*1195 Under the Executive Law of the State of New York and the requirement of the governor pursuant thereto, the attorney-general of the state designated petitioner as a special assistant attorney-general to act in place of the district attorney of Albany County in the prosecution of certain specified offenses, which petitioner did and for which he was paid by the said county. Held, petitioner was not by reason thereof a state officer, and his compensation is not exempt from Federal income tax.
*1284 This proceeding involves a deficiency in income tax of petitioner for the year 1928 in the sum of $7,400, and results from the inclusion in his income of $40,000 paid to him during the year by Albany County, New York. Petitioner contends the payment was made to him as an officer of the state for the performance of services of an essential governmental nature and that, therefore, it is exempt from Federal income tax. The respondent traverses this contention.
FINDINGS OF FACT.
Petioner is a citizen of New York and a lawyer regularly practicing*1196 law since 1907, with office in New York City. On March 8, 1928, Alfred E. Smith, Governor of New York, wrote a letter to Albert Ottinger, Attorney-General of the state, as follows:
Pursuant to the provisions of Section 62 of the Executive Law, I hereby require that you, the Attorney-General of this State, attend in person or by one of your assistants or deputies, a Special and Trial Term of the Supreme Court appointed to be held in and for the County of Albany for the month of March, 1928, and that you in person or by said assistant or deputy appear before the Grand Jury drawn for said term of said Court, and before any Grand Jury or Grand Juries which shall be drawn and sit for any later term or terms of said Court for the purpose of managing and conducting in said court and before said Grand Jury and said other Grand Juries, any and all proceedings, examinations and inquiries, and any and all criminal actions and proceedings which may be had or taken by or before said Grand Juries concerning or relating to any criminal charge against any person or persons growing out of the conduct and management of the enumeration of the inhabitants of the State taken pursuant to Article III*1197 Section 4 of the Constitution of the State of New York and Article IX of the State Law as amended, and further to manage, prosecute and conduct the trial at said term of said court or at any term at which any and all indictments which may be found against any person or persons arising out of said enumeration of the inhabitants of the State may hereafter be tried, and that in person or by your assistant or deputy in the place and stead of the District Attorney of Albany County, you exercise all the powers and perform all the duties conferred upon you by said Section 62 of the Executive Law and this requirement made thereunder; and that in such proceedings and actions the *1285 District Attorney of Albany County shall exercise only such powers and perform such duties as are required of him by you or by the assistant or deputy Attorney-General so attending.
On March 10, 1928, Attorney-General Ottinger wrote a letter to petitioner as follows:
I hereby designate you a special Assistant Attorney General for the purposes herein specified, to wit:
To appear for the Attorney General of the State of New York and attend in such capacity a Special Trial Term of the Supreme Court*1198 appointed to be held in and for the County of Albany for the month of March, 1928, and that you appear before the grand jury drawn for said term of said court, and attend any grand jury or grand juries which shall be drawn and sit for any later term or terms of said court for the purpose of managing and conducting in said court and before said grand jury and said further grand juries, any and all criminal actions and proceedings which may be had or taken by or before said grand juries concerning or relating to any criminal charge against any person or persons growing out of the conduct and management of the enumeration of the inhabitants of the State taken pursuant to Article III, section 4 of the Constitution of the State of New York and Article IX of the State Law as amended, and further to manage and prosecute and conduct the trial at said term of said court or at any term at which any and all indictments which may be found against any person or persons arising out of said enumeration of the inhabitants of the State may hereafter be tried, and that in the place and stead of the District Attorney of Albany County, you exercise all the powers and perform all the duties conferred upon*1199 the Attorney General by section 62 of the Executive Law and a certain order given under the hand of the Governor of the State of New York March 8, 1928, superseding the District Attorney of Albany County in the premises, and in such proceedings and actions the said District Attorney of Albany County shall exercise only such powers and perform such duties as are required of him by you.
On March 12, 1928, the attorney-general handed to petitioner another letter in effect the same as the letter last above quoted, except the date.
