
    UNITED STATES v. ROGERS et al. (two cases).
    No. 9489.
    Circuit Court of Appeals, Ninth Circuit.
    July 28, 1941.
    HANEY, Circuit Judge, dissenting.
    For former opinion, see 120 F.2d 244.
    The following is the former dissenting opinion of WILBUR, Circuit Judge:
    Return of 1929 Tax.
    I agree with my associates that the trial court was correct in holding that the plaintiffs, in their respective actions, were not entitled to recover on account of the income taxes paid by each of them in the year 1929. A separate judgment was rendered on this count of the complaint in each case. The question raised concerning the tax in that year was the right of the taxpayers to deduct as a casualty the loss resulting from the razing of the house upon the property owned by them because of the damages resulting from dry rot and the depredations of termites. The statute involved, which is quoted in the main opinion, provides for the allowance of “losses from fires, storms or shipwrecks or other casualty”. The meaning of the word, “casualty” as used in the statute depends upon the context. The doctrine of ejus-dem generis requires the statute to be construed as though it read “loss by fires, storms, shipwrecks, or other casualty of the same kind”. The similar quality of loss by fire, storm or shipwreck is in the suddenness of the loss, so that the doctrine requires us to interpret the statute as though it read “fires, storms, shipwrecks or other sudden casualty”. This view was adopted by the Circuit Court of Appeals for the Second Circuit in a case cited in the main opinion, Matheson v. Commissioner, 54 F.2d 537, 539, and I agree that we should follow that decision because it is correct. In that case the destruction resulted from the depredation of ship worms, or toredo navalis, and iron rust. Here we have an analogous destruction wrought by termites instead of ship worms and dry rot instead of rust.
    Return of 1930 Tax.
    The second cause of action in each of the two complaints to recover on account of the alleged over-payment of income taxes to the United States in 1930, resulted in a separate judgment in each case; that for Betty Rogers was for $3,442.13 with interest at 6 per cent from May 10, 1933, and that for the executors of the last will and testament of Will Rogers was for $6,-469.33 with interest at 6 per cent on $3,-203.65 from July 7, 1933, $1,907.48 from May 10, 1933, and on $1,359.20 from December 15, 1931.
    The question of the credit to which the decedent taxpayer Will Rogers, was entitled because of the payment of the foreign income tax by him in 1930 is involved only in the case of the Executors of Will Rogers v. United States and is set up in the second count of the complaint. The majority of the court, without determining the legal question involved in the assertion of the right to the credit, remands the case to the trial court with directions to enter judgments in accordance with the views expressed in the opinion.
    As a result of this direction I take it that a judgment will be entered by the lower court in favor of the government on the second cause of action in the suit brought by Betty Rogers and that a judgment for $3,757.40 with interest will be entered in favor of the executors of the estate of Will Rogers. I will state some of the many reasons which in my opinion make this direction erroneous.
    Foreign Tax Deduction.
    With reference to the right of the taxpayer to deduct in 1930 the amount paid to England in 1930 for income tax for the year 1926 on income of the taxpayer earned in England, I am in accord with the interpretation of statutes and regulations contended for by the government herein. The statute expressly permits the deduction of the foreign tax which was paid or which accrued during the taxable year in which the credit is claimed. Consequently, the taxpayer was permitted to claim his deduction in either 1926 when the tax to' England accrued, or in 1930 when it was paid. But the amount of the credit was to be determined by formula set out in the same section, (131(b) ), which in effect allowed the deduction only to the extent that the United States tax of the taxpayer upon the net income derived by the taxpayer in the United States was increased by the tax upon the net income derived from sources outside the United States.
    Omitting parenthetical phrases, subdivision (b) reads as follows: “In no case shall the amount of credit taken under this section exceed the same proportion of the tax * * * against which such credit is taken, which the taxpayer’s net income * * * from sources without the United States bears to his entire net income * * * for the same taxable year.” Where there is no income from sources without the United States in the taxable year in which the credit is claimed the ratio of such income to his entire net income would be as zero is to that income. We thus have the formula zero over the entire net income times U. S. tax equals credit, which equals zero. Hence, the statutory formula gives no credit against taxes on income in the United States for foreign income taxes for a year in which there is no foreign income.
    The executors claim that the credit allowed the taxpayer by § 131, supra, must be determined both by amount of the United States tax and by the ratio of income in the year 1926 when the English tax accrued whether the credit is claimed in that year or in the year when the foreign tax was paid by the taxpayer (1930). That is, the claim of the executors is that the amount of credit is the same no matter when claimed by the taxpayer. The difficulty with this contention lies in the fact that the statute expressly provides that the credit shall be a portion, not of the foreign tax, but of the United States tax “against which such credit is taken”, which in the case at bar is the United States tax for 1930. The United States tax of the taxpayer in 1930 was $71,419.28, while for 1926 it was $27,654.34. Furthermore, the statute expressly provides that the proportion of the United States tax to be allowed as a credit shall be determined for the same taxable year “against which such credit is taken” which I understand to mean “in which such credit is taken”. As there are thus two variables in the statutory formula it is almost impossible that the deduction would be the same in the two years in either of which the taxpayer is expressly allowed to claim the credit.
    The government properly presents to us its theory of the interpretation of § 131(b) of the Revenue Act of 1928, supra. It specifies as its points on appeal:
    “1. The district court erred in refusing to grant defendant’s motion for judgment on pleadings as to the second cause of action of plaintiff’s complaint herein. .
    
