Howard v. Commissioner of Internal Revenue, 29 F.2d 895 (5th Cir. 1928)

W. J. Howard, of Houston, Tex., for petitioner.

Mabel Walker Willebrandt, Asst. Atty. Gen., C. M. Charest, Gen. Counsel, Bureau of Internal Revenue, and V. J. Heffernan, Sp. Atty., Bureau of Internal Revenue, both of Washington, D. C., Sewall Key, Sp. Asst. Atty. Gen., and Morton P. Fisher, Sp. Asst. Atty. Gen., and Shelby S. Faulkner, Sp. Atty., Bureau of Internal Revenue, of Washington, D. C., for respondent.

Before WALKER, BRYAN, and FOSTER, Circuit Judges.

WALKER, Circuit Judge.

The decision presented for review was to the effect that, in computing the petitioner's federal income tax for the year 1921, the amount of fees received by him for services as an attorney under contracts with the cities of Houston, Navasota, and Victoria, Tex., should be included in his gross income. Those fees were paid for services rendered by the petitioner to the municipalities mentioned, in four suits, one by the city of Houston to compel the separation of a railway grade crossing, and the others by public service corporations to enjoin the cities named from fixing rates to be charged by those corporations. It was not disputed that the cities named are within the terms of a Texas statute conferring on cities and towns power to regulate rates to be charged by public service corporations within such municipalities (2 Vernon's Annotated Statutes of Texas, art. 1119), or that governmental functions were exercised by the municipalities in compelling a separation of railway grade crossings and in regulating rates mentioned.

The petitioner's connection with the exercise by the municipalities of governmental functions was in no sense remote. His agency in each of the cases was one created and controlled by the municipality exclusively to enable the latter to perform a governmental function; that agency being the direct means used to enforce a governmental power. The conclusion that the amount of compensation paid to the petitioner for rendering such services is not subject to the federal income tax is in accordance with the decision now rendered in the case of Blair, Commissioner, v. Mathews, 29 F.(2d) 892, U. S. Circuit Court of Appeals, Fifth Circuit. Following that decision, the petition is granted, and the order under review is reversed.