On March 10, 1928, petitioner took and subscribed an oath as follows:
STATE OF NEW YORK,
COUNTY OF NEW YORK, ss.:
I do solemnly swear that I will support the Constitution of the United States and the Constitution of the State of New York and that I will faithfully discharge the duties of the office of Special Assistant Attorney-General of the State of New York, according to the best of my ability.
Sworn to before me this 10th day of March, 1928,
[Signed] GEORGE Z. MEDALIE
[Signed]
ALFRED W. JONES
Commissioner of Deeds, City of New York, Kings Co.
On March 12, 1928, the governor pursuant to statute appointed an extraordinary and*1200 special and trial term of the Supreme Court of New York, to be held at Albany on April 5, 1928, and designated Judge Callaghan to hold the same.
*1286 On March 11, 1928, petitioner went to Albany, in company with the commissioner who had conducted an investigation of irregularities in taking the state census, for the purpose of acquainting himself with the facts developed on the investigation. He conferred with the attorney-general and his chief assistant and advised with him Petitioner counseled that the matter should not be presented to the regular grand jury then in session, but to a new grand jury to be procured; and that for this purpose the governor should be requested to appoint an extraordinary and special term of court and designate the judge to hold it. Petitioner conferred with the governor and made the recommendation to him, and the governor so appointed the special term of court and designated the judge to preside, the documents for the purpose being examined and approved by petitioner. Petitioner communicated with the judge and dictated to his secretary the order for impaneling the new grand jury on the opening of the term. Petitioner was assigned two rooms*1201 in the state capitol, part of the attorney-general's offices, to be occupied by petitioner and his assistants. The attorney-general designated two of his assistants, members of his regular staff, and stenographers to assist petitioner. Petitioner spent his time from about March 12, 1928, until April 5, 1928, studying and analyzing the evidence, examining the witnesses and preparing for the trial. Other assistants and investigators were designated by the attorney-general to assist petitioner and he was authorized to hire special investigators and investigating agencies to assist in the work. Petitioner prepared for use a special form of subpoena, and personally appeared before the grand jury at its first session, April 5, 1928, and presented evidence on 12 bills of indictment previously prepared by him against Florence E. S. Knapp, former secretary of state, charging her with false audit, larceny in the first degree, and forgery in the second degree. The grand jury was in session nine days from April 5 to April 23. The trial of defendant on the larceny charge was begun on May 1 and lasted till the eighth, when there was disagreement of the jury and a mistrial. The case was again*1202 called for trial on May 21, and resulted in a conviction of the defendant on May 26. Petitioner personally conducted both trials, the assistants mentioned working with him under his direction.
After the conviction petitioner performed duties only of a routine nature, appearing at court when the defendant was sentenced September 4, and later, when it was determined there would be no appeal, filing a recommendation with the court that the other eleven indictments be dismissed. When this recommendation of petitioner was accepted, as it was by the court, and the remaining indictments were dismissed, his services ended. He submitted no account for services rendered after May 29, 1928. During the time petitioner *1287 was preparing for trial and trying the Knapp case, he was free to accept other employment as a lawyer.
On June 8, after the verdict against the defendant, petitioner presented his bill against Albany County, prepared on a general form provided by the county, as follows:
ALBANY COUNTY
TO GEORGE Z. MEDALIE, Dr.
P. O. Address 120 Broadway, New York City.The following bill or claim is for work done and materials furnished at between the 10th day of March*1203 1928 and the 29th day of May 1928.
Under a contract entered into by (By designation of the Attorney General of the State of New York upon order of the Governor)
By authority and under direction of the Attorney General pursuant to the Executive Law.
| State Dates 1928 March 10 to May 29 | To services as Special Assistant Attorney General in prosecution of matters arising out of the Enumeration of 1925 and prosecution thereunder. (The services include preparation of cases for Grand Jury, presentation of evidence to Grand Jury, proceedings thereafter, including preparation for two trials and conducting same.) | $40,000.00 |
| DISBURSEMENTS | ||
| [Items not material] | 1,816.40 | |
| Total | $41,816.40 |
This account was sworn to by petitioner on June 2, 1928.