      “2. The district court erred in determining that the second cause of action of plaintiff’s complaint herein stated any claim against defendant upon which relief might be granted.
    “3. The district court erred in directing the entry of judgment on the second cause of action of plaintiff’s complaint herein in favor of plaintiff on the facts as stipulated and admitted by the pleadings.”
    The sufficiency of the facts alleged and of those stipulated and admitted is thus challenged by the statement of points by which the appellant intended to rely upon appeal. This is sufficient under the new rules.
    
    ’ In my opinion it was error to deny the government’s motion for judgment on the pleadings on the second cause of action if the law did not permit a credit for the payment of foreign income taxes in the year in which there was no foreign income. I reach this conclusion for two reasons: First, there is no allegation in the complaint that there was any income derived from foreign sources in the year 1930, hence, there was no basis for judgment in favor of the taxpayer. Second, in order to maintain the action it is necessary to show that a claim has been presented to the Commissioner for the refund of the amount claimed to have been overpaid. United States v. Felt & Tarrant Mfg. Co., 283 U.S. 269, 51 S.Ct. 376, 75 L.Ed. 1025. This claim was made upon the theory of the complaint, namely, that the taxpayer was entitled to a proportion of his foreign paid tax based upon the ratio of foreign income and the total income in the year 1926. Having predicated his claim to the commissioner upon that ground he could not be heard to shift his ground if he so desired, that is to say, he could not recover upon the theory that he was entitled to a credit for the tax thus paid a foreign country upon a ratio of foreign income to total income in the year 1930. The applicable rule is thus stated in Dascomb v. McCuen, 2 Cir., 73 F.2d 417, 418, as follows: “Cases too numerous for complete citation have recognized the principle that a taxpayer who brings suit after a refund has been denied can rely for recovery only on facts presented to the Commissioner; it will suffice to cite the following: United States v. Felt & Tarrant Co., 283 U.S. 269, 51 S.Ct. 376, 75 L.Ed. 1025; Weagant v. Bowers, 57 F.2d 679 (C.C.A. 2); Continental-Illinois Nat’l. Bk. & Trust Co. v. United States, 67 F.2d 153 (C.C.A. 7); Snead v. Elmore, 59 F.2d 312 (C.C.A. 5); Taber v. United States, 59 F.2d 568, (C.C.A. 8).” See also, Lewis A. Crosset Co. v. United States, Ct. Cl., 50 F.2d 292; 26 U.S.C.A. Int.Rev.Code, § 3772(a); Act of June 6, 1932, ch. 209, § 1103(a), 47 Stat. 286.
    As to the other item in the second count in which the taxpayers each claimed a deduction of $35,000 by reason of the failure to allow a deduction of the cost of the improvements destroyed by termites in determining the gain from sale of property, I agree with my associates that the facts stated do not justify the deduction.
    The motion of the government for judgment upon the pleadings on the second cause of action of Betty Rogers should have been granted. In view of the fact that the complaint of the executors against the United States did not state a cause of action for the deduction or for the credit claimed by them the motion for judgment also should have been granted. The denial of these motions is deemed excepted to under the new rules, (Rule 46) and the error is presented in the points on appeal. With reference to the third point on appeal above stated, as to the entry of judgment on the facts stipulated and admitted in the pléading, it is sufficient to say it is unnecessary to consider this point in view of the fact that the complaint does not state a cause of action, but it is also clear