COMMISSIONER V. SUNNEN, 333 U. S. 591 (1948)

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U.S. Supreme Court

Commissioner v. Sunnen, 333 U.S. 591 (1948)

Commissioner of Internal Revenue v. Sunnen

No. 227

Argued December 17, 1947

Decided April 5, 1948

333 U.S. 591


1. A taxpayer owned 89% of the stock of a manufacturing corporation and his wife owned 10%. The corporation was managed by five directors, including the taxpayer and his wife, elected annually by the stockholders. A vote of three directors was required to take binding action. In exchange for a specified royalty, the taxpayer gave the corporation nonexclusive licenses to manufacture and sell devices covered by certain patents which he owned. The licenses were cancellable by either party upon giving appropriate notice, specified no minimum royalties, and did not bind the corporation to manufacture and sell any particular number of the patented devices. The taxpayer assigned his interest in the royalty agreements to his wife, who reported the income therefrom as hers.

Held: the facts were sufficient to support a finding by the Tax Court that the taxpayer retained sufficient interest in the royalty contracts and sufficient control over the amount of income derived therefrom to justify taxing the income as his. Pp. 333 U. S. 607-610.

2. The general rule of res judicata applies to tax proceedings involving the same claim and the same tax year, while the doctrine of collateral estoppel, which is a narrower version of the res judicata rule, applies to tax proceedings involving similar or unlike claims and different tax years. P. 333 U. S. 598.

3. An earlier decision of the Board of Tax Appeals involving a similar royalty agreement and assignment but different license contracts and different tax years was not conclusive of the controversy under the doctrine of collateral estoppel. P. 333 U. S. 602.

Page 333 U. S. 592

4. An earlier decision of the Board of Tax Appeals involving the same facts, issues and parties but different tax years and made prior to the decisions of this Court in Helvering v. Clifford, 309 U. S. 331; Helvering v. Horst, 311 U. S. 112; Helvering v. Eubank, 311 U. S. 122; Harrison v. Schaffner, 312 U. S. 579; Commissioner v: Tower, 327 U. S. 280, and Lusthaus v. Commissioner, 327 U. S. 293, was not conclusive of the controversy under the doctrine of collateral estoppel. Pp. 333 U. S. 602-607.

5. The doctrine of collateral estoppel or estoppel by judgment is not meant to create vested rights in decisions that have become obsolete or erroneous with time, thereby causing inequities among taxpayers. P. 333 U. S. 599.

6. Where two cases involve income taxes in different tax years, collateral estoppel must be confined to situations where the matter raised in the second suit is identical in all respects with that decided in the first, and where the controlling facts and applicable legal rules remain unchanged. Pp. 333 U. S. 599-600.

7. The doctrine of collateral estoppel is inapplicable in litigation regarding income taxes for different years where decisions of this Court intervening between the earlier and later litigation have changed the applicable legal principles. P. 333 U. S. 600.

8. If the relevant facts in two cases involving income taxes for different years are separable, even though they be similar or identical, collateral estoppel does not govern the legal issues which recur in the second case. P. 333 U. S. 601.

9. The clarification and growth of the principles governing the effect of intra-family assignments and transfers on liability for income taxes through decisions of this Court since 1939 effected a sufficient change in the legal climate to render a 1935 decision of the Board of Tax Appeals inapplicable under the doctrine of collateral estoppel to cases arising subsequently and involving these principles. Pp. 333 U. S. 606-607.

161 F.2d 171 reversed.

The Tax Court held a husband taxable on the income from certain royalties assigned by him to his wife, but not taxable on the income from certain other royalties for a certain year. 6 T.C. 431. The Circuit Court of Appeals affirmed the part of the judgment favorable to

Page 333 U. S. 593

the taxpayer and reversed the part adverse to him. 161 F.2d 171. This Court granted certiorari. 332 U.S. 756. Reversed, p. 333 U. S. 610.

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