*2380 1. The petitioners and the third member of their law firm were attorneys for the Special Coal and Food Commission of Indiana. Held that they were state employees and the income received for such services is exempt from tax.
2. The third member of the law firm of which the petitioners were members received compensation for his services as a receiver appointed by a court of the State of Indiana. The amount thus received was deposited in the firm's bank account, became a part of the firm's income and was distributed among the members of the firm on the basis of their profit sharing ratios. Held that the amounts distributed to and received by the petitioners are not exempt from tax.
3. Held that the petitioners' shares of income received for services rendered by them and by the firm as attorneys for receivers appointed by a court of the State of Indiana are not exempt from tax.
*1428 These proceedings which were consolidated for hearing are for the redetermination of deficiencies in income tax as*2381 follows:
| Docket No. | Year | Deficiency | |
| Howard S. Young | 18000 | 1920 | $109.45 |
| 1921 | 284.75 | ||
| 19570 | 1922 | 610.92 | |
| 1923 | 58.07 | ||
| Harvey J. Elam | 18001 | 1920 | 123.03 |
| 1921 | 417.35 | ||
| 19569 | 1922 | 851.58 | |
| 1923 | 47.22 | ||
| 38299 | 1924 | 232.76 | |
| 40079 | 1926 | 232.76 |
With respect to the deficiencies determined against Young for 1920 and 1922, the amounts of $85.10 and $574.98, respectively, are in controversy and the remainders of $24.35 and $35.94 are not contested. Of the deficiencies determined against Elam for 1920, 1921, and 1922 the amounts of $96, $403.19, and $808.62, respectively, are in controversy, and the remainders of $27.03, $14.16, and $42.67, respectively, are not contested. In advising Elam of the deficiency for 1926 the year was erroneously shown in the deficiency notice as 1924. Elam thereupon filed the petition in Docket No. 38299. *1429 The respondent thereafter sent Elam another deficiency notice in which the year was correctly stated as 1926. The petition in Docket No. 40079 was filed as a result of the corrected deficiency notice. Inasmuch as it is conceded by the parties that no deficiency has been determined against*2382 Elam for 1924, the proceeding in Docket No. 38299 will be dismissed.
The matters in controversy are (1) the taxability to the petitioners of their share of certain income received by the partnership of which they were members for services rendered as attorneys for the Special Coal and Food Commission of Indiana, (2) the taxability to the petitioners of their share of certain income received by James W. Fesler, the third member of the partnership, for his services as received appointed by an Indiana court, which was turned into the partnership as a part of its income and distributed among the partners, and (3) the taxability to the petitioners of certain income, some of which was received by the petitioners as attorneys for Fesler, who was acting as a receiver, and some of which was received by the firm for services as attorneys for other receivers appointed by an Indiana court.
FINDINGS OF FACT.
The petitioners are attorneys engaged in the practice of law as members of the firm of Fesler, Elam & Young, which has its office at Indianapolis, Ind.
A Special Coal and Food Commission for the State of Indiana was created by an act of the legislature approved July 31, 1920. By*2383 its terms the act was to be effective from and after its passage and the existence of the Commission created thereby was to terminate on March 31, 1921. The Commission was created, among other things, for the purpose of regulating and fixing the price at which all coal moving in intrastate commerce in the State of Indiana should be sold and to investigate food prices.
Immediately after the creation of the Commission the chairman employed the firm of Fesler, Elam & Young, hereinafter referred to as the firm, and one James W. Noell, as counsel during its life. In the course of this employment one member of the firm, usually Young, was in session almost daily with the Commission, conferring as to the attitude it should take towards the law and its administration and as to things that it might or might not do under the law.
The work of counsel for the Commission came within three general divisions. One of them was defending law suits filed against the Commission to enjoin action under the law. The first of these cases was in the Federal court at Indianapolis. The firm and Noell defended the case. While there were subsequent cases of a similar *1430 nature, they applied*2384 to the actions of the Commission and not to the validity of the statute. There were over 100 such cases, but they were not all actively prosecuted.
Another division had to do with the price to be fixed by the Commission upon coal in the State of Indiana. The firm and Noell went into the valuation and the costs of practically every mine in Indiana and advised with the Commission as to fixing prices which in the opinion of counsel would not be confiscatory.
The other division of the work related to the enforcement of the penalty imposed on those companies which did not observe the prices fixed by the Commission and in each instance trying to revoke the license of the company to carry on business.
Everything done by the firm was at the specific request of the Commission, whose judgment as to the action to be taken was final. While the opinion of the firm was asked for by the Commission, such opinion was not always followed. The firm followed the directions of the Commission in every instance. The action taken involving court work, the practically daily sessions and conferences and the examination of records, etc., were all done under the direction of the Commission.
