UNITED STATES
v.
ROGERS et al. (two cases).

*486 *487 *488 *489 *490 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 Angeles, 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.

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 opinion 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 own 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

*491 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

that the proportion must be made with the figures for 1928, which would be

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 affirmances and reversals stated in the former majority opinion should stand.