*870 1. INCOME. - Petitioner was employed by the State of Georgia and certain named political subdivisions thereof as a special tax investigator to discover taxable property not returned for taxation and was paid for such services on the basis of specified percentages of the actual amount collected from taxes levied by the taxing authorities by reason of information furnished by him. Held, that petitioner was neither an officer nor an employee of the State of Georgia or the named political subdivisions thereof, but was an independent contractor, and that the compensation received for such services during the taxable years is subject to Federal income tax.
2. PENALTY. - Held, that petitioner is liable for a 25 percent penalty failure to file returns as required by law.
*1431 The Commissioner has determined deficiencies in petitioner's income tax liability for the years 1934, 1935, and 1936, together with penalties for each year for failure to file a return, as follows:
| Year | Deficiency | Penalty |
| 1934 | $440.94 | $110.24 |
| 1935 | 375.88 | 93.97 |
| 1936 | 2,273.71 | 568.43 |
*871 Petitioner assigns error in respondent's determination that certain amounts received in the taxable years as compensation for services rendered by him to the State of Georgia and certain political subdivisions thereof hereinafter mentioned are not exempt from income tax.
Respondent affirmatively alleges: (1) That for the year 1935 petitioner's income, included in the notice of deficiency, is understated in the amount of $1,855.97; (2) that for the year 1934 expenses allowed petitioner have been erroneously overstated in the amount $200of; and (3) that, since petitioner failed to file any income tax returns for 1934 and 1935, the 25 percent penalty should be added to any understatement of tax liability. Respondent prays for an increase in the deficiency and penalty asserted for each of the years 1934 and 1935.
The parties have stipulated that in determining the deficiency herein for 1935 the respondent has included in petitioner's income a total of $12,803.44 as income received by him, during that year, from the city of Atlanta, Fulton County, and the State of Georgia, and, further, that the correct total amount received from those sources by petitioner is $14,696.30, resulting*872 in an understatement of income in the amount of $1,892.86 for 1935. Also, for the year 1935 it is stipulated that in determining the deficiency herein the respondent included in petitioner's income the sum of $1,575.93 as income received from a county government other than Fulton County and, further, that the correct amount of taxable income received from that source by petitioner is $1,539.03, resulting in an overstatement of income from that source in the amount of $36.90 for 1935. The foregoing stipulations show that in his deficiency notice the respondent has understated petitioner's income by the amount of $1,855.96 from those sources.
It is further stipulated that in determining the deficiencies for 1934 and 1936 the respondent has not included in petitioner's income *1432 any amount as received from the county other than Fulton County, but that petitioner did receive from such source taxable income in the amount of $99.18 during the year 1936. Petitioner concedes that deductions allowed for 1934 have been overstated by the amount of $200. Effect to the facts as stipulated and conceded will be given in the recomputation under Rule 50.
FINDINGS OF FACT.
The*873 petitioner is an individual, residing in the city of Atlanta, Georgia. The deficiency notice herein was dated March 14, 1939.
In October 1933 a resolution was passed by the mayor and general council of the city of Atlanta, Georgia, authorizing the tax assessors and receivers of that city "to employ a person * * * to assist in the ferreting out or discovering intangible property, such as stocks, bonds and other securities, as may be taxable under the law, for the purpose of placing the same on the tax roll of the City of Atlanta." The resolution further provided that the person so employed should be designated as "Special Tax Investigator" and that it should be his duty "to promptly file with the Tax Assessors and Receivers such data or information collected, with confirming evidence of ownership * * *, for their approval and classification," and that the tax assesors would then fix values for the taxation and levy the required rate. The resolution further provided that "said investigator is to have no authority to levy tax or fix values, this being a function of the Tax Assessors only. His approach or contact with tax payers to be only with the consent and direction of the Tax*874 Assessors."
Under authority of the above mentioned resolution, and in accordance with the terms thereof, petitioner was employed, through written agreement evidenced in letters of offer and acceptance of the respective parties, by the board of tax assessors and receivers of Atlanta, Georgia, as special tax investigator for that city, such employment to cover only such services as would be rendered by petitioner in submitting data and information relating to the years 1932 and 1933. Under the contract of employment petitioner was to receive 25 percent of the actual amount collected from taxes levied by the board of tax assessors and receivers by reason of data and information furnished by him. Under the contract either the petitioner or the board of tax assessors and receivers could terminate same at any time on written notice.
This contract was amended, under date of November 1, 1934, to include the years 1931 and 1934 and to make a change in the rate of commissions payable to petitioner for services to be rendered by him as to the year 1934.