that the facts contained in the stipulation do not justify a judgment in favor of the plaintiff because in order to justify such judgment the stipulation and findings must cover the question as to the amount of the income, if any, derived by the taxpayer from foreign sources in 1930 in the absence of an affirmative showing by the plaintiffs as to that issue neither evidence nor findings will support a judgment against the United States. For the reasons stated I cannot agree with my associates that there is a failure on the part of the government to show error on this appeal if we assume as they do for the purpose of the appeal that the law does not authorize a credit in 1930 on account of a foreign income tax paid England in that year if there was no income derived from foreign sources by the taxpayer in 1930. In short, the matter depends upon the construction of § 131(a) (1), Revenue Act of 1928, 26 U.S.C.A. Int. Rev.Acts, page 394. If, under that section, the amount of credit the taxpayer is permitted to deduct from his income tax is determined by the ratio between the foreign income and the total income in 1926 he should recover. On the other hand, if it depends upon the receipt of income from foreign sources in 1930 he has neither presented such a claim to the commissioner nor alleged it in his complaint, nor shown it in the stipulation of facts.
    It should be stated that the action in question is under the Tucker Act, 28 U.S. C.A. § 41(20), and that the findings of the trial court have the effect of a special verdict. The trial court should be directed to enter a judgment upon the findings in favor of the United States upon the second cause of action.
    But I cannot agree with the statement in the majority opinion that “ * * * the presumption of correctness attending the trial court’s determination requires affirmance thereof.” I am unable to see how this presumption can be applied to a part of its findings of fact or conclusions of law with relation to the credit to be given on account of the payment of a foreign income tax where the judgment in which the conclusion is inherent is reversed because of the error of the trial court set out in the majority opinion.
    For another reason I think the order of the majority to enter a judgment for the executors is incorrect. It is not contended by either the government in its appeal or the taxpayer in the cross appeal that the judgment is correct or that it should be affirmed because of the failure to show that there was no taxable income derived by Will Rogers from foreign sources during the year 1930. It is assumed in this court as it was in the trial court by both parties that there was no such income in that year. The case ought not to be decided by us on the theory that there was or might have been such foreign income in 1930 without at least giving counsel for the government the right to be heard upon that point before our decision is rendered.
    Another reason why the government should not be held to a stipulation interpreted as permitting a recovery upon the theory that the taxpayer had foreign income in 1930, is the way in which the matter was presented to the trial court. It was first presented by motion on the part of the government for judgment on the pleadings in its favor on both counts in the two complaints. The court announced its opinion on September 20, 1939, holding for the government in the first count and against the government on the second count, before the stipulation of facts was entered into.
    In disposing of the foreign tax feature (erroneously referred to as the third cause of action) the court clearly shows that he was dealing with the ratios of income in 1926 and not of income of 1930. That portion of the opinion is quoted in the footnote :
    
