Appeals from the District Court of the United States for the Northern District of Illinois, Eastern Division; William H. Holly, Judge.
Before EVANS and SPARKS, Circuit Judges, and SULLIVAN, District Judge.
The issues in this case, while somewhat novel, are capable of simple statement. Mr. Singer, the taxpayer, a citizen of the United States, is (and has been for many years) consul in Chicago for the governments of Costa Rica and Nicaragua. In this capacity he rendered services in the years 1921, 1922, and 1923 for various subjects of those governments for which he received compensation. He included such fees or remuneration in his Federal income tax returns and was assessed thereon. He paid the tax. In 1925, the Government, on its own motion, reexamined the facts and concluded that the taxpayer was not subject to an income tax on the sums by him received as consul for said governments and ordered refunds, together with six per cent. interest from the dates of payment. The total sum thus refunded was $8,398.42. Subsequently, the Government reconsidered its second act and reached the conclusion that said consul fees were subject to income tax and, on February 15, 1927, demanded the payment of the moneys which had been returned to taxpayer on June 18, 1926. Following this demand and non-payment by the taxpayer, this action was begun, in November, 1927.
First, was the taxpayer subject to a Federal income tax upon the compensation by him received for services as consul in Chicago for these two foreign governments in the years 1921, 1922, and 1923?
Second, if the foregoing question be answered in the affirmative, was the Government entitled to interest from the date it paid the taxpayer the refunds or did interest run from the date of the demand by the Government?
The District Court, before whom the action was tried without a jury, answered the first question in the affirmative and, in answering the second, held that interest could be recovered from the date of the Government's demand, only.
That a resident citizen of the United States is subject to a tax on his earnings, including his fees as consul of foreign governments in the absence of treaty agreements, is, we think, not debatable. If support for this statement be necessary, it affirmatively appears in statute and department regulations. The income tax law clearly included him within its provisions. Section 213 of the Revenue Act of 1921 (42 Stat. 237). The Act of August 27, 1935 (26 U.S.C.A. § 116 (h), provided that wages and salaries of an employee of a foreign government, including consular and other officers, are exempt, if such employee is not a citizen of the United States, etc. Treasury Regulations 62, Article 86, under the Revenue Act of 1921, recognized as exempt the income of foreign officials including foreign consul. It specifically provided, however, that the compensation of citizens of the United States, who are officers or employees of a foreign government, is, however, not exempt from a tax.
The taxpayer here must therefore rely upon the treaties between the governments which he represents and the United States to find a bar to the levy of a tax on his income.
The pertinent provisions of the treaties are herewith set forth.
Article 10 of the treaty between the United States and Costa Rica, proclaimed in 1852 (10 Stat. 922), provides:
"It shall be free for each of the two high contracting parties to appoint consuls for the protection of trade, to reside in any of the territories of the other party; but before any consul shall act as such, he shall, in the usual form, be approved and admitted by the government to which he is sent; and either of the high contracting parties may except from the residence of consuls such particular places as they judge fit to be excepted. The Costa Rican diplomatic agents and consuls shall enjoy in the territories of the United States whatever privileges, exemptions, and immunities are or shall be granted to agents of the same rank belonging to the most favored nation; and in like manner the diplomatic agents and consuls of the United States in the Costa Rican territories, shall enjoy according to the strictest reciprocity whatever privileges, exemptions, and immunities are or may be granted in the Republic of Costa Rica to the diplomatic agents and consuls of the most favored nation."
Article 10 of the Treaty proclaimed in 1868 between the United States and Nicaragua (15 Stat. 555) provided in identical terms with those ...