*2385 There was no written agreement of employment of the firm. While it was employed to serve in a legal capacity for the Commission during the life of the Commission, it was always understood that if the Commission desired to terminate the employment at any time it could do so. The agreement of employment contained no provision as to what compensation the firm should receive, but provided that it should render such services as the Commission required of it and that it should be at the call of the Commission at all times. A table was provided for Young at the office of the State Board of Accounts, whose members under the law constituted the Commission. For several months he kept regular office hours at this table, but it was not a matter of "punching the clock." It was obligatory upon him to be there at a certain time only when necessary to perform form the work that devolved upon him. No oath of office as attorney was taken. At the time it was employed, the firm did not know and had no idea as to how many suits would have to be tried.
During 1920 and 1921 the firm received, for services rendered to the Commission, $2,500 and $4,921.85, respectively. These amounts were paid directly*2386 out of the funds of the State of Indiana. Young's distributive share of the amount received in 1920 was $750 and Elam's share was $800.
During 1921, 1922, and 1923 the firm income was divided on the basis of 38 per cent to Fesler, 32 per cent to Elam and 30 per cent to Young.
*1431 During 1921, James W. Fesler, the third member of the partnership, was appointed receiver for William Small Co. by the Superior Court of Marion County, Indiana. For his services in that capacity he received $10,000 in 1921, $20,000 in 1922, and $2,823.59 in 1923. The checks received by Fesler for his services as receiver were endorsed by him to the firm and deposited in the firm account. Thereafter, all that he received of such amounts was his distributive share of the firm's income for the respective years.
At the time the court asked Fesler to act as receiver, it also asked that the petitioners in these proceedings act as attorneys for Fesler. The petitioners had no other interest in the receivership proceedings. Fesler practically left the firm's office for more than two years and spent more than one-half of his time at the plant of William Small Co. The petitioners were also at*2387 the plant on numerous occasions. The ordinary work of continuing the business of the company was done largely by Fesler, although at times, when something else required his attention, either Elam or Young would substitute for him. The petitioners attended to the court work that was involved in the receivership, including the preparation and filing of petitions. Before undertaking to act as attorneys for Fesler, there was no agreement as to just what the petitioners should do, what results they were to accomplish, or how long their employment was to continue, except that it was understood that it was at the pleasure of the court. In connection with the receivership the petitioners performed all matters requested of them by the court. They were paid $2,500 in 1922 and $600 in 1923, which amounts the court thought were proper for their services. These amounts were deposited to the firm's credit as a part of its income.
In 1921 and 1922 the firm was employed as attorneys for the receivers of the Quos Distilled Water Co. and for its services $150received in 1921 and $943.97 in 1922. In 1922 it was also employed as attorneys for the receiver of the Indianapolis Securities Co. and*2388 for its services received $1,200 in that year. In 1926 the firm acted as attorneys for the receiver of the Clay Products Co. and Elam's share of the amount received by the firm in that year for such services was $9,811.30.
The receivers for the foregoing companies were appointed by the Superior Court of Marion County, Ind., and the firm's employment as attorneys in the Indianapolis Securities Co. receivership was by order of the court. With respect to the firm's employment in the receivership of the Aquos Distilled Water Co. and the Indianapolis Securities Co., there was no agreement as to the work to be performed by the firm, while in the Clay Products Co. receivership the employment contemplated that the firm would do only such work as it was *1432 directed to do. Prior to the time the firm's fees were fixed by the court there was no agreement as to what compensation it should receive for its services. There was no agreement as to what the firm should accomplish. However, its employment was to continue at the pleasure of the court.
The firm's work in connection with the receivership of the Aquos Distilled Water Co. consisted of determining the status of claims and*2389 of the working out of a method to sell the property and distribute the money among the creditors. A great deal of time was spent in advising with the court on the matter of selling the property. The firm also did certain things which the court from time to time directed it to do. In the receivership of the Indianapolis Securities Co. the court more than usual directed the attorneys rather than accepted their advice as counsel. The court suggested the general lines along which the case should be handled and left the details to the attorneys. The firm's work in connection with the receivership of the Clay Products Co. was to assist the attorney who had originally been employed. Other work performed by the attorneys in this case was the reorganization of the company under the court's direction. This was accomplished by substituting new classes of securities for the old classes that were outstanding and exchanging them with the old stockholders and security holders of the company. This was done without selling any of the property of the company.
All the amounts received by the firm from Fesler's acting as receiver, from Elam and Young acting as attorneys for him as receiver*2390 and from the firm acting as attorneys for other receivers were paid from the corpus of the estate being administered upon by the court through the receivership proceedings.