    It is clear from this that the stipulation was prepared after the court had announced its conclusion on the legal question involved and its judgment upon the hypothesis that the parties could agree to the facts as stated in the complaint or as modified.
    Moreover, I think the majority opinion does not place a correct interpretation upon the stipulation of facts entered into between the parties as the same relates to the foreign income of 1930. The stipulation of the parties provides that the sum of $3,757.40 shall be allowed as a proper credit if it is held that any credit should be permitted in the year 1930. Mathematical computations show that this amount represents the percentage of the 1926 tax to which the taxpayer would have been entitled as a credit upon the ratios of income for the year 1926* I, therefore, understand the stipulation to mean that if any credit at all is allowed in 1930 it should be the credit determined as the executors claim it should be for the year 1926. This view is confirmed by similar calculations based upon the stipulation as to the amount of income and amount of tax for the year 1930. In order for the taxpayer to be entitled to a credit of $3,757.40 under the statutory formula for the year 1930 it would be necessary that he have an income from foreign sources of $18,095.91.® I think it is apparent that the parties did not intend thus indirectly to stipulate to the amount of foreign income of the taxpayer during the year 1930. I think it is clear that they were stipulating that Will Rogers was either entitled to no credit for 1930 or to a credit of $3,757.40 based upon the ratio of income for 1926.
    The trial court should be instructed to enter a judgment upon the stipulation in favor of the United States on each count of the complaint.
    Samuel O. Clark, Jr., Asst. Atty. Gen., Sewall Key, J. Louis Monarch, Julian G. Gibbs, and Carleton Fox, Sp. Assts. to Atty. Gen., Ben Harrison, U. S. Atty., Edward H. Mitchell and Armond Monroe Jewell, Asst. U. S. Attys., all of Los An-geles, Cal., for appellant, U.S.A.
    Claude I. Parker, Bayley Kohlmeier, and Stuart T. Baron, all of Los Angeles, Cal., for appellant Rogers.
    Before WILBUR, GARRECHT, and HANEY, Circuit Judges.
    
      
       § 23 (e) (3), Revenue Act 1928, 26 U. S.C.A.Int.Rev.Acts, page 357.
    
    
      
       In Helvering v. Hammel, 61 S.Ct. 368, 369, S5 L.Ed. 303, 131 A.L.R. 1481, decided January 6, 1941, by the Supreme Court, it is said: “The term sale may have many meanings, depending on the context, see Webster’s International Dictionary. The meaning here depends on the purpose with which it is used in the statute and the legislative history of that use.”
    
    
      
       Revenue Act 1928, § 131 (a) (1), 131 (d), 26 U.S.C.A.Int.Rev.Acts, page 394.
    
    
      
       0 •-x U.S. tax=0 total net income
    
    
      
       Rule 52, subs, (a) (b); rules 73. 74, 75, 28 U.S.G.A. following section 723c.
    
    
      
       The government states the question involved as follows: “Was Mr. Rogers entitled to a credit for foreign taxes paid in 1930 on 1926 income where he had no foreign income in 1930?”
      It argues as follows: “It is clear from the above statute that a credit for foreign taxes paid may not be allowed in any year in which the taxpayer’s income fails to disclose income from foreign sources. It is stipulated that Mr. Rogers had no income from England in 1930. The statute clearly applies here, and the lower court was in error in holding that the 1930 tax should be credited with the amount of ¡¡>3,'757.40.”
      The taxpayer, on the other hand, states the question as follows: “Whether Will Rogers was entitled to a credit against his income tax for 1930 for income taxes paid by him to England during the year 1930 upon income earned by him in England in 1926 and taxed by the United States in 1926?”
      The taxpayer’s argument in no wise suggests that he is claiming a credit based upon 1930 ratios between foreign and total net income for the year 1930. He argues as follows:
      “The government urges that a credit for foreign taxes cannot be allowed unless the taxpayer had income from foreign sources during the year the tax was paid. The law does not so provide but the government contends that Section 131(b), which limits the credit allowable, obtains that result. Taxpayers submit that the government has misconstrued the limitation provision. The law allows a credit, dollar for dollar, against the United States tax for foreign income taxes. If no limitation were imposed, in cases in which the foreign tax rate was higher than the United States tax rate, the United States might be deprived of taxes on income from sources within the United States. To prevent this result the Congress imposed the limitation which limited the credit to the percentage of the United States tax which the foreign income bears to the entire income from all sources. * * *
      “If the percentage of credit allowable is based upon the year the income is earned, the result sought by the Congress is accomplished but if, as the government now contends, the percentage is based upon the income of the year in which the foreign tax is paid, the express purpose of the Congress would be defeated. * * *
      “There is nothing in the law or the regulations which indicates that it was intended that the amount of the credit to which a taxpayer is entitled for foreign income taxes should depend upon whether he takes the credit on the cash or the accrual basis. It would seem more reasonable and would certainly be more consistent with other provisions of the law to conclude that the Congress intended the amount of the credit to be the same in either ease. It is submitted that Congress, in enacting Section 131(b) of the Revenue Act of 1928, intended to limit the credit allowable for foreign income taxes to the percentage which the income taxed bears to the total income of the taxpayer for the year in which the income was earned, and that the interpretation of the law suggested by the government would defeat the obvious purpose of Congress in enacting the law.”
    