On May 12, 1934, petitioner entered into a written contract with the board of tax assessors of Fulton County, Georgia, whereby he was*875 employed as an "Agent" of that board "for the purpose of seeking out *1433 stocks and bonds and other intangible property which has not been returned by citizens of the County, but which property should have been returned and is subject to taxation by said County, for the year 1934 and prior years." Upon discovery of such property by him petitioner was to report the same to the board of tax assessors of Fulton County, who were then to determine the valuation thereon for tax purposes. Petitioner was to receive as compensation for his services 10 percent of the amount actually collected by the county upon the property reported by him after such taxes were paid into the county treasury. The contract further provided that the power of the board of tax assessors or the other taxing authorities of the county to make such settlements on taxes due as they might deem proper was not to be limited and petitioner "shall work under the direction of the board of tax assessors at all times and as to all matters in connection with this contract their decision thereon shall be final." The contract could be canceled by either party, or by the board of commissioners of roads and revenues, upon*876 giving thirty days' notice to the other.
Under date of April 24, 1936, petitioner entered into a contract with the board of tax assessors of Fulton County, Georgia, similar to that of May 12, 1934, by which he agreed "to seek out" personal property which should have been, but was not, returned by its owners for the years 1935 and 1936.
By an executive order of the Governor of the State of Georgia, issued on the first day of May 1934, petitioner was appointed as a state tax investigator, to serve at the pleasure of the Governor, "for the purpose of searching out and ascertaining" any stock in foreign corporations, bonds, and other evidences of indebtedness executed by foreign corporations and owned by taxpayers in the State of Georgia, which were not returned for taxation in that state. Petitioner was to receive as compensation for his services 2 percent out of the amount of taxes actually collected by the state for years previous to the year 1934 from the class of property above described which was discovered through his efforts and placed upon the tax digests of the respective counties. Petitioner was to promptly report to the Comptroller General of Georgia all such property*877 which petitioner ascertained to be subject to taxation and it then became the duty of that official to furnish such information to the tax receivers and collectors and boards of county tax assessors so that collection of the tax due the state could be proceeded with.
During the taxable years petitioner performed services under all the above mentioned contracts by securing for, and supplying to, the other parties to the contracts data and information as to the ownership and value of property of the character specified in the contracts. He was permitted by the other parties to the contracts to use his own *1434 methods in performing those services and whether or not he discovered any taxable property was dependent upon his own ingenuity. "From time to time" during the course of his employment by the city of Atlanta the board of tax assessors and receivers of that city directed him in regard to making investigations, but generally he made his investigations as he saw fit. At all times while performing the services under his various contracts petitioner occupied his own office, paid the rent therefor, paid the persons employed in his office, and paid out of his own pocket*878 all other expenses incurred in obtaining the data and information he furnished the various taxing authorities.
Petitioner was not required under any one of the contracts to give his entire time to the rendition of services thereunder, but he was continually engaged in performing the services required under all of the three contracts together. He was permitted by each of his employers to take other employment.
Petitioner never took an oath of office in connection with any of his contracts of employment and was not required to execute a bond for the proper performance of his duties thereunder.
The total commissions received by petitioner under the several contracts involved herein, and the years in which received, as well as from whom received, are as follows:
| City of Atlanta | Fulton County | State of Georgia | |
| 1934 | $9,352.77 | $2,542.37 | $605.09 |
| 1935 | 8,108.41 | 5,623.75 | 964.14 |
| 1936 | 19,855.15 | 8,292.08 | 150.05 |
Petitioner did not file an income tax return for any of the years 1934, 1935, or 1936.
The petitioner was not an officer or employee of either the State of Georgia, the county of Fulton, or the city of Atlanta, during the taxable years and*879 his compensation here involved was received for services performed as an independent contractor.
OPINION.
TYSON: The petitioner contends that his income here in controversy is exempt from tax under the provisions of the Public Salary Tax Act of 1939 1 on the theory that his contracts with the State of *1435 Georgia, the county of Fulton, and the city of Atlanta either (1) constituted him an officer of the state and of each of its named political subdivisions, or (2) under those contracts he became an employee, as distinguished from an independent contractor, of that state and of each of such subdivisions; and that in either of such events the income here involved would be free from tax.
*880 The first question for consideration is whether the petitioner was an officer of the State of Georgia, the county of Fulton, and the city of Atlanta, or any of them.