In determining the deficiencies here involved the respondent has treated as taxable income the petitioner's shares of the firm income received from the sources mentioned above.
OPINION.
TRAMMELL: The petitioners contend that their shares of the amounts received by the firm for services rendered the Special Coal and Food Commission are exempt from tax on the ground that they were employees of the State of Indiana.
With respect to the creation of the Commission and its rights and duties, Burn's Annotated Indiana Statutes, Supplement of 1921, provides as follows:
10052g5. Special coal and food commission, members. - 1. There is hereby created a special coal and food commission, which shall consist of the members of the state board of accounts and which shall possess the powers and perform the duties hereinafter provided for in this act. The members of the state board of accounts shall serve as members of the special coal and food commission, *1433 hereby created, without additional compensation, *2391 and until the thirty-first day of March, 1921, and no longer, at which time the special coal and food commission shall cease to exist unless continued by subsequent legislation.
* * *
10052n5. Intrastate commerce, regulating and fixing prices. - 8. Said commission shall have the right and it shall be its duty, after full hearing, and after affording to all persons interested a full opportunity to be heard, to adduce evidence and to be represented by counsel, to regulate and fix the price at which all coal moving in intrastate commerce in the State of Indiana shall be sold, both to jobbers, wholesale and retail coal dealers and to the public, provided that no price so fixed shall be confiscatory, nor shall it be less than the actual cost of the coal plus a fair and reasonable return on the property used in the production and sale thereof. Said prices may be fixed either at so much per ton or on any other basis or scale which is fair, just and equitable, or the commission may prescribe maximum and minimum prices, if it sees fit to do so. If in its judgment, the production of coal in any particular vicinity or of any particular kind of coal can be fairly regulated as to price*2392 by one order, the commission shall have power so to fix a price, after notifying all parties in interest of the hearing.
* * *
10052b6. Food prices, investigation, report. - 22. Said commission shall also investigate the high cost of food products and profiteering, hoarding and destroying of food products by wholesalers, retailers, dealers, and individuals engaged in the sale and distribution of food products and make recommendations to the governor for the preparation of a bill to be presented to the consideration of the next general assembly recommending such laws as will prevent said profiteering, hoarding and destroying of food and food products used for human consumption on the part of said wholesalers, retailers, dealers, individuals or distributors of such food of food products.
With respect to the employees, attorneys and counsel for the Commission, it is provided:
10052h5. Employees and assistants, organization, hearings. - 2. Immediately upon the taking effect of this act, the commission shall organize by selecting such engineers, accountants, clerks, assistants and employes as in the judgment of said commission shall be necessary or proper in the performance*2393 of its duties. * * * The commission shall fix the salaries and compensation of its employes, clerks, engineers, accountants and assistants, and shall have power to employ and retain attorneys to appear for the represent it in any action brought by or against said commission and to fix the compensation to be paid said attorneys. (Italic ours.)
* * *
10052r5. Attorney general, special counsel. - 12. The attorney general of Indiana shall represent the state in any action or proceeding brought by or against the commission and the governor or commission in its discretion may employ and pay special counsel.
It is not disputed that the Commission was exercising sovereign governmental functions or that it was a political subdivision of the State of Indiana. Therefore, it is not necessary to discuss that feature of the case. As there was statutory authority for the employment *1434 by it of the firm of which the petitioners were members, the question we are called upon to decide here is were the petitioners employees of the State of Indiana or a political subdivision thereof, no contention being made that they were officers.
Shortly after the creation of the*2394 Commission, the firm was employed as counsel during its life which was definitely provided for in the statute. So far as we are able to determine, the firm continued in this employment until the existence of the Commission terminated. While Young had a table in the office of the State Board of Accounts at which he kept regular office hours for several months, it appears that he was required to be there only when necessary to perform the work devolving upon him. In the course of the employment a member of the firm, usually Young, conferred with the Commission almost daily as to matters touching upon the employment. While the agreement of employment contained no provision as to what the compensation of the firm should be, it did provide that the firm at all times should be at the call of the Commission and should do such work as it requested. All the work that was done by the firm in this employment was done under the direction of the Commission, whose judgment as to the action to be taken was final.
In , there was involved the question as to whether the compensation of a county attorney was subject to tax. There the court*2395 said:
The contract bound the taxpayer for a period of two years to attend to all legal matters for the county. He was not engaged to accomplish any particular result in a way chosen by himself, but was obligated to render any legal service for the county to which at any time during the period mentioned he was assigned by the Board of County Commissioners. One whose services are so at the command of another for a definite time is an employee of the latter, though the services contracted and legal services of a lawyer, who is not forbidden to render professional services to others. .