    
      
       “Now, as to the third cause of action, which appears only in 8080-Y, the question there relates. to a claim of refund for income taxes paid in England. It is true that the taxes were paid in England in the year 1930, but they were an added assessment as of 1926, and I don’t think the law should be interpreted so as to deprive an American citizen, who is compelled to pay income tax here, of the benefit of income taxes paid in a foreign country merely because the payment was in the form of an added assessment which he couldn’t foresee at the time during the taxable year when he paid taxes, and which was actually collectible later.
      “Otherwise, there was a delay. If he had overlooked filing an income tax, you might say it was his own negligence. He repaid the tax. They demanded more. Not until after 1930, or when the negotiations took place, was he compelled to pay it. He shouldn’t be deprived of that by saying, ‘It is too bad your 1926 tax year is closed, and I can’t give you any reduction.’ I think that is a very narrow interpretation, and when we are dealing with allowances for governmental agencies which no one can avoid, no one in the world can avoid, it seems to me that the interpretation should be one that will allow the deduction whenever it is made, provided it is made in good faith. * * *
      “That is my conclusion on the legal questions involved. I am willing to stand on the first one on the motion, and as to the other, if you can agree to the facts, why, you can stipulate them and prepare a judgment I can enter into. As I view it now there is nothing more for trial.
      “Mr. Kohlmeier: I think, your Honor, we will be able to agree on the facts now that you have decided on the legal issues.
      “Mi\ Jewell: I believe we will be able to stipulate the facts.
      “The Court: All right.
      “For the present I merely grant a motion for judgment on the pleading on the cause of action, one in each of the complaints, and deny it as to others; and then you gentlemen may prepare a judgment based upon the other two counts as to amounts and submit them to me and judgment can be entered later on without further trial.”
      
        
      
      
        
        
      
      Hence, the foreign income would be $18,095.91.
    
   WILBUR, Circuit Judge.

The opinion of this court, and the dissenting opinion, in this cause, were filed May 1, 1941. 9 Cir., 120 F.2d 244. On petition of the United States rehearing was granted limited to the question of the right of taxpayer to a credit because of the payment of a foreign tax in 1930. Upon further consideration of the question, we are satisfied with the reasoning and conclusion expressed in the dissenting opin- ' ion of Judge WILBUR, and adopt said •dissenting opinion as our judgment on the foreign tax question.

The judgments in favor of the government are affirmed. The judgments in favor of the taxpayers are reversed with instructions to the trial court to dismiss the causes of action contained in the second counts of the respective complaints.

HANEY, Circuit Judge

(dissenting).

I adhere to the views expressed in the then majority opinion previously filed herein. The principle .that an appellant has the burden of showing error on appeal is as vibrant in this case as in any other. The fact is, as shown in the previous opinion, that appellant has failed to make a sufficient record to disclose error. It attempts now to cure the defect by submitting to us documents which are not and never have been a part of the record here, or in the court below. It is a dangerous precedent to permit appellants here to try cases “piece-meal” by eking out a record here which was not complete in the court below. If we may consider matters outside the record in this case, we may do so in other causes. Such a practice leads to the decision of cases on “half-truths” and to interminable delays. I have never believed, and do not now believe, that courts should aid one party in such manner. Such a practice is an abandonment of the theory that courts should be “impartial”. In such circumstances, it is only reasonable to make appellant bear the result of its Dwn negligence or incompetence.