The attorney-general, after conference with the governor, fixed the amount of compensation of petitioner at $40,000, which was approved by the supervisors of Albany County. Petitioner was paid July 30, 1928, by check of the deputy treasurer of Albany County. Petitioner did not include the $40,000 paid to him by Albany County in his 1928 return. The net income which he reported in his return for 1928 was $136,346.36.
*1204 OPINION.
SEAWELL: Petitioner contends and insists that the compensation paid to him was for services rendered as an officer of the State of New York, which office he held by appointment under the Executive Law of that state. An examination of the Executive Law referred to discloses that section 60 thereof provides for the continuance of a department of law in the state government, of which the attorney-general shall be the head; by section 61, the attorney general is empowered to "appoint such assistant attorneys general, deputy assistant attorneys general and attorneys as he may deem necessary and fix their compensation, within amounts appropriated therefor *1288 by legislature"; by section 62, the governor of the state is empowered to require the attorney-general personally or through a deputy to attend any term of the Supreme Court and supersede the district attorney in the management of any specified criminal actions or proceedings therein, it being further provided in section 62 that the expenses under such circumstances, "including the salary or other compensation of all deputies employed shall be a county charge."
In searching this law for the source of authority*1205 for petitioner's appointment we disregard as immaterial the fact that he was designated instead of appointed by the attorney-general. The fact that he is named in the letter of appointment a "Special Assistant Attorney-General", a term not used in the statute, may indicate that he was not one of those appointees mentioned in section 61. Appointees under that section would appear to be the permanent aids to the attorney-general belonging to his regular staff and payable by the state out of appropriations made by the legislature for the purpose. Petitioner claimed on the trial that he was appointed under section 62. In some sense this might appear to be borne out by the fact that he was paid not out of the funds of the state, but by the County of Albany as provided in section 62, but under that section there is no authority given for the appointment of a "Special Assistant Attorney-General" or any other aid to the attorney-general. The governor's letter to the attorney-general does not suggest the appointment of a new or special deputy or assistant, but rather the reverse, for the letter requires the attorney-general to "attend in person, or by one of your asisstants or*1206 deputies," apparently signifying a deputy already in existence.
Section 65 of the Executive Law provides that "The Governor or Attorney-General may designate and employ such additional attorneys or counsel as may be necessary to assist in the transaction of any of the legal business mentioned in section sixty-two of this chapter and such attorneys or counsel shall be paid a reasonable fee upon the certificate of the Governor and Attorney-General." Intentionally or otherwise, the letter of the attorney-general to petitioner uses the language of this section in designating him for the position he held. He was not "additional counsel" in the sense of being subordinate to other attorneys in the case. His outstanding ability and reputation as a lawyer throughout the county would assign him to no such position in any litigation in which he might be employed, and his position in the litigation in question was that of chief counsel, subject only to the attorney-general, but this does not negative the power of his appointment under section 65. His compensation - the reasonable fee - provided for, was agreed to in consultation between the governor and the attorney-general and paid*1207 *1289 as provided in section 62, but not contrary to the provisions of section 65. If petitioner was appointed under section 65, as it appears he was, it is further evidence that his services were not continuous or permanent or other than temporary and for the single piece of litigation. The petitioner does not contend, as we understand him, that he was a member of the attorney-general's regular staff and regularly attached to the department of law in the state government; but that he was a "Special Assistant Attorney-General", his tenure being conterminous with that of the attorney-general. Our understanding of the law, and the situation as it existed, forbids us to accept this contention of petitioner. He was employed to manage and prosecute one piece of litigation only, that is, for offenses growing out of the certain state census. When this litigation was completed, his employment was at an end. Before it was concluded he was at liberty to engage in other litigation. He could have appeared against the state at the same term of court at which Mrs. Knapp was convicted, for other defendants charged with offenses not growing out of the census. A member of the attorney-general's*1208 staff appointed under section 61 of the Executive Law could not have done so.
