*1081 1. Compensation paid to the petitioner for services rendered as counsel to several political subdivisions of a state is not exempt from Federal taxation.
2. Compensation received by the petitioner as master or special master in chancery is exempt from Federal taxation. David K. Cochrane,26 B.T.A. 1167">26 B.T.A. 1167, followed.
*369 The Commissioner determined a deficiency of $150.20 in the petitioner's income tax for 1929. The pleadings admit the taxability of interest received upon obligations of the City Housing Corporation *370 of New York City, and the deductibility of interest paid in carrying those obligations. The issues for our determination are, first, the taxability of compensation for services rendered by the petitioner to certain political subdivisions of the State of New Jersey and the fees received by him as a master or special master in chancery; second, the amount of the said compensation to be included in this petitioner's income. The respondent duly asserts claim for any increased deficiency that may result from our redetermination.
*1082 FINDINGS OF FACT.
The petitioner is a resident of Hackensack, New Jersey.
Since 1922 the petitioner has been a member of the law partnership of Winne & Banta, of Hackensack.
On January 1, 1929, the petitioner was appointed counsel for the Hackensack Improvement Commission, the governing body of the City of Hackensack. The petitioner's salary as counsel was fixed by municipal ordinance, which, in so far as material here, is as follows:
CITY OF HACKENSACK.
AN ORDINANCE FIXING SALARIES OF THE OFFICERS AND EMPLOYEES OF THE HACKENSACK IMPROVEMENT COMMISSION, THE GOVERNING BODY OF THE CITY OF HACKENSACK.
Be it ordained by the Hackensack Improvement Commission:
* * *
11. That the Counsel to the Commission shall receive a salary of twelve hundred (1200) dollars per year, which salary shall cover all legal services excepting services rendered in tax matters, tax adjustment matters, foreclosures of tax liens, special opinions, sale of property, construction of sewers and contracts therefor, local improvements including contracts therefor, assessments for sewers, sidewalks and local improvements, bond issues, examinations of titles to land, acquisition of property and*1083 actual litigation.
On January 7, 1929, the petitioner subscribed to the following oath:
STATE OF NEW JERSEY
COUNTY OF BERGEN SS:
I, WALTER G. WINNE, being duly sworn according to law do solemnly swear that I will faithfully and impartially discharge all the duties imposed upon me by law as attorney for the City of Hackensack to the best of my knowledge and understanding without favor and I do solemnly swear that I will support the Constitution of the United States and the Constitution of the State of New Jersey and that I will faithfully, impartially and justly perform the duties of the office as Attorney for the City of Hackensack according to the best of my ability and understanding, so held me God.
During the taxable year 1929, the petitioner received payments in the sum of $7,184.35 for services rendered to the City of Hackensack. Of this amount, $1,200 represented salary, authorized by the above *371 ordinance, for services in connection with advising and attending meetings of the commission. The balance of $5,984.35 represented fees for other services rendered by the petitioner, and was paid upon the presentation of duly authenticated invoices provided by*1084 the city for that purpose. Some of these fees represent the petitioner's charge at the rate of $50 per assessment for reports in connection with about 30 assessments against property for benefits from improvements made by the city, such as sidewalks, curbs, roadways, and sewers. Some of these assessments, amounting to about $800,000, were appealed to the highest state court, and for his services in connection with the litigation the petitioner charged the city $3,500.
On January 2, 1928, the petitioner was duly appointed attorney for the Borough of Lodi, "with a retaining fee of $300.00." He subscribed to an other similar to the one set forth above. In the year 1928, the petitioner rendered various legal services to the Borough of Lodi, for which he received, in 1929, fees amounting to $1,537.50. The petitioner was not the attorney for the Borough of Lodi in 1929.
On Janrary 1, 1929, the petitioner was appointed attorney for the Borough of Teterboro at "an annual retaining fee of One Hundred Dollars ($100,00)," which was fixed by ordinance. He subscribed to an oath similar to the one set forth above. During 1929 the petitioner received from the Borough of Teterboro the*1085 $100 retaining fee and $500 for legal services rendered in connection with a bond issue.
In 1929 the petitioner was attorney for the Borough of Maywood and for legal services rendered received fees in the amount of $4,215 from that borough.
In the year 1929 the petitioner received $3,747.85 for services rendered as either master or special master in chancery. Almost all of this amount represented compensation for services as a special master in handling uncontested divorce cases, in which the plaintiff paid a fee from which this petitioner received his compensation.
The compensation paid for the services rendered by the petitioner to the several boroughs and as master or special master in chancery amounted to $17,284.70, which sum was received by the petitioner and treated as income of the partnership, and reflected as such upon its books for the year 1929. This sum was not reported as income upon either the partnership return or the petitioner's individual return for the taxable year 1929. The Commissioner first added this sum to the partnership income and treated one-half of the amount as income to the petitioner, but now asserts that the full amount is taxable to the*1086 petitioner.
In 1929 the partnership of Winne & Banta had a gross income of $45,605.33 from the practice of law, exclusive of compensation for services rendered by the petitioner to the several political subdivisions *372 of the state of New Jersey, and as a master or special master in chancery. The petitioner used the office and employees of the law partnership in performing these services, which consumed about 50 per cent of his time.
OPINION.
SMITH: The petitioner contends that the compensation received in the taxable year 1929 from the City of Hackensack and the Boroughs of Lodi and Teterboro, and as master or special master in chancery, is exempt from Federal taxation, apparently abandoning a similar contention with respect to the compensation received from the Borough of Maywood, since no evidence was offered with respect to that compensation.
The petitioner's appointment as counsel or attorney for the several political subdivisions of the State of New Jersey was in accordance with the statute (sec. 24-3, I Cum. Supp. to Com. Stats., p. 168), which provided, inter alia, that such appointee "shall hold office during the pleasure of the council." While the*1087 petitioner took an oath of office, he was nevertheless free to accept any other concurrent employment, and apparently did so. His duties were not prescribed by statute. "There were lacking in each instance the essential elements of a public station, permanent in character, created by law, whose incidents and duties were prescribed by law." . The petitioner's relation to the several political subdivisions of the State of New Jersey does not come within the definition of an office laid down in The several political subdivisions procured the petitioner's professional services and retained those services at their pleasure, paying therefor the fees charged by the petitioner in addition to the compensation (salary and/or retainers) agreed upon for routine services. No effort has been made to show what portion, if any, of the compensation was received for services rendered in connection with the exercise of essential governmental functions. In the circumstances we are of the opinion that the relationship of attorney and client existed between the petitioner and the*1088 City of Hackensack and the several boroughs, and that the compensation for the services rendered by him to those political subdivisions is not exempt from Federal taxation. .
The petitioner as a master or special master of the court of chancery was an integral part of the judicial system of the State of New Jersey. See sec. 2, 3d Com. Stats. of New Jersey, par. 8, p. 3785; Rules of Court of Chancery of New Jersey, Rule XXVI, secs. 176, 179, printed in the preface to Volume 100 of the Atlantic Reporter. *373 Following our decision in , we hold that the fees received by the petitioner as master or special master in chancery are exempt from Federal taxation.
The compensation received from the several political subdivisions of the State of New Jersey, not being exempt, should be treated as any other compensation paid for professional services rendered by either partner in the conduct of the partnership law practice, and included in the gross income of the partnership in order that it may be properly offset by the expenses, reflected in the partnership accounts, incident to the*1089 earning of that income. The petitioner would therefore be taxed upon his distributive share of such compensation.
Judgment will be entered under Rule 50.