petitioners in such a way as to avoid the principle of the Lum case. For all that appears, petitioners were retained as counsel by the receivers in 1936, and have functioned continuously as1949 U.S. Tax Ct. LEXIS 212">*221 such as least through 1946. The fee paid them in the instant year was less than 80 per cent of the total fees they have received. Apparently, whatever legal matters arose during this entire period, including any involved with the so-called "reorganization," were handled indiscriminately by petitioners, and their payment was for the aggregate of such services. We can not here, any more than in the Lum and Moore cases, divide the period or character of service so as to bring the amount received in the present tax year up to 80 per cent of the total compensation. See Lloyd C. Whitman, 10 T.C. 151.
Decision will be entered for the respondent.
Footnotes
1. Proceedings of the following petitioners are consolidated herewith: Estate of Frank A. Morrison, Deceased, Althea K. Morrison, Executrix; Francis V. D. Lloyd; Sydney V. Stoldt; and Evelyn M. Stoldt.↩