One employed as petitioner was in this case is not a state officer. As often quoted the Supreme Court has said:
The terms "officers" and "employees," both, alike, refer to those in regular and continued service. Within the ordinary acceptation of the terms, one who is engaged to render service in a particular transaction is neither an officer nor an employee. They imply continuity of service, and exclude those employed for a special and single transaction. An attorney of an individual retained for a single suit, is not his employee. It is true, he has engaged to render services; but his engagement is rather that of a contractor than that of an employee. [Louisville, etc., R.R. Co. v. Wilson,138 U.S. 501">138 U.S. 501.]
And again:
An office is a public station conferred by the appointment of government. The term embraces the idea of tenure, duration, emolument and duties fixed by law. Where an office is created, the law usually fixes its incidents, including its term, its duties and its compensation. [*1209 Metcalf & Eddy v. Mitchell,269 U.S. 514">269 U.S. 514, 520.]
Also, Regulations 74, article 643, defines an officer:
An officer is a person who occupies a position in the service of the State or political subdivision, the tenure of which is continuous and not temporary and the duties of which are established by law or regulations and not by agreement.
What has been said above would seem sufficient to dispose of this case, but the Board in Rosalie C. Rand, Executrix,27 B.T.A. 182">27 B.T.A. 182, a case involving the identical situation here presented, held that compensation to a lawyer appointed by the attorney-general of New *1290 York under this same Executive Law of the state, and the direction of the governor thereunder, for duties similar to those performed by petitioner in this case, was exempt from Federal income tax because the appointee was an officer of the state. Following the Rand case, and expressly relying on it for authority, the Board rendered another decision to the same effect in the unreported memorandum opinion in Charles F. Murphy, Promulgated January 20, 1933. These cases were relied on by petitioner in this proceeding, and in*1210 his brief he said that there was "no essential distinction between the present case and the Rand and Murphy cases." Since the hearing in the instant case the Circuit Court of Appeals for the Second Circuit has reversed the Board's decision in the Murphy case, and pro tanto the Rand decision as well. In the opinion in Commissioner v. Murphy, 70 Fed.(2d) 790, the court said:
The principles which must govern our decision are expounded in Metcalf & Eddy v. Mitchell,269 U.S. 514">269 U.S. 514, 46 S. Ct. 172">46 S.Ct. 172, 70 L. Ed. 384">70 L.Ed. 384. If the respondent [Murphy] was an officer or employee of the state, his pay as such was immune from federal taxation; but if he was merely employed as legal counsel in a special case, the compensation paid for his services must be included in taxable income. Lucas v. Reed,281 U.S. 699">281 U.S. 699, 50 S. Ct. 352">50 S.Ct. 352, 74 L. Ed. 1125">74 L.Ed. 1125; Lucas v. Howard,280 U.S. 526">280 U.S. 526, 50 S. Ct. 87">50 S.Ct. 87, 74 L. Ed. 593">74 L.Ed. 593. * * * Applying the principles announced in these cases and referring to article 88 of Regulations 69 (same as Regulations 74, article 643, promulgated under the Revenue Act of 1928), the court stated further:
*1211 * * * He [Murphy] had no position of permanent or continuous tenure, was free to carry on concurrently his general law practice, and was employed for a single litigation. * * *
In the Murphy case it is reported that he used his own employees to assist him in the preparation and presentation of the state's case "just as he would have done in any other ordinary piece of litigation"; but while this fact is used in the court's decision as added weight to sustain the opinion, it is not understood in any way to control or be essential to the conclusion reached by the court that Murphy was not an officer or employee of the state. Counsel for petitioner in the instant case, in a new supplemental brief, undertakes to point out other matters of difference between the Murphy case and that of petitioner, all of which we have considered, but find to be immaterial and not controlling. Under the Murphy case and others above referred to we hold that petitioner was not an officer of the state and that his compensation paid by Albany County was not exempt from Federal income tax.
Reviewed by the Board.
Judgment will be entered for the respondent.
VAN FOSSAN dissents. *1212