There has been no statute or ordinance cited as operative during the taxable years, and we know of none, creating an office prescribing the duties or fixing the compensation for services of the character of those undertaken to be performed, and performed, by petitioner for either of the above mentioned state, county, or city. Petitioner in each case took no oath of office and made no bond for the faithful performance of his services. The period of his employment in each case was not definite and fixed, but was terminable at the will of his employer. His compensation in each case was on a commission and not on a fixed salary basis, the commissions being dependent entirely upon the results of work he performed as finally translated into taxes collected by the state and its subdivisions. His services were not continuously rendered for either the state, county, or city, alone, since, being employed by all three and rendering services to all three during the taxable years, his entire time was not devoted to the performance*881 of services for any one exclusively, and neither the state, county, nor city contract prohibited petitioner from accepting other employment. Under these facts we think it unnecessary to discuss authorities in deciding, as we do, that petitioner was not during the taxable years an officer of the State of Georgia, the county of Fulton, or the city of Atlanta. The following authorities are pertinent in support of our conclusion: ; affirmed per curiam, ; , affirming ; , reversing ; certiorari denied, ; ; and (on appeal to Third Circuit).
The next question for consideration is whether the petitioner was an employee, as distinguished from an independent contractor, of the above mentioned state, county, and city, or any one of them. He was engaged for*882 an indefinite time to perform the special services of collecting and furnishing the taxing authorities with data and information relative to property which had been escaping taxation. *1436 He did not devote all his time to services rendered separately to the state, the county, or the city, nor was he required to do so. He used his own methods and judgment in achieving the desired results, except that "from time to time", but not generally, the board of tax assessors and receivers of the city of Atlanta directed him in regard to making investigations for them. He paid his own office rent and his office employees, as well as all other expenses connected with the performance of his services for the state, the county, and the city.
From all these facts and the whole record, it is our opinion, and we so hold, that petitioner was not an employee of the State of Georgia, or Fulton County, or the city of Atlanta, but that the relation sustained by him during the taxable years with that state and those subdivisions of the state was that of an independent contractor. *883 ;; ; and , and cases cited therein.
We do not think that the soundness of this conclusion is adversely affected with respect to Fulton County and the city of Atlanta because of the provision in petitioner's contract with Fulton County to the effect that he was to work under the direction of the board of tax assessors of that county, or because of the provision in petitioner's contract with the city of Atlanta to the effect that petitioner's "approach or contact with tax payers [was] to be only with the consent and direction of the Tax Assessors" of that city. The degree of control retained by the city of Atlanta and the county of Fulton, over the rendition of services by petitioner, in these provisions of the respective contracts, i.e., whether the right to instruct petitioner was limited to instructing him what to do, only, or extended also to instructing him how to do it, is not clearly indicated; and it can not be determined from these provisions that such a right of control over the rendition of services*884 by petitioner was retained by the city of Atlanta and Fulton County, or either of them, as was inconsistent with the relationship of petitioner as an independent contractor. Cf. ; ; and ; certiorari denied, . A reasonable construction of these ambiguous provisions in the two contracts would seem to be that it was not intended thereby that petitioner was to be instructed by either the county or city as to the way he should "ferret out" or "seek out" property escaping taxation, since use of their own methods had failed to discover such property, and they apparently employed petitioner for the primary purpose of effectuating the desired end through use by the petitioner of his own methods of doing the work, *1437 thus placing the petitioner in the role of an independent contractor rather than in that of an employee. ; *885 ; ; and .
Moreover, the apparent construction placed by the parties upon the provisions of the two contracts in performing the contracts shows clearly that over the services actually rendered by petitioner for the city of Atlanta and Fulton County, for which petitioner received part of the compensation here involved, no control by the county was exercised and but little, if any, by the city, since petitioner was always permitted to, and did, use his own methods in rendering his services to the city and county, with possibly a few exceptions as to the city, "from time to time"; and whether or not he discovered any taxable property was dependent upon his own ingenuity.
We hold that the respondent did not err in determining that the commissions here involved are to be included in petitioner's income for the taxable years 1934, 1935, and 1936. We further hold that petitioner, having failed to file a return as required by law for each of the years 1934, 1935, and 1936, is further liable*886 for a 25 percent penalty on the deficiencies for those respective years as redetermined pursuant to this opinion.
Decision will be entered under Rule 50.
Footnotes
1. SEC. 201. Any amount of income tax (including interest, additions to tax, and additional amounts) for any taxable year beginning prior to January 1, 1938, to the extent attributable to compensation for personal service as an officer or employee of a State, or any political subdivision thereof, or any agency or instrumentality of any one or more of the foregoing;
(a) shall not be assessed, and no proceeding in court for the collection thereof shall be begun or prosecuted (unless pursuant to an assessment made prior to January 1, 1939):
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