Since the majority hold that the merits may be considered, it seems appropriate that I indicate my views on the question considered. Section 131 of the Revenue Act of 1928, 26 U.S.C.A. Int.Rev.Acts, page 394, requires the amount of income tax due the United States to be credited with a portion of income “taxes paid or accrued during the taxable year to any foreign country”. By subdivision (b) such portion of foreign tax is equal to a proportion shown by using the taxpayer’s net income from foreign sources as numerator, and his entire net income as denominator. The following example will illustrate such proportion:

Entire net income.............. $100,000.
Net income from foreign sources 20,000.
Tax due the United States....... 10,000.
In these circumstances, the credit would
, , 20,000 10,000, be equal t0 mooo x ' i or $2’ooa

The difficulty arises in the case where, as here, the taxpayer has foreign income in one year, and pays the tax thereon to the foreign country in a later year when he has no foreign income, and desires the credit for the later year. An example will make the difficulty apparent.

Entire net income for 1928.....$100,000.
Net foreign income for 1928.... 20,000.
Entire net income for 1930..... 80,000.
Net foreign income for 1930.... 0.
Tax due the United States for 1930 ....................... 10,000.
In such case, appellant contends the taxpayer is not entitled to any credit in 1930 because the proportion must be made with the figures for 1930, which would be 0 $10,000 - X -— 0- Appellees contend $80,000 1 that the proportion must be made with the figures for 1928, which would be $20,000 $10,000 - X -= $2,000. $100,000 1

The direction of the statute is: “In no case shall the amount of credit taken under this section exceed the same proportion of the tax * * * against which such credit is taken, which the taxpayer’s net income * * * from sources without the United States bears to his entire net income * * * for the same taxable year”. Appellant contends that “for the same taxable year” means the year in which the foreign tax is paid. Appellee contends that such words mean the year in which the foreign income is derived.

I believe appellant and the majority wrongly construe the statute.

First. Subdivision (a) (1) requires the credit for foreign taxes “paid or accrued”. The majority amend that subdivision by adding to the word “paid” the following “if the taxpayer has income from sources without the United States in the year in which such taxes are paid”. I believe we should not undertake this form of legislation.

Second. The Committee Reports make it clear that the purpose of the legislation authorizing the credit was to remove the objection that citizens of the United States with foreign income were subject to double taxation thereon, i. e., once in the foreign country, and once in the United States. The purpose of the limitation on the credit is disclosed by the hearings on the 1921 act by Dr. Adams who, appellant concedes was “the Treasury expert” and the “father” of the 1921 act. Dr. Adams said: “ * * * We now give to a citizen or resident of this country an exemption practically for any foreign income or profit taxes for which he pays. We subject his entire income from all sources to a tax. Then, after the tax is computed, we show what English taxes have been paid, etc., and then subtract that from the American tax. That is subject to this one rather grave abuse: If the foreign taxes are higher than our rate of taxes, that credit may wipe out taxes which fairly belong to this country * * * The proposed amendment is that we shall first compute taxes on the entire income and then allow a credit, but that credit shall not be permitted to wipe out a tax properly attributable to the income derived from this country. It shall not exceed the same proportion of the tax that his income from sources abroad bears to the entire income.”

The construction placed on the credit provision by the majority clearly defeats its purpose, which was to prevent double taxation on foreign income. Under the majority’s construction, the foreign income is taxed twice. If appellees’ construction were placed on the provision, the purpose would be fulfilled, as would the provision regarding the limitation on the credit, since the proportion would prevent the English tax from “wiping out” the American tax.

I believe we should attempt to carry out the Congressional purpose, and not one of our own. Therefore, I think the affirm-ances and reversals stated in the former majority opinion should stand.  