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August 20, 1953


The opinion of the court was delivered by: MADDEN

This is an income tax case instituted by plaintiffs, two of whom are members of the bar, associated under the firm name of Norcross and Farr, the other plaintiff being Mr. Farr's wife, to recover income taxes for the years 1942-1943 alleged to have been erroneously paid to and collected by the Government.

Claims for refund were filed, but no determination has been made by the Collector of Internal Revenue or any other authorized official, consequently this suit. Trial has been held and briefs filed.

 The question involved and the claims filed, assert plaintiffs' rights under Section 107(a) *fn1" of the Internal Revenue Code to apportion with other years and not charge completely to the years involved, 1942 and 1943, certain specified items of income received by the partnership from its practice of law. For convenience Section 107(a) is set forth in the footnote. *fn2"

 The government answers this statement with the fact that in each instance mr. Norcross received a subsequent fee from the same estate of such amount as to make the fee received during the years in question (1942-1943) less than the requirement of the statute, that at least 80% of the total compensation be received in the one taxable year, and therefore the claim must fail.

 Plaintiffs', while admitting the receipt of the subsequent fees, counter the government's contention with the argument that the fees received for the years in question were for services then complete and paid for under allowance from the court dealing with the trust or estate, and that any services rendered subsequent to and paid for after such allowance would be a new hiring and a new series of services rendered, and consequently should not be calculated as a part of the total fee.

 Plaintiffs cite, in support of their position, the case of In re Dorrance's Estate, App. Div. 1949, 5 N.J.Super. 236, at page 238, 68 A.2d 633, at page 634, wherein Judge Donges said:

 'There is nothing to support the contention that the allowance was 'on account' as urged by appellants. Judge Lippincott may have felt that the allowance was inadequate, as is evidenced by the provision in his will, directing his executors to make application for additional allowance for his services prior to the filing of the intermediate account. However, this cannot affect the conclusiveness of the order allowing the proctor's fee, in the absence of anything to indicate that it was anything but a full and complete allowance, and not an allowance on account.'

 This Court finds two reasons why this case is not very helpful or conclusive. First, the present plaintiffs bring their action against the United States under a Congressional Statute. In the absence of a delegation of authority, the sovereign United States could not be bound by the probate law of the State. Secondly, the case there under consideration was an action by the executor of the deceased proctor who felt he had additional compensation owed him for his services which was disputed by the Estate.

 Looking to Federal law, we find the comparatively recent case of Loew, Petitioner v. Commissioner, 17 T.C. 1347 (Tax Court Feb. 15, 1952), where the facts and theory advanced by the taxpayer are strikingly similar to the case here, as outlined by Judge Tietjens of the Tax Court of the United States:

 'Petitioner's theory in claiming the benefits of section 107 is that his services for the estate during the period October 7, 1940, to April 4, 1944, are to be treated separately from the services for the period beginning with his appointment as attorney and extending through October 7, (1940) when he filed his first petition for the allowance of fees. The $ 5,000 he received for the services rendered during the first period, argues petitioner, is not to be added to the $ 3,500 for the second period services. Thus he would avoid the 80 per cent provision of the statute'.

 'Here, petitioner was employed as attorney by the executors in 1939 and continued in that capacity at least through April 4, 1944. He handled whatever legal matters arose during that period involving the estate. On October 7, 1940, he petitioned the Surrogate for an allowance of fees for the aggregate of his services rendered to that date. His employment as attorney for the executors continued, however, and on April 7, 1944, he again petitioned the Surrogate for an allowance of fees, this time for the aggregate of services performed between October 7, 1940, and April 4, 1944. We are of the opinion that in deciding whether section 107 is applicable we must treat his services as extending over the entire period of his employment as attorney for the executors. For this purpose we do not think the period of service is to be broken up by the simple expedient of filing a petition for fees. Accordingly, the amount of $ 3,500 received in 1944 did not amount to 80 per cent of the total compensation which he received as such attorney and petitioner is not entitled to the benefits of section 107.'

 This decision of the Tax Court was affirmed by the Court of Appeals, 2 Cir., January 29, 1953, per curiam, 201 F.2d 368. See also, Lum v. ...

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