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Ermenegildo Cesarini et al., Plaintiffs v. United States of America, Defendant

UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF OHIO, WESTERN DIVISION

296 F. Supp. 3 February 17, 1969

OPINION: This is an action by the plaintiffs as taxpayers for the recovery of income tax payments made in the calendar year 1964. Plaintiffs contendthat the amount of $836.51 was erroneously overpaid by them in 1964, and that they are entitled to a refund in that amount, together with the statutory interest. Plaintiffs are husband and wife. In 1957, the plaintiffs purchased a used piano at an auction sale for approximately $15.00, and the piano was used by their daughter for piano lessons. In 1964, while cleaning the piano, plaintiffs discovered the sum of $4,467.00 in old currency, and since have retained the piano instead of discarding it as previously planned. Being unable to ascertain who put the money there, plaintiffs exchanged the old currency for new at a bank, and reported the sum of $4,467.00 on their 1964 joint income tax return as ordinary income from other sources. On October 18, 1965, plaintiffs filed an amended return with the District Director of Internal Revenue in Cleveland, Ohio, this second return eliminating the sum of $4,467.00 from the gross income computation, and requesting a refund in the amount of $836.51, the amount allegedly overpaid as a result of the former inclusion of $4,467.00 in the original return for the calendar year of 1964. On January 18, 1966, the Commissioner of Internal Revenue rejected taxpayers' refund claim in its entirety, and plaintiffs filed the instant action in March of 1967. Plaintiffs make two alternative contentions in support of their claim that the sum of $836.51 should be refunded to them. First, that the $4,467.00 found in the piano is not includable in gross income under Section 61 of the Internal Revenue Code. Secondly, even if the retention of the cash constitutes a realization of ordinary income under Section 61, it was due and owing in the year the piano was purchased, 1957, and by 1964, the statute of limitations provided by 26 U.S.C. 6501 had elapsed. The Government, by its answer and its trial brief, asserts that the amount found in the piano is includable in gross income under Section 61(a) of Title 26, U.S.C., that the money is taxable in the year it was actually found, 1964. The starting point in determining whether an item is to be included in gross income is, of course, Section 61(a) of Title 26 U.S.C., and that section provides in part:

"Except as otherwise provided in this subtitle, gross income means all income from whatever source derived, including (but not limited to) the following items: . . ."

Section 1.61-1(a) of the Treasury Regulations, the corresponding section to Section 61(a) in the 1954 Code, reiterates this broad construction of gross income, providing in part:

"Gross income means all income from whatever source derived, unless excluded by law. Gross income includes income realized in any form, whether in money, property, or services. * * *"

In addition, the Government in the instant case cites and relies upon an I.R.S. Revenue Ruling which is undeniably on point:

"The finder of treasure trove is in receipt of taxable income, for Federal income tax purposes, to the extent of its value in United States currency, for the taxable year in which it is reduced to undisputed possession." Rev. Rul. 61, 1953-1, Cum. Bull. 17.

While it is generally true that revenue rulings may be disregarded by the courts if in conflict with the code and the regulations, or with other judicial decisions, plaintiffs in the instant case have been unable to point to any inconsistency between the gross income sections of the code, the interpretation of them by the regulations and the courts, and the revenue ruling which they herein attack as inapplicable. On the other hand, the United States has shown a consistency in letter and spirit between the ruling and the code, regulations, and court decisions. Although not cited by either party, and noticeably absent from the Government's brief, the following Treasury Regulation appears in the 1964 Regulations, the year of the return in dispute:

" 1.61-14 Miscellaneous items of gross income. "(a) In general. In addition to the items enumerated in section 61(a), there are many other kinds of gross income . . . . Treasure trove, to the extent of its value in United States currency, constitutes gross income for the taxable year in which it is reduced to undisputed possession."

Identical language appears in the 1968 Treasury Regulations, and is found in all previous years back to 1958. This language is the same in all material respects as that found in Rev. Rul. 61-53-1, Cum. Bull. 17, and is undoubtedly an attempt to codify that ruling into the Regulations which apply to the 1954 Code. This Court is of the opinion that Treas. Reg. 1.61-14(a) is dispositive of the major issue in this case if the $4,467.00 found in the piano was "reduced to undisputed possession" in the year petitioners reported it, for this Regulation was applicable to returns filed in the calendar year of 1964. This brings the Court to the second contention of the plaintiffs: that if any tax was due, it was in 1957 when the piano was purchased, and by 1964 the Government was blocked from collecting it by reason of the statute of limitations. Without reaching the question of whether the voluntary payment in 1964 constituted a waiver on the part of the taxpayers, this Court finds that the $4,467.00 sum was properly included in gross income for the calendar year of 1964. Problems of when title vests, or when possession is complete in the field of federal taxation, in the absence of definitive federal legislation on the subject, are ordinarily determined by reference to the law of the state in which the taxpayer resides. Under Ohio law, the plaintiffs must have actually found the money to have superior title over all but the true owner, and they did not discover the old currency until 1964. Unless there is present a specific state statute to the contrary, the majority of jurisdictions are in accord with the Ohio rule. Therefore, this Court finds that the $4,467.00 in old currency was not "reduced to undisputed possession" until its actual discovery in 1964, and thus the United States was not barred by the statute of limitations from collecting the $836.51 in tax during that year.

Since it appears to the Court that the income tax on these taxpayers' gross income for the calendar year of 1964 has been properly assessed and paid, this taxpayers' suit for a refund in the amount of $836.51 must be dismissed, and judgment entered for the United States. An order will be entered accordingly.