Before DUFFY, Chief Judge, and MAJOR and SWAIM, Circuit Judges.
Plaintiff is an American Legion Post located in Indianapolis, Indiana, operating under a charter granted by the National Headquarters of the American Legion. It is a not-for-profit corporation organized under the laws of Indiana. Plaintiff commenced the instant action to recover a refund of wagering taxes in the amount of $12,499.37, paid in 1952, together with interest from the date of payment, pursuant to an assessment by the Commissioner of Internal Revenue under Sec. 3285(a) of the Internal Revenue Code of 1939 (Title 26 U.S.C.A. § 3285(a)).The District Court rendered judgment in favor of the defendant, from which plaintiff appeals.
The principal contentions here are that the court erred (1) in its denial of plaintiff's motion for summary judgment, (2) in the admission of evidence and (3) in certain of its findings of fact and conclusions of law.
On October 31, 1951, plaintiff purchased from Leo R. Alhand, as evidenced by bill of sale, a business known as "ABC" Lottery, and on November 30 of the same year, acquired in like manner from John Brookes the "Brookes" Baseball Pool. At the time these businesses were transferred to plaintiff, the parties entered into a written agreement which provided for the operation of the baseball pool and lottery by Brookes and Alhand at a stipulated weekly salary. The businesses were thus operated until October 1952, when they were discontinued by plaintiff at the request of the District Office of the American Legion. During the period of these operations plaintiff paid social security and withholding taxes upon the salaries received by Brookes and Alhand as well as other employees. During the period of the operation, the gross receipts from the lottery business amounted to some $50,000, and those from the baseball pool some $589,000, or a total of some $639,000. The Commissioner assessed a tax of $4,764.33 upon the gross receipts from the lottery and $54,692.74 upon the gross receipts from the baseball pool, or a total assessment of $59,457.07. Plaintiff was the recipient of all net proceeds derived from the two operations, which amounted to $3,099.94 on the lottery and $18,973.90 on the baseball pool. During the same period plaintiff's gross receipts from dues and other sources amounted to $11,878.48.
It is conceded that during the relevant period plaintiff was a corporation exempt from Federal income tax under the provisions of Sec. 101(8) of the Internal Revenue Code (Title 26 U.S.C.A.1952 ed., Sec. 101(8)).
Prior to the institution of the instant action, Leo R. Alhand died and probate proceedings were had on his estate in the Probate Court of Marion County, Indiana. In those proceedings the United States filed a written claim based upon the same assessment as that involved in the instant case. The Probate Court denied the claim and in doing so entered its findings of fact and conclusions of law. Among other things, the court found "That Edgewood American Legion Post No. 448, Inc., is not liable for the wagering excise tax under section 3285 of the Internal Revenue Code." It also entered the following conclusions of law:
"2. This claim requires the interpretation of Section 3285 and Section 3290 of the Internal Revenue Code.
"5. That Edgewood American Legion Post No. 448, Inc., is not a person liable for wagering excise tax within the pervue of Section 3285(b) (2) (B) of the Internal Revenue Code."
Plaintiff earnestly contends here, as it did in the District Court, that the decision of the Probate Court, together with its findings and conclusions of law, is a final and conclusive determination of the issue presently involved and that the government is precluded from maintaining the present action under the doctrine of res judicata or collateral estoppel. It was upon this basis that plaintiff sought a summary judgment in its favor. The District Court apparently agreed with the plaintiff in part, as is evidenced by its finding that the government because of the Probate Court proceedings is estopped from asserting that portion of its claim based upon the taxes assessed upon the proceeds from the lottery which Alhand operated for and on behalf of plaintiff.
Both sides cite a number of cases asserted to support their respective contentions upon this issue. It appears unnecessary to cite other than C.I.R. v. Sunnen, 333 U.S. 591, 68 S. Ct. 715, 92 L. Ed. 898, relied upon by both sides, wherein the court cites and discusses its previous opinions. Our study of Sunnen and other cases leads us to the conclusion that the doctrine under discussion is without application and that the government is not estopped in the instant litigation. The parties before the Probate Court were the government and the representative of the estate of Alhand. Neither the instant plaintiff nor Brookes was a party, and the instant plaintiff was not in privity with the estate of Alhand. More than that, there was no mutuality of estoppel. If the government is estopped from asserting its claim because of an adverse ruling by the Probate Court, then by the same token the instant plaintiff would be estopped from asserting a defense if the ruling of that court had been adverse to it, and this in a proceeding in which it was not a party. We doubt if such a contention could be seriously advanced.
We think it unnecessary to discuss in detail plaintiff's criticism directed at certain of the findings made by the District Court. Perhaps the most urgent criticism is directed at the finding that the transfer of the lottery and baseball pool businesses to plaintiff by Alhand and Brookes, respectively, was not bona fide and was made for the purpose of avoiding the wagering excise tax. Plaintiff contends that the transfers were in good faith and that as a result it became the sole owner and operator of these businesses. We assume for the purpose of decision that such was the case, which makes it unnecessary to resolve any doubt which exists as to the validity of the finding. Frankly, however, we do not discern the reason for plaintiff's insistence on this point unless it be that absent ownership and operation it would not be in a position to claim the exemption subsequently discussed.
As already noted, plaintiff was an organization exempt from the payment of income tax under Sec. 101(8), which, in our view, is of no aid to plaintiff in the instant matter. This is so because the assessment under consideration was made under Sec. 3285 of the Code, entitled "Wagering Taxes," and any exemption to ...