Stanford v. Commissioner of Internal Revenue

297 F.2d 298 (1961)

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Stanford v. Commissioner of Internal Revenue

United States Court of Appeals for the Ninth Circuit
297 F.2d 298 (1961)

  • Written by Sharon Feldman, JD

Facts

Prior to 1937, Julian Stanford was an employee, an officer, a director, and a 5 percent owner of Leonhard Tietz A.G. (Tietz), a German retail business later renamed Kaufhof A.G. Julian’s employment contract with Tietz provided for an annual 30,000-mark pension. After the Nazis came to power, Julian was forced to resign from Tietz’s board and sell his stock. Julian and his wife (the Stanfords) (plaintiffs) sold their homes at a loss and fled to Holland. Julian was imprisoned during the Nazi occupation, and upon his release, the Stanfords went into hiding. After Holland was liberated, Julian had a Dutch law firm file claims against Kaufhof for damages. In 1947, the Stanfords emigrated to the United States. Thereafter, the British and American military governments in Germany promulgated laws providing for restitution of property confiscated by the Nazis. In 1949, Kaufhof advised Julian that it would resume paying the pension under his employment contract and adjust future payments for inflation. A German restitution court found that Julian was entitled to 48,550 marks arising out of his claims against Kaufhof for salary and pension. Kaufhof also paid Julian about one-third of the cost of the stock Julian had to give up. The Stanfords were paid portions of claims for losses sustained on their residences, taxes paid to leave Germany, and time spent in prison and living underground. In 1953, Germany passed a supplemental law providing for claims against the German government for loss of liberty, personal injuries, and property confiscated by the government. In 1955, Kaufhof agreed to increase Julian’s pension by 50 percent. Julian stated in an attachment to his 1955 tax return that he was receiving a pension from Kaufhof based upon his employment by Tietz. The commissioner of internal revenue (defendant) determined deficiencies in the Stanfords’ income tax. The Stanfords petitioned the United States Tax Court for review. The tax court ordered a deficiency, finding that the 45,000 marks Julian received from Kaufhof in 1955 represented pension payments for Julian’s services to Tietz. The Stanfords sought review, arguing that the payments were reparations for personal injuries and property losses sustained because of Nazi persecution and were excludable from taxable income.

Rule of Law

Issue

Holding and Reasoning (Jertberg, J.)

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