In , we expressed our concurrence in the rule laid down by the court, stating that we thought it is the sound and correct rule and in accordance with the principles laid down in the decision of the Supreme Court in . We think the rule in the Mathews case is applicable in the instant case and are therefore of the opinion that the petitioners were employees of the Commission. Being such, their compensation*2396 therefrom is exempt from tax. See .
With respect to their distributive shares of the amounts received by Fesler, for his services as receiver for the William Small Co., the petitioners contend that such income was also exempt. In support *1435 of the contention they insist that the amounts were not taxable to Fesler because they were received by him for his services as receiver appointed by a state court and, thus being exempt, they continued to be immune from the tax after having been turned into the firm and distributed between Fesler and the petitioners according to the amount of the partnership profits each was entitled to receive.
In , we had before us a case involving a similar question to that involved here. In that case we said:
We do not deem it essential to this decision to decide whether or not Brown was an employee of a political subdivision of the State of Ohio. Brown is not the petitioner. We have before us the partner, Frank, who claims that the mantle of immunity which might shield Brown as to income paid to him also protects the partner in so*2397 far as his distributive share of the partnership proceeds represents a division of the salary paid to Brown and turned in by him to the partnership. With this contention we can not agree.
* * *
Though this section [section 1211 of the Revenue Act of 1926] deals primarily with refunds, it seems clear that Congress contemplated that the immunity be personal to the person receiving the same "as compensation for personal services as an officer or employee of any State or political subdivision thereof * * *." We believe this section to be merely enunciatory of the general rule of law covering the scope of the immunity afforded the employees of one government from taxation by another. Here Brown's salary was paid in to the partnership and indiscriminately mixed with funds received from other sources. A decision as to the legal effect of such a commingling as to Brown's income is not pertinent here, but to extend immunity to the share of the partnership income received by petitioner would be stretching the doctrine beyond reason or precedent. Frank was at no time an employee of the District. He received no income therefrom. It would do violence both to the language and spirit*2398 of the Act and to the general rule of law to relieve him from the tax in question.
Fesler's tax liability is not involved in the instant proceedings, and in view of our holding in the Frank case, we deem in unnecessary to determine whether his compensation for services as a receiver was exempt. This contention of the petitioners must be denied.
The remaining contention relates to the taxability of the petitioners' distributive shares of certain income received by them as attorneys for Fesler, in his capacity as receiver, and certain other income received by the firm as attorneys for other receivers. The petitioners contend that such income is exempt for the reason that attorneys for receivers in Indiana are employees of the State. In support of this contention petitioners urge that, since under the Indiana statutes a receiver is entirely subject to control by the court as to all his acts, including the litigation carried on by his attorneys, the attorneys are also subject to the control of the court. They further urge that attorneys are officers of the court; that, being attorneys for a receiver, they were assistants to the court, performing *1436 governmental*2399 work, and the performance of such work made them state employees. They also urge that in their cases they were appointed by the court as attorneys for the receiver.
In ; affd. , the court had before it the question as to whether a Federal court receiver was an officer or an employee of the United States. The court said:
Courts, of course, are an instrumentality of the sovereignty under which they function, but it does not follow that every person who is called upon by the court to aid in the performance of its duties thereby becomes an officer or employee of the sovereign that created the court. An attorney at law is rightfully said to be an officer of the court in which he is duly admitted to practice. But he is not, for such reason, a governmental officer or employee. Nor does he become such if the court appoints him to act as a master to hear testimony and report to the court, or assigns him to defend an impecunious person charged with an offense against the government. In such appointments, * * * the court merely calls to its assistance, in the performance of its duties, a person who is*2400 considered conpetent to further the ends and purposes of the judicial establishment, and no change in the attorney's previous status, as respects the government, is prought about.
The language of the court with respect to receivers is applicable with even greater force in the case of attorneys for receivers. They are a step further removed from the exercise of sovereign power. Even if receivers were officers or employees of the State, attorneys rendering legal services to receivers are engaged in the work of their profession and their status is not changed because a client happened to be a receiver.
Nor do we think that the tax here involved impairs to any substantial degree the right of the State to carry out its sovereign powers. Accordingly, we are of the opinion that the income here being considered is not exempt from the tax.
At the hearing there developed some difference between the parties as to the amount received in 1922 for the services of Elam and Young, as attorneys for Fesler, in his capacity as receiver for the William Small Co. The respondent admitted $2,000 was received, while the petitioners contend*2401 that the amount was $2,500. The evidence shows the amount to be $2,500 and we have so found.
Judgment will be entered under